UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-K
(Mark One)
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172022
or
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | | | | | |
| ☐ | 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
Commission file number 001-11595
ASTEC INDUSTRIES, INC.Astec Industries, Inc.
(Exact name of registrant as specified in its charter)
Tennessee | 62-0873631 | | | | | | | | | | | | | |
(Tennessee | | 62-0873631 |
State or other jurisdiction of incorporation or organization)organization | | (I.R.S. Employer Identification No.) |
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1725 Shepherd Road Chattanooga, Tennessee | 37421 | |
| Chattanooga, TN | | 37421 |
| (Address of principal executive offices) | | (Zip Code) |
(423) 899-5898
Registrant's telephone number, including area code:
(423) 899-5898
code
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class)class | (Trading Symbol(s) | Name of each exchange on which registered)registered |
Common Stock $0.20 par value | NASDAQ NationalASTE | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:None
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
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.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the 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.
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Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company"company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filerý | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer ☐ (Do not check if a smaller reporting company) filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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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☐
| No ý
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Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2017,2022, the aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant was approximately $1,258,832,000$682.5 million based upon the closing sales price as reported on the NASDAQNasdaq National Market System.
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, 2018,24, 2023, there were 22,648,684 shares of Common Stock par value $0.20 – 23,072,241 shares
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents have beenregistrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2022 are incorporated by reference into the PartsPart III of this Annual Report on Form 10-K indicated:
Document | | Form 10-K |
Proxy Statement relating to Annual Meeting of Shareholders to be held on April 26, 2018 | | Part III |
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where indicated.
ASTEC INDUSTRIES, INC.
2017 FORMIndex to Annual Report on Form 10-K ANNUAL REPORT
TABLE OF CONTENTSFor the Year Ended December 31, 2022
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PART II | | |
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PART III | | |
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PART IV | | |
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FORWARD-LOOKING
GENERAL
Unless otherwise indicated by the context, all references in this Annual Report on Form 10-K to "we," "us," "our," or the "Company" refer to Astec Industries, Inc. and our subsidiaries. References to "Parent Company" in this Annual Report on Form 10-K refer to Astec Industries, Inc. only.
TRADEMARKS AND TRADE NAMES
Except when discussing competitors and their products herein, the trademarks and trade names used in this Annual Report on Form 10-K are the property of Astec Industries, Inc. or its subsidiaries, as the case may be.
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K, particularly "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements made pursuant towithin the safe harbor provisionsmeaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. 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 27Ahereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "forecast," "management is of the Securities Act of 1933 and Section 21Eopinion," use of the Securities Exchange Act of 1934, including, without limitation, statements regarding: future tense and similar words or phrases.
· | execution of the Company's growth and operation strategy; |
· | plans for technological innovation; |
· | compliance with covenants in our credit facility; |
· | liquidity and capital expenditures; |
· | sufficiency of working capital, cash flows and available capacity under the Company's creditfacilities; |
· | compliance with government regulations; |
· | compliance with manufacturing and delivery timetables; |
· | general economic trends and political uncertainty; |
· | government funding and growth of highway construction and commercial projects; |
· | integration of acquisitions; |
· | pricing, demand and availability of steel, oil and liquid asphalt; |
· | development of domestic oil and natural gas production; |
· | condition of the economy; |
· | strength of the dollar relative to foreign currencies; |
· | the success of new product lines; |
· | 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; |
· | the seasonality of our business; |
· | tax assets and reserves for uncertain tax positions; |
· | critical accounting policies and the impact of accounting changes;
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· | ability to satisfy contingencies; |
· | contributions to retirement plans and plan expenses; |
· | reserve levels for self-insured insurance plans and product warranties; |
· | construction of new manufacturing facilities; |
· | supply of raw materials; |
· | plans to reduce indebtedness at the Company's subsidiaries; and |
· | the Company's effective tax rate and other impacts of the Tax Cuts and Jobs Act of 2017. |
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 reportAnnual Report on Form 10-K, including those risks described in Part I, Item 1A. Risk Factors hereof, 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 statementscircumstances, except as required by forward-looking words such as "expect", "believe", "anticipate", "goal", "plan", "intend", "estimate", "may", "will", "should," "could"law.
PART I
ITEM 1. BUSINESS
Our Company
We design, engineer, manufacture 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
All dollar amounts included in this section are in thousands.
General
Astec Industries, Inc. (the "Company") is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and marketsmarket equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company'sOur products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Companysurface for both asphalt and concrete. We also manufacturesmanufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction, demolition, land clearing and demolitionrecycling industries and port and rail yard operators; gas and oil drilling rigs; water well and geothermal drilling rigs; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; wood pellet plants; commercial and industrial burners; and combustion control systems. The Company's subsidiaries hold 88 United States and 103 foreign patents and have an additional 65 United States and 76 foreign patent applications pending. The Company has been responsible for many technological and engineering innovations in the industries in which it operates. The Company's
Our products are marketed both domestically and internationally.internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; forestry and environmental recycling contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, the Company manufactureswe manufacture and sellssell replacement parts for equipment in each of itsour product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of the Company'sour business.
Corporate Strategic Objectives
Beginning in late 2019, we initiated a strategic transformation focused on implementing new business strategies and a new operating structure. This transformation was focused on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow.
Simplify
As part of our strategic transformation, we have focused on optimizing our organizational structure and operations to execute our profitable growth strategy by:
•Centralizing our organization into sites with common platforms and operating models that support organic sales growth to make it easier for our customers, partners, employees and shareholders to understand and interact with us.
•Focusing on productivity gains and cost reductions across our business through reducing complexity in our organization structure to drive greater efficiencies across our operations while maintaining strong customer relationships.
•Simplifying our product offerings through the development of a rationalized global product portfolio executed through manufacturing centers of excellence.
Since the inception of these initiatives, we have consolidated five sites, including our Tacoma site in the first quarter of 2022.
Additionally, we are in the process of a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency, transforming how we connect people, products and processes to operate as OneASTEC. We have materially completed the ERP global design in 2022, launched the human capital resources module throughout our domestic sites in January 2023 and expect to convert the operations of one manufacturing site along with Corporate in 2023 to set the foundation before accelerating the implementation at additional manufacturing sites.
Focus
We believe enhanced efficiencies across the Astec organization will result from utilizing our OneASTEC business model to concentrate resources on excellence initiatives, including:
•Driving commercial excellence and providing a holistic set of solutions to strengthen our relationships with customers and dealers while maintaining our market leadership positions.
•Streamlining operational excellence processes through the implementation of lean principles in our operations and incorporate production systems that embed continuous improvement into the culture of our manufacturing processes.
•Aligning key performance metrics and incentives to enhance accountability across the business and drive a performance-based culture.
•Targeting recently completed acquisitions to ensure comprehensive integration of operations and realization of anticipated synergies to support sales and profit growth.
The Company's 17customer relationship and human capital resources components of our ERP implementation discussed above are anticipated to support the excellence initiatives of our OneASTEC business model.
In addition, in the first quarter of 2022, a lean manufacturing subsidiaries are:
(i) | Astec, Inc. (including its Dillman division), which designs, engineers, manufactures and markets asphalt plants, wood pellet plants and related components of each; |
(ii) | Roadtec, Inc., which designs, engineers, manufactures and markets highway class asphalt pavers, material transfer vehicles, milling machines, soil stabilizing-reclaiming machinery and other equipment used in road building and resurfacing; |
(iii) | Carlson Paving Products, Inc., which designs, engineers, manufactures and markets asphalt paver screeds and commercial pavers; |
(iv) | Telsmith, Inc., which designs, engineers, manufactures and markets aggregate processing and mining equipment used in the aggregate, mineral mining, metallic mining and recycling industries; |
(v) | Kolberg-Pioneer, Inc., which designs, engineers, manufactures and markets aggregate processing equipment for the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets; |
(vi) | Johnson Crushers International, Inc., which designs, engineers, manufactures and markets portable and stationary aggregate and ore processing equipment for the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets; |
(vii) | Astec Mobile Screens, Inc., which designs, engineers, manufactures and markets mobile screening plants, portable and stationary structures and vibrating screens for the aggregate, recycle and material processing industries; |
(viii) | Breaker Technology Ltd/Inc., which designs, engineers, manufactures and markets rock breaking systems in addition to mobile processing equipment and utility vehicles for the mining and quarrying industries; |
(ix) | Osborn Engineered Products SA (Pty) Ltd, which designs, engineers, 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 and also markets equipment produced by other Astec companies; |
(x) | Astec do Brasil Fabricacao de Equipamentos Ltda., which manufactures and sells rock crushers, feeders, screens and asphalt plants and represents the brands of several other Astec companies in the South American construction and mining industries; |
(xi) | Telestack Limited, located in Northern Ireland, which designs, manufactures and installs a complete line of material handling systems to serve the port handling, bulk material handling and aggregate markets; |
(xii) | Heatec, Inc., which designs, engineers, manufactures and markets thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems; |
(xiii) | CEI Enterprises, Inc., which designs, engineers, manufactures and markets thermal fluid heaters, storage tanks, concrete plants and rubberized asphalt and polymer blending systems; |
(xiv) | GEFCO, Inc., which designs, engineers, manufactures and markets portable drilling rigs and related equipment for the water well, environmental, geothermal, geotechnical, groundwater monitoring, construction, mining and shallow oil and gas exploration and production industries. GEFCO also designs and manufactures trailer-mounted, high-pressure, high-volume double fluid pumpers for use in the oil and gas energy services industry; |
(xv) | Peterson Pacific Corp., which designs, engineers, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks; |
(xvi) | Power Flame Incorporated, acquired on August 1, 2016, which designs, engineers, manufactures and markets commercial and industrial burners and combustion control systems; and |
(xvii) | RexCon, Inc., formedinitiative at one of our largest sites was initiated and is expected to drive improvement in gross margin at that site. We substantially completed the design efforts for this project during 2022. We also began executing investments to acquire substantially all the assets and liabilities of RexCon LLC on October 1, 2017, which designs, engineers, manufactures and markets high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. |
The Company also has subsidiaries in Australia (Astec Australia Pty Ltd) and Germany (Astec Mobile Machinery GmbH), that market, service and install manufacturing equipment and provide partsintended to drive increased efficiencies in our production processes. We plan to continue these capital investments during 2023, which are anticipated to be completed by the regions in which they operate for manyend of the products produced by the Company's manufacturing subsidiaries.
The Company's strategy isyear. Gross margin improvements are expected to be realized with the industry's most cost-efficient producerproject completion in each of its product lines while continuingearly to develop innovative new productsmid-2024. This improvement is intended to serve as the optimal blueprint for our other manufacturing facilities.
Grow
We are focused on growing sales 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 infrastructureprofits organically as well as selectively pursuing strategic acquisitions and partnerships within the "Rock to Road" value chain, including by:
•Focusing on innovation with a new product development approach that increases our market competitiveness over time.
•Leveraging technology and digital connectivity to enhance the customer experience through controls and automation and other technologies.
•Identifying potential targets for strategic acquisitions and partnerships globally to establish a presence in attractive new markets, supplement our current product offerings or accelerate technologies or other areasenhancements that leverage our existing product portfolio.
•Strengthening our capabilities to deliver an enhanced aftermarket experience that best meets our customers' needs while creating scalable growth.
Since 2020, we have completed four acquisitions, strengthening our concrete production equipment and controls and automation offerings. A further discussion of these acquisitions is included in which it offers productsPart II, Item 8. Financial Statements and services, both in the United StatesSupplementary Data of this Annual Report on Form 10-K.
Business Segments
We operate manufacturing sites and abroad.
Segment Reporting
The Company's business units have their own management teamssites that operate as sales and offer different products and services. The Company's business units are aggregated into threeservice offices for our manufacturing locations. Our two reportable business segments, Infrastructure Solutions and Materials Solutions, comprise sites based upon the nature of the productproducts produced or services produced,provided, 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 Company's reportableCorporate and Other category consists primarily of the parent company, Astec Insurance Company ("Astec Insurance" or the "captive"), a captive insurance company, and the controls and automation business, segments are (i) Infrastructure Group, (ii) Aggregate and Mining Group and (iii) Energy Group. The remaining business unitswhich do not includedmeet the requirements for separate disclosure as an operating segment or inclusion in one of the reportableother reporting segments.
We evaluate performance and allocate resources to our operating segments provide supportbased on Segment Operating Adjusted EBITDA. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and corporate oversight for all the Company's business unitsamortization and include Astec Industries, Inc., the parent company, and Astec Insurance Company, a captive insurance company. We refer to these two companies as the "Corporate" category throughout this document. The Company records U.S. federal income tax expenses for all business segments on the parent company's books; therefore, these taxescertain other adjustments that are includednot considered in the Corporate category forevaluation of ongoing operating performance. The Company's presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and is not necessarily indicative of the results of operations that would have occurred had each reportable segment reporting.been an independent, stand-alone entity during the periods presented.
Financial information in connection with the Company's financial reporting for segments of a business and for geographic areas under FASB Accounting Standards Codification 280 is included in Note 17, Operations by IndustryInfrastructure Solutions Segment and Geographic Area, in "Notes to Consolidated Financial Statements" presented in Appendix A of this report.
Infrastructure GroupOverview
The Infrastructure
GroupSolutions segment
is made up of five business units. These business units include Astec, Inc. ("Astec"), Roadtec, Inc. ("Roadtec"), Carlson Paving Products, Inc. ("Carlson"), Astec Mobile Machinery GmbH ("AMM") and Astec Australia Pty Ltd ("Astec Australia"). Three of the business units (Astec, Roadtec and Carlson) design, engineer, manufacture and market a complete line of asphalt and wood pellet plants and their related components, asphalt pavers, screeds, milling machines, material transfer vehicles, stabilizers and related ancillary equipment. The other two business units (AMM and Astec Australia) primarily sell, service and install products produced by the manufacturing subsidiaries of the Company with a majority of their sales to customers in the infrastructure industry.
Products
Astec designs, engineers, manufactures and markets a complete line of asphalt and wood pelletplants, concrete plants and their related components and ancillary equipment as well as supplying asphalt road construction equipment, industrial thermal systems and other heavy equipment.
The Infrastructure Solutions segment was operated from the following sites in 2022:
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| Site | | Location | | Site | | Location |
| Australia | | Brisbane, Australia | | EUG-Airport Rd | | Oregon, United States |
| Blair | | Nebraska, United States | | India | | Ahmedabad, India |
| Burlington | | Wisconsin, United States | | LatAm | | Santiago, Chile |
| CHA-Jerome Ave | | Tennessee, United States | | Parsons | | Kansas, United States |
| CHA-Manufacturers Rd | | Tennessee, United States | | St-Bruno | | Quebec, Canada |
| CHA-Wilson Rd | | Tennessee, United States | | | | |
The sites based in North America within the Infrastructure Solutions segment are primarily manufacturing operations while those located outside of North America generally market, service and install equipment and provide parts in the regions in which they operate for many of the asphalt productionproducts produced by all of our manufacturing sites.
Based on an internal review of our operations, beginning January 1, 2022, the India site, which was previously incorporated into the Materials Solutions segment, is reported in the Infrastructure Solutions segment while the Thailand site, which was previously included in the Infrastructure Solutions segment, is reported in the Materials Solutions segment.
Products and paving and wood pellet industries. Certain component equipment supplied by Astec for asphalt and wood pellet plants is manufactured by other Company subsidiaries such as heating and storage equipment (manufacturedServices
The primary products produced by the Company's Energy Group) and material handling equipment (manufactured by the Company's Aggregate and Mining Group). Infrastructure Solutions segment include:
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| Asphalt plants and related components | | Heaters | | Concrete dust control systems |
| Asphalt pavers | | Vaporizers | | Concrete material handling systems |
| Screeds | | Heat recovery units | | Paste back-fill plants |
| Asphalt storage tanks | | Hot oil heaters | | Bagging plants |
| Fuel storage tanks | | Industrial and asphalt burners and systems | | Blower trucks and trailers |
| Material transfer vehicles | | Soil stabilizing/reclaiming machinery | | Wood chippers and grinders |
| Milling machines | | Soil remediation plants | | Control systems |
| Pump trailers | | Concrete batch plants | | Service, construction and retrofits |
| Liquid terminals | | Storage equipment and related parts | | Engineering and environmental permitting services |
| Polymer plants | | Concrete mixers | | |
A typical asphalt mixing plant consists of heating and storage equipment for liquid asphalt; 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. AstecWe introduced the concept of high plant portability for asphalt plants in 1979. ItsOur current generation of portable asphalt plants is marketed as the Six Pack and consists of six or more portable components designed to be easily relocatedtransported from one construction site to another, thereby reducing relocation expenses.expenses and interruption of operations. High plant portability representsis an industry innovation that we have developed and successfully marketedmarket.
The components in our 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. We also build batch type asphalt plants and have developed specialized asphalt recycling equipment for use with our hot-mix asphalt plants.
We engineer and develop new products and product enhancements dedicated to improving customers' productivity and profitability. Our products share environmentally conscious designs and are crafted from quality materials by Astec.an expert staff of dedicated professionals. Our new National Type Evaluation Program Certified Self-Erect Storage Silo offers overnight storage capabilities with options that allow for longer-term storage. The silo and drag share a common chassis and are erected together using hydraulic cylinders, alleviating the need for a crane to enable our customers to save set up time and costs. In addition, the freshly redesigned versatile Astec Batch Tower offers a broad range of mixing capacity with varying volumes of hot bin storage and builds upon our legacy of delivering sound performance paired with exceptional technology.
AstecWe developed the patented water injection warm mix asphalt system, which allows the asphalt mix to be prepared and placed at lower temperatures than conventional systems and operates with a substantial reduction in 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 significantly increase the cost per ton of mix. The Company's AstecOur 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 reduce the viscosity of the liquid asphalt mix coating on the rock, thereby allowing the mix to be handled and worked at lower temperatures.
AstecSustainability is a key focus in our development considerations, and we are continuously exploring methods and practices that will contribute to sustainable infrastructure and a healthy environment for generations to come. Our team is constantly working to find solutions to help our asphalt plant customers reduce the environmental impact of asphalt mixing operations in user-friendly and budget-conscious ways. These innovations can be seen across our asphalt production equipment product line. Among our many leading products that can enhance the sustainability of an asphalt mixing operation are the Double Barrel XHR, the warm mix system, low emissions burners in the Phoenix burner line, vent condensers for asphalt storage tanks and blue smoke systems. During 2022, we joined The Road Forward, an industry-wide initiative of the National Asphalt Pavement Association, to engage, educate and empower the U.S. asphalt community to produce and construct net zero carbon emission asphalt
pavements by 2050. We also joined the U.S. Department of Energy's Better Plants program that offers support to leading U.S. manufacturers in the form of technical advice, energy efficient training and data analyzation to help reduce energy consumption.
Asphalt continues to be one of the most recycled products in the United States and the use of reclaimed asphalt pavement ("RAP") continues to remain highly used in new pavement. We continue to develop methods that make it feasible to produce quality asphalt mixes with up to 70% RAP content. We are focused on producing equipment with the most advanced mix recycling technology in the industry. More tons of asphaltRAP are available for recycling than isare currently being utilized due to restrictions in the amount of recycleRAP allowed by various governmental agencies. Astec'sOur recycle technology, including the RAP Pre-Dryer System, is continuously being enhanced and is providing the science to alleviate the concerns driving such restrictions and therebyto improve recyclingRAP utilization percentages in the asphalt industry. Astec's latest system improvement in this area, the RAP Pre-Dryer System, is expected to be introduced to customers in 2018.
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 typeMany of our highly technical, sophisticated large asphalt plants, while ideally suited for the North American market, are not as well suited in many international markets. As such, we have designed single-load and single-chassis portable plants that are better suited for the international markets. The Vantage 140 (the "Vantage") portable asphalt plant, which is based upon our proven Double Barrel drum mixer, has developed specialized asphalt recycling equipment for use with its hot-mix asphalt plants.
Astec's wood pellet plants have been in commercial production since 2013capacity of 140 metric tons per hour and RAP mixing capabilities of 50%. Astec's modular design for its wood pellet plants includes replicated parallel production lines (for instance, a 60 ton-per-hour ("TPH")The Vantage also provides full-size plant consists of three 20 TPH lines) resulting in very few points in the process where any individual equipment failure can shut the entire plant down. In most other pellet plant designs, one small equipment failure, such as a dryer outage, would resultfeatures in a totalcompact highly-portable configuration. Additionally, the Ventura 140SL portable asphalt plant shutdown. Ifis also focused on satisfying needs of the international market and allows for a dryer outage were to occur in a 60 TPH Astecsmaller, more mobile plant the plant could continue to operate at 40 TPH. In fact, there are very few reasons why the plant would ever be completely shut down. Even major maintenance cycles may be performed line-by-line while the plant continues to operate on the other lines.design with single-load capability.
Roadtec manufactures asphalt pavers, material transfer vehicles, milling machines, soil stabilizing-reclaiming machinery and other equipment used in road building and resurfacing. RoadtecOur pavers have been designed to minimize maintenance costs while exceeding road surface smoothness requirements. TheGenerally, our equipment offered by Roadtec can be used in tandem with each other or separately with equipment already owned by the customer. Our RP-Series paver line has been updated with operator controls that provide improved functionality and a compact, modern feel. All highway class asphalt pavers are now outfitted with an innovative digital control system and easy-to-understand touch screen interface. These product updates deliver a balance of intuitive technology and simplified operation, providing the durability and serviceability our customers expect.
Roadtec's Shuttle Buggy is aOur mobile, self-propelled material transfer vehicle which("Shuttle Buggy") 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 and reducing the number of haul trucks required. 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. Thehauling, but the Shuttle Buggyremixes the material to a uniform temperature and gradation, thus eliminating these problems. Roadtec introduced its newest version of its highly successfulThe Shuttle Buggy to the market at ConExpo 2017, which includes the new Guardian System that is designed to anticipate equipment maintenance needs resulting in more uptime reliability while also providing production and performance data as well as real timereal-time location information to the owner. Roadtec'sThe SB3000 model incorporates features and technology to improve the user experience in terms of improved visibility, ground level operation, as well as improved material handling and vehicle transportability. Our Spray Paver model, which is recommended for use with the Shuttle Buggy, is also designed to carry and spray tack coat directly in front of the hot mix asphalt in a single process, thus eliminating the need for a separate tack truck.
Roadtec manufactures millingMilling machines designed to remove old asphalt from the road surface before new asphalt mix is applied. Roadtec'sOur product line of milling machines, which are designed 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 itsthe half-lane and larger highway class milling machines, Roadtecwe also manufacturesmanufacture a smaller, utility class machine for two-to-four foot cutting widths and a utility class cold planer model mounted on steel wheels.
Roadtec currently produces soilSoil stabilizers are produced in multiple configurations of 275HP, 440HP, 625HP and 755HP. These machines double as asphalt reclaiming machines for road rehabilitations, in addition to their primary purpose of stabilizing soil sub-grades with additives to provide an improved base on which to pave.
Carlson manufactures itsOur patented screeds whichuse a hydraulic powered generator to electrify elements that heat a screed plate so asphalt will not stick to it while paving, attach to asphalt paving machines and place asphalt on the roadbed at a desired thickness and width while smoothing and compacting the surface. CarlsonOur screeds can be configured to fit many types of asphalt paving machines, including machines manufactured by bothour competitors.
Concrete is one of the Companyworld's most used and its competitors.durable construction materials. We manufacture industry leading portable and stationary concrete production equipment including transit and central mix concrete plants. Our portable concrete plants are known for quick set-up and tear down as well as exceptionable reliability and longevity over numerous relocations. Our stationary concrete production plants are known for custom-engineered design flexibility suitable for various concrete production sites. Our concrete mixer designs include tilt mixers and horizontal reversing mixers. Both mixer types are available as stationary designs with optional mobile and self-erect features. The Carlson screed usestilt mixer is our most popular mixer type for concrete paving and ready mix production while the horizontal reversing mixers are a hydraulic powered generatorlow dust, low noise option primarily marketed to electrify elementsready mix producers.
We produce a comprehensive portfolio of customized burners for industrial applications such as boilers, chemical plants, oil and gas refineries, offshore platforms, power generation plants, thermal fluid heaters and asphalt aggregate drying. We have recently invested in our burner technology specifically to develop burners that heat a screed plate so asphalt will not stickenable our customers to it while paving. A generator is also availableachieve their carbon footprint reduction goals, lower energy consumption and reduce or eliminate dependence on fossil fuels. Our burners can use alternative
fuels such as renewable natural gas, hydrogen blended natural gas and biomass to power tools or lights for night paving. Carlson offers options to its screeds which allow extended paving widths and the addition of a curb on the road edge. Carlson also offers commercial class eight-foot pavers designed for parking lots, residential driveways and secondary road applications.
Astec Mobile Machinery functions primarily as a distributor of Roadtec products in the European market. Additionally, it designed and manufactures a small road widener attachmentliquid fuels. We are preparing to meet the
unique needsdemand for alternative fuels as the infrastructure and resources become available. Our versatile Versa Jet burner platform is developed for retrofit applications and has the capacity to fire at a range of rates. The adaptable design is compatible with virtually all drum designs and can be installed with minimal modifications needed to asphalt mixing plants produced by us as well as our competitors.
We also produce industry leading combustion products for a variety of industrial applications as new applications have grown rapidly. At the European market.present time, our products, most of which are customized for a particular application, are used in a score of different industries and purposes including chemical plants, at oil-and-gas refineries, on off-shore platforms, on barges, at power generation plants, wood product manufacturers, food processors, textile factories, pharmaceutical producers and roofing manufacturers.
Astec Australia markets relocatableMarketing
We market our products domestically and portable asphaltinternationally through direct and dealer support sales staff, domestic and international independent distributors and our international distribution sites in both of our reportable segments.
Asphalt and concrete plants and components produced by Astec, Heatec and CEI, asphalt paving equipment and components produced by Roadtec and Carlson, and aggregate equipment produced by the Company's Aggregate & Mining Group. A majority of its sales are to customers in the infrastructure industry. In addition to selling equipment, Astec Australia provides complete support for its customers' equipment with service, training and spare parts. Astec Australia also provides turnkey installation solutions for large asphalt plants, aggregate and mining plants and bitumen tank farms.
Marketing
The Company markets its hot-mix asphalt products domestically under the Astec and Astec Dillman trademarks and internationally under the Astec trademarks. Asphalt plants andtheir related equipment are sold directly to asphalt or concrete producers, respectively, or domestic and foreign government agencies through Astec's domesticagencies. Asphalt paving and international sales departments and through a Company-owned dealership (Astec Australia), although independent agentsroad building equipment are also used to market asphalt plants and their components in certain international markets. The Company markets wood pellet plants to individual independent producers who supply wood pellets to the utility and home-use industries.
The Company markets its asphalt paving equipment both domestically and internationallysold to highway and heavy equipment contractors, utility contractors and domestic and foreign governmental agencies. Wood chippers, horizontal grinders and domestic governmental agencies both directlyblower trucks are primarily sold to forestry and through dealers (including Astec Australia in the Australian and New Zealand markets and AMM in the European market). Mobile construction equipment and factory authorized machine rebuild services are marketed both directly and through dealers.environmental recycling contractors.
This segment's products are marketed by 78 direct sales staff, 47 domestic independent distributors and 113 international independent distributors, including Astec's subsidiaries in Australia and Germany.Competition
Raw Materials
Raw materials used in the manufacture of products in the Infrastructure Group include carbon steel, pipe 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 steel is occasionally inventoried after purchase. Other components used in the manufacturing processes include engines, gearboxes, power transmissions and electronic systems.
Competition
This industry segment faces strong competition in price, service and product performance and competes with both large publicly-heldpublicly-traded companies and various smaller manufacturers. Domestic hot-mix asphalt plantThe Infrastructure Solutions segment competitors include Gencor Industries, Inc., ADM and Almix. In the international market, the hot-mix asphalt plant competitors include Ammann, Fayat/Marini, Benninghoven/Deere and local manufacturers. Paving equipment and screed competitors include Weiler, Caterpillar Paving Products, Volvo Construction Equipment, Vogele America, Dynapac, Bomag Fayat Group and Lee Boy. The segment's milling machine equipment competitors include Wirtgen, CMI, Caterpillar, Bomag, Dynapac and Volvo. The Company believes that it is the only company offering a single source for a complete pellet plant, as known competitors only sell individual plant components thereby requiring the customer to purchase the remaining plant components from other sources.include:
Employees | | | | | | | | |
| Product Categories | | Primary Competitors |
| Asphalt plants and related components | | Asphalt Drum Mixers Inc, Asphalt Equipment Company Inc. dba ALmix, Ammann Group, Wirtgen Group (a John Deere Company), Marini (part of Fayat Group), Gencor Industries, Inc. and local manufacturers |
| Concrete equipment | | ERIE Strayer Company, Stephens Manufacturing and Vince Hagan Co. |
| Paving and related equipment | | Bomag (part of Fayat Group), Caterpillar Paving Products (part of Caterpillar, Inc.), Dynapac (part of Fayat Group), LeeBoy, Wirtgen Group (a John Deere Company), Volvo Construction Equipment (part of Volvo Group) and Weiler Inc. |
| Milling equipment | | Bomag (part of Fayat Group), Caterpillar Paving Products (part of Caterpillar, Inc.), CMI Roadbuilding, Dynapac (part of Fayat Group), Volvo Construction Equipment (part of Volvo Group AB) and Wirtgen Group (a John Deere Company) |
| Forestry and recycling equipment | | Bandit Industries, Inc., Doppstadt, Morbark, Rotochopper Inc. and Vermeer Corporation |
At December 31, 2017, the Infrastructure Group segment employed 1,712 individuals, of which 1,236 were engaged in manufacturing, 187 in engineering and 289 in selling, general and administrative functions. None of the employees of the Infrastructure Group are covered by collective bargaining agreements.Backlog
Backlog
The backlog for the Infrastructure GroupSolutions segment at December 31, 20172022 and 20162021 was approximately $239,495$567.1 million and $232,224,$449.3 million, respectively. Approximately $60,000 of the 2017 and 2016 backlogs relate to the Company's first three-line pellet plant order from a single customer. Substantially all of this order was manufactured and delivered to the customer prior to December 31, 2015, with continuing enhancements being developed and installed during 2016 and 2017. As the Company is financing this sale, revenue recognition on the plant sale will not occur until customer payments are received, which is expected to begin in late 2018. Management expects all the current backlog to be filled in 2018.
Aggregate and Mining GroupMaterials Solutions Segment
Overview
The Company's AggregateMaterials Solutions segment designs and Mining Group is comprised of eight business units which are focused on designing and manufacturingmanufactures heavy processing equipment, as well asin addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. 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"), Osborn Engineered
The Materials Solutions segment was operated from the following sites in 2022:
| | | | | | | | | | | | | | | | | | | | |
| Site | | Location | | Site | | Location |
| AME | | Johannesburg, South Africa | | Sterling | | Illinois, United States |
| Belo Horizonte | | Belo Horizonte, Brazil | | Thailand | | Bangkok, Thailand |
| EUG-Franklin Blvd | | Oregon, United States | | Thornbury | | Ontario, Canada |
| Johannesburg | | Johannesburg, South Africa | | Yankton | | South Dakota, United States |
| Omagh | | Omagh, United Kingdom | | | | |
The sites within the Materials Solutions segment primarily focus on manufacturing operations with the AME site functioning to market, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of our manufacturing sites. In addition to manufacturing core Materials Solutions products and asphalt plants, Belo Horizonte markets all our products to the Brazilian market. We plan to continue to expand manufacturing at Belo Horizonte to include other product lines. At December 31, 2022, we had an ownership interest of approximately 93% in Belo Horizonte. During the first quarter of 2022, we executed an agreement with the noncontrolling interest holder to acquire their outstanding interest in full. Completion of the transaction is subject to obtaining certain judicial approval in Brazil.
Based on an internal review of our operations, beginning January 1, 2022, the Thailand site, which was previously included in the Infrastructure Solutions segment, is reported in the Materials Solutions segment while the India site, which was previously incorporated into the Materials Solutions segment, is reported in the Infrastructure Solutions segment.
Products SA (Pty) Ltd ("Osborn"), Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil") and Telestack Limited ("Telestack").Services
ProductsThe primary products produced and services provided by the Materials Solutions segment include:
Telsmith designs, engineers, manufactures | | | | | | | | | | | | | | |
| Crushing equipment | | Mobile plants | | Bulk material handling solutions |
| Vibrating equipment | | Screening equipment | | Electrical control centers |
| Modular plants and systems | | Conveying equipment | | Plant automation products |
| Portable plants | | Mineral processing equipment | | Consulting and engineering services |
We manufacture comprehensive lines of crushing, screening, washing and supportsclassifying, material and bulk handling and rock breaking equipment servicingin a variety of configurations including stationary, portable (wheeled) and mobile (track). In conjunction with the construction, aggregate, metallic mining and recycling markets. Telsmith's coreMaterials Solutions products, are crushers, vibrating equipment, modular relocatable stationary plants, mobile portable plants and larger track-mounted systems. Telsmith also provideswe offer consulting and engineering services to provide complete "turnkey" processing systems. These systems, which often include electrical control centers and planplant automation products engineered and produced by Telsmith.that we produce.
Telsmith maintains an ISO 9001:2015 certification, an internationally recognized standard of quality assurance. In addition, Telsmith has achieved CE designation (a standard for quality assurance and safety) on its crushing and vibration equipment products marketed into European Union countries.
Telsmith is a world leader in the development of hydraulic relief jaw crushers having patented its first model in 2002. Hydraulic relief jaw crushers are a significant improvement in safety, adjustment and clearing of material in jaw crushers. Today's Hydra-Jaw® line includes four models: H2238, H2550, H3244 and H3450.
During 2017, Telsmith launched the design of the T500 Cone Crusher expanding the T-Series which also includes the T300, T400, and T900. Telsmith's design engineers incorporated the unique patented technologies of hybrid thrust bearing, hydraulic anti-spin, thread scraper and the concave retaining system in these products. Designed for durability, the T-series cone crusher also has many service friendly features like top service and easy eccentric removal. The units TRAC10 PLC monitoring system is designed for improved productivity and troubleshooting capabilities.
Telsmith's Vibro-King TL vibrating screen line features sizes from 4x10 single deck to 8x24 quadruple deck screens. The "TL" screen vibrator, with its many service minded features, was introduced to the marketplace in 2006 and has been well received by customers. The "Neverwear" sealing system is guaranteed to keep lubricants in and to never wear out. The "TL" includes wide 233 series bearings for added capacity, simple counterweight adjustments, and Telsmith's unique J-beam tray design.
KPI, JCI and AMS design, engineer, manufacture and support a complete line of stationary and portable aggregate processing equipment for the aggregate metallic and nonmetallic, bulk handling, sand and gravel, mining, quarrying, concrete and asphalt recycling and industrial markets. This equipment is marketed through an extensive network of KPI/JCI/AMS dealers.
KPI/JCI/AMS products include aOur complete line of primary, secondary, tertiary and quaternary crushers includingincludes jaw crushers, horizontal shaft impactor,impactors, vertical shaft impactorimpactors, cone crushers and roll rockheavy-duty, mining-application crushers. These machines are used to crush large, over-sized material in mining, quarrying, sand and gravel and asphalt/concrete recycling applications. Once the material is crushed to size, it is utilized in a variety of products from road base to golf course sand. We offer cone crushers with both roller-bearing and bushing style cones to fit any customer’s needs. Our industry-leading hydraulic-relief jaw crushers offer enhanced safety and easy maintenance. Our crushers are available as well as industry relatedindividual components, portable wheeled plants and mobile track plants.
We offer a wide variety of vibrating screens including incline, horizontal, high frequency, multi-frequency, combo and dewatering screens. Our high frequency screens utilize a high-speed vibration directly induced into the screen media to improve screening efficiency and production rates. The screens' unique rotary tensioning system allows for quick media changes. Our screens are available in multiple sizes with up to four decks and in a variety of configurations including stationary, portable and mobile. Our new High Frequency Portable Screening Plant is equipped with an 8-foot-wide high frequency screen, the first of its kind in the industry. This patent-pending screen design features externally-mounted vibrators at the ends of the tappets for a more aggressive screening action, which also allows for easier maintenance and adjustments. The screen is equipped with a hydraulic operating angle adjustment, a fines collection hopper, top- and bottom-deck discharge chutes and an aggregate spreader.
Our washing and conveyingclassifying equipment mobile screeningis well-suited for a wide range of applications and production goals. Our expertly engineered components and plants help producers meet the most stringent material specifications and get the most out of their material, while significantly decreasing water usage. With complete lines of washing, classifying, fines recovery and water clarification plants and systems, we offer solutions for any operation in portable and stationary screen structures and vibrating and high frequency screens. These 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. This equipment can be purchased as individual components, as portable plants for flexibility or as completely engineered systems for both portable, stationary and RAP applications. They also offer the highly-portable Fast Pack System, featuring quick setup and teardown, thereby maximizing production time and minimizing downtime. KPI/JCI/AMS also offers portable fully self-contained and self-propelled Fast Trax track-mounted jaw, cone, VSI and horizontal shaft crushers, which are ideal for either recycle or hard rock applications, allowing the producer to move the equipment to the material. The KPI/JCI/AMS expanded GT line of track-mounted crushing and screening plants focuses more specifically on the need for rental and global markets.configurations.
KPI/JCI/AMS portable plants combine various combinations of crushing, screening and conveying equipment mounted on tow away chassis and track chassis configurations. Due to high transportation costs of construction materials, many producers use portable equipment to process materials they need in close proximity to their job sites. Portable plants allow aggregate producers the ability to quickly and efficiently move equipment from one location to another as their jobs necessitate. The portable track plants are fully self-contained and allow operators to be producing materials within minutes of unloading equipment off of their transport trucks. The introduction of track-mounted crushing and screening plants has enabled contractors to perform jobs that in the past were not economically feasible and also allows our dealers to compete in the large track-mounted rental market.
KPI/JCI/AMS sand classifying and washing equipment is designed to clean, separate and re-blend material from sand deposits to meet the size specifications for critical applications. Products offered include fine and coarse material washers, log washers, blade mills, sand classifying tanks, cyclones, dewatering screens, density classifiers, sieve blend screens and attrition cells. Additional portable and stationary plants are also offered to handle the growing needs in construction sands, specialty sands and fines recovery. 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. Screening plants also serve the recycle, crushed stone, industrial and general construction industries.
KPI/JCI/AMS conveyingConveying equipment is designed to move or store aggregate and other bulk materials in radial cone-shaped or windrow stockpiles. TheOur SuperStacker telescoping conveyor and Wizard Touch automated controls are designed to add efficiency and accuracy to whatever the stockpile specifications require. Additionally, high capacityhigh-capacity rail and barge loading/unloading material handling systems are an important part of the KPI/JCI/AMSour product lines.
BTl designs, engineers, manufacturesWe design and marketsmanufacture a completebroad range of material and bulk handling products for all production goals. Our material handling products cover many applications and are designed for efficiency and high-capacity material transferring, moving and mixing. Our innovative line of industry leading rockbreaker systems for the mining, quarrymaterial handling solutions includes radial and recycling markets,telescoping conveyors, truck unloaders, hopper feeders, mobile conveyors, pugmills, ship loaders and provides large-scaleunloaders, bulk receptions feeders and stationary rockbreakers for open pit mining, as well as mid-sized stationary rock breakers for underground applications. In addition, BTI offers a full line of smaller rock breaker systems for mobile track and portable primary crushing plants. BTl also designs, engineers, manufactures and markets a complete line of four wheel drive articulated production and utility vehicles, scalers and rock breakers for underground mining.
In addition to supplying equipment for the mining and quarry industries, BTl also designs, manufactures and markets a complete line of hydraulic breakers, compactors and demolition attachments for the North American construction and demolition markets.
BTl currently maintains ISO 9001:2008 (quality assurance) and ISO 14001:2004 (environmental assurance) certifications, internationally recognized standards of quality and environmental assurance and expects to transition to ISO 9001:2015 and ISO 14001:2015 certifications during 2018. In addition, BTI has achieved certification for OHSAS 18001 Occupational Health & Safety standards. BTl offers an extensive aftermarket sales and service program through a highly qualified and trained dealer network.
During 2017, BTI completed the prototype testing of collision avoidance as the first step in boom automation.
Osborn, which is located in South Africa, maintains an ISO 9001:2008 (quality assurance) certification for quality assurance and designs, engineers, manufactures and markets a range of minerals processing equipment. This equipment is used in the aggregate, mining, metallurgical and recycling industries. Osborn has been a licensee of Telsmith's technology for over 60 years and recently became a licensee of KPI's vertical and horizontal shaft impact crushers. Osborn also offers the following equipment: mineral sizers; single and double-toggle jaw crushers; cone crushers; rotary breakers; roll crushers; rolling ring crushers; mills; out-of-balance or exciter-driven screens and feeders; modular "containerized" crusher and screening systems; and a full range of idlers. Osborn also markets equipment produced by other Astec companies in the sub-Saharan African market.
Osborn has recently added a number of new products to its product offerings, including a 300 HP gyratory crusher for secondary applications, horizontal shaft impactors, an extension to the range of out-of-balance exciter gearboxes and a low profile apron feeder, in addition to numerous modernization and updates to its existing product lines.
Assembly operations began in Astec Brazil's newly constructed 132,400 square foot facility in the fourth quarter of 2014, and complete production operations began in the first quarter of 2015. Manufacturing operations, sales, distribution and product support are all located within the new facility, which currently has 38 employees. The Company is expected to utilize 120 employees at the facility when it reaches full capacity. Products manufactured by Astec Brazil include crushing equipment, vibrating equipment, stationary plants, mobile portable systems and asphalt plants. Astec Brazil represents the brands of KPI/JCI/AMS, BTI and Telsmith in the aggregate and mining markets and Astec, Inc. in the asphalt market. Astec Brazil also markets products in the Brazilian market that are produced by the other Astec Aggregate and Mining companies and Astec asphalt plants.
Astec Brazil shipped its first asphalt plant in early 2016; however, sales in the South American market have continued to be hampered by the economic downturn in South America and more specifically in Brazil. The Company plans to position itself to significantly increase the production and sales volumes by Astec Brazil and also plans to manufacture other product lines at the facility once the business environment improves in the region. The Company currently has a 92% ownership interest in Astec Brazil.
Telestack designs, engineers, manufactures and marketsconveying systems. Our mobile bulk material handling solutions that are designed to handle all free-flowing bulk materials, including but not limited to ores, coal, aggregates, fertilizers, grains, woodchips and pellets. Telestack's
We have created our rock breaking equipment line for aggregate, mining, construction and demolition applications. Our comprehensive suiterange of product offeringsrock breaker boom systems are designed to break oversized material at large gyratories, grizzlies and primary/secondary crushing application sites. These systems include boom-mounted configurations, automatic greasing packages, motor starter panels, joystick controls and easy plant integration. Our newest mobile rock breaker, the BreakerBOSS
5D, is sold on a global basisused for breaking oversized material in underground mines, typically broken at draw points and operates within a significant numbergrizzly stations where rock must keep flowing.
Many of working environments such as mines, quarries, ports, rail yards, power stationsour facilities maintain internationally recognized industry standard quality, environmental and steel mills.
Telestack maintains ISO 9001:2015 (quality assurance), ISO 14001:2015 (environmental assurance) and ISO 18001:2007 (healthhealth and safety assurance)assurance accreditations. Telestack is also an approved supplier of equipment that conforms to Western Australian Mining Standards (AS 4324:1).
Marketing
Aggregate processing and mining equipment is marketed by approximately 107 direct sales employees, 138 domestic independent distributors and 178 international independent distributors. The principal purchasers of aggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, demolition, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal authorities, power stations and both domestic and foreign governmental agencies.
Materials Solutions equipment and aftermarket sales and service programs are primarily marketed through an extensive network of dealers via dealer support sales employees and domestic governmental agencies.and international independent distributors.
Competition
The Materials Solutions segment faces strong competition in price, service and product performance. Materials Solutions equipment primary competitors include the following as well as smaller manufacturers, both domestic and international:
| | | | | | | | | | | | | | |
| CDE Group | | McCloskey International (part of Metso Outotec Corporation) | | Terex Corporation |
| Deister Machine Company, Inc | | McLanahan Corporation | | Thor Manufacturing Ltd. |
| Epiroc | | Metso Outotec Corporation | | Weir Group |
| EDGE Innovate | | Sandvik Group | | Wirtgen Group (a John Deere Company) |
| Masaba, Inc. | | Superior Industries, Inc. | | |
Backlog
At December 31, 2022 and 2021, the backlog for the Materials Solutions segment was approximately $341.2 million and $313.3 million, respectively.
Corporate and Other
The Corporate and Other category consists primarily of the parent company, the Company's captive insurance company, Astec Insurance, and the controls and automation business, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments. The parent company and the captive insurance company provide support and corporate oversight for other sites. The controls and automation business manufactures hardware and software products that are marketed independently as well as included in certain products produced by our other segments.
Common to Both Reporting Segments
The following information applies to both the Infrastructure Solutions and the Materials Solutions reporting segments.
Manufacturing
We manufacture many of the component parts and related equipment for our products, while several large components of our products are purchased "ready-for-use", such purchased items include engines, axles, tires and hydraulics. In many cases, we design, engineer and manufacture custom component parts and equipment to meet the particular needs of individual customers. Our manufacturing operations consist primarily of fabricating steel components and the assembly and testing of our products to ensure that we achieve quality standards.
Raw Materials
We purchase raw materials and some manufactured components and replacement parts for our products from leading suppliers both domestically and internationally. Raw materials used in the manufacture of our products in the Aggregate and Mining Group include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors.distributors and other sources. The majority of steel is scheduled on a just in time arrangement from suppliers to better manage inventory requirements at our manufacturing facilities. Based on market dynamics, we strategically and selectively order and inventory certain items beyond a just in time basis. Raw materials for manufacturing are normally readily available; however, certain highly customized components may require longer than normal lead times. BTI purchases hydraulic breakers under a purchasing arrangement with a South Korean supplier. The Company believes the South Korean supplier has 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 and Mining equipment competitors include Metso Minerals, Sandvik Mining and Construction, Terex MP and Powerscreen, Atlas Copco Mining, Thor, Masaba, Edge Innovate, McCloskey, Superior Industries, Wirtgen (Klemmann), Deister, McLanahan, CDE Global, Weir Minerals (Trio) and other smaller manufacturers, both domestic and international.
Employees
At December 31, 2017, the Aggregate and Mining Group segment employed 1,644 individuals, of which 1,186 were engaged in manufacturing, 156 in engineering and engineering support functions and 302 in selling, general and administrative functions.
Telsmith has a labor agreement covering approximately 150 manufacturing employees which has been indefinitely extended past its September 17, 2017 expiration date while negotiations continue. Approximately 124 of Osborn's manufacturing employees fall within the scope of a collective labor union agreement that expires on June 30, 2020. None of the other employees of the Aggregate and Mining Group are covered by collective bargaining agreements.
Backlog
At December 31, 2017 and 2016, the backlog for the Aggregate and Mining Group was approximately $116,987 and $88,951, respectively. Approximately $16,533 of the increase in backlogs between years relates to orders from domestic U.S. customers. Management expects the current backlog to be filled in 2018.
Energy Group
The Company's Energy Group is currently comprised of six business units focused on supplying heavy equipment such as heaters, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, storage equipment and related parts to the oil and gas, construction, and water well industries, as well as commercial and industrial burners used primarily in commercial, industrial and process heating applications. The business units currently included in the Energy Group are Heatec, Inc. ("Heatec"), CEI Enterprises, Inc. ("CEI"), GEFCO, Inc. ("GEFCO"), Peterson Pacific Corp. ("Peterson"), Power Flame Incorporated ("Power Flame") and RexCon, Inc. ("RexCon"). Power Flame, located in Parsons, Kansas, was acquired in August 2016. RexCon, located in Burlington, WI, was formed to acquire substantially all of the assets and liabilities of RexCon, LLC on October 1, 2017.
Products
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 designs and manufactures a complete line of asphalt heating and storage equipment to serve the hot-mix asphalt industry, including complete asphalt terminal facilities, polymer plants and emulsion facilities. In addition, Heatec builds a wide variety of heaterswe have been and continue to fit a broad range of applications, including heating equipmentexperience increased lead times for marine vessels, roofing material plants, refineries, oil sands, energy related processing, chemical processingcertain standard production materials and water heaters for many industrial applications. Heatec has the technical staff to custom design heating systemsparts and has systems operating as large as 75 million BTU's per hour.
CEI designs, engineers, manufactures and markets thermal fluid heaters, portable and stationary storage tanks, rubberized asphalt and polymer blending systems for the asphalt and other industries. CEI recently added continuous and batch type concrete production plants to its product line. The Company believes the CEI concrete plants are the most innovative plant in the concrete industry and are designed to produce consistent high quality, low cost concrete due to its advanced process control.
GEFCO designs and manufactures portable drilling rigs and related equipment for the water well, environmental, geothermal, geotechnical, groundwater monitoring, construction, mining and shallow oil and gas exploration and production industries. Portable drilling rigs are offered in a variety of designs with optional equipment, including truck, trailer or track mounted units, diesel engine on deck or power take-off powered units, hydraulic pump drives, transmission, hydraulic pumps and motors, hydraulic cylinders, gear boxes, plumbing and all related controls. GEFCO also designs and manufactures trailer-mounted, high-pressure, high-volume double fluid pumpers for use in the oil and gas energy services energy.
Peterson designs, engineers, manufactures and distributes large whole-tree pulpwood chippers, biomass chippers, horizontal grinders and blower trucks primarily for the construction, landscaping, recycling, and biomass energy markets.
Power Flame, a market leader in its segment, designs, engineers, manufactures and markets commercial and industrial burners and combustion control systems. Power Flame produces a broad range of natural gas, fuel oil, or combination-fueled models with outputs ranging from 400 thousand BTU's to 120 million BTU's per hour. Power Flame's burners are used primarily in commercial, industrial and process heating applications.
RexCon was formed to acquire substantially all of the assets and liabilities of RexCon LLC on October 1, 2017. RexCon is a leader in the design and production of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment for contractors and ready mix concrete producers.
