UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-K
(Mark One)
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20192021
OR
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________________ to ____________________________
Commission file number File Number:001-11595
ASTEC INDUSTRIES, INC.Astec Industries, Inc.
(Exact name of registrant as specified in its charter)
Tennessee | 62-0873631 | | | | | | | | | | | | | |
| Tennessee | | 62-0873631 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
1725 Shepherd Road Chattanooga, Tennessee | 37421 | |
| Chattanooga, TN | | 37421 |
| (Address of principal executive offices) | | (Zip Code) |
(423) 899-5898
(Registrant's telephone number, including area code:
(423) 899-5898
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each Classclass | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock | ASTE | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer", “smaller"smaller reporting company”company" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | |
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
Non-accelerated Filer filer | ☐ | Smaller Reporting Company | ☐ |
| | Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of June 28, 2019,30, 2021, the aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant was approximately $730,414,000$1.1 billion based upon the closing sales price as reported on the NASDAQNasdaq National Market System.
As of February 21, 2020,24, 2022, there were 22,551,78122,767,568 shares of Common Stock outstanding, par value $0.20.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document(s) have beenregistrant's definitive Proxy Statement to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended December 31, 2021 are incorporated by reference into PartsPart III of this Annual Report on Form 10-K as indicated below:
Document | Form 10-K |
Proxy Statement relating to Annual Meeting of Shareholders to be held on April 30, 2020 | Part III |
ASTEC INDUSTRIES, INC.
2019 FORMIndex to Annual Report on Form 10-K ANNUAL REPORT
TABLE OF CONTENTSFor the Year Ended December 31, 2021
PART I | | Page | | | | | | |
Item 1. | | 2Page |
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PART II | | |
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PART III | | |
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Appendix A | | A-1 |
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Signatures | | |
GENERAL
Unless otherwise indicated by the context, all references in this Annual Report on Form 10-K to “we,” “us,” “our,”"we," "us," "our," or the “Company”"Company" refer to Astec Industries, Inc. and our subsidiaries. References to “Parent Company”"Parent Company" in this Annual Report on Form 10-K refer to Astec Industries, Inc. only. All dollar amounts referenced in this section are in thousands.
TRADEMARKS AND TRADE NAMES
Except when discussing competitors and their products herein, the trademarks and trade names used in this Annual Report on Form 10-K are the property of Astec Industries, Inc. or its subsidiaries, as the case may be.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
SAFE HARBOR STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-K, particularly "Management's Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements made pursuant towithin the safe harbor provisionsmeaning of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Such statements relate to, among other things, income, earnings, cash flows, changes in operations, operating improvements, businesses in which we operate and the United States and global economies. Statements contained anywhere in this Annual Report on Form 10-K that are not limited to historical information are considered forward-looking statements within the meaning of Section 27Ahereby identified as "forward-looking statements" and may be indicated by words or phrases such as "anticipates," "supports," "plans," "projects," "expects," "believes," "should," "would," "could," "hope," "forecast," "management is of the Securities Act of 1933 and Section 21Eopinion," use of the Securities Exchange Act of 1934, including, without limitation, statements regarding:future tense and similar words or phrases.
| ● | execution of the Company’s growth and operation strategy; |
| ● | plans for, and costs of, technological innovation; |
| ● | compliance with covenants in our credit facility; |
| ● | liquidity and capital expenditures; |
| ● | ability to access credit markets; |
| ● | ability to obtain advances from our credit markets; |
| ● | compliance with the Company’s credit facilities; |
| ● | compliance with and changes to government regulations; |
| ● | compliance with manufacturing and delivery timetables; |
| ● | general economic trends, political uncertainty and the impact of the coronavirus on our business; |
| ● | government funding and growth of highway construction and commercial projects; |
| ● | changes in tax laws and tariffs; |
| ● | integration of acquisitions; |
| ● | pricing, demand and availability of steel, oil and liquid asphalt; |
| ● | development of domestic oil and natural gas production; |
| ● | condition of the economies in which we do business; |
| ● | fluctuations in foreign current exchange rates; |
| ● | the introduction of new products and the success of new product lines; |
| ● | presence in the international marketplace; |
| ● | suitability of our current facilities; |
| ● | fluctuations in our stock price; |
| ● | future payment of dividends; |
| ● | competition in our business segments; |
| ● | product liability and other claims; |
| ● | legal proceedings and non-compliance; |
| ● | obligations with respect to pellet plants and other products; |
| ● | protection of proprietary technology and dependence on information technology systems; |
| ● | demand for products and services; |
| ● | future fillings of backlogs; |
| ● | executive officers, management and employees; |
| ● | the seasonality of our business; |
| ● | tax assets and reserves for uncertain tax positions; |
| ● | changes in tax laws, effective rates, tariffs and trade policies; |
| ● | critical accounting policies and the impact of accounting changes; |
| ● | goodwill and intangible asset value; |
| ● | ability to satisfy contingencies; |
| ● | contributions to retirement plans and plan expenses; |
| ● | reserve levels for self-insured insurance plans and product warranties; |
| ● | construction of new manufacturing facilities; |
| ● | demand, availability and cost of raw materials; |
| ● | plans to exit the GEFCO oil and gas product line; and |
| ● | material weaknesses identified in our internal controls. |
These forward-looking statements are based largely on management's expectations, which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this Annual Report on Form 10-K, (this “Report”)including those risks described in Part I, Item 1A. Risk Factors hereof, and in other documents filed by us with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements to reflect future events or circumstances. You can identify these statementscircumstances, except as required by forward-looking words such as “expect”, “believe”, “anticipate”, “goal”, “plan”, “intend”, “estimate”, “may”, “will”, “should,” “could”law.
PART I
ITEM 1. BUSINESS
Our Company
We design, engineer, manufacture and similar expressions.
In addition to the risks and uncertainties identified elsewhere herein and in other documents filed by us with the Securities and Exchange Commission, the risk factors described in this document under the caption “Risk Factors” should be carefully considered when evaluating our business and future prospects.
Part I
Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and marketsmarket equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company'sOur products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Companysurface for both asphalt and concrete. We also manufacturesmanufacture certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; water well, and geothermal drilling rigs; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; commercial and industrial burners; and combustion control systems. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020.
The Company's subsidiaries hold 103 United States and 119 foreign patents and have an additional 60 United States and 101 foreign patent applications pending. The Company has been responsible for many technological and engineering innovations in the industries in which it operates. The Company'sOur products are marketed both domestically and internationally.internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, the Company manufactureswe manufacture and sellssell replacement parts for equipment in each of itsour product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of the Company'sour business.
