The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products, but generally range from three months to 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 product warranty liability is primarily based on historical claim rates, nature of claims and the associated cost.
The Company records reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. Total accrued loss reserves were $8,361 as of September 30, 2017$6.2 million and $7,892 as of$5.8 million at March 31, 2023 and December 31, 2016,2022, respectively, of which $5,635 and $5,040$3.9 million were included in other"Other long-term liabilitiesliabilities" in the accompanying unaudited condensed consolidated balance sheets as of September 30, 2017Consolidated Balance Sheets at both March 31, 2023 and December 31, 2016, respectively.2022.
The accounting policies of the reportable segments are the same as those described in the summaryNote 1, 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.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The financial condition, results of operations and cash flows discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc. and its consolidated subsidiaries, collectively, the "Company," "Astec," "we," "our" or "us." The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. The financial position, results of operations, cash flows and other information included herein are not necessarily indicative of the financial position, results of operations and cash flows that may be expected in future periods.
Forward-Looking Statements
This Quarterly Report on Form 10-Q, particularly the following discussion and analysis of our results of operations, financial condition and liquidity in this "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 Quarterly Report on Form 10-Q 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," or use of the Securities Exchange Act of 1934 and are sometimes identified by the words "will," "would," "should," "could," "may," "believes," "anticipates," "intends," "forecasts" and "expects"future tense and similar expressions. Such forward-looking statements include, without limitation, statements regarding the Company's expected sales and results of operations during 2017, the Company's expected capital expenditures in 2017, the expected benefit and impact of financing arrangements, the ability of the Company to meet its working capital and capital expenditure requirements through November 2018, the amount and impact of any currentwords or future state or federal funding for transportation construction programs, the need for road improvements, the amount and impact of other public sector spending and funding mechanisms, changes in the economic environment as it affects the Company, the market confidence of customers and dealers, the Company being called upon to fulfill certain contingencies, the expected dates of granting of restricted stock units, changes in interest rates and the impact of such changes on the financial results of the Company, changes in the prices of steel and oil and the impact of such changes generally and on the demand for the Company's products, customer's buying decisions, the Company's business, the ability of the Company to offset future changes in prices in raw materials, the change in the strength of the dollar and the level of the Company's presence and sales in international markets, the impact that further development of domestic oil and natural gas production capabilities would have on the domestic economy and the Company's business, the seasonality of the Company's business, the Company's investments, the percentage of the Company's equipment sold directly to end users, the amount or value of unrecognized tax benefits, the impact of IRS tax regulations, payment of dividends by the Company, and the ultimate outcome of the Company's current claims and legal proceedings.phrases.
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 discusseddescribed under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, including Part I, Item 1A. Risk Factors of the Company's Annual Report on Form 10-K for the year ended December 31, 2022, 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 Companyus on the date hereof, and the Company assumeswe assume no obligation to update any such forward-looking statements to reflect future events or circumstances.circumstances, except as required by law.
The risks and uncertainties identified herein under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended December 31, 2016, should be carefully considered when evaluating the Company's business and future prospects.
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, water, 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 20 companies that are consolidated in our financial statements, which includes 16 manufacturing companies, two companies that operate as dealers for the manufacturing companies, a captive insurance company and the parent company. The forgoing does not give effect to RexCon, Inc., which was added effective October 1, 2017 as described below. 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 whichWe design, engineer, manufacture and market a complete line of asphalt plants, asphalt pavers, wood pellet plantsequipment and components used primarily in road building and related componentsconstruction activities, as well as certain other products. Our products are used in each phase of road building, from quarrying and ancillary equipment. The two remaining companies incrushing the Infrastructure Group primarily sell, service and install equipment produced by the manufacturing subsidiariesaggregate to application of the Company, with the majority of sales to the infrastructure industry.
Aggregateroad surface for both asphalt and Mining Group- This segment consists of eight business units that design,concrete. We also manufacture and market heavycertain equipment and parts incomponents unrelated to road construction, including equipment for the aggregate, metallic mining, quarrying, recycling, portsconstruction and bulk handling industries.
Energy Group- This segment consists of five business units that design, manufacturedemolition industries and market heaters, gas, oilport and combination gas/oil burners, combustion control systems, drilling rigs, concrete plants, wood chippers and grinders, pump trailers,rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; commercial and industrial burners,burners; and combustion control systems, storagesystems.
Our products are marketed both domestically and internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and relatedgravel producers; construction, demolition, recycle and crushing 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.
See Note 10, Segment Information, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of our reportable segments.
Executive Summary
Highlights of our financial results for the three months ended March 31, 2023 as compared to the oilsame period of the prior year include the following:
•Net sales were $347.9 million, an increase of 19.5%
•Gross profit was $89.2 million, an increase of 37.9%
•Income from operations increased $13.6 million to $17.6 million
•Net income attributable to Astec increased 195.1% to $12.1 million
•Diluted earnings per share were $0.53, an increase of 194.4%
•Backlog of $800.2 million, a decrease of 4.1% as compared to March 31, 2022
Significant Items Impacting Operations in 2023
Strategic Transformation – We are undergoing a multi-year phased implementation of a standardized 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 gas, construction,customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and water well industries. The forgoing does not give effectintegrated technology solutions that enable us to RexCon, Inc.,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. We materially completed the ERP global design in 2022, launched the human capital resources module in our locations in the United States 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 capital investments during 2023, which was added effective October 1, 2017are anticipated to be completed by the end of the year. Gross margin improvements are expected to be realized in conjunction with the project completion in early to mid-2024. This improvement is intended to serve as described below.the optimal blueprint for our other manufacturing facilities.
Individual Company subsidiariesWe incurred $7.2 million of non-capitalizable costs directly associated with these strategic transformation initiatives during the three months ended March 31, 2023. These costs are included in "Selling, general and administrative expenses" in the compositionConsolidated Statements of Operations. Additionally, at March 31, 2023, we have capitalized $23.1 million in deferred implementation costs associated with the ERP implementation that will be amortized ratably over the remaining contract term once the ERP is ready for use, of which $2.3 million and $20.8 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets, respectively.
Tacoma Site Closure– In January 2021, we 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 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. and Power Flame Incorporated (beginning in August 2016). 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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manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. The Company also has one other category, Corporate, that contains the business units that do not meet the requirementsTacoma facility's land, building and certain equipment assets of $15.4 million were included in "Assets held for separate disclosure as a separate operating segment or inclusion in one of the other reporting segments. The business unitssale" in the Corporate categoryConsolidated Balance Sheets at December 31, 2022. The sale of these assets was completed in the first quarter of 2023 for $19.9 million. We recorded a $3.4 million gain for the sale of these assets in "Restructuring and other asset charges, net" in the Consolidated Statements of Operations.
Leadership Change and Overhead Restructuring– 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 Mr. Ruffalo's separation agreement, we recorded $1.8 million of restructuring costs related to the modification of Mr. Ruffalo's equity awards as well as third-party transition support costs in "Restructuring and other asset charges, net" in the Consolidated Statements of Operations. The related recovery of $1.6 million of incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Management continually reviews our organizational structure and operations to ensure they are Astec Insurance Company ("Astec Insurance" or "the captive")optimized and Astec Industries, Inc.,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 parent company. These two companies provide supportfixed cost structure of certain overhead departments. Charges of $5.3 million for employee termination costs, including equity award modifications, were incurred in the first quarter of 2023 in "Restructuring and corporate oversight for allother asset charges, net" in the companies that fall withinConsolidated Statements of Operations. The related recovery of $0.8
million of incurred share-based compensation expense was recorded in "Selling, general and administrative expenses" in the reportable operating segments.Consolidated Statements of Operations.
The Company'sIndustry and Business Condition
Our 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.
Backlog represents the dollar value of orders for equipment and parts which are expected to be recognized in net sales in the future. Orders are contractually binding purchase commitments from customers, which are included in backlog when we are in receipt of an executed contract and any required deposits or security and have not yet been recognized into net sales. Certain orders for which we have received binding letters of intent or contracts will not be included in backlog until all required contractual documents and deposits are received. Backlog is not a measure defined by U.S. GAAP, and our methodology for determining backlog may vary from the methodology used by other companies in determining their backlog amounts. In addition, our backlog should not necessarily be viewed as an accurate indicator of revenue for any particular period.