Marketing
The Energy Group markets its products domestically through a combination of employee sales agents, manufacturer representatives and distributors, while international sales efforts are typically conducted with the assistance of independent sales agents. The group's products are marketed by approximately 69 direct sales employees, 81 domestic independent distributors and 39 international independent distributors. Customers typically include oil and gas field operators, industrial product manufacturers, independent contractors, ready mix concrete producers, heating equipment distributors and government agencies. The market for the Company's heat transfer equipment is diverse because of the multiple applications for such equipment.
Raw Materials
Raw materials used in the manufacture of products in the Energy Group 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 suppliers to reduce inventory requirements at the manufacturing facilities, but steel is occasionally inventoried after purchase. Componentssupplies. Other components used in the manufacturing processprocesses include engines, hydraulic pumps and motors, gearboxes, track clutches, burners, power transmissions, hydraulics and electronic systems.
Competition
The Energy Group faces strong competition in price, service and product performance and competes both with large companies that have resources significantly greater than those of the Company and with various smaller manufacturers. Major competitors include Gencor, Almix, Fulton, Sigma Thermal, Erie Strayer, Con-E-Co, Meeker, Versa Drill, Schramm, Atlas Copco, National Oil Well, Forum Energy Tech, Oil Country, NOV/Rolligon, Stewart & Stevenson, Dragon, Morbark, CBI (Terex), Precision Doppstadt, Bandit, Jenz, Komptech, Finn Corp, Webster Engineering and Stephen's Manufacturing.
Employees
At December 31, 2017, the Energy Group segment employed 1,035 individuals, of which 701 were engaged in manufacturing, 120 in engineering and 214 in selling, general and administrative functions. Approximately 72 of GEFCO's manufacturing employees fall within the scope of a collective bargaining agreement that expires on June 20, 2018. Power Flame is a party to a collective bargaining agreement that applied to approximately 104 of its manufacturing employees that expires on December 7, 2019. None of the other employees of the Energy Group are covered by collective bargaining agreements.
Backlog
The backlog for the Energy Group at December 31, 2017 and 2016 was approximately $54,987 and $40,656, respectively. The 2016 backlog has been adjusted to include the backlog of RexCon, which was acquired in October 2017. Management expects all of the current backlog to be filled in 2018.
Corporate (Other Business Units)
This category consists of the two business units that do not meet the requirements of separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes Astec Industries, Inc., the parent company, and Astec Insurance Company, a captive insurance company. These two companies provide support and corporate oversight for all the other business units. The Company records U.S. federal income tax expenses for all business segments on the parent company's books; therefore, these taxes are included in the Corporate category for segment reporting.
Employees
At December 31, 2017, the Corporate category employed 46 individuals, all of which were engaged in executive management, corporate finance and administrative functions.
Common to All Operating 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 followed typical seasonal patterns during 2017, peaking in April and reaching lows in November. Prices began to rise in early 2018 and are expected to continue to rise with seasonal demand and an improving economy in the first and second quarters of 2018. The Company expects normal seasonal price movement during 2018 with steel prices higher on average than in 2017. The Company continues to utilize forward-looking contracts (with no minimum or specified quantity guarantees) coupled with advanced steel purchases to minimize the impact of any price increases. The Company will review the trends in steel prices entering into the second half of 2018 and establish future contract pricing accordingly.
Government Regulations
The Company is
We are 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, the Occupational Safety & Health Administration, other federal agencies and certain state agencies have the authority to promulgate regulations that have an effect on the Company'sour operations. Many of these federal and state agencies may seek fines and penalties for violations of these laws and regulations. The Company hasWe have been able to operate under these laws and regulations without any material adverse effect on itsour business.
None of the Company's operating segments operateour operations are within highly regulated industries. However, air pollution control equipment manufactured by the Company,we manufacture, 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 the Company'sWe believe our products meet all material requirements of such regulations, and applicable state pollution standards and environmental protection laws.
In addition, due to the size and weight of certain equipment the Company manufactures, the Companywe manufacture, we and itsour customers may encounter various 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.we manufacture.
Compliance with these government regulations has nonot had a material effect on the Company'sour capital expenditures, earnings or competitive position within the market.market to date.
Employees
At December 31, 2017, the Company and its subsidiaries employed 4,437 individuals, of which 3,123 were engaged in manufacturing, 463 in engineering, including support staff, and 851 in selling, administrative and management functions.
Other than the Telsmith and Osborn labor agreements described under the "Employee" subsection of the Aggregate and Mining Group above and the GEFCO and Power Flame labor agreements described under the "Employee" subsection of the Energy Group above, there are no collective bargaining agreements applicable to employees of the Company or its subsidiaries. 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 its 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 2017 took place at 21 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 dealer representatives, contractors, owners, employees and other users of equipment manufactured by the Company. In 2017, approximately 660 representatives of contractors and owners of hot-mix asphalt plants attended seminars held by the Company in Chattanooga, Tennessee. These seminars, which are led 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.
During 2017, 10 service training seminars were held at the Roadtec facility for approximately 520 customer representatives, and 12 remote seminars were conducted at other locations for approximately 200 additional customer personnel. CEI conducted four service schools during 2017, with approximately 76 customer representatives attending. Heatec conducted two service schools in 2017 with approximately 50 customer representatives attending and also conducted four remote seminars at other locations for approximately 95 additional customer personnel. Telsmith conducted three technical seminars for approximately 85 customer and dealer representatives during 2017. KPI, JCI and AMS jointly conduct National Dealers Conference, an annual dealer event. The event offers the entire dealer network a preview of future products, marketing and promotional programs to help dealers operate successful businesses. In addition to this event, the companies also provide factory customer and dealer training and on-site local, regional and national sales training programs throughout the year. Peterson conducted four regional service schools during 2017, with approximately 100 customer representatives attending, and two customer focus group meetings for 40 of the company's elite users where attendees shared best-of-the-best operational processes and participated in future product development.
In addition to seminars, the Company publishes a number of technical bulletins and information bulletins detailing various technological and business issues relating to the industries in which it operates.
Patents and Trademarks
The Company seeksWe seek to obtain patents to protect the novel features of itsour products and processes. The Company'sOur subsidiaries hold 88113 United States patents and 103120 foreign patents. The Company'sOur subsidiaries have 6512 United States and 7631 foreign patent applications pending.
The Company and its subsidiariesWe have 8481 trademarks registered in the United States, including logos for Astec, Astec Dillman, Carlson Paving, CEI, GEFCO, Heatec, JCI,KPI-JCI, Peterson Pacific, Power Flame, Roadtec and Telsmith, and the names ASTEC, CARLSON, HEATEC, JCI, KOLBERG, PETERSON, POWER FLAME, ROADTEC and TELSMITH, as well as a number of other product names. The CompanyWe also has 114have 129 trademarks registered in foreign jurisdictions, including Argentina, Australia, Argentina, Brazil, Canada, China, the European Union, France, Great Britain, Germany, India, Italy, Kazakhstan, Mexico, Paraguay, New Zealand, Paraguay, Peru, Russia, South Africa, South Korea, Taiwan, Thailand, the United Kingdom, Ukraine, Uruguay Vietnam and the European Union. The Company and its subsidiariesVietnam. We have six13 United States and six17 foreign trademark registration applications pending.
Engineering and Product Development
The Company dedicatesWe conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our engineering and research and development efforts are key drivers of our success in the marketplace and dedicate substantial resources to engineering and product development. At December 31, 2017,development activities including establishing an Innovation Services team. Our Innovation Services team has experts in advanced fields, such as simulation and digital twin creation, who support our development initiatives. In addition, we are focused on innovation in our products to support the Company and its subsidiaries had 463 full-time individuals employed in engineering and design capacities."Rock to Road" value chain.
Seasonality and Backlog
Revenues for recent years, adjusted for acquisitions, have historically been strongest during the first, half of the year,second and fourth quarters with the second half ofthird quarter typically generating weaker results. Over the year consistently being weaker. Welong-term, we expect future operations in the near term to be typical ofconsistent with this historical trend.trend, however, quarterly revenue performance in 2021 and 2022 has varied based on recent manufacturing challenges resulting from supply chain and logistics disruptions as well as labor shortages.
As of December 31, 20172022 and 2016, the Company2021, we had a backlog for delivery of products at certain dates in the future of approximately $411,469$912.7 million and $361,831,$762.6 million, respectively. The Company'sApproximately $146.3 million of the increase in backlog between periods relates to orders from domestic customers. Our contracts reflected in the backlog generally are not, by their terms, subject to termination. Management believes the Company is in substantial compliance with all manufacturing and delivery timetables.
Competition
Each business segment operates in domestic markets that are highly competitive with respect to 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 Companyus in the United States, except for milling machines and track-mounted crushers. In international sales, however, the Companywe often competescompete with foreign manufacturers that may have a local presence in the market the Company iswe are 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 pavedsurfaced in concrete, but over 90%the significant majority of all surfaced roads in the United StatesU.S. are
paved with asphalt. Although concrete is used for some new road surfaces, asphalt is used for most resurfacing. Our customers generally offer both asphalt and concrete surfacing options and our product portfolio enables us to be a singular provider to our customers for both asphalt and concrete equipment.
Available InformationHuman Capital Resources and Management
Our employees around the world are each guided by our purpose: Built to Connect, and our vision: To connect people, processes and products, advancing innovative solutions from "Rock to Road" as OneASTEC. Every employee is also guided by our values and our code of business conduct. In everyday work, our employees embody our core values of Safety, Devotion, Integrity, Respect and Innovation. They do so by living our winning behaviors of Open and Honest Communications, Drive Creativity, Customer Driven Innovation and OneASTEC in all they do. We strive to be an employer of choice, attracting and retaining top talent committed to creating a diverse, equitable and inclusive workplace where individuals are respected and valued for their diverse backgrounds and experiences. Through comprehensive compensation and benefits and a focus on safety, we strive to support our employees' overall well-being. Our sites have programs designed to upskill manufacturing employees in the areas specifically required for local production needs. In addition, we partner with national vendors specialized in skilled labor recruitment and many of our sites have relationships with local trade schools and community colleges to attract talent.
In 2022, we again engaged our employees through the Voice of OneASTEC survey. In total, 81% of our workforce responded and provided us with valuable feedback, a significant increase from the 73% participation in 2021. Throughout the year we have focused on the three main areas of opportunity identified: communication, performance management and diversity. We saw improvement in those focus areas with scores increasing by four to six percentage points compared to our prior year results.
Employee Profile
As of December 31, 2022, we employed 4,291 individuals, including 3,629 employees in the U.S. and Canada. We also retain consultants, independent contractors and temporary and part-time workers. As of December 31, 2022, the functional representation of our employees was as follows: 2,828 were engaged in manufacturing, 399 in engineering, including support staff, and 1,064 in selling, administrative and management functions.
Unions are certified as bargaining agents for approximately two percent of our U.S. direct employees. From time to time, our collective bargaining agreements expire and come up for renegotiation. Approximately 83 of our active U.S. employees are covered by a collective bargaining agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC on behalf of its local affiliate Local Union No. 11-508-03, with an expiration date of December 11, 2025. Unions also represent approximately 18% of our employees at our manufacturing facilities outside the U.S. We consider our employee relations to be good.
Compensation and Benefits
As we strive to be an employer of choice, we provide competitive and robust compensation and benefits. We achieve this by regularly conducting market reviews and adjusting as needed. In addition to salaries, we provide regional programs, which can include annual bonuses, share-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work arrangements, employee assistance programs, tuition assistance and on-site services.
Health and Safety
The Company's internet website can be foundwell-being and safety of our employees is paramount as is indicated in our core values. We manage safety at www.astecindustries.com.(and from) the highest levels, using the same tools we employ to measure and improve other aspects of business performance, such as continuous improvement, key performance indicators, scorecards and performance management. We undertake the following actions:
•provide mandatory safety trainings each month at our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks;
•track safety leading and lagging indicators, which includes focusing on near misses, first aids, unsafe work observations abatement within 24 hours of identification and safety training;
•local management cascades safety practices throughout the organization, including daily "safety huddles" for each work-shift;
•utilize safety scorecards, standardized signage, and visual management throughout our facilities, in addition to traditional safety training;
•conduct monthly safety calls to discuss and share best practices with our local safety managers;
•conduct weekly safety incident reviews with leadership; and
•distribute monthly employee newsletters and executive-led town hall meetings.
We believe in following a proactive approach to identify and mitigate safety issues. As such, our focus is monitoring, assessing and abating leading safety indicators through our Unsafe Work Observation program, thus preventing accidents before they happen or reducing the impact if they do occur. Abatement of safety issues in a timely fashion is incentivized through our annual incentive program, which is partially focused on this leading safety metric.
We aspire to reduce recordable injuries and lost time each year. During the year ended December 31, 2022, we had zero recordable injuries at four of our manufacturing sites. However, we experienced a 15% increase in our Occupational Safety and Health Administration Recordable Incident Rate for the year ended December 31, 2022, to 1.96 compared to 1.71 for the year ended December 31, 2021. Although we have seen an increase in the recordable incident rate, the incidents are concentrated in a limited number of sites. We have taken action to address these localized safety issues by increasing the number of corporate safety audits, providing thorough training at the site, realigning site safety focus, providing standardized safety policies and procedures and focusing on proactive injury prevention. We have also added safety resources at these sites and within our corporate structure to improve our safety program where we are continuing to focus on proactive, transparent and streamlined communications throughout the manufacturing sites for safety related information.
Talent Development, Diversity, Equity and Inclusion
Talent and Diversity are key components of our OneASTEC business model. We strive to create an environment that attracts top talent and where high performance is fostered and thrives, continuous learning is engrained, diverse experience is leveraged as a competitive advantage and careers are propelled forward.
In 2022, our High Performance Framework process ensured company-wide alignment to achieve company goals and targets. This new model includes values, professional development and cascaded common performance goals.
We provide all employees a wide range of professional development experiences, both formal and informal, at various stages in their careers. In addition, talent development and succession planning for critical roles is a cornerstone of our talent program. Development plans are created and monitored for critical roles to ensure progress is made along the established timelines.
One of our core values – Respect – reflects the behavior we strive to include in every aspect of the way we conduct business. We recognize that our best performance comes when our teams are diverse and inclusive. We continue to define our diversity, equity and inclusion strategy. These efforts touch all levels of our organization including our Board of Directors.
Corporate and Available Information
Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. We make available, free of charge on or through our internet website (www.astecindustries.com), access to our annual reportAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, andProxy Statements on Schedule 14A, Section 16 reports, amendments to those reports and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.Commission ("SEC"). Information contained in our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.10-K or any other report we file with or furnish to the SEC.
The SEC also maintains electronic versions of our reports on its website at www.sec.gov.
ITEM 1A. RISK FACTORS
The following risks are considered material to our business, operating results and financial condition based upon current knowledge, information and assumptions. This discussion of risk factors should be considered closely in conjunction with Part II, Item 1A. Risk Factors7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we presently deem less significant, may also impair our business, operating results and financial condition. If any of the following risks actually occur, our business, operating results and financial condition could be materially adversely affected. The order of these risk factors does not reflect their relative importance or likelihood of occurrence. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of our businesses. We, except as required by law, undertake no obligation to update or revise this risk factors discussion, whether as a result of new developments or otherwise.
Economic and Industry Risks
Downturns in the general economy or thedecreases in government infrastructure spending or commercial and residential construction industriesspending may adversely affect our revenues and operating results.
General economic downturns, including downturns in government infrastructure spending and the commercial and residential construction industries, 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., foreignspecific locations and regional economies in which they are sold 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. TheSeveral factors, including the following, factors could cause a downturn in the commercial and residential construction industries:industries in which we operate:
· | •a decrease in the availability of funds for construction; |
· | declining economy domestically and internationally; |
· | labor disputes in the construction industry causing work stoppages; |
· | rising gas and oil prices; |
· | rising steel prices and steel surcharges; |
· | energy or building materials shortages; |
· | availability of credit for customers. |
Downturns in the generalavailability of funds for construction;
•declining economy domestically and restrictionsinternationally;
•labor disputes in the construction industry causing work stoppages;
•rising gas and oil prices;
•rising steel prices and steel surcharges;
•rising interest rates;
•energy or building materials shortages;
•natural disasters and inclement weather; and
•availability of credit markets may negatively impact our earnings, cash flows and/or financial position and access to financing sources by the Company and ourfor customers.
Worldwide economic conditions and the international credit markets significantly deteriorated in recent years and may 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 deterioration of our creditors' financial condition, could adversely affect the Company's ability to draw on its revolving credit facility. The Company's current credit facility expires in April 2022, and deterioration in the credit markets could make it more difficult or expensive for us to replace our current credit facility, enter into a new 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 on government funding of highway construction and maintenance and other infrastructure projects. Any decrease or delay inHistorically, much of the U.S. highway infrastructure market has been driven by government funding of highway constructionspending programs, and maintenance and other infrastructure projects could cause our net sales and profits to decrease. Historically, federal government funding of infrastructure projects has typically been accomplished through bills that establish funding over a multi-year period, such asperiod. For example, the Safe, Accountable, FlexibleU.S. government funds highway and Efficient Transportation Equityroad improvements through the Federal Highway Trust Fund Program. This program provides funding to improve the nation's roadway system. In November 2021, the U.S. government enacted the Infrastructure Investment and Jobs Act - A Legacy for Users ("SAFETEA-LU"IIJA"), which provided $286.5. The IIJA allocates $548 billion in government spending to fund federal transit projects from 2004 to 2009. SAFETEA-LU funding expired on September 30, 2009, and federal transportation funding operated on a number of shorter term appropriations until December 4, 2015 when the Fixing America's Surface Transportation Act ("FAST Act") was enacted. Among other expenditures, the FAST Act approved funding for highways of approximately $205 billion and funding for transit projects of approximately $48 billion fornew infrastructure over the five-year period ending September 30, 2020.concluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects.
Given the inherent uncertainty in the political process, the level of government funding for federal highway projects will similarly continue to be uncertain. Governmental funding that is committed or earmarked for federal highway projects is always subject to political decision making that may result in repeal or reduction. Although continued funding under the FAST Act is expected, it may be at lower levels than originally approved. In addition, Congress could pass legislation in future sessions that would allow for the diversion of previously appropriated highway funds for other national purposes, or it 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 are 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. Any difficulty in managing the Company'sour manufacturing workflow during downturns in demand could adversely affect our financial results.
A significant changeChanges in
the price or availability of oilinterest rates could reduce demand for our products.
Significant increases
Prior to 2022, global interest rates had been at or near historic lows resulting in the purchase price of certain raw materials usedhistorically low financing costs for construction projects. Beginning in 2022, interest rates have increased substantially and are expected to manufacture our equipmentcontinue to increase. Rising interest rates could have a negative impactdampening effect on overall economic activity and/or the cost of production and related gross margins.
A significant portionfinancial condition of our revenues relatescustomers, either or both of which could negatively affect customer demand for our products and customers' ability to the sale of equipment involved in the production, handling, recycling or installation of asphalt mix. Liquid asphalt is a byproduct of the refining of oil, and asphalt prices correlate with the price and availability of oil.repay obligations to us. An increase in interest rates could also make it more difficult for customers to cost-effectively fund the pricepurchase of oil or a decrease in the availability of oil would increase the cost of producing asphalt,new equipment, which would likely decrease demand for asphalt, resulting in decreased demand for many of our products. This would likely cause our revenues and profits to decrease. Rising gasoline, diesel fuel and liquid asphalt prices will also adversely impact the operating and raw material costs of our contractor and aggregate producer customers, and if such customers do not properly adjust their pricing, they could experience reduced profits resulting in possible delays in purchasing capital equipment.
Contrary to the impact of increasing oil prices on many of the Company's products impacted by changes in the cost of asphalt mix as discussed above, the products manufactured by the Company's Energy Group, which are used in drilling for oil and natural gas, in heaters for refineries and oil sands, and in double fluid pump trailers for fracking and oil and gas extraction, would be negatively impacted by lower oil and natural gas prices, to the extent that such lower prices lead to decreased development in the oil and natural gas production industries.
Steel is a major component in the Company's equipment. Steel prices fluctuate routinely. Our reliance on third-party suppliers for steel and other raw materials exposes us to volatility in the prices and availability of these materials. Price increases or a decrease in the availability of these raw materials could increase our operating costs and adversely affect our financial results.
Acquisitions that we have made in the past and future acquisitions involve risks that could adversely affect our future financial results.sales.
We have completed several acquisitions in the past, including the acquisition of RexCon in October 2017 and Power Flame in August 2016. 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:Market Conditions
· | we may have difficulty integrating the financial and administrative functions of acquired businesses; |
· | acquisitions may divert management's attention from our existing operations; |
· | fluctuations in exchange rates and a weakening of the dollar may impact the competitiveness of acquired businesses; |
· | 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; |
· | future acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital; and |
· | we may incur domestic or international economic declines that impact our acquired companies. |
Competition could reduce revenue from our products and services and cause us to lose market share.share, and our ability to compete in international jurisdictions is dependent upon trade policies, which are subject to change.
We currently face strong competition in product performance, price and service. Some of our domestic and international 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. In addition to the general competitive challenges we face, international trade policies could negatively affect the demand for our products and services and reduce our competitive position in such markets. In addition, unfavorable currency fluctuations could result in our products and services being more expensive than local competitors. The implementation of more restrictive trade policies, such as higher tariffs, duties or charges, in countries where we operate could negatively impact our business, results of operations and financial condition.
Our success depends on key membersoperations in foreign countries, and continued expansion into additional international markets, could expose us to risks inherent in doing business outside of the United States.
In 2022, international sales represented approximately 20.4% of our managementtotal sales as compared to 23.1% in 2021. We plan to continue increasing our already significant sales and other employees.
Certain membersproduction efforts in international markets. Both the sales from international operations and export sales are subject in varying degrees to risks inherent in doing business outside of the United States. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations and general economic and political conditions in the countries we do business, which are typically more volatile than the U.S. economy and more vulnerable to geo-political conditions. In addition, the U.S. Government has established and, from time to time, revises sanctions that restrict or prohibit U.S. companies and their subsidiaries from doing business with certain foreign countries, entities and individuals. Doing business internationally also subjects us to numerous U.S. and foreign laws and regulations, including regulations relating to anti-bribery, privacy regulations and anti-boycott provisions. We incur meaningful costs complying with these laws and regulations. The continued expansion of our senior management team areinternational operations could increase the risk of significant importance toviolations of these laws in the future. Significant violations of these laws, or allegations of such violations, could harm our reputation, disrupt our business and operations. The lossresult in significant fines and penalties that could have a material adverse effect on our results of operations or financial condition.
Our ability to understand our customers' specific preferences and requirements, and to develop, manufacture and market products that meet customer demand as we expand into additional international markets, could significantly affect our business results.
Our ability to match new product offerings to diverse global customers' anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough understanding of our existing and potential customers on a global basis, particularly in Asia, Middle East and Africa, and Latin America. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on our business.
Our international sales and associated operating results are subject to currency exchange risk.
We are exposed to risk as a result of fluctuations in foreign currency exchange rates from transactions involving foreign operations and currencies. We derive significant revenue, earnings and cash flow from operations outside of the U.S., where business operations are transacted in local currencies. Ourexposure to currency exchange rate fluctuations results primarily from the translation exposure associated with the preparation of our consolidated financial statements, as well as from transaction exposure associated with transactions and assets and liabilities denominated in currencies other than the respective subsidiaries' functional currencies. While our consolidated financial statements are reported in U.S. dollars, the financial statements of our international subsidiaries are prepared using their services mayrespective functional currency and translated into U.S. dollars by applying appropriate exchange rates. As a result, fluctuations in the exchange rate of the U.S. dollar relative to the local currencies could cause significant fluctuations in the value of our assets and liabilities, equity and operating results.
Additionally, our international sales involve some level of export from the U.S., either of components or completed products. Policies and geopolitical events affecting exchange rates could adversely affect the demand for construction equipment in many areas of the world. Further, any strengthening of the U.S. dollar or any other currency of a country in which we manufacture our products (e.g. the Brazilian real and the South African rand) and/or any weakening of local currencies can increase the cost of our products in foreign markets. Irrespective of any effect on the overall demand for construction equipment, the effect of these changes can make our products less competitive relative to local producing competitors or other non-U.S. competitors and, in extreme cases, can result in our products not being cost-effective for customers. As a result, our international sales and profit margins could decline.
Environmental, Social and Governance risks could adversely affect our business. reputation and shareholder, employee, customer and third party relationships and may negatively affect our stock price.
As a public company, we face increased public and investor scrutiny related to Environmental, Social and Governance ("ESG") activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity, equity and inclusion, environmental stewardship, including with respect to climate change, human capital management, support for our local communities, corporate governance and transparency, or fail to consider ESG factors in our business operations.
Additionally, investors and shareholder advocates are placing ever increasing emphasis on how corporations address ESG issues in their business strategy when making investment decisions and when developing their investment theses and proxy recommendations. Furthermore, many of our peers have more resources to devote to ESG initiatives and may be further ahead than we are on their ESG efforts. We may incur meaningful costs with respect to our ESG efforts and if such efforts are negatively perceived, our reputation and stock price may suffer.
Manufacturing and Operations Risks
Our profitability may be negatively affected by changes in the availability and price of certain parts, components and raw materials.
We require access to various parts, components and raw materials at competitive prices in order to manufacture our products. Changes in the availability and price of these parts, components and raw materials (including steel) have changed significantly and rapidly at times. The availability and price of such items are affected by factors like demand, changes to international trade policies that may result in additional tariffs, duties or other charges, freight costs, global pandemics, shipping and container constraints and labor shortages and costs, each of which can significantly increase the costs of production. Due to price competition in the market for construction equipment and certain infrastructure products which have longer contract to completion cycles, we may not be able to recoup increases in these costs through price increases for our products, which would result in reduced profitability. Whether increased operating costs can be passed through to the customer depends on a number of factors, including the price of competing products and the nature of our customers' orders. Further, we rely on a limited number of suppliers for steel and certain other raw materials, parts and components in the manufacturing process. Disruptions or delays in supply or significant price increases from these suppliers could adversely affect our operations and profitability. Such disruptions, terminations or cost increases could result in cost inefficiencies, delayed sales or reduced sales.
We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities, including, but not limited to, future pandemics, climate change and war.
We currently maintain a broad network of distribution and manufacturing facilities throughout the U.S. as well as internationally. Any widespread disruption to our facilities resulting from fire, earthquake, weather-related events (such as tornadoes, hurricanes, flooding and other storms), an act of terrorism or any other cause could damage a significant portion of our inventory and could materially impair our ability to distribute our products to customers. Moreover, we could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes for us to reopen or replace a damaged facility. If any of these events were to occur, our financial condition, operating results and cash flows could be materially adversely affected.
In addition, general weather patterns affect our operating results throughout the year, with adverse weather historically reducing construction activity in the first and fourth quarters in the U.S., our largest market. An increase of adverse weather events, including as a result of climate change, could generally reduce or delay construction activity, which could adversely impact our revenues.
The emergence of the COVID-19 pandemic has significantly impacted our operations. Throughout 2020, our operations were adversely affected by significantly weakened demand for our products given the global economic uncertainty resulting from the pandemic. While demand for our products has recovered, our operations continue to be adversely affected by the contributory effects of the pandemic, including supply chain disruptions, higher supply costs, including, in particular, higher steel costs, and labor shortages, disruptions and higher labor costs and longer contracting times. Future pandemics other than COVID-19 could further impact our operations and might have a material adverse effect on our financial condition, cash flows and results of operations. There is no certainty that current or future measures taken by governmental authorities will be sufficient to mitigate the risks posed by the coronavirus or other viruses, and our ability to perform critical functions could be harmed.
Strategic Performance Risks
We may not fully sustain targeted performance improvements and other benefits realized from our OneASTEC business model.
Our OneASTEC business model is designed around the strategic pillars of Simplify, Focus and Grow. This is a focused effort towards an operating model centered around continuous improvement. The OneASTEC business model was designed to better set strategic direction, define priorities and improve overall operating performance. Our future success is partly dependent upon successfully executing and realizing performance improvements, revenue gains, cost savings and other benefits from this initiative. It is possible that we may not fully realize, or sustain, the expected benefits from the OneASTEC business model. Furthermore, the implementation of the OneASTEC initiatives will result in an increase in near-term expenses and may negatively impact operational effectiveness and employee morale.
As an innovative leader in the industries in which we operate, we occasionally undertake the engineering, design, manufacturing, construction and installation of equipment systems that are new to the market. Estimating the costs of such innovative equipment can be difficult and could result in our realization of significantly reduced or negative margins on such projects. Additionally, if the newly designed equipment were not to function as expected, we could be responsible for reimbursing the customer for their financial losses, including, but not limited to, the possible refund of the purchase price.
Designing and developing innovative equipment to function as expected is inherently difficult and significant design phase, field testing and redesign costs are often incurred in connection with such design and development activities. The design and
development phase requires meaningful lead time before a product is ready for market, which often requires a significant investment prior to realizing any revenues associated with such new products. This also requires us to anticipate changing customer demands and if we are unable to accurately anticipate such customer demands we will likely incur losses associated with such product development. In addition, any number of unforeseen circumstances can impact actual project costs. Production delays, design changes, adverse weather conditions and other factors can also result in construction and testing delays, which can cause significant cost overruns or failure to meet required completion dates. In certain circumstances, we may incur contractual penalties as a result of such delays to bring a product to market or be unable to satisfy minimum production levels, and we may be liable to customers for other losses they incur in connection with such delays, including possible refund of the purchase price. At various times, we have experienced negative margins on certain large projects. These large projects have included both existing and innovative equipment designs, on-site construction and promised minimum production levels. We may not be able to sufficiently predict the extent of such unforeseen cost overruns and may experience significant losses on specialized projects in the future.
Failure to successfully complete restructuring activities could negatively affect our operations.
From time to time, we may wind down certain business activities, product lines, and/or perform other organizational restructuring projects in an effort to reduce costs and streamline operations. Such activities involve risks as they may divert management's attention from our core businesses, increase expenses on a short‑term basis and lead to potential issues with employees, customers or suppliers. If these activities are not completed in a timely manner, anticipated cost savings, synergies and efficiencies are not realized, business disruption occurs during the pendency of or following such activities or unanticipated charges are incurred, particularly if material, there may be a negative effect on our business, results of operations and financial condition.
As part of our growth strategy, we may pursue acquisitions in the future and may not be successful in completing such acquisitions on favorable terms or be able to realize the anticipated benefits from such acquisitions.
We have historically grown, in large part, through strategic acquisitions, and our strategy is to continue to pursue attractive acquisition opportunities if and when they become available. Failure to identify and acquire suitable acquisition candidates on appropriate terms could adversely impact our growth strategy. In addition, although we have been successful in the past with the integration of numerous acquisitions, we may not be able to fully integrate the operations of any future acquired businesses with our own operations in an efficient and cost-effective manner or without significant disruption to our or the acquired companies’ existing operations. Moreover, acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, the achievement of expected synergies, difficulties integrating acquired personnel and corporate cultures into our business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unforeseen liabilities of acquired companies and the diversion of management attention and resources from existing operations. We may be unable to successfully complete potential acquisitions due to multiple factors, such as issues related to regulatory review of the proposed transactions or obtaining favorable financing. We may also be required to incur additional debt or issue additional shares of our common stock in order to consummate acquisitions in the future. Potential new indebtedness may be substantial and may limit our flexibility in using our cash flow from operations. The issuance of new shares of our common stock could dilute the equity value of our existing shareholders. Our failure to fully integrate future acquired businesses effectively or to manage other consequences of our acquisitions, including increased indebtedness, could prevent us from remaining competitive and, ultimately, could adversely affect our financial condition, operating results and cash flows.
Financial Risks
We may be unsuccessful in complying with the financial ratio covenants or other provisions of our credit agreement.
As of December 31, 2022, we were in compliance with the financial covenants contained in our credit agreement. 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, our creditors could elect to pursue their contractual remedies under the credit facility, including requiring immediate repayment in full of all amounts then outstanding and requiring cash collateral to support outstanding letters of credit. As of December 31, 2022, we had outstanding borrowings of $78.0 million and an additional $2.8 million in letters of credit outstanding under the credit agreement. We may also borrow additional amounts under the credit agreement in the future. Certain of our international subsidiaries in South Africa, Australia, Brazil, Canada and the United Kingdom have entered into their own independent loan agreements with the same lenders to our credit agreement as well as with other lending institutions.
We are subject to income taxes in the United States and certain foreign jurisdictions, and changes to the tax codes, effective tax rates and accounting principles related thereto could negatively impact our results of operations.
We are subject to income taxes in the United States and other jurisdictions. Our results of operations could be adversely affected by, among other things, changes in the effective tax rates in the U.S. and foreign jurisdictions, a change in the mix of earnings between U.S. and non-U.S. jurisdictions or among jurisdictions with differing tax rates, changes in tax laws or treaties and related changes in generally accepted accounting principles. Additionally, we typically incur substantial research and development costs
each year and have historically received significant research and development tax credits due to these expenditures. Congress could reduce or eliminate such tax credits in future years, which could have a material adverse effect on our operating results.
Goodwill and other intangible assets comprise a material portion of our total assets. We must test our goodwill for impairment at least annually and other intangible assets if events or circumstances indicate that the carrying amount of the asset may not be recoverable, which could result in a material, non-cash write-down of goodwill or intangible assets and could have a material adverse impact on our results of operations and shareholders' equity.
We have completed a number of acquisitions and expect to continue to complete selected acquisitions in the future as a component of our growth strategy. In connection with acquisitions, applicable accounting standards generally require the net tangible and intangible assets of the acquired business to be recorded in the balance sheet of the acquiring company at their fair values as of the date of acquisition. As a result, any excess in the purchase price paid by us over the fair value of net tangible and intangible assets of any acquired business is recorded as goodwill. Definite lived-intangible assets are required to be amortized over their estimated useful lives and this amortization expense may be significant. If it is later determined that the anticipated future cash flows from the acquired business may be less than the carrying values of the assets and goodwill of the acquired business, the assets, including both definite-lived and indefinite-lived intangible assets, or goodwill may be deemed to be impaired. If this occurs, we may be required under applicable accounting rules to write down the value of the assets or goodwill on our balance sheet to reflect the extent of any such impairment. Any such write-down of assets or goodwill would generally be recognized as a non-cash expense in our results of operations for the accounting period during which any such write down occurs.
Goodwill is subject to impairment assessments at least annually (or more frequently when events or changes in circumstances indicate that impairment may have occurred). Other intangible assets are subject to impairment assessments if conditions exist that indicate the carrying value may not be recoverable. At October 1, 2022, we performed a quantitative assessment of impairment, and our testing indicated no impairment had occurred at any of our four reporting units. However, the fair values of the Materials Solutions and Astec Digital reporting units exceeded their carrying values by 3.2% and 5.0%, respectively. Since the Materials Solutions and Astec Digital reporting units' fair values did not substantially exceed the carrying values, we may be at risk for an impairment loss in the future if forecasted trends assumed in the fair value calculation are not realized. As of December 31, 2022, there was $19.4 million and $8.7 million of goodwill recorded related to the Materials Solutions and Astec Digital reporting units, respectively. A decrease in our market capitalization, profitability or negative or declining cash flows increases the risk of goodwill or other intangible asset impairments. Future impairment charges could have a material adverse impact on our results of operations and shareholders' equity.
Human Capital Risks
Our performance could suffer if we cannot maintain our culture as well as attract, retain and engage our employees.
We believe our culture focused on safety, devotion, integrity, respect and innovation, is one of our strongest assets. Our strong culture positions us to recruit and retain top-level talent across our organization. We believe our employees and experienced leadership group are competitive advantages, as the best people, over time, produce the best results. 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 The shrinking availability of qualified talent in managingthese areas is a significant challenge in retaining and expanding in international markets could divert management's attention from our existing operations.
In 2017, international sales represented approximately 21.3% of our total sales as compared to 18.0% in 2016. We plan to continue our significant sales and production efforts in international markets and recently filled a new company position of Group Managing Director-International to assist with our efforts. In connection with any increase in international sales efforts, we will need to hire, train and retainattracting sufficiently qualified personnel to enable us to meet customer demand efficiently resulting in countries where language, cultural or regulatory barriers may exist. Any difficulties in expandinglonger lead times to convert backlog to revenue and materially and adversely impacting 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; |
· | the imposition of protective legislation such as import or export barriers; and |
· | fluctuating strengths or weakness of the dollar, which can impact net sales or the cost of purchased products. |
We may be unsuccessful in complying with the financial ratio covenants or other provisions of our credit agreement.
As of December 31, 2017, we were in compliance with the financial covenants contained in our credit agreement with Wells Fargo Bank, N.A. 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, 2017, the Company had no outstanding borrowings under the Wells Fargo credit agreement but did have $9,757,000 of letters of credit outstanding under the credit agreement. Additional amounts may be borrowed in the future. The Company's Osborn, Astec Brazil, Telestack and Astec Australia subsidiaries have entered into their own independent loan agreements.
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 in some quarters may fall below the expectations of securities analysts and investors, 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, domestically and internationally; |
· | 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.margins. If we are unable to obtainattract the most talented candidates, and cannot retain and engage additional highly qualified managerial, technical, manufacturing, and sales and marketing personnel by investing in their talent and personal development, our operational and financial performances could continue to suffer.
In addition, disputes with labor unions could potentially affect our ability to operate our facilities as well as our financial results. Any strike, work stoppage or maintain insuranceother dispute with a labor union could materially adversely affect our business, results of operations and financial condition.
Our business operations are dependent upon the ability of our new employees to learn their new roles.
In connection with the transition of our business operations and implementation of the OneASTEC business model, we have replaced many employees in key functions, including in important management roles, and otherwise hired key personnel. Any significant management change involves inherent risk and any failure to ensure the effective transfer of knowledge and a smooth transition could hinder our strategic planning, execution and future performance. As new employees gain experience in their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of new employees with business processes, operating requirements, policies and procedures, some of which are new, and key information technologies and related infrastructure used in our day-to-day operations and financial reporting. We may also experience additional costs as these new employees learn their roles and gain necessary experience. It is important to our success that these new employees quickly adapt to and excel in their new roles. If they are unable to do so, our business and financial results could be materially adversely affected. In addition, if we were to lose the services of any one or more key
employees, whether due to death, disability or termination of employment, our insurance does not cover liabilities,ability to successfully operate our business segments, financial plans, marketing and other objectives could be significantly impaired.
Failure to retain our key personnel or attract additional key personnel as required and the impact of our recent leadership changes may adversely impact our ability to implement our business plan and our results of operations could be materially and adversely affected.
We depend to a large extent on the abilities and continued participation of our executive officers and other key employees. We believe that as our activities increase and change in character, additional, experienced personnel will be required to implement our OneASTEC business model. Competition for such personnel is intense, and we cannot assure that they will be available when required, or that we will have the ability to attract and retain them. The loss of services of any one or more of these individuals may incur significant costs whichhave a material and adverse effect on our Company and our business prospects.
Furthermore, we have had recent leadership changes and transitions involving our senior leadership team, including our CEO, as previously announced. Such leadership changes can be inherently difficult to manage, and an inadequate transition may cause disruption to our business, including to our relationships with our customers, suppliers, vendors and employees. It may also make it more difficult for us to hire and retain key employees. In addition, any failure to ensure the effective transfer of knowledge and a smooth transition could reducehinder our profitability.strategic planning, execution and future performance.
Legal, Regulatory and Compliance Risks
We are subject to an ongoing risk of product liability claims and other litigation arising in the ordinary course of business.
We manufacture heavy machinery, which is used by our customers at excavation and construction sites, ports and inland terminals 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 byA successful claim brought against us in excess of available insurance could reduce our profitabilitycoverage or a requirement to participate in a product recall may have ana material adverse effect on our business.
We are subject to significant governmental regulation and if we fail to comply with such regulation or if we become subject to increased regulation, we may incur significant costs related to penalties, remedial measures or increased compliance requirements.
We are subject to a wide range of government regulations, including the U.S. Foreign Corrupt Practices Act, other anti-corruption laws, regulations administered by the U.S. Department of Commerce’s Bureau of Industry and Security, the U.S. Department of Treasury’s Office of Foreign Assets Control and various non-U.S. government entities, including applicable export control regulations, economic sanctions on countries, entities and other persons, customs requirements, currency exchange regulations and transfer pricing regulations. While we maintain compliance programs to help ensure compliance with such regulations, there is no assurance that we will be effective in complying with all such regulations. Failure to comply with such regulations could subject us to criminal and civil penalties, disgorgement and other sanctions, remedial measures, legal expenses and reputational damage, all of which could have an adverse impact on our business, financial condition, results of operations and liquidity.
In addition, certain of our equipment is subject to rules limiting emissions and other climate related rules and regulation. In addition, several of our products contain components that must comply with environmental, health and safety laws or regulations, including performance standards, promulgated by the Environmental Protection Agency and other state regulatory agencies. These performance standards may change or become more stringent in the future. In addition, we may become subject to additional legislation, regulations or accords regarding climate change, and compliance with any new rules could be difficult and costly as a result of increased energy, environmental, and other costs and capital expenditures to comply with any such legislation, regulation or accord. Changes in these requirements could also 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 also impact operations of our suppliers and customers. In addition, we may incur material costs or liabilities in connection with other regulatory requirements applicable to our business, including, for example, state regulation of our component equipment, the accuracy of weights and measures and the maximum weight transportable on highways and roads.
We are subject to a variety of legal proceedings, the outcome of which may be unfavorable to us.
From time to time, we may be involved in various legal proceedings and subject to government investigations. We are unable to predict when claims or matters will arise and the extent to which they will affect our business, and the international nature of our business exposes us to legal and regulatory matters that arise in foreign jurisdictions as well. We could incur significant expenses to administer and defend such matters, and any judgments or fines imposed on us could significantly impact our financial condition. Our business may be adversely impacted by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. We estimate loss contingencies and establish reserves based on our assessment where
liability is deemed probable and reasonably estimable given the facts and circumstances known to us at a particular point in time. Subsequent developments may affect our assessment and estimates of the loss contingencies recognized as liabilities. These matters could also significantly divert the attention of our management.
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, as well as 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.
21
Information Technology and Cybersecurity Risks
If we become subject to increased governmental regulation, we may incur significant costs.
Our hot-mix asphalt plants contain air pollution control equipment and severaloperations may be adversely affected by any disruption in our information technology systems.
Our operations are dependent upon our information technology systems, which encompass all of our othermajor business functions. We rely upon our information technology systems to run critical functions, including accounting and financial information systems, process receivables, manage and replenish inventory, fill and ship customer orders on a timely basis and coordinate our sales activities across all products contain engines that must comply with performance standards promulgated by the Environmental Protection Agency.and services. A substantial disruption in our information technology systems for any prolonged time period could result in problems and delays in generating critical financial and operational information, processing receivables, receiving inventory and supplies, and filling customer orders. These performance standards may increase in the future. Changes in these requirementsdisruptions could cause us to undertake costly measures to redesign or modify our equipment or otherwise adversely affect the manufacturing processesour operations as well as our customer service and relationships. Our systems, or those of our products.significant customers or suppliers, might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins or similar disruptions affecting the global Internet. In addition, we rely on a number of third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and any breach of security or disruption in their systems could impair our ability to operate effectively. Such changesdisruptions, delays, problems or associated costs relating to our systems or those of our significant customers, suppliers or third-party providers could have a material adverse effect on our operations, operating results.results and financial condition.
Security breaches and other disruptions to our information technology infrastructure amid a general worldwide increase in threats and more sophisticated and targeted cybercrime could compromise our and our customers' and suppliers' information, exposing us to liability.
In addition,the ordinary course of business, we may incur material costsrely upon information technology networks and systems to process, transmit and store electronic information and to manage or liabilitiessupport a variety of business functions, including supply chain, manufacturing, distribution, invoicing and collection of payments. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary business information of customers and suppliers, as well as personally identifiable information of customers and employees, in connection with other regulatory requirements applicabledata centers and on information technology networks. The secure operation of these networks and the processing and maintenance of this information is critical to our business including, for example, state regulationoperations and strategy. Despite our efforts to protect our systems and confidential information, we have experienced cybercrime in the past and may be vulnerable to material security breaches, theft, misplaced, lost or corrupted data, programming errors, employee errors and/or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise our component equipment, the accuracy of weights and measures,networks, and the maximum weight transportable on highways and roads.
As an innovative leader in the industries in which we operate, we occasionally undertake the engineering, design, manufacturing, construction and installationinformation stored there could be accessed, publicly disclosed, modified, lost or stolen. Any such access, disclosure or other loss of equipment systems that are new to the market. Estimating the costs of such innovative equipment can be difficult andinformation could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupted operations, production downtimes and damage our realizationreputation, any of significantly reduced or negative marginswhich could have an adverse effect on such projects. Additionally, if the newly designed equipment were not to function as expected, the Company could be responsible for reimbursing the customer for its financial losses, including, but not limited to, the possible refund of the purchase price.
At various times,our business. While we have not experienced negative margins on certain large projects, including wood pellet plants recently produced. These large projects have included both existing and innovative equipment designs, on-site construction and promised minimum production levels. Designing innovative equipmentany material losses relating to function as expected is inherently difficult andcybercrime or other information security breaches to date, there can be no assurance that we will not suffer such significant additional design phase, field testing and redesign costs may be incurred. In addition, any number of unforeseen circumstances, can impact actual project costs. Production delays, design changes and adverse weather conditions, etc. can also resultlosses in construction and testing delays which can cause significant cost overruns or the missing of required completion dates. In certain circumstances, we may incur contractual penalties as a result of such delays or minimum production levels, and be liable to customers for other losses they incur in connection with such delays, including possible refund of the purchase price. future.
We may not be able to sufficiently predictsuccessfully implement our strategic transformation initiatives, including our new enterprise resource planning system.
We have launched a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace our existing disparate core financial systems. The upgraded ERP will convert our
internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency, transforming how we connect people, products and processes to operate as OneASTEC. An implementation of this scale is a major financial undertaking and has, and will continue to, require substantial time and attention of management and key employees. We may not be able to successfully implement our ERP system without delays related to resource constraints or challenges with the extentcritical design phases of such unforeseen cost overrunsthe implementation. Inefficiencies in our financial reporting processes due to the conversion to our new ERP could adversely affect our ability to produce accurate financial statements on a timely basis until the new ERP and may experience significant losses on specialized projects in the future.processes have matured. Additionally, the Company typically incurs substantial research and development costs each year and has historically received significant research and development tax credits due to these expenditures. Congress could reduce or eliminate such tax credits in future years, which could have a material adverse effect on our operating results.
Our Articles of Incorporation and Bylaws 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 and 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 majorityeffectiveness of our shareholders believeinternal control over financial reporting could be adversely affected if the takeovernew ERP 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:not successfully implemented.
· | 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; |
ITEM 1B. UNRESOLVED STAFF COMMENTS· | 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. |
Item 1B. Unresolved Staff Comments
None.
ITEM 2.Properties PROPERTIES
As of December 31, 2022, our manufacturing, warehouse and office facilities total approximately 3.4 million square feet of space globally. We believe all properties to be well maintained and adequate for present use, with sufficient capacities for current needs as our business is presently conducted. As we continue to optimize our global footprint, we may identify properties or expansion opportunities at existing locations that provide growth opportunity or determine that certain of our current properties no longer meet our requirements. Such new properties may be leased or purchased, and current properties may be modified, sold, leased or utilized in another manner.
Our corporate headquarters are in owned offices located in Chattanooga, Tennessee. Additional administrative offices are located inside and outside the United States.