The Company's manufacturing business units are segmented for reporting purposes (see “Segment Reporting” below) as follows:
Infrastructure Group
| 1. | Astec, Inc. (including its Astec-Prairie du Chien/Dillman division) (“Astec”), which designs, engineers, manufactures and markets asphalt plants and related components; |
| 2. | Roadtec, Inc. (“Roadtec”), which designs, engineers, manufactures and markets highway class asphalt pavers, material transfer vehicles, milling machines, soil stabilizing-reclaiming machinery and other equipment used in road building and resurfacing; |
| 3. | Carlson Paving Products, Inc. (“Carlson”), which designs, engineers, manufactures and markets asphalt paver screeds and commercial pavers; |
| 4. | Astec Mobile Machinery GmbH (“AMM”), which ceased operations in 2019 and its real estate was sold in January 2020; and |
| 5. | Astec Australia Pty Ltd (“Astec Australia”), which is an Australian subsidiary that sells, services and installs products produced by the Company’s manufacturing subsidiaries. |
AggregateCOVID-19 pandemic has caused significant disruptions to national and Mining Group
| 1. | Telsmith, Inc. (“Telsmith”), which designs, engineers, manufactures and markets aggregate processing and mining equipment used in the aggregate, mineral mining, metallic mining and recycling industries; |
| 2. | Kolberg-Pioneer, Inc. (“KPI”), which designs, engineers, manufactures and markets aggregate processing equipment for the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets; |
| 3. | Johnson Crushers International, Inc. (“JCI”), which designs, engineers, manufactures and markets portable and stationary aggregate and ore processing equipment for the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets; |
| 4. | Astec Mobile Screens, Inc. (“AMS”), which designs, engineers, manufactures and markets mobile screening plants, portable and stationary structures and vibrating screens for the aggregate, recycle and material processing industries; |
| 5. | Breaker Technology Ltd/Inc. (“BTI”), which designs, engineers, manufactures and markets rock breaking systems in addition to mobile processing equipment and utility vehicles for the mining and quarrying industries; |
| 6. | Osborn Engineered Products SA (Pty) Ltd (“Osborn”), which designs, engineers, manufactures and markets a complete line of bulk material handling and minerals processing plant and equipment used in the aggregate, mineral mining, metallic mining and recycling industries and also markets equipment produced by other Astec companies; |
| 7. | Astec do Brasil Fabricacao de Equipamentos Ltda. (“Astec Brazil”), which manufactures and sells rock crushers, feeders, screens and asphalt plants and represents the brands of several other Astec companies in the South American construction and mining industries; and |
| 8. | Telestack Limited (“Telestack”), which designs, manufactures and installs a complete line of material handling systems to serve the port handling, bulk material handling and aggregate markets. |
Energy Group
| 1. | Heatec, Inc. (“Heatec”), which designs, engineers, manufactures and markets thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems; |
| 2. | CEI Enterprises, Inc. (“CEI”), which designs, engineers, manufactures and markets thermal fluid heaters, storage tanks, concrete plants and rubberized asphalt and polymer blending systems. The Company is in the process of closing this facility and transferring its product line operations, equipment and inventories to other Company subsidiaries, primarily RexCon and Heatec; |
| 3. | GEFCO, Inc. (“GEFCO”), which designs and manufactures portable drilling rigs and related equipment for the water well, environmental, geothermal, geotechnical, groundwater monitoring, and construction industries. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020. |
| 4. | Peterson Pacific Corp. (“Peterson”), which designs, engineers, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks; |
| 5. | Power Flame Incorporated (“Power Flame”), which designs, engineers, manufactures and markets commercial and industrial burners and combustion control systems; and |
| 6. | RexCon, Inc. (“RexCon”), which designs, engineers, manufactures and markets high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. |
The Company also has a business unit in Chile (Astec Industries, LatAm SpA (“Astec LatAm”))global economies and isto our business. While our businesses have generally remained operational throughout the pandemic, with temporary closures in the start-up phase of new sales operations in IndiaUnited Kingdom and Thailand that market, service and install equipment and provide partsSouth Africa early in the regions in which they operate for manypandemic, we have been significantly affected by the contributory effects of the pandemic such as decreased demand for our products produced byin 2020, material price increases, increased lead times from production materials, supplies and parts and labor shortages. These trends continue to impact our business today and may continue to impact our business in the Company’s manufacturing subsidiaries.near-term.
The Company's strategy isWe have also taken precautions to be the industry's most cost-efficient producer in each of its product lines while continuing to develop innovative new productsprotect our employees and provide first-class service for its customers. Management believes that the Company is the technological innovator intheir families and our customers and suppliers from COVID-19 and continually monitor the markets in which we operate for the effects of COVID-19 and the related actions of governments and other authorities to contain COVID-19.
The COVID-19 pandemic may continue to negatively disrupt our business and results of operations in the future. The ongoing impact of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments including, but not limited to, government directives, treatment availability and acceptance, vaccine mandates and the spread of new variants, such as the Delta and Omicron variants, and cannot be accurately predicted. See Part I, Item 1A. Risk Factors in this Annual Report on Form 10-K.
Corporate Strategic Objectives
Beginning in late 2019, we initiated a strategic transformation focused on implementing new business strategies and a new operating structure. This transformation was focused on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow.
Simplify
As part of our strategic transformation, we have focused on optimizing our organizational structure and operations to execute our profitable growth strategy.
•Centralizing our organization into sites with common platforms and operating models supports organic sales growth as it operatesis easier for our customers, partners, employees and shareholders to understand and interact with us.
•We are focused on productivity gains and cost reductions across our business through reducing complexity in our organization structure and plan to continue to leverage our global footprint consolidation actions to drive greater efficiencies across our operations while maintaining strong customer relationships.
•Efforts are directed toward product simplification through the development of a rationalized global product portfolio executed through manufacturing centers of excellence.
•We strive to optimize the supply chain through leveraging the size and scale of our global operations to improve lead times, lower logistics costs and introduce localized product support.
Since the inception of these initiatives, we have consolidated four sites and are currently in the process of consolidating our Tacoma site, which is well positionedexpected to capitalizebe completed during early 2022.
In addition, in late 2020 we launched a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency.
Focus
We believe enhanced efficiencies across the Astec organization will result from utilizing our OneASTEC business model to concentrate resources on excellence initiatives.
•We are focused on driving commercial excellence and providing a holistic set of solutions to strengthen our relationships with customers and maintain our market leadership positions.
•We intend to streamline our operational excellence processes through the needimplementation of lean principles in our operations and incorporate production systems that embed continuous improvement into the culture of our manufacturing processes.
•With aligned key performance indicators and incentives, we intend to rebuildenhance accountability across the business and enhance roadwaydrive a performance-based culture.
Grow
We are focused on growing sales and utility infrastructureprofits organically as well as selectively pursuing strategic acquisitions and partnerships within the "Rock to Road" value chain.
•Organic growth will be focused on reinvigorating innovation with a new product development approach that increases our vitality index over time.
•Through controls and automation as well as other technologies, we expect to leverage technology and digital connectivity to enhance the customer experience.
•We seek to identify, analyze and assess potential targets for strategic acquisitions and partnerships globally to establish a presence in attractive new markets, supplement our current product offerings or accelerate technologies or other areasenhancements that can be leveraged in which it offers productsour existing product portfolio.
Since the inception of our growth initiatives, we have completed three acquisitions. A further discussion of these acquisitions is included in Part II, Item 8. Financial Statements and services, both inSupplementary Data of this Annual Report on Form 10-K.
Business Segments
We operate manufacturing sites and sites that operate as sales offices for our manufacturing locations. During the United Statesfirst quarter of 2020, we completed an internal reorganization from a decentralized management structure to a matrix organizational management structure with major directives and abroad.
Segment Reporting
The Company’s business units have historically had their own management teamsdecisions being made at the segment and/or parent company level and, offer different productsas a result, realigned our reportable segments moving from three to two reportable segments (plus Corporate) - Infrastructure Solutions and services. The Company’s business units are aggregated into threeMaterials Solutions. Our two reportable business segments comprise sites based upon the nature of the productproducts or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations.
The Company’s reportable business segments are referred toCorporate category consists primarily of our parent company and Astec Insurance Company ("Astec Insurance"), a captive insurance company, which do not meet the requirements for separate disclosure as (i) the Infrastructure Group, (ii) the Aggregate and Mining Group and (iii) the Energy Group. The remaining business units not includedan operating segment or inclusion in one of the reportableother reporting segments. We evaluate performance and allocate resources to our operating segments provide support and corporate oversight for all the Company’s business units and include Astec Industries, Inc., the Parent Company, and Astec Insurance Company, a captive insurance company, as well as Astec LatAm due to its limitedbased on profit or loss from operations to date. We refer to these companies as the “Corporate” category throughout this document. The Company records before United States ("U.S.") federal income tax expenses andtaxes, state deferred taxes for all business segments on the Parent Company’s books; therefore,and corporate overhead and, thus, these taxescosts are included in the Corporate category forcategory.
Amounts previously reported under the previous segment reporting.structure have been restated to conform to the new segment structure. Additionally, in both internal and external communications, we have transitioned references to each individual site by a name associated with its location, as compared to previous references to the individual subsidiary company name.
Financial information in connection with the Company's financial reporting for segments
Infrastructure GroupSolutions Segment
Overview
The Infrastructure GroupSolutions segment is made up of five business units. These business units include Astec, Roadtec, Carlson, AMM and Astec Australia. Three of the business units (Astec, Roadtec and Carlson) design, engineer, manufacture and market a complete line of asphalt plants and their related components, asphalt pavers, screeds, milling machines, material transfer vehicles, stabilizers and related ancillary equipment. The other two business units (AMM and Astec Australia) primarily sell, service and install products produced by the manufacturing subsidiaries of the Company, with a majority of their sales to customers in the infrastructure industry. As mentioned above, AMM ceased operations in 2019.