Backlog levels provide management and investors additional details surrounding the expectation of committed orders that are expected to convert to future net sales. Management uses backlog information for capacity and resource planning as well as to monitor inventory levels in our facilities relative to expected future net sales.
Our $800.2 million backlog of orders at March 31, 2023 continues to remain strong. The Company believesbacklog of orders decreased $34.5 million, or 4.1%, compared to $834.7 million as of March 31, 2022 and decreased 12.3% from $912.7 million at December 31, 2022. The decrease in backlog was driven by strong first quarter 2023 sales volumes outpacing new orders compared to a build of backlog throughout 2022 largely due to strong customer demand and logistics and manufacturing throughput disruptions. We expect backlog levels to normalize from the historically high levels we have experienced in recent years based on macroeconomic factors such as high inflation and rising interest rates influencing customer spending. Additionally, we are focused on prudent expansion of our production capacity that federal highway funding influenceswe anticipate will allow us to more effectively convert backlog to sales in the purchasing decisions of the Company's customers, who are typically more comfortable making capital equipment purchases with long-term federal legislation in place. future.
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, theplace. The U.S. government approved short-term funding of $10.8enacted the Infrastructure Investment and Jobs Act ("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. In late 2016, the newly-elected administration stated one of its priorities would be 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 and June 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 priceprices stabilized at relatively high levels during the fourth quarter of 2022 and have continued to remain consistent through the first quarter of 2023. Price volatility makescontinues to make 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 2016have routinely fluctuated in recent years and have continuedare expected to continue to fluctuate duringin the first nine months 2017 due primarily to weather related impacts. Minor fluctuations infuture. Based on the current macroeconomic environment we anticipate that 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 2017 and 2018.will remain at relatively high levels throughout 2023.
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 inof our equipment. Driven by supply constraints, steel prices increased throughout the Company's equipment. Steel prices stabilized inprior year, stabilizing at historically high levels at the thirdend of 2022, which we expect to carry through into the second quarter of 2017 after increasing2023. During 2022, we observed a slowing in market demand and reduced lead times as buyers were responding to recessionary pressures and restricted their purchases to near-term needs. However, lead times have increased during the first half of 2017. The Company expects seasonal declines during the fourth quarter of 20172023 and moderate increaseswe anticipate that steel demand will remain relatively strong during 2023, driven by the first half of 2018. The Company continuesIIJA domestically and impacted by international production capacity restrictions. 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 duringcosts 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 continue to experience challenges related to vendor capacity, albeit at a decreasing number of suppliers.
As a result, we have 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 fourth quarter of 2017 into early 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, while we have continued to the factors stated above, manyexperience shortages of the Company's markets are highly competitive, and its products compete worldwide with 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 conditionsnecessary production personnel in certain foreign economies, hadmarkets we have seen a positive impact onslight easing in the Company's international sales. From mid-2012 through September 30, 2017, the strong U.S. dollar has negatively impacted pricing in certain foreign markets the Company serves. While the exchange rates with many of the countries in which the Company operates have improved somewhattight labor market. However, higher turnover during the first ninepandemic periods of 2020 through 2022 have contributed to lower tenured production staff. Higher labor costs to attract staff in our manufacturing operations are normalizing at elevated levels. 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 prices of our products. Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months of 2017,with the Company expects the U.S. dollar to remain strong as compared to historical ratesgrowth we have experienced in the near term relativebacklog. For this reason, we have limitations on our ability to most foreign currencies. Increasing domestic interest rates or weakening economic conditions abroad could cause the U.S. dollarpass on cost increases 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 toour customers as well as through dealers. During 2016, approximately 75% to 80% of equipment sold by the Company was sold directly to the end user. The Company expects this ratio to be between 65% and 70% for 2017.
The Company is operated on a decentralized basis with a complete management team for each operating subsidiary. Finance, insurance, legal, shareholder relations, corporate accountingshort-term basis. In addition, the markets we serve are competitive in nature, and other corporate matters are primarily handled atcompetition limits our ability to pass through cost increases in many cases. Through our operational excellence initiatives, we also strive to minimize the corporate level (i.e., Astec Industries, Inc., the parent company). The engineering, design, sales,effect of inflation through cost reductions and improved manufacturing and basic accounting functions are handled at each individual subsidiary. Standard accounting procedures are prescribed and followed in all reporting.efficiencies.
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% of their base salary, depending upon their responsibilities, and the plans allow for awards of up to 200% of the target. Each subsidiary has the opportunity to earn up to 10% of its after-tax profit as a profit sharing incentive award to be paid to its employees.
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
Net Sales
Net sales for the thirdfirst quarter of 20172023 were $252,054$347.9 million compared to $247,752$291.2 million for the thirdfirst quarter of 2016,2022, an increase of $4,302$56.7 million or 1.7%19.5%. Sales are generatedThe increase in net sales was primarily from new equipment and parts sales to domestic and international customers. Sales increaseddriven by changes in the Aggregatevolume, pricing and Mining Groupmix of sales that generated increases in (i) equipment sales of $43.4 million, (ii) service and the Energy Group butequipment installation revenue of $10.0 million, (iii) parts and component sales of $4.4 million and (iv) freight revenue of $1.1 million. These increases were partially offset by a decrease in other revenue of $1.5 million, primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers and decreased used equipment sales of $0.7 million. Included in the Infrastructure Group. During the third quarterthese net increases is $3.9 million of 2017, the Company identified significant design issues at its customers' Georgia and Arkansas wood pellet plants. As the Company is financing the Georgia plant, no revenues have been recorded to date related to this order; however, the Company has been recording revenue on the Arkansas plant order under the percent of completion method. Due to the identification of the design issues in the third quarter of 2017, the Company increased its estimate of the remaining costs to complete the Arkansas pellet plant order which resulted in negative $13,405 pellet plant revenue for the third quarter of 2017. Pellet plant revenue for the third quarter of 2016 was $19,139. Domesticincremental net sales and backlogs not related to pellet plants continue to be positively impacted by effects of the long-term federal highway bill enacted in December 2015 and other state and local funding mechanisms. International sales are showing improvement due to increased order activity resulting from pent up demand, 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 coupled with the Company's strategy of keeping its sales and service structure in place during the recent downturn.an acquired business. Sales reported by the Company'sour foreign subsidiaries in U.S. dollars for the thirdfirst quarter of 20172023 would have been $1,106 lower$3.3 million higher had 2017 foreign exchange rates been the same as third quarter 20162022 rates.
Net sales for the nine months ending September 30, 2017 were $872,364 compared to $820,868 for the same period in 2016, an increase of $51,496 or 6.3%. Sales are generated primarily from new equipment and parts sales to domestic and international customers. Sales increased in the Aggregate and Mining Group and the Energy Group but decreased in the Infrastructure Group. Pellet plant sales were $2,370 and $64,589 for the nine months ended September 30, 2017 and 2016, respectively. Domestic sales not related to pellet plants continue to be positively impacted by effects of the long-term federal highway bill enacted in December 2015 and other state and local funding mechanisms. International sales improved due to increased order activity resulting from pent up demand, 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 coupled with the Company's strategy of keeping its sales and service structure in place during the recent downturn. Sales reported by the Company's foreign subsidiaries in U.S. dollars for the nine months ending September 30, 2017 would have been $1,412 lower had 2017 foreign exchange rates been the same as rates for the nine months ending September 30, 2016.
Domestic sales for the thirdfirst quarter of 20172023 were $196,478$281.3 million, or 78.0%80.9% of consolidated net sales, compared to $199,851$234.5 million, or 80.7%80.5% of consolidated net sales, for the thirdfirst quarter of 2016, a decrease2022, an increase of $3,373$46.8 million, or 1.7%20.0%. Domestic sales for the third quarter of 2017 as compared to the third quarter of 2016 decreased by $14,077 in the Infrastructure Group (primarilyincreased primarily due to the $32,544 decline(i) $35.1 million higher equipment sales, (ii) $9.8 million higher service and equipment installation revenue, (iii) $3.5 million higher parts and component sales and (iv) $0.8 million higher freight revenue. These increases were partially offset by decreased other revenue of $1.6 million, primarily driven by higher utilization of our interest subsidy programs offered to certain of our dealer customers and decreased used equipment sales of $0.8 million. Included in pellet plantthese increases is $1.5 million of incremental net sales between periods discussed above) and $175 in the Energy Group but increased $10,879 in the Aggregate and Mining Group.from an acquired business.