The location, approximatefollowing table lists the principal locations (defined as greater than 20,000 square footage, acreage occupied and principal function and use by the Company's reporting segments of the propertiesfeet) that are owned or leased by the Companyus, as denoted, and which are set forth below:utilized in our continuing business operations:
| | Approximate
Square Footage | | | Approximate
Acreage | | Principal Function (Use by Segment) |
| Chattanooga, Tennessee | | | 543,200 | | | | 65 | | Offices, manufacturing and training center – Astec (Infrastructure Group) |
| Chattanooga, Tennessee | | | -- | | | | 4 | | Storage yard – Astec (Infrastructure Group) |
| Rossville, Georgia | | | 40,500 | | | | 3 | | Manufacturing – Astec (Infrastructure Group) |
| Prairie du Chien, Wisconsin | | | 91,500 | | | | 39 | | Manufacturing – Dillman division of Astec (Infrastructure Group) |
| Chattanooga, Tennessee | | | 135,000 | | | | 73 | | Offices, manufacturing and storage – Heatec (Energy Group) |
| Chattanooga, Tennessee | | | 237,000 | | | | 15 | | Offices, manufacturing and training center – Roadtec (Infrastructure Group) |
| Chattanooga, Tennessee | | | 53,700 | | | | 7 | | Manufacturing – Roadtec (Infrastructure Group) |
| Chattanooga, Tennessee | | | 14,100 | | | | -- | | Leased Hanger and Offices – Astec Industries, Inc. (Corporate) |
| Chattanooga, Tennessee | | | 10,000 | | | | 2 | | Corporate offices – Astec Industries, Inc. (Corporate) |
| Mequon, Wisconsin | | | 236,000 | | | | 30 | | Offices and manufacturing – Telsmith (Aggregate and Mining Group) |
| Sterling, Illinois | | | 60,000 | | | | 8 | | Offices and manufacturing – AMS (Aggregate and Mining Group) |
| Sterling, Illinois | | | 7,500 | | | | -- | | Warehouse - AMS (Aggregate and Mining Group) |
| Orlando, Florida | | | 9,000 | | | | -- | | Leased machine repair and service facility – Roadtec (Infrastructure Group) |
| | | | | | | | | | | | | | | | | | | | |
| Location | | Segment | | Facility Type/Use | | Approximate Square Feet |
| United States | | | | | | |
Chattanooga, Tennessee (1) | | Infrastructure Solutions | | Manufacturing/rebuild, offices, training center, warehouse and storage | | 1,157,384 | |
Yankton, South Dakota (1) | | Materials Solutions | | Manufacturing, warehouse and offices | | 367,292 | |
Chattanooga, Tennessee (1) | | Corporate and Other | | Warehouse, hangar and offices | | 224,100 | |
| Eugene, Oregon | | Materials Solutions | | Manufacturing and offices | | 140,300 | |
| Eugene, Oregon | | Infrastructure Solutions | | Manufacturing and offices | | 135,920 | |
| Burlington, Wisconsin | | Infrastructure Solutions | | Manufacturing and offices | | 112,100 | |
| Prairie du Chien, Wisconsin | | Infrastructure Solutions | | Manufacturing | | 100,136 | |
| Parsons, Kansas | | Infrastructure Solutions | | Manufacturing and offices | | 91,600 | |
| Blair, Nebraska | | Infrastructure Solutions | | Manufacturing and offices | | 90,813 | |
| Sterling, Illinois | | Materials Solutions | | Manufacturing and offices | | 67,500 | |
| Rossville, Georgia | | Infrastructure Solutions | | Manufacturing | | 40,500 | |
West Columbia, South Carolina (1) | | Infrastructure Solutions | | Distribution center | | 20,400 | |
| | | | | | |
| International | | | | | | |
| Johannesburg, Gauteng, South Africa | | Materials Solutions | | Manufacturing and offices | | 229,000 | |
| Omagh, County Tyrone, United Kingdom | | Materials Solutions | | Manufacturing and offices | | 165,000 | |
| Vespasiano, Minas Gerais, Brazil | | Materials Solutions | | Manufacturing and offices | | 132,400 | |
| Thornbury, Ontario, Canada | | Materials Solutions | | Manufacturing and offices | | 60,500 | |
| Acacia Ridge, Queensland, Australia | | Infrastructure Solutions | | Offices, service, light fabrication, warehouse and storage | | 36,000 | |
Marieville, Quebec, Canada (1) | | Infrastructure Solutions | | Manufacturing, warehouse, offices and storage | | 27,495 | |
St-Bruno, Quebec, Canada (1) | | Infrastructure Solutions | | Warehouse and offices | | 21,800 | |
(1)These facilities are partially leased.
| Location | | Approximate
Square Footage | | | Approximate
Acreage | | Principal Function (Use by Segment) |
| Chattanooga, Tennessee | | | 155,000 | | | | -- | | Leased warehouse – Roadtec (Infrastructure Group) |
| Eugene, Oregon | | | 140,000 | | | | 14 | | Offices and manufacturing – JCI (Aggregate and Mining Group) |
| Albuquerque, New Mexico | | | 115,000 | | | | 14 | | Offices and manufacturing – CEI (Energy Group) |
| Yankton, South Dakota | | | 312,000 | | | | 50 | | Offices and manufacturing – KPI (Aggregate and Mining Group) |
| Thornbury, Ontario, Canada | | | 60,500 | | | | 12 | | Offices and manufacturing – BTI (Aggregate and Mining Group) |
| Riverside, California | | | 12,500 | | | | -- | | Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group) |
| Solon, Ohio | | | 8,900 | | | | -- | | Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group) |
| Tacoma, Washington | | | 55,850 | | | | 8 | | Offices and manufacturing – Carlson (Infrastructure Group) |
| Tacoma, Washington | | | 4,400 | | | | 1 | | R&D/Services Offices-Carlson (Infrastructure Group) |
| Cape Town, South Africa | | | 4,600 | | | | -- | | Leased sales office and warehouse – Osborn (Aggregate and Mining Group) |
| Durban, South Africa | | | 835 | | | | -- | | Leased sales office and warehouse – Osborn (Aggregate and Mining Group) |
| Kathu, South Africa | | | -- | | | | 61 | | Undeveloped land – Osborn (Aggregate and Mining Group)
|
| Burlington, Wisconsin | | | 112,000 | | | | 26 | | Offices and manufacturing – RexCon (Energy Group) |
| Location | | Approximate
Square Footage | | | Approximate
Acreage | | Principal Function (Use by Segment) |
| Johannesburg, South Africa | | | 229,000 | | | | 21 | | Offices and manufacturing – Osborn (Aggregate and Mining Group) |
| Eugene, Oregon | | | 135,000 | | | | 15 | | Offices and manufacturing – Peterson Pacific Corp. (Energy Group) |
| Enid, Oklahoma | | | 350,000 | | | | 42 | | Offices and manufacturing – GEFCO, Inc. (Energy Group) |
| West Columbia, South Carolina | | | 12,300 | | | | -- | | Leased distribution center – Peterson Pacific Corp. (Energy Group) |
| Acacia Ridge, Australia | | | 31,000 | | | | 5 | | Offices, warehousing, service, light fabrication and storage yard – Astec Australia Pty Ltd (Infrastructure Group) |
| Canning Vale, Australia | | | 9,000 | | | | -- | | Leased office, warehouse and workshop - Astec Australia Pty Ltd (Infrastructure Group) |
| Hameln, Germany | | | 35,300 | | | | 3 | | Offices and light assembly – Asphalt Mobile Machinery GmbH (Infrastructure Group) |
| Vespasiano-MG, Brazil | | | 132,400 | | | | 10 | | Offices and manufacturing - Astec Brazil (Aggregate and Mining Group) |
| Omagh, Northern Ireland | | | 97,500 | | | | 8 | | Offices and manufacturing-Telestack (Aggregate and Mining Group) |
| Parsons, Kansas | | | 88,000 | | | | 7 | | Offices and manufacturing – Power Flame (Energy Group) |
| | | | | | | | | | |
ITEM 3. LEGAL PROCEEDINGS
The properties above
We are owned by the Company unless they are indicated as being leased.
Item 3. Legal Proceedings
The Company is currentlyinvolved in a party to various claims andnumber of legal proceedings that have arisenarising in the ordinary course of our business. If management believes thatFor a loss arising from such claims anddiscussion of contingencies related to legal proceedings, is probablesee Note 16, Commitments and can reasonably be estimated, the Company records the amountContingencies 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 material 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 unfavorableNotes to the Company could occur. If an unfavorable ruling were to occur, there exists the possibilityConsolidated Financial Statements included in Part II, Item 8 of a material adverse effectthis Annual Report on the Company's financial position, cash flows or results of operations.
Form 10-K.
Item
ITEM 4. Mine Safety DisclosuresMINE SAFETY DISCLOSURES
None.
The name, title, ages and business experience of the executive officers of the Company are listed below.
Benjamin G. Brock has served as the Company's Chief Executive Officer and President since January 2014. He previously served as the Vice President and President of the Company's Asphalt Group from August 2012 to December 2013 and as President of Astec, Inc. from 2006 to 2013. From 2003 until 2006, he held the position of Vice President - Sales of Astec, Inc. and Vice President/General Manager of CEI Enterprises, Inc. from 1997 until 2002. Mr. Brock's career with Astec began as a salesman in 1993. Mr. Brock has been a Director of the Company since 2013. He is 47.
David C. Silvious, a Certified Public Accountant, has served as the Vice President, Chief Financial Officer and Treasurer of the Company since August 2011. He previously served as Corporate Controller of the Company from 2005 to 2011 and as Corporate Financial Analyst from 1999 to 2005. Mr. Silvious also serves as Treasurer of each of the Company's U.S. operating subsidiaries and Vice President of Astec Insurance Company. He is 50.
W. Norman Smith has served as the Vice Chairman of the Company and also Vice Chairman of its Board of Directors since January 2014. He previously served as the President and Chief Operating Officer of the Company from August 2012 to December 2013, as Group President of the Company's Mobile Asphalt Paving Group from October 2013 until January 2014, as the Group Vice President – Asphalt of the Company from 1998 until August 2012, as the President of Astec, Inc., a subsidiary of the Company, from 1994 until 2006, and as the President of Heatec, Inc., a subsidiary of the Company, from 1977 until 1994. Mr. Smith is a registered professional engineer. Mr. Smith has been a Director of the Company since 1982. He is 78.
Richard J. Dorris has served as the Company's Chief Operating Officer and Executive Vice President since January 2014. He previously served as the Group Vice President and President
Richard A. Patek has served as Group President-Aggregate and Mining, International since January 2018 after previously serving as the Group President of the Company's Aggregate & Mining Group since October 2013 and its Group's Vice President since 2008. He has also served as President of Telsmith, Inc. from May 2001 until February 2013. He served as President of Kolberg-Pioneer, Inc. from 1997 until 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 also served as the 2014 Chairman for the Association of Equipment Manufacturers (AEM) and a corporate board member for the Milwaukee School of Engineering. Mr. Patek was elected to the E.D. Etnyre & Company board of directors in December 2014. He is 61.
Steven L. Claude has served as the Group President of the Company's Infrastructure Group since August 2015. From November 2007 to July 2015, he held the position of Vice President, International Sales, Sr. Vice President, Sales and Marketing, and Executive Vice President of Astec, Inc. He is 67.
Jaco van der Merwe has served as Group President of the Energy Group since August 2016. From 1998 until 2016, he held various positions at Atlas Copco, including Vice President Marketing for the Deephole Drilling group (2013-2016), President/General Manager for the Mining and Rock Excavation Customer Center (2010-2013), and various other division leadership positions. Mr. van der Merwe's career with Atlas Copco began as Quality Manager in 1998. Prior to joining Atlas Copco, he held various positions at Denel Aviation. He is 45.
Jeffery J. Elliott has served as the Group President-Aggregate and Mining, U.S.A. since January 2018 after previously serving as Group Vice President of the Company's Aggregate & Mining Group since July 2014 through December 2017. He served as the President of Johnson Crushers, Inc. from 2001 until July 2014. 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 64.
Stephen C. Anderson has served as Vice President of Administration since August 2011, as Secretary of the Company since January 2007 and as the Director of Investor Relations since January 2003. Mr. Anderson also manages the corporate information technology, vendor finance 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 1999 to 2002. Prior to his employment with the Company, Mr. Anderson spent a combined 14 years in commercial banking with AmSouth and SunTrust Banks. He is 54.
Robin A. Leffew has served as Corporate Controller since August 2011 and also serves as Secretary of Astec Insurance Company. She previously served as the Company's Director of Internal Audit from 2005 to 2011 and Controller of Astec, Inc. from 1990 to 2005. From 1987 to 1990, she served as Corporate Financial Analyst for the Company. She is 56.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchasesof Equity SecuritiesITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock
Our common stock is traded inon the Nasdaq National Market under the ticker symbol "ASTE." The Company paid a cash dividend of $1.00 per share on its Common Stock in the fourth quarter of 2012 and paid quarterly cash dividends of $0.10 per quarter from the second quarter of 2013 through the fourth quarter of 2017. Prior to 2012, the Company had not paid any cash dividends.
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 | |
| 2017 | | High | | | Low | |
1st Quarter | | $ | 73.37 | | | $ | 59.02 | |
2nd Quarter | | $ | 66.66 | | | $ | 52.35 | |
3rd Quarter | | $ | 58.06 | | | $ | 45.70 | |
4th Quarter | | $ | 59.22 | | | $ | 48.44 | |
| | | | | | | | | |
| | | Price Per Share | |
| 2016 | | High | | | Low | |
1st Quarter | | $ | 47.97 | | | $ | 33.08 | |
2nd Quarter | | $ | 57.51 | | | $ | 44.21 | |
3rd Quarter | | $ | 62.75 | | | $ | 51.73 | |
4th Quarter | | $ | 71.88 | | | $ | 52.08 | |
"ASTE". As of February 20, 2018,24, 2023, there were approximately 215249 holders of record of our common stock.
Dividend Policy
We paid cash of $11.2 million and $10.2 million for dividends in 2022 and 2021, respectively. The following table details dividends paid per share during 2022 and 2021:
| | | | | | | | | | | | | | |
| | |
| (in dollars) | | 2022 | | 2021 |
| First Quarter | | $ | 0.12 | | | $ | 0.11 | |
| Second Quarter | | 0.12 | | | 0.11 | |
| Third Quarter | | 0.12 | | | 0.11 | |
| Fourth Quarter | | 0.13 | | | 0.12 | |
| Total | | $ | 0.49 | | | $ | 0.45 | |
Dividends are paid when, as and if declared at the Company's Common Stock.discretion of our Board from funds legally available for that purpose. While our Board currently expects to continue regular quarterly cash dividends, any future determination relating to our dividend policy will be made at the Board's discretion and will depend on a number of factors including our earnings, financial condition, liquidity needs, capital requirements, regulatory and contractual restrictions, business plans and opportunities and other factors deemed relevant by our Board. In addition, our payment of dividends may be limited by restrictive covenants in our revolving credit facility agreement.
Issuer Purchases of Equity Securities
The following table provides information with respect to our purchases of our common stock during the three months ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions, except share and per share data) | | Total Number of Shares Purchased | | Average Price Paid per Share (a) | | Total Number of Shares Purchased as Part of Publicly Announced Programs (b) | | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (a) |
| | | | | | | | |
| November 1, 2022 - November 30, 2022 | | 90,642 | | | $ | 44.15 | | | 90,642 | | | 115.7 | |
| | | | | | | | |
| Total | | 90,642 | | | | | 90,642 | | | |
(a) The average price paid per share includes applicable broker's fees and commissions. |
(b) On July 30, 2018, we announced a share repurchase program authorizing the repurchase of up to $150 million of our common stock. Under the authorization, repurchases may be made from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Exchange Act, or in privately negotiated transactions. No time limit was set for completion of repurchases under the share repurchase program and the share repurchase program may be suspended or discontinued at any time. |
Performance Graph
The stock performance graph below is intended to show our stock performance compared with that of comparable companies. The stock performance graph compares the cumulative five-year total return provided to shareholders of Astec Industries, Inc.'s common stock relative to the cumulative total returns of the Russell 2000 index, our broad equity market comparative index, the S&P 600 Industrials index and our defined peer group.
Historically, our second stock performance comparative has been our defined peer group representative of our definitive Proxy peer group ("Peer Group"), which we believe reflects industrial manufacturing companies of comparable size and complexity. The ticker symbol of the companies included in our Peer Group are: ALG, AIMC, B, GTLS, CIR, CMCO, CVGI, EPAC, NPO, FSS, GBX, HY, JBT, LNN, MTW, MWA, SHYF, SPXC, SXI and WNC. For 2022, we are revising our second comparative to the S&P 600 Industrials index as we believe that this published index is a closer approximation to our industry as a whole as opposed to a smaller selection of peer companies.
The graph assumes that the value of an investment in our common stock, in the Russell 2000 index, in the S&P 600 Industrials index and in the Peer Group was $100 on December 31, 2017 and assumes reinvestment of all dividends as well as the relative performance of each through December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| (in dollars) | 2017 | | 2018 | | 2019 | | 2020 | | 2021 | | 2022 |
| Astec Industries, Inc. | 100.00 | | 52.06 | | 73.36 | | 102.18 | | 123.09 | | 73.05 |
| Russell 2000 | 100.00 | | 88.97 | | 111.65 | | 133.90 | | 153.69 | | 122.25 |
| S&P 600 Industrials | 100.00 | | 87.85 | | 113.89 | | 127.52 | | 160.55 | | 145.46 |
| Peer Group | 100.00 | | 74.66 | | 98.10 | | 110.99 | | 130.89 | | 114.07 |
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included in Item 6. Selected Financial Data
Selected financial data appears in Appendix "A"8 of this Report.
Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations and other information included herein are not necessarily indicative of the financial condition, results of operations and cash flows that may be expected in future periods. This Annual Report on Form 10-K, including matters discussed in this Item 7. 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to our plans, estimates and beliefs that involve important risks and uncertainties. See "Safe Harbor Statements Under the Private Securities Litigation Reform Act" and Part I, Item 1A. Risk Factors for a discussion of uncertainties and assumptions that may cause actual results to differ materially from those expressed or implied in the forward-looking statements.
This section of this Annual Report on Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. A similar discussion of 2020 items and year-to-year comparisons between 2021 and 2020 can be found
The financial condition and results of operations appearsdiscussed in Appendix "A"this Management's Discussion and Analysis of this Report.
Item 7A. QuantitativeFinancial Condition and Qualitative Disclosures about Market Risk
Information regardingResults of Operations are those of Astec Industries, Inc. and its consolidated subsidiaries, collectively, the Company's market risk appears in Appendix "A" of this Report under the heading "Market Risk and Risk Management Policies."Company," "Astec," "we," "our" or "us."
Item 8. Financial StatementsBusiness Overview
We design, engineer, manufacture and Supplementary Data
Financial statementsmarket equipment and supplementary financial information appearcomponents used primarily in Appendix "A"road building and related construction activities, as well as certain other products. Our products are used in each phase of this Report.
Item 9. Changes Inroad building, from quarrying and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designedcrushing the aggregate to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The Company's management, under the supervision and with the participationapplication of the Company's principal executive officerroad surface for both asphalt and principalconcrete. We also manufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; commercial and industrial burners; and combustion control systems.
Our products are marketed both domestically and internationally primarily to asphalt and concrete producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; forestry and environmental recycling contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, we manufacture and sell replacement parts for equipment in each of our product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of our business.
Executive Summary
Highlights of our financial officer, has evaluated the effectiveness of the Company's disclosure controls and proceduresresults as of the end of the period covered by this report. The scope of management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2017 excluded the business unit that the Company acquired on October 1, 2017 (RexCon, Inc.). The total consolidated assets with respect to the excluded business unit were $29.3 million as of December 31, 2017, and the total consolidated revenues with respect to the excluded business unit were $2.7 million for the year ended December 31, 2017. Management will complete its assessment2022 as compared to the prior year include the following:
•Net sales were $1,274.5 million, an increase of 16.3%
•Gross profit was $264.1 million, an increase of 5.9%
•Income from operations decreased $12.4 million to $7.5 million
•Net income attributable to Astec decreased to a loss of $0.1 million
•Diluted earnings per share were zero, a decrease of 100.0%
•Backlog of $912.7 million, an increase of 19.7%
Significant Items Impacting Financial Results in 2022
Simplify, Focus and Grow Strategic Transformation ("SFG")
Our ongoing strategic transformation initiative focused on implementing new business strategies and operating structure is concentrated on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow. SFG is a multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improve productivity and embed continuous improvement in our processes. These efforts are considered critical to enabling us to operate competitively and supporting future growth, which are expected to broadly benefit our customers, partners, employees and shareholders. Currently, we have two elements of the SFG program in operation, which include the implementation of a standardized enterprise resource planning ("ERP") system and a gross margin-generating lean manufacturing initiative.
Our multi-year phased implementation of a standardized ERP system across our global organization will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal control overoperations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency, transforming how we connect people, products and processes to operate as OneASTEC. An implementation of this scale is a major financial reportingundertaking and has required, and will continue to require, substantial time and attention of management and key employees. We have materially completed the ERP global design in 2022, launched the human capital resources module throughout our domestic sites in January 2023 and expect to convert the operations of one manufacturing site along with Corporate in 2023 to set the foundation before accelerating the implementation at additional manufacturing sites. We anticipate incurring total costs associated with the ERP implementation in the range of $125 to $150 million, with an estimated $25 to $30 million incurred per year beginning in 2022.
In addition, in the first quarter of 2022, a lean manufacturing initiative at one of our largest sites was initiated and is expected to drive improvement in gross margin at that site. We substantially completed the design efforts for this project during 2022. We also began executing investments to acquire and install manufacturing equipment intended to drive increased efficiencies in our production processes. We plan to continue these newly-acquired operationscapital investments during 2018. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that, as of2023, which are anticipated to be completed by the end of the period covered by this report,year. Gross margin improvements are expected to be realized with the Company's disclosure controls and procedures (as definedproject completion in Rule 13a-15(e) underearly to mid-2024. This improvement is intended to serve as the Exchange Act) were effective.optimal blueprint for our other manufacturing facilities.
Management's Report on Internal Control over Financial Reporting
Management's report appears in Appendix A of this Report.
Changes in Internal Controls
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act)Costs incurred during the
quarteryear ended December 31,
2017 that have materially affected, or2022 were $25.5 million, which represent costs directly associated with the SFG initiatives and which cannot be capitalized in accordance with U.S. GAAP. These costs are
reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B. Other Information
None
PART III
Item 10. Directors, Executive Officersincluded in "Selling, general and Corporate Governance
Information regarding the Company's directors, director nominating process, audit committee and audit committee financial expert is included under the captions "Certain Information Concerning Nominees and Directors" and "Corporate Governance"administrative expenses" in the Company's Proxy Statement to be delivered to the shareholdersConsolidated Statements of the CompanyOperations. Additionally, at December 31, 2022, we have capitalized $17.8 million in connectiondeferred implementation costs associated with the Annual MeetingERP implementation that will be amortized ratably over the remaining contract term once the ERP is ready for use, of Shareholders to be heldwhich $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets, respectively.
MINDS Acquisition
Weentered into a Share Purchase Agreement, dated as of March 22, 2022, with MINDS Automation Group, Inc. ("MINDS"), a leader in plant automation control systems and cloud-based data management in the asphalt industry in Canada. The acquisition was completed on April 26, 2018 (referred1, 2022 at a purchase price of $19.3 million, which was paid in cash. This acquisition provides us with a broader line of controls and automation products designed to herein as the Company's 2018 Proxy Statement)deliver enhanced productivity through improved equipment performance for our customers.
Share Repurchases
We completed a series of repurchases under our approved share repurchase program during 2022, which is incorporated herein by reference. Information regarding compliance with Section 16(a)acquiring 251,087 shares at an aggregate repurchase price of the Exchange Act is also included under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2018 Proxy Statement, which is incorporated herein by reference. Information with respect to our executive officers is set forth in Part I of this Report under the caption "Executive Officers."
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/.
Item 11. Executive Compensation
Information included under the captions "Compensation Discussion and Analysis", "Executive Compensation", "Director Compensation", "Corporate Governance���Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report" in the Company's 2018 Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related ShareholderMatters
Equity Compensation Plan Information
The following table provides information asapproximately $10.1 million. As of December 31, 2017 regarding compensation2022, $115.7 million remains available for repurchase under the approved share repurchase program.
Closure of Tacoma Facility
In January 2021, we announced plans underto close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. The Tacoma facility's land, building and certain equipment assets of $15.4 million, which the Company's equity securities are authorizedcurrently being actively marketed for issuance.
| 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(3) | | | (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 (1) | | | 161,021 | (2) | | | N/A | | | | 530,585 | (4) |
| | | | | | | | | | | | | |
Equity Compensation Plans Not Approved by Shareholders (5) | | | 24,225 | (6) | | | N/A | | | | 77,243 | (7) |
| | | | | | | | | | | | | |
Total | | | 185,246 | | | | | | | | 607,828 | |
(1) | Our 2011 Incentive Plan. |
(2) | Represents unvested RSUs granted under our 2011 Incentive Plan. |
(3) | Restricted Stock Units do not have an exercise price. |
(4) | Represents shares available for issuance under our 2011 Incentive Plan. |
(5) | Our Amended and Restated Non-Employee Director Stock Incentive Plan. |
(6) | Represents Deferred Stock Units granted under our Amended and Restated Non-Employee Director Stock Incentive Plan. |
(7) | Represents shares available for issuance under our Amended and Restated Non-Employee Director Stock Incentive Plan. |
Equity Compensation Plans Not Approved by Shareholders
Our Amended and Restated Non-Employee Directors Compensation Plan provides that annual retainers payable to our non-employee directors will be paidsale, are included in "Assets held for sale" in the formConsolidated Balance Sheets at December 31, 2022.
Leadership Change
As previously announced on January 6, 2023, Mr. Barry A. Ruffalo's employment as President and Chief Executive Officer was terminated and he was succeeded by Mr. Jaco van der Merwe. In accordance with the terms of cash, unless the director elects to receive the annual retainerMr. Ruffalo's separation agreement, we recorded $4.4 million of restructuring related costs in the formfourth quarter of common stock, which may, at the director's option, be received on a deferred basis. If the director elects to receive Common Stock, whether on a current or deferred basis, the number of shares2022. Additional costs are anticipated 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.
In addition, our Amended and Restated Non-Employee Directors Compensation Plan also provides that each non-employee director will receive an annual stock awardincurred in the formfirst quarter of restricted stock units (RSUs) that vest on2023 for this separation.
Management continually reviews our organizational structure and operations to ensure they are optimized and aligned with achieving our near-term and long-term operational and profitability targets. In connection with this review, in February 2023, we implemented a limited restructuring plan to right-size and reduce the day preceding the Company's next annual shareholder's meeting. The RSUs have no rightsfixed cost structure of our overhead departments. We anticipate charges of $3.0 million to dividends prior$4.0 million for employee termination costs, excluding equity award modifications, to their conversion to shares of Common Stock. Individual directors can elect to defer the conversion to Common Stock if they so choose.
Information included under the caption "Stock Ownership of Certain Beneficial Owners and Management"be incurred primarily in the Company's 2018 Proxy Statement is incorporated herein by reference.
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 2018 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information included under the caption "Audit Matters" in the Company's 2018 Proxy Statement 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 andfirst quarter of 2023. No further actions are filedcurrently planned. However, additional actions may be taken as a part hereof:result of management’s ongoing business reviews.
. | Selected Consolidated Financial Data. |
. | Management's Discussion and Analysis of Financial Condition and Results of Operations. |
. | Management's Report on Internal Control over Financial Reporting. |
. | Reports of Independent Registered Public Accounting Firm. |
. | Consolidated Balance Sheets as of December 31, 2017 and 2016. |
. | Consolidated Statements of Income for the Years Ended December 31, 2017, 2016 and 2015. |
. | Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015. |
. | Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015. |
. | Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016 and 2015. |
| Notes to Consolidated Financial Statements. |
(a)(2) 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.Industry and Business Condition
(a)(3) The following Exhibits are incorporated by reference into or are filed with this Report:
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| 101.INS | | XBRL Instance Document |
| 101.SCH | | XBRL Taxonomy Extension Schema |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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| * | | Management contract or compensatory plan or arrangement. |
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(b) | The Exhibits to this Report are listed under Item 15(a)(3) above.
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(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. |
Item 16. Form 10-K Summary
None
to
ANNUAL REPORT ON FORM 10-K
ITEMS 6, 7, 7A, 8, 9A and 15(a)(1), (2) and (3) and 15(b) and 15(c)
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ASTEC INDUSTRIES, INC.
FINANCIAL
INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA(in thousands, except as noted*)
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| Consolidated Statement of Income Data | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,184,739 | | | $ | 1,147,431 | | | $ | 983,157 | | | $ | 975,595 | | | $ | 932,998 | |
| Gross profit | | | 243,129 | | | | 265,269 | | | | 218,843 | | | | 215,316 | | | | 207,119 | |
| Gross profit % | | | 20.5 | % | | | 23.1 | % | | | 22.3 | % | | | 22.1 | % | | | 22.2 | % |
Selling, general and administrative
expenses | | | 160,775 | | | | 153,145 | | | | 145,180 | | | | 141,490 | | | | 133,337 | |
| Research and development | | | 26,817 | | | | 24,969 | | | | 23,676 | | | | 22,129 | | | | 18,101 | |
| Income from operations | | | 55,537 | | | | 87,155 | | | | 49,987 | | | | 51,697 | | | | 55,681 | |
| Interest expense | | | 840 | | | | 1,395 | | | | 1,611 | | | | 720 | | | | 423 | |
| Other income | | | 1,218 | | | | 529 | | | | 3,055 | | | | 1,207 | | | | 1,937 | |
| Net income | | | 37,590 | | | | 54,988 | | | | 31,966 | | | | 34,206 | | | | 39,214 | |
Net income attributable to controlling interest | | | 37,795 | | | | 55,159 | | | | 32,797 | | | | 34,458 | | | | 39,042 | |
| Earnings per common share*: | | | | | | | | | | | | | | | | | | | | |
Net income attributable to controlling interest | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 1.64 | | | | 2.40 | | | | 1.43 | | | | 1.51 | | | | 1.72 | |
| Diluted | | | 1.63 | | | | 2.38 | | | | 1.42 | | | | 1.49 | | | | 1.69 | |
| | | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 423,823 | | | $ | 407,972 | | | $ | 399,785 | | | $ | 388,862 | | | $ | 385,680 | |
| Total assets | | | 889,579 | | | | 843,601 | | | | 777,353 | | | | 802,265 | | | | 749,291 | |
| Short-term debt | | | -- | | | | 4,632 | | | | -- | | | | 2,814 | | | | -- | |
| Current maturities of long-term debt | | | 2,469 | | | | 2,538 | | | | 4,528 | | | | 1,027 | | | | 34 | |
| Long-term debt, less current maturities | | | 1,575 | | | | 4,116 | | | | 5,154 | | | | 7,061 | | | | 510 | |
| Total equity | | | 686,765 | | | | 648,841 | | | | 609,858 | | | | 596,152 | | | | 577,311 | |
Cash dividends declared per common share* | | | 0.40 | | | | 0.40 | | | | 0.40 | | | | 0.40 | | | | 0.30 | |
Book value per share at year-end (shareholders' equity / diluted shares outstanding for the year)* | | | 29.58 | | | | 27.99 | | | | 26.30 | | | | 25.62 | | | | 24.85 | |
SUPPLEMENTARY FINANCIAL DATA(in thousands, except as noted*)
Quarterly Financial Highlights (Unaudited) | | First
Quarter | | | Second
Quarter | | | Third Quarter | | | Fourth
Quarter | |
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2017 Net sales | | $ | 318,401 | | | $ | 301,909 | | | $ | 252,054 | | | $ | 312,375 | |
| Gross profit | | | 75,771 | | | | 65,524 | | | | 39,084 | | | | 62,750 | |
| Net income (loss) | | | 15,080 | | | | 14,359 | | | | (2,703 | ) | | | 10,854 | |
| Net income (loss) attributable to controlling interest | | | 15,120 | | | | 14,420 | | | | (2,667 | ) | | | 10,922 | |
| Earnings (loss) per common share* | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to controlling interest: | | | | | | | | | | | | | | | | |
| Basic | | | 0.66 | | | | 0.63 | | | | (0.12 | ) | | | 0.47 | |
| Diluted | | | 0.65 | | | | 0.62 | | | | (0.12 | ) | | | 0.47 | |
| | | | | | | | | | | | | | | | | |
2016 Net sales | | $ | 278,721 | | | $ | 294,394 | | | $ | 247,752 | | | $ | 326,564 | |
| Gross profit | | | 71,956 | | | | 73,452 | | | | 55,389 | | | | 64,472 | |
| Net income | | | 17,678 | | | | 18,141 | | | | 6,835 | | | | 12,334 | |
| Net income attributable to controlling interest | | | 17,743 | | | | 18,192 | | | | 6,838 | | | | 12,386 | |
| Earnings per common share* | | | | | | | | | | | | | | | | |
Net income attributable to controlling interest: | | | | | | | | | | | | | | | | |
| Basic | | | 0.77 | | | | 0.79 | | | | 0.30 | | | | 0.54 | |
| Diluted | | | 0.77 | | | | 0.79 | | | | 0.30 | | | | 0.53 | |
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| Common Stock Price* | | | | | | | | | | | | | | | | |
| 2017 High | | $ | 73.37 | | | $ | 66.66 | | | $ | 58.06 | | | $ | 59.22 | |
| 2017 Low | | | 59.02 | | | | 52.35 | | | | 45.70 | | | | 48.44 | |
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| 2016 High | | $ | 47.97 | | | $ | 57.51 | | | $ | 62.75 | | | $ | 71.88 | |
| 2016 Low | | | 33.08 | | | | 44.21 | | | | 51.73 | | | | 52.08 | |
The Company's common stock is traded in the Nasdaq National Market under the symbol ASTE. Prices shown are the high and low sales prices as announced by the Nasdaq National Market. The Company paid quarterly dividends of $0.10 per common share to shareholders in each quarter of 2016 and 2017. As determined by the proxy search on the record date for the Company's 2018 annual shareholders' meeting, the number of holders of record is approximately 215.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS
(Dollar and share amounts in thousands, except per share amounts, unless otherwise specified)
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-21.
Overview
The Company is a leading manufacturer and seller of equipment for the road building, aggregate processing, geothermal, water, oil and gas, and wood processing industries. The Company's businesses:
· | design, engineer, manufacture and market equipment used in each phase of road building, including mining, quarrying and crushing the aggregate, mobile bulk and material handling solutions, producing asphalt or concrete, recycling old asphalt or concrete and applying the asphalt; |
· | design, engineer, manufacture and market additional equipment and components, including equipment for geothermal drilling, oil and natural gas drilling, industrial heat transfer, wood chipping and grinding, wood pellet processing, commercial and industrial burners, combustion control systems; and |
· | manufacture and sell replacement parts for equipment in each of its product lines. |
The Company, as we refer to it herein, consists of a total of 21 companies that are consolidated in our financial statements, which includes 17 manufacturing companies, two companies that operate as dealers for the manufacturing companies, a captive insurance company and the parent company. RexCon, Inc. was purchased by the Company on October 1, 2017 and is included in the number of companies disclosed above. The companies fall within three reportable operating segments: the Infrastructure Group, the Aggregate and Mining Group and the Energy Group.
Infrastructure Group - This segment consists of five business units, three of which design, engineer, manufacture and market a complete line of asphalt plants, asphalt pavers, wood pellet plants and related components and ancillary equipment. The two remaining companies in the Infrastructure Group primarily sell, service and install equipment produced by the manufacturing subsidiaries of the Company, with the majority of sales to the infrastructure industry.
Aggregate and Mining Group - This segment consists of eight business units that design, manufacture and market heavy equipment and parts in the aggregate, metallic mining, quarrying, recycling, ports and bulk handling industries.
Energy Group - This segment consists of six business units that design, manufacture and market heaters, gas, oil and combination gas/oil burners, combustion control systems, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, commercial and industrial burners, combustion control systems, storage equipment and related parts to the oil and gas, construction, and water well industries. RexCon, Inc. was added to this group effective October 1, 2017 as described below.
Individual Company subsidiaries included in the composition of the Company's segments are as follows:
1. | Infrastructure Group – Astec, Inc., Roadtec, Inc., Carlson Paving Products, Inc., Astec Australia, Pty Ltd and Astec Mobile Machinery GmbH.
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2. | Aggregate and Mining Group – Telsmith, Inc., Kolberg-Pioneer, Inc., Johnson Crushers International, Inc., Osborn Engineered Products SA (Pty) Ltd, Breaker Technology, Inc., Astec Mobile Screens, Inc., Astec do Brasil Fabricacao de Equipamentos LTDA and Telestack Limited.
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3. | Energy Group – Heatec, Inc., CEI, Inc., GEFCO, Inc., Peterson Pacific Corp., Power Flame Incorporated (beginning in August 2016) and RexCon, Inc. (beginning in October 2017). RexCon, Inc., a manufacturer of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment, was added to this group effective October 1, 2017 upon the acquisition of substantially all of the assets and liabilities of RexCon LLC.
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The Company also has one other category, Corporate, that contains the business units that do not meet the requirements for separate disclosure as a separate operating segment or inclusion in one of the other reporting segments. The business units in the Corporate category are Astec Insurance Company ("Astec Insurance" or "the captive") and Astec Industries, Inc., the parent company. These two companies provide support and corporate oversight for all the companies that fall within the reportable operating segments.
The Company'sOur financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets it serves.we serve. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development changes in the price of crude oil, which affects the cost of fuel and liquid asphalt and changes in the priceprices of liquid asphalt, oil, natural gas and steel. In addition, many of our markets are highly competitive, and our products compete worldwide with similar products produced and sold by a number of other manufacturers and dealers.
We ended 2021 with a strong backlog of orders, which continued to grow during 2022, but at a slower pace than we experienced during the prior year. The backlog of orders as of December 31, 2022 was $912.7 million compared to $762.6 million as of December 31, 2021, an increase of $150.1 million or 19.7%. Increased orders were driven by higher demand from the continuation of dealer inventory replenishment and the infrastructure investment by the United States' government under the Infrastructure Investment and Jobs Act ("IIJA") enacted in November 2021. The higher demand has contributed to longer lead times. In addition, we are continuing to experience constrained production cycles due to increased lead times for certain
The Company believesproduction materials, parts and supplies and manufacturing labor shortages which have and may continue to impact our ability to satisfy the orders in our backlog in a manner that federal highway funding influencesmeets the purchasing decisionstimelines of the Company's customers, who are typically more comfortable making capital equipment purchases with long-term federal legislation in place. our customers.
Federal funding provides for approximately 25%a significant portion of all highway, street, roadway and parking construction in the United States.
In July 2012, We believe that federal highway funding influences the "Moving Ahead for Progresspurchasing decisions of our customers, who are typically more amenable to making capital equipment purchases with long-term federal legislation in the 21st Century Act" ("Map-21") was approved by the U.S. federal government, which authorized $105 billion of federal spending on highway and public transportation programs through fiscal year 2014. In August 2014,place. As noted above, the U.S. government approved short-term funding of $10.8enacted the IIJA in November 2021. The IIJA allocates $548 billion through May 2015. Federal transportation funding operated on short-term appropriations until December 4, 2015 when the Fixing America's Surface Transportation Act ("FAST Act") was signed into law. The $305 billion FAST Act approved funding for highways of approximately $205 billion and transit projects of approximately $48 billion forin government spending to new infrastructure over the five-year period ending September 30, 2020.
The Company believes aconcluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects. We believe that multi-year highway programprograms (such as the FAST Act)IIJA) will have the greatest positive impact on the road construction industry and allow itsour customers to plan and execute longer-term projects, but given the inherent uncertainty in the political process, the level of governmental funding for federal highway projects will similarly continue to be uncertain. Since elected in late 2016, the current executive branch of the federal government has stressed that one of its priorities is a new infrastructure bill including increased funding for roads, bridges, tunnels, airports, railroads, ports and waterways, pipelines, clean water infrastructure, energy infrastructure and telecommunication needs. The funding for the bill as proposed would rely in part on direct federal spending as well as increased private sector funding in exchange for federal tax credits. Governmental funding that is committed or earmarked for federal highway projects is always subject to repeal or reduction. Although continued funding under the FAST Act or funding of a bill passed by the new administration is expected, it may be at lower levels than originally approved or anticipated. In addition, Congress could pass legislation in future sessions that would allow for the diversion of previously appropriated highway funds for other purposes, or it could restrict funding of infrastructure projects unless states comply with certain federal policies. The level of future federal highway construction is uncertain and any future funding may be at levels lower than those currently approved or that have been approved in the past.projects.
The public sector spending described above is needed to fund road, bridge and mass transit improvements. The Company believes that increased funding is unquestionably needed to restore the nation's highways to a quality level required for safety, fuel efficiency and mitigation of congestion. In the Company's opinion, amounts needed for such improvements are significantly greater than amounts approved to date, and funding mechanisms such as the federal usage fee per gallon of gasoline, which is still at the 1993 level of 18.4 cents per gallon, would likely need to be increased along with other measures to generate the funds needed.
In addition to public sector funding, the economies in the markets the Company serves, the price of oil and its impact on customers' purchasing decisions and the price of steel may each affect the Company's financial performance. Economic downturns generally result in decreased purchasing by the Company's customers, which, in turn, causes reductions in sales and increased pricing pressure on the Company's products. Rising interest rates also typically negatively impact customers' attitudes toward purchasing equipment. The Federal Reserve has maintained historically low interest rates in response to the economic downturn which began in 2009; however, the Federal Reserve raised the Federal Funds Rate in 2016 and again in March, June and December 2017, and may implement additional increases in the future.
Significant portions of the Company'sour revenues from the Infrastructure GroupSolutions segment relate to the sale of equipment involved in the production, handling, recycling or installationapplication of asphalt mix. Liquid asphalt is a by-product of oil production.refining. An increase or decrease in the price of oil impacts the cost of asphalt, which is likely to alter demand for asphalt and therefore affect demand for certain Companyof our products. While increasing oil prices may have a negative financial impact on many of the Company'sour customers, the Company'sour equipment can use a significant amount of recycledreclaimed asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer. The Company continuesWe continue to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt mix.asphalt. Oil prices increased throughout 2021 and 2022, reaching a peak in the third quarter and subsequently stabilizing during the fourth quarter of 2022. Entering 2023, oil prices continue to remain at relatively high levels with price volatility makesmaking it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. Oil prices rose during much of 2016 and continued to fluctuate during 2017 and fluctuations are expected to continuehave routinely fluctuated in the future. Minor fluctuations in oil prices should not have a significant impact on customers' buying decisions. Other factors such as political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other economic factors could significantly impact oil prices, which could negatively impact demand for the Company's products. However, the Company believes the continued funding of the FAST Act federal highway bill passed in December 2015 has greater potential to impact the buying decisions of the Company's customers than does the fluctuation of oil prices in 2018.
Contrary to the impact of oil prices on many of the Company's Infrastructure Group products as discussed above, the products manufactured by the Energy Group, which are used in drilling for oil and natural gas, in heaters for refineries and oil sands and in double fluid pump trailers for fracking and oil and gas extraction, would benefit from higher oil and natural gas prices, to the extent that such higher prices lead to increased development in the oil and natural gas production industries. The Company believes further development of domestic oil and natural gas production capabilities is needed and would positively impact the domestic economy and the Company's business.
Steel is a major component in the Company's equipment. Steel followed typical seasonal patterns during 2017, peaking in April and reaching lows in November. Prices began to rise in early 2018recent years and are expected to continue to risefluctuate in the future. Based on the current macroeconomic environment, including the ongoing impact of the conflict in Ukraine, we anticipate that oil prices will remain at relatively high levels in 2023.
Steel is a major component of our equipment. Driven by supply constraints, steel prices increased throughout the first and second quartersprior year, stabilizing at historically high levels at the end of 2018 due2022, which we expect to seasonalcarry through 2023. During 2022, we have observed a slowing in market demand and an improving economy. The Company expects normal seasonal price movement during 2018 withreduced lead times as buyers are responding to recessionary pressures and continue to restrict purchases to immediate or near-term needs. However, we anticipate that steel prices higher on average thandemand will remain relatively strong in 2017. The Company continues2023, driven by the IIJA domestically and impacted by international production capacity being restricted by the conflict in Ukraine. We continue to utilize forward-looking contracts (with no minimum or specified quantity guarantees) coupled with advanced steel purchasesemploy flexible strategies to ensure supply and minimize the impact of any price increases. The Company will reviewvolatility. Potential ongoing constraints in the trendssupply of certain steel products may continue pressuring the availability of other components used in our manufacturing process.Furthermore, given the volatility of steel prices and the nature of our customers' orders, we may not be able to pass through all increases in steel prices entering intocosts to our customers, which negatively impacts our gross profit and margins.
We actively manage our global supply chain for any identified constraints and volatility. Supply chain constraints have eased recently, however we do see challenges related to vendor capacity continue to occur, albeit at a decreasing number of suppliers. As a result, we have experienced elevated lead times in certain components used in our manufacturing processes. We are continuing to focus on identifying and qualifying alternative suppliers wherever possible, which has helped alleviate the second half of 2018challenges in our supply chain. We also continually monitor potential future supply costs and establishavailability in an effort to proactively address challenges that might occur. We cannot estimate the full impact that any future contract pricing accordingly.disruptions might have on our operations.
In addition, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations. This has resulted in a variety of challenges in running our operations efficiently to meet strong customer demand. We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.
Whenever possible, we attempt to cover increased costs of production by adjusting the factors stated above,prices of our products. Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months with the growth we have experienced in the backlog. For this reason, we have limitations on our ability to pass on cost increases to our customers on a short-term basis. In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. Through our operational excellence initiatives, we also strive to minimize the effect of inflation through cost reductions and improved manufacturing efficiencies.
Our business was significantly affected by the contributory effects of the Company'sCOVID-19 pandemic such as fluctuations in demand for our products, material price increases, increased shipping costs and lead times from production materials, supplies and parts, labor shortages and increased labor costs throughout 2020 and 2021, with the impacts lessening throughout 2022. The future impact of COVID-19 or other health related emergencies on our operations and the markets are highly competitive,we serve remains uncertain and its products compete worldwide withcannot be accurately predicted. See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K for a number of other manufacturers and dealers that produce and sell similar products. From 2010 through mid-2012, a weak U.S. dollar, combined with improving economic conditions in certain foreign economies, had a positive impact on the Company's international sales. From mid-2012 through 2017, the strong U.S. dollar has negatively impacted pricing in certain foreign markets the Company serves. The Company expects the U.S. dollar to remain strong as compared to historical rates in the near term relative to most foreign currencies. Increasing domestic interest rates or weakening economic conditions abroad could cause the U.S. dollar to continue to strengthen, which could negatively impact the Company's international sales.
In the United States and internationally, the Company's equipment is marketed directly to customers as well as through dealers. During 2017, approximately 65%discussion of the
Company's sales were torisks associated with the
end user. The Company expects this ratio to be between 60% and 70% for 2018.COVID-19 or future pandemics.
The Company is operated on a decentralized basis with 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 handled at each individual subsidiary. Standard accounting procedures are prescribed and followed in all reporting.
During 2016, the Company implemented revised profit sharing plans whereby corporate officers, subsidiary presidents and other employees at each subsidiary have the opportunity to earn profit sharing incentives based upon the Company's and/or the individual groups or subsidiaries' return on capital employed, EBITDA margin and safety. Corporate officers' and subsidiary presidents' awards when calculated at targeted performance, are between 35% and 100%
The Company also implemented revised long-term incentive plans during 2016 whereby corporate officers, subsidiary presidents and other corporate or subsidiary management employees will be awarded Restricted Stock Units ("RSUs") if certain goals are met based upon the Company's Total Shareholder's Return ("TSR") as compared to a peer group and the Company's pretax profit margin. The grant date value of corporate officers' and subsidiary presidents' awards, when calculated at targeted performance, are between 20% and 100% of their base salary, depending upon their responsibilities, and the plans allow for awards of up to 200% of the target. Additional RSUs may be granted to other key subsidiary management employees based upon individual subsidiary profits.
Results of Operations: 20172022 vs. 20162021
Net Sales
Net sales increased $37,308$179.0 million or 3.3%16.3% to $1,184,739$1,274.5 million in 20172022 from $1,147,431$1,095.5 million in 2016. Sales are2021. The increase in net sales was primarily driven by changes in the volume, pricing and mix of sales that generated primarily from newincreases in (i) equipment purchases made by customers for use in construction of privately funded infrastructure, public sector spending on infrastructure and sales of $141.1 million, (ii) parts and component sales of $34.6 million, (iii) service and equipment for the aggregate, mining, wood pellet, quarryinginstallation revenue of $7.1 million and recycling markets,(iv) freight revenue of $4.2 million partially offset by decreased used equipment sales of $4.2 million and for oil and gas and geothermal industries. Excluding a declineother revenue of $3.8 million primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers. Included in domestic wood pellet plant sales discussed below, total sales increased $164,508 between years.
Domestic sales for 2017 were $932,294 or 78.7%these net increases is $4.4 million of incremental net sales compared to $941,273 or 82.0% of net sales for 2016, a decrease of $8,979 or 1.0%. The decrease in domestic sales was due to a $127,200 decline in pellet plant related sales due to no new orders being received in 2017, offset by increases in sales of most of the Company's other major product lines due to the continuing positive economic conditions in the domestic markets and the impact of the FAST Act funding.
International sales for 2017 were $252,445 or 21.3% of net sales compared to $206,158 or 18.0% of net sales for 2016,from an increase of $46,287 or 22.5%. The Company experienced improved markets for most of its major product lines internationally in 2017 compared to 2016 caused by improved global market conditions, the stabilization of the U.S. dollar in certain foreign markets and a slight recovery in the mining and oil and gas sectors. The Company believes its strategy of keeping its sales and service structure in place during the recent downturn aided international sales in 2017.acquired business. Sales reported by the Companyour foreign subsidiaries in U.S. dollars for 20172022 would have been $2,884 lower$18.6 million higher had 2017 foreign exchange rates been the same as 2016the 2021 rates. The increase in international sales occurred primarily in Canada, Russia, Australia, Brazil and Africa, offset by sales decline in South America (excluding Brazil), Japan and Mexico. The Company continues its efforts to grow its international business by increasing its presence in the markets it serves.
PartsDomestic sales for 20172022 were $283,361$1,014.3 million or 23.9%79.6% of net sales compared to $263,457$842.1 million or 23.0%76.9% of net sales for 2016,2021, an increase of $19,904$172.2 million or 7.6%20.4%. AllDomestic sales increased primarily due to: (i) $144.3 million higher equipment sales (ii) $25.6 million higher parts and component sales, (iii) $4.7 million higher service and equipment installation revenue and (iv) $4.7 million higher freight revenue. These increases were partially offset by decreased other revenue of the Company's major product lines experienced increased parts$3.6 million primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers and lower used equipment sales of $3.5 million. Included in 2017 asthese net increases is $2.3 million of incremental net sales from an acquired business.
International sales for 2022 were $260.2 million or 20.4% of net sales compared to 2016.$253.4 million or 23.1% of net sales for 2021, an increase of $6.8 million or 2.7%. International sales increased primarily due to higher parts and component sales and service revenue of $9.0 million and $2.4 million, respectively. These increases were partially offset by $3.2 million lower equipment sales. Included in these net increases is $2.1 million of incremental net sales from an acquired business.
Gross Profit
Gross
Consolidated gross profit for 20172022 was $243,129$264.1 million or 20.5%20.7% of net sales as compared to $265,269$249.5 million or 23.1%22.8% of net sales in 2016, a decline2021, an increase of $22,140$14.6 million or 8.3%5.9%. Due to cost overruns incurred in 2017The increase was primarily driven by the Companyimpact of net favorable volume, pricing and mix that generated $131.8 million higher gross profit. These increases were partially offset by the impact of inflation on the installation phasematerials, labor and overhead of its customer's Arkansas wood pellet plant sold in 2016$104.0 million and the identificationmanufacturing inefficiencies of design issues its customers' wood pellet plants in Arkansas$14.9 million largely due to logistics and Georgia discovered in the third quarter of 2017, the Company experienced an overall reduction in wood pellet plant margins of $60,107 between years. As the Company has financed the sale of the $60,249 Georgia wood pellet plant, revenue from the sale will be recorded when the customer pays for the equipment, which is expected in late 2018. No significant margins are expected to be recorded on the Georgia pellet plant in 2018.manufacturing throughput disruptions.