Products
Astec designs, engineers, manufactures and markets a complete line of asphalt plants, concrete plants and their related components and ancillary equipment as well as supplying other heavy equipment.
The Infrastructure Solutions segment was operated from the following sites in 2021:
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| Site | | Location | | Site | | Location |
| Australia | | Brisbane, Australia | | EUG-Airport Rd | | Oregon, United States |
| Blair | | Nebraska, United States | | LatAm | | Santiago, Chile |
| Burlington | | Wisconsin, United States | | Parsons | | Kansas, United States |
| CHA-Jerome Ave | | Tennessee, United States | | St-Bruno | | Quebec, Canada |
| CHA-Manufacturers Rd | | Tennessee, United States | | Tacoma (1) | | Washington, United States |
| CHA-Wilson Rd | | Tennessee, United States | | Thailand | | Bangkok, Thailand |
1In January 2021, management announced plans to close the Tacoma facility. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of the Tacoma product lines to other facilities within the Infrastructure Solutions segment is expected to be completed during early 2022.
The sites based in North America within the Infrastructure Solutions segment are primarily manufacturing operations while those located outside of North America generally market, service and install equipment and provide parts in the regions in which they operate for many of the asphalt productionproducts produced by all of our manufacturing sites. Our Thailand site is in the start-up phase of new sales operations.
Products and paving industries. Certain component equipment supplied by Astec for asphalt plants is manufactured by other Company subsidiaries such as heating and storage equipment (manufacturedServices
The primary products produced by the Company’s Energy Group) and material handling equipment (manufactured by the Company’s Aggregate and Mining Group). Infrastructure Solutions segment include:
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| Asphalt plants and related components | | Heaters | | Concrete dust control systems |
| Asphalt pavers | | Vaporizers | | Concrete material handling systems |
| Screeds | | Heat recovery units | | Paste back-fill plants |
| Asphalt storage tanks | | Hot oil heaters | | Bagging plants |
| Fuel storage tanks | | Industrial and asphalt burners and systems | | Blower trucks and trailers |
| Material transfer vehicles | | Soil stabilizing/reclaiming machinery | | Wood chippers and grinders |
| Milling machines | | Soil remediation plants | | Control systems |
| Pump trailers | | Concrete batch plants | | Service, construction and retrofits |
| Liquid terminals | | Storage equipment and related parts | | Engineering and environmental permitting services |
| Polymer plants | | Concrete mixers | | |
A typical asphalt mixing plant consists of heating and storage equipment for liquid asphalt; cold feed bins for blending aggregates; a counter-flow continuous type unit (Astec Double Barrel) for drying, heating and mixing; a baghouse composed of air filters and other pollution control devices; hot storage bins or silos for temporary storage of hot-mix asphalt; and a control house. AstecWe introduced the concept of high plant portability for asphalt plants in 1979. ItsOur current generation of portable asphalt plants is marketed as the Six Pack and consists of six or more portable components designed to be easily transported from one construction site to another, thereby reducing relocation expenses and interruption of operations. High plant portability is an industry innovation developed and successfully marketed by Astec.us.
AstecThe components in our asphalt mixing plants are fully automated and use both microprocessor-based and programmable logic control systems for efficient operation. The plants are manufactured to meet or exceed federal and state clean air standards. We also build batch type asphalt plants and have developed specialized asphalt recycling equipment for use with our hot-mix asphalt plants.
Our new Versa Jet burner versatile platform is developed for retrofit applications and has the capacity to fire at a range of rates. The adaptable design is compatible with virtually all drum designs and can be installed with minimal modifications needed to asphalt mixing plants produced by us as well as our competitors.
In addition, we developed the patented water injection warm mix asphalt system, which allows the asphalt mix to be prepared and placed at lower temperatures than conventional systems and operates with a substantial reduction in emissions during paving and load-out. Previous technologies for warm mix production rely on expensive additives, procedures and/or special asphalt cement delivery systems that significantly increase the cost per ton of mix. The Company’s AstecOur multi-nozzle device eliminates the need for the expensive additives by mixing a small amount of water and asphalt cement together to create microscopic bubbles that reduce the viscosity of the liquid asphalt coating on the rock, thereby allowing the mix to be handled and worked at lower temperatures.
Astec isWe are focused on producing equipment with the most advanced mix recycling technology in the industry. More tons of recyclablereclaimed asphalt pavement (“RAP”("RAP") are available than are currently being utilized due to restrictions in the amount of RAP allowed by various governmental agencies. Astec’sOur recycle technology is continuously being enhanced and is providing the science to alleviate the concerns driving such restrictions and to improve RAP utilization percentages in the asphalt industry. Astec’sOur latest system improvement, the RAP Pre-Dryer System, was successfully field prototyped in 2018 and is now available to the industry. It has produced mixes of up to 80% RAP and can consistently produce mixes with 70% RAP. Astec has also enhanced its Double Barrel equipment line by providing a system with increased drum length and an external mixer that provides the capability to use up to 65% RAP without pre-drying.
The components in Astec's asphalt mixing plants are fully automated and use both microprocessor-based and programmable logic control systems for efficient operation. The plants are manufactured to meet or exceed federal and state clean air standards. Astec also builds batch type asphalt plants and has developed specialized asphalt recycling equipment for use with its hot-mix asphalt plants.
Many of the Company’sour highly technical, sophisticated large asphalt plants, while ideally suited for the United States domestic market, are not as well suited in many international markets. In 2019, Astecwe completed testing of its new Voyagerour Vantage 140 portable asphalt plant designed specifically for the international market. The Voyager 140’sVantage design is based upon Astec’sour proven Double Barrel drum mixer and has production capacity of 140 metric tons per hour and RAP mixing capabilities of 50%; the Voyager 140. The Vantage also provides full-size plant features in a compact highly-portable configuration. Additionally, we have expanded our mobile plant offering with the newly designed Ventura 140. The Ventura is designed with a counter-flow drying drum that feeds an external coater and provides production rates up to 140 metric tons per hour of virgin mix and is used where recycled material is not available. The Ventura 140SL portable asphalt plant is also focused on satisfying needs of the international market and introduces a smaller, more mobile plant design with single-load capability. We have also developed the new, hybrid-powered FT4250 mobile impactor plant. Hybrid power allows operators flexible power options using either line power or a genset that allows for reduced noise levels, no engine emissions and the ability to run indoors.
Roadtec manufactures asphalt pavers, material transfer vehicles, milling machines, soil stabilizing-reclaiming machinery and other equipment used in road building and resurfacing. RoadtecOur pavers have been designed to minimize maintenance costs while exceeding road surface smoothness requirements. TheGenerally, our equipment offered by Roadtec can be used in tandem with each other or separately with equipment already owned by the customer.
Roadtec's Shuttle Buggy is a Our mobile, self-propelled material transfer vehicle which("Shuttle Buggy") allows continuous paving by separating truck unloading from the paving process while remixing the asphalt. A typical asphalt paver must stop paving to permit truck unloading of asphalt mix. By permitting continuous paving, the Shuttle Buggy allows the asphalt paver to produce a smoother road surface while reducing the time required to pave the road surface and reducing the number of haul trucks required. As a result of the pavement smoothness achieved with this machine, certain states now require the use of the Shuttle Buggy. Studies using infrared technology have revealed problems caused by differential cooling of the hot-mix during hauling, but the Shuttle Buggyremixes the material to a uniform temperature and gradation, thus eliminating these problems. Roadtec’s newest versions of its highly successfulThe Shuttle Buggy includes the Guardian System that is designed to anticipate equipment maintenance needs resulting in more uptime reliability while also providing production and performance data as well as real timereal-time location information to the owner. Roadtec’sThe SB3000 model introduced to the market in 2020, incorporates features and technology to improve the user experience in terms of improved visibility, ground level operation, as well as improved material handling and vehicle transportability. Our Spray Paver model, which is recommended for use with the Shuttle Buggy, is also designed to carry and spray tack coat directly in front of the hot mix asphalt in a single process, thus eliminating the need for a separate tack truck.