Domestic
International sales for the nine months ending September 30, 2017first quarter of 2023 were $686,883$66.6 million, or 78.7%19.1% of consolidated net sales, compared to $676,310$56.7 million, or 82.4%19.5% of consolidated net sales, for the same period in 2016,first quarter of 2022, an increase of $10,573$9.9 million, or 1.6%. Domestic sales for the first nine months of 2017 as compared to the same period in 2016 increased $26,631 in the Energy Group (including increased sales of $14,640 attributable to Power Flame, which was acquired on August 1, 2016) and $16,859 in the Aggregate and Mining Group but decreased $32,917 due to the $62,219 decline in pellet plant sales in the Infrastructure Group.
International sales for the third quarter of 2017 were $55,576 or 22.0% of consolidated net sales compared to $47,901 or 19.3% of consolidated net sales for the third quarter of 2016, an increase of $7,675 or 16.0%17.5%. International sales for the third quarter of 2017 as compared to the third quarter of 2016 increased $3,526 in the Infrastructure Group, $2,776 in the Aggregate and Mining Group and $1,373 in the Energy Group. The increases in international sales occurred primarily in Canada, Brazil, the Middle East and Asia and were partially offset by decreases in sales in Mexico, Central America, Europe and the West Indies. The majority of the increase in sales was due to increased(i) $8.3 million higher new equipment sales, in the Company's mobile asphalt equipment coupled with significant growth in aggregate(ii) $0.9 million higher parts and mining equipment and industrial heater sales. These increased sales were achieved in spite of the continuing strength of the U.S. dollar as compared to the currencies in many of the countries in which the Company operates, low oil and gas pricing and the continuing sluggishness in the mining sector. The increased sales volumes may indicate a softening of the impact of these issues on the Company's sales; however, the issues continue to be a significant headwind to the Company regaining historical levels of international sales. The Company is continuing its strategy of keeping itscomponents sales and service structure(iii) $0.3 million higher freight revenue. Included in place during the downturn in international business.
International sales for the nine months ending September 30, 2017 were $185,481 or 21.3%these increases is $2.4 million of consolidatedincremental net sales compared to $144,558 or 17.6% of consolidated net sales for the nine months ending September 30, 2016,from an increase of $40,923 or 28.3%. International sales for the first nine months of 2017 as compared to the same period in 2016 increased $25,125 in the Infrastructure Group, $12,953 in the Aggregate and Mining Group and $2,845 in the Energy Group. The increases in international sales occurred primarily in Canada, Russia, Australia, Brazil and Asia, offset by decreases in sales in South America, Japan/Korea and Central America. The majority of the increase in sales was due to increased sales in the Company's mobile asphalt equipment and asphalt plant related products coupled with significant growth in aggregate and mining equipment sales. These increased sales were achieved in spite of the continuing strength of the U.S. dollar as compared to the currencies in many of the countries in which the Company operates, low oil and gas pricing and the continuing sluggishness in the mining sector. The increased sales volumes may indicate a softening of the impact of these issues on the Company's sales; however, the issues continue to be a significant headwind to the Company regaining historical levels of international sales. The Company is continuing its strategy of keeping its sales and service structure in place during the downturn in internationalacquired business.
Parts sales for the third quarter of 2017 were $64,299 compared to $63,082 for the third quarter of 2016, an increase of $1,217 or 1.9%. Parts sales as a percentage of net sales remained flat at 25.5% between periods. Parts sales increased $1,906 in the Aggregate and Mining but decreased $559 in the Energy Group and $130 in the Infrastructure Group.
Parts sales for the nine months ending September 30, 2017 were $214,083 compared to $200,974 for the same period of 2016, an increase of $13,109 or 6.5%. Parts sales as a percentage of net sales remained flat at 24.5% between periods. Parts sales increased $4,729 in the Infrastructure Group, $5,333 in the Aggregate and Mining Group and $3,047 in the Energy Group.
Gross Profit
Consolidated gross profit decreased $16,305 or 29.4% to $39,084 for the third quarter of 2017 compared to $55,389 for the third quarter of 2016. Gross profit as a percentage of sales decreased 690 basis points to 15.5% for the third quarter of 2017 compared to 22.4% for the third quarter of 2016. During the third quarter of 2017, the Company identified significant design issues at its customers' Georgia and Arkansas wood pellet plants. Due to the identification of the design issues in the third quarter of 2017, the Company increased its estimate of the remaining costs to complete both plants which resulted in negative $22,738 gross margin on the two orders for the third quarter of 2017. Gross margin recorded in the third quarter of 2016 on pellet plant sales was $7,152. Non-pellet plant related gross margins improved in each segment due to increased sales, changes in product mix and improved overhead absorption driven by increased manufacturing hours being absorbed.
Consolidated gross profit decreased $20,418 or 10.2% to $180,379 for the nine months ending September 30, 2017 compared to $200,797 for the nine months ending September 30, 2016. Gross profit as a percentage of sales decreased 380 basis points to 20.7% for nine months ended September 30, 2017 compared to 24.5% for the nine months ended September 30, 2016. Due to the issues discussed above and cost overruns on the construction portion of the Arkansas order during the second quarter of 2017, gross margin on pellet plant orders for the first nine monthsquarter of 2017 were negative $27,0982023 was $89.2 million, or 25.6% of net sales, as compared to gross margin of $22,826 for the first nine months of 2016. The Company expects the gross margins to be recognized in the future on the two pellet plant orders will not be material. Non-pellet plant related gross margins improved in each segment due to increased sales, changes in product mix and improved overhead absorption driven by increased manufacturing hours being absorbed.
Selling, General, Administrative and Engineering Expenses
Selling, general, administrative and engineering expenses increased $1,544 to $45,494$64.7 million, or 18.0%22.2% of net sales, for the thirdfirst quarter of 2017,2022, an increase of $24.5 million or 37.9%. The increase was primarily driven by the impact of net favorable volume, pricing and mix that generated $39.3 million higher gross profit and $2.3 million of gross profit generated by an acquired business. These increases were partially offset by the impact of inflation on materials, labor and overhead of $13.8 million and manufacturing inefficiencies due in part to the effects of lower tenured production staff associated with the turnover experienced in the prior year of $3.5 million. Manufacturing inefficiencies are inclusive of the impact of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the first quarter of 2023 were $67.9 million, or 19.5% of net sales, compared to $43,950$59.7 million or 17.7%20.5% of net sales, for the thirdfirst quarter of 20162022, an increase of $8.2 million, or 13.7%, primarily due to (i) $2.9 million of higher exhibit and promotional costs primarily due to the ConExpo industry trade show held once every three years, (ii) increased engineering expensesnet payroll and employee benefit costs of $1,322 (primarily research and development and outside services) and$2.3 million, comprised of increased sales promotion expenseheadcount throughout our organization, increased health insurance claims experience of $1,715,$1.5 million, increased deferred compensation program costs associated with our stock price changes of $0.8 million, partially offset by a reductionlower share-based compensation expense of $2.9 million related to the
recovery of share-based compensation expense for awards that were forfeited or modified in profit sharingconjunction with the termination of our previous CEO and the limited overhead restructuring action implemented in February 2023, (iii) $1.9 million increased costs related to our strategic transformation program and (iv) incremental expenses associated with the acquisition of $1,597.MINDS that was completed in April 2022 of $1.1 million. These increases were partially offset by lower amortization expense of $1.0 million and reduced acquisition costs of $0.6 million primarily associated with the acquisition of MINDS.
Selling, general, administrative
Restructuring and engineering expenses increased $10,120 to $142,836 or 16.4%Other Asset Charges, Net
Restructuring and the net gain on sale of net salesproperty and equipment for the nine months ending September 30, 2017, comparedthree month periods ended March 31, 2023 and 2022 are presented below:
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| Three Months Ended March 31, | | |
(in millions) | 2023 | | 2022 | | | | |
Restructuring charges: | | | | | | | |
Costs associated with leadership change and overhead restructuring | $ | 7.0 | | | $ | — | | | | | |
Costs associated with exited operations - Enid | 0.1 | | | 0.2 | | | | | |
Costs associated with closing Tacoma | — | | | 0.8 | | | | | |
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Total restructuring related charges | 7.1 | | | 1.0 | | | | | |
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Gain on sale of property and equipment, net: | | | | | | | |
Gain on sale of property and equipment, net | (3.4) | | | — | | | | | |
Total gain on sale of property and equipment, net | (3.4) | | | — | | | | | |
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Restructuring and other asset charges, net | $ | 3.7 | | | $ | 1.0 | | | | | |
See Note 11, Strategic Transformation and Restructuring and Other Asset Charges of the Notes to $132,716 or 16.2%Unaudited Consolidated Financial Statements included in Part I, Item 1 of net salesthis Quarterly Report on Form 10-Q for same period in 2016. The overall increase was primarily due to increases in ConExpo exhibit costs ($4,578), costs incurred by Power Flame which was acquired on August 1, 2016 ($3,578), sales promotion expense ($2,719) and research and development costs ($1,792), offset by reductions in SERP expense ($1,965) and profit sharing expenses ($917).discussion of the individual restructuring actions taken.