Selling, General and Administrative ExpenseExpenses
Selling, general and administrative
expenseexpenses for
2017 was $160,7752022 were $216.1 million or
13.6%17.0% of net sales compared to
$153,145$200.6 million or
13.3%18.3% of net sales for
2016,2021, an increase of
$7,630$15.5 million or
5.0%7.7%, primarily due
to an increase of $8,646 in selling expenses resulting primarily from increased ConExpo Show-related costs of $4,355 and otherto: (i) $12.1 million increased costs related to
our SFG transformation program, (ii) $3.2 million of exhibit, promotional and travel costs due to the
$164,508 increase in total sales excluding wood pellet plants.return of in-person industry conferences and business activities, (iii) $2.8 million incremental expenses associated with MINDS, (iv) $2.0 million of acquisition and integration related costs mainly associated with the acquisition of MINDS and (v) increased net payroll and employee benefit costs due to increased headcount throughout our organization partially offset by lower health insurance claims experience and reduced deferred compensation program costs associated with our stock price changes. These increases were partially offset by lower depreciation and amortization expense of $3.7 million and reduced expenses related to closing a site location of $2.1 million.
Research and Development Expenses
Research and development expenses increased $1,848$5.0 million or 7.4%18.9% to $26,817$31.5 million in 20172022 from $24,969$26.5 million in 2016. During 2017, the Company continued its focus on2021. Increased research and development spending for new products as well as improvements to existing product linescosts were primarily driven by higher prototype materials costs and adaptationincreased personnel-related expenses.
Restructuring, Impairment and Other Asset Charges, Net
Interest Expense
Interest expense in 2017 decreased $555 or 39.8%, to $840 from $1,395 in 2016 due to a reduction in debt levels atRestructuring, asset impairment charges and the Company's subsidiary in Brazilnet gain on the sale of property and reduced interest on tax return audit assessments.
Interest Income
Interest income increased $496 or 61.5% to $1,302 in 2017 from $806 in 2016 due primarily to interest received in 2017 from a wood pellet plant customer.
Other Income
Other income increased $689 or 130.2% to $1,218 in 2017 from $529 in 2016 due primarily to a $347 deposit forfeited by a customer on a cancelled order, reduced investment losses of $180 and improved licensing fee income of $105.
Income Tax
Income tax expense for 2017 was $19,627, compared to $32,107 for 2016. The effective tax rates for 2017 and 2016 were 34.3% and 36.9%, respectively. The reduction in tax rates between periods is due primarily to an increase in the percent impact of the Company's Domestic Production Activities Deduction and Research and Development Tax Credit (due to similar dollar impacts on lower taxable earnings) and a $1,056 reduction in income tax expense in the fourth quarter of 2017 due to the application of the provisions of Tax Cuts and Jobs Act of 2017, enacted by the U.S. government on December 22, 2017.
Net Income Attributable To Controlling Interest
The Company had net income attributable to controlling interest of $37,795 in 2017 compared to $55,159 in 2016, a decrease of $17,364, or 31.5%. Earnings per diluted share decreased $0.75 to $1.63 in 2017 from $2.38 in 2016. Weighted average diluted shares outstandingequipment for the years ended December 31, 20172022 and 2016 were 23,1842021 are presented below and 23,142, respectively.relate primarily to our SFG initiatives and recent leadership change:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 |
| Restructuring charges: | | | | |
| Costs associated with leadership change | | $ | 4.4 | | | $ | — | |
| Costs associated with closing Enid | | 1.0 | | | 0.7 | |
| Costs associated with closing Tacoma | | 0.8 | | | 1.6 | |
| Costs associated with closing Mequon | | — | | | 0.6 | |
| | | | |
| | | | |
| | | | |
| | | | |
| Total restructuring related charges | | 6.2 | | | 2.9 | |
| | | | |
| Asset impairment charges: | | | | |
| | | | |
| | | | |
| Other impairment charges | | 3.5 | | | 0.2 | |
| Total asset impairment charges | | 3.5 | | | 0.2 | |
| | | | |
| Gain on sale of property and equipment, net: | | | | |
| Gain on sale of property and equipment, net | | (0.7) | | | (0.6) | |
| Total gain on sale of property and equipment, net | | (0.7) | | | (0.6) | |
| | | | |
| Restructuring, impairment and other asset charges, net | | $ | 9.0 | | | $ | 2.5 | |
See Note 22, Strategic Transformation and Restructuring, Impairment and Other Asset Charges, of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of the individual restructuring actions taken and the impairment charges recorded.
Income Tax Provision
Income tax expense for the year ended December 31, 2022 was $5.0 million, reflecting a 113.6% effective tax rate compared to an income tax benefit of $2.1 million for the year ended December 31, 2021, reflecting a (15.2)% effective tax rate. Our effective tax rates are affected by recurring items which are generally consistent from period to period, as well as discrete items that may occur but are not consistent from period to period.
The items having the most significant impact on the effective tax rate for 2022 include discrete tax expense for a foreign valuation allowance of $5.5 million for net operating losses ("NOLs") at our Brazilian subsidiary partially offset by the net benefits of $2.1 million for research and development tax credits and $0.9 million from the foreign derived intangible income deduction. The items having the most significant impact on the effective tax rate for 2021 include a benefit from net releases of valuation allowances of $8.1 million primarily related to NOLs at our Brazilian and German subsidiaries and a net benefit of $2.3 million for research and development tax credits partially offset by a $4.4 million provision from the dissolution of our Germany subsidiary. Future utilization of our NOLs and state tax credit carryforwards is evaluated on a periodic basis, and the valuation allowance is adjusted accordingly. There is no guarantee that we will not incur additional valuation allowances to our NOLs.
Backlog
The backlog of orders at December 31, 20172022 was $411,469$912.7 million compared to $361,831$762.6 million at December 31, 2016,2021, an increase of $49,638,$150.1 million or 13.7%19.7%. Backlogs for both periods include a $60,249 pellet plant order the Company has financed for its customer. Revenue will not be recorded on the order until cash payments are received, which is expectedDomestic and international backlogs increased $146.3 million or 23.3% and $3.8 million or 2.8%, respectively. The backlog increased $117.8 million to occur in late 2018. The increase$567.1 million in the backlog of orders was dueInfrastructure Solutions segment and increased $27.9 million to an increase in domestic backlog of $36,786 or 12.3% and an increase in international backlog of $12,852 or 20.5%. The Infrastructure Group backlog increased $7,271 or 3.1% from 2016. The Aggregate and Mining Group backlog increased $28,036 or 31.5% from 2016 while the backlog$341.2 million in the Energy Group increased $14,331 or 35.2% overMaterials Solutions segment. The Corporate and Other backlog represents our controls and automation business and totaled $4.4 million as of December 31, 2022. Increased orders were driven by higher demand from the 2016 levels. The Company is unable to determine whethercontinuation of dealer inventory replenishment and the changes in backlogs were experiencedinfrastructure investment by the industry as a whole.United States' government under the IIJA enacted in November 2021. The higher demand has contributed to longer lead times.
Net Sales by Segment
| | | 2017 | | | 2016 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 553,691 | | | $ | 608,908 | | | $ | (55,217 | ) | | | (9.1 | )% |
| Aggregate and Mining Group | | | 403,720 | | | | 359,760 | | | | 43,960 | | | | 12.2 | % |
| Energy Group | | | 227,328 | | | | 178,763 | | | | 48,565 | | | | 27.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| (in millions) | | 2022 | | 2021 | | $ Change | | % Change |
| Infrastructure Solutions | | $ | 847.4 | | | $ | 743.4 | | | $ | 104.0 | | | 14.0 | % |
| Materials Solutions | | $ | 422.7 | | | $ | 352.1 | | | $ | 70.6 | | | 20.1 | % |
| Corporate and Other | | $ | 4.4 | | | $ | — | | | $ | 4.4 | | | 100.0 | % |
Infrastructure Group: Solutions
Sales in this group decreased $55,217 or 9.1%. Excluding a $127,500 decrease in wood pellet plant sales, the group's sales increased $71,983 in 2017 assegment were $847.4 million for 2022 compared to 2016. $743.4 million for 2021, an increase of $104.0 million, or 14.0%. The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $78.4 million, (ii) parts and component sales of $20.3 million, (iii) service and equipment installation revenue of $5.3 million and (iv) freight revenue of $2.6 million. These increases were partially offset by lower used equipment sales of $3.1 million.
Domestic sales for the Infrastructure Group decreased $80,666Solutions segment increased by $103.4 million, or 14.7% in 201717.2%, for 2022 compared to 2016. The decrease in domestic2021 primarily due to: (i) increased new equipment sales was due to a $127,200 decline in pellet plant relatedof $80.1 million, (ii) increased parts and component sales due to no new orders being received in 2017,of $18.1 million, (iii) increased service and equipment installation sales of $4.5 million and (iv) increased freight revenue of $2.6 million. These increases were partially offset by increases inlower used equipment sales of most other major product lines due to the continuing positive economic conditions in the domestic markets and the impact of the FAST Act funding. $2.7 million.
International sales for the Infrastructure GroupSolutions segment increased $25,449$0.6 million, or 41.3% in 20170.4%, for 2022 compared to 2016. The increase in international sales was2021 primarily due primarily to the improvedincreased parts and component sales of mobile asphalt equipment and increased sales by the Company owned distributor in Australia. The increase in international sales for the Infrastructure Group occurred mainly in Canada, Australia and Russia,$2.2 million partially offset by a decrease inlower equipment sales in South America and Japan. Parts sales for the Infrastructure Group increased 3.7% in 2017 compared to 2016.
of $1.7 million.
Aggregate and Mining Group: Materials Solutions
Sales in this groupsegment were $422.7 million for 2022 compared to $352.1 million for 2021, an increase of $70.6 million or 20.1%. The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased $43,960 or 12.2%. new equipment and parts and component sales of $59.1 million and $14.1 million, respectively. These increases were partially offset by decreased other revenue of $4.5 million primarily driven by increased utilization of our interest subsidy programs offered to some of our dealer customers.
Domestic sales for the Aggregate and Mining GroupMaterials Solutions segment increased $32,206$66.5 million or 13.1% in 201727.7% for 2022 compared to 2016 primarily due to improved sales into the Company's traditional rock quarry markets,2021 driven by: (i) increased new equipment of $62.1 million (ii) increased parts and component sales of the Company's larger aggregate equipment due$7.4 million and (iii) increased freight revenue of $2.1 million. These increases were partially offset by decreased other revenue of $4.5 million primarily driven by increased utilization of our interest subsidy programs offered to the releasecertain of pent-up demand and increased sales by the Company's Northern Ireland subsidiary in the U.S. domestic market. our dealer customers.
International sales for the Aggregate and Mining GroupMaterials Solutions segment increased $11,754$4.1 million or 10.3% in 20173.7% for 2022 compared to 2016. The increase in international sales is2021 primarily due to an easingincreased parts and component sales of pent-up demand, the Company's continued sales efforts in the international markets and improved sales by the Company's Brazilian subsidiary. The increase in international sales for the Aggregate and Mining Group occurred primarily in Canada, Brazil, Australia, Asia and Africa,$6.7 million partially offset by lower new equipment sales declines in Mexico, Japanof $3.0 million.
Corporate and South America. Parts sales for the Aggregate and Mining Group increased 7.9% in 2017 compared to 2016 due to improved sales by the Company's South African subsidiary and sales into the traditional rock quarry markets.Other
Energy Group: Sales in this group increased $48,565segment represent our controls and automation business acquired in April 2022.
Segment Operating Adjusted EBITDA
Segment Operating Adjusted EBITDA is the measure of segment profit or 27.2%. Domestic sales forloss used by our Chief Executive Officer, whom is determined to be the Energy Group increased $39,482chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or 26.6%loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in 2017 comparedthe evaluation of ongoing operating performance. This non-GAAP financial measure can be useful to 2016 due to an increaseinvestors in sales of $14,739 by Power Flame, which was acquired on August 1, 2016, and improved sales of wood chipping and grinding equipment, drilling rigs and oil and gas pumpers. RexCon, Inc., which was acquired on October 1, 2017, also contributed $2,449 of domestic sales in 2017. International sales for the Energy Group increased $9,083 or 30.0% in 2017 compared to 2016. The increase in international sales was due primarily to increased sales by Power Flame of $3,287 and increased sales of oil and gas drilling rigs. The increase in international sales occurred in Canada, Africa, China, Brazilunderstanding operating results and the Middle East, offsetperformance of our core business from management's perspective. Our presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by decreased sales in South America (excluding Brazil). Parts sales for the Energy Group increased 19.6% in 2017 compared to 2016 due to increased sales in all major product lines.
Segment Profit (Loss)
| | | 2017 | | | 2016 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 26,641 | | | $ | 71,482 | | | $ | (44,841 | ) | | | (62.7 | )% |
| Aggregate and Mining Group | | | 35,748 | | | | 34,877 | | | | 871 | | | | 2.5 | % |
| Energy Group | | | 16,219 | | | | 4,145 | | | | 12,074 | | | | 291.3 | % |
| Corporate | | | (40,963 | ) | | | (55,992 | ) | | | 15,029 | | | | 26.8 | % |
Infrastructure Group: Profit for this group decreased $44,841 or 62.7% from 2016. This group's profits were impacted by a decrease in gross profit of $42,821 or 550 basis points. Due to cost overruns incurred by the Company in 2017 on the installation phase of its customer's Arkansas wood pellet plant sold in 2016other companies and the identification of design issues its customers' wood pellet plants in Arkansas and Georgia discovered in the third quarter of 2017, the Company experienced an overall reduction in wood pellet plant margins of $60,107 between years. As the Company has financed the saleis not necessarily indicative of the Georgia wood pellet plant, revenue fromresults of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the sale will be recorded whenperiods presented. See Note 19, Operations by Industry Segment and Geographic Area, of the customer pays for the equipment, which is expected in late 2018. No significant margins are expected to be recorded on the Georgia pellet plant in 2018. Segment profits were also negatively impacted by a $3,448 increase in selling expenses, including $1,986 relatedNotes to the ConExpo Show and other cost increases relatedConsolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of Segment Operating Adjusted EBITDA to the $71,983 increase in group sales, excluding wood pellet plants. Research and development costs also increased by $1,475 between periods.
Aggregate and Mining Group: Profit for this group increased $871 or 2.5% from 2016. This group's profits were impacted by an increase in gross profit of $2,440 on increased sales of $43,960, offset by a 220 basis point decrease in gross margin due to intercompany profit eliminations, product mix considerations and reduced margins at the Company's Northern Ireland subsidiary. The group's profits were also negatively impacted by increased ConExpo Show costs of $1,842.
Energy Group: Profit for this group increased $12,074 or 291.3% from 2016. This group's profits were impacted by an increase in gross profit of $17,954 on increased sales of $48,565 and a 330 basis point increase in gross margins. Margins were favorably impacted by significant improvements at the Company's GEFCO subsidiary, due to a 64% increase in sales, and by the addition of Power Flame, which was acquired on August 1, 2016. The group's profits were negatively impacted by a $5,540 increase in selling, general and administrative expenses, of which $3,280 relates to additional costs incurred by Power Flame and RexCon, which were acquired in 2016 and 2017, respectively.
Corporate: Net corporate expenses decreased $15,029 from 2016 due to decreases in profit sharing and SERP expenses of $5,031 and decreased income taxes of $10,617.
Results of Operations: 2016 vs. 2015
Net Sales
Net sales increased $164,274 or 16.7% to $1,147,431 in 2016 from $983,157 in 2015. Sales are generated primarily from new equipment purchases made by customers for use in construction of privately funded infrastructure, public sector spending on infrastructure and sales of equipment for the aggregate, mining, wood pellet, quarrying and recycling markets, and for oil and gas and geothermal industries.
Domestic sales for 2016 were $941,273 or 82.0% of net sales compared to $722,287 or 73.5% of net sales for 2015, an increase of $218,985 or 30.3%. The overall increase in domestic sales for 2016 compared to 2015 reflects the strengthening economic conditions for the Company's products in the domestic market and a $135,187 increase in wood pellet plant sales between years.
International sales for 2016 were $206,158 or 18.0% of net sales compared to $260,870 or 26.5% of net sales for 2015, a decrease of $54,711 or 21.0%. The Company continued to experience a challenging market for its products internationally in 2016 compared to 2015 caused by competitive pressures due to the strengthening of the U.S. dollar, as we compete with local manufacturers that do not price their products based on the U.S. dollar and the continued sluggishness in the global mining industry. Sales reported by the Company for 2016 would have been $10,148 higher had 2016 foreign exchange rates been the same as 2015 rates. The Company continues its efforts to grow its international business by increasing its presence in the markets it serves.
Parts sales as a percentage of net sales decreased 400 basis points to 23.0% in 2016 from 27.0% in 2015. Parts sales decreased 0.6% to $263,457 in 2016 from $265,092 in 2015.
Gross Profit
Gross profit as a percentage of sales increased to 23.1% in 2016 as compared to 22.3% in 2015. Gross profit increased 21.2% to $265,269 in 2016 from $218,843 in 2015. Gross margins increased in 2016 due to a release of pent-up demand from the lack of a long-term federal highway bill, which led to increased margins in the Infrastructure Group as well as margins recorded for wood pellet plant sales by the Company.
Selling, General and Administrative Expense
Selling, general and administrative expense for 2016 was $153,145 or 13.3% of net sales compared to $145,180 or 14.8% of net sales for 2015, an increase of $7,965 or 5.5%. The increase in selling, general and administrative expense over 2015 was due to an increase in payroll and related expense of $6,263 and an increase of $7,640 in profit sharing and SERP expenses, offset by a reduction in the cost of repairs and maintenance, primarily on Company airplanes of $3,001, a decrease in consultant fees of $789 and a decrease in computer expenses of $874.
Research and Development
Research and development expenses increased $1,293 or 5.5% to $24,969 in 2016 from $23,676 in 2015. During 2016, the Company continued its focus on research and development spending for new products as well as improvements to existing product lines and adaptation of those products to other markets. The Company will introduce many of its new products at the ConExpo Show to be held in March 2017.
Interest Expense
Interest expense in 2016 decreased $216 or 13.4%, to $1,395 from $1,611 in 2015.
Interest Income
Interest income increased $264 or 48.7% to $806 in 2016 from $542 in 2015.
Other Income
Other income was $529 in 2016 compared to $3,055 in 2015, a decrease of $2,526 or 82.7% due to $1,204 of income from key-man life insurance policies received in 2015 resulting from the death of the Company's Chairman (and former CEO) and the forfeiture of a customer deposit of $1,002 in 2015 on a cancelled order.
Income Tax
Income tax expense for 2016 was $32,107, compared to $20,007 for 2015. The effective tax rates for 2016 and 2015 were 36.9% and 38.5%, respectively. The effective tax rate decreased in 2016 from the 2015 effective tax rate due to an increase in domestic tax credits for research and development expenditures, a decrease in the overall effective state rate caused by changes in apportionment and statutory state rates and a reduced impact of valuation allowances on deferred tax assets.
Net Income Attributable To Controlling Interest
The Company hadtotal consolidated net income attributable to controlling interestinterest.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| (in millions) | | 2022 | | 2021 | | $ Change | | % Change |
| Infrastructure Solutions | | $ | 73.0 | | | $ | 73.9 | | | $ | (0.9) | | | (1.2) | % |
| Materials Solutions | | $ | 44.5 | | | $ | 39.1 | | | $ | 5.4 | | | 13.8 | % |
| Corporate and Other | | $ | (46.5) | | | $ | (48.2) | | | $ | 1.7 | | | 3.5 | % |
Infrastructure Solutions
Segment Operating Adjusted EBITDA for the Infrastructure Solutions segment was $73.0 million for 2022 compared to $32,797$73.9 million for 2021, a decrease of $0.9 million or 1.2%. The decrease in 2015,Segment Operating Adjusted EBITDA resulted primarily from: (i) the impact of higher inflation on materials, labor and overhead costs of $66.7 million, (ii) increased general and administrative costs of $8.3 million, (iii) manufacturing inefficiencies of $5.3 million largely due to logistics and manufacturing throughput disruptions and (iv) increased research and development costs of $4.2 million. Incorporated in these increased costs is a $4.6 million impact of annual incentive compensation, which was recorded in Corporate and Other in the prior year period and has been reflected in the Infrastructure Solutions segment in the current year. These increased costs were partially offset by the impact of favorable net volume, pricing and mix that generated $80.5 million higher gross profit and reduced expenses related to closed site locations of $2.0 million.
Materials Solutions
Segment Operating Adjusted EBITDA for the Materials Solutions segment was $44.5 million for 2022 compared to $39.1 million for 2021, an increase of $22,362,$5.4 million or 68.2%. Earnings per diluted share increased $0.96 to $2.38 in 2016 from $1.42 in 2015. Weighted average diluted shares outstanding for the years ended December 31, 2016 and 2015 were 23,142 and 23,120, respectively.
Backlog
The backlog of orders at December 31, 2016 was $357,367 compared to $315,910 at December 31, 2015, an increase of $41,457, or 13.1%13.8%. The increase in Segment Operating Adjusted EBITDA resulted primarily from the backlogimpact of orders wasfavorable volume, pricing and mix that generated $51.3 million higher gross profit partially offset by the impact of higher inflation on materials, labor and overhead costs of $37.2 million and manufacturing inefficiencies $7.9 million due to an increasesupply chain and logistics disruptions. Incorporated in domestic backlogthese increased costs is a $1.8 million impact of $33,006 or 12.6%annual incentive compensation, which was recorded in Corporate and an increase in international backlog of $8,451 or 15.6%. The Infrastructure Group backlog increased $28,394 or 13.9% from 2015. The Infrastructure Group backlog includes $60,249 in both 2016 and 2015 for the first three-line pellet plant order from a single customer under a Company financed arrangement whereby the Company expects to record the related revenues in 2018 when payment is due to be received. The Infrastructure Group believes the FAST Act federal highway funding bill passed in late 2015, continues to positively impact order backlogs of the group. The Aggregate and Mining Group backlog increased $14,467 or 19.5% from 2015 while the backlogOther in the Energy Group decreased $1,404 or 3.7% overprior year period and has been reflected in the 2015 levels. BothMaterials Solutions segment in the Aggregatecurrent year.
Corporate and Mining GroupOther
Corporate and the Energy Group continue to be negatively impacted by competitive pricing issues in many foreign countries due to the strengthOther operations had net expenses of the U.S. dollar$46.5 million for 2022 compared to foreign currencies, and reduced demand$48.2 million for equipment in the mining and oil and gas industries. The Company is unable to determine whether the changes in backlogs were experienced by the industry as2021, a whole.
Net Sales by Segment
| | | 2016 | | | 2015 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 608,908 | | | $ | 428,737 | | | $ | 180,171 | | | | 42.0 | % |
| Aggregate and Mining Group | | | 359,760 | | | | 370,813 | | | | (11,053 | ) | | | (3.0 | )% |
| Energy Group | | | 178,763 | | | | 183,607 | | | | (4,844 | ) | | | (2.6 | )% |
Infrastructure Group: Sales in this group increased $180,171decrease of $1.7 million or 42.0%3.5%. Domestic sales for the Infrastructure Group increased 55.2% in 2016 compared to 2015 due to a release of some of the pent-up demand from the lack of a long-term federal highway bill for most of 2015 and increased pellet plant sales of $135,187. International sales for the Infrastructure Group decreased 19.2% in 2016 compared to 2015. The decrease in international salesexpenses was primarily driven by: (i) lower net annual incentive compensation of $2.0 million due primarily to $6.4 million that was recorded within Infrastructure Solutions and Materials Solutions in the strengthening of the U.S. dollarcurrent year as compared to the currencies in many of the countries in which the Company operates. The decrease in international sales for the Infrastructure Group occurred mainly in Canada, Europe, the Middle East, Post-Soviet States, South America and Asia, offset by an increase in saleswithin Corporate in the Mexico, Japan, Australia, West Indies, Chinaprior year period, (ii) reduced consulting fees of $1.7 million and Central America. Parts sales for the Infrastructure Group increased 5.7% in 2016 compared to 2015. The Company believes the increase in parts sales from 2015 to 2016 was due to the impact(iii) reduced deferred compensation program cost driven by our stock price changes of the FAST Act federal highway bill passed in late 2015. The Company also believes a portion of the increase in parts sales was attributed to sales of replacement parts for our competitors' equipment.
Aggregate and Mining Group: Sales in this group decreased $11,053 or 3.0%. Domestic sales for the Aggregate and Mining Group increased 6.3% in 2016 compared to 2015 primarily due to improved demand related to infrastructure projects. International sales for the Aggregate and Mining Group decreased 18.3% in 2016 compared to 2015. The decrease in international sales is due to the strength of the U.S. dollar compared to the currencies in many of the countries in which the Company operates and the continuing slowdown in the mining industry. The decrease in international sales for the Aggregate and Mining Group occurred primarily in Africa, the Middle East, Canada, Brazil, Russia and India,$1.5 million. These decreases were partially offset by increases in Mexico, Japan, Europeinternal headcount and Asia. Sales reported by the Company's foreign subsidiaries in this group would have been $10,134 higher had foreign exchange rates for 2016 been the same as 2015 rates. Parts sales for the Aggregate and Mining Group decreased 6.4% in 2016 compared to 2015.
Energy Group: Sales in this group decreased $4,844 or 2.6%. Sales in this group were positively affected by the purchase of Power Flame Incorporated (PFI), located in Parsons, Kansas in August 2016. PFI manufactures and sells gas, oil and combination gas/oil and low NOx burners as well as combustion control systems designed for commercial, industrial and process applications. Without the purchase of PFI, sales would have decreased 10% from 2015 to 2016. Domestic sales for the Energy Group increased 6.9% in 2016 compared to 2015. International sales for the Energy Group decreased 32.3% in 2016 compared to 2015. The decrease in international sales was due primarily to the continued strength of the U.S. dollar in 2016 and a continued reduction in oil production and exploration brought on by the low oil prices. The decrease in international sales occurred in Russia, the Middle East, Australia, Asia, Africa and Brazil, offset by increased sales in Japan and China. Parts sales for the Energy Group decreased 4.8% in 2016 compared to 2015.
Segment Profit (Loss)
| | | 2016 | | | 2015 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 71,482 | | | $ | 33,890 | | | $ | 37,592 | | | | 110.9 | % |
| Aggregate and Mining Group | | | 34,877 | | | | 30,690 | | | | 4,187 | | | | 13.6 | % |
| Energy Group | | | 4,145 | | | | 3,609 | | | | 536 | | | | 14.9 | % |
| Corporate | | | (55,992 | ) | | | (36,623 | ) | | | (19,369 | ) | | | (52.9 | )% |
Infrastructure Group: Profit for this group increased $37,592 or 110.9% from 2015. This group's profits were impacted by an increase in gross profit of $42,884 or 60 basis points on increased sales of $180,171 partially due to increased overhead absorption on a 20% increase in direct labor hours worked from 2015 to 2016, offset by an increase in payroll and relatedshare-based compensation expenses of $5,692.$2.8 million.
Aggregate and Mining Group: Profit for this group increased $4,187 or 13.6% from 2015. This group's profits were impacted by an increase in gross profit of $1,851 on decreased sales of $11,053 due to a 130 basis point increase in gross margin and decreases in payroll and related expense of $1,329, decreased travel expense of $786 and a $528 decrease in repairs and maintenance expense, primarily on a company airplane.
Energy Group: Profit for this group increased $536 or 14.9% from 2015. This group's profits were impacted by an increase in gross profit of $2,077 on decreased sales of $4,844 due to a 170 basis point increase in gross margin and decreased outside service expense of $741, repairs and maintenance of $346 and computer expense of $235.
Corporate: Net corporate expenses increased $19,369 from 2015 due to increases in profit sharing and SERP expense of $7,640, stock incentive expense of $1,376, and increased income taxes of $9,826.
Liquidity and Capital Resources
The Company'sOur primary sources of liquidity and capital resources are its cash and cash equivalents on hand, borrowing capacity under a $100,000$250.0 million revolving credit facility with a lender and cash flows from operations. The Company had $62,280 (of which $22,064As of December 31, 2022, our total liquidity was held by our foreign subsidiaries)$232.0 million, consisting of $62.8 million of cash and cash equivalents available for operating purposes and $169.2 million available for additional borrowings under our revolving credit facility, to the extent our compliance with financial covenants permits such borrowings. Our foreign subsidiaries held $27.0 million of cash and cash equivalents available for operating purposes and is considered to be indefinitely invested in those jurisdictions.
In April 2022, we acquired MINDS with a total cash consideration paid to the selling shareholders of $19.3 million funded from cash on hand. Our future cash requirements primarily include working capital needs, debt service obligations, capital expenditures, vendor hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments. In addition, our variable cash uses may include the payment of our quarterly cash dividend, financing other strategic initiatives of our business, including, but not limited to, the SFG transformation, strategic acquisitions and share repurchases under our share repurchase authorization. We believe that our current working capital, cash flows generated from future operations and available capacity under our revolving credit facility will be sufficient to meet working capital and capital expenditure requirements for our existing business for at least the next 12 months.
On December 19, 2022, we entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto, which replaced the previously existing credit facility with a borrowing capacity of $150.0 million and a maturity date of December 29, 2023 (the "Previous Credit Facility"). The Credit Agreement provides for (i) a revolving credit facility (consisting of revolving credit loans and swingline loans) and a letter of credit facility, in an aggregate amount of up to $250.0 million, (ii) an incremental credit facility in an aggregate amount not to exceed $125.0 million (the “Credit Facilities”) and (iii) a maturity date of December 19, 2027.
We had $78.0 million in outstanding borrowings under the Credit Facilities at December 31, 2017. The Company had2022 and no outstanding borrowings on the Previous Credit Facility at December 31, 2021. Our outstanding letters of credit of $9,757 andtotaling $2.8 million decreased borrowing availability of $90,243to $169.2 million under the revolving credit facility as of December 31, 2017.2022. We anticipate continuing to utilize the Credit Facilities with more frequency in the near-term to support our domestic working capital needs in response to supply chain disruptions. The Company had no outstanding borrowings at any time during 2017 under this facility. Borrowings under the Company's credit 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 2.32% at December 31, 2017. The credit agreementCredit Agreement contains certain financial covenants, including provisions concerning required levelsrequirements related to our Consolidated Total Net Leverage Ratio and Consolidated Interest Coverage Ratio, each as defined in the agreement. Failure to satisfy these covenants could result in the accelerated repayment of annual net income, minimum tangible net worth and maximum allowed capital expenditures. The Company wasour indebtedness. We were in compliance with thesethe financial covenants as of the Credit Facilities at December 31, 2017.2022. Due to the increased borrowings under our Credit Facilities and higher interest rates, we expect our interest expense in 2023 to be significantly higher than in prior years.
The Company's South AfricanOur Brazilian subsidiary Osborn Engineered Products SA (Pty) Ltd ("Osborn"), hasmaintains a credit facility of $7,672separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility.
Certain of our international subsidiaries in South African bankAfrica, Australia, Brazil, Canada and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. As of December 31, 2017, Osborn had noIn addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings but had $813 in performance, advance payment and retention guarantees outstanding under the facility. The facility has beencredit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% and/or secured with certain assets of the facility is utilized.local subsidiary.
We regularly enter into agreements primarily to purchase inventory in the ordinary course of business. As of December 31, 2017, Osborn had available credit under2022, open purchase obligations totaled $330.9 million, of which $324.9 million are expected to be fulfilled within one year.
We estimate that our capital expenditures will be between $25 and $35 million for the facility of $6,859. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.0% as ofyear ending December 31, 2017.2023, which may be impacted by general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.
The Company's Brazilian subsidiary, Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), has outstanding working capital loans totaling $3,402 from Brazilian banks with interest rates ranging from 10.4% to 11.0%. The loans' maturity dates range from November 2018 to April 2024 and are secured by Astec Brazil's manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has various 5-year equipment financing loans outstanding with Brazilian banks in the aggregate of $642 as of December 31, 2017 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 reduced its outstanding debt by $2,610 during 2017 and plans to further reduce it by $2,469 during 2018.
Cash Flows
The following table summarizes cash flows during the years ended December 31, 2022 and 2021, respectively:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 |
| Net cash (used in) provided by operating activities | | $ | (73.9) | | | $ | 7.4 | |
| Net cash used in investing activities | | (53.2) | | | (18.4) | |
| Net cash provided by (used in) financing activities | | 60.1 | | | (12.1) | |
| Effect of exchange rates on cash | | (1.4) | | | (1.1) | |
| Decrease in cash and cash equivalents and restricted cash | | (68.4) | | | (24.2) | |
| Cash, cash equivalents and restricted cash, end of period | | $ | 66.0 | | | $ | 134.4 | |
Net cash (used in) provided by operating activities
Our operating activities were a $73.9 million net use of cash during 2022 as compared to providing net cash of $7.4 million during 2021. This decrease is primarily due to: (i) higher net cash usages in our operating assets and liabilities of $49.1 million mainly driven by the increase of inventories on hand of $44.9 million due to higher backlog and supply chain disruptions and (ii) lower net income adjusted for non-cash items of $33.7 million.
Net cash used in investing activities
Net cash used in investing activities increased by $34.8 million during 2022 as compared to 2021 primarily due to increased purchases of property and equipment of $20.6 million in part due to our manufacturing facility transformation initiative and the acquisition of MINDS in the second quarter of 2022 at a purchase price of $17.8 million, net of cash acquired. These cash outflows were partially offset by increased cash inflows of $3.8 million from Operating Activitiesdisposals of property and equipment.
| | | 2017 | | | 2016 | | | Increase / Decrease | |
| Net income | | $ | 37,590 | | | $ | 54,988 | | | $ | (17,398 | ) |
| Depreciation and amortization | | | 25,802 | | | | 24,813 | | | | 989 | |
| Provision for warranties | | | 16,725 | | | | 18,912 | | | | (2,187 | ) |
| Deferred income tax benefits | | | (291 | ) | | | (3,521 | ) | | | 3,230 | |
| Increase in receivables | | | (7,749 | ) | | | (4,895 | ) | | | (2,854 | ) |
| (Increase) decrease in inventories | | | (19,618 | ) | | | 30,839 | | | | (50,457 | ) |
| (Increase) decrease in prepaid expenses | | | (5,181 | ) | | | 4,846 | | | | (10,027 | ) |
| Increase in accounts payable | | | 630 | | | | 8,836 | | | | (8,206 | ) |
| Increase (decrease) in customer deposits | | | 9,379 | | | | (762 | ) | | | 10,141 | |
| Decrease in accrued product warranties | | | (14,642 | ) | | | (15,125 | ) | | | 483 | |
| Other, net | | | (764 | ) | | | 15,875 | | | | (16,639 | ) |
| Net cash provided by operating activities | | $ | 41,881 | | | $ | 134,806 | | | $ | (92,925 | ) |
Net cash provided by operating(used in) financing activities decreased $92,925
Our financing activities provided net cash of $60.1 million during 2022 as opposed to a net use of $12.1 million in 2017 compared to 2016. The primary reasons for the decrease in operating cash flows relate to increased inventoriesduring 2021 primarily due to increased order volumes, reduced net income, increased prepaid expenses and reduced accounts payableproceeds from borrowings of $83.5 million partially offset by cash provided by customer deposits.repurchases of stock under our share repurchase program of $10.1 million in 2022.
Cash Flows from Investing Activities
| | | 2017 | | | 2016 | | | Increase / Decrease | |
| Expenditures for property and equipment | | $ | (20,046 | ) | | $ | (27,367 | ) | | $ | 7,321 | |
| Business acquisition, net of cash acquired | | | (26,443 | ) | | | (39,764 | ) | | | 13,321 | |
| Other | | | (411 | ) | | | 904 | | | | (1,315 | ) |
| Net cash used by investing activities | | $ | (46,900 | ) | | $ | (66,227 | ) | | $ | 19,327 | |
Net cash used by investing activities decreased by $19,327 in 2017 compared to 2016 due primarily to the reductions in cash used for business acquisitions and expenditures for property and equipment.
Cash Flows from Financing Activities
| | | 2017 | | | 2016 | | | Increase / Decrease | |
| Payment of dividends | | $ | (9,226 | ) | | $ | (9,217 | ) | | $ | (9 | ) |
| Borrowings under bank loans | | | -- | | | | 5,973 | | | | (5,973 | ) |
| Repayments of bank loans | | | (7,242 | ) | | | (5,903 | ) | | | (1,339 | ) |
| Other, net | | | (324 | ) | | | (1,873 | ) | | | 1,549 | |
| Net cash used by financing activities | | $ | (16,792 | ) | | $ | (11,020 | ) | | $ | (5,772 | ) |
Financing activities used cash
Approved capital expenditures for 2018 total $35,398, including facility additions at the Company's Roadtec and Carlson subsidiaries. The remaining approved capital expenditures are for various purchases of machinery and equipment, automobiles and technology related spending to meet the needs across all Company subsidiaries. The Company expects to finance these expenditures using currently available cash balances, internally generated funds and available credit under the Company's credit facility.
Financial Condition
The Company'sOur current assets increased to $602,969$696.4 million at December 31, 20172022 from $576,833$636.0 million at December 31, 2016,2021, an increase of $26,136.$60.4 million or 9.5%. The increase is due primarily to increases inincreased inventories of $30,975$94.7 million driven by supply chain disruptions resulting in maintaining elevated inventory levels, increased trade and accounts receivableother net receivables and contract assets of $9,279 due to$28.4 million, the recording of $15.4 million of assets at our closed Tacoma site as held for sale and increased orderprepaid expenses and sales volumes,other assets of $4.7 million. These increases were partially offset by decreases indecreased cash, and cash equivalents and restricted cash of $20,091. Additionally, accounts$68.4 million, the net sale of short-term trading securities of $4.7 million and decreased prepaid and refundable income taxes of $4.6 million. Accounts receivable days outstanding increaseddecreased from 30.550.3 in 20162021 to 34.344.5 in 2017.2022.
The Company'sOur current liabilities increased to $179,146$274.0 million at December 31, 20172022 from $168,861$223.3 million at December 31, 2016,2021, an increase of $10,285.$50.7 million or 22.7%. The increase is primarily due to increases inincreased accounts payable of $25.0 million, increased customer deposits of $10,279 and accounts payable$9.3 million, additional net borrowings of $3,120.
Market Risk and Risk Management Policies
The Company is exposed to changes$6.8 million on short-term debt facilities in interest rates, primarily from its revolving credit agreements. A hypothetical 100 basis point adverse move (increase) in interest rates would not have materially affected interest expense for the years ended December 31, 2017 and 2016, due to minimal borrowings during the periods. The Company does not hedge variable interest.
The Company is subject to foreign exchange risk at its foreign operations. Foreign operations represent 15.9% and 15.8% of total assets at December 31, 2017 and 2016, respectively, and 10.8% and 9.5% of total net sales for the years ended December 31, 2017 and 2016, respectively. Each period, the balance sheets and related results of operations of the Company's foreign subsidiaries are translated from their functional foreign currency into U.S. dollars for reporting purposes. As the U.S. 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 U.S. 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 (loss) in equity. The Company views its investments in foreign subsidiaries as long-term and does not hedge the net investments in foreign subsidiaries.
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. When the Company determines a need to hedge a transaction, the subsidiary enters into a foreign currency exchange contract. The Company does not apply hedge accounting to these contracts and, therefore, recognizes the fair value of these contracts in the consolidated balance sheets 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, 2017 or 2016 would not have a material impact on the Company's consolidated financial statements.
Contractual Obligations
Contractual obligations and the period in which payments are due as of December 31, 2017 are as follows:
| | | Payments Due by Period | |
Contractual Obligations | | Total | | | Less Than 1 Year | | | Years 2 to 3 | | | Years 4 to 5 | | | More Than 5 Years | |
| Operating lease obligations | | $ | 6,263 | | | $ | 2,146 | | | $ | 2,971 | | | $ | 913 | | | $ | 233 | |
| Inventory purchase obligations | | | 3,951 | | | | 3,951 | | | | -- | | | | -- | | | | -- | |
| Debt obligations | | | 4,044 | | | | 2,469 | | | | 980 | | | | 502 | | | | 93 | |
| Total | | $ | 14,258 | | | $ | 8,566 | | | $ | 3,951 | | | $ | 1,415 | | | $ | 326 | |
The above table excludes the Company's liability for unrecognized tax benefits, which totaled $365 at December 31, 2017, since the timing of cash settlements to the respective taxing authorities cannot be reliably predicted.
In 2017 and 2016, the Company made contributions of approximately $415 to its pension plan. The Company has no planned contributions to the pension plan in 2018. The Company's funding policy is to make at least the minimum annual contributions required by applicable regulations.
Contingencies
Management has reviewed all claims and lawsuits and has made adequate provision for any losses that can be reasonably estimated. 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.
Certain customers have financed purchases of the Company's products through arrangements in which the Company is contingently liable for customer debt aggregating $3,805 at December 31, 2017. These obligations have average remaining terms of 1.8 years. The Company has recorded a liability of $836 related to these guarantees at December 31, 2017.
The Company is contingently liable under letters of credit of approximately $13,314, primarily for performance guarantees to customers, banks or insurance carriers.
The Company has a sales contract with the purchaser of a large wood pellet plant, on which revenues of $7,987 and $135,187 were recorded in 2017 and 2016, respectively. As the plant has not yet met the production output and the operational specifications set forth in the original contract, as amended through December 31, 2017, the Company entered into a contract amendment in February 2018, whereby the Company agreed to compensate the customer for production shortfalls caused by the Company and other potential costs (depending upon the market price of wood pellets), from January 1, 2018 through June 15, 2018. The Company incurred production shortfalls in January and February 2018. The Company expectsorder to meet the contract's operational specifications prior to June 15, 2018.
working capital needs at certain of our international sites, increased accrued employee related liabilities of $4.7 million and increased other current liabilities of $3.4 million.
Off-balance Sheet Arrangements
As of December 31, 2017, the Company does not have off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies and Estimates
The Company'sOur consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Application of these principles requires the Companyus 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 first-in first-out cost or net realizable value. The most significant component of the Company'sour inventories is steel. Open market prices whichand tariffs are subject to volatility and determine theour cost of steel for the Company.steel. During periods when open market prices decline, the Companywe may need to reduce the carrying value of the inventory. In addition, certain items in inventory become obsolete over time, and the Company reduceswe reduce the carrying value of these items to their net realizable value. These reductions are determined by the Companymanagement based on estimates, assumptions and judgments made from the information available at that time. See Note 1, Summary2, Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, for a description of theour process used by the Company to value inventories at the lower of first-in first-out cost or market. The Company doesnet realizable value. We do not believe it is reasonably likely that the inventory values will materially change in the near future.
Product Warranty Reserve: The Company accrues for the estimated cost of product warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For machines, the Company's standard product warranty terms generally include post-sales support and repairs of products at no additional charge for periods ranging from three months to two years or up to a specified number of hours of operation. For parts from component suppliers, the Company relies on the original manufacturer's warranty that accompanies those parts. Generally, fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the Company's 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 component suppliers. Estimated warranty obligations are 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 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.
Revenue Recognition: Revenue is generally recognized on sales atwhen we satisfy a performance obligation by transferring control of goods or providing services. Revenue is measured as the pointamount of consideration we expect to receive in time when persuasive evidence of an arrangement exists, the price is fixedexchange for transferring goods or determinable, the product has been delivered or services have been rendered and there is reasonable assurance of collection of the sales proceeds. The Companyproviding services. We generally obtainsobtain purchase authorizations from itsour customers for a specified amount of product at a specified price with specified delivery terms. A significant portion of the Company'sour equipment sales represents equipment produced in the Company'sour plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements. Most of the equipment sold by the Companyus is based on standard configurations, some of which are modified to meet customer needs or specifications. The Company providesWe provide customers with technical design and performance specifications and performsperform pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether the Company provideswe provide installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between us and our customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically paid within one year from the date of the contract fulfillment, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends. Other contract assets and liabilities are typically not material as a percentage of total assets or total liabilities, respectively.
Certain contracts include terms and conditions through which the Company recognizeswe recognize revenues upon completion of equipment production, which is subsequently stored at the Company's plantone of our plants at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and risktransfer of ownershipcontrol and when collectabilitycollectibility is reasonably assured.probable. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, the Companywe 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'sour inventory prior to revenue recognition.
The Company hasWe have certain sales accounted for as multiple-element arrangements,containing multiple performance obligations, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed. Consideration is allocated to deliverables using the relative selling price method and vendor specific objective evidence, if it exists.observable
market prices from stand-alone performance obligations or a cost plus margin approach when one is not available. Otherwise, the Company useswe use third-party evidence of selling price or the Company'sour best estimate of the selling price for the deliverables. The Company evaluatesWe evaluate sales with multiple deliverable elements (such as an agreement to deliver equipment and related installation services)performance obligations 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 Companywe only recognizesrecognize 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.
The Company hasWe have certain sales accounted for under the percentage of completion method usingorders on which we record revenue over time based upon the ratio of costs incurred to estimated total costs. Revenue, in an amount equal to cost incurred, is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty. The factors considered in this evaluation include the stage of design completion, the stage of equipment manufacturing completion, the state of construction completion, the status of outstanding subcontracts, certainty of quantities of labor and materials, certainty of schedule and the relationship with the customer.
Goodwill and Other Intangible Assets:Intangible Goodwill is tested for impairment annually on October 1, or more frequently, if events or circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill is allocated to, and evaluated for impairment at, four identified reporting units. A reporting unit is an operating segment or, under certain circumstances, a component of an operating segment that constitutes a business, has available discrete financial information, and whose operating results are regularly reviewed by management. We combine and aggregate components of an operating segment as a single reporting unit if the components have similar economic characteristics.
Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors that includes, but is not limited to, the macroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. We may elect not to perform the qualitative assessment for some or all reporting units and perform the quantitative impairment test. The quantitative goodwill impairment test requires us to compare the carrying value of the reporting unit's net assets to the fair value of the reporting unit. We determine fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. This analysis requires significant assumptions, including projected net sales, projected earnings before interest, tax, depreciation and amortization, terminal growth rates, the cost of capital, the selection of appropriate guideline companies and related valuation multiples. Our estimates are classified into two categories: (1) intangible assets with definite lives subject to amortization,change given the inherent uncertainty in predicting future results. Additionally, the discount rate and (2) goodwill. the terminal growth rate are based on our judgment of the rates that would be utilized by a hypothetical market participant.
We performed a quantitative analysis during 2022 on our four reporting units whereby the fair values of each reporting unit exceeded its carrying value and therefore no indicators of impairment existed. However, the fair values of the Materials Solutions and Astec Digital reporting units exceeded their carrying values by 3.2% and 5.0%, respectively. Since the Materials Solutions and Astec Digital reporting units' fair values did not substantially exceed the carrying values, we may be at risk for an impairment loss in the future if forecasted trends assumed in the fair value calculation are not realized. As of December 31, 2022, there was $19.4 million and $8.7 million of goodwill recorded related to the Materials Solutions and Astec Digital reporting units, respectively.
No goodwill impairment charges were recognized in 2022 or 2021. Goodwill impairment charges of $1.6 million were recognized in 2020. See Note 2, Basis of Presentation and Significant Accounting Policies, and Note 7, Goodwill, of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a detail of the testing management performed for goodwill impairment, goodwill reported by segment and impairment charges recorded.
Intangible assets with definite lives are tested for impairment if conditions exist that indicate the carrying value may not be recoverable. Risk factors that may be considered include an economic downturn in the general economy, a geographic market or the commercial and residential construction industries, a change in the assessment of future operations as well as the cyclical nature of our industry and the customization of the equipment we sell, each of which may cause adverse fluctuations in operating results. Other risk factors considered would be an increase in the price or a decrease in the availability of oil that could reduce the demand for our products in addition to the significant fluctuations in the purchase price of raw materials not recoverable through selling price increases that could have a negative impact on the cost of production and gross marginsprofit as well as others more fully described in the Part I, Item 1A. Risk Factors section of ourthis Annual Report on Form 10-K. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset. Some of the inputs used in the impairment testing are highly subjective and are affected by changes in business factors and other conditions. Changes in any of the inputs could have an effect on future tests and result in impairment charges.
Goodwill is not amortized but is tested for impairment annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. See Note 1, Summary of Significant Accounting Policies, for a description of testing performed by the Company to determine if the recorded value of intangible assets or goodwill has been impaired.
The useful lives of identifiable intangible assets are determined 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'sour 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 53 to 19 years.
Income Taxes:The Company accounts for income taxes under the guidance of FASB Accounting Standards Codification Topic 740-10, "Income Taxes". Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. AWe periodically assess the need to establish valuation allowance, that represents a reserve onallowances against our deferred tax assets for which utilizationto the extent we no longer believe it is not more likely than not, is recorded.more-likely-than-not that the tax assets will be fully utilized. Judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Income tax contingency accruals are determined and recorded under the guidance of ASC Topic 740-10. Liabilities for uncertain income tax positions are based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than notmore-likely-than-not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires an estimate and measurement of the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Companywe must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to accrued taxes.
U.S. Tax Reform: On December 22, 2017,
Recent Accounting Changes and Pronouncements
See Note 2, Basis of Presentation and Significant Accounting Policies of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changesNotes to the Internal Revenue Code. ChangesConsolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements applicable to us and the impact of those standards on our consolidated financial statements and related disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Risk Management Policies
Interest Rate Risk
We are exposed to changes in interest rates, primarily from our domestic Credit Facilities and our international credit facilities and term loan. Our domestic Credit Facilities include but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after$250.0 million revolving credit facility, which bears interest based on market rates plus an applicable margin as defined in the Credit Agreement. Based on the outstanding balance on our domestic Credit Facilities of $78.0 million as of December 31, 2017,2022, a hypothetical 100 basis point increase in the transitioninterest rates would have a $0.8 million impact on our annualized interest expense. We had no borrowings outstanding on our prior credit facility as of U.S international taxation from a worldwide tax systemDecember 31, 2021. We do not hedge variable interest.