Roadtec also manufactures millingMilling machines designed to remove old asphalt from the road surface before new asphalt mix is applied. Roadtec'sOur product line of milling machines, which are designed for larger jobs, are manufactured with a simplified control system, wide conveyors, direct drives and a wide range of horsepower and cutting capabilities to provide versatility in product application. In addition to itsthe half-lane and larger highway class milling machines, Roadtecwe also manufacturesmanufacture a smaller, utility class machine for two-to-four foot cutting widths and a utility class cold planer model mounted on steel wheels. The RX-505, our newest cold planer, is equipped with two new safety features that allow for safe cutter drum access and maintenance and obstacle detection while the machine is in reverse.
Additionally, Roadtec currently produces soilSoil stabilizers are produced in multiple configurations of 513HP, 675HP and 755HP. These machines double as asphalt reclaiming machines for road rehabilitations, in addition to their primary purpose of stabilizing soil sub-grades with additives to provide an improved base on which to pave.
Carlson manufactures itsOur patented screeds whichuse a hydraulic powered generator to electrify elements that heat a screed plate so asphalt will not stick to it while paving, attach to asphalt paving machines and place asphalt on the roadbed at a desired thickness and width while smoothing and compacting the surface. CarlsonOur screeds can be configured to fit many types of asphalt paving machines, including machines manufactured by bothus as well as our competitors.
Concrete is one of the Companyworld's most used and its competitors.durable construction materials. Concrete production equipment is primarily manufactured at three facilities: Blair, Burlington and St-Bruno. Together, these three sites produce a market leading product portfolio. The Carlson screed uses a hydraulic powered generatorBlair and St-Bruno sites were acquired in 2020 and joined the Burlington location to electrify elements that heat a screed plate so asphalt will not stick to it while paving. A generator is also available to power tools or lights for night paving. Carlson offers options to its screeds which allow extended paving widths and the addition of a curb on the road edge. Carlson also offers five models of 8 to 15 foot commercial class pavers designed for parking lots, residential driveways and secondary road applications.expand our concrete product line.
Astec AustraliaWe manufacture leading portable and stationary concrete production equipment including transit and central mix concrete plants. Our portable concrete plants are known for quick set-up and tear down as well as exceptionable reliability and longevity over numerous relocations. Our stationary concrete production plants are known for custom-engineered design flexibility suitable for various concrete production sites. Our concrete mixer designs include tilt mixers and horizontal reversing mixers. Both mixer types are available as stationary designs with optional mobile and self-erect features. The tilt mixer is our most popular mixer type for concrete paving and ready mix production while the horizontal reversing mixers are a dealer that markets relocatablelow dust, low noise option primarily marketed to ready mix producers.
We also produce industry leading combustion products for a variety of industrial applications as new applications have grown rapidly. At the present time, our products, most of which are customized for a particular application, are used in a score of different industries and portable asphaltpurposes including chemical plants, at oil-and-gas refineries, on off-shore platforms, on barges, at power generation plants, wood product manufacturers, food processors, textile factories, pharmaceutical producers and componentsroofing manufacturers.
We engineer and develop new products dedicated to improving customers' productivity and profitability. Our products share environmentally conscious designs and are crafted from quality materials by an expert staff of dedicated professionals.
Marketing
The primary purchasers of the products produced by Astec, Heatecthis segment are asphalt producers, highway and CEI, asphalt pavingheavy equipment and components produced by Roadtec and Carlson, and aggregate equipment produced by the Company’s Aggregate & Mining Group. In prior years, a majority of its sales were to customerscontractors, ready mix concrete producers, contractors in the infrastructure industry; however, in 2019, Astec Australia’s sales of the Company’s Aggregateconstruction and Mining products increased,demolition recycling markets and now the split between infrastructuredomestic and aggregate and mining products is closer to 50/50. In addition to selling equipment, Astec Australia provides complete support for its customers’ equipment with service, training and spare parts. Astec Australia also provides turnkey installation solutions for large asphalt plants, aggregate and mining plants and bitumen tank farms.foreign governmental agencies.
Marketing
The Company markets itsWe market our hot-mix asphalt products domestically and internationally primarily under the Astec and Astec Dillman trademarks and internationally under the Astec trademarks.trademark. Asphalt plants and related equipment are sold directly to asphalt producers or domestic and foreign government agencies through Astec'sour domestic and international sales departmentdepartments.
Our concrete products are marketed domestically and internationally under the International Sales Group of Astec IndustriesRexCon, CON-E-CO and BMH trademarks. Our concrete plants and related equipment are sold directly to concrete producers and foreign agencies through a Company-owned dealership (Astec Australia).our domestic and international sales departments. The BMH and CON-E-CO products are also marketed through dealers domestically and internationally.
The Company markets itsWe market our asphalt paving equipment under the Roadtec and Carlson trademarks both domestically and internationally to highway and heavy equipment contractors, utility contractors and foreigndomestic and domesticforeign governmental agencies both directly and through dealers (including Astec Australia in the Australian and New Zealand markets).dealers. Mobile construction equipment and factory authorized machine rebuild services are marketed both directly and through dealers.
This segment’ssegment's products are marketed by 76 direct and dealer support sales staff 51and domestic independent distributors and 59 international independent distributors, including Astec’s subsidiary in Australia.our Australia, AME and Thailand sites.
Raw Materials
Raw materials used in the manufacture of products in the Infrastructure Group include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors and other sources. Raw materials for manufacturing are normally readily available. Most steel is delivered on a “just-in-time” arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but steel is occasionally inventoried after purchase. Other components used in the manufacturing processes include engines, gearboxes, power transmissions and electronic systems. During mid-2018 through mid-2019, the Company engaged an outside consultant to assist in the development of a procurement system designed to take advantage of Company-wide purchasing power and to improve on just-in-time purchasing procedures. These efforts are expected to reduce raw material inventory levels and raw material pricing in the future; however, Section 232 and Section 301 tariffs that went into effect in 2018 continue to negatively impact certain raw materials pricing for the group.
Competition
This industry segment faces strong competition in price, service and product performance and competes with both large publicly-heldpublicly-traded companies and various smaller manufacturers. Domestic hot-mix asphalt plantThe Infrastructure Solutions segment competitors include Gencor Industries, Inc., ADM and Almix. In the international market, the hot-mix asphalt plant competitors include Ammann, Fayat/Marini, Benninghoven/Deere and local manufacturers. Paving equipment and screed competitors include Weiler, Caterpillar Paving Products, Volvo Construction Equipment, Vogele America, Dynapac, Bomag Fayat Group and Lee Boy. The segment's milling machine equipment competitors include Wirtgen, CMI, Caterpillar, Bomag, Dynapac and Volvo.include:
Employees | | | | | | | | |
| Product Categories | | Primary Competitors |
| Asphalt plants and related components | | ADM, Almix, Ammann, Benninghoven (part of Deere & Company), Marini (part of Fayat Group), Gencor Industries, Inc. and local manufacturers |
| Concrete equipment | | Erie-Strayer, Stephens Manufacturing and Vince Hagan |
| Paving and related equipment | | Bomag (part of Fayat Group), Caterpillar Paving Products (part of Caterpillar, Inc.), Dynapac (part of Fayat Group), Lee Boy, Vogele (part of Deere & Company), Volvo Construction Equipment (part of Volvo Group AB) and Weiler |
| Milling equipment | | Bomag (part of Fayat Group), Caterpillar Paving Products (part of Caterpillar, Inc.), CMI, Dynapac (part of Fayat Group), Volvo Construction Equipment (part of Volvo Group AB) and Wirtgen (part of Deere & Company) |
| Forestry and recycling equipment | | Bandit, Doppstadt, Morbark, Rotochopper and Vermeer |
At December 31, 2019, the Infrastructure Group segment employed 1,437 individuals, of which 936 were engaged in manufacturing, 195 in engineering and 306 in selling, general and administrative functions. None of the employees of the Infrastructure Group are covered by collective bargaining agreements.
Backlog
The backlog for the Infrastructure GroupSolutions segment at December 31, 20192021 and 20182020 was approximately $139,081$449.3 million and $149,436,$218.2 million, respectively. Management expects the entire current backlog to be filled in 2020.