Interest Expense
Interest expense for the thirdfirst quarter of 2017 decreased $762023 increased $1.6 million to $188$2.0 million from $264$0.4 million in the first quarter of 2022, primarily related to outstanding borrowings on our revolving credit facility in the first quarter of 2023. No borrowings were outstanding on our prior revolving credit facility during the first quarter of 2022.
Other Income, Net
Other income was $0.4 million for the thirdfirst quarter of 2016,2023 compared to $1.2 million in the first quarter of 2022, primarily duerelated to a reductionhigher net foreign currency transaction gains in bank debt at Astec Brazil.2022 that did not recur in 2023.
Interest
Income Tax
Our income tax expense for the nine months ended September 30, 2017 decreased $419first quarter of 2023 was $4.4 million compared to $638 from $1,057$0.9 million for the first nine months of 2016, due primarily to reduced interest on tax return audits and a reduction in bank debt at Astec Brazil.
Other Income, Net of Expenses
Other income, net of expenses was $1,113 for the third quarter of 2017 compared to $505 for the third quarter of 2016, an increase of $608. The increase was primarily due to interest income received on pellet plant related sales.
Other income, net of expenses was $1,886 for the nine months ended September 30, 2017 compared to $1,324 for the nine months ended September 30, 2016, an increase of $562. The increase was primarily due to interest income received on pellet plant related sales.
Income Tax Expense
The Company's combined2022. Our effective income tax rate was 50.7%26.7% for the thirdfirst quarter of 20172023 compared to 41.5%18.0% for the thirdfirst quarter of 2016.2022. The unusually highincome tax rateexpense for the third quarter of 2017 is2023 was higher compared to 2022, primarily due to the high percentage (as comparedhigher pretax book income and valuation allowance increases related to the pretax loss for the third quarter of 2017) impact of the Company's federala domestic production activities deductions,subsidiary partially offset by a net discrete tax benefit related to a research and development tax credits and a favorable U.S. federal return to book adjustment on the Company's 2016 return.credit.
The Company's combined effective income tax rate was 31.1% for the nine months ended September 30, 2017 compared to 37.6% nine months ended September 30, 2016. The tax rate decline between periods is due to impacts of federal domestic production activities deductions, favorable state tax apportionment legislation, increased research and development tax credits and a favorable U.S. federal return to book adjustment on the Company's 2016 return.
Net Income
The Company had a net loss attributable to controlling interest of $2,667 for the third quarter of 2017 compared to net income attributable to controlling interest of $6,838 for the third quarter of 2016, a decrease in earnings of $9,505 or 139.0%. Net income (loss) attributable to controlling interest per diluted share was a loss of $0.12 for the third quarter of 2017 compared to income of $0.30 for the third quarter of 2016, a decrease of $0.42. Diluted shares outstanding for the quarters ended September 30, 2017 and 2016 were 23,029 and 23,145, respectively.
The Company had net income attributable to controlling interest of $26,873 for the nine months ending September 30, 2017 compared to $42,773 for nine months ending September 30, 2016, a decrease of $15,900 or 37.2%. Net income attributable to controlling interest per diluted share was $1.16 for the nine months ending September 30, 2017 compared to $1.85 for the same period in 2016, a decrease of $0.69. Diluted shares outstanding for the nine months ended September 30, 2017 and 2016 were 23,180 and 23,138, respectively.
Dividends
In February 2013, the Company's Board of Directors approved a dividend policy pursuant to which the Company began paying a quarterly $0.10 per share dividend on its common stock beginning in the second quarter of 2013. The actual amount of future quarterly dividends, if any, will be based upon the Company's financial position, results of operations, cash flows, capital requirements and restrictions under the Company's existing credit agreement, among other factors. The Board retained the power to modify, suspend or cancel the Company's dividend policy in any manner and at any time it deems necessary or appropriate in the future. The Company paid quarterly dividends of $0.10 per common share to shareholders in each quarter of 2016 and the first three quarters of 2017.
Backlog
The backlog of orders as of September 30, 2017March 31, 2023 was $385,454$800.2 million compared to $389,260$834.7 million as of September 30, 2016,March 31, 2022, a decrease of $3,806$34.5 million, or 1.0%4.1%. Domestic backlogsbacklog decreased $16,103$21.3 million, or 4.9% while3.0%, and international backlogs increased $12,297backlog decreased $13.2 million, or 19.3%.10.3%, respectively. The September 30, 2017backlog decreased $4.2 million to $513.5 million in the Infrastructure Solutions segment and decreased $32.6 million to $284.4 million in the Materials Solutions segment. The Corporate and Other backlog represents our controls and automation business and totaled $2.3 million as of March 31, 2023. The decrease in backlog was comprised of 80.3% domesticdriven by strong first quarter 2023 sales volumes outpacing new orders and 19.7% international orders, as compared to 83.6% domestic ordersa build of backlog throughout 2022 largely due to strong customer demand and 16.4% international orderslogistics and manufacturing throughput disruptions. We expect backlog levels to normalize from the historically high levels we have experienced in recent years based on macroeconomic factors such as high inflation and rising interest rates influencing customer spending. Additionally, we are focused on prudent expansion of September 30, 2016. Includedour production capacity that we anticipate will allow us to more effectively convert backlog to sales in the September 30, 2017 and 2016 backlogs is approximately $60,000 for a three line pellet plant from one customer under a Company financed arrangement whereby the Company will record the related revenues when payment is received, which is expected in December 2018. A majority of the September 30, 2016 backlog pertaining to a pellet plant order from a second customer was fulfilled in the last quarter of 2016 and the nine months of 2017, resulting in a remaining backlog of $15,373 related to this order at September 30, 2017. Excluding pellet plant orders, the Company's September 30, 2017 backlog increased $61,083, or 24.8%, compared to September 30, 2016. No additional pellet plant orders have been received. The Company is unable to determine whether the changes in backlogs were experienced by the industry as a whole; however, the Company believes the changes in backlogs reflect the current economic conditions the industry is experiencing.future.
Segment Net Sales-QuarterSales:
| | Three Months Ended September 30, | | | | |
| | 2017 | | | 2016 | | | $ Change | | | % Change | |
Infrastructure Group | | $ | 98,676 | | | $ | 109,227 | | | $ | (10,551 | ) | | | (9.7 | )% |
Aggregate and Mining Group | | | 99,474 | | | | 85,819 | | | | 13,655 | | | | 15.9 | % |
Energy Group | | | 53,904 | | | | 52,706 | | | | 1,198 | | | | 2.3 | % |
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| Three Months Ended March 31, | | |
(in millions) | 2023 | | 2022 | | $ Change | | % Change |
Infrastructure Solutions | $ | 229.9 | | | $ | 197.5 | | | $ | 32.4 | | | 16.4 | % |
Materials Solutions | 113.9 | | | 93.7 | | | 20.2 | | | 21.6 | % |
Corporate and Other | 4.1 | | | — | | | 4.1 | | | 100.0 | % |
Infrastructure Group: Solutions
Sales in this groupsegment were $98,676$229.9 million for the thirdfirst quarter of 20172023 compared to $109,227$197.5 million for the same period in 2016, a decrease2022, an increase of $10,551$32.4 million, or 9.7%16.4%. The increase was primarily driven by favorable net volume, pricing and the mix of sales that generated increased (i) new equipment sales of $19.3 million, (ii) service and equipment installation revenue of $9.6 million, (iii) parts and component sales of $3.6 million and (iv) freight revenue of $0.6 million. These increases were partially offset by lower used equipment sales of $0.6 million.