Foreign Exchange Risk
We are subject to a territorial systemforeign exchange risk at our foreign operations. Foreign operations represent 26.9% and a one-time transition tax on the mandatory deemed repatriation23.7% of foreign earnings. The Company's fourth quarter 2017 provision for income taxes was reduced by $1,056, (comprised of a $1,548 reduction in income tax expense recorded in connection with the remeasurement of deferred taxtotal assets and liabilities and $492 of additional income tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings) due to applying the provisions of the Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company determined that the $492 additional 2017 income tax expense discussed above is a provisional amount and constitutes a reasonable estimate at December 31, 2017, based upon the best information currently available. The ultimate impact may differ from the provisional amount, possibly materially, due to, among other things, additional analysis, changes in interpretations2022 and assumptions the Company has made, additional regulatory guidance that may be issued2021, respectively, and actions the Company may take as a result17.1% and 17.2% of the Tax Act. Any subsequent adjustment to the amount will be recorded to current tax expense when the analysis is complete, which is expected in 2018 shortly after the filing of the Company's 2017 U.S. income tax return.
Beginning in 2018, the Company expects that its effective tax rate will be reduced by approximately 11% from its historic average due to the effects of the Tax Act, resulting in an effective tax rate ranging from 23% to 25% in a typical year. The primary drivers of this are the reduced U.S. federal tax rate and the elimination of the benefittotal net sales for the domestic production activities deduction which is repealed byyears ended December 31, 2022 and 2021, respectively. Each period, the Tax Act.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("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 judgmentbalance sheets and to make more estimates than under current guidance and to expand their disclosures to include information regarding contract assets and liabilities as well as a more disaggregated view of revenue. The standard, as amended, is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018 using the modified retrospective transition method and will expand its disclosures in the first quarter 2018 consolidated financial statements to comply with the disclosure provisions of the new rule. The Company does not expect the adoption of the standard to have a material impact on its financial position,related results of operations or cash flows.
In January 2016,of our subsidiaries that are denominated in non-U.S. dollar currencies are translated from their functional foreign currency into U.S. dollars for reporting purposes. As the FASB issued ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10)", which requires, among other things, equity investments with readily determinable fair values, exceptU.S. dollar strengthens against those accounted for underforeign currencies, the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized inforeign denominated net income. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which significantly changes the accounting for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance requires lessees to recognize lease assets and lease liabilitiesoperating results become less valuable in our reporting currency. When the balance sheet, initially measured atU.S. dollar weakens against those currencies, the presentforeign denominated net assets and operating results become more valuable in our reporting currency. At each reporting date, the fluctuation in the value of the lease payments, for leases which were classifiednet assets and operating results due to foreign exchange rate changes is recorded as operating leases under previous guidance. Lease cost includedan adjustment to "Accumulated other comprehensive loss" in the statement of income will be calculated so thatConsolidated Balance Sheets. We view our investments in foreign subsidiaries as long-term and do not hedge the cost ofnet investments in foreign subsidiaries.
From time to time, our foreign subsidiaries enter into transactions not denominated in their functional currency. In these situations, we evaluate the lease is allocated over the lease term, generally onneed to hedge those transactions against foreign currency rate fluctuations. When we determine a straight-line basis. Lessees may make an accounting policy electionneed to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The new standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company plans to adopt the new standard effective January 1, 2019. The Company does not expect the adoption of this standard to have a material impact on its results of operations or cash flows; however, the Company has not determined the impact the adoption of this new standard will have on its financial position.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606)", which does not change the core principles of ASU No. 2014-09 discussed above, but rather clarifies the implementation guidance in order to eliminate the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance. Under the new guidance, when an entity determines it is a principal inhedge a transaction, the entity recognizes revenue in the gross amount of consideration; however in transactions where an entity determines it is an agent, the entity recognizes revenue in the amount of any fee or commissionsubsidiary enters into a foreign currency exchange contract. We do not apply hedge accounting to which it expects to be entitled. The standard is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments". The standard changes how credit losses are measured for most financial assetsthese contracts and, certain other instruments that currently are not measured through net income. The standard will require an expected loss model for instruments measured at amortized cost as opposed to the current incurred loss approach. In valuing available for sale debt securities, allowances will be required to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflect the impact of applying the provisions of the standard. The standard is effective for public companies for periods beginning after December 15, 2019 and the Company expects to adopt the new standard as of January 1, 2020. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position, results of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) which clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows. The statement also addresses how the predominance principle should be applied when cash payments have aspects of more than one class of cash flows. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory, such as intangible assets, when the transfer occurs. This is a change from current guidance, which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized by being depreciated, amortized, or impaired. The new guidance will require companies to defer the income tax effects of only intercompany transfers of inventory. The standard is effective for public companies in fiscal years beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805), Clarifying the Definition of a Business," which provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for public companies for annual or interim periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the application of this standard to have a material impact on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment," which eliminates Step 2 from the goodwill impairment test for public companies. Previously, Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance stipulates that an entity should perform its annual or interim goodwill impairment test by comparingtherefore, recognize the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized forthese contracts in the amount by whichConsolidated Balance Sheets and the carrying amount exceedschange in the reporting unit's fair value upof the contracts in current earnings.
Due to the amount of goodwill allocatedlimited exposure to foreign exchange rate risk, a 10% fluctuation in the reporting unit. The standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. The Company elected to adopt this standard as offoreign exchange rates at December 31, 2017. The application of this standard did2022 or 2021 would not have a material impact on our consolidated financial statements.
Commodity Risk
We purchase raw materials and some manufactured components and replacement parts for our products from leading suppliers both domestically and internationally. Raw materials used in the Company's financial position, resultsmanufacture of operationsour products include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors and other sources. The majority of steel is scheduled on a just in time arrangement from suppliers to better manage inventory requirements at our manufacturing facilities. Based on market dynamics, we strategically and selectively order and inventory certain items beyond a just in time basis. The most significant component of our inventory is steel. Significant increases in the market price of steel can negatively impact our gross profit as we are often unable to pass along all of these price increases to our customers. A significant decline in the market price
of steel could result in a decline in the market value of our equipment or cash flows.parts. We utilize strategies that include forward-looking contracts and advanced steel purchases to ensure supply and minimize the impact of price volatility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Supplementary Data:
All schedules are omitted because they are not applicable, or the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Hedging Activities", to improverequired information is shown in the financial reportingstatements or notes thereto.
Report of an entity's risk management activities in its financial statements. The new guidance is effective for public companies for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted in any interim period after its issuance. The Company plans to adopt the new standard effective January 1, 2019. The Company does not expect the application of this standard to have a material impact on its financial position, results of operations or cash flows.Independent Registered Public Accounting Firm
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 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; |
· | liquidity and capital expenditures; |
· | sufficiency of working capital, cash flows and available capacity under the Company's credit facilities; |
· | compliance with government regulations; |
· | compliance with manufacturing and delivery timetables; |
· | general economic trends and political uncertainty; |
· | government funding and growth of highway construction and commercial projects; |
· | integration of acquisitions; |
· | pricing, demand and availability of steel, oil and liquid asphalt; |
· | development of domestic oil and natural gas production; |
· | condition of the economy; |
· | strength of the U.S. dollar relative to foreign currencies; |
· | the success of new product lines; |
· | 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 seasonality of our business; |
· | tax assets and reserves for uncertain tax positions; |
· | critical accounting policies and the impact of accounting changes; |
· | ability to satisfy contingencies; |
· | contributions to retirement plans and plan expenses; |
· | reserve levels for self-insured insurance plans and product warranties; |
· | construction of new manufacturing facilities; |
· | supply of raw materials; |
· | plans to reduce indebtedness at the Company's subsidiaries; and |
· | the Company's effective tax rate and other impacts of the Tax Cuts and Jobs Act of 2017 |
These forward-looking statements are based largely on management's expectations, which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this report and in other documents filed by the Company with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements to reflect future events or circumstances. You can identify these statements by forward-looking words such as "expect", "believe", "anticipate", "goal", "plan", "intend", "estimate", "may", "will", "should", "could" 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, including without limitation risks relating to: 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 above are more fully described in the section titled "Risk Factors" in the Company's Annual Report to Form 10-K for the year ended December 31, 2017.
ASTEC INDUSTRIES, INC.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Astec Industries, Inc. and subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The 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 U.S. generally accepted accounting principles. The Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) 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 (iii) 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 and procedures may deteriorate.
Management, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, has evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, Internal Control - Integrated Framework (2013). The scope of management's assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2017 excluded the business unit that the Company acquired on October 1, 2017 (RexCon, Inc.). The total consolidated assets with respect to the excluded business unit were $29.3 million as of December 31, 2017, and the total consolidated revenues with respect to the excluded business unit were $2.7 million for the year ended December 31, 2017. Management will complete its assessment of the internal control over financial reporting of this newly-acquired operation during 2018. Based on its assessment, management concluded that, as of December 31, 2017, the Company's internal control over financial reporting was effective.
KPMG 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, 2017.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Astec Industries, Inc.:
OpinionOpinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. and subsidiaries'subsidiaries (the "Company")Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive (loss) income, cash flows and equity for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022 based on criteria established in Internal Control -– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheets of the Company as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and related notes, and our report dated March 1, 2018 expressed an unqualified opinion on those consolidated financial statements.
The Company acquired RexCon, Inc. ("RexCon") during 2017, and management excluded from its assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2017, RexCon's internal control over financial reporting associated with total assets of $29.3 million and total revenues of $2.7 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2017. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of RexCon.
Basis for OpinionOpinions
The Company's management is responsible for these consolidated financial statements, 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's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audit.audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company'scompany’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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Evaluation of the sufficiency of audit evidence over inventories and net sales
As disclosed in Notes 4 and 18 to the Company's consolidated financial statements, and disclosed in the consolidated balance sheet and consolidated statement of operations, the Company recorded $393.4 million in inventories and $1,274.5 million in net sales as of December 31, 2022 and for the year then ended, respectively. Inventories are primarily comprised of raw materials, work-in-process, and finished goods that are physically located at each of the Company's sites. Net sales are recognized primarily from the sale of equipment and replacement parts from each of the Company's sites.
We identified the evaluation of the sufficiency of audit evidence over inventories and net sales as a critical audit matter. Evaluating the sufficiency of the audit evidence obtained required especially subjective auditor judgment because of the decentralized structure and geographic dispersion of the Company's manufacturing locations. This included determining the sites for which procedures were performed.
The following are the primary procedures we performed to address this critical audit matter. We used our judgment to determine the nature and extent of procedures to be performed over inventories and net sales, including the determination of the sites for which those procedures were performed. For certain sites where procedures were performed, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company's inventories and net sales processes, including controls over the amounts recorded in inventories and the amounts recorded in net sales. We assessed the recorded inventories for each site where procedures were performed by participating in a physical inventory count and observed a sample of inventories on hand and compared the cost recorded for a sample of inventories on hand to underlying documentation. We assessed recorded net sales for each site where procedures were performed by selecting a sample of net sales transactions and comparing the amount recognized to underlying documentation, such as contracts with customers and shipping documentation. We evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed over inventories and net sales.
Goodwill impairment analysis for the Material Solutions reporting unit
As discussed in Notes 2 and 7 to the consolidated financial statements, the Company tests goodwill for impairment annually, or more frequently if circumstances change or events occur that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. During the year ended December 31, 2022, the Company performed a quantitative impairment analysis and determined fair values of each of its reporting units using an equally weighted combination of the discounted cash flow method and the guideline public company method. The Company did not record any impairment of goodwill as the fair value of each reporting unit exceeded its carrying amount. As of December 31, 2022, goodwill allocated to the Materials Solutions reportable segment was $19.4 million.
We identified the evaluation of the goodwill impairment analysis for the Materials Solutions reporting unit as a critical audit matter. Evaluating the estimated fair value of the reporting unit involved a high degree of subjective auditor judgment. Specifically, the revenue growth rates, gross margins, and discount rate assumptions used in estimating the fair value of the reporting unit were challenging to evaluate as changes to those assumptions could have had a significant effect on the Company’s assessment of the impairment of goodwill of that reporting unit.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process. This included controls related to the determination of the revenue growth rates, gross margins, and discount rate assumptions. We involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the discount rate by comparing it to a discount rate range that was independently developed using publicly available market data for comparable entities
•evaluating the revenue growth rates and gross margins by comparing them to the reporting unit’s historical performance, to publicly available data for comparable companies, and to the Company’s analyst reports
•assessing the estimated fair value using the reporting unit’s cash flow assumptions and an independently developed discount rate and comparing the result to the Company’s fair value estimate.
/s/ KPMG LLP
Knoxville, Tennessee
March 1, 2018
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Astec Industries, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively, the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 2015.
Knoxville, TennesseeAtlanta, Georgia
March 1, 20182023
CONSOLIDATED BALANCE SHEETSASTEC INDUSTRIES, INC.Consolidated Balance Sheets
(DollarIn millions, except share and share amounts in thousands, except per share amounts unless otherwise specified)data)
| | | December 31 | | | | | | | | | | | |
| Assets | | 2017 | | | 2016 | | |
| | | | | | | | | December 31, |
| | | 2022 | | 2021 |
| ASSETS | | ASSETS | | | |
| Current assets: | | | | | | | Current assets: | |
| Cash and cash equivalents | | $ | 62,280 | | | $ | 82,371 | | |
| Cash, cash equivalents and restricted cash | | Cash, cash equivalents and restricted cash | $ | 66.0 | | | $ | 134.4 | |
| Investments | | | 1,624 | | | | 1,024 | | Investments | 3.9 | | | 8.6 | |
| Trade receivables, net | | | 114,786 | | | | 106,659 | | |
| Other receivables | | | 5,166 | | | | 4,014 | | |
| Trade receivables and contract assets, net | | Trade receivables and contract assets, net | 167.1 | | | 141.7 | |
| Other receivables, net | | Other receivables, net | 6.5 | | | 3.5 | |
| Inventories | | | 391,379 | | | | 360,404 | | Inventories | 393.4 | | | 298.7 | |
| Prepaid income taxes | | | 12,556 | | | | 2,967 | | |
| Prepaid and refundable income taxes | | Prepaid and refundable income taxes | 15.9 | | | 20.5 | |
| Prepaid expenses and other assets | | | 15,178 | | | | 19,394 | | Prepaid expenses and other assets | 28.2 | | | 23.5 | |
| Assets held for sale | | Assets held for sale | 15.4 | | | 5.1 | |
| Total current assets | | | 602,969 | | | | 576,833 | | Total current assets | 696.4 | | | 636.0 | |
| Property and equipment, net | | | 190,396 | | | | 180,538 | | Property and equipment, net | 173.6 | | | 171.7 | |
| Investments | | | 14,553 | | | | 13,965 | | Investments | 15.1 | | | 12.2 | |
| Goodwill | | | 45,732 | | | | 40,804 | | Goodwill | 45.2 | | | 38.6 | |
| Intangible assets | | | 30,952 | | | | 26,643 | | |
| Deferred tax assets | | | 2,576 | | | | 2,676 | | |
| Intangible assets, net | | Intangible assets, net | 22.5 | | | 22.7 | |
| Deferred income tax assets | | Deferred income tax assets | 32.1 | | | 16.2 | |
| Other long-term assets | | | 2,401 | | | | 2,142 | | Other long-term assets | 29.5 | | | 8.4 | |
| Total assets | | $ | 889,579 | | | $ | 843,601 | | Total assets | $ | 1,014.4 | | | $ | 905.8 | |
| | | | | | | | | | |
| Liabilities and Equity | | | | | | | | | |
| | | | | | | | | | |
| LIABILITIES AND EQUITY | | LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | | | | | | | Current liabilities: | |
| Current maturities of long-term debt | | Current maturities of long-term debt | $ | 0.2 | | | $ | 0.1 | |
| Short-term debt | | $ | -- | | | $ | 4,632 | | Short-term debt | 9.4 | | | 2.6 | |
| Current maturities of long-term debt | | | 2,469 | | | | 2,538 | | |
| Accounts payable | | | 60,417 | | | | 57,297 | | Accounts payable | 107.2 | | | 82.2 | |
| Customer deposits | | | 49,381 | | | | 39,102 | | Customer deposits | 69.5 | | | 60.2 | |
| Accrued product warranty | | | 15,410 | | | | 13,156 | | Accrued product warranty | 11.9 | | | 10.5 | |
| Accrued payroll and related liabilities | | | 23,297 | | | | 25,693 | | |
| Accrued employee related liabilities | | Accrued employee related liabilities | 35.3 | | | 30.6 | |
| Accrued loss reserves | | | 2,504 | | | | 2,852 | | Accrued loss reserves | 1.9 | | | 1.9 | |
| Other accrued liabilities | | | 25,668 | | | | 23,591 | | |
| Other current liabilities | | Other current liabilities | 38.6 | | | 35.2 | |
| Total current liabilities | | | 179,146 | | | | 168,861 | | Total current liabilities | 274.0 | | | 223.3 | |
| Long-term debt | | | 1,575 | | | | 4,116 | | Long-term debt | 78.1 | | | 0.2 | |
| Deferred income tax liabilities | | | 1,509 | | | | 1,669 | | Deferred income tax liabilities | 2.1 | | | 1.4 | |
| Other long-term liabilities | | | 20,584 | | | | 20,114 | | Other long-term liabilities | 33.3 | | | 29.6 | |
| Total liabilities | | | 202,814 | | | | 194,760 | | Total liabilities | 387.5 | | | 254.5 | |
| | | | | | | | | | |
| Equity: | | | | | | | | | |
| Preferred stock - authorized 4,000 shares of $1.00 par value; none issued | | | -- | | | | -- | | |
| Common stock – authorized 40,000 shares of $0.20 par value; issued | | | | | | | | | |
| and outstanding – 23,070 in 2017 and 23,046 in 2016 | | | 4,614 | | | | 4,609 | | |
| Commitments and contingencies (Note 16) | | Commitments and contingencies (Note 16) | | | |
| Shareholders' equity: | | Shareholders' equity: | |
| Preferred stock – authorized 2,000,000 shares of $1.00 par value; none issued | | Preferred stock – authorized 2,000,000 shares of $1.00 par value; none issued | — | | | — | |
| Common stock – authorized 40,000,000 shares of $0.20 par value; issued and outstanding – 22,624,031 in 2022 and 22,767,052 in 2021 | | Common stock – authorized 40,000,000 shares of $0.20 par value; issued and outstanding – 22,624,031 in 2022 and 22,767,052 in 2021 | 4.5 | | | 4.5 | |
| Additional paid-in capital | | | 141,931 | | | | 139,970 | | Additional paid-in capital | 135.8 | | | 130.6 | |
| Accumulated other comprehensive loss | | | (24,243 | ) | | | (31,562 | ) | Accumulated other comprehensive loss | (40.1) | | | (32.4) | |
| Company shares held by SERP, at cost | | | (1,960 | ) | | | (1,958 | ) | |
| Company stock held by deferred compensation programs, at cost | | Company stock held by deferred compensation programs, at cost | (1.1) | | | (1.2) | |
| Retained earnings | | | 565,330 | | | | 536,771 | | Retained earnings | 527.8 | | | 549.3 | |
| Shareholders' equity | | | 685,672 | | | | 647,830 | | Shareholders' equity | 626.9 | | | 650.8 | |
| Non-controlling interest | | | 1,093 | | | | 1,011 | | |
| Noncontrolling interest | | Noncontrolling interest | — | | | 0.5 | |
| Total equity | | | 686,765 | | | | 648,841 | | Total equity | 626.9 | | | 651.3 | |
| Total liabilities and equity | | $ | 889,579 | | | $ | 843,601 | | Total liabilities and equity | $ | 1,014.4 | | | $ | 905.8 | |
See The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Operations
(In millions, except share and per share data)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net sales | $ | 1,274.5 | | | $ | 1,095.5 | | | $ | 1,024.4 | |
| Cost of sales | 1,010.4 | | | 846.0 | | | 786.8 | |
| Gross profit | 264.1 | | | 249.5 | | | 237.6 | |
| Selling, general and administrative expenses | 216.1 | | | 200.6 | | | 166.9 | |
| Research and development expenses | 31.5 | | | 26.5 | | | 22.1 | |
| Restructuring, impairment and other asset charges, net | 9.0 | | | 2.5 | | | 8.1 | |
| Income from operations | 7.5 | | | 19.9 | | | 40.5 | |
| Other (expenses) income, net: | | | | | |
| Interest expense | (2.5) | | | (1.1) | | | (0.7) | |
| Interest income | 1.0 | | | 0.5 | | | 0.8 | |
| Other (expenses) income, net | (1.6) | | | (5.5) | | | 3.9 | |
| Income before income taxes | 4.4 | | | 13.8 | | | 44.5 | |
| Income tax provision (benefit) | 5.0 | | | (2.1) | | | (1.5) | |
| Net (loss) income | (0.6) | | | 15.9 | | | 46.0 | |
| Net loss (income) attributable to noncontrolling interest | 0.5 | | | (0.1) | | | — | |
| Net (loss) income attributable to controlling interest | $ | (0.1) | | | $ | 15.8 | | | $ | 46.0 | |
| Per share data: | | | | | |
| Earnings per common share - Basic | $ | — | | | $ | 0.70 | | | $ | 2.04 | |
| Earnings per common share - Diluted | $ | — | | | $ | 0.69 | | | $ | 2.01 | |
| Weighted average shares outstanding - Basic | 22,790,717 | | | 22,726,767 | | | 22,585,515 | |
| Weighted average shares outstanding - Diluted | 22,790,717 | | | 22,948,632 | | | 22,877,743 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Comprehensive (Loss) Income
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Net (loss) income | $ | (0.6) | | | $ | 15.9 | | | $ | 46.0 | |
| Other comprehensive (loss) income: | | | | | |
| Foreign currency translation adjustments | (7.7) | | | (2.1) | | | (1.8) | |
| Change in unrecognized pension and postretirement benefit costs | — | | | 3.1 | | | 0.1 | |
| | | | | |
| Other comprehensive (loss) income | (7.7) | | | 1.0 | | | (1.7) | |
| Comprehensive loss attributable to noncontrolling interest | 0.5 | | | — | | | — | |
| Comprehensive (loss) income attributable to controlling interest | $ | (7.8) | | | $ | 16.9 | | | $ | 44.3 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Cash Flows
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cash flows from operating activities | | | | | |
| Net (loss) income | $ | (0.6) | | | $ | 15.9 | | | $ | 46.0 | |
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | | | | | |
| Depreciation and amortization | 27.9 | | | 30.2 | | | 26.9 | |
| Provision for credit losses | 1.2 | | | 1.4 | | | 0.9 | |
| Provision for warranties | 12.6 | | | 10.9 | | | 9.8 | |
| Deferred compensation (benefit) expense | (0.9) | | | 0.5 | | | 0.7 | |
| Share-based compensation | 6.8 | | | 6.0 | | | 5.1 | |
| Deferred tax (benefit) provision | (17.1) | | | (1.3) | | | 8.6 | |
| Gain on disposition of property and equipment | (0.7) | | | (0.6) | | | (6.2) | |
| Non-cash curtailment and settlement loss (gain) on pension and postretirement benefits, net | — | | | 3.2 | | | (0.5) | |
| Gain on disposition of subsidiary | — | | | — | | | (1.6) | |
| Asset impairment charges, net | 3.5 | | | 0.2 | | | 4.4 | |
| | | | | |
| Distributions to deferred compensation programs' participants | (1.0) | | | (2.5) | | | (1.4) | |
| Change in operating assets and liabilities, excluding the effects of acquisitions: | | | | | |
| Sale (purchase) of trading securities, net | 0.7 | | | (3.1) | | | 0.2 | |
| Receivables and other contract assets | (28.0) | | | (28.4) | | | 12.2 | |
| Inventories | (96.4) | | | (51.5) | | | 45.9 | |
| Prepaid expenses | (2.8) | | | (6.2) | | | — | |
| Other assets | (16.2) | | | 1.5 | | | (0.2) | |
| Accounts payable | 25.5 | | | 29.5 | | | (8.6) | |
| Accrued retirement benefit costs | — | | | (0.1) | | | — | |
| Accrued loss reserves | (0.1) | | | (1.3) | | | 0.3 | |
| Accrued employee related liabilities | 4.3 | | | 10.0 | | | 1.6 | |
| Other accrued liabilities | 2.6 | | | (8.4) | | | 3.1 | |
| Accrued product warranty | (11.1) | | | (10.7) | | | (10.2) | |
| Customer deposits | 9.9 | | | 26.5 | | | (11.2) | |
| Income taxes payable/prepaid | 6.0 | | | (14.3) | | | 15.7 | |
| | | | | |
| Net cash (used in) provided by operating activities | (73.9) | | | 7.4 | | | 141.5 | |
| Cash flows from investing activities: | | | | | |
| Acquisitions, net of cash acquired | (17.8) | | | 0.1 | | | (32.5) | |
| (Price adjustment on prior) proceeds from sale of subsidiary | — | | | (1.1) | | | 9.1 | |
| Expenditures for property and equipment | (40.7) | | | (20.1) | | | (15.4) | |
| Proceeds from sale of property and equipment | 5.7 | | | 1.9 | | | 17.7 | |
| Purchase of investments | (1.0) | | | (1.0) | | | (1.1) | |
| Sale of investments | 0.6 | | | 1.8 | | | 1.3 | |
| Net cash used in investing activities | (53.2) | | | (18.4) | | | (20.9) | |
(Continued)
ASTEC INDUSTRIES, INC.
Consolidated Statements of Cash Flows (Continued)
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Cash flows from financing activities: | | | | | |
| Payment of dividends | (11.2) | | | (10.2) | | | (10.0) | |
| Proceeds from borrowings on credit facilities and bank loans | 223.0 | | | 7.2 | | | 6.0 | |
| Repayments of borrowings on credit facilities and bank loans | (138.5) | | | (6.2) | | | (5.9) | |
| Payment of debt issuance costs | (1.5) | | | — | | | — | |
| | | | | |
| Sale of Company stock by deferred compensation programs, net | 0.2 | | | 0.6 | | | 0.3 | |
| Withholding tax paid upon vesting of share-based compensation awards | (1.8) | | | (3.5) | | | (0.8) | |
| Repurchase of Company stock | (10.1) | | | — | | | — | |
| Net cash provided by (used in) financing activities | 60.1 | | | (12.1) | | | (10.4) | |
| Effect of exchange rates on cash | (1.4) | | | (1.1) | | | (0.5) | |
| (Decrease) increase in cash and cash equivalents and restricted cash | (68.4) | | | (24.2) | | | 109.7 | |
| Cash, cash equivalents and restricted cash, beginning of period | 134.4 | | | 158.6 | | | 48.9 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 66.0 | | | $ | 134.4 | | | $ | 158.6 | |
| | | | | |
| Supplemental Cash Flow Information | | | | | |
| Cash paid during the year for: | | | | | |
| Interest, net of capitalized interest | $ | 1.1 | | | $ | 0.3 | | | $ | 0.3 | |
| Income taxes paid (refunded), net | $ | 17.7 | | | $ | 10.0 | | | $ | (20.2) | |
| | | | | |
| Supplemental disclosures of non-cash items | | | | | |
| Non-cash investing activities: | | | | | |
| Capital expenditures in accounts payable | $ | 1.5 | | | $ | 1.4 | | | $ | 0.7 | |
| | | | | |
| Non-cash financing activities: | | | | | |
| Additions to right-of-use assets and lease liabilities | $ | 7.3 | | | $ | 1.8 | | | $ | 1.5 | |
| Liability award converted to equity | $ | — | | | $ | — | | | $ | 0.8 | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Equity
(In millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock Shares | | Common Stock Amount | | Additional Paid-in-
Capital | | Accumulated Other Comprehensive Loss | | Company Shares Held by Deferred Compensation Programs, at Cost | | Retained Earnings | | Non-controlling Interest | | Total Equity |
| Balance, December 31, 2019 | 22,551,183 | | | $ | 4.5 | | | $ | 122.6 | | | $ | (31.8) | | | $ | (1.7) | | | $ | 507.7 | | | $ | 0.5 | | | $ | 601.8 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 46.0 | | | — | | | 46.0 | |
| Other comprehensive loss | — | | | — | | | — | | | (1.7) | | | — | | | — | | | — | | | (1.7) | |
| Dividends ($0.44 per share) | — | | | — | | | — | | | — | | | — | | | (10.0) | | | — | | | (10.0) | |
| Share-based compensation | — | | | — | | | 5.1 | | | — | | | — | | | — | | | — | | | 5.1 | |
| Conversion of liability awards to equity | — | | | — | | | 0.8 | | | — | | | — | | | — | | | — | | | 0.8 | |
| Issuance of common stock under incentive plan | 60,793 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (0.8) | | | — | | | — | | | — | | | — | | | (0.8) | |
| | | | | | | | | | | | | | | |
| Deferred compensation programs' transactions, net | — | | | — | | | 0.1 | | | — | | | 0.2 | | | — | | | — | | | 0.3 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2020 | 22,611,976 | | | $ | 4.5 | | | $ | 127.8 | | | $ | (33.5) | | | $ | (1.5) | | | $ | 543.7 | | | $ | 0.5 | | | $ | 641.5 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 15.8 | | | 0.1 | | | 15.9 | |
| Other comprehensive income (loss) | — | | | — | | | — | | | 1.1 | | | — | | | — | | | (0.1) | | | 1.0 | |
| Dividends ($0.45 per share) | — | | | — | | | — | | | — | | | — | | | (10.2) | | | — | | | (10.2) | |
| Share-based compensation | — | | | — | | | 6.0 | | | — | | | — | | | — | | | — | | | 6.0 | |
| | | | | | | | | | | | | | | |
| Issuance of common stock under incentive plan | 155,076 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (3.5) | | | — | | | — | | | — | | | — | | | (3.5) | |
| | | | | | | | | | | | | | | |
| Deferred compensation programs' transactions, net | — | | | — | | | 0.3 | | | — | | | 0.3 | | | — | | | — | | | 0.6 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2021 | 22,767,052 | | | $ | 4.5 | | | $ | 130.6 | | | $ | (32.4) | | | $ | (1.2) | | | $ | 549.3 | | | $ | 0.5 | | | $ | 651.3 | |
| Net loss | — | | | — | | | — | | | — | | | — | | | (0.1) | | | (0.5) | | | (0.6) | |
| Other comprehensive loss | — | | | — | | | — | | | (7.7) | | | — | | | — | | | — | | | (7.7) | |
| Dividends ($0.49 per share) | — | | | — | | | 0.2 | | | — | | | — | | | (11.4) | | | — | | | (11.2) | |
| Share-based compensation | — | | | — | | | 6.8 | | | — | | | — | | | — | | | — | | | 6.8 | |
| | | | | | | | | | | | | | | |
| Issuance of common stock under incentive plan | 108,066 | | | 0.1 | | | (0.1) | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (1.8) | | | — | | | — | | | — | | | — | | | (1.8) | |
| | | | | | | | | | | | | | | |
| Deferred compensation programs' transactions, net | — | | | — | | | 0.1 | | | — | | | 0.1 | | | — | | | — | | | 0.2 | |
| Share repurchases | (251,087) | | | (0.1) | | | — | | | — | | | — | | | (10.0) | | | — | | | (10.1) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2022 | 22,624,031 | | | $ | 4.5 | | | $ | 135.8 | | | $ | (40.1) | | | $ | (1.1) | | | $ | 527.8 | | | $ | — | | | $ | 626.9 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME(in thousands, except per share data)
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| | | | | | | | | | |
| Net sales | | $ | 1,184,739 | | | $ | 1,147,431 | | | $ | 983,157 | |
| Cost of sales | | | 941,610 | | | | 882,162 | | | | 764,314 | |
| Gross profit | | | 243,129 | | | | 265,269 | | | | 218,843 | |
| Selling, general and administrative expenses | | | 160,775 | | | | 153,145 | | | | 145,180 | |
| Research and development expenses | | | 26,817 | | | | 24,969 | | | | 23,676 | |
| Income from operations | | | 55,537 | | | | 87,155 | | | | 49,987 | |
| Other income: | | | | | | | | | | | | |
| Interest expense | | | 840 | | | | 1,395 | | | | 1,611 | |
| Interest income | | | 1,302 | | | | 806 | | | | 542 | |
| Other income | | | 1,218 | | | | 529 | | | | 3,055 | |
| Income before income taxes | | | 57,217 | | | | 87,095 | | | | 51,973 | |
| Income taxes | | | 19,627 | | | | 32,107 | | | | 20,007 | |
| Net income | | | 37,590 | | | | 54,988 | | | | 31,966 | |
| Net loss attributable to non-controlling interest | | | (205 | ) | | | (171 | ) | | | (831 | ) |
| Net income attributable to controlling interest | | $ | 37,795 | | | $ | 55,159 | | | $ | 32,797 | |
| | | | | | | | | | | | | |
| Earnings per Common Share: | | | | | | | | | | | | |
| Net income attributable to controlling interest: | | | | | | | | | | | | |
| Basic | | $ | 1.64 | | | $ | 2.40 | | | $ | 1.43 | |
| Diluted | | $ | 1.63 | | | $ | 2.38 | | | $ | 1.42 | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | |
| Basic | | | 23,025 | | | | 22,992 | | | | 22,934 | |
| Diluted | | | 23,184 | | | | 23,142 | | | | 23,120 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands)
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Net income | | $ | 37,590 | | | $ | 54,988 | | | $ | 31,966 | |
| Other comprehensive income (loss): | | | | | | | | | | | | |
Change in unrecognized pension and post-retirement benefit costs | | | 689 | | | | (80 | ) | | | (178 | ) |
Tax (expense) benefit on change in unrecognized pension and post-retirement benefit costs | | | (69 | ) | | | 29 | | | | 36 | |
| Foreign currency translation adjustments | | | 6,699 | | | | (2,420 | ) | | | (13,848 | ) |
Tax (expense) benefit on foreign currency translation adjustments | | | -- | | | | (5,527 | ) | | | 3,341 | |
| Other comprehensive income (loss) | | | 7,319 | | | | (7,998 | ) | | | (10,649 | ) |
| Comprehensive loss attributable to non-controlling interest | | | (232 | ) | | | (137 | ) | | | (1,603 | ) |
| Comprehensive income attributable to controlling interest | | $ | 45,141 | | | $ | 47,127 | | | $ | 22,920 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Cash Flows from Operating Activities | | | | | | | | | |
| Net income | | $ | 37,590 | | | $ | 54,988 | | | $ | 31,966 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 21,312 | | | | 20,818 | | | | 20,744 | |
| Amortization | | | 4,490 | | | | 3,995 | | | | 3,334 | |
| Provision for doubtful accounts | | | 482 | | | | 280 | | | | 18 | |
| Provision for warranties | | | 16,725 | | | | 18,912 | | | | 13,743 | |
| Deferred compensation provision (benefit) | | | (574 | ) | | | 1,742 | | | | 241 | |
| Deferred income tax benefit | | | (291 | ) | | | (3,521 | ) | | | (2,559 | ) |
| Gain on disposition of fixed assets | | | (388 | ) | | | (224 | ) | | | (529 | ) |
| Tax benefit from stock incentive plans | | | -- | | | | -- | | | | (345 | ) |
| Stock-based compensation | | | 3,142 | | | | 2,936 | | | | 1,250 | |
| Distributions to SERP participants | | | (206 | ) | | | (532 | ) | | | (2,986 | ) |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | | | |
| Sale (purchase) of trading securities, net | | | 473 | | | | (1,873 | ) | | | (405 | ) |
| Trade and other receivables | | | (7,749 | ) | | | (4,895 | ) | | | 3,163 | |
| Inventories | | | (19,618 | ) | | | 30,839 | | | | (6,499 | ) |
| Prepaid expenses | | | (5,181 | ) | | | 4,846 | | | | (3,016 | ) |
| Other assets | | | (779 | ) | | | 2,069 | | | | (968 | ) |
| Accounts payable | | | 630 | | | | 8,836 | | | | (11,409 | ) |
| Customer deposits | | | 9,379 | | | | (762 | ) | | | (3,697 | ) |
| Accrued product warranty | | | (14,642 | ) | | | (15,125 | ) | | | (14,177 | ) |
| Income taxes payable | | | (597 | ) | | | 181 | | | | (4,093 | ) |
| Accrued retirement benefit costs | | | 45 | | | | (50 | ) | | | 24 | |
| Accrued loss reserves | | | 122 | | | | 229 | | | | 103 | |
| Other accrued liabilities | | | (1,118 | ) | | | 11,142 | | | | 3,576 | |
| Other | | | (1,366 | ) | | | (25 | ) | | | 3,387 | |
| Net cash provided by operating activities | | | 41,881 | | | | 134,806 | | | | 30,866 | |
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | | | | | |
| Business acquisition, net of cash acquired | | | (26,443 | ) | | | (39,764 | ) | | | 178 | |
| Proceeds from sale of property and equipment | | | 480 | | | | 614 | | | | 10,054 | |
| Expenditures for property and equipment | | | (20,046 | ) | | | (27,367 | ) | | | (21,202 | ) |
| Sale (purchase) of investments | | | (891 | ) | | | 290 | | | | 378 | |
| Net cash used by investing activities | | | (46,900 | ) | | | (66,227 | ) | | | (10,592 | ) |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Cash Flows from Financing Activities | | | | | | | | | |
| Payment of dividends | | $ | (9,226 | ) | | $ | (9,217 | ) | | $ | (9,193 | ) |
| Borrowings under bank loans | | | -- | | | | 5,973 | | | | 106,034 | |
| Repayment of bank loans | | | (7,242 | ) | | | (5,903 | ) | | | (104,567 | ) |
| Proceeds from issuance of common stock | | | -- | | | | -- | | | | 72 | |
| Tax benefit from stock option exercise | | | -- | | | | -- | | | | 345 | |
| Purchase of shares of subsidiaries | | | (106 | ) | | | (696 | ) | | | (653 | ) |
| Sale (purchase) of Company shares by SERP, net | | | 289 | | | | (153 | ) | | | 2,084 | |
| Withholding tax paid upon vesting of restricted stock units | | | (507 | ) | | | (1,024 | ) | | | (600 | ) |
| Proceeds from cash surrender value of life insurance | | | -- | | | | -- | | | | 416 | |
| Net cash used by financing activities | | | (16,792 | ) | | | (11,020 | ) | | | (6,062 | ) |
| Effect of exchange rates on cash | | | 1,720 | | | | (250 | ) | | | (2,173 | ) |
| Increase (decrease) in cash and cash equivalents | | | (20,091 | ) | | | 57,309 | | | | 12,039 | |
| Cash and cash equivalents, beginning of year | | | 82,371 | | | | 25,062 | | | | 13,023 | |
| Cash and cash equivalents, end of year | | $ | 62,280 | | | $ | 82,371 | | | $ | 25,062 | |
| | | | | | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest | | $ | 588 | | | $ | 1,407 | | | $ | 1,651 | |
| Income taxes, net of refunds | | $ | 26,917 | | | $ | 28,455 | | | $ | 29,573 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF EQUITYFor the Years Ended December 31, 2017, 2016 and 2015 (in thousands)
| | | Common
Stock Shares | | | Common
Stock
Amount | | | Additional
Paid-In Capital | | | Accumulated
Other
Comprehensive
Loss | | | Company Shares Held by SERP | | | Retained Earnings | | | Non- Controlling Interest | | | Total
Equity | |
Balance December 31,
2014 | | | 22,930 | | | $ | 4,586 | | | $ | 135,887 | | | $ | (12,915 | ) | | $ | (2,929 | ) | | $ | 467,337 | | | $ | 4,186 | | | $ | 596,152 | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 32,797 | | | | (831 | ) | | | 31,966 | |
Quarterly dividends
($0.10 per share for
4 Qtrs.) | | | | | | | | | | | 8 | | | | | | | | | | | | (9,201 | ) | | | | | | | (9,193 | ) |
Other comprehensive
loss | | | | | | | | | | | | | | | (10,649 | ) | | | | | | | | | | | (772 | ) | | | (11,421 | ) |
Change in ownership
percentage of
subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (663 | ) | | | (663 | ) |
Stock-based
compensation | | | 4 | | | | 1 | | | | 1,249 | | | | | | | | | | | | | | | | | | | | 1,250 | |
RSU vesting, including
tax benefit | | | 54 | | | | 11 | | | | 406 | | | | | | | | | | | | | | | | | | | | 417 | |
Withholding tax on
vested RSUs | | | | | | | | | | | (600 | ) | | | | | | | | | | | | | | | | | | | (600 | ) |
Sale of Company stock
held by SERP, net | | | | | | | | | | | 933 | | | | | | | | 1,151 | | | | | | | | | | | | 2,084 | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | (134 | ) | | | (134 | ) |
Balance December 31,
2015 | | | 22,988 | | | | 4,598 | | | | 137,883 | | | | (23,564 | ) | | | (1,778 | ) | | | 490,933 | | | | 1,786 | | | | 609,858 | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 55,159 | | | | (171 | ) | | | 54,988 | |
Quarterly dividends
($0.10 per share for 4 quarters) | | | | | | | | | | | 9 | | | | | | | | | | | | (9,226 | ) | | | | | | | (9,217 | ) |
Other comprehensive
income (loss) | | | | | | | | | | | | | | | (7,998 | ) | | | | | | | | | | | 34 | | | | (7,964 | ) |
Change in ownership
percentage of
subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (1,322 | ) | | | (1,322 | ) |
Stock-based
compensation | | | 5 | | | | 1 | | | | 2,935 | | | | | | | | | | | | | | | | | | | | 2,936 | |
| RSU vesting | | | 53 | | | | 10 | | | | (10 | ) | | | | | | | | | | | | | | | | | | | -- | |
Withholding tax on
vested RSUs | | | | | | | | | | | (1,024 | ) | | | | | | | | | | | | | | | | | | | (1,024 | ) |
Sale of Company stock
held by SERP, net | | | | | | | | | | | 27 | | | | | | | | (180 | ) | | | | | | | | | | | (153 | ) |
Cumulative effect of
adopting ASU No.
2016-09 | | | | | | | | | | | 150 | | | | | | | | | | | | (95 | ) | | | | | | | 55 | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | 684 | | | | 684 | |
Balance December 31,
2016 | | | 23,046 | | | | 4,609 | | | | 139,970 | | | | (31,562 | ) | | | (1,958 | ) | | | 536,771 | | | | 1,011 | | | | 648,841 | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 37,795 | | | | (205 | ) | | | 37,590 | |
Quarterly dividends
($0.10 per share for
4 quarters) | | | | | | | | | | | 10 | | | | | | | | | | | | (9,236 | ) | | | | | | | (9,226 | ) |
Other comprehensive
income | | | | | | | | | | | | | | | 7,319 | | | | | | | | | | | | (27 | ) | | | 7,292 | |
Change in ownership
percentage of
subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (43 | ) | | | (43 | ) |
Stock-based
compensation | | | 1 | | | | | | | | 2,172 | | | | | | | | | | | | | | | | | | | | 2,172 | |
| RSU vesting | | | 23 | | | | 5 | | | | (5 | ) | | | | | | | | | | | | | | | | | | | -- | |
Withholding tax on
vested RSUs | | | | | | | | | | | (507 | ) | | | | | | | | | | | | | | | | | | | (507 | ) |
Sale of Company stock
held by SERP, net | | | | | | | | | | | 291 | | | | | | | | (2 | ) | | | | | | | | | | | 289 | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | 357 | | | | 357 | |
Balance December 31,
2017 | | | 23,070 | | | $ | 4,614 | | | $ | 141,931 | | | $ | (24,243 | ) | | $ | (1,960 | ) | | $ | 565,330 | | | $ | 1,093 | | | $ | 686,765 | |
See Notes to Consolidated Financial Statements | |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands, except per share amounts unless otherwise specified)
1. SummaryBusiness and Organization
Description of Business
Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface for both asphalt and concrete. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction, demolition, land clearing and recycling industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; commercial and industrial burners; and combustion control systems.
The Company's products are marketed both domestically and internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; forestry and environmental recycling contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. 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 operates in two reportable segments (plus Corporate and Other) - Infrastructure Solutions and Materials Solutions. The Company's two reportable business segments comprise sites based upon the nature of the products produced or services provided, 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 Corporate and Other category consists primarily of the parent company, Astec Insurance Company ("Astec Insurance" or the "captive"), a captive insurance company, and the controls and automation business, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation - and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Astec Industries, Inc. and its domesticsubsidiaries and foreign subsidiaries (the "Company"have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The Company's significant wholly-owned andCompany prepares its consolidated subsidiaries at December 31, 2017 are as follows:
Astec Australia Pty Ltd | Astec do Brasil Fabricacao de Equipamentos Ltda. (92% owned) |
Astec, Inc. | Astec Insurance Company |
Astec Mobile Machinery GmbH | Astec Mobile Screens, Inc. |
Breaker Technology, Inc. | Breaker Technology Ltd. |
Carlson Paving Products, Inc. | CEI Enterprises, Inc. |
GEFCO, Inc. | Heatec, Inc. |
Johnson Crushers International, Inc. | Kolberg-Pioneer, Inc. |
Osborn Engineered Products SA (Pty) Ltd | Peterson Pacific Corp. |
(99% owned) | Power Flame Incorporated |
RexCon, Inc. | Roadtec, Inc. |
Telestack Limited | Telsmith, Inc. |
financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). All intercompany accountsbalances and transactions between the Company and its affiliates have been eliminated in consolidation. Certain reclassifications have been made to
Noncontrolling interest in the 2016Company's consolidated financial statements represents the 7% interest in a consolidated subsidiary which is not owned by the Company. Since the Company controls this subsidiary, the subsidiary's financial statements are consolidated with those of the Company, and the noncontrolling owner's 7% share of the subsidiary's net assets and results of operations is deducted and reported as "Noncontrolling interest" in the Consolidated Balance Sheets and as "Net loss (income) attributable to conformnoncontrolling interest" in the Consolidated Statements of Operations. The Company executed an agreement in February 2022 with the noncontrolling interest holder, which is undergoing a judicial reorganization in Brazil, to acquire their outstanding interest in full for R$10.0M (approximately $2.0 million, subject to the 2017 presentation.effect of exchange rates). Completion of the transaction is subject to obtaining certain judicial approval in Brazil.
Use of Estimates -
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include excess and obsolete inventory, inventory net realizable value, product warranty obligations, self-insurance loss reserves, capitalization of internal use software, goodwill impairment and the measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results could differ from those estimates.
Foreign Currency Translation - Subsidiaries located in Australia, Brazil, Canada, Germany, Northern Ireland, and South Africa operate primarily using local functional currencies. 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 loss. Foreign currency transaction gains and losses, net are included in cost of sales and amounted to a gain of $431 in 2017 and losses of $246 and $1,377 in 2016 and 2015, respectively.
Fair Value of Financial Instruments - For cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable, the carrying amount approximates the fair value because of the short-term nature of those instruments. Trading equity investments are valued at their estimated fair value based on their quoted market prices and debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service.
Financial assets and liabilities are categorized as of the end of each reporting period 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. |
All financial assetsdollar amounts, except share and liabilities held by the Company at December 31, 2017 and 2016per share amounts, are classified as Level 1 or Level 2, as summarized in Note 3, Fair Value Measurements.millions of dollars unless otherwise indicated.
Significant Accounting Policies
Cash, and Cash Equivalentsand Restricted Cash - All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. The Company maintains cash balances with high credit quality institutions, the balances of which may exceed federally insured limits.
The Company had $25.9 million and $117.0 million in a government money market fund at December 31, 2022 and 2021, respectively, which is included in "Cash, cash equivalents.equivalents and restricted cash" in the Consolidated Balance Sheets.
The Company had cash of $3.2 million and $0.3 million at December 31, 2022 and 2021, respectively, that is restricted as to withdrawal or use, which is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets.
Investments - Investments consist primarily of investment-grade marketable securities. TradingAll investments held at December 31, 2022 are classified as trading securities and are carried at fair value, with unrealized holding gains and losses included in net income."Other (expenses) income, net" in the Consolidated Statements of Operations. Realized gains and losses are accounted for on the specific identification method. Purchases and sales are recorded on a trade datetrade-date basis. Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date.
Concentration of Credit RiskAccounts Receivable - 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.credit losses. The Company extends credit to its customers based on an evaluation of the customers' financial condition generally without requiring collateral, although the Company normally requires advance payments or letters of credit on large equipment orders.
Allowance for Credit risk is driven by conditions within the economy and the industry and is principally dependentLosses - The Company measures its credit losses on each customer's financial condition. To minimize credit risk, thereceivables using an expected loss model. The Company currently monitors credit levels and financial conditions of customers on a continuing basis. After considering historical trends for uncollectible accounts, current economic conditions and specific customer recent payment history and financial stability, the Company records anstability. An allowance for doubtful accountscredit losses is maintained in "Trade receivables and contract assets, net" in the Consolidated Balance Sheets at a level which management believes is sufficient to cover all probable future credit losses. losses as of the balance sheet date based on a rolling twelve-month "look-back", specific reserves and an expectation of future economic conditions that might impact customers. The corresponding provision for credit losses is recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
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 uncollectible by management. AsThe majority of December 31, 2017, concentrations of credit risk with respect tothe Company’s receivables are limited duerelated to equipment that requires significant down payment with other terms allowing for payment shortly after shipment, typically 30 days, which the wide variety of customers.Company believes is short-term in nature.
Allowance for Doubtful Accounts - The following table represents a rollforward of the allowance for doubtful accountscredit losses for the years ended December 31, 2017, 20162022, 2021 and 2015:2020:
| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| Allowance balance, beginning of year | | $ | 1,511 | | | $ | 1,837 | | | $ | 2,248 | | Allowance balance, beginning of year | | $ | 2.3 | | | $ | 1.7 | | | $ | 1.4 | |
| Provision | | | 482 | | | | 280 | | | | 18 | | Provision | | 1.2 | | | 0.7 | | | 0.9 | |
| Write offs | | | (308 | ) | | | (560 | ) | | | (357 | ) | Write offs | | (1.2) | | | (0.4) | | | (0.6) | |
| Other | | | 31 | | | | (46 | ) | | | (72 | ) | |
| Recoveries and other | | Recoveries and other | | — | | | 0.3 | | | — | |
| Allowance balance, end of year | | $ | 1,716 | | | $ | 1,511 | | | $ | 1,837 | | Allowance balance, end of year | | $ | 2.3 | | | $ | 2.3 | | | $ | 1.7 | |
In addition, an allowance for credit losses related to an outstanding note receivable of $0.7 million is included in "Other receivables, net" in the Consolidated Balance Sheets for the years ended December 31, 2022 and 2021.