Aggregate and Mining GroupMaterials Solutions Segment
Overview
The Company's AggregateMaterials Solutions segment designs and Mining Group is comprised of eight business units which are focused on designing and manufacturingmanufactures heavy processing equipment, as well asin addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. These business units
The Materials Solutions segment was operated from the following sites in 2021:
| | | | | | | | | | | | | | | | | | | | |
| Site | | Location | | Site | | Location |
| AME | | Johannesburg, South Africa | | Omagh | | Omagh, United Kingdom |
| Belo Horizonte | | Belo Horizonte, Brazil | | Sterling | | Illinois, United States |
| EUG-Franklin Blvd | | Oregon, United States | | Thornbury | | Ontario, Canada |
| India | | Ahmedabad, India | | Yankton | | South Dakota, United States |
| Johannesburg | | Johannesburg, South Africa | | | | |
The sites within the Materials Solutions segment are Telsmith, KPI, AMS, JCI, BTI, Osborn, Astec Brazilprimarily manufacturing operations with the AME and Telestack.
Products
Telsmith designs, engineers,India sites functioning to market, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of our manufacturing sites. Belo Horizonte manufactures and supports equipment servicing the construction, aggregate, metallic mining and recycling markets. Telsmith’sasphalt plants in addition to certain core products produced in the Materials Solutions segment. Belo Horizonte also markets products in the Brazilian market that are crushers, vibrating equipment, modular relocatable stationary plants, mobile portable plantsproduced by all of our manufacturing sites. Our India site is in the start-up phase of new sales operations.
Belo Horizonte was a start-up in 2014 and larger track-mounted systems. Telsmith also providesdelivered its first asphalt plant in early 2016; however, sales in the South American market have continued to be hampered by the economic downturn in South America and more specifically in Brazil. We plan to position ourselves to significantly increase the production and sales volumes by Belo Horizonte and have begun manufacturing other product lines at the facility. At December 31, 2021, we had an ownership interest of approximately 93% in Belo Horizonte.
Products and Services
The primary products produced and services provided by the Materials Solutions segment include:
| | | | | | | | | | | | | | |
| Crushing equipment | | Mobile plants | | Bulk material handling solutions |
| Vibrating equipment | | Screening equipment | | Electrical control centers |
| Modular plants and systems | | Conveying equipment | | Plant automation products |
| Portable plants | | Mineral processing equipment | | Consulting and engineering services |
In conjunction with the Materials Solutions products we manufacture, we offer consulting and engineering services to provide complete “turnkey”"turnkey" processing systems. These systems, which often include electrical control centers and plant automation products engineered and produced by Telsmith.we produce.
Telsmith maintains an ISO 9001:2015 certification, an internationally recognized standard of quality assurance. In addition, Telsmith has achieved CE designation (a standard for quality assurance and safety) on its crushing and vibration equipment products marketed into European Union countries.
Telsmith isWe are a world leader in the development of hydraulic relief jaw crushers having patented itsour first model in 2002. Hydraulic relief jaw crushers are a significant improvement in safety, adjustment and clearing of material in jaw crushers. The company’s current Hydra-Jaw® line includes four models: H2238, H2550, H3244 and H3450.
Telsmith offersIn addition, we offer a range of cone crushers to meet critical aggregate or mining needs. Telsmith’s Titan cone crushers range in sizes from a 200 HP machine to a 900 HP mine duty machine. Telsmith’s cone crushersneeds, which include technology features that deliver a distinct performance advantage, such as hydraulic overload protection, chamber clearing, push button adjustment and Telsmith’sa proprietary anti-spin system.
Telsmith’s Vibro-King TLOur vibrating screen line features multiple sizes from 4x10of single deck to 8x24 quadruple deck screens. The “TL” screen vibrator, with its many service minded features, was introduced toscreens and contains the marketplace in 2006 and has been well received by customers. The “Neverwear”"Neverwear" sealing system is guaranteed to keep lubricants in and to never wear out. The “TL” includes wide 233 series bearings for added capacity, simple counterweight adjustments and Telsmith’s unique J-beam tray design.
KPI, JCI and AMS design, engineer,We manufacture and support a complete line of stationary and portable aggregate processing equipment for the aggregate metallic and nonmetallic, bulk handling, sand and gravel, mining, quarrying, concrete and asphalt recycling and industrial markets. This equipment is marketed through an extensive network of KPI/JCI/AMS dealers.
KPI/JCI/AMS products include a complete line of primary, secondary, tertiary and quaternary crushers, including jaw, horizontal shaft impactor, vertical shaft impactor and cone rock crushers as well as industry related washing and conveying equipment, mobile screening plants, portable and stationary screen structures and vibrating and high frequency screens. These rock crushers are used by mining, quarrying and sand and gravel producers to crush oversized aggregate to salable size, in addition to their use for recycled concrete and asphalt. This equipment can be purchased as individual components, as portable plants for flexibility or as completely engineered systems for both portable, stationary and RAP applications. They alsoWe offer the highly-portable Fast Pack System, featuring quick setup and teardown, thereby maximizing production time and minimizing downtime. KPI/JCI/AMSWe also offersoffer portable fully self-contained and self-propelled Fast Trax track-mounted jaw, cone, VSIvertical shaft impactors and horizontal shaft crushers, which are ideal for either recycle or hard rock applications, allowing the producer to move the equipment to the material. The KPI/JCI/AMS expanded GT line of track-mounted crushing and screening plants focuses more specifically on the need for rental andneeds of global markets.
Portable plants combine various combinations of crushing, screening and conveying equipment mounted on tow away chassis and track chassis configurations. Due to high transportation costs of construction materials, many producers use portable equipment to process materials they need in close proximity to their job sites. Portable plants allow aggregate producers the ability to quickly and efficiently move equipment from one location to another as their jobs necessitate. The portable track plants are fully self-contained and allow operators to be producing materials within minutes of unloading equipment off of their transport trucks. Track-mounted crushing and screening plants enable contractors to perform jobs that in the past were not economically feasible and also allow our dealers to compete in the large track-mounted rental market.
KPI/JCI/AMS sandSand classifying and washing equipment is designed to clean, separate and re-blend material from sand deposits to meet the size specifications for critical applications. Products offered include fine and coarse material washers, log washers, blade mills, sand classifying tanks, cyclones, dewatering screens, density classifiers, sieve bend screens and attrition cells. Additional portable and stationary plants are also offered to handle the growing needs in construction sands, specialty sands and fines recovery. Screening plants are available in both stationary and highly portable models and are complemented by a full line of radial stacking and overland belt conveyors. Screening plants also serve the recycle, crushed stone, industrial and general construction industries.
KPI/JCI/AMS conveyingConveying equipment is designed to move or store aggregate and other bulk materials in radial cone-shaped or windrow stockpiles. TheOur SuperStacker telescoping conveyor and Wizard Touch automated controls are designed to add efficiency and accuracy to whatever the stockpile specifications require. Additionally, high capacity rail and barge loading/unloading material handling systems are an important part of the KPI/JCI/AMSour product lines.
BTl designs, engineers, manufactures and markets aOur complete line of industry leading rockbreakerrock breaker systems for the mining, quarry and recycling markets and providesprovide large-scale stationary rockbreakersrock breakers for open pit mining, as well as mid-sized stationary rock breakers for underground applications. In addition, BTI offerswe offer a full line of smaller rock breaker systems for mobile track and portable primary crushing plants. BTl also designs, engineers, manufactures and marketsplants as well as a completefull line of four wheelfour-wheel drive articulated production and utility vehicles, scalers and rock breakers for underground mining.
In addition to supplying equipment for the mining and quarry industries, BTl also designs, manufactures and markets a complete line of hydraulic breakers, compactors and demolition attachments for the North American construction and demolition markets.
BTl currently maintains ISO 9001:2015 (quality assurance) and ISO 14001:2015 (environmental assurance) certifications, internationally recognized standards of quality and environmental assurance. In addition, BTI transitioned to ISO Occupational Health & Safety standards during 2019. BTl offers an extensive aftermarket sales and service program through a highly qualified and trained dealer network.
In 2019, Osborn, which is located in South Africa and serves the global mining and aggregate market, celebrated its 100th year of being in business. Osborn maintains ISO 9001:2015 certification. Osborn designs, engineers, manufactures, sales and supports a range of mineral processing equipment in the aggregate and mining sectors. In addition to the products it licenses from Telsmith and KPI, Osborn also designs and manufactures the Double Toggle Crushers, screens and apron feeders. Osborn has a reputation for quality manufacture of modular and containerized crushing and screening solutions. Osborn also supports the marketing of other Astec brands in the sub-Saharan Africa market.