Domestic sales for the Infrastructure Group decreased $14,077Solutions segment increased $23.8 million, or 14.4%14.3%, for the thirdfirst quarter of 20172023 compared to the same period in 2016. During the third quarter2022 primarily due to (i) increased new equipment sales of 2017, the Company identified significant design issues at its customers' Georgia$11.7 million, (ii) increased service and Arkansas wood pellet plants. As the Company is financing the Georgia plant, no revenues have been recorded to date related to this order; however, the Company has been recording revenue on the Arkansas plant order under the percentequipment installation sales of completion method. Due to the identification$9.8 million and (iii) increased parts and component sales of the design issues in the third quarter of 2017, the Company increased its estimate of the remaining costs to complete the Arkansas pellet plant order pellet plants which resulted in negative $13,405 pellet plant revenue for the third quarter of 2017. Pellet plant revenue for the third quarter of 2016 was $19,139. The group's domestic non-pellet plant related sales increased by $18,467 due primarily to increased domestic asphalt plant sales$2.9 million. These increases were partially offset by a reduction in mobilelower used equipment sales as compared to the very strong third quarter 2016 level. Infrastructure Group domestic sales and backlogs continue to be favorably impacted by the increased federal funding under the FAST Act. of $0.8 million.
International sales for the Infrastructure GroupSolutions segment increased $3,526$8.6 million, or 30.5%27.9%, for the thirdfirst quarter of 20172023 compared to the same period in 20162022 primarily due primarily to an increases in mobile asphaltincreased new equipment sales coupled with increasedand parts and component sales byof $7.6 million and $0.7 million, respectively.
Materials Solutions
Sales in this segment were $113.9 million for the Company-owned dealershipfirst quarter of 2023 compared to $93.7 million for the same period in Australia. The Company's international sales have benefited from improved highway building activities in certain foreign countries, the release2022, an increase of pent up demand and improved global market conditions.$20.2 million, or 21.6%. The increase in international sales was also impactedprimarily driven by the Company's decision to market its mobile equipment products through equipment dealers in select territories in which historical direct sales efforts yielded less than desired volumes. Sales increases in Canada, Australiafavorable net volume, pricing and the Middle Eastmix of sales that generated increased (i) new equipment sales of $20.8 million, (ii) parts and component sales of $0.6 million and (iii) freight revenue of $0.5 million. These increases were partially offset by decreases in sales in the West Indies, Central America and Russia. Partsdecreased other revenue of $1.8 million primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.
Domestic sales for the Infrastructure Group decreased 0.5%Materials Solutions segment increased by $21.3 million or 31.4% for the thirdfirst quarter of 20172023 compared to the same period in 2016.2022 driven by increased (i) equipment sales of $22.1 million, (ii) parts and component sales of $0.5 million and (iii) freight revenue of $0.5 million. These increases were partially offset by decreased other revenue of $1.8 million, primarily driven by increased utilization of our interest subsidy programs offered to certain of our dealer customers.
Aggregate and Mining Group: Sales in this group were $99,474 for the third quarter of 2017 compared to $85,819 for the same period in 2016, an increase of $13,655 or 15.9%. DomesticInternational sales for the Aggregate and Mining Group increased by $10,879Materials Solutions segment decreased $1.1 million or 19.1%4.2% for the thirdfirst quarter of 20172023 compared to the same period in 20162022, primarily due primarily to increaseddecreased new equipment sales of $1.3 million.
Segment Operating Adjusted EBITDA:
Segment Operating Adjusted EBITDA is the Company's larger aggregate equipment duemeasure of segment profit or loss used by our Chief Executive Officer, whom is determined to be the CODM, to evaluate performance and allocate resources to the releaseoperating segments. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of pent-up demand coupled with increased sales intointerest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the Company's traditional rock quarry markets. International salesCODM in the evaluation of ongoing operating performance. This non-GAAP financial measure can be useful to investors in understanding operating results and the performance of our core business from management's perspective. Our 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 been an independent, stand-alone entity during the periods presented. See Note 10, Segment Information, of the Notes to Unaudited Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of Segment Operating Adjusted EBITDA to total consolidated net income attributable to controlling interest.
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| Three Months Ended March 31, | | $ Change | | % Change |
(in millions) | 2023 | | 2022 | | |
Infrastructure Solutions | $ | 27.3 | | | $ | 16.4 | | | $ | 10.9 | | | 66.5 | % |
Materials Solutions | 15.3 | | | 12.2 | | | 3.1 | | | 25.4 | % |
Corporate and Other | (6.8) | | | (9.8) | | | 3.0 | | | 30.6 | % |
Infrastructure Solutions segment: Segment Operating Adjusted EBITDA for the Aggregate and Mining Group increased $2,776 or 9.7% inInfrastructure Solutions segment was $27.3 million for the thirdfirst quarter of 20172023 compared to the same period in 2016 due to an easing of pent up demand coupled with the Company's continued sales efforts in the international markets as well as an improved sales by the Company's Brazilian subsidiary. International sales increases in Canada, Brazil and Post-Soviet States were partially offset by decreases in sales into Mexico and Europe. Parts sales for this group increased 7.5% for the third quarter of 2017 compared to the same period in 2016 due primarily to international sales by the Company's subsidiary in South Africa.
Energy Group: Sales in this group were $53,904 for the third quarter of 2017 compared to $52,706$16.4 million for the same period in 2016,2022, an increase of $1,198$10.9 million or 2.3%66.5%. Domestic sales for the Energy Group decreased $175 or 0.4% for the third quarter of 2017 compared to the same periodThe increase in 2016. Domestic sales were favorably impacted by improved sales of industrial heaters/boilers andSegment Operating Adjusted EBITDA resulted primarily from the impact of favorable net volume, pricing and mix that generated $27.3 million higher gross profit. These increases were partially offset by (i) the Power Flame acquisitionimpact of higher inflation on August 1, 2016; however, salesmaterials, labor and overhead costs of concrete plants fell below prior year levels with third quarter 2016 sales being higher than normal$8.8 million, (ii) increased selling, general and administrative costs of $6.3 million, primarily due to $3.9 million higher personnel related costs, $1.5 million of increased exhibit and promotional costs related to the saleConExpo industry trade show and $1.5 million increased consulting, prototype and project costs and (iii) manufacturing inefficiencies of two large concrete plants. International sales$1.6 million, inclusive of the impact of an out-of-period benefit of $1.9 million associated with the correction of over-accruals of inventory-related expenses recorded in the first quarter of 2023.
Materials Solutions segment: Segment Operating Adjusted EBITDA for the Energy Group increased $1,373 or 18.2% due primarily to increased sales of industrial boilers and sales by Power Flame whichMaterials Solutions segment was acquired on August 1, 2016, offset by a decline in sales of wood chipping and grinding equipment. Sales increases occurred in the Middle East, China, Canada and Brazil. Parts sales for this group decreased 5.2%$15.3 million for the thirdfirst quarter of 20172023 compared to the same period in 2016 due primarily to growth in parts sales for industrial boiler and heater products as well as wood chipper and grinders.
Segment Net Sales-Nine Months:
| | Nine Months Ended September 30, | | | | |
| | 2017 | | | 2016 | | | $ Change | | | % Change | |
Infrastructure Group | | $ | 407,025 | | | $ | 414,817 | | | $ | (7,792 | ) | | | (1.9 | )% |
Aggregate and Mining Group | | | 307,205 | | | | 277,393 | | | | 29,812 | | | | 10.7 | % |
Energy Group | | | 158,134 | | | | 128,658 | | | | 29,476 | | | | 22.9 | % |
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Infrastructure Group: Sales in this group were $407,025 for the nine months ending September 30, 2017 compared to $414,817$12.2 million for the same period in 2016, a decrease2022, an increase of $7,792$3.1 million or 1.9%25.4%. Domestic sales forThe increase in Segment Operating Adjusted EBITDA between periods resulted primarily from the Infrastructure Group decreased $32,917 or 8.8% for the first nine monthsimpact of 2017 compared to the same period in 2016 due to a decline in pellet plant sales offset by growth in sales for mobile asphalt equipment. Pellet plant sales were $2,370favorable net volume, pricing and $64,589 for the nine months ended September 30, 2017 and 2016, respectively. Excluding pellet plant sales, the domestic sales of this group increased by $29,302 due to increased sales of both asphalt plants and mobile asphalt equipment. International sales for the Infrastructure Group increased $25,125 or 63.2% for the first nine months of 2017 compared to the same period in 2016 due to growth in sales of both asphalt plants and mobile asphalt equipment as well as improved sales by the Company owned dealership in Australia. The increased international sales occurred in Canada, Russia, Australia, Mexico and the Middle East andmix that generated $12.5 million higher gross profit. These increases were partially offset by decreases(i) the impact of higher inflation on materials, labor and overhead costs of $5.0 million, (ii) higher general, administrative and other costs of $2.6 million and (iii) manufacturing inefficiencies of $1.7 million. The general, administrative and other cost increases are primarily driven by $1.4 million net foreign currency transaction gains in sales2022 that did not recur in South America2023 and China. Parts sales for the Infrastructure Group$1.3 million of increased 4.9% for the nine months ending September 30, 2017 comparedexhibit and promotional costs related to the same period in 2016 due primarily to improved sales of parts for asphalt plants and mobile asphalt equipment.