Inventories - The Company's inventory is comprised of raw materials and parts, work-in-process, finished goods and used equipment.
Raw material and parts inventory is comprised ofcomprises purchased steel and other purchased items for use in the manufacturing process or held for sale for the 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 equipment inventory consists of equipment accepted in trade or purchased on the open market. TheThis 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 net realizable value determined on each separate unit. Each unit of rental equipment is valued at the lower of original manufacturing, acquired or trade-in cost or net realizable value.
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, 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 ourthe Company or its competitors, the condition of ourits used and rental equipment 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"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 Company's equipment or parts we sell.parts. 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. 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 equipment 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 to calculate reserves needed for slow-moving or 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 the 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.
Assets Held for Sale – Assets are classified as held for sale when any ongoing operations have ceased, and the Company has committed to a plan to sell the assets in their current condition at a price that is reasonable in relation to the current fair value of the assets. Assets held for sale are generally expected to be sold within one year of meeting the designation criteria. Upon designation as held for sale, the assets are recorded at the lower of their carrying value or fair value, less costs to sale and related depreciation and amortization is ceased. The held for sale designation and carrying value of assets held for sale is periodically reviewed and adjusted as facts and circumstances indicate that a change may be necessary. As of December 31, 2022, the Company recorded assets held for sale of $15.4 million related to land and building assets of its former site in Tacoma, which are being marketed for sale. The Company accounted for certain Enid land and building assets as assets held for sale as of December 31, 2021. The sale of the Enid land and building was completed in the fourth quarter of 2022. See Note 22, Strategic Transformation and Restructuring, Impairment and Other Asset Charges for additional discussion of the transactions related to these assets.
Property and Equipment - Property and equipment is stated at cost. Depreciation is calculatedExpenditures for financial reporting purposes usingmaintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and improvements that substantially extend the straight-line method based oncapacity or useful life of an asset are capitalized and are then depreciated. The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are relieved from the accounts and resulting gains or losses are reflected in earnings.
Property and equipment are depreciated over the estimated useful lives of the assets as follows: airplanes (20 years), buildings (40 years)using the straight-line depreciation method for financial reporting and equipment (3 to 10 years). Bothon accelerated methods for income tax purposes. Land is recorded at historical cost and straight-line methodsis not depreciated. The useful lives are used for tax compliance purposes. Routine repair and maintenance costs and planned major maintenance are expensed when incurred.
Goodwill and Other Intangible Assets -estimated based on historical experience with similar assets, considering anticipated technological or other changes. The Company classifies intangible assets as either intangible assets with definiteperiodically reviews these lives subjectrelative to amortization or 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 changephysical factors and industry trends. If there are changes 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 expected to be generated from theplanned use of the asset.
The Company determinesproperty or equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition 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 terms of agreements, 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 over their useful lives as follows: dealer network and customer relationships: 8-19 years; trade names: 15 years; other: 5-19 years.accelerated depreciation expense in future periods.
Goodwill is not amortized. The Company tests goodwill for impairment annually or more frequently if events or circumstances indicate that goodwill might be impaired. The Company uses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. The Company estimates the fair values of each of its reporting units using the income approach.
The income approach uses a reporting unit's projection of estimated future operating resultsProperty and cash flows whichequipment are then discounted using a weighted average cost of capital determined based on current market conditions for the individual reporting unit. The projection uses management's best estimates of cash flowsprimarily depreciated over the projection period based on estimates of annual and terminal growth rates in sales and costs, and changes in operating margins, selling, general and administrative expenses, working capital requirements and capital expenditures. Other factors used in evaluating the fair value of a reporting unit could include deterioration in the general economy, fluctuations in foreign exchange, deterioration in the industry or markets in which the reporting unit operates, an increased competitive market, regulatory or political developments in the market, increases in raw materials, labor costs or other factors that have a negative effect on earnings and cash flows, a decline in actual or budgeted earnings or cash flows, and entity specific changes in management, key personnel, strategy or customer base. If the fair value of a reporting unit is found to be less than its book value, the company will record an impairment loss equal to the excess, if any, of the book value over the fair value of its goodwill.following useful lives:
The fair value of reporting units that do not have goodwill are estimated using either the income or market approaches, depending on which approach is the most appropriate for each reporting unit. The fair value of the reporting units that serve operating units in supporting roles, such as the captive insurance company and the corporate reporting unit are estimated using the cost approach. The sum of the fair values of all reporting units is compared to the fair value of the consolidated Company, calculated using the market approach, which is inferred from the market capitalization of the Company at the date of the valuation, to confirm that the Company's estimation of the fair value of its reporting units is reasonable. | | | | | |
| Years |
| Buildings and improvements | 5 - 40 |
| Airplanes and aviation equipment | 5 - 20 |
| Machinery, equipment and tooling | 3 - 10 |
| Furniture and fixtures | 5 - 10 |
| Computer hardware and software | 3 - 5 |
Determining the fair values of the Company's reporting units involves the use of significant estimates and assumptions. Due to the inherent uncertainty involved in making these estimates and assumptions, actual results could differ materially from those estimates.
Impairment of Long-livedLong-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 are compared to the carrying amount for each asset (or group of assets) to determine if a write-down is required. If this review indicates that the assets will not be recoverable, the carrying values of the impaired assets are reduced to their estimated fair value. Fair value is estimated using discounted cash flows, prices for similar assets or other valuation techniques.
Self-Insurance ReservesLeases - The Company retainsleases certain real estate, material handling equipment, automobiles and other equipment. The Company determines if a contract is a lease (or contains an embedded lease) at 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 was originally incorporated under the lawsinception of the stateagreement. For a contract to be determined to be a lease or contain a lease, it must include explicitly or implicitly identified assets where the Company has the right to substantially all of Vermont but was redomiciledthe economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or finance. For operating leases, the Company recognizes a lease liability equal to the statepresent value of Tennessee in late 2017. The objectives of Astec Insurance arethe remaining lease payments, and a right-of-use ("ROU") asset equal to improve control over and reduce the cost of claims;lease liability, subject to improve focus on risk reduction withcertain adjustments, such as prepaid rent. ROU assets represent the development of a program structure which rewards proactive loss control; andright to ensure management participation in the defense and settlement process for claims.
For general liability claims, the captive is liableuse an underlying asset for the first $1,000 per occurrencelease term, and $3,000 per year in the aggregate. The Company carries general liability, excess liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers' compensation claims, the captive is liable for the first $350 per occurrence and $3,250 per year in the aggregate. The Company utilizes a large national insurance company as third-party administrator for workers' compensation claims and carries insurance coverage for claimslease liabilities in excess of amounts covered by the captive.
The financial statements of the captive are consolidated into the consolidated 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 onrepresent the Company's evaluationobligation to make lease payments arising from the lease. As of the typeDecember 31, 2022 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,2021, the Company doesdid not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.have any finance leases.
The Company is self-insured for health and prescription claims underuses its Group Health Insurance Plan at all but oneincremental borrowing rate to determine the present value of the lease payments. The Company's domestic manufacturing subsidiaries. The Company carries reinsurance coverageincremental borrowing rate is the rate of interest that it would incur 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 plan 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 separate health plans. 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 delivered or services have been rendered and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products 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. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer needs or specifications. The Company provides customers with technical design and performance specifications and performs pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether the Company provides installation services in addition to selling the equipment.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon completion of equipment production, which is subsequently stored at the Company's plant at the customer's request. 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 prior to revenue recognition.
The Company has certain sales accounted for as multiple-element arrangements, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed. Consideration is allocated to deliverables using the relative selling price method using vendor specific objective evidence, if it exists. Otherwise, the Company uses third-party evidence of selling price or the Company's best estimate of the selling price for the deliverables. 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 customerborrow on a standalonecollateralized basis and there is no right of return.
The Company has certain sales accounted for under the percentage of completion method using the ratio of costs incurred to estimated total costs. Revenue, inover a similar term an amount equal to cost incurred,the lease payments in a similar economic environment. The Company determines the incremental borrowing rates based upon secured borrowing rates quoted by the Company's banks for loans of a corresponding length to the lease.
The lease term at the lease commencement date is recognized until there is sufficient information to determine the estimated profitdetermined based on the projectnon-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considers a reasonable levelnumber of certainty. The factors consideredwhen evaluating whether the options in this evaluation includeits lease contracts are reasonably certain of exercise, such as length of time before an option exercise, expected value of the stageleased asset at the end of design completion, the stageinitial lease term, importance of equipment manufacturing completion, the state of construction completion,lease to the status of outstanding subcontracts, certainty of quantities of laborCompany's operations, costs to negotiate a new lease and materials, certainty of schedule and the relationship with the customer.any contractual or economic penalties.
The Company presents indoes not recognize ROU assets or lease liabilities for leases with a term of 12 months or less.
Goodwill and Other Intangible Assets - Goodwill represents the consolidated statementsexcess of income any taxes assessedthe purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized but is tested at the reporting unit level for impairment annually on October 1, or more frequently, as events dictate. A reporting unit is an operating segment or, under certain circumstances, a component of an operating segment that constitutes a business, has available discrete financial information, and whose operating results are regularly reviewed by management. Components of an operating segment are combined and aggregated as a governmental authoritysingle reporting unit if the components have similar economic characteristics.
Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, on a net (excluded from revenue) basis.
Advertising Expense - The cost of advertisingincludes, but is expensed as incurred. The Company incurred $3,793, $4,045, and $4,231 in advertising costs during 2017, 2016 and 2015, 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 valuation allowances against its deferred tax assetsnot limited to, the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
The Company evaluates a tax positionmacroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. The Company may elect not to perform the tax position will be sustained upon examination, based uponqualitative assessment for some or all reporting units and perform the technical meritsquantitative impairment test. The quantitative goodwill impairment test requires the comparison the carrying value of the position. Areporting unit's net assets to the fair value of the reporting unit. The Company determines fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. This analysis requires significant assumptions, including projected net sales, projected earnings before interest, tax, position that meetsdepreciation and amortization, terminal growth rates, the more-likely-than-not recognition threshold iscost of capital, the selection of appropriate guideline companies and related valuation multiples. Management's estimates are subject to a measurement assessment to determinechange given the amount of benefit to recognizeinherent uncertainty in predicting future results. Additionally, the discount rate and the appropriate reserveterminal growth rate are based on management's judgment of the rates that would be utilized by a hypothetical market participant.
The Company's intangible assets have definite lives and are subject to establish, if any. If a tax position doesamortization. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not meet the more-likely-than-not recognition threshold, no benefit is recognized.be recoverable. 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 terms of agreements, 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.
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 periodically auditedrecorded when the carrying value of the definite lived intangible asset is not recoverable by U.S. federal and state as well as foreign tax authorities. While it is often difficultthe future undiscounted cash flows expected to predict final outcome or timingbe generated from the use of resolution of any particular tax matter, the Company believes its reserve for uncertain tax positions is adequate to reduceasset, which are evaluated at the uncertain positions toasset group level.
Intangible assets with definite lives are amortized on a straight-line basis over the greatest amount of benefit that is more likely than not realizable.following estimated useful lives:
| | | | | |
| Years |
| Dealer network and customer relationships | 8 - 18 |
| Trade names | 3 |
| Other | 3 - 19 |
Product Warranty Reserve - The Company accrues for the estimated cost of product warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For equipment, the Company's standard product warranty terms generally include post-sales support and repairs of products at no additional charge for periods ranging from three months to two years or up to a specified number of hours of operation. For parts from component suppliers, the Company relies on the original manufacturer's warranty that accompanies those parts. Generally, Company fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the Company's 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 obligations are 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 ourthe Company's estimates, revisions to the estimated warranty liability may be required.
Pension and Retirement PlansIncome Taxes - The determination of obligations and expenses under the Company's pension plan is dependentIncome taxes are based on the Company's selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions are described in Note 12, Pension and Retirement Plans and include among others, the discount rate, expected return on planpre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected mortality rates. In accordance with U.S. generally accepted accounting principles, actual resultstax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more-likely-than-not 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 obligations and future expenses.tax assets will be fully utilized.
The Company recognizesevaluates a tax position to determine whether it is more-likely-than-not that the overfunded or underfunded statustax position will be sustained upon examination, based upon the technical merits of its pension plan as an asset or liability. Actuarial gainsthe 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 and losses, amortization of prior service cost (credit) and amortization of transition obligations are recognized through other comprehensive income (loss) in the year in whichappropriate reserve to establish, if any. If a tax position does not meet the changes occur.more-likely-than-not recognition threshold, no benefit is recognized. The Company measuresis periodically audited by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict a final outcome or timing of resolution of any particular tax matter, the funded statusCompany believes its reserve for uncertain tax positions is adequate to reduce the uncertain positions to the greatest amount of its pension plan as of the date of the Company's fiscal year-end.benefit that is more-likely-than-not realizable.
Stock-based Compensation Self-Insurance Reserves- The Company recognizesretains the risk for a portion of its workers' compensation claims and general liability claims by way of a captive insurance company, Astec Insurance. The objectives of Astec Insurance are to improve control over and reduce the cost of employee services receivedclaims; to improve focus on risk reduction with the development of a program structure which rewards proactive loss control; and to ensure management participation in exchangethe defense and settlement process for equity awardsclaims.
For general liability claims, the captive is liable for the first $1.0 million per occurrence. The Company carries general liability, excess liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers' compensation claims, the captive is liable for the first $0.35 million per occurrence. The Company utilizes a large national insurance company as third-party administrator for workers' compensation claims and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.
The financial statements of the captive are included in the consolidated 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" 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 foreseeable future.
The Company is self-insured for health and prescription claims under its Group Health Insurance Plan for all of the Company's domestic employees. 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 plan which is included in "Accrued loss reserves" in 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.
Employees of the Company's foreign subsidiaries are insured under separate health plans. No reserves are necessary for these fully-insured health plans.
Revenue Recognition - Revenue is generally recognized when the Company satisfies a performance obligation by transferring control of goods or providing services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specific delivery terms. A significant portion of the Company's equipment sales represents equipment produced in the Company's manufacturing facilities under short-term contracts for a customer's project or equipment designed to meet a customer’s requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer's needs or specifications. The Company provides customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the equipment performs according to the customer's need, regardless of whether the Company provides installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. The Company offers extended warranties for sale on certain equipment sold to its customers. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically paid within one year from the date of the contract fulfillment, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to the Company's dealer customers, payments for extended warranties or for obligations for future estimated returns to be allowed based upon historical trends.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon the completion of production, and the equipment is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and risk of ownership, which transfers control of the equipment, and when collectibility is probable. 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 prior to revenue recognition.
The Company had orders totaling $20.7 million and $29.3 million in 2022 and 2021 respectively, and nominal orders in 2020 on which revenue was recorded over time based upon the ratio of costs incurred to estimated total costs.
Service and Equipment Installation Revenue – Purchasers of certain of the Company's equipment often contract with the Company to provide installation services. Installation is typically separately priced in the contract based upon observable market prices for stand-alone performance obligations or a cost plus margin approach when one is not available. The Company may also provide future services on equipment sold at the customer's request, which may be for equipment repairs after the warranty period expires. Service is billed on a cost plus margin approach or at a standard rate per hour.
Used Equipment Sales – Used equipment is typically obtained by trade-in on new equipment sales or as a separate purchase in the open market. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – The Company records revenues earned for shipping and handling as revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues, extended warranty revenues, early pay discounts and floor plan interest reimbursements.
Advertising Expense - The cost of advertising is expensed as incurred. The Company incurred $2.1 million, $1.5 million and $2.6 million in advertising costs during 2022, 2021 and 2020, respectively, which are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Share-based Compensation -The grant date fair value of share-based compensation awards is based upon the closing market price of the Company's common stock on the day prior to the grant date, except for performance stock awards with a total shareholder return ("TSR") market metric for which the Company estimates fair value using a Monte-Carlo simulation model. The Company recognizes compensation expense for all awards over the requisite service period. Forfeitures are recognized as they occur. Compensation expense is based on the grant date calculated fair value as described above, except for performance stock awards with a return on invested capital ("ROIC") performance metric. For these awards, compensation expense is based on the probable outcome of achieving the specified performance conditions. The Company reassesses whether achievement of the awards. The Company recognizes stock-based compensation expense over the period during which an employeeROIC performance metric is required to provide service in exchange for the award (the vesting period).probable at each reporting date. The Company's equity awards are further described in Note 16, Shareholders' Equity.17, Share-Based Compensation.
Earnings Per Share Acquisitions - Basic earnings per shareThe Company accounts for business combinations using the acquisition method. Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Acquisition costs are expensed as incurred and contingent consideration, if applicable, is basedbooked at its fair value as part of the purchase price. See Note 3, Acquisitions for additional information on the weighted average number of common shares outstanding and diluted earnings per share includes potential dilutive effects of restricted stock units and shares held in the Company's supplemental executive retirement plan.acquisitions.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings per share:
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Denominator: | | | | | | | | | |
| Denominator for basic earnings per share | | | 23,025 | | | | 22,992 | | | | 22,934 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Restricted stock units | | | 96 | | | | 85 | | | | 123 | |
| Supplemental executive retirement plan | | | 63 | | | | 65 | | | | 63 | |
| Denominator for diluted earnings per share | | | 23,184 | | | | 23,142 | | | | 23,120 | |
Derivatives and Hedging Activities - The Company recognizes all derivatives in the consolidated balance sheetsConsolidated Balance Sheets at their fair value. Derivatives that are not hedges are 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 (loss) 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. See Note 13, Derivative Financial Instruments, regarding
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency risk. The fair value of the derivative financial instrument is recorded in the Consolidated Balance Sheets and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the Consolidated Statements of Operations in the current period. The Company does not engage in speculative transactions, nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts outstandingwas $10.3 million during 2022. The Company reported nominal derivative assets at December 31, 20172022 and 2016.
Shipping$0.1 million of derivative assets in "Prepaid expenses and Handling Fees and Cost -other assets" at December 31, 2021. The Company records revenues earned for shipping and handling as revenue, while the cost of shipping and handling is classified as cost of sales.held nominal derivative liabilities at December 31, 2022 or 2021.
Business Combinations - The Company accounts for business combinations usingrecognized, as a component of "Other (expenses) income, net", a net loss on the acquisition method. Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Related third-party acquisition costs are expensed as incurred and contingent consideration is booked at itschange in fair value as part of derivative instruments of $0.5 million for the purchase price. See Note 20, Business Combinations, regarding acquisitions completed by the Company inyear ended December 31, 2022 and a net gain of $0.8 million and $0.2 million for the years ended December 31, 20172021 and 2016.
Subsequent Events Review - Management has evaluated events occurring between2020, respectively. There were no derivatives that were designated as hedges at December 31, 20172022 or 2021.
Foreign Currency - Subsidiaries located in Australia, Belgium, Brazil, Canada, Chile, France, India, South Africa, Thailand and the dateUnited Kingdom operate primarily using local functional currencies. 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 in effect during the period. The resulting adjustments are presented as a separate component of "Accumulated other comprehensive loss". Foreign currency transaction gains and losses, net are included in "Other (expenses) income, net" and amounted to losses of $0.4 million and $1.3 million in 2022 and 2021, respectively, and a gain of $1.1 million in and 2020.
Earnings Per Share -Basic earnings per share is computed by dividing "Net (loss) income attributable to controlling interest" by the weighted average number of shares outstanding during the reported period. Deferred stock units are fully vested and, as such, are included in basic earnings per share. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of restricted stock units, performance stock units, related dividend equivalents and stock held in the Company's deferred compensation programs, using the treasury stock method. Potential common shares that have an antidilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. Performance stock units, which are considered contingently issuable, are considered dilutive when the related performance criterion has been met.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Denominator: | | | | | |
| Denominator for basic earnings per share | 22,790,717 | | | 22,726,767 | | | 22,585,515 | |
| Effect of dilutive securities: | | | | | |
| Restricted stock units | — | | | 150,754 | | | 185,965 | |
| Unvested performance share units | — | | | 35,747 | | | 65,404 | |
| Deferred compensation programs | — | | | 35,364 | | | 40,859 | |
| Denominator for diluted earnings per share | 22,790,717 | | | 22,948,632 | | | 22,877,743 | |
| | | | | |
| Antidilutive securities excluded from the calculation of diluted earnings per share | 255,738 | | | 75,451 | | | 6,184 | |
Adjustments and Reclassifications
During the first quarter of 2022, the Company identified errors in its previously issued financial statements related to an overstatement of work-in-process inventory that mainly accumulated over the periods from 2018 through 2021 thereby understating "Cost of sales" in those periods and an overstatement of "Net sales" and "Cost of sales" as well as impacts to certain consolidated balance sheet financial statement line items as a result of over-time revenue recognition calculation errors at one of the Company's sites which impacted the second, third and fourth quarters of 2021.
The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior period consolidated financial statements taken as a whole. To reflect the correction of the above errors, the Company is revising the previously issued consolidated financial statements for the years ended and as of December 31, 2021 and 2020 in this Form 10-K. The Company is also disclosing the impact of the revisions on the previously filed audited Consolidated Balance Sheet as of December 31, 2021 and the opening balance sheet equity impact for December 31, 2020. As a result, the Company has corrected the misstatements as disclosed in the following tables for all impacted financial statement line items in prior periods.
In addition, certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the year ended December 31, 2022.
•The Company reclassified certain accrued liability balances from "Other current liabilities" to "Accrued employee related liabilities" to more appropriately reflect the nature of such accrued balances.
•The Company elected to present gains and losses recognized on the change in fair value of derivative instruments and foreign currency transaction gains and losses, net in "Other (expenses) income, net". These amounts were filed withpreviously included in "Cost of sales".
There was no change to previously reported "Total current liabilities" or "Net (loss) income attributable to controlling interest" related to these reclassifications.
The Company recorded a $1.5 million out-of-period expense during the Securitiesfirst quarter of 2021 in "Selling, general and Exchange Commissionadministrative expenses" for proper recording or disclosure therein.certain vendor hosted software licensing fees for contract costs incurred in the fourth quarter of 2020, which is not reflected as an adjustment in the tables below.
Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| (in millions) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| Trade receivables and contract assets, net | $ | 144.1 | | | $ | (2.4) | | | $ | — | | | $ | 141.7 | |
| Inventories | 303.0 | | | (4.3) | | | — | | | 298.7 | |
| Prepaid and refundable income taxes | 19.5 | | | 1.0 | | | — | | | 20.5 | |
| Total current assets | 641.7 | | | (5.7) | | | — | | | 636.0 | |
| Deferred income tax assets | 16.0 | | | 0.2 | | | — | | | 16.2 | |
| Total assets | 911.3 | | | (5.5) | | | — | | | 905.8 | |
| Accounts payable | 83.5 | | | (1.3) | | | — | | | 82.2 | |
| Accrued employee related liabilities | 23.6 | | | — | | | 7.0 | | | 30.6 | |
| Other current liabilities | 42.9 | | | (0.7) | | | (7.0) | | | 35.2 | |
| Total current liabilities | 225.3 | | | (2.0) | | | — | | | 223.3 | |
| Total liabilities | 256.5 | | | (2.0) | | | — | | | 254.5 | |
| | | | | | | |
| Retained earnings | 552.8 | | | (3.5) | | | — | | | 549.3 | |
| Shareholders' equity | 654.3 | | | (3.5) | | | — | | | 650.8 | |
| Total equity | 654.8 | | | (3.5) | | | — | | | 651.3 | |
| Total liabilities and equity | 911.3 | | | (5.5) | | | — | | | 905.8 | |
Statement of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in millions, except per share data) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| Net sales | $ | 1,097.2 | | | $ | (1.7) | | | $ | — | | | $ | 1,095.5 | |
| Cost of sales | 845.5 | | | 1.0 | | | (0.5) | | | 846.0 | |
| Gross profit | 251.7 | | | (2.7) | | | 0.5 | | | 249.5 | |
| Income (loss) from operations | 22.1 | | | (2.7) | | | 0.5 | | | 19.9 | |
| Other income (expenses), net | (5.0) | | | — | | | (0.5) | | | (5.5) | |
| Income (loss) before income taxes | 16.5 | | | (2.7) | | | — | | | 13.8 | |
| Income tax provision (benefit) | (1.4) | | | (0.7) | | | — | | | (2.1) | |
| Net (loss) income | 17.9 | | | (2.0) | | | — | | | 15.9 | |
| Net (loss) income attributable to controlling interest | 17.8 | | | (2.0) | | | — | | | 15.8 | |
| Per share data: | | | | | | | |
| (Loss) earnings per common share - Basic | 0.78 | | | (0.08) | | | — | | | 0.70 | |
| (Loss) earnings per common share - Diluted | 0.78 | | | (0.09) | | | — | | | 0.69 | |
| | | | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| | | | | | | |
| Cost of sales | $ | 784.3 | | | $ | 1.2 | | | $ | 1.3 | | | $ | 786.8 | |
| Gross profit | 240.1 | | | (1.2) | | | (1.3) | | | 237.6 | |
| Income (loss) from operations | 43.0 | | | (1.2) | | | (1.3) | | | 40.5 | |
| Other income (expenses), net | 2.6 | | | — | | | 1.3 | | | 3.9 | |
| Income (loss) before income taxes | 45.7 | | | (1.2) | | | — | | | 44.5 | |
| Income tax provision (benefit) | (1.2) | | | (0.3) | | | — | | | (1.5) | |
| Net (loss) income | 46.9 | | | (0.9) | | | — | | | 46.0 | |
| Net (loss) income attributable to controlling interest | 46.9 | | | (0.9) | | | — | | | 46.0 | |
| Per share data: | | | | | | | |
| (Loss) earnings per common share - Basic | 2.08 | | | (0.04) | | | — | | | 2.04 | |
| (Loss) earnings per common share - Diluted | 2.05 | | | (0.04) | | | — | | | 2.01 | |
Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in millions) | As Previously Reported | | Adjustment | | As Revised / Reclassified |
| Net (loss) income | $ | 17.9 | | | $ | (2.0) | | | $ | 15.9 | |
| | | | | |
| | | | | |
| | | | | |
| Comprehensive income (loss) attributable to controlling interest | 18.9 | | | (2.0) | | | 16.9 | |
| | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | As Revised / Reclassified |
| Net (loss) income | $ | 46.9 | | | $ | (0.9) | | | $ | 46.0 | |
| | | | | |
| | | | | |
| | | | | |
| Comprehensive income (loss) attributable to controlling interest | 45.2 | | | (0.9) | | | 44.3 | |
Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| (in millions) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| Net (loss) income | $ | 17.9 | | | $ | (2.0) | | | $ | — | | | $ | 15.9 | |
| | | | | | | |
| Receivables and other contract assets | (30.8) | | | 2.4 | | | — | | | (28.4) | |
| Inventories | (53.8) | | | 2.3 | | | — | | | (51.5) | |
| Accounts payable | 30.8 | | | (1.3) | | | — | | | 29.5 | |
| Accrued employee related liabilities | 3.0 | | | — | | | 7.0 | | | 10.0 | |
| Other accrued liabilities | (0.7) | | | (0.7) | | | (7.0) | | | (8.4) | |
| Income taxes payable/prepaid | (13.6) | | | (0.7) | | | — | | | (14.3) | |
| | | | | | | |
| | | | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| Net (loss) income | $ | 46.9 | | | $ | (0.9) | | | $ | — | | | $ | 46.0 | |
| | | | | | | |
| | | | | | | |
| Inventories | 44.7 | | | 1.2 | | | — | | | 45.9 | |
| | | | | | | |
| Accrued employee related liabilities | (5.1) | | | — | | | 6.7 | | | 1.6 | |
| Other accrued liabilities | 9.8 | | | — | | | (6.7) | | | 3.1 | |
| Income taxes payable/prepaid | 16.0 | | | (0.3) | | | — | | | 15.7 | |
| | | | | | | |
| | | | | | | |
Statement of Equity
| | | | | | | | | | | | | | | | | |
| (in millions) | As Previously Reported | | Adjustment | | As Revised / Reclassified |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Balance, December 31, 2020 | | | | | |
| | | | | |
| Retained Earnings | $ | 545.2 | | | $ | (1.5) | | | $ | 543.7 | |
| Total Equity | 643.0 | | | (1.5) | | | 641.5 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Balance, December 31, 2021 | | | | | |
| | | | | |
| Retained Earnings | 552.8 | | | (3.5) | | | 549.3 | |
| Total Equity | 654.8 | | | (3.5) | | | 651.3 | |
Recently Adopted Accounting Pronouncements-
In May 2014,December 2019, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers"2019-12, "Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes", 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 serviceseliminates certain exceptions related to customersthe approach for intra-period tax allocation, the methodology for calculating income taxes in an amountinterim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that reflectsresult in a step-up in the consideration to which the company expects to be entitled in exchange for those goods or services. The implementationtax basis of this new standard will require companies to use more judgment and to make more estimates than under current guidance and to expand their disclosures to include information regarding contract assets and liabilities as well as a more disaggregated view of revenue. The standard, as amended, is effective for public companies for annual periods beginning after December 15, 2017.goodwill. The Company adopted thethis new standard effective January 1, 2018 using the modified retrospective transition method and will expand its disclosures in the first quarter 2018 consolidated financial statements to comply with the disclosure provisions of the new rule.2021. The Company does not expect the adoption of the standard to have a material impact on its financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10)", which requires, among other things, equity investments with readily determinable fair values, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position, cash flows or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which significantly changes the accounting for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet, initially measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost included in the statement of income will be calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Lessees may makehad an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The new standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company plans to adopt the new standard effective January 1, 2019. The Company does not expect the adoption of this standard to have a material impact on its results of operations or cash flows; however, the Company has not determined the impact the adoption of this new standard will have on its financial position.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606)", which does not change the core principles of ASU No. 2014-09 discussed above, but rather clarifies the implementation guidance in order to eliminate the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance. Under the new guidance, when an entity determines it is a principal in a transaction, the entity recognizes revenue in the gross amount of consideration; however, in transactions where an entity determines it is an agent, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The standard is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the adoption of this new standard to have a materialimmaterial impact on the Company's financial position, results of operations or cash flows.
In June 2016,October 2021, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses2021-08, "Business Combinations (Topic 326)805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers", Measurement of Credit Losses on Financial Instruments"which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The standard changes how credit losses are measured for most financialupdate will generally result in an entity recognizing contract assets and certain other instruments that currently are not measured through net income. The standard will require an expected loss model for instruments measuredcontract liabilities at amortized cost as opposed toamounts consistent with those recorded by the current incurred loss approach. In valuing available for sale debt securities, allowances will be required to be recorded,acquiree immediately before the acquisition date rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflect the impact of applying the provisions of the standard.at fair value. The new standard is effective for public companies for periods beginning after December 15, 2019 and the Company expects to adopt the new standard as of January 1, 2020. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position results of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)" which clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows. The statement also addresses how the predominance principle should be applied when cash payments have aspects of more than one class of cash flows. The standard is effectivea prospective basis for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018.2022, with early adoption permitted. The Company does not expect theelected to early adopt this guidance on April 1, 2022. The adoption of this new standard to have a material impact on the Company's consolidated statements of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory, such as intangible assets, when the transfer occurs. This is a change from current guidance, which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized by being depreciated, amortized, or impaired. The new guidance will require companies to defer the income tax effects of only intercompany transfers of inventory. The standard is effective for public companies in fiscal years beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company doesdid not expect the application of this standard to have a material impact on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805), Clarifying the Definition of a Business," which provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for public companies for annual or interim periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the application of this standard to have a material impact on its financial position, results of operations, cash flows or cash flows.disclosures.
In January 2017,November 2021, the FASBFinancial Accounting Standards Board ("FASB") issued ASU No. 2017-04, "Intangibles-GoodwillAccounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832)", which aims to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance and Other (Topic 350), Simplifying the Test for Goodwill Impairment," which eliminates Step 2 fromeffect of the goodwill impairment test for public companies. Previously, Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill.assistance on an entity’s financial statements. The new guidance stipulatesrequires expanded disclosure about transactions with a government that an entity should perform its annualare accounted for by applying a grant or interim goodwill impairment testcontribution accounting model by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognizedanalogy. This new standard was effective for the amount by which the carrying amount exceeds the reporting unit's fair value, up to the amountCompany on January 1, 2022. Availability of goodwill allocated to the reporting unit. The standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted.government assistance has typically been limited. The Company elected to adopt this standard as of December 31, 2017. The application of this standard did not receive government assistance in 2022.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
3. Acquisitions
MINDS Acquisition - The Company entered into a Share Purchase Agreement, dated as of March 22, 2022, by and between MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry in Canada. The acquisition was completed on April 1, 2022 at a purchase price of $19.3 million, which was paid in cash. The Company's financial position, resultsallocation of the purchase price resulted in the recognition of $9.3 million of goodwill and $9.3 million of intangible assets primarily consisting of customer relationships (9 year life) and developed technology (7 year life). Significant inputs and assumptions used in determining the fair values of these intangible assets include management's forecasts of future revenues, earnings and cash flows, a discount rate based on the median weighted average cost of capital of the Company and select market competitors, and proportion of intangible assets acquired in relation to tangible assets. Goodwill acquired is attributable to future growth opportunities provided by the acquired intellectual capital and the ability to generate cross-selling synergies. The acquisition provides the Company with a broader line of controls and automation products designed to deliver enhanced productivity through improved equipment performance. Results of operations or cash flows.have been consolidated from the date of acquisition. The goodwill is not deductible for income tax purposes. Proforma financial information is not included since not significant.
In August 2017,Acquisition and integration costs of $1.2 million were expensed as incurred during the FASB issued ASU No. 2017-12, "Derivativesyear ended December 31, 2022 for this acquisition. These costs are recorded in "Selling, general and Hedging (Topic 815), Targeted Improvements to Hedging Activities", to improveadministrative expenses" in the financial reportingConsolidated Statements of hedging relationships to better portrayOperations.
The following table summarizes the economic resultsallocations of an entity's risk management activities in its financial statements. The new guidance is effective for public companies for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted in any interim period after its issuance.the total purchase price:
| | | | | | | | |
| (in millions) | | Amount |
| Cash | | $ | 1.5 | |
| Trade receivables | | 2.7 | |
| Inventories | | 0.7 | |
| Prepaid expenses and other assets | | 0.4 | |
| Property and equipment | | 0.2 | |
| Goodwill | | 9.3 | |
| Intangible assets | | 9.3 | |
| | |
| Other long-term assets | | 0.5 | |
| Total assets acquired | | $ | 24.6 | |
| Accounts payable | | (0.7) | |
| Accrued payroll and related liabilities | | (0.8) | |
| Other current liabilities | | (1.1) | |
| Deferred income tax liabilities | | (2.4) | |
| Other long-term liabilities | | (0.3) | |
| Total liabilities assumed | | (5.3) | |
| Total purchase price | | $ | 19.3 | |
CON-E-CO Acquisition - The Company plans to adoptentered into a Stock Purchase Agreement, dated as of July 20, 2020, by and between Oshkosh Corporation for the new standard effective January 1, 2019.purchase of the CON-E-CO concrete equipment company in Nebraska. The purchase price was $13.8 million, after adjustments, and was paid in cash. The acquisition provides the Company with a broader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations have been consolidated from the date of acquisition.
BMH Systems Acquisition - The Company does not expectentered into a Share Purchase Agreement, dated as of August 3, 2020, by and between BMH Systems Corporation ("St-Bruno") for the applicationpurchase of this standard to havethe concrete equipment company in Quebec, Canada. The purchase price was $15.6 million, after adjustments, and was paid in cash. The acquisition provides the Company with a material impact on its financial position, resultsbroader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations or cash flows.have been consolidated from the date of acquisition.
2.Grathwol Asset Acquisition - On November 2, 2020, the Company closed a transaction pursuant to which it purchased certain assets of Grathwol Automation, LLC ("Grathwol"). Grathwol is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services. Assets purchased primarily comprise technology assets. The total purchase price was $6.0 million, of which $1.8 million was deferred and will be recognized as expense and be paid out in two equal annual installments on the anniversary date of the acquisition.
4. Inventories
Inventories consist of the following:
| | | December 31 | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 |
| Raw materials and parts | | $ | 146,144 | | | $ | 137,763 | | Raw materials and parts | | $ | 302.9 | | | $ | 216.1 | |
| Work-in-process | | | 129,441 | | | | 115,613 | | Work-in-process | | 57.3 | | | 50.4 | |
| Finished goods | | | 94,571 | | | | 84,898 | | Finished goods | | 32.1 | | | 28.9 | |
| Used equipment | | | 21,223 | | | | 22,130 | | Used equipment | | 1.1 | | | 3.3 | |
| Total | | $ | 391,379 | | | $ | 360,404 | | Total | | $ | 393.4 | | | $ | 298.7 | |
3.During the year ended December 31, 2020, in conjunction with exiting the oil and gas drilling product lines, Enid's inventories were written down by $4.4 million, which was reported within "Cost of sales" in the Company's Consolidated Statements of Operations.
5. 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 and marketable equity securities held in an unqualifiedthe Company's deferred compensation programs. The Company's deferred compensation programs include a non-qualified Supplemental Executive Retirement Plan ("SERP"). and a separate non-qualified Deferred Compensation Plan. Although the deferred compensation programs' investments are allocated to individual participants and investment decisions are made solely by those participants, they are non-qualified plans. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal. The financialdeferred compensation programs' assets heldand related offsetting liability are recorded in non-current "Investments" and "Other long-term liabilities", respectively, in the SERP also constitute a liability of the Company for financial reporting purposes.Consolidated Balance Sheets. The Company's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.
ForThe carrying amount of cash, and cash equivalents and restricted cash, trade receivables and contract assets, other receivables, revolvingaccounts payable, short-term debt and accounts payable, the carrying amountlong-term debt approximates thetheir fair value because of thetheir short-term nature of theseand/or interest rates associated with the 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 marketmarket-based inputs.
Financial assets and liabilities are categorized based inputs.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:
A-40
| | | | | | | | |
| 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, the Company has determined that all of its financial assets and liabilities atas of December 31, 20172022 and 20162021 are levelLevel 1 and levelLevel 2 in the fair value hierarchy:
| | | December 31, 2017 | |
| | | Level 1 | | | Level 2 | | | Total | |
| Financial Assets: | | | | | | | | | |
| Trading equity securities: | | | | | | | | | |
| SERP money market fund | | $ | 124 | | | $ | -- | | | $ | 124 | |
| SERP mutual funds | | | 4,839 | | | | -- | | | | 4,839 | |
| Preferred stocks | | | 364 | | | | -- | | | | 364 | |
| Trading debt securities: | | | | | | | | | | | | |
| Corporate bonds | | | 5,661 | | | | -- | | | | 5,661 | |
| Municipal bonds | | | -- | | | | 1,912 | | | | 1,912 | |
| Floating rate notes | | | 753 | | | | -- | | | | 753 | |
| U.S. Treasury bills | | | 1,030 | | | | -- | | | | 1,030 | |
| Asset-backed securities | | | -- | | | | 526 | | | | 526 | |
| Other | | | -- | | | | 968 | | | | 968 | |
| Total financial assets | | $ | 12,771 | | | $ | 3,406 | | | $ | 16,177 | |
| Financial Liabilities: | | | | | | | | | | | | |
| SERP liabilities | | $ | -- | | | $ | 8,552 | | | $ | 8,552 | |
| Derivative financial instruments | | | -- | | | | 112 | | | | 112 | |
| Total financial liabilities | | $ | -- | | | $ | 8,664 | | | $ | 8,664 | |
| | | December 31, 2016 | |
| | | Level 1 | | | Level 2 | | | Total | |
| Financial Assets: | | | | | | | | | |
| Trading equity securities: | | | | | | | | | |
| SERP money market fund | | $ | 92 | | | $ | -- | | | $ | 92 | |
| SERP mutual funds | | | 3,335 | | | | -- | | | | 3,335 | |
| Preferred stocks | | | 475 | | | | -- | | | | 475 | |
| Trading debt securities: | | | | | | | | | | | | |
| Corporate bonds | | | 5,413 | | | | -- | | | | 5,413 | |
| Municipal bonds | | | -- | | | | 2,248 | | | | 2,248 | |
| Floating rate notes | | | 118 | | | | -- | | | | 118 | |
| U.S. Treasury bills | | | 388 | | | | -- | | | | 388 | |
| Asset-backed securities | | | -- | | | | 637 | | | | 637 | |
| Other | | | -- | | | | 2,283 | | | | 2,283 | |
| Derivative financial instruments | | | -- | | | | 144 | | | | 144 | |
| Total financial assets | | $ | 9,821 | | | $ | 5,312 | | | $ | 15,133 | |
| Financial Liabilities: | | | | | | | | | | | | |
| SERP liabilities | | $ | -- | | | $ | 7,882 | | | $ | 7,882 | |
| Derivative financial instruments | | | -- | | | | 89 | | | | 89 | |
| Total financial liabilities | | $ | -- | | | $ | 7,971 | | | $ | 7,971 | |
The Company reevaluates the volume of trading activity for each of its investments at the end of each reporting period and adjusts the level within the fair value hierarchy as needed.defined above:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
| (in millions) | | Level 1 | | Level 2 | | Total |
| Financial assets: | | | | | | |
| Trading equity securities: | | | | | | |
| Deferred compensation programs' mutual funds | | $ | 4.4 | | | $ | — | | | $ | 4.4 | |
| Preferred stocks | | 0.3 | | | — | | | 0.3 | |
| Equity funds | | 0.6 | | | — | | | 0.6 | |
| Trading debt securities: | | | | | | |
| Corporate bonds | | 5.0 | | | — | | | 5.0 | |
| Municipal bonds | | — | | | 0.3 | | | 0.3 | |
| Floating rate notes | | 0.2 | | | — | | | 0.2 | |
| U.S. government securities | | 0.8 | | | — | | | 0.8 | |
| Asset-backed securities | | — | | | 5.4 | | | 5.4 | |
| Other | | 1.3 | | | 0.7 | | | 2.0 | |
| | | | | | |
| Total financial assets | | $ | 12.6 | | | $ | 6.4 | | | $ | 19.0 | |
| Financial liabilities: | | | | | | |
| | | | | | |
| Deferred compensation programs' liabilities | | $ | — | | | $ | 5.7 | | | $ | 5.7 | |
| Total financial liabilities | | $ | — | | | $ | 5.7 | | | $ | 5.7 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| (in millions) | | Level 1 | | Level 2 | | Total |
| Financial assets: | | | | | | |
| Trading equity securities: | | | | | | |
| Deferred compensation programs' mutual funds | | $ | 4.9 | | | $ | — | | | $ | 4.9 | |
| Preferred stocks | | 0.3 | | | — | | | 0.3 | |
| Equity funds | | 3.0 | | | — | | | 3.0 | |
| Trading debt securities: | | | | | | |
| Corporate bonds | | 3.3 | | | — | | | 3.3 | |
| Municipal bonds | | — | | | 0.2 | | | 0.2 | |
| Floating rate notes | | 0.4 | | | — | | | 0.4 | |
| U.S. government securities | | 1.1 | | | — | | | 1.1 | |
| Asset-backed securities | | — | | | 3.5 | | | 3.5 | |
| Other | | 3.1 | | | 1.0 | | | 4.1 | |
| Derivative financial instruments | | — | | | 0.1 | | | 0.1 | |
| Total financial assets | | $ | 16.1 | | | $ | 4.8 | | | $ | 20.9 | |
| Financial liabilities: | | | | | | |
| | | | | | |
| Deferred compensation programs' liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
| Total financial liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
4.
6. Investments
The Company's trading securities consist of the following:
| | | Amortized
Cost | | | Gross
Unrealized
Gains | | | Gross
Unrealized
Losses | | | Fair Value
(Net Carrying
Amount) | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2017 | | | | | | | | | | | | | |
| (in millions) | | (in millions) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (Net Carrying Amount) |
| December 31, 2022 | | December 31, 2022 | | | | | | | | |
| Trading equity securities | | $ | 4,964 | | | $ | 394 | | | $ | 31 | | | $ | 5,327 | | Trading equity securities | | $ | 5.9 | | | $ | 0.1 | | | $ | 0.7 | | | $ | 5.3 | |
| Trading debt securities | | | 10,971 | | | | 58 | | | | 179 | | | | 10,850 | | Trading debt securities | | 14.3 | | | — | | | 0.6 | | | 13.7 | |
| Total | | $ | 15,935 | | | $ | 452 | | | $ | 210 | | | $ | 16,177 | | Total | | $ | 20.2 | | | $ | 0.1 | | | $ | 1.3 | | | $ | 19.0 | |
| December 31, 2016 | | �� | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2021 | | | | | | | | |
| Trading equity securities | | $ | 3,980 | | | $ | 40 | | | $ | 118 | | | $ | 3,902 | | Trading equity securities | | $ | 7.8 | | | $ | 0.4 | | | $ | — | | | $ | 8.2 | |
| Trading debt securities | | | 11,312 | | | | 23 | | | | 248 | | | | 11,087 | | Trading debt securities | | 12.6 | | | 0.1 | | | 0.1 | | | 12.6 | |
| Total | | $ | 15,292 | | | $ | 63 | | | $ | 366 | | | $ | 14,989 | | Total | | $ | 20.4 | | | $ | 0.5 | | | $ | 0.1 | | | $ | 20.8 | |
Trading equity investments are valued at their estimated fair value based on their quoted market prices, and trading debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third-party pricing service. Additionally, a significant portion of the trading equity securities are in equity money market and mutual funds and also comprise a portion of the Company's liability under its SERP.deferred compensation programs. See Note 12, Pension and Retirement14, Employee Benefit Plans, for additional information on these investments and the SERP.deferred compensation programs.
Trading debt securities are comprised mainly 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 still held as of the end of each reporting period amounted to losses of $319, $107 and $429 in 2017, 2016 and 2015, respectively.
5.7. Goodwill
Goodwill represents the excess of the purchase price overThe Company tests goodwill for impairment annually on October 1, 2022, or more frequently should circumstances change or events occur that would more-likely-than-not reduce the fair value of identifiablea reporting unit below its carrying value between annual impairment tests. The goodwill impairment test is performed for each of the Company's four reporting units which have goodwill recorded.
Management elected to perform a quantitative assessment for the October 1, 2022 annual impairment analysis based on its decline in operating performance, declines in the Company's stock price and the overall macroeconomic environment. The
Company determined fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. The significant assumptions used under the discounted cash flow method are projected net assets acquiredsales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are primary drivers of the projected cash flows in business combinations. Current U.S. accounting guidance provides that goodwillthe discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and indefinite-lived intangible assets be tested forrelated valuation multiples used in the market analysis. Based on the Company's quantitative impairment test, no impairment at least annually. Theany of its reporting units was identified.
Although the Company performsbelieves the required valuation procedures each year asassumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. In addition, sustained declines in operating performance in certain reporting units or the Company's stock price and related market capitalization could impact key assumptions in the overall estimated fair values of Decemberits reporting units and could result in non-cash impairment charges that could be material to the Company's Consolidated Balance Sheets or Statements of Operations. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge would be recorded to reduce the reporting unit to fair value.
Management performed a qualitative assessment for the annual tests of goodwill impairment performed on October 1, 2021 and October 31, after2020, the following year's forecasts are submittedCompany's prior annual goodwill impairment testing date, and reviewed. The valuations performed in 2017, 2016 and 2015 indicatedconcluded that there was no impairment of goodwill. These reviews included the Company's evaluation of relevant events and circumstances in totality that affect the fair value of the reporting units. These events and circumstances include, but were not limited to, macroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations.
The Company completed the acquisition of MINDS Automation Group, Inc. during the year ended December 31, 2022, which increased goodwill $9.3 million.
In the first quarter of 2020, as part of the Company's ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value, the Company performed an interim goodwill impairment test as of March 31, 2020 over the mobile asphalt equipment reporting unit. Based on the results of this testing, the Company recorded a $1.6 million pre-tax non-cash impairment charge in the Infrastructure Solutions segment to fully impair the mobile asphalt equipment reporting unit’s goodwill in the first quarter of 2020. This impairment charge was reflected as a component of "Restructuring, impairment and other asset charges, net" for the year ended December 31, 2020.