Assembly operations began in Astec Brazil’s newly constructed 132,400 square foot facility in the fourth quarter of 2014, and complete production operations began in the first quarter of 2015. Manufacturing operations, sales, distribution and product support are all located within the facility, which currently has 87 employees, up from 57 employees at the end of 2018. The Company is expected to utilize 120 employees at the facility when it reaches full capacity. Products manufactured by Astec Brazil include crushing equipment, vibrating equipment, stationary plants, mobile portable systems and asphalt plants. Astec Brazil represents the brands of KPI/JCI/AMS, BTI and Telsmith in the aggregate and mining markets and Astec, Inc. in the asphalt market. Astec Brazil also markets products in the Brazilian market that are produced by the other Astec Aggregate and Mining companies and Astec asphalt plants.
Astec Brazil delivered its first asphalt plant in early 2016; however, sales in the South American market have continued to be hampered by the economic downturn in South America and more specifically in Brazil. The Company plans to position itself to significantly increase the production and sales volumes by Astec Brazil and also plans to manufacture other product lines at the facility once the business environment improves in the region. The Company currently has a 93% ownership interest in Astec Brazil.
Telestack designs, engineers, manufactures and marketsOur mobile bulk material handling solutions that are designed to handle all free-flowing bulk materials, including but not limited to ores, coal, aggregates, fertilizers, grains, woodchips and pellets. Telestack’s comprehensive suitepellets and are sold globally.
Many of product offerings is sold on a global basisour facilities maintain internationally recognized industry standard quality, environmental and operates within a significant number of working environments such as mines, quarries, ports, rail yards, power stations and steel mills.
Telestack maintains ISO 9001:2015 (quality assurance), ISO 14001:2015 (environmental assurance) and ISO 45001:2018 (healthhealth and safety assurance)assurance accreditations. Telestack is also an approved supplier of equipment that conforms to Australian Mining Standards (AS 4324:1 and AS 3000).
Marketing
Aggregate processing and mining equipment is marketed by approximately 132 direct sales employees, 142 domestic independent distributors and 153 international independent distributors. The principal purchasers of aggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal authorities, power stations and domestic and foreign governmental agencies.
Materials Solutions' equipment and aftermarket sales and service program are primarily marketed through an extensive network of dealers by dealer support sales employees and domestic governmental agencies.and international independent distributors.
Competition
The Materials Solutions segment faces strong competition in price, service and product performance. Materials Solutions equipment competitors include the following as well as smaller manufacturers, both domestic and international:
| | | | | | | | | | | | | | |
| CDE Global | | McCloskey | | Terex |
| Deister | | McLanahan | | Thor |
| Epiroc | | Metso Minerals | | Weir Minerals (Trio) |
| Edge Innovate | | Sandvik Mining and Construction | | Kleemann (part of Deere & Company) |
| Masaba | | Superior Industries | | |
Backlog
At December 31, 2021 and 2020, the backlog for the Materials Solutions Group was approximately $313.3 million and $142.3 million, respectively.
Corporate
The Corporate category consists of our parent company and our captive insurance company, Astec Insurance, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments. Our parent company and our captive insurance company provide support and corporate oversight for all the sites. We record U.S. federal income tax expenses and state deferred taxes for all business segments on the parent company's books; therefore, these taxes are included in the Corporate category for segment reporting.
Common to Both Reporting Segments
The following information applies to both the Infrastructure Solutions and the Materials Solutions reporting segments.
Manufacturing
We manufacture many of the component parts and related equipment for our products, while several large components of our products are purchased "ready-for-use", such items include engines, axles, tires and hydraulics. In many cases, we design, engineer and manufacture custom component parts and equipment to meet the particular needs of individual customers. Manufacturing operations during 2021 took place through 16 of our sites. Our manufacturing operations consist primarily of fabricating steel components and the assembly and testing of our products to ensure that we achieve quality standards.
Raw Materials
We purchase raw materials and some manufactured components and replacement parts for our products from leading suppliers both domestically and internationally. Raw materials used in the manufacture of our products in the Aggregate and Mining Group include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors.distributors and other sources. Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but is occasionally inventoried after purchase. Raw materials for manufacturing are normally readily available; however, certain highly customized components may require longer than normal lead times. During mid-2018 through mid-2019,In addition, we have experienced challenges related to our supply chain attributable to the Company engaged an outside consultant to assist in the development of a procurement system designed to take advantage of Company-wide purchasing power and to improve on just-in-time purchasing procedures. These efforts are expected to reduce raw material inventory levels and raw material pricing in the future; however, Section 232 and Section 301 tariffs that went into effect in 2018 continue to negativelyongoing impact certain raw materials pricing for the group. Purchased raw materials from China, in the form of carbon steel and manganese castings, ductile iron castings and other components are continuing to be reviewed for sourcing from other global suppliers. BTI purchases hydraulic breakers under a purchasing arrangement with a South Korean supplier. The Company believes the South Korean supplier has sufficient capacity to meet the Company's anticipated demand; however, alternative suppliers exist for these components should any supply disruptions occur.
Competition
The Aggregate and Mining Group faces strong competition in price, service and product performance. Aggregate and Mining equipment competitors include Metso Minerals, Sandvik Mining and Construction, Terex MP and Powerscreen, Epiroc (formerly Atlas Copco Mining), Thor, Masaba, Edge Innovate, McCloskey, Superior Industries, Wirtgen (Klemmann), Deister, McLanahan, CDE Global, Weir Minerals (Trio) and other smaller manufacturers, both domestic and international.
Employees
At December 31, 2019, the Aggregate and Mining Group segment employed 1,454 individuals, of which 1,019 were engaged in manufacturing, 132 in engineering and engineering support functions and 303 in selling, general and administrative functions.
Telsmith has a labor agreement covering approximately 102 manufacturing employees; it expires on March 9, 2022. Additionally, approximately 113 of Osborn's manufacturing employees fall within the scope of a collective labor union agreement that expires on June 30, 2020. Finally, Astec Brazil is continuing negotiations with the union covering all its employees because the union agreement expired on September 30, 2019. Astec Brazil expects a new agreement will be ratified without any significant impact. None of the other employees of the Aggregate and Mining Group are covered by collective bargaining or similar labor agreements.
Backlog
At December 31, 2019 and 2018, the backlog for the Aggregate and Mining Group was approximately $74,127 and $130,691, respectively. Approximately $48,193 of the decrease in backlogs between years relates to orders from domestic U.S. customers. Management expects the current backlog to be filled in 2020.
Energy Group
The Company’s Energy Group is currently comprised of six business units focused on supplying heavy equipment such as heaters, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, storage equipment, construction, and water well industries, as well as commercial and industrial burners used primarily in commercial, industrial and process heating applications. The business units currently included in the Energy Group are Heatec, CEI, GEFCO, Peterson, Power Flame and RexCon. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020. The Company is also in the process of closing its CEI facility and moving its product line operations, equipment and inventories to other Company business units, primarily RexCon and Heatec.
Products
Heatec designs, engineers, manufactures and markets a variety of thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems under the HEATEC trademark. For the construction industry, Heatec designs and manufactures a complete line of asphalt heating and storage equipment to serve the hot-mix asphalt industry, including complete asphalt terminal facilities, polymer plants and emulsion facilities. In addition, Heatec builds a wide variety of heaters to fit a broad range of applications, including heating equipment for marine vessels, roofing material plants, refineries, oil sands, energy related processing, chemical processing and water heaters for many industrial applications. During 2020, Heatec will absorb the design, manufacturing and marketing of thermal fluid hearers, portable and stationary storage tanks, rubberized asphalt and polymer blending systems for the asphalt and other industries previously produced by CEI. Heatec has the technical staff to custom design heating systems and has systems operating as large as 75 million BTU's per hour.
GEFCO designs and manufactures portable drilling rigs and related equipment for the water well, environmental, geothermal, geotechnical, groundwater monitoring, and construction industries. Portable drilling rigs are offered in a variety of designs with optional equipment, including truck, trailer or track mounted units, diesel engine on deck or power take-off powered units, hydraulic pump drives, transmission, hydraulic pumps and motors, hydraulic cylinders, gear boxes, plumbing and all related controls. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020.