Aggregate and Mining Group: Sales in this group were $307,205 for the nine months ending September 30, 2017 compared to $277,393 for the same period in 2016, an increase of $29,812 or 10.7%. Domestic sales for the Aggregate and Mining Group increased by $16,859 or 8.6% for the nine months ending September 30, 2017 compared to the same period in 2016 due primarily to improved sales to the Company's traditional rock quarry markets, increased sales of the Company's larger aggregate equipment due to the release of pent-up demand and increased sales by the Company's Northern Ireland based subsidiary into the U.S. domestic market. International sales for the Aggregate and Mining Group increased $12,953 or 15.7% for the nine months ending September 30, 2017 compared to the same period in 2016 due to an easing of pent up demand, the Company's continued sales efforts in the international markets, and improved sales by the Company's Brazilian subsidiary, which had historically low sales in 2016. International sales increases in Canada, Brazil, Post-Soviet States, China and Australia wereConExpo industry trade show, partially offset by decreased sales in Mexico, Japan/Korea$0.7 million lower personnel related costs.
Corporate and Central America. Parts sales for this group increased 7.2%Other: Corporate and Other operations had net expenses of $6.8 million for the nine months ending September 30, 2017first quarter of 2023 compared to the same period in 2016.
Energy Group: Sales in this group were $158,134$9.8 million for the nine months ending September 30, 2017 compared to $128,658 for the same period in 2016, an increase of $29,476 or 22.9%. Domestic sales for the Energy Group increased $26,631 or 25.1% for the nine months ending September 30, 2017 compared to the same period in 2016 due primarily to $14,640 of increased sales by Power Flame, which was acquired on August 1, 2016, as well as increases in oil and gas equipment and wood chipping and grinding equipment; however, concrete plant sales lagged behind 2016 levels due to two large concrete plants being sold in the thirdfirst quarter of 2016. International sales for the Energy Group increased $2,845 or 12.7% due primarily to sales by Power Flame which was acquired on August 1, 2016. International sales increases occurred in China, the Middle East, Africa and Brazil and were partially offset by decreases in South American and Australia. Parts sales for this group increased 10.1% for the nine months ending September 30, 2017 compared to the same period in 2016 due to the acquisition of Power Flame and increased parts sales at each subsidiary in this group.
Segment Profit (Loss)-Quarter:
| | Three Months Ended September 30, | | | | |
| | 2017 | | | 2016 | | | $ Change | | | % Change | |
Infrastructure Group | | $ | (12,529 | ) | | $ | 9,858 | | | $ | (22,387 | ) | | | (227.1 | )% |
Aggregate and Mining Group | | | 9,565 | | | | 7,651 | | | | 1,914 | | | | 25.0 | % |
Energy Group | | | 4,460 | | | | 805 | | | | 3,655 | | | | 454.0 | % |
Corporate | | | (2,975 | ) | | | (11,610 | ) | | | 8,635 | | | | 74.4 | % |
Infrastructure Group: Segment loss for this group was $12,529 for the third quarter of 2017 compared to a profit of $9,858 for the same period in 2016,2022, a decrease of $3.0 million, or 30.6%. The decrease in earningsnet expenses was primarily driven by $1.5 million of $22,387 or 227.1%. Duringprofit contributed by MINDS and $1.5 million of lower general and administrative expenses, primarily associated with employee related costs including the third quarterrecovery of 2017, the Company identified significant design issues at its customers' Georgia and Arkansas wood pellet plants. As the Company is financing the Georgia plant, no revenues have been recorded to dateshare-based compensation expense related to this order; however,awards forfeited or modified in conjunction with the Company has been recording revenue ontermination of our previous CEO and the Arkansas plant order under the percent of completion method. Due to the identification of the design issueslimited overhead restructuring action implemented in the third quarter of 2017, the Company increased its estimate of the remaining costs to complete the orders for both pellet plantsFebruary 2023, which resulted in negative $22,738 pellet plant gross profit for the third quarter of 2017. Excluding the impact of pellet plant sales and margins in 2017, segment gross margins decreased from 22.8% for the third quarter of 2016 to 21.9% for the third quarter of 2017. Segment profits were also impacted by a $1,563 increase in engineering expenses (primarily research and development and outside services).
Aggregate and Mining Group: Segment profit for the Aggregate and Mining group was $9,565 for the third quarter of 2017 compared to $7,651 for the same period in 2016, an increase of $1,914 or 25.0%. The increase in profits between periods is due to an increase in gross profit of $2,903 due to increased sales as gross margins remained relatively constant at 24.0% and 24.4% for the third quarters of 2017 and 2016, respectively. The improved gross profits were partially offset by increased sales promotion expense of $1,504 which were offset by a $463 decrease in exhibit costs between periods.health insurance claims experience.
Energy Group: The Energy group had a profit of $4,460 for the third quarter of 2017 compared to $805 for the third quarter of 2016 an increase of $3,655 or 454.0%. Gross profits for the segment increased by $3,949 for the third quarter of 2017 as compared to the third quarter of 2016 impacted by a $1,198 increase in sales between periods and a 690 basis point increase in gross margins. Gross profits were favorably impacted by improved market conditions for drilling rigs and the acquisition of Power Flame on August 1, 2016. The improved gross profits were partially offset by increased selling, general, administrative and engineering expenses of $446 at Power Flame.
Corporate: The Corporate Group had a loss of $2,975 for the third quarter of 2017 compared to a loss of $11,610 for the third quarter of 2016, a favorable change of $8,635 or 74.4%, due primarily to reductions in U.S. federal income taxes of $6,493 and profit sharing, restricted stock unit and SERP expenses of $1,973.
Segment Profit (Loss)-Nine Months:
| | Nine Months Ended September 30, | | | | |
| | 2017 | | | 2016 | | | $ Change | | | % Change | |
Infrastructure Group | | $ | 15,545 | | | $ | 51,394 | | | $ | (35,849 | ) | | | (69.8 | )% |
Aggregate and Mining Group | | | 29,360 | | | | 28,135 | | | | 1,225 | | | | 4.4 | % |
Energy Group | | | 10,355 | | | | 3,237 | | | | 7,118 | | | | 219.9 | % |
Corporate | | | (27,666 | ) | | | (40,745 | ) | | | 13,079 | | | | 32.1 | % |
Infrastructure Group: Segment profit for this group was $15,545 for the nine months ending September 30, 2017 compared to $51,394 for the same period in 2016, a decrease of $35,849 or 69.8%, of which $34,955 is due to reduced gross margins. During the third quarter of 2017, the Company identified significant design issues at its customers' Georgia and Arkansas wood pellet plants. As the Company is financing the Georgia plant, no revenues have been recorded to date on this order; however, the Company has been recording revenue on the Arkansas plant order under the percent of completion method. Due to the identification of the design issues in the third quarter of 2017, the Company increased its estimate of the remaining costs to complete the orders for both pellet plants which resulted in negative $22,738 pellet plant gross profit in the third quarter of 2017. Margins on pellet plants were also negatively impacted by installation cost overruns during the second quarter of 2017 resulting in total gross profits on pellet plant sales of negative $27,098 for the nine months ended September 30, 2017. Excluding the impact of pellet plant sales and margins in 2017, segment gross margins decreased from 24.4% for the first nine months of 2016 to 23.1% for the first nine months of 2017 due primarily to product mix changes between years. Segment profit was also negatively impacted by $2,086 of costs incurred related to ConExpo in 2017.
Aggregate and Mining Group: Segment profit for this group was $29,360 for the nine months ending September 30, 2017 compared to $28,135 for the same period in 2016, an increase of $1,225 or 4.4%. Nine month gross profits for this segment increased by $2,428 as compared to the prior year due to an increase in sales of $29,812 and a 170 basis point decline in gross margins. The increased gross profits were partially offset by increased selling, general, administrative and engineering expenses, including $1,935 of ConExpo related costs.