The changes in the carrying amount of goodwill and accumulated impairment losses by reporting segment during the years ended December 31, 20172022 and 20162021 are as follows:
| | | Infrastructure
Group | | | Aggregate
and Mining
Group | | | Energy
Group | | | Total | |
| Balance, December 31, 2015 | | $ | 8,481 | | | $ | 22,354 | | | $ | -- | | | $ | 30,835 | |
| Acquisition | | | -- | | | | -- | | | | 12,632 | | | | 12,632 | |
| Foreign currency translation | | | (33 | ) | | | (2,630 | ) | | | -- | | | | (2,663 | ) |
| Balance, December 31, 2016 | | | 8,448 | | | | 19,724 | | | | 12,632 | | | | 40,804 | |
| Acquisition | | | -- | | | | -- | | | | 3,488 | | | | 3,488 | |
| Foreign currency translation | | | 125 | | | | 1,315 | | | | -- | | | | 1,440 | |
| Balance, December 31, 2017 | | $ | 8,573 | | | $ | 21,039 | | | $ | 16,120 | | | $ | 45,732 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Balance, December 31, 2020: | | | | | | | | |
| Goodwill | | $ | 39.4 | | | $ | 33.3 | | | $ | — | | | $ | 72.7 | |
| Accumulated impairment losses | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
| Net | | $ | 17.6 | | | $ | 21.1 | | | $ | — | | | $ | 38.7 | |
| 2021 Activity: | | | | | | | | |
| Foreign currency translation | | $ | 0.1 | | | $ | (0.1) | | | $ | — | | | $ | — | |
| Acquisitions | | (0.1) | | | — | | | — | | | (0.1) | |
| | | | | | | | |
| Total 2021 activity | | $ | — | | | $ | (0.1) | | | $ | — | | | $ | (0.1) | |
| Balance, December 31, 2021: | | | | | | | | |
| Goodwill | | $ | 39.4 | | | $ | 33.2 | | | $ | — | | | $ | 72.6 | |
| Accumulated impairment | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
| Net | | $ | 17.6 | | | $ | 21.0 | | | $ | — | | | $ | 38.6 | |
| 2022 Activity: | | | | | | | | |
| Foreign currency translation | | $ | (0.5) | | | $ | (1.6) | | | $ | (0.6) | | | $ | (2.7) | |
| Acquisitions | | — | | | — | | | 9.3 | | | 9.3 | |
| | | | | | | | |
| Total 2022 activity | | $ | (0.5) | | | $ | (1.6) | | | $ | 8.7 | | | $ | 6.6 | |
| Balance, December 31, 2022: | | | | | | | | |
| Goodwill | | $ | 38.9 | | | $ | 31.6 | | | $ | 8.7 | | | $ | 79.2 | |
| Accumulated impairment | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
| Net | | $ | 17.1 | | | $ | 19.4 | | | $ | 8.7 | | | $ | 45.2 | |
6.8. Intangible Assets
Intangible assets consisted of the following at December 31, 20172022 and 2016:2021:
| | | 2017 | | | 2016 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gross
Carrying
Value | | | Accumulated
Amortization | | | Net
Carrying
Value | | | Gross
Carrying
Value | | | Accumulated
Amortization | | | Net
Carrying
Value | | | 2022 | | 2021 |
| (in millions) | | (in millions) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Dealer network and customer relationships | | $ | 31,376 | | | $ | 10,856 | | | $ | 20,520 | | | $ | 26,035 | | | $ | 7,584 | | | $ | 18,451 | | Dealer network and customer relationships | | $ | 41.7 | | | $ | 26.0 | | | $ | 15.7 | | | $ | 37.1 | | | $ | 22.9 | | | $ | 14.2 | |
| Trade names | | | 9,650 | | | | 1,914 | | | | 7,736 | | | | 7,021 | | | | 1,362 | | | | 5,659 | | Trade names | | 10.2 | | | 10.0 | | | 0.2 | | | 10.2 | | | 7.8 | | | 2.4 | |
| Other | | | 6,821 | | | | 4,125 | | | | 2,696 | | | | 5,764 | | | | 3,231 | | | | 2,533 | | Other | | 15.7 | | | 9.1 | | | 6.6 | | | 13.5 | | | 7.4 | | | 6.1 | |
| Total | | $ | 47,847 | | | $ | 16,895 | | | $ | 30,952 | | | $ | 38,820 | | | $ | 12,177 | | | $ | 26,643 | | Total | | $ | 67.6 | | | $ | 45.1 | | | $ | 22.5 | | | $ | 60.8 | | | $ | 38.1 | | | $ | 22.7 | |
Amortization expense on intangible assets was $4,064, $3,562$8.5 million, $10.1 million and $2,953$6.1 million for 2017, 20162022, 2021 and 2015,2020, respectively. Intangible asset
Future annual expected amortization expense is expected to be $5,172, $4,069, $3,628, $3,191 and $2,686 in the years endingon intangible assets as of December 31, 2018, 2019, 2020, 2021 and 2022 respectively, and $12,206 thereafter.are as follows (in millions):
7. | | | | | | | | |
| 2023 | | $ | 5.4 | |
| 2024 | | 4.5 | |
| 2025 | | 3.0 | |
| 2026 | | 2.4 | |
| 2027 | | 2.1 | |
| 2028 and thereafter | | 5.1 | |
9. Property and Equipment
Property and equipment consist of the following:at cost, less accumulated depreciation, is as follows:
| | | December 31 | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 |
| Land | | $ | 15,568 | | | $ | 14,768 | | Land | | $ | 12.4 | | | $ | 13.9 | |
| Building and land improvements | | | 154,019 | | | | 140,229 | | Building and land improvements | | 140.8 | | | 154.3 | |
| Construction in progress | | Construction in progress | | 19.7 | | | 7.6 | |
| Manufacturing and office equipment | | | 244,324 | | | | 231,816 | | Manufacturing and office equipment | | 230.0 | | | 239.2 | |
| Aviation equipment | | | 14,227 | | | | 14,169 | | Aviation equipment | | 4.5 | | | 4.7 | |
| Less accumulated depreciation | | | (237,742 | ) | | | (220,444 | ) | Less accumulated depreciation | | (233.8) | | | (248.0) | |
| Total | | $ | 190,396 | | | $ | 180,538 | | Total | | $ | 173.6 | | | $ | 171.7 | |
Depreciation expense was $21,312, $20,818$19.4 million, $20.1 million and $20,744$20.8 million for the years ended December 31, 2017, 20162022, 2021 and 2015,2020, respectively.
8.
10. Leases
The Company leases certain land, buildingsrecords its operating lease ROU assets in "Other long-term assets" and equipment for useits operating lease liabilities in its operations under various operating"Other current liabilities" and "Other long-term liabilities". As of December 31, 2022 and 2021, the Company did not have any finance leases. Total rental expense charged
Additional information related to operations underthe Company’s operating leases was approximately $3,211, $2,792 and $2,786 foris reflected in the years endedtables below:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Operating lease expense | | $ | 2.8 | | | $ | 2.3 | | | $ | 2.6 | |
| Short-term lease expense | | 2.9 | | | 1.5 | | | 1.0 | |
| Cash paid for operating leases included in operating cash flows | | 2.5 | | | 2.5 | | | 2.7 | |
| | | | | | | | | | | | | | |
| | December 31, |
| (in millions) | | 2022 | | 2021 |
| Operating lease right-of-use asset | | $ | 10.8 | | | $ | 5.8 | |
| Operating lease short-term liability | | 2.7 | | | 1.6 | |
| Operating lease long-term liability | | 8.3 | | | 4.2 | |
| Weighted average remaining lease term (in years) | | 5.07 | | 6.15 |
| Weighted average discount rate used in calculating right-of-use asset | | 4.61 | % | | 3.49 | % |
Future annual minimum lease payments as of December 31, 2017, 2016 and 2015, respectively.
Minimum rental commitments for all noncancelable operating leases at December 31, 20172022 are as follows:follows (in millions):
| 2018 | | $ | 2,146 | |
| 2019 | | | 1,965 | |
| 2020 | | | 1,006 | |
| 2021 | | | 634 | |
| 2022 | | | 279 | |
| Thereafter | | | 233 | |
| | | $ | 6,263 | |
| | | | | |
| 2023 | $ | 3.1 |
| 2024 | 2.3 |
| 2025 | 2.0 |
| 2026 | 1.9 |
| 2027 | 1.7 |
| 2028 and thereafter | 1.3 |
| Total lease payments | $ | 12.3 |
| Less: Interest | (1.3) |
| Operating lease liabilities | $ | 11.0 |
9.11. Debt
On April 12, 2017,In February 2019, the Company and certain of its subsidiaries entered into anamended the 2012 amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Previous Credit Facility") whereby the lender extended toincreased the Company anCompany's unsecured line of credit of up to $100,000,$150.0 million, including a sub-limit for letters of credit of up to $30,000. There were no outstanding revolving or term loan borrowings under$30.0 million, and extended the credit facility atmaturity date to December 31, 2017 or 2016. Letters of credit totaling $9,757, including $3,200 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 December 31, 2017, resulting in additional borrowing ability of $90,243 under the credit facility. The credit agreement has a five-year term expiring in April 2022.29, 2023. Borrowings under the agreement arewere subject to an interest rate equal to the daily one-month LIBOR rate plus a 0.75% margin, resulting in a rate
margin. The unused facility fee iswas 0.125%. Interest only payments are due monthly. The amended and restated credit agreement containsPrevious Credit Facility contained certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth.
On December 19, 2022, the Company and certain of its subsidiaries entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Credit Agreement provides for (i) a revolving credit facility (consisting of revolving credit loans and swingline loans) and a letter of credit facility, in an aggregate amount of up to $250.0 million, (ii) an incremental credit facility in an aggregate amount not to exceed $125.0 million (the “Credit Facilities”) and (iii) a maturity date of December 19, 2027. Loans under the incremental credit facility shall have a maturity date as specified in the relevant incremental credit facility documentation. In connection with the entry into the Credit Facilities, the Company repaid all outstanding borrowings under the Previous Credit Facility. The Company recorded total debt issuance costs for the Credit Facilities of $1.5 million of which $0.3 million are included in "Prepaid expenses and other assets" and $1.2 million are included in "Other long-term assets" in the Company's Consolidated Balance Sheets at December 31, 2022. Debt issuance costs are amortized on a straight-line basis to "Interest expense" over the term of the Credit Facilities.
At the Company’s election, revolving credit loans and incremental term loans advanced under the Credit Agreement shall bear interest at (i) adjusted term Secured Overnight Financing Rate ("SOFR") for one-, three- or six-month periods, as selected by the Company, plus an applicable margin ranging between 1.175% and 2.175% per annum, or (ii) the highest of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.50%, and an adjusted term SOFR for a one month tenor in effect on such day plus 1.00%, plus an applicable margin ranging between 0.175% and 1.175% per annum. Swingline loans shall bear interest at the highest of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.50%, and an adjusted term SOFR for a one-month tenor in effect on such day plus 1.00%, plus an applicable margin ranging between 0.175% and 1.175% per annum.
The Company also pays a commitment fee ranging from 0.150% to 0.250% per annum to the lenders under the revolving credit facility on the average amount by which the aggregate commitments of the lenders exceed utilization of the revolving credit facility. The applicable margins and the commitment fee are determined based on the Company's Consolidated Total Net Leverage Ratio, as defined by the Credit Agreement, at the relevant time.
The obligations of the Company in respect of the Credit Facilities are secured and guaranteed by the U.S. domestic subsidiaries of the Company, subject to customary exceptions.
The Credit Agreement includes certain affirmative and negative covenants that impose restrictions on the Company's financial and business operations, including limitations on liens, indebtedness, investments, dispositions of assets, dividends, distributions and other restricted payments, fundamental changes or changes in the nature of the Company's business. These limitations are subject to customary exceptions. The Company is also required to maintain a (i) Consolidated Total Net Leverage Ratio of not more than 3.50 to 1.00 as of the last day of any fiscal quarter which may be increased to 4.00 to 1.00 in connection with a permitted acquisition and subject to the terms of the Credit Agreement and (ii) Consolidated Interest Coverage Ratio of at least 2.50 to 1.00 as of the last day of any fiscal quarter. The Company was in compliance with all covenants as of December 31, 2022.
The Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company and its subsidiaries. Upon the occurrence of an event of default, the outstanding obligations under the Credit Agreement may be accelerated and become due and payable immediately. In addition, if certain change of control events occur with respect to the Company, the Company is required to repay the loans outstanding under the Credit Facilities.
The Company's South AfricanBrazilian subsidiary Osborn Engineered Products SA (Pty) Ltd ("Osborn"), hasmaintains a credit facility of $7,672separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility ("Term Loan").
Certain of the Company's international subsidiaries in Australia, Brazil, Canada, South African bankAfrica and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. As of December 31, 2017, Osborn had noIn addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings but had $813 in performance, advance payment and retention guarantees outstanding under the facility. The facility has beencredit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in the Company's Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% and/or secured with certain assets of the facility is utilized. Aslocal subsidiary.
Additional details for the Company's Credit Facilities, Previous Credit Facility, term loan and international credit underfacilities are summarized in total below:
| | | | | | | | | | | | | | |
| (in millions, except maturity dates and interest rates) | | December 31, 2022 | | December 31, 2021 |
| | | | |
| Credit Facilities and Previous Credit Facility, respectively | | | | |
| Line of credit - maximum | | $ | 250.0 | | | $ | 150.0 | |
| | | | |
| Letters of credit - maximum | | 30.0 | | | 30.0 | |
| Borrowings outstanding | | 78.0 | | | — | |
| Amount of letters of credit outstanding | | 2.8 | | | 2.5 | |
| Line of credit, additional borrowing capacity | | 169.2 | | | 147.5 | |
| | | | |
| Term Loan | | | | |
| Current maturities | | $ | 0.2 | | | $ | 0.1 | |
| Long-term maturities | | 0.1 | | | 0.2 | |
| Interest rate | | 10.37 | % | | 10.37 | % |
| Maturity date | | April 15, 2024 | | April 15, 2024 |
| | | | |
| International Credit Facilities and Short-Term Debt | | | | |
| Total credit line | | $ | 15.3 | | | $ | 12.3 | |
| Available credit line | | 5.7 | | | 9.7 | |
| Letters of credit - maximum | | 7.0 | | | 6.6 | |
| Amount of letters of credit outstanding | | 0.7 | | | 1.6 | |
| Short-term debt | | 9.4 | | | 2.6 | |
| Weighted average interest rate | | 10.51% | | 5.33% |
Debt maturities for the facility of $6,859. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.0% as of December 31, 2017.
The Company's Brazilian subsidiary has outstanding working capital loans totaling $3,402 from Brazilian banks with interest rates ranging from 10.4% to 11.0%. The loans' maturity dates ranging from November 2018 to April 2024 and are secured by Astec Brazil's manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has various five-year equipment financing loans outstanding with Brazilian banks in the aggregate of $642 as of December 31, 2017 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 consolidated balance sheets as current maturities of long-term debt of $2,469short-term and long-term debt of $1,575 as of December 31, 2017.
Long-term debt maturities are expected to be $2,469, $729, $251, $251 and $251 in the years ending December 31, 2018, 2019, 2020, 2021 and 2022, respectively, and $93 thereafter.as follows (in millions):
10. | | | | | |
| 2023 | $ | 9.6 |
| 2024 | 0.1 |
| 2025 | — |
| 2026 | — |
| 2027 | 78.0 |
| |
12. Product Warranty Reserves
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by product but generally range from three months to two years 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 2017, 20162022, 2021 and 20152020 are as follows:
| | | 2017 | | | 2016 | | | 2015 | | | | | | | | | | | | | | | | | | |
| Reserve balance, beginning of year | | $ | 13,156 | | | $ | 9,100 | | | $ | 10,032 | | |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| Reserve balance, January 1 | | Reserve balance, January 1 | | $ | 10.5 | | | $ | 10.3 | | | $ | 10.3 | |
| Warranty liabilities accrued | | | 16,725 | | | | 18,912 | | | | 13,743 | | Warranty liabilities accrued | | 12.6 | | | 10.9 | | | 9.8 | |
| Warranty liabilities settled | | | (14,642 | ) | | | (15,125 | ) | | | (14,177 | ) | Warranty liabilities settled | | (11.1) | | | (10.7) | | | (10.2) | |
| Other | | | 171 | | | | 269 | | | | (498 | ) | Other | | (0.1) | | | — | | | 0.4 | |
| Reserve balance, end of year | | $ | 15,410 | | | $ | 13,156 | | | $ | 9,100 | | |
| Reserve balance, December 31 | | Reserve balance, December 31 | | $ | 11.9 | | | $ | 10.5 | | | $ | 10.3 | |
11.13. 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 claimclaims 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, 2017 were $8,119 and $7,892 at December 31, 2016,$5.8 million, of which $5,615 and $5,040$3.9 million were included in other"Other long-term liabilitiesliabilities" in the Consolidated Balance Sheets at both December 31, 20172022 and 2016, respectively.2021.
12. Pension and Retirement
14. Employee Benefit Plans
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. The Company's funding policy for the plan is to make at least the minimum annual contributions required by applicable regulations.Deferred Compensation Programs
The Company's investment strategy for the plan is to earndeferred compensation programs include a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The investment policy states that thenon-qualified SERP and a separate non-qualified Deferred Compensation Plan.
Supplemental Executive Retirement 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 Plan Committee attempts to ensure adequate diversification of the invested assets through investment in an exchange traded mutual fund that invests in a diversified portfolio of stocks, bonds and money market securities.
The following provides information regarding benefit obligations, plan assets and the funded status of the plan:
| | | Pension Benefits | |
| | | 2017 | | | 2016 | |
| Change in benefit obligation | | | | | | |
| Benefit obligation, beginning of year | | $ | 16,104 | | | $ | 15,565 | |
| Interest cost | | | 630 | | | | 650 | |
| Actuarial loss | | | 867 | | | | 514 | |
| Benefits paid | | | (685 | ) | | | (625 | ) |
| Benefit obligation, end of year | | | 16,916 | | | | 16,104 | |
| Accumulated benefit obligation | | | 16,916 | | | | 16,104 | |
| Change in plan assets | | | | | | | | |
| Fair value of plan assets, beginning of year | | | 13,241 | | | | 12,688 | |
| Actual gain on plan assets | | | 1,746 | | | | 763 | |
| Employer contribution | | | 415 | | | | 415 | |
| Benefits paid | | | (685 | ) | | | (625 | ) |
| Fair value of plan assets, end of year | | | 14,717 | | | | 13,241 | |
| Funded status, end of year | | $ | (2,199 | ) | | $ | (2,863 | ) |
| Amounts recognized in the consolidated balance sheets | | | | | | | | |
| Noncurrent liabilities | | $ | (2,199 | ) | | $ | (2,863 | ) |
| Net amount recognized | | $ | (2,199 | ) | | $ | (2,863 | ) |
Amounts recognized in accumulated other comprehensive loss consist of | | | | | | | | |
| Net loss | | $ | 5,463 | | | $ | 6,152 | |
| Net amount recognized | | $ | 5,463 | | | $ | 6,152 | |
| Weighted average assumptions used to determine benefit obligations as of December 31 | | | | | | | | |
| Discount rate | | | 3.50 | % | | | 4.00 | % |
| Expected return on plan assets | | | 6.25 | % | | | 6.25 | % |
| Rate of compensation increase | | | N/A | | | | N/A | |
The measurement date used for the plan was December 31. In determining the expected return on plan assets, 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.
All assets in the plan are invested in an exchange traded mutual fund (level 1 in the fair value hierarchy). The allocation of assets within the mutual fund as of December 31 and the target asset allocation ranges by asset category are as follows:
| Asset Category | | Actual
Allocation
2017 | | | Actual
Allocation
2016 | | | 2017 &
2016 Target
Allocation
Ranges | |
| Equity securities | | | 49.4 | % | | | 63.6 | % | | | 40 - 65 | % |
| Debt securities | | | 43.2 | % | | | 33.5 | % | | | 30 - 50 | % |
| Cash and Equivalents | | | 7.4 | % | | | 2.9 | % | | | 0 - 15 | % |
| Total | | | 100.0 | % | | | 100.0 | % | | | | |
Net periodic benefit cost for 2017, 2016 and 2015 included the following components:
| | | Pension Benefits | |
| | | 2017 | | | 2016 | | | 2015 | |
| Components of net periodic benefit cost | | | | | | | | | |
| Interest cost | | $ | 630 | | | $ | 650 | | | $ | 596 | |
| Expected return on plan assets | | | (720 | ) | | | (782 | ) | | | (840 | ) |
| Amortization of actuarial loss | | | 530 | | | | 480 | | | | 500 | |
| Net periodic benefit cost | | | 440 | | | | 348 | | | | 256 | |
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) | | | | | | | | | | | | |
| Net actuarial gain (loss) for the year | | | (159 | ) | | | 533 | | | | 702 | |
| Amortization of net loss | | | (530 | ) | | | (480 | ) | | | (500 | ) |
| Total recognized in other comprehensive income (loss) | | | (689 | ) | | | 53 | | | | 202 | |
| Total recognized in net periodic benefit cost and other comprehensive income (loss) | | $ | (249 | ) | | $ | 401 | | | $ | 458 | |
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31 | | | | | | | | | | | | |
| Discount rate | | | 4.00 | % | | | 4.28 | % | | | 3.81 | % |
| Expected return on plan assets | | | 6.25 | % | | | 7.00 | % | | | 7.00 | % |
No contributions are expected to be funded by the Company during 2018.
Amounts in accumulated other comprehensive loss expected to be recognized in net periodic benefit cost in 2018 for the amortization of a net loss is $466.
The following estimated future benefit payments are expected in the years indicated:
| | | Pension Benefits | |
| 2018 | | $ | 800 | |
| 2019 | | | 830 | |
| 2020 | | | 860 | |
| 2021 | | | 890 | |
| 2022 | | | 9,100 | |
| 2023 - 2027 | | | 4,810 | |
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 $7,182, $5,943 and $5,292 in 2017, 2016 and 2015, respectively.
The Company maintains a SERP for certain of its executive officers. The SERP has been closed to new entrants since December 2020. This 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' compensation. Investments are self-directed by participants and can include Company stock. Upon retirement or termination, participants receive their apportioned share of the plan assets in the form of cash.cash based on a pre-determined schedule of distributions.
Deferred Compensation Plan
The Company implemented a Deferred Compensation Plan for certain of its executive officers during 2021. This plan is a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which eligible employees can defer the receipt of base and bonus compensation to a future date. Investments are self-directed by participants and can include Company stock. Upon retirement or termination, participants receive their apportioned share of the plan assets in the form of cash based on a pre-determined schedule of distributions.
Assets of the SERPDeferred Compensation Programs consist of the following:
| | December 31, 2017 | | December 31, 2016 | | | | | | | | | | | | | | | | | | | | | | | |
| | Cost | | Market | | Cost | | Market | | | December 31, 2022 | | December 31, 2021 |
| (in millions) | | (in millions) | | Cost | | Market | | Cost | | Market |
| Money market fund | | Money market fund | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | |
| Company stock | | $ | 1,960 | | | $ | 3,589 | | | $ | 1,958 | | | $ | 4,455 | | Company stock | | 1.1 | | | 1.2 | | | 1.2 | | | 2.2 | |
| Equity securities | | | 4,589 | | | | 4,963 | | | | 3,474 | | | | 3,427 | | Equity securities | | 5.0 | | | 4.4 | | | 4.5 | | | 4.9 | |
| Total | | $ | 6,549 | | | $ | 8,552 | | | $ | 5,432 | | | $ | 7,882 | | Total | | $ | 6.2 | | | $ | 5.7 | | | $ | 5.8 | | | $ | 7.2 | |
The Company periodically adjusts the deferred compensation liability related to the Deferred Compensation Programs such that the balance of the liability equals the total fair market value of all assets held by the trusttrusts established under the SERP.programs. Such liabilities are included in other"Other long-term liabilities onliabilities" in the consolidated balance sheets.Consolidated Balance Sheets. The money market fund is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets. The equity securities are included in investments"Investments" in the consolidated balance sheetsConsolidated Balance Sheets and classified as trading equity securities. See Note 4,6, Investments, for additional information. The cost of the Company stock held by the plan is included as a reduction in shareholders' equity"Company stock held by deferred compensation programs, at cost" in the consolidated balance sheets.Consolidated Balance Sheets.
The change in the fair market value of Company stock held in the SERPprograms results in a charge or credit to selling,"Selling, general and administrative expensesexpenses" in the consolidated statementsConsolidated Statements of incomeOperations because the acquisition cost of the Company stock in the SERPprograms is recorded as a reduction of shareholders' equityin "Company stock held by deferred compensation programs, at cost" 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 income of $575$0.9 million in 20172022 and expense of $1,742$0.5 million and $241$0.6 million in 20162021 and 2015,2020, respectively, related to the change in the fair value of the Company stock held in the SERP.Deferred Compensation Programs.
13. Derivative Financial InstrumentsOther Employee Benefit Plan
401(k) Plan
The Company is exposedsponsors a 401(k) defined contribution plan to certain risks relatingprovide eligible employees with additional income upon retirement. The Company's contributions to its ongoing business operations.the plan are based on employee contributions. The primary risk managed by using derivative instruments is foreign currency risk. From timeCompany's contributions totaled $7.7 million, $7.2 million and $6.9 million in 2022, 2021 and 2020, respectively.
Pension Plan
Prior to time,December 31, 2003, all employees of the Company's foreign subsidiaries enter into foreign currency exchange contractsKolberg-Pioneer, Inc. subsidiary, which is included in the Company's Materials Solutions reportable segment, were covered by a defined pension plan (the "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 were based on years of service multiplied by a monthly amount. The Company's funding policy for the plan was to mitigate exposuremake at least the minimum annual contributions required by applicable regulations.
The Company's investment strategy for the plan was to fluctuationsearn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The investment policy stated that the Plan Committee in currency exchange rates.its sole discretion determined the allocation of plan assets among the following four asset classes: cash equivalents, fixed-income securities, domestic equities and international equities. The fair valuePlan Committee attempted to ensure adequate diversification of the derivative financial instrument is recordedinvested assets through investment in an exchange traded mutual fund that invests in a diversified portfolio of stocks, bonds and money market securities.
In October 2021, the Company settled its obligations under the Pension Plan by providing $5.5 million in lump sum payments to eligible participants who elected to receive them and through the purchase of annuity contracts from a highly rated insurance company for $12.2 million. The settlement of the plan resulted in excess plan assets of approximately $1.5 million, which was subject to a 50% excise tax. A charge of $5.2 million, including excise tax, was recognized in the fourth quarter of 2021 in "Other (expenses) income, net" in the Consolidated Statements of Operations. Details related to the Pension Plan through its termination date are presented herein.
Historically, the determination of obligations and expenses under the Company's pension plan was dependent on the Company's consolidated balance sheets and is adjusted to fair value at each measurement date. The changesselection of certain assumptions used by independent actuaries in fair value are recognized incalculating such amounts. Those assumptions included, among others, the consolidated statements of income in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $11,099 during 2017. At December 31, 2017, the Company reported $112 of derivative liabilities in other current liabilities. The Company reported $144 of derivative assets in other currentdiscount rate, expected return on plan assets and $89 of derivative liabilitiesthe expected mortality rates. Actual results that differ from assumptions were accumulated and amortized over future periods and therefore, generally affected the recognized expense in other current liabilities at December 31, 2016. such periods.
The Company recognized the overfunded or underfunded status of its pension plan as a componentan asset or liability. Actuarial gains and losses were recognized through "Other comprehensive (loss) income" in the year in which the changes occurred. The Company measured the funded status of costits pension plan as of sales, a net loss on the change in fair valuedate of derivative instrumentsthe Company's fiscal year-end.
The following provides information regarding benefit obligations, plan assets and $336 for the years endedfunded status of the plan as of December 31, 20172021:
| | | | | | | | | | |
| | | | Pension Benefits |
| (in millions) | | | | 2021 |
| Change in benefit obligation: | | | | |
| Benefit obligation, beginning of year | | | | $ | 18.4 | |
| Interest cost | | | | 0.4 | |
| Actuarial (gain) loss | | | | (0.3) | |
| Benefits paid | | | | (0.8) | |
| Pension settlement | | | | (17.7) | |
| Benefit obligation, end of year | | | | — | |
| Accumulated benefit obligation | | | | — | |
| | | | |
| Change in plan assets: | | | | |
| Fair value of plan assets, beginning of year | | | | 19.4 | |
| Actual gain on plan assets | | | | 0.6 | |
| Excess plan assets returned | | | | (1.5) | |
| Benefits paid | | | | (0.8) | |
| Pension settlement | | | | (17.7) | |
| Fair value of plan assets, end of year | | | | — | |
| Funded status, end of year | | | | $ | — | |
| | | | |
| Amounts recognized in the consolidated balance sheets: | | | | |
| Long-term asset | | | | $ | — | |
| Net amount recognized | | | | $ | — | |
| | | | |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | | |
| Net loss | | | | $ | — | |
| Net amount recognized | | | | $ | — | |
| | | | |
| Weighted average assumptions used to determine the benefit obligation: | | | | |
| Discount rate | | | | N/A |
| Rate of compensation increase | | | | N/A |
Net periodic benefit cost for 2021 and 2016, respectively. The2020 included the following components:
| | | | | | | | | | | | | | | | |
| | | | Pension Benefits |
| (in millions) | | | | 2021 | | 2020 |
| Components of net periodic benefit cost (income): | | | | | | |
| Interest cost | | | | $ | 0.4 | | | $ | 0.5 | |
| Expected return on plan assets | | | | (1.0) | | | (1.0) | |
| Amortization of actuarial loss | | | | 0.4 | | | 0.4 | |
| Pension settlement | | | | 4.5 | | | — | |
| Net periodic benefit cost (income) | | | | $ | 4.3 | | | $ | (0.1) | |
| Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income: | | | | | | |
| Net actuarial loss (gain) for the year | | | | $ | — | | | $ | 0.4 | |
| Amortization of net loss | | | | (0.4) | | | (0.4) | |
| Pension settlement | | | | (4.5) | | | — | |
| Total recognized in other comprehensive (loss) income | | | | (4.9) | | | — | |
| Total recognized in net periodic benefit cost and other comprehensive (loss) income | | | | $ | (0.6) | | | $ | (0.1) | |
| Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | |
| Discount rate | | | | N/A | | 3.10 | % |
| Expected return on plan assets | | | | N/A | | 6.00 | % |
| Rate of compensation increase | | | | N/A | | N/A |
To develop the expected long-term rate of return on assets assumptions, the Company recognized a net gain onconsidered the changehistorical returns and future expectations for returns in fair value of derivative instruments of $606 foreach asset class, as well as targeted asset allocation percentages within the year ended December 31, 2015. There were no derivatives that were designated as hedges at December 31, 2017 or 2016.asset portfolios.
14.
15. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
| | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| United States | | $ | 55,980 | | | $ | 87,326 | | | $ | 57,846 | | United States | | $ | 8.5 | | | $ | 12.8 | | | $ | 40.9 | |
| Foreign | | | 1,237 | | | | (231 | ) | | | (5,873 | ) | Foreign | | (4.1) | | | 1.0 | | | 3.6 | |
| Income before income taxes | | $ | 57,217 | | | $ | 87,095 | | | $ | 51,973 | | Income before income taxes | | $ | 4.4 | | | $ | 13.8 | | | $ | 44.5 | |
The provision (benefit) for income taxes consists of the following:
| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | Years Ended December 31, |
| Current provision: | | | | | | | | | | |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| Current provision (benefit): | | Current provision (benefit): | | | | | | |
| Federal | | $ | 16,178 | | | $ | 30,623 | | | $ | 19,758 | | Federal | | $ | 17.4 | | | $ | (0.4) | | | $ | (14.2) | |
| State | | | 2,866 | | | | 4,098 | | | | 2,553 | | State | | 2.4 | | | (0.7) | | | 2.3 | |
| Foreign | | | 874 | | | | 907 | | | | 255 | | Foreign | | 2.3 | | | 0.3 | | | 1.8 | |
| Total current provision | | | 19,918 | | | | 35,628 | | | | 22,566 | | |
| Deferred provision (benefit): | | | | | | | | | | | | | |
| Total current provision (benefit) | | Total current provision (benefit) | | 22.1 | | | (0.8) | | | (10.1) | |
| Deferred (benefit) provision: | | Deferred (benefit) provision: | | | | | | |
| Federal | | | 107 | | | | (2,653 | ) | | | (1,183 | ) | Federal | | (18.3) | | | (0.1) | | | 12.3 | |
| State | | | (455 | ) | | | (1,213 | ) | | | (275 | ) | State | | (1.0) | | | 1.1 | | | (1.4) | |
| Foreign | | | 57 | | | | 345 | | | | (1,101 | ) | Foreign | | 2.2 | | | (2.3) | | | (2.3) | |
| Total deferred benefit | | | (291 | ) | | | (3,521 | ) | | | (2,559 | ) | |
| Total deferred (benefit) provision | | Total deferred (benefit) provision | | (17.1) | | | (1.3) | | | 8.6 | |
| Total provision (benefit): | | | | | | | | | | | | | Total provision (benefit): | | | | | | |
| Federal | | | 16,285 | | | | 27,970 | | | | 18,575 | | Federal | | (0.9) | | | (0.5) | | | (1.9) | |
| State | | | 2,411 | | | | 2,885 | | | | 2,278 | | State | | 1.4 | | | 0.4 | | | 0.9 | |
| Foreign | | | 931 | | | | 1,252 | | | | (846 | ) | Foreign | | 4.5 | | | (2.0) | | | (0.5) | |
| Total income tax provision | | $ | 19,627 | | | $ | 32,107 | | | $ | 20,007 | | |
| Total income tax provision (benefit) | | Total income tax provision (benefit) | | $ | 5.0 | | | $ | (2.1) | | | $ | (1.5) | |
The Company's income"Income tax provision (benefit)" is computed based on the domestic and foreign federal statutory rates and the average state statutory rates, net of related federal benefit.
The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed which modified the net operating loss ("NOL") carryback provisions allowing the Company to carryback its 2018 NOL to prior years. The tax provision for the year ended December 31, 2020 includes a $9.5 million tax benefit related to the NOL carryback which occurred due to a change in rates from 35% to 21%. A reconciliation of the provision (benefit) for income taxes at the statutory federal income tax rate to the amount provided is as follows:
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Tax at the statutory federal income tax rate | | $ | 20,026 | | | $ | 30,483 | | | $ | 18,191 | |
| Qualified production activity deduction | | | (1,661 | ) | | | (1,641 | ) | | | (1,174 | ) |
| State income tax, net of federal income tax | | | 1,520 | | | | 1,876 | | | | 1,386 | |
| Other permanent differences | | | 551 | | | | 673 | | | | 393 | |
| Research and development tax credits | | | (855 | ) | | | (785 | ) | | | (291 | ) |
| Valuation allowance impact | | | 1,585 | | | | 1,638 | | | | 2,036 | |
| U.S. Tax Reform impact | | | (1,056 | ) | | | -- | | | | -- | |
| Other items | | | (483 | ) | | | (137 | ) | | | (534 | ) |
| Total income tax provision | | $ | 19,627 | | | $ | 32,107 | | | $ | 20,007 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Tax expense at the statutory federal income tax rate | | $ | 0.9 | | | $ | 2.9 | | | $ | 9.3 | |
| State income tax, net of federal income tax | | 0.6 | | | 1.3 | | | 0.3 | |
| Research and development tax credits | | (3.3) | | | (4.1) | | | (4.3) | |
| FIN 48 impact | | 1.2 | | | 1.8 | | | 4.0 | |
| FIN 48 impact - liquidation of subsidiary | | — | | | (0.7) | | | — | |
| Change in foreign subsidiary net operating loss carryforward | | — | | | 4.4 | | | (0.3) | |
| Valuation allowance impact | | 6.0 | | | (8.1) | | | (1.0) | |
| Changes in tax rates | | 0.2 | | | 0.7 | | | 0.3 | |
| Effects of Cares Act - 2018 NOL carryback | | — | | | — | | | (9.5) | |
| Share-based compensation | | 0.4 | | | 0.4 | | | 0.3 | |
| Foreign-derived intangible income deduction | | (0.9) | | | — | | | — | |
| Other items | | (0.1) | | | (0.7) | | | (0.6) | |
| Total income tax provision (benefit) | | $ | 5.0 | | | $ | (2.1) | | | $ | (1.5) | |
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.
A-48
Significant components of the Company's deferred tax assets and liabilities are as follows:
| | | December 31 | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 |
| Deferred tax assets: | | | | | | | Deferred tax assets: | | | | |
| Amortization of research and experimental expenditures | | Amortization of research and experimental expenditures | | $ | 18.4 | | | $ | — | |
| Inventory reserves | | $ | 4,287 | | | $ | 8,507 | | Inventory reserves | | 4.7 | | | 3.7 | |
| Warranty reserves | | | 3,560 | | | | 4,527 | | Warranty reserves | | 2.2 | | | 2.0 | |
| Bad debt reserves | | | 299 | | | | 456 | | |
| Credit loss reserves | | Credit loss reserves | | 0.6 | | | 0.5 | |
| State tax loss carryforwards | | | 2,710 | | | | 3,403 | | State tax loss carryforwards | | 11.6 | | | 11.9 | |
| Accrued vacation | | | 1,712 | | | | 2,351 | | Accrued vacation | | 1.6 | | | 1.4 | |
| SERP | | | 367 | | | | 299 | | |
| Deferred compensation | | | 1,293 | | | | 2,124 | | Deferred compensation | | 1.1 | | | 1.4 | |
| Restricted stock units | | | 1,664 | | | | 1,845 | | |
| Pension and post-employment benefits | | | 1,448 | | | | 2,530 | | |
| Foreign net operating losses | | | 6,310 | | | | 5,461 | | |
| Share-based compensation | | Share-based compensation | | 4.4 | | | 2.0 | |
| Goodwill | | Goodwill | | 1.8 | | | 2.0 | |
| | Foreign net operating loss | | Foreign net operating loss | | 7.2 | | | 4.4 | |
| Lease obligation | | Lease obligation | | 1.8 | | | 0.4 | |
| Employee & insurance accruals | | Employee & insurance accruals | | 1.0 | | | 0.8 | |
| Domestic credit carryforwards | | Domestic credit carryforwards | | 1.5 | | | 1.5 | |
| Deferred revenue | | Deferred revenue | | 1.7 | | | 1.3 | |
| Deferred payroll tax - CARES Act | | Deferred payroll tax - CARES Act | | — | | | 1.1 | |
| | Valuation allowances | | Valuation allowances | | (11.9) | | | (5.9) | |
| Other | | | 2,478 | | | | 2,516 | | Other | | 0.9 | | | 1.5 | |
| Valuation allowances | | | (8,318 | ) | | | (8,280 | ) | |
| Total deferred tax assets | | | 17,810 | | | | 25,739 | | Total deferred tax assets | | 48.6 | | | 30.0 | |
| Deferred tax liabilities: | | | | | | | | | Deferred tax liabilities: | | | | |
| Property and equipment | | | 14,562 | | | | 20,167 | | Property and equipment | | 13.6 | | | 13.0 | |
| Intangibles | | | 769 | | | | 1,244 | | Intangibles | | 2.7 | | | 1.1 | |
| Goodwill | | | 654 | | | | 1,605 | | |
| Pension | | | 758 | | | | 1,205 | | |
| Outside basis differences | | | -- | | | | 511 | | |
| Right-of-use assets | | Right-of-use assets | | 1.8 | | | 0.5 | |
| Post-retirement benefits | | Post-retirement benefits | | 0.5 | | | 0.6 | |
| Total deferred tax liabilities | | | 16,743 | | | | 24,732 | | Total deferred tax liabilities | | 18.6 | | | 15.2 | |
| Total net deferred assets | | $ | 1,067 | | | $ | 1,007 | | Total net deferred assets | | $ | 30.0 | | | $ | 14.8 | |
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and experimental ("R&E") expenditures immediately in the year incurred and requires taxpayers to instead capitalize and amortize such expenditures over a period of five years for U.S. activity and 15 years for foreign activity. Taxpayers cannot recover R&E costs before the end of the amortization period even if sold or abandoned. The Company has a deferred tax asset of $18.4 million for R&E expenditures as of December 31, 2022.
As of December 31, 2017,2022, the Company hashad gross state net operating lossNOL carryforwards of $17,579$227.8 million and gross foreign net operating lossNOL carryforwards of approximately $19,876,$23.8 million, which will beare available to offset future taxable income. If not used, these carryforwards will expire between 20182023 and 2030. 2034. The Company does not have a federal net operating loss carryforward.
A significant portion of the valuation allowance for deferred tax assets relates to the future utilization of state and foreign net operating loss and state tax credit carryforwards. Future utilization of these net operating loss and state tax credit carryforwards is evaluated by the Company on a periodic basis, and the valuation allowance is adjusted accordingly. In 2017,2022, the valuation allowance on these carryforwards was increased by $7$6.0 million, of which $5.5 million relates to a valuation allowance on the deferred tax assets of the Company's Brazilian subsidiary as the NOLs are not expected to be fully utilized. The remaining change in valuation allowances is due to the uncertainty about whetherunrealizable portion of certain entities will realize theirentities’ state and foreign net operating loss carryforwards. The Company has also determined that the recovery ofcarryforwards and certain other deferred tax assets is uncertain. The valuation allowance for these deferred tax assets was increased by $31 during 2017.in foreign jurisdictions.
The following table represents a roll forwardrollforward of the deferred tax asset valuation allowance for the years ended December 31, 2017, 20162022, 2021 and 2015:2020:
| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| Allowance balance, beginning of year | | $ | 8,280 | | | $ | 8,065 | | | $ | 6,029 | | Allowance balance, beginning of year | | $ | 5.9 | | | $ | 14.0 | | | $ | 14.6 | |
| Provision | | | 1,585 | | | | 1,639 | | | | 2,036 | | Provision | | 6.0 | | | 0.6 | | | 1.5 | |
| Write-offs | | | (1,862 | ) | | | (289 | ) | | | -- | | |
| Reversals | | Reversals | | — | | | (8.1) | | | (1.5) | |
| Other | | | 315 | | | | (1,135 | ) | | | -- | | Other | | — | | | (0.6) | | | (0.6) | |
| Allowance balance, end of year | | $ | 8,318 | | | $ | 8,280 | | | $ | 8,065 | | Allowance balance, end of year | | $ | 11.9 | | | $ | 5.9 | | | $ | 14.0 | |
Undistributed foreign earnings of the Company's Canadian subsidiary, Breaker Technology Ltd. ("BTL") and South African subsidiary, Osborn Engineered Products SA, (PTY), Ltd. ("Osborn") are considered to be indefinitely reinvested; accordingly,reinvested outside the U.S. as of December 31, 2022. Because those earnings are considered to be indefinitely reinvested, no provision for U.S. federal and statedeferred income taxes hashave been provided thereon. If the Company were to make a distribution of any portion of those earnings in the form of dividends or otherwise, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax. As of December 31, 2017,2022, the cumulative amountsamount of undistributed U.S. GAAP earnings for BTL and Osborn are $4,026 and $28,249, respectively. A portion of these amounts may be subject to taxation under the one-time transition tax included in the Tax Cuts and Jobs Act of 2017. Based upon the provisions in the Tax Cuts and Jobs Act of 2017, any future qualified dividends out of these amounts will not be subject to U.S. income taxes. However, upon any future inclusion as Subpart F income or capital gains, the Company would be subject to additional U.S. income taxes (subject to an adjustment forCompany's foreign tax credits). Upon any repatriation, withholding taxes due to the foreign jurisdictions may have to be paid. At this time, it is not practicable to determine the amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries.subsidiaries was $57.7 million.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is currently under examination for 2018 with taxing authorities in the United States. The Company is no longer subject to U.S. federal income tax examinations by authorities for years prior to 2014. 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 2012.2018.
The Company has a liability for unrecognized tax benefits of $365$12.0 million and $238$10.8 million (excluding accrued interest and penalties) as of December 31, 20172022 and 2016,2021, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognizeddid not recognize any tax benefits of $22for interest and $16 in 2017 and 2016, respectively, for penalties and interest related to amounts that were settled for less than previously accrued.accrued in 2022 or 2021. The net total amount of unrecognized tax benefits that, if recognized, would affect the Company'sCompany’s effective tax rate is $370$13.7 million and $238$11.9 million at December 31, 20172022 and 2016,2021, respectively. The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next twelve months.
A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows:
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Balance, beginning of year | | $ | 238 | | | $ | 603 | | | $ | 2,585 | |
| Additions for tax positions related to the current year | | | 127 | | | | 73 | | | | 206 | |
| Additions for tax positions related to prior years | | | -- | | | | 162 | | | | 549 | |
| Reductions due to lapse of statutes of limitations | | | -- | | | | (16 | ) | | | (162 | ) |
| Decreases related to settlements with tax authorities | | | -- | | | | (584 | ) | | | (2,575 | ) |
| Balance, end of year | | $ | 365 | | | $ | 238 | | | $ | 603 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Balance, beginning of year | | $ | 10.8 | | | $ | 9.7 | | | $ | 5.7 | |
| Additions for tax positions taken in current year | | 1.2 | | | 1.0 | | | 0.5 | |
| Additions for tax positions taken in prior period | | — | | | 0.8 | | | 3.5 | |
| | | | | | |
| Decreases related to sustained tax positions | | — | | | (0.7) | | | — | |
| Balance, end of year | | $ | 12.0 | | | $ | 10.8 | | | $ | 9.7 | |
The tax positions in the December 31, 20172022 balance of unrecognized tax benefits includes 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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company's fourth quarter 2017 provision for income taxes was reduced by $1,056, (comprised of a $1,548 reduction in income tax expense recorded in connection with the remeasurement of deferred tax assets and liabilities and $492 of additional income tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings) due to applying the provisions of the Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company determined that the $492 additional 2017 income tax expense is a provisional amount and constitutes a reasonable estimate at December 31, 2017, based upon the best information currently available. The ultimate impact may differ from the provisional amount, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the Tax Act. Any subsequent adjustment to the amount will be recorded to current income tax expense when the analysis is complete, which is expected in 2018 shortly after the filing of the Company's 2017 U.S. income tax return.
While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income ("GILTI") provisions and the base-erosion and anti-abuse tax ("BEAT") provisions.
The GILTI provisions require the Company to include, in its U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax, if greater than regular tax. The Company does not expect it will be subject to this tax, and therefore, has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017.
The changes to existing U.S. tax laws as a result of the Tax Act, which we believe have the most significant impact on the Company's federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate: The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company recognized a deferred tax benefitreverse through income in future years.
16. Commitments and related increase in deferred tax assets of $1,548 in its 2017 consolidated financial statements due to the remeasurement necessitated by the Tax Act's provision reducing the reduction in the U.S. corporate income tax rate from 35% to 21%. This benefit is attributable to the Company being in a net deferred tax liability position when considering only U.S. federal deferred items. The Company has significant deferred tax assets related to foreign jurisdictions and U.S. state income taxes.Contingencies
Transition Tax on Foreign Earnings: The Company recognized a provisional income tax expense of $492 for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The determination of the transition tax requires further analysis regarding the amount and composition of the Company's historical foreign earnings and foreign taxes, which is expected to be completed in 2018.
Repeal of Domestic Production Activities Deduction: While not effective until 2018, the Tax Act repeals the Domestic Production Activities Deduction ("DPAD") previously provided under IRC §199. The DPAD benefit has historically been very material to the Company's federal income taxes. The DPAD benefits included in the effective tax rate reconciliations for 2017, 2016 and 2015 were $1,661, $1,641 and $1,174, respectively.
15. Contingent Matters
Certain customers have financed purchases of Company products through arrangements with third-party financing institutions in which the Company is contingently liable for customer debt of $3,805$2.4 million at both December 31, 2017.2022 and 2021, respectively. These arrangements expire at various dates through September 2025. Additionally, the Company is also contingently liable for 1.75% of the unpaid balance, determined as of December 2020 and31 of the prior year (or approximately $0.2 million for 2022), on certain past customer equipment purchases that were financed by an outside finance company. The agreements provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $836$1.0 million and $1.1 million related to these guarantees, which were included in "Other current liabilities" in the Consolidated Balance Sheets as of December 31, 2017.2022 and 2021, respectively.
The Company reviews off-balance sheet guarantees individually and at the loss pool level based on one agreement. Prior history is considered with respect to the Company having to perform on any off-balance sheet guarantees, as well as future projections of individual customer credit worthiness with respect to assessing credit losses related to off-balance sheet guarantees.
In addition, the Company is contingently liable under letters of credit issued by a lenderunder its Credit Facilities totaling $9,757$2.8 million as of December 31, 2017, including $3,200 of letters of credit guaranteeing certain Astec Brazil bank debt.2022. The outstanding letters of credit expire at various dates through October 2020.November 2023. The maximum potential
amount of future payments under letters of credit issued under the Credit Facilities for which the Company could be liable is $30.0 million as of December 31, 2022. As of December 31, 2017,2022, the Company's foreign subsidiaries are contingently liable for a total of $3,557$3.2 million in performance letters of credit, advance payments and retention guarantees.guarantees, of which $0.7 million is secured by separate credit facilities with local financial institutions. The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $13,314$9.5 million as of December 31, 2017.2022.
The Company hasand certain of its former executive officers were named as defendants in a sales contract with the purchaser of a large wood pellet plant,putative shareholder class action lawsuit filed on which revenues of $7,987 and $135,187 were recorded in 2017 and 2016, respectively. As the plant has not yet met the production output and the operational specifications set forthFebruary 1, 2019, as amended on August 26, 2019, in the original contract,United States District Court for the Eastern District of Tennessee. The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-24-CEA-CHS. The complaint generally alleges that the defendants violated the Securities Exchange Act of 1934, as amended through December 31, 2017,(the "Exchange Act"), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and that the individual defendants were control persons under Section 20(a) of the Exchange Act. The complaint is filed on behalf of shareholders who purchased stock of the Company between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of the purported class. On October 25, 2019, the defendants filed a Motion to Dismiss. On February 19, 2021, the Motion to Dismiss was granted with prejudice and judgment was entered intofor the defendants.On March 19, 2021, plaintiff filed a contract amendment in February 2018, wherebyMotion to Alter or Amend the Company agreedJudgment and For Leave to compensateFile the customerProposed Amended Complaint, which was denied on May 5, 2021. Plaintiff appealed the Motion to Dismiss and denial of its Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint to the United States Court of Appeals for production shortfalls caused bythe Sixth Circuit. On March 31, 2022, the United States Court of Appeals for the Sixth Circuit issued an opinion reversing the dismissal of the Company and one former executive officer, affirming the dismissal of certain other potential costs (depending uponformer executive officers and remanding the marketaction to the United States District Court for the Eastern District of Tennessee for proceedings consistent with the opinion. On July 11, 2022 Defendants filed an answer to the complaint, and the action is now in discovery.
The Company's GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018 with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rescission of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of wood pellets), fromthe equipment was approximately $8.5 million. GEFCO disputes the plaintiff's allegations and intends to defend this lawsuit vigorously. On July 7, 2020, the plaintiffs filed a separate lawsuit directly against Astec Industries, Inc. that generally mirrored the allegations in the GEFCO suit. In January 1, 2018 through June 15, 2018.2023, the court allowed Astec Industries, Inc. to be added as a defendant to the GEFCO suit and, as a result, the separate suit against Astec Industries, Inc. was dismissed. The Company disputes the plaintiffs' allegations and is vigorously defending the GEFCO suit. The Company is unable to determine whether or not a future loss will be incurred production shortfalls in January and February 2018.due to this litigation or estimate the possible loss or range of loss, if any, at this time.