Peterson designs, engineers, manufactures and distributes large whole-tree pulpwood chippers, biomass chippers, horizontal grinders and blower trucks primarily for the construction, landscaping, recycling, and biomass energy markets.
Power Flame, a market leader in its segment, designs, engineers, manufactures and markets commercial and industrial burners and combustion control systems. Power Flame produces a broad range of natural gas, fuel oil, or combination-fueled models with outputs ranging from 400 thousand BTU’s to 120 million BTU’s per hour. Power Flame’s burners are used primarily in commercial, industrial and process heating applications.
RexCon was formed to acquire substantially all of the assets and liabilities of RexCon LLC on October 1, 2017. RexCon is a leader in the design and production of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment for contractors and ready mix concrete producers. During 2020, RexCon will absorb the concrete plant product lines previously produced by CEI.
Marketing
The Energy Group markets its products domestically through a combination of employee sales agents, manufacturer representatives and distributors, while international sales efforts are typically conducted with the assistance of independent sales agents. The group’s products are marketed by approximately 54 direct sales employees, 81 domestic independent distributors and 42 international independent distributors. Customers typically include oil and gas field operators, industrial product manufacturers, independent contractors, ready mix concrete producers, heating equipment distributors and government agencies. The market for the Company's heat transfer equipment is diverse because of the multiple applications for such equipment.
Raw Materials
Raw materials used in the manufacture of products in the Energy Group include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources. Raw materials for manufacturing are normally readily available. Most steel is delivered on a “just-in-time” arrangement from suppliers to reduce inventory requirements at the manufacturing facilities, but steel is occasionally inventoried after purchase. During mid-2018 through mid-2019, the Company engaged an outside consultant to assist in the development of a procurement system designed to take advantage of Company-wide purchasing power and to improve on just-in-time purchasing procedures. These efforts are expected to reduce raw material inventory levels and raw material pricing in the future; however, Section 232 and Section 301 tariffs that went into effect in 2018 continue to negatively impact certain raw materials pricing for the group. ComponentsCOVID-19 pandemic. Other components used in the manufacturing processprocesses include engines, hydraulic pumps and motors, gearboxes, track clutches, burners, power transmissions and electronic systems.
Competition
The Energy Group faces strong competition in price, service and product performance and competes both with large companies that have resources significantly greater than those of the Company and with various smaller manufacturers. Major competitors include Gencor, Almix, Fulton, Sigma Thermal, Erie Strayer, Con-E-Co, Meeker, Versa Drill, Schramm, Epiroc, National Oilwell Varco, Forum Energy Tech, Oil Country, Stewart & Stevenson, Dragon, Morbark, CBI (Terex), Precision Doppstadt, Bandit, Jenz, Komptech, Finn Corp, Webster Engineering, Cleaver Brooks, Riello, Industrial Combustion, Limpsfield Combustion and Stephen’s Manufacturing.
Employees
At December 31, 2019, the Energy Group segment employed 906 individuals, of which 599 were engaged in manufacturing, 112 in engineering and 195 in selling, general and administrative functions. Approximately 81 of GEFCO’s manufacturing employees fall within the scope of a collective bargaining agreement that expires on June 20, 2021. Power Flame is a party to a collective bargaining agreement that applies to approximately 97 of its manufacturing employees and expires on December 8, 2022. None of the other employees of the Energy Group are covered by collective bargaining agreements.
Backlog
The backlog for the Energy Group at December 31, 2019 and 2018 was approximately $50,497 and $64,834, respectively. The majority of the decline in orders between years related to orders from domestic U.S. customers. Management expects the entire current backlog to be filled in 2020.
Corporate (Other Business Units)
This category consists of the business units that do not meet the requirements of separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes Astec Industries, Inc., the Parent Company, Astec Insurance Company, a captive insurance company and our sales organization in Chile, Astec LatAm. The Parent Company and the captive provide support and corporate oversight for all the other business units. The Company records U.S. federal income tax expenses and state deferred taxes for all business segments on the Parent Company’s books; therefore, these taxes are included in the Corporate category for segment reporting. Astec LatAm operated for most of 2019 as a start-up operation until late 2019, but it was fully functioning as an Astec international sales office by the end of 2019.
Employees
At December 31, 2019, the Corporate category employed 69 individuals, of which 61 were engaged in executive management, corporate finance, and administrative functions, and of which 8 were located in the Astec LatAm sales office.
Common to All Operating Segments
The following information applies to all operating segments of the Company.
Raw Materials
Steel is a major component in the Company’s equipment. Steel prices declined during the second half of 2019, returning to pricing prior to the Section 232 and 301 tariff programs instituted in 2018. Expected seasonal increases are occurring as we enter 2020 and service centers replenish inventories. Some additional moderate increases are anticipated in the near term as some supply has been temporarily constrained; however, we expect pricing to weaken in the latter part of 2020 due to seasonality and additional supply slated to come online in 2021. The Company continues to utilize forward-looking contracts coupled with advanced steel purchases to minimize the impact of any price increases. The Company will review the trends in steel prices entering into the second half of 2020 and establish future contract pricing accordingly.
Government Regulations
The Company isWe are subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and other countries. The Environmental Protection Agency, the Occupational Safety & Health Administration, other federal agencies and certain state agencies have the authority to promulgate regulations that have an effect on the Company’sour operations. Many of these federal and state agencies may seek fines and penalties for violations of these laws and regulations. The Company hasWe have been able to operate under these laws and regulations without any material adverse effect on itsour business.
None of the Company's operating segments operateour reporting operations are within highly regulated industries. However, air pollution control equipment manufactured by the Company,we manufacture, principally for hot-mix asphalt plants, must comply with certain performance standards promulgated by the federal Environmental Protection Agency under the Clean Air Act applicable to “new sources”"new sources" or new plants. Management believes the Company'sWe believe our products meet all material requirements of such regulations, and applicable state pollution standards and environmental protection laws.
In addition, due to the size and weight of certain equipment the Company manufactures, the Companywe manufacture, we and itsour customers may encounter various state regulations on maximum weights transportable on highways. Also, some states have regulations governing the operation of asphalt mixing plants, and most states have regulations relating to the accuracy of weights and measures, which affect some of the control systems manufactured by the Company.we manufacture.
Compliance with these government regulations has nonot had a material effect on the Company’sour capital expenditures, earnings or competitive position within the market.market to date.
Employees
At December 31, 2019, the Company and its subsidiaries employed 3,866 individuals (down from 4,401 at the end of 2018), of which 2,554 were engaged in manufacturing, 439 in engineering, including support staff, and 873 in selling, administrative and management functions.
Other than the Telsmith, Osborn and Astec Brazil labor agreements described under the “Employee” subsection of the Aggregate and Mining Group above and the GEFCO and Power Flame labor agreements described under the “Employee” subsection of the Energy Group above, there are no collective bargaining agreements applicable to employees of the Company or its subsidiaries. The Company considers its employee relations to be good.
Manufacturing
The Company manufactures many of the component parts and related equipment for its products, while several large components of its products are purchased “ready-for-use”. Such items include engines, axles, tires and hydraulics. In many cases, the Company designs, engineers and manufactures custom component parts and equipment to meet the particular needs of individual customers. Manufacturing operations during 2019 took place at 20 separate locations. The Company's manufacturing operations consist primarily of fabricating steel components and the assembly and testing of its products to ensure that the Company achieves quality standards.
Seminars and Technical Bulletins
The Company periodically conducts technical and service seminars, which are primarily for dealer representatives, contractors, owners, employees and other users of equipment manufactured by the Company. These seminars, which are led by Company management and employees, along with select outside speakers and discussion leaders, cover a range of subjects, including, but not limited to operational and service processes, technological innovation, promotional programs, customer and dealer training and previews of future products.
In addition to seminars, the Company publishes a number of technical bulletins and information bulletins detailing various technological and business issues relating to the industries in which it operates.
Patents and Trademarks
The Company seeksWe seek to obtain patents to protect the novel features of itsour products and processes. The Company'sOur subsidiaries hold 103116 United States patents and 119142 foreign patents. The Company’sOur subsidiaries have 6016 United States and 10140 foreign patent applications pending.