Energy Group: The Energy group had a profit of $10,355 for the nine months ending September 30, 2017 compared to $3,237 for the same period in 2016, an increase of $7,118 or 219.9%. Profit for the segment was positively impacted by an increase in gross profit of $12,104 due to a $29,476 increase in sales and a 380 basis point increase in gross margins between periods. The improved gross profits were partially offset by increased selling, general, administrative and engineering expenses between periods, primarily due to $3,577 of increased costs incurred by Power Flame, which was acquired on August 1, 2016.
Corporate: The Corporate Group had a loss of $27,666 for the nine months ending 2017 compared to a loss of $40,745 for the same period in 2016, a favorable change of $13,079 or 32.1% primarily due to reductions in U.S. federal income taxes of $11,527, SERP expenses of $1,730 and profit sharing expenses of $918.
Liquidity and Capital Resources
The Company's
Our 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 and cash flows from operations. The Company had $66,379As of March 31, 2023, our total liquidity was $222.0 million, consisting of $39.6 million of cash and cash equivalents available for operating purposes as of September 30, 2017, of which $16,857 was held by the Company's foreign subsidiaries. While the Company has no plans to transfer the cash held by its foreign subsidiaries to the U.S. in the foreseeable future,and $182.4 million available for additional borrowings under our revolving credit facility, to the extent foreign earnings are eventually repatriated, such amounts may be subject to income tax liabilities, both in the U.S. and in various applicable foreign jurisdictions. At September 30, 2017 and at all times during the first nine months of 2017, the Company had no borrowings outstanding under its credit facilitiesour compliance with Wells Fargo Bank, N.A. Net of letters of credit totaling $8,594, the Company had borrowing availability of $91,406 under the credit facility as of September 30, 2017. The amended and restated credit agreement contains certain financial covenants including provisions concerning required levelspermits such borrowings. Our foreign subsidiaries held $23.5 million of annual net incomecash and minimum tangible net worth. The Company wascash equivalents available for operating purposes, which is considered to be indefinitely invested in compliance with the financial covenants of the Wells Fargo agreement at September 30, 2017.those jurisdictions.
The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd ("Osborn"), has a credit facility of $7,007 with a South African bank to finance short-termOur future cash requirements primarily include working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of September 30, 2017, Osborn had no outstanding borrowings but had $1,044 in performance, advance payment and retention guarantees outstanding under the facility. The facility has been guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of September 30, 2017, Osborn had available credit under the facility of $5,963. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.0% as of September 30, 2017.
The Company's Brazilian subsidiary, Astec Brazil, has outstanding working capital loans totaling $4,100 as of September 30, 2017 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 the debts are secured by Astec Brazil's manufacturing facility and also by letters of credit totaling $6,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has various 5-year equipment financing loans outstanding with Brazilian banks in the aggregate of $805 as of September 30, 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 unaudited condensed consolidated balance sheets as current maturities of long-term debt ($2,689) and long-term debt ($2,216) as of September 30, 2017.
Cash Flows from Operating Activities:
| | Nine Months Ended September 30, | | | Increase | |
| | 2017 | | | 2016 | | | (Decrease) | |
Net income | | $ | 26,736 | | | $ | 42,654 | | | $ | (15,918 | ) |
Deferred income tax benefit | | | (224 | ) | | | (2,019 | ) | | | 1,795 | |
Depreciation and amortization | | | 19,253 | | | | 18,118 | | | | 1,135 | |
Provision for warranties | | | 11,842 | | | | 13,135 | | | | (1,293 | ) |
Changes in working capital: | | | | | | | | | | | | |
Trade and other receivables | | | 766 | | | | (5,224 | ) | | | 5,990 | |
Inventories | | | (39,332 | ) | | | (8,120 | ) | | | (31,212 | ) |
Prepaid expenses | | | 4,601 | | | | (3,132 | ) | | | 7,733 | |
Accounts payable | | | 2,820 | | | | 3,234 | | | | (414 | ) |
Customer deposits | | | 11,040 | | | | 35,685 | | | | (24,645 | ) |
Product warranty accruals | | | (11,072 | ) | | | (11,011 | ) | | | (61 | ) |
Prepaid and income taxes payable, net | | | (16,246 | ) | | | 5,655 | | | | (21,901 | ) |
Other, net | | | 565 | | | | 7,798 | | | | (7,233 | ) |
Net cash provided by operating activities | | $ | 10,749 | | | $ | 96,773 | | | $ | (86,024 | ) |
Net cash from operating activities decreased by $86,024 for the first nine months of 2017 as compared to the first nine months of 2016 due primarily to an increase in the growth of inventories of $31,212 related to increased sales and backlogs, a reduction in the growth of customer deposits of $24,645 (due primarily to a large pellet plant related deposit received in 2016), a $21,901 increase in cash used for income taxes and a $15,918 reduction in net income.
Cash Flows Used by Investing Activities:
| | Nine Months Ended September 30, | | | Increase | |
| | 2017 | | | 2016 | | | (Decrease) | |
Expenditures for property and equipment | | $ | (13,920 | ) | | $ | (17,483 | ) | | $ | 3,563 | |
Business acquisition, net of cash acquired | | | -- | | | | (39,613 | ) | | | 39,613 | |
Other | | | (243 | ) | | | 403 | | | | (646 | ) |
Net cash used by investing activities | | $ | (14,163 | ) | | $ | (56,693 | ) | | $ | 42,530 | |
Net cash used by investing activities decreased by $42,530 for the first nine months of 2017 as compared to the same period in 2016 due primarily to decreased spending on business acquisitions in the first nine months of 2017 as compared to the first nine months of 2016 due to the acquisition of Power Flame, Inc on August 1, 2016.
Totalservice obligations, capital expenditures, for 2017 are forecastedvendor 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, be approximately $22,000. The Company expects to finance these expenditures using currently available cash balances, internally generated fundstransformation initiatives, strategic acquisitions and available creditshare repurchases under the Company's credit facilities. Capital expenditures are generally for machinery, equipment and facilities used by the Company in the production of its various products. The Company believesour share repurchase authorization. We believe that itsour current working capital, cash flows generated from future operations and available capacity under itsour revolving credit facility will be sufficient to meet the Company's working capital and capital expenditure requirements through November, 2018.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 $65.0 million in outstanding borrowings under the Credit Facilities at March 31, 2023. Our outstanding letters of credit totaling $2.6 million decreased borrowing availability to $182.4 million under the revolving credit facility as of March 31, 2023. We anticipate continuing to utilize the Credit Facilities with more frequency in the near-term to support our domestic working capital needs. The Credit Agreement contains certain financial covenants, including requirements 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 our indebtedness. We were in compliance with the financial covenants of the Credit Facilities at March 31, 2023. 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.
Our Brazilian subsidiary maintains a separate 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 Africa, 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. In addition, the Brazilian
subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings under the credit 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. and/or secured with certain assets of the local subsidiary.
Cash Flows used
We regularly enter into agreements, primarily to purchase inventory, in the ordinary course of business. As of March 31, 2023, open purchase obligations totaled $298.4 million, of which $286.7 million are expected to be fulfilled within one year.
We estimate that our capital expenditures will be between $25 million and $35 million for the year ending December 31, 2023, which may be impacted by Financing Activities:general economic, financial or operational changes and competitive, legislative and regulatory factors, among other considerations.
| | Nine Months Ended September 30, | | | Increase | |
| | 2017 | | | 2016 | | | (Decrease) | |
Payment of dividends | | $ | (6,920 | ) | | $ | (6,912 | ) | | $ | (8 | ) |
Net change in borrowings from banks | | | (6,583 | ) | | | (3,875 | ) | | | (2,708 | ) |
Other, net | | | (406 | ) | | | (1,847 | ) | | | 1,441 | |
Net cash used by financing activities | | $ | (13,909 | ) | | $ | (12,634 | ) | | $ | (1,275 | ) |
Cash Flows
The following table summarizes cash flows during the three months ended March 31, 2023 and 2022, respectively:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(in millions) | | 2023 | | 2022 |
Net cash used in operating activities | | $ | (19.2) | | | $ | (9.6) | |
Net cash provided by (used in) investing activities | | 11.8 | | | (11.7) | |
Net cash used in financing activities | | (16.2) | | | (2.3) | |
Effect of exchange rates on cash | | 0.1 | | | 0.9 | |
Decrease in cash, cash equivalents and restricted cash | | (23.5) | | | (22.7) | |
Cash, cash equivalents and restricted cash, end of period | | $ | 42.5 | | | $ | 111.7 | |
Net cash used in operating activities
Net cash used in operating activities increased by $9.6 million during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022 primarily due to higher net cash usages in our operating assets and liabilities of $15.4 million mainly driven by the increase of inventories on hand of $26.5 million due to higher backlog and supply chain disruptions experienced in 2022 partially offset by higher net income adjusted for non-cash items of $5.7 million.