TheIn addition to the two matters noted above, the Company is currently a party to various other claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from suchany 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 eithereither: (i) probable but cannot be reasonably estimated or (ii) reasonably possibleestimable 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.
16. Shareholders'
17.Share-Based Compensation
Prior to its expiration on February 25, 2021, the Company's 2011 Incentive Plan ("2011 Plan") provided for the grant of share-based awards to employees, officers, directors and consultants. The 2011 Plan authorized the grant of options, share appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend equivalents and other share-based and cash awards. Under the 2011 Plan, the Company has outstanding restricted stock units, performance stock units and deferred stock units none of which participate in Company-paid dividends.
On April 27, 2021 ("Plan Effective Date"), the Company's shareholders approved the 2021 Equity Incentive Plan ("2021 Plan"), which is administered by the Company's Compensation Committee of the Board of Directors (the "Compensation Committee"). The 2021 Plan provides for a total of 1,280,000 shares to be reserved and available for issuance pursuant to the grant of new awards under the 2021 Plan. To the extent that all or a portion of an award (or, after December 31, 2020, an award granted under the 2011 Plan) is canceled, terminates, expires, is forfeited or lapses for any reason (including by reason of failure to meet time-based and/or performance-based vesting requirements), any unissued or forfeited shares originally subject to the award will be added back to the 2021 Plan share reserve and again be available for issuance pursuant to awards granted under the 2021
Plan. The Company rewards2021 Plan authorizes the grant of options, share appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend equivalents and other share-based and cash awards. Awards granted under the 2021 Plan may provide for dividend equivalents, which are subject to the same forfeiture, transfer restrictions and deferral terms as apply to the award to which they relate.
Share-based compensation expense of $6.8 million, $6.0 million and $5.1 million was recorded in the years ended December 31, 2022, 2021 and 2020, respectively, and recognized in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Restricted Stock Units ("RSUs")
Prior to 2020, key members of management were awarded with restricted stock units ("RSUs") each year based upon the financial performance of the Company and its subsidiaries. Under the termsBeginning in 2020, awards were determined based on a predetermined award value of the Company's shareholder-approved 2011 Incentive Plan, upbase salary of eligible employees aligned to 700 shares of newly-issued Companya total compensation program.
Restricted stock is available for awards. Awards granted in 2016 and priorunit awards generally vest ratably, at the end of five years fromeach 12-month period, over a three-year service period. A participant generally must be employed by the Company on the vesting date of grant, oreach award, however, awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at the time a recipient retires after reaching age 65, if earlier, while awards granted after 2016 are scheduled to have a three-year vesting period.65. Additional RSUs are granted on an annual basis to the Company's outside directors under the Company's Non-Employee Directors Compensation Plan generally with a one-year vesting period. The fair value of the RSUs vested during 2017, 2016 and 2015 was $1,991, $3,289 and $2,785, respectively. The grant date tax benefit was increased by $290, $220 and $336, respectively, upon the vesting of RSUs in 2017, 2016 and 2015.
Compensation expense of $2,978, $2,426 and $1,019 was recorded in the years ended December 31, 2017, 2016 and 2015, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2017 performance) amortized over the portion of the vesting period occurring during the period. Related income tax benefits of $1,132, $934 and $362 were recorded in 2017, 2016 and 2015, respectively. Based upon the grant date fair value of RSUs, it is anticipated that $5,210 of additional compensation costs will be recognized in future periods through 2021 for RSUs earned through December 31, 2017. The weighted average period over which this additional compensation cost will be expensed is 2.6 years. RSUs do not participate in Company-paid dividends.
Changes in restricted stock units during the year ended December 31, 20172022 are as follows:
| | | 2017 | | | Weighted Average
Grant Date
Fair Value | |
| Unvested restricted stock units, beginning of year | | | 112 | | | $ | 41.48 | |
| Units granted | | | 83 | | | | 65.20 | |
| Units forfeited | | | (3 | ) | | | 53.11 | |
| Units vested | | | (31 | ) | | | 43.51 | |
| Unvested restricted stock units, end of year | | | 161 | | | | 53.09 | |
| | | | | | | | | | | | | | |
| (in thousands, except weighted average grant date fair value) | | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
| Unvested as of January 1, 2022 | | 187 | | | $ | 48.88 | |
| Granted | | 147 | | | $ | 47.11 | |
| Vested | | (108) | | | $ | 45.87 | |
| Forfeited | | (11) | | | $ | 52.06 | |
| Unvested as of December 31, 2022 | | 215 | | | $ | 48.89 | |
The grantfollowing additional activity occurred for the Company's restricted stock units:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except weighted average grant date fair value per award granted) | | 2022 | | 2021 | | 2020 |
| Weighted average grant date fair value per award | | $ | 47.11 | | | $ | 77.38 | | | $ | 34.99 | |
| Fair value of awards vested and issued | | $ | 4.7 | | | $ | 9.3 | | | $ | 3.8 | |
| Tax (expense) benefit for restricted stock compensation expense | | $ | (0.1) | | | $ | 3.8 | | | $ | (0.4) | |
As of December 31, 2022, the Company had $6.3 million of unrecognized compensation expense before tax related to restricted stock units, which is expected to be recognized over a weighted average period of 1.8 years.
Performance Stock Units ("PSUs")
Beginning in 2020, PSUs were granted to officers and other key employees. Vesting is subject to both the continued employment of the participant with the Company and the achievement of certain performance metrics established by the Compensation Committee. A participant generally must be employed by the Company on the vesting date of each award, however, a portion of a participant's awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at age 65.
PSUs granted in 2020 were divided into three equal tranches with cliff vesting periods of one year, two years and three years. Awards granted beginning in 2021 generally cliff vest three years from the date of grant. The number of PSUs that vest may range from zero to 200% of the target shares granted and is determined for each tranche based on the achievement of two equally weighted performance criteria: ROIC and TSR. The PSUs are settled in common stock of the Company, with holders receiving one common share for each PSU that vests.
Changes in PSUs during the year ended December 31, 2022 are as follows:
| | | | | | | | | | | | | | |
| (in thousands, except weighted average grant date fair value) | | Performance Stock Units | | Weighted Average Grant Date Fair Value |
| Unvested as of January 1, 2022 | | 99 | | | $ | 63.16 | |
| Granted | | 87 | | | $ | 51.56 | |
| Vested* | | (25) | | | $ | 34.78 | |
| Forfeited | | (10) | | | $ | 63.13 | |
| Unvested as of December 31, 2022 | | 151 | | | $ | 61.24 | |
* The vested PSUs presented are based on the target amount of the award for the second tranche of the 2020 awards. In accordance with the terms of the underlying award agreements, the actual shares earned and distributed for the two-year performance period ended during 2022 was 121% of the target shares granted, rounded up the nearest whole share.
The following additional activity occurred for the Company's performance stock units:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except weighted average grant date fair value per award granted) | | 2022 | | 2021 | | 2020 |
| Weighted average grant date fair value per award | | $ | 51.56 | | | $ | 92.98 | | | $ | 34.66 | |
| Fair value of awards vested and issued | | $ | 1.7 | | | $ | 4.5 | | | $ | — | |
| Tax benefit for performance stock compensation expense | | $ | 0.2 | | | $ | 2.3 | | | $ | — | |
As of December 31, 2022, the Company had $4.1 million of unrecognized compensation expense before tax related to PSUs, which is expected to be recognized over a weighted average period of 1.9 years.
Deferred Stock Units ("DSUs")
The Non-Employee Directors Compensation Plan allows for deferred delivery of shares granted as payment of directors' annual retainer. As of December 31, 2022, there were 28,427 fully vested deferred stock units, which were excluded from the tables above. The aggregate fair value of these units at December 31, 2022 was $1.2 million.
The 2021 Plan and the restricted2011 Equity Incentive Plan allow for certain participants to elect to receive vested units on a deferred basis. As of December 31, 2022, there were 10,383 fully vested deferred stock units, granted during 2017, 2016which are excluded from the unvested balances as of December 31, 2022 in the tables above. The aggregate fair value of these units at December 31, 2022 was $0.4 million.
18. Revenue Recognition
The following tables disaggregates the Company's revenue by major source for the periods ended December 31, 2022, 2021 and 20152020 (excluding intercompany sales):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2022 |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 454.9 | | | $ | 219.7 | | | $ | 2.1 | | | $ | 676.7 | |
| | | | | | | | |
| Parts and component sales | | 198.3 | | | 85.1 | | | 0.1 | | | 283.5 | |
| Service and equipment installation revenue | | 21.5 | | | 0.7 | | | — | | | 22.2 | |
| Used equipment sales | | 6.7 | | | — | | | — | | | 6.7 | |
| Freight revenue | | 23.5 | | | 8.0 | | | — | | | 31.5 | |
| Other | | 0.2 | | | (6.6) | | | 0.1 | | | (6.3) | |
| Total domestic revenue | | 705.1 | | | 306.9 | | | 2.3 | | | 1,014.3 | |
| | | | | | | | |
| Net Sales-International: | | | | | | | | |
| Equipment sales | | 92.8 | | | 69.0 | | | 1.5 | | | 163.3 | |
| | | | | | | | |
| Parts and component sales | | 42.7 | | | 39.9 | | | 0.1 | | | 82.7 | |
| Service and equipment installation revenue | | 3.9 | | | 3.1 | | | 0.4 | | | 7.4 | |
| Used equipment sales | | 0.5 | | | 2.2 | | | — | | | 2.7 | |
| Freight revenue | | 2.4 | | | 1.3 | | | — | | | 3.7 | |
| Other | | — | | | 0.3 | | | 0.1 | | | 0.4 | |
| Total international revenue | | 142.3 | | | 115.8 | | | 2.1 | | | 260.2 | |
| Total net sales | | $ | 847.4 | | | $ | 422.7 | | | $ | 4.4 | | | $ | 1,274.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2021 |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 374.8 | | | $ | 157.6 | | | $ | — | | | $ | 532.4 | |
| | | | | | | | |
| Parts and component sales | | 180.2 | | | 77.7 | | | — | | | 257.9 | |
| Service and equipment installation revenue | | 17.0 | | | 0.5 | | | — | | | 17.5 | |
| Used equipment sales | | 9.4 | | | 0.8 | | | — | | | 10.2 | |
| Freight revenue | | 20.9 | | | 5.9 | | | — | | | 26.8 | |
| Other | | (0.6) | | | (2.1) | | | — | | | (2.7) | |
| Total domestic revenue | | 601.7 | | | 240.4 | | | — | | | 842.1 | |
| | | | | | | | |
| Net Sales-International: | | | | | | | | |
| Equipment sales | | 94.5 | | | 72.0 | | | — | | | 166.5 | |
| | | | | | | | |
| Parts and component sales | | 40.5 | | | 33.2 | | | — | | | 73.7 | |
| Service and equipment installation revenue | | 3.1 | | | 1.9 | | | — | | | 5.0 | |
| Used equipment sales | | 0.9 | | | 2.5 | | | — | | | 3.4 | |
| Freight revenue | | 2.4 | | | 1.8 | | | — | | | 4.2 | |
| Other | | 0.3 | | | 0.3 | | | — | | | 0.6 | |
| Total international revenue | | 141.7 | | | 111.7 | | | — | | | 253.4 | |
| Total net sales | | $ | 743.4 | | | $ | 352.1 | | | $ | — | | | $ | 1,095.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2020 |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 354.1 | | | $ | 152.0 | | | $ | — | | | $ | 506.1 | |
| | | | | | | | |
| Parts and component sales | | 172.8 | | | 69.2 | | | — | | | 242.0 | |
| Service and equipment installation revenue | | 21.0 | | | 1.2 | | | — | | | 22.2 | |
| Used equipment sales | | 19.3 | | | 2.1 | | | — | | | 21.4 | |
| Freight revenue | | 19.7 | | | 5.1 | | | — | | | 24.8 | |
| Other | | 1.8 | | | (1.3) | | | — | | | 0.5 | |
| Total domestic revenue | | 588.7 | | | 228.3 | | | — | | | 817.0 | |
| | | | | | | | |
| Net Sales-International: | | | | | | | | |
| Equipment sales | | 78.3 | | | 57.8 | | | — | | | 136.1 | |
| | | | | | | | |
| Parts and component sales | | 29.1 | | | 29.4 | | | — | | | 58.5 | |
| Service and equipment installation revenue | | 2.4 | | | 1.7 | | | — | | | 4.1 | |
| Used equipment sales | | 2.4 | | | 2.2 | | | — | | | 4.6 | |
| Freight revenue | | 2.0 | | | 1.6 | | | — | | | 3.6 | |
| Other | | 0.2 | | | 0.3 | | | — | | | 0.5 | |
| Total international revenue | | 114.4 | | | 93.0 | | | — | | | 207.4 | |
| Total net sales | | $ | 703.1 | | | $ | 321.3 | | | $ | — | | | $ | 1,024.4 | |
As of December 31, 2022, the Company had contract assets of $3.8 million and contract liabilities, excluding customer deposits, of $5.5 million, of which $2.9 million was $5,399, $1,946deferred revenue related to extended warranties. As of December 31, 2021, the Company had contract assets of $3.2 million and $937,contract liabilities, excluding customer deposits, of $5.6 million, of which $2.7 million was deferred revenue related to extended warranties. Total extended warranty sales were $1.1 million, $1.5 million and $1.7 million in 2022, 2021 and 2020, respectively.
17.19. Operations by Industry Segment and Geographic Area
The Company has threetwo reportable segments, each of which comprise sites based upon the nature of the products produced or services provided, 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. Based on a review of these factors, the Company's India and Thailand sites changed reportable segments beginning January 1, 2022. The India site was previously incorporated into the Materials Solutions segment and has moved to the Infrastructure Solutions segment while the Thailand site, which was previously included in the Infrastructure Solutions segment, has moved to the Materials Solutions segment.
Beginning January 1, 2022, the measure of segment profit or loss used by the Company's Chief Executive Officer, whom is compriseddetermined to be the chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments changed to Segment Operating Adjusted EBITDA. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of multiple business unitsinterest income or expense, income taxes, depreciation and amortization and certain other adjustments that offerare not considered by the CODM in the evaluation of ongoing operating performance. The Company's presentation of Segment Operating Adjusted EBITDA may not be comparable to similar productsmeasures used by other companies and servicesis not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented.
Prior periods have been revised to reflect both the segment composition change and meet the requirementssegment profit or loss metric noted above for aggregation. comparability.
During the first quarter of 2022, the Company revised the allocation of certain of its functional expenses between the Corporate and Other category and the reportable segments primarily related to the Company's annual incentive compensation. Prior periods have not been revised for this change.
A brief description of each segment is as follows:
Infrastructure Group - ThisSolutions – Sites within the Infrastructure Solutions 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 pelletconcrete plants and their related components and ancillary equipment as well as supplying asphalt pavers, material transfer vehicles, soil stabilizing – reclaiming machinery, milling machines, paver screedsroad construction equipment, industrial thermal systems and related ancillaryother heavy equipment. The other two business unitssites based in thisNorth America within the Infrastructure Solutions segment are primarily operate as Company-owned dealersmanufacturing operations while those located outside of North America, service and install equipment and provide parts in the foreign countriesregions in which they are domiciled. These two business units sell, service and installoperate for many of the products produced by the manufacturing subsidiariesall of the Company, and a majority of their sales are to customers in the infrastructure industry.Company's manufacturing sites. The principalprimary purchasers of the products produced by this groupsegment are asphalt and concrete producers, highway and heavy equipment contractors, wood pellet processorsutility contractors, forestry and environmental recycling contractors and domestic and foreign and domestic governmental agencies.
Materials Solutions – Sites within the Materials Solutions segment design and manufacture heavy processing equipment, in addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. The Infrastructure Group had salessites within the Materials Solutions segment are primarily manufacturing operations with the AME site functioning to one pellet plant customer totaling $7,987, or 0.7% of total Company salesmarket, service and install equipment and provide parts in 2017 and $135,187, or 11.8% of total Company salesthe regions in 2016. Portionswhich they operate for many of the equipment sold to this customer were manufacturedproducts produced by eachall of the Company's segments.
Aggregatemanufacturing sites. Additionally, the Materials Solutions segment offers consulting and Mining Group - This segment consists of eight business units that design, engineer, manufacture and market aengineering services to provide 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 screens, conveyors, inclined, vertical and horizontal screens and sand classifying and washing equipment."turnkey" processing systems. The principal purchasers of products produced by this group areaggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, demolition, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal operators, highway and heavy equipment contractorsauthorities, power stations and foreign and domestic governmental agencies.
Energy Group - This segment consists of six business units that design, engineer, manufactureCorporate and market a complete line of drilling rigs for the oilOther – The Corporate and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells, concrete plants, commercial and industrial burners, combustion control systems, a variety of industrial heaters to fit a broad range of applications including heating equipment for refineries, roofing material plants, chemical processing, rubber plants, oil sands and energy related processing, heat transfer processing equipment, thermal fluid storage tanks, waste heat recovery equipment, whole-tree pulpwood and biomass chippers and horizontal grinders. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production, ready mix concrete producers and contractors in the construction and demolition recycling markets. This group includes the operations of RexCon, Inc., which was acquired in October 2017.
Corporate - ThisOther category consists primarily of the parent company, the Company's captive insurance company, Astec Insurance, and the controls and automation business, units thatwhich do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segmentssegments. The parent company and includesthe captive insurance company provide support and corporate oversight for other sites. The controls and automation business manufactures hardware and software products that are marketed independently as well as included in certain products of the Company's parent company, Astec Industries, Inc., and a captive insurance company. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes and corporate overhead and thus these costs are included in the Corporate category.other segments.
The accounting policies of the reportable segments are the same as those described in the summaryNote 2, Basis of significant accounting policies.Presentation and Significant Accounting Policies. Intersegment sales and transfers between foreign subsidiaries are valued at prices comparable to those for unrelated parties.
Segment information for 20172022:
| | | Infrastructure
Group | | | Aggregate
and Mining
Group | | | Energy
Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 553,691 | | | $ | 403,720 | | | $ | 227,328 | | | $ | -- | | | $ | 1,184,739 | |
| Intersegment revenues | | | 25,965 | | | | 16,209 | | | | 24,877 | | | | -- | | | | 67,051 | |
| Interest expense | | | 49 | | | | 634 | | | | 9 | | | | 148 | | | | 840 | |
| Depreciation and amortization | | | 7,581 | | | | 9,363 | | | | 7,904 | | | | 954 | | | | 25,802 | |
| Income taxes | | | 1,318 | | | | 462 | | | | 491 | | | | 17,356 | | | | 19,627 | |
| Profit (loss) | | | 26,641 | | | | 35,748 | | | | 16,219 | | | | (40,963 | ) | | | 37,645 | |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 666,651 | | | | 558,684 | | | | 304,158 | | | | 390,300 | | | | 1,919,793 | |
| Capital expenditures | | | 7,424 | | | | 9,194 | | | | 3,540 | | | | 604 | | | | 20,762 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Revenues from external customers | | $ | 847.4 | | | $ | 422.7 | | | $ | 4.4 | | | $ | 1,274.5 | |
| Intersegment revenues | | 8.9 | | | 47.2 | | | — | | | 56.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Segment Operating Adjusted EBITDA | | 73.0 | | | 44.5 | | | (46.5) | | | 71.0 | |
| | | | | | | | |
| Assets | | 1,016.3 | | | 719.5 | | | 676.8 | | | 2,412.6 | |
| Capital expenditures | | 28.9 | | | 11.1 | | | 0.7 | | | 40.7 | |
Segment information for 20162021:
| | | Infrastructure
Group | | | Aggregate
and Mining
Group | | | Energy
Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 608,908 | | | $ | 359,760 | | | $ | 178,763 | | | $ | -- | | | $ | 1,147,431 | |
| Intersegment revenues | | | 16,957 | | | | 35,031 | | | | 24,946 | | | | -- | | | | 76,934 | |
| Interest expense | | | 31 | | | | 948 | | | | 4 | | | | 412 | | | | 1,395 | |
| Depreciation and amortization | | | 7,205 | | | | 10,033 | | | | 6,655 | | | | 920 | | | | 24,813 | |
| Income taxes | | | 3,033 | | | | 664 | | | | 437 | | | | 27,973 | | | | 32,107 | |
| Profit (loss) | | | 71,482 | | | | 34,877 | | | | 4,145 | | | | (55,992 | ) | | | 54,512 | |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 657,225 | | | | 518,351 | | | | 271,121 | | | | 417,351 | | | | 1,864,048 | |
| Capital expenditures | | | 14,451 | | | | 7,437 | | | | 5,018 | | | | 178 | | | | 27,084 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Revenues from external customers | | $ | 743.4 | | | $ | 352.1 | | | $ | — | | | $ | 1,095.5 | |
| Intersegment revenues | | 4.2 | | | 30.4 | | | — | | | 34.6 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Segment Operating Adjusted EBITDA | | 73.9 | | | 39.1 | | | (48.2) | | | 64.8 | |
| | | | | | | | |
| Assets | | 989.6 | | | 668.8 | | | 649.7 | | | 2,308.1 | |
| Capital expenditures | | 12.2 | | | 5.6 | | | 2.3 | | | 20.1 | |
Segment information for 20152020:
| | | Infrastructure
Group | | | Aggregate
and Mining
Group | | | Energy
Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 428,737 | | | $ | 370,813 | | | $ | 183,607 | | | $ | -- | | | $ | 983,157 | |
| Intersegment revenues | | | 22,947 | | | | 28,701 | | | | 16,010 | | | | -- | | | | 67,658 | |
| Interest expense | | | 258 | | | | 1,005 | | | | 10 | | | | 338 | | | | 1,611 | |
| Depreciation and amortization | | | 6,907 | | | | 10,719 | | | | 5,553 | | | | 899 | | | | 24,078 | |
| Income taxes | | | 1,224 | | | | 764 | | | | (129 | ) | | | 18,148 | | | | 20,007 | |
| Profit (loss) | | | 33,890 | | | | 30,690 | | | | 3,609 | | | | (36,623 | ) | | | 31,566 | |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 567,936 | | | | 496,089 | | | | 256,978 | | | | 306,511 | | | | 1,627,514 | |
| Capital expenditures | | | 8,043 | | | | 8,807 | | | | 4,049 | | | | 389 | | | | 21,288 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
| Revenues from external customers | | $ | 703.1 | | | $ | 321.3 | | | $ | — | | | $ | 1,024.4 | |
| Intersegment revenues | | 33.5 | | | 40.7 | | | — | | | 74.2 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Segment Operating Adjusted EBITDA | | 79.9 | | | 39.6 | | | (38.9) | | | 80.6 | |
| | | | | | | | |
| Assets | | 937.4 | | | 638.7 | | | 535.8 | | | 2,111.9 | |
| Capital expenditures | | 7.9 | | | 4.8 | | | 2.7 | | | 15.4 | |
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
| | | 2017 | | | 2016 | | | 2015 | |
| Net income attributable to controlling interest | | | | | | | | | |
| Total profit for reportable segments | | $ | 78,608 | | | $ | 110,504 | | | $ | 68,189 | |
| Corporate expenses, net | | | (40,963 | ) | | | (55,992 | ) | | | (36,623 | ) |
| Net loss attributable to non-controlling interest | | | 205 | | | | 171 | | | | 831 | |
| Recapture (elimination) of intersegment profit | | | (55 | ) | | | 476 | | | | 400 | |
| Total consolidated net income attributable to controlling interest | | $ | 37,795 | | | $ | 55,159 | | | $ | 32,797 | |
| Assets | | | | | | | | | | | | |
| Total assets for reportable segments | | $ | 1,529,493 | | | $ | 1,446,697 | | | $ | 1,321,003 | |
| Corporate assets | | | 390,300 | | | | 417,351 | | | | 306,511 | |
| Elimination of intercompany profit in inventory | | | (7,075 | ) | | | (7,020 | ) | | | (7,496 | ) |
| Elimination of intercompany receivables | | | (717,873 | ) | | | (688,369 | ) | | | (583,834 | ) |
| Elimination of investment in subsidiaries | | | (303,209 | ) | | | (272,766 | ) | | | (223,500 | ) |
| Other eliminations | | | (2,057 | ) | | | (52,292 | ) | | | (35,331 | ) |
| Total consolidated assets | | $ | 889,579 | | | $ | 843,601 | | | $ | 777,353 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Net (loss) income attributable to controlling interest | | | | | | |
| Segment Operating Adjusted EBITDA | | $ | 71.0 | | | $ | 64.8 | | | $ | 80.6 | |
| Adjustments | | | | | | |
| Transformation program | | (25.5) | | | (13.4) | | | — | |
| Curtailment and settlement (loss) gain on pension and postretirement benefits, net | | — | | | (4.7) | | | 0.5 | |
| Restructuring and other related charges | | (6.2) | | | (2.9) | | | (14.3) | |
| Asset impairment | | (3.5) | | | (0.2) | | | (4.4) | |
| Gain on sale of property, equipment and business, net | | 0.7 | | | 0.6 | | | 7.8 | |
| Transaction costs | | (2.0) | | | — | | | — | |
| Interest expense, net | | (1.5) | | | (0.6) | | | 0.1 | |
| Depreciation and amortization | | (27.9) | | | (30.2) | | | (26.9) | |
| Income tax provision (benefit) | | (5.0) | | | 2.1 | | | 1.5 | |
| Net loss (income) attributable to noncontrolling interest | | 0.5 | | | (0.1) | | | — | |
| (Elimination) recapture of intersegment profit | | (0.7) | | | 0.4 | | | 1.1 | |
| Net (loss) income attributable to controlling interest | | $ | (0.1) | | | $ | 15.8 | | | $ | 46.0 | |
| | | | | | |
| Assets | | | | | | |
| Total segment assets | | $ | 2,412.6 | | | $ | 2,308.1 | | | $ | 2,111.9 | |
| Elimination of intercompany profit in inventory | | (3.0) | | | (2.4) | | | (2.8) | |
| Elimination of intercompany receivables | | (883.5) | | | (921.0) | | | (906.2) | |
| Elimination of investment in subsidiaries | | (481.2) | | | (456.8) | | | (329.6) | |
| Other | | (30.5) | | | (22.1) | | | (26.6) | |
| Total consolidated assets | | $ | 1,014.4 | | | $ | 905.8 | | | $ | 846.7 | |
Sales into major geographic regions were as follows:
| | | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | 2015 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 | | 2020 |
| United States | | $ | 932,294 | | | $ | 941,273 | | | $ | 722,287 | | United States | | $ | 1,014.3 | | | $ | 842.1 | | | $ | 817.0 | |
| Canada | | | 65,509 | | | | 37,539 | | | | 54,321 | | Canada | | 63.0 | | | 68.1 | | | 57.9 | |
| Australia and Oceania | | | 40,201 | | | | 29,948 | | | | 29,995 | | Australia and Oceania | | 46.7 | | | 43.4 | | | 28.5 | |
| Africa | | | 36,847 | | | | 31,557 | | | | 45,671 | | Africa | | 36.1 | | | 33.9 | | | 22.4 | |
| Other European Countries | | | 18,679 | | | | 19,198 | | | | 23,867 | | Other European Countries | | 28.0 | | | 32.7 | | | 23.2 | |
| Brazil | | Brazil | | 24.8 | | | 21.5 | | | 20.4 | |
| South America (excluding Brazil) | | | 18,562 | | | | 28,204 | | | | 32,454 | | South America (excluding Brazil) | | 20.0 | | | 15.2 | | | 21.9 | |
| Russia | | | 13,609 | | | | 3,185 | | | | 8,466 | | |
| Brazil | | | 10,478 | | | | 4,300 | | | | 8,376 | | |
| Mexico | | Mexico | | 10.7 | | | 13.5 | | | 2.9 | |
| Central America (excluding Mexico) | | Central America (excluding Mexico) | | 10.7 | | | 3.9 | | | 1.3 | |
| Other Asian Countries | | | 10,286 | | | | 6,926 | | | | 9,513 | | Other Asian Countries | | 10.2 | | | 5.0 | | | 2.7 | |
| Mexico | | | 8,508 | | | | 13,489 | | | | 6,990 | | |
| China | | | 6,113 | | | | 4,595 | | | | 1,330 | | |
| Middle East | | Middle East | | 3.1 | | | 2.9 | | | 3.2 | |
| India | | India | | 2.9 | | | 2.7 | | | 0.5 | |
| Post-Soviet States (excluding Russia) | | | 5,951 | | | | 3,293 | | | | 8,345 | | Post-Soviet States (excluding Russia) | | 2.7 | | | 3.6 | | | 3.1 | |
| Middle East | | | 4,881 | | | | 3,403 | | | | 18,995 | | |
| Japan and Korea | | | 4,760 | | | | 10,825 | | | | 3,574 | | Japan and Korea | | 0.4 | | | 2.7 | | | 8.1 | |
| West Indies | | | 3,421 | | | | 2,994 | | | | 1,532 | | West Indies | | 0.4 | | | 1.3 | | | 6.1 | |
| Central America (excluding Mexico) | | | 2,929 | | | | 5,904 | | | | 4,404 | | |
| India | | | 1,026 | | | | 318 | | | | 2,706 | | |
| Russia | | Russia | | 0.3 | | | 2.6 | | | 4.0 | |
| China | | China | | 0.1 | | | 0.4 | | | 1.2 | |
| Other | | | 685 | | | | 480 | | | | 331 | | Other | | 0.1 | | | — | | | — | |
| Total foreign | | | 252,445 | | | | 206,158 | | | | 260,870 | | Total foreign | | 260.2 | | | 253.4 | | | 207.4 | |
| Total consolidated sales | | $ | 1,184,739 | | | $ | 1,147,431 | | | $ | 983,157 | | Total consolidated sales | | $ | 1,274.5 | | | $ | 1,095.5 | | | $ | 1,024.4 | |
Long-lived assets"Property and equipment, net" by major geographic region areis as follows:
| | | December 31 | | | | | | | | | | | | | |
| | | 2017 | | | 2016 | | | December 31, |
| (in millions) | | (in millions) | | 2022 | | 2021 |
| United States | | $ | 158,683 | | | $ | 151,470 | | United States | | $ | 142.4 | | | $ | 140.3 | |
| United Kingdom | | United Kingdom | | 10.3 | | | 11.7 | |
| Brazil | | | 11,114 | | | | 11,288 | | Brazil | | 6.9 | | | 5.6 | |
| Northern Ireland | | | 6,342 | | | | 4,279 | | |
| Canada | | Canada | | 5.2 | | | 5.3 | |
| Australia | | Australia | | 4.4 | | | 4.6 | |
| South Africa | | | 5,684 | | | | 5,372 | | South Africa | | 4.1 | | | 3.9 | |
| Australia | | | 4,532 | | | | 4,234 | | |
| Canada | | | 2,893 | | | | 2,860 | | |
| Germany | | | 1,148 | | | | 1,035 | | |
| Chile | | Chile | | 0.2 | | | 0.3 | |
| Other | | Other | | 0.1 | | | — | |
| Total foreign | | | 31,713 | | | | 29,068 | | Total foreign | | 31.2 | | | 31.4 | |
| Total | | $ | 190,396 | | | $ | 180,538 | | |
| Total property and equipment, net | | Total property and equipment, net | | $ | 173.6 | | | $ | 171.7 | |
18.
20. Accumulated Other Comprehensive Loss
The after-tax components comprising accumulated"Accumulated other comprehensive lossloss" is summarized below:comprised of foreign currency translation adjustments of $40.1 million and $32.4 million as of December 31, 2022 and 2021, respectively.
| | December 31 | |
| | 2017 | | 2016 | |
| Foreign currency translation adjustment | | $ | (21,140 | ) | | $ | (27,839 | ) |
Unrecognized pension and post-retirement benefit cost, net of tax of $2,192 and $2,261, respectively | | | (3,103 | ) | | | (3,723 | ) |
| Accumulated other comprehensive loss | | $ | (24,243 | ) | | $ | (31,562 | ) |
See Note 12, Pension and Retirement Plans, for discussion of the amounts recognized in accumulated other comprehensive loss related to the Company's Kolberg-Pioneer, Inc. defined pension plan.
19.21. Other Expenses and Income
Other (expenses) income, net, consists of the following:
| | | Year Ended December 31 | |
| | | 2017 | | | 2016 | | | 2015 | |
| Investment loss | | $ | (96 | ) | | $ | (276 | ) | | $ | (381 | ) |
| Licensing fees | | | 651 | | | | 546 | | | | 641 | |
| Income from life insurance policies | | | -- | | | | -- | | | | 1,204 | |
| Other | | | 663 | | | | 259 | | | | 1,591 | |
| Total | | $ | 1,218 | | | $ | 529 | | | $ | 3,055 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Foreign exchange (losses) gains, net | | $ | (0.9) | | | $ | (0.5) | | | $ | 1.3 | |
| Investment loss, net | | (0.9) | | | (0.3) | | | — | |
| | | | | | |
| Curtailment and settlement (loss) gain on pension and postretirement benefits, net | | — | | | (4.7) | | | 0.5 | |
| Gain on disposal of subsidiary | | — | | | — | | | 1.6 | |
| Other, net | | 0.2 | | | — | | | 0.5 | |
| Total | | $ | (1.6) | | | $ | (5.5) | | | $ | 3.9 | |
20. Business Combinations
22. Strategic Transformation and Restructuring, Impairment and Other Asset Charges
In October, 2017,
The Company's Simplify, Focus and Grow Strategic Transformation ("SFG") initiative, which began in 2019, generally includes facility rationalization, asset impairment, workforce reduction, the Company acquired substantially allassociated costs of organizational integration activities and strategic transformational initiatives. As part of the assets and liabilities of RexCon, Inc. ("RexCon") for a total purchase price of $26,443. The purchase price was paid in cash with $3,000 deposited into escrow for a period of time not to exceed 18 months pending final resolution of certain post-closing adjustments and any indemnification claims. The Company's preliminary allocation of the purchase price includes the recognition of $3,488 of goodwill and $7,778 of other intangible assets consisting of non-compete agreements (5-year useful life), technology (19-year useful life), trade names (15-year useful life), and customer relationships (18-year useful life). The revenues and results of operations of RexCon were not significant in relation to the Company's consolidated financial statements for the period ended December 31, 2017 and would notSFG initiative several strategic decisions have been material on a proforma basismade to any earlier period. RexCon's operating resultsdivest of underperforming manufacturing sites or product lines, including to close certain subsidiaries, close and sell manufacturing sites and relocate the product lines manufactured at each of these sites to other Company locations; exit the oil, gas and water well product lines; and sell certain assets, which are included in "Restructuring, impairment and other asset charges, net" on the Company's Energy Group beginningConsolidated Statements of Operations.
The Company also has a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across the global organization underway, which will replace much of the existing disparate core financial systems. The upgraded ERP will initially convert internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable the Company to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and requires substantial time and attention of management and key employees.
In addition, in the first quarter of 2022, a lean manufacturing initiative at one of the Company's largest sites was initiated and is expected to drive improvement in gross margin at that site. This improvement is intended to serve as the optimal blueprint for the Company's other manufacturing facilities.
Costs incurred related to these strategic transformational initiatives were $25.5 million and $13.4 million in 2022 and 2021, respectively, and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Deferred implementation costs associated with the ERP implementation total $17.8 million, of which $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets as of December 31, 2022, respectively. Deferred implementation costs totaled $1.3 million and were included in "Other long-term assets" in the Consolidated Balance Sheets as of December 31, 2021. These deferred implementation costs will be amortized ratably over the remaining contract term once the ERP is ready for use.
In addition, the Company periodically sells or disposes of its assets in the normal course of its business operations as they are no longer needed or used and may incur gains or losses on these disposals. Certain of the costs associated with these decisions are separately identified as restructuring. The Company reports asset impairment charges and gains or losses on the sales of property and equipment collectively, with restructuring charges in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations to the extent they are experienced.
The restructuring, asset impairment charges and net gain on sale of property and equipment incurred in 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Restructuring related charges: | | | | | | |
| Costs associated with leadership change | | $ | 4.4 | | | $ | — | | | $ | — | |
| Costs associated with closing Enid | | 1.0 | | | 0.7 | | | 2.5 | |
| Costs associated with closing Tacoma | | 0.8 | | | 1.6 | | | 0.9 | |
| Costs associated with closing Mequon | | — | | | 0.6 | | | 3.3 | |
| Costs associated with closing Albuquerque | | — | | | — | | | 1.3 | |
| Costs associated with closing AMM | | — | | | — | | | 0.3 | |
| | | | | | |
| Workforce reductions at multiple sites | | — | | | — | | | 1.3 | |
| Other restructuring charges | | — | | | — | | | 0.3 | |
| Total restructuring related charges | | 6.2 | | | 2.9 | | | 9.9 | |
| | | | | | |
| Asset impairment charges: | | | | | | |
| Airplane impairment charges | | — | | | — | | | 2.3 | |
| Goodwill impairment charges | | — | | | — | | | 1.6 | |
| Other impairment charges | | 3.5 | | | 0.2 | | | 0.5 | |
| Total asset impairment charges | | 3.5 | | | 0.2 | | | 4.4 | |
| | | | | | |
| Gain on sale of property and equipment, net: | | | | | | |
| Gain on sale of property and equipment, net | | (0.7) | | | (0.6) | | | (6.2) | |
| Total gain on sale of property and equipment, net | | (0.7) | | | (0.6) | | | (6.2) | |
| | | | | | |
| Restructuring, impairment and other asset charges, net | | $ | 9.0 | | | $ | 2.5 | | | $ | 8.1 | |
Restructuring charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Infrastructure Solutions | | $ | 1.8 | | | $ | 2.4 | | | $ | 6.2 | |
| Materials Solutions | | — | | | 0.5 | | | 3.6 | |
| Corporate and Other | | 4.4 | | | — | | | 0.1 | |
| Total restructuring related charges | | $ | 6.2 | | | $ | 2.9 | | | $ | 9.9 | |
Impairment charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Infrastructure Solutions | | $ | 2.5 | | | $ | — | | | $ | 1.9 | |
| Materials Solutions | | — | | | 0.2 | | | (0.2) | |
| Corporate and Other | | 1.0 | | | — | | | 2.7 | |
| Total impairment charges | | $ | 3.5 | | | $ | 0.2 | | | $ | 4.4 | |
The net gain on sale of property and equipment by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Infrastructure Solutions | | $ | (0.7) | | | $ | (0.5) | | | $ | (1.5) | |
| Materials Solutions | | — | | | (0.1) | | | (4.7) | |
| | | | | | |
| Total gain on sale of property and equipment, net | | $ | (0.7) | | | $ | (0.6) | | | $ | (6.2) | |
Restructuring charges accrued, but not paid, were $4.7 million and $1.2 million as of December 31, 2022 and December 31, 2021, respectively.
In late 2019, the oil and gas drilling product lines produced at the Enid, Oklahoma location ("Enid") were impaired and discontinued. Additional restructuring costs of $1.0 million, $0.7 million and $2.5 million were incurred during 2022, 2021 and 2020, respectively. Enid's land and building assets totaling $5.1 million were included in "Assets held for sale" in the Consolidated Balance Sheets as of December 31, 2021. An impairment charge of $0.4 million was incurred during 2022 to record these assets at fair value less costs to sell. The property sold in the fourth quarter of 2017.2022 for approximately $4.7 million.
RexCon, located in Burlington, Wisconsin was founded in 2003 through an asset acquisition with the original company founded over 100 years ago. RexCon is a manufacturer of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. RexCon specializes in providing portable, high-production concrete equipment to contractors and producers worldwide in a totally integrated turnkey production system, including customized site layout and design engineering, batch plants, mixers, water heaters and chillers, ice production and delivery systems, material handling conveyors, gensets and power distribution, cement silos and screws, central dust collection, aggregate heating and cooling systems, batch automation controls and batch office trailers.
In August 2016,October 2020, the Company acquired substantially allclosed a transaction for the sale of theEnid's water well assets, which included equipment, inventories and certain liabilities of Power Flame Incorporated ("PFI") for a total purchase price of $39,765.intangible assets. The purchase price for this transaction was paidapproximately $6.9 million, net of purchase price adjustments completed in cashJanuary 2021 whereby the Company had an obligation to pay the buyer $1.1 million. This obligation was settled in the first quarter of 2021.
In June 2020, the Company announced the closing of the Mequon site in order to simplify and consolidate operations. The Mequon facility ceased production operations in August 2020, and the sale of the land and building for $8.5 million was completed in December 2020. The Company recorded a gain on the sale of $4.7 million, which was recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the fourth quarter of 2020. Charges primarily related to production facility transition activities of $0.6 million were incurred during 2021.
In January 2021, the Company announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. In conjunction with $4,000 depositedthis action, the Company recorded $0.8 million, $1.6 million and $0.9 million of restructuring related charges during 2022, 2021 and 2020, respectively, in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The Tacoma facility's land, building and certain equipment assets of $15.4 million, which are currently being actively marketed for sale, are recorded as held for sale in its Consolidated Balance Sheets at December 31, 2022.
During the second quarter of 2022, the Company determined that certain manufacturing equipment contracted to be constructed by a third-party vendor, which had been prepaid, would not be recovered. Impairment charges of $2.1 million were recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the three months ended June 30, 2022. An additional $0.9 million of impairment charges were incurred related to abandoned in-process internally developed software that was determined to be impaired during the second quarter of 2022.
Effective as of January 6, 2023, Mr. Barry A. Ruffalo's employment as President and Chief Executive Officer was terminated. In connection with his separation, the Company entered into escrowan agreement with Mr. Ruffalo (the "Separation Agreement") pursuant to which, Mr. Ruffalo is entitled to certain severance payments and benefits. For the year ended December 31, 2022, there were $4.4 million of restructuring costs incurred related to Mr. Ruffalo's separation in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The Separation Agreement also includes a release and waiver by Mr. Ruffalo and other customary provisions. Additional costs are anticipated to be incurred in the first quarter of 2023 for this separation related to the modification of Mr. Ruffalo's equity awards as well as third-party transition support costs.
Management continually reviews the Company's organizational structure and operations to ensure they are optimized and aligned with achieving near-term and long-term operational and profitability targets. In connection with this review, in February 2023, the Company implemented a period of time notlimited restructuring plan to exceed two years pending final resolutionright-size and reduce the fixed cost structure of certain post-closing adjustmentsoverhead departments. Charges of $3.0 million to $4.0 million for employee termination costs, excluding equity award modifications, are anticipated to be incurred primarily in the first quarter of 2023.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and any indemnification claims.Procedures
Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, the Company's disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act). The Company's allocationinternal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the purchase price resulted in the recognitionpreparation of $12,632 of goodwill and $17,990 of other intangible assets consisting of technology (19 year useful life), trade names (15 year useful life) and customer relationships (18 year useful life). The revenues and results of operations of PFI were not significant in relation to the Company's consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 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.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management carried out an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013) ("COSO"). Based on that evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is set forth in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three month period ended December 31, 20162022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Board of Directors has approved a Code of Conduct and would not have been materialEthics that applies to our employees, directors and officers (including our principal executive officer, principal financial officer and principal accounting officer). The Code of Conduct and Ethics is available on our website at www.astecindustries.com/investors/. We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a proforma basisprovision of this Code of Conduct and Ethics by posting such information on our website at the address specified above.
The remaining information required by this Item 10 will be included in our 2023 Definitive Proxy Statement for our Annual Meeting of Shareholders (the "Proxy Statement") and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to any earlier period. PFI's operating results arebe disclosed by this Item 11 will be included in the Energy Group beginningProxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required to be disclosed by this Item 12 will be included in the third quarterProxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be disclosed by this Item 13 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Atlanta, Georgia, Auditor Firm ID: 185
The information required to be disclosed by this Item 14 will be included in the Proxy Statement and is incorporated herein by reference.
PFI, located in Parsons, Kansas, began operations in 1948 and manufactures and sells gas, oil and combination gas/oil and low NOx burners with outputs ranging from 400 thousand BTU's per hour to 120 million BTU's per hour as well as combustion control systems designed for commercial, industrial and process heating applications.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following financial statements and the other information listed below appear in Part II, Item 8. Financial Statements and Supplementary Data to this Report and are filed as a part hereof:
•Reports of 5 Year Cumulative Total ReturnIndependent Registered Public Accounting Firm
Assumes Initial Investment•Consolidated Balance Sheets as of $100 Performance GraphDecember 31, 2022 and 2021
•Consolidated Statements of Operations for Astec Industries, Inc.the Years Ended December 31, 2022, 2021 and 2020
•Consolidated Statements of Comprehensive (Loss) Income for the Years Ended December 31, 2022, 2021 and 2020
•Consolidated Statements of Equity for the Years Ended December 31, 2022, 2021 and 2020
•Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Consolidated Financial Statements or Notes thereto.
(b) The following Exhibits are incorporated by reference into or are filed with this Report:
Notes: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
A. Data complete through last fiscal year. | | | | | | Incorporated by Reference |
B. Corporate Performance Graph with peer group uses peer group only performance (excludes only company).Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ended | | Filing Date |
| 3.1 | | D. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved Copyright 1980-2018.
| | | | 10-Q | | 9/30/2011 | | 11/9/2011 |
E. Calculated (or Derived) based from CRSP NYSE/AMEX/NASDAQ Market (US Companies), Center for Research in Security Prices (CRSP®), Graduate School3.2 | | | | | | 8-K | | 12/21/2022 | | 12/27/2022 |
F. The graph assumes $100 invested at the closing price4.1 | | | | X | | | | | | |
| 10.1 | | | | | | 8-K | | 12/19/2022 | | 12/20/2022 |
| | | | | | | | | | |
| 10.2 | | | | | | DEF 14A | | | | 3/4/2011 |
| 10.3 | | | | | | DEF 14A | | | | 3/18/2021 |
| 10.4 | | | | X | | | | | | |
| 10.5 | | |
2021*
ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX OF EXHIBITS FILED HEREWITH
Exhibit
Number | | Description | | 10-Q | | 3/31/2022 | | 5/5/2022 |
| 10.6 | | | | | | 10-Q | | 3/31/2022 | | 5/5/2022 |
Exhibit 2110.7 | | | | | | 10-K | | 12/31/1995 | | 3/15/1996 |
| 10.8 | | | | | | 10-K | | 12/31/2008 | | 2/27/2009 |
| 10.9 | | | | | | 10-K | | 12/31/2016 | | 3/1/2017 |
| 10.10 | | | | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 10.11 | | | | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 10.12 | | | | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 21 | | | | X | | | | | | |
| 23 | | |
Exhibit 23 | | | | X | | | | | | |
| 31.1 | | |
Exhibit 31.1 | | | | X | | | | | | |
| 31.2 | | |
Exhibit 31.2 | | | | X | | | | | | |
| 32.1 | | |
Exhibit 32 | | | | X | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 32.2 | | | | X | | | | | | |
101.INS101 | | XBRL Instance DocumentThe following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes, tagged as blocks of text and including detailed tags. | | X | | | | | | |
101.SCH104 | | XBRL Taxonomy Extension SchemaCover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL (included as Exhibit 101). | | X | | | | | | |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF*Management contract or compensatory plan or arrangement | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase | | |
ITEM 16. FORM 10-K SUMMARY
None.
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.
Date: March 1, 2023
| | | | | | | | |
| ASTEC INDUSTRIES, INC. (Registrant) | |
| | |
| By: /s/ Benjamin G. Brock
Jaco van der Merwe | |
| Benjamin G. Brock,Jaco van der Merwe, President and Chief Executive
Officer and Director | |
| | | |
Date: March 1, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE | TITLE | DATE | | | | | | | | | | | | |
| SIGNATURE | | TITLE | | DATE |
| | | | |
/s/ Benjamin G. Brock
Benjamin G. BrockJaco van der Merwe | | President and Chief Executive Officer and President (PrincipalDirector | | March 1, 2023 |
| Jaco van der Merwe | | (Principal Executive Officer) and Director | March 1, 2018 | |
| | | | |
/s/ David C. Silvious
David C. Silvious Rebecca A. Weyenberg | | Chief Financial Officer | | March 1, 2023 |
| Rebecca A. Weyenberg | | (Principal Financial Officer) | | |
| | | | |
| /s/ Jamie E. Palm | | Vice President, Chief Accounting Officer and Treasurer (Principal Financial andCorporate Controller | | March 1, 2023 |
| Jamie E. Palm | | (Principal Accounting Officer) | March 1, 2018 | |
| | | | |
/s/ W. Norman Smith
W. Norman Smith
| Director | March 1, 2018 |
| | |
/s/ William B. Sansom William B. Sansom
D. Gehl | | Director and Chairman of the Board | | March 1, 2018 2023 |
| William D. Gehl | | | | |
| | | | |
| /s/ James B. Baker | | Director | | March 1, 2023 |
| James B. Baker | | | | |
| | | | |
| /s/ Tracey H. Cook | | Director | | March 1, 2023 |
| Tracey H. Cook | | | | |
| | | | |
| /s/ William G. Dorey | | Director | | March 1, 2023 |
| William G. Dorey | | | | |
| | | | |
| /s/ Mark Gliebe | | Director | | March 1, 2023 |
| Mark Gliebe | | | | |
| | | | |
| /s/ Mary L. Howell | | Director | | March 1, 2023 |
| Mary L. Howell | | | | |
| | | | |
| /s/ Nalin Jain | | Director | | March 1, 2023 |
| Nalin Jain | | | | |
| | | | |
| /s/ Linda I. Knoll | | Director | | March 1, 2023 |
| Linda I. Knoll | | | | |
| | | | |
| /s/ Charles F. Potts | | Director | | March 1, 2023 |
| Charles F. Potts | Director | | | |
| | | | |
| /s/ William Bradley Southern | | Director | | March 1, 2018 2023 |
| William Bradley Southern | | | | |
| | | | |
| /s/ Glen E. Tellock | | Director | | March 1, 2023 |
| Glen E. Tellock | Director | March 1, 2018 |
| | |
/s/ William D. Gehl
William D. Gehl
| Director | March 1, 2018 |
| |
/s/ Daniel K. Frierson
Daniel K. Frierson
| Director | March 1, 2018 |
| |
/s/ William G. Dorey
William G. Dorey
| Director | March 1, 2018 |
| | |
/s/ James B. Baker
James B. Baker
| Director | March 1, 2018 |