Net cash provided by (used in) investing activities
Our investing activities provided net cash of $11.8 million during the three months ended March 31, 2023 as opposed to a net cash use of $11.7 million during the three months ended March 31, 2022 primarily due to the sale of the Tacoma facility's land, building and certain equipment assets for $19.9 million and $3.6 million less purchases of purchase of property and equipment.
Net cash used in financing activities
Net cash used in financing activities increased by $1,275 for$13.9 million during the first ninethree months of 2017ended March 31, 2023 as compared to the same periodthree months ended March 31, 2022, primarily due to increased repayments net of borrowings of $13.7 million.
Dividends
We paid quarterly dividends of $0.13 and $0.12 per common share to shareholders in 2016 due primarilythe first quarter of 2023 and 2022, respectively.
Share Repurchases
As announced in a Form 8-K filing on July 30, 2018, we approved a share repurchase program, which authorizes us to repurchase up to $150.0 million of our common stock. As of March 31, 2023, $115.7 million remains available for repurchase under the approved share repurchase program. No shares were repurchased under the plan during the three months ended March 31, 2023, however, we may conduct opportunistic share repurchases under this authorization in future periods utilizing cash on hand or borrowings under our Credit Facilities. The timing, manner and number of shares repurchased will depend on a variety of factors, including, but not limited to, the Company's Osborn subsidiary paying off its outstanding linelevel of cash balances, credit in 2017.availability, financial performance, general business conditions, regulatory requirements, the market price of our stock and the availability of alternative investment opportunities.
Financial Condition
The Company's
Our total current assets increaseddecreased to $609,898$680.4 million as of September 30, 2017March 31, 2023 from $576,833$696.4 million as of December 31, 2016, an increase2022, a decrease of $33,065$16.0 million or 5.7%2.3%, due primarily to an increasesa decrease in inventoriescash, cash equivalents and restricted cash of $38,942$23.5 million, the
sale of our Tacoma site previously recorded as "Assets held for sale" for $15.4 million and a decrease in prepaid assets and other current assets of $10,464 (primarily prepaid income taxes)$7.9 million partially offset by an increase in inventory of $26.7 million, to address the continued elevated backlog and a decline$5.1 million increase in cash of $15,992trade receivables and contract assets, net during the first ninethree months of 2017.2023.
The Company'sOur total current liabilities increaseddecreased to $177,236$272.0 million as of September 30, 2017March 31, 2023 from $168,861$274.0 million as of December 31, 2016, an increase2022, a decrease of $8,375$2.0 million, or 5.0%0.7%, due primarily to an increasea $6.4 million decrease in other current liabilities and a $2.0 million decrease in customer deposits, of $11,041partially offset by a reductionincreases of $4.8 million in accounts payable and $1.4 million of short-term bank debt due toduring the payofffirst three months of a $4,632 line of credit balance by the Company's Osborn subsidiary.2023.
Market Risk and Risk Management Policies
We have no material changes to the disclosure on this matter made in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Off-balance Sheet Arrangements
As of September 30, 2017, the Company does not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
Contractual Obligations
During the nine months ended September 30, 2017, there were no substantial changes in the Company's commitments or contractual liabilities.
Item 3. Quantitative and Qualitative Disclosures aboutAbout Market Risk The Company has no material changes to the disclosure on this matter made
Our quantitative and qualitative disclosures about market risk are incorporated by reference from Part II, "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in the Company's our Annual Report on Form 10-K for the year ended December 31, 2016.2022. Our market risk exposures have not materially changed since our Annual Report on Form 10-K for the year ended December 31, 2022 was filed.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
The Company
Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by the Companyus in the reports it filesthat we file or submitssubmit 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 SEC'sSecurities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive officerthe Chief Executive Officer and principal financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company's management, Management carried out an evaluation, under the supervision and with the participation of the Company's principal executive officerour Chief Executive Officer and principal financial officer, has evaluatedChief Financial Officer, of the effectiveness of the Company'sour 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 upon thaton such evaluation, the Company's principal executive officerour Chief Executive Officer and principal financial officerChief Financial Officer have concluded that as of the end of the period covered by this report,March 31, 2023, the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.
Internal Control over Financial Reporting
There
We are currently undertaking a significant multi-year global ERP implementation to upgrade our information technology platforms and business processes. The implementation is occurring in phases over several years beginning in 2023. During the first quarter of 2023, we implemented the human capital resources management module, including the payroll application for all locations within the United States.
As a result of this multi-year implementation, we expect certain changes to our processes and procedures, which, in turn, will result in changes to our internal control over financial reporting. While we expect this implementation to strengthen our internal control over financial reporting by automating certain manual processes and standardizing business processes and reporting across our organization, we will continue to evaluate and monitor our internal control over financial reporting as processes and procedures in the affected areas evolve.
With the exception of the implementation of the human capital resources management module described above, there have been no changes in the Company'sour internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarterthree month period ended September 30, 2017March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II -‑ OTHER INFORMATION
Item 1. Legal Proceedings The Company is involved from
From time to time, we are involved in legal actions arising in the ordinary course of itsour business. Other than as set forth in Note 8, Commitments and Contingencies, to the unaudited consolidated financial statements and Part I, "Item 3. Legal Proceedings" in the Company's our Annual Report on Form 10-K for the year ended December 31, 2016, the Company2022, we currently hashave no pending or threatened litigation that the Companyour management believes will result in an outcome that would materially affect the Company'sour business, financial position, cash flows or results of operations. Nevertheless, there can be no assurance that future litigation to which the Company becomeswe become a party will not have a material adverse effect on itsour business, financial position, cash flows or results of operations.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in the Company's our Annual Report on Form 10-K for the year ended December 31, 2016,2022, which could materially affect the Company'sour business, financial condition or future results. There have been no material changesThe risks described in the Company's risk factors from those disclosed in the Company's our Annual Report on Form 10-K for the year ended December 31, 2016. The risks described in the Company's Annual Report on Form 10-K for the year ended December 31, 20162022 and in this Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to management or that management currently deems to be immaterial also may materially and adversely affect the Company'sour business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Exhibit No. | | Description | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10.1 | | Amendment to "Appendix A" | | | | Incorporated by Reference |
Exhibit Number | | Exhibit Description | | Filed Herewith | | Form | | Period Ended | | Filing Date |
10.1 | | | | | | 8-K | | 1/6/2023 | | 1/6/2023 |
31.1 | | | | X | | | | | | |
31.2 | | | | X | | | | | | |
32*32.1 | | | | X | | | | | | |
101.INS32.2 | | 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 |
The exhibits are numbered in accordance with Item 601
* In accordance with Release No. 34-47551, this exhibit is hereby furnished to the SEC as an accompanying document and is not to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.
Items 2, 3, 4 and 5 are not applicable and have been omitted.
Exhibit Index |
|
Exhibit No. | | Description |
| | Amendment to "Appendix A" of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective October 26, 2017. |
| | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.2002 | | X | | | | | | |
101.INS101 | | XBRL Instance DocumentThe following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 formatted in Inline Extensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income, (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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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 | | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | |
| ASTEC INDUSTRIES, INC.
(Registrant) | |
| | |
| | |
Date: November 6, 2017May 4, 2023 | /s/ Benjamin G. Brock | Rebecca A. Weyenberg |
| Benjamin G. Brock
Chief Executive Officer
(Principal Executive Officer)
| |
| | |
| | |
Date: November 6, 2017 | /s/ David C. Silvious | |
| David C. Silvious Rebecca A. Weyenberg Chief Financial Officer Vice President, and Treasurer
(Principal Financial Officer)
|
| |
| |
Date: May 4, 2023 | /s/ Jamie E. Palm |
| Jamie E. Palm Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) | |
30
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