The Company and its subsidiariesWe have 8683 trademarks registered in the United States, including logos for Astec, Carlson Paving, GEFCO, Heatec, KPI-JCI, Peterson Pacific, Power Flame, Roadtec and Telsmith, and the names ASTEC, CARLSON, HEATEC, JCI, KOLBERG, PETERSON, POWER FLAME, ROADTEC and TELSMITH, as well as a number of other product names. The CompanyWe also has 113have 126 trademarks registered in foreign jurisdictions, including Argentina, Australia, Brazil, Canada, China, European Union, France, Germany, India, Italy, Kazakhstan, Mexico, New Zealand, Paraguay, Peru, Russia, South Africa, South Korea, Taiwan, Thailand, United Kingdom, Ukraine, Uruguay and Vietnam. The Company and its subsidiariesWe have 1213 United States and 1224 foreign trademark registration applications pending.
Engineering and Product Development
The Company dedicatesWe conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our engineering and research and development efforts are key drivers of our success in the marketplace and dedicate substantial resources to engineering and product development. At December 31, 2019,development activities including establishing an Innovation Services team. Our Innovation Services team has experts in advanced fields, such as simulation and digital twin creation, who support our development initiatives. In addition, we are focused on innovation in our products to support the Company and its subsidiaries had 439 full-time individuals employed in engineering and design capacities."Rock to Road" value chain.
Seasonality and Backlog
Revenues for recent years, adjusted for acquisitions, have beentypically are strongest during the first, second and fourth quarters with the third quarter consistently being weaker.generating weaker results. We expect future operations in the near term to be typical of this historical trend.
As of December 31, 20192021 and 2018, the Company2020, we had a backlog for delivery of products at certain dates in the future of approximately $263,705$762.6 million and $344,962,$360.5 million, respectively. Approximately $66,000$346.4 million of the declineincrease in backlog between periods relates to orders from domestic customers. The Company'sOur contracts reflected in the backlog generally are not, by their terms, subject to termination. Management believes the Company is in substantial compliance with all manufacturing and delivery timetables.
Competition
Each business segment operates in domestic markets that are highly competitive with respect to price, service and product quality. While specific competitors are named within each business segment discussion above, imports do not generally constitute significant competition for the Companyus in the United States, except for milling machines and track-mounted crushers. In international sales, however, the Companywe often competescompete with foreign manufacturers that may have a local presence in the market the Company iswe are attempting to penetrate.
In addition, asphalt and concrete are generally considered competitive products as a surface choice for new roads and highways. A portion of the interstate highway system is surfaced in concrete, but over 90% of all surfaced roads in the United StatesU.S. are paved with asphalt. Although concrete is used for some new road surfaces, asphalt is used for most resurfacing. Our customers generally offer both asphalt and concrete surfacing options. Our investment in concrete batch plants in 2020 enables us to be a singular provider to our customers for both asphalt and concrete equipment.
Human Capital Resources and Management
Our employees around the world are each guided by our purpose: Built to Connect, and our vision: To connect people, processes and products, advancing innovative solutions from "Rock to Road" as OneASTEC. Every employee is also guided by our values and our code of business conduct. In everyday work, our employees embody our core values of Safety, Devotion, Integrity, Respect and Innovation. They do so by living our winning behaviors of Open and Honest Communications, Drive Creativity, Customer Driven Innovation and OneASTEC in all we do. We strive to be an employer of choice, attracting and retaining top talent committed to creating a diverse, equitable and inclusive workplace where individuals are respected and valued for their diverse backgrounds and experiences. Through comprehensive compensation and benefits and a focus on safety, we strive to support our employees' overall well-being.
In 2021, we executed our first global employee engagement survey. In total, 73% of our workforce responded and provided us with valuable feedback. Throughout the year we have focused on the three main areas of opportunity identified: communication, performance management and diversity.
Employee Profile
As of December 31, 2021, we employed 4,041 individuals, including 3,437 employees in the U.S. and Canada. We also retain consultants, independent contractors and temporary and part-time workers. As of December 31, 2021, the functional representation of our employees was as follows: 2,646 were engaged in manufacturing, 393 in engineering, including support staff, and 1,002 in selling, administrative and management functions.
Unions are certified as bargaining agents for approximately two percent of our U.S. direct employees. From time to time, our collective bargaining agreements expire and come up for renegotiation. Approximately 82 of our active U.S. employees are covered by a collective bargaining agreement with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO-CLC on behalf of its local affiliate Local Union No. 11-508-03, with an expiration date of December 8, 2022. Unions also represent approximately 25% of our employees at our manufacturing facilities outside the U.S. We consider our employee relations to be good.
Compensation and Benefits
As we strive to be an employer of choice, we provide competitive and robust compensation and benefits. We achieve this by regularly conducting market reviews and adjusting as needed. In addition to salaries, we provide regional programs, that can include annual bonuses, share-based compensation awards, a 401(k) plan with employee matching opportunities, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, flexible work schedules, adoption and surrogacy assistance, employee assistance programs, tuition assistance and on-site services.
Health and Safety
The well-being and safety of our employees is a paramount value for us and this is consistent with our core values. We manage safety at (and from) the highest levels, using the same tools we employ to measure and improve other aspects of business performance, such as continuous improvement, key performance indicators, scorecards and performance management. More particularly, we undertake the following actions:
•provide mandatory safety trainings each month at our production facilities, which are designed to focus on empowering our employees with the knowledge and tools they need to make safe choices and to mitigate risks;
•track safety leading and lagging indicators;
•local management cascades safety practices throughout the organization, including daily "safety huddles" for each work-shift;
•we use safety scorecards, standardized signage, and visual management throughout our facilities, in addition to traditional safety training;
•regularly conduct monthly safety calls to discuss and share best practices with the local safety managers; and
•distribute monthly employee newsletters and executive-led town hall meetings.
We aspire to reduce lost time and recordable injuries each year. During the year ended December 31, 2021, we had zero recordable injuries at five of our sites. However, we experienced a 23% increase in our recordable injuries across all sites compared to the year ended December 31, 2020. Our Occupational Safety and Health Administration Incident Rate experienced an increase from 1.39 for the year ended December 31, 2020 to 1.71 for the year ended December 31, 2021.
In response to the COVID-19 pandemic, we implemented significant changes that we determined were in the best interest of our employees, partners and the communities in which we operate, and which complied with government orders. This included having those employees who could, work from home and implementing additional safety measures for our production and other employees continuing critical on-site work. Closely following the recommendations of the World Health Organization, the U.S. Centers for Disease Control and local governments, we took numerous actions to ensure the health and safety of our employees.
As a result of the effects of the COVID-19 pandemic, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations. This has resulted in a variety of challenges in running our operations efficiently as well as meeting manufacturing demand. We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.
Talent Development, Diversity, Equity and Inclusion
Talent and Diversity are key components of our OneASTEC business model. We strive to create an environment that attracts top talent and where high performance is fostered and thrives, continuous learning is engrained, diverse experience is leveraged as a competitive advantage and careers are propelled forward.
In 2021, we developed and implemented a new Performance Management model and process company-wide to align our efforts to achieve company goals and targets. This new model includes values, professional development and cascaded common performance goals.
We provide all employees a wide range of professional development experiences, both formal and informal, at various stages in their careers. In addition, talent development and succession planning for critical roles is a cornerstone of our talent program. Development plans are created and monitored for critical roles to ensure progress is made along the established timelines.
One of our core values – Respect – reflects the behavior we strive to include in every aspect of the way we conduct business. We recognize that our best performance comes when our teams are diverse and inclusive. We continue to define our diversity, equity and inclusion strategy. These efforts touch all levels of our organization including our Board of Directors, which is currently comprised of 20% women.
Corporate and Available Information
The Company’s internet website can be found at www.astecindustries.com.Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. We make available, free of charge on or through our internet website (www.astecindustries.com), access to our annual reportAnnual Reports on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K, andProxy Statements on Schedule 14A Section 16 reports, amendments to those reports, and other documents filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission.Commission ("SEC"). Information contained in our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.10-K or any other report we file with or furnish to the SEC.
The SEC also maintains electronic versions of our reports on its website at www.sec.gov.
ITEM 1A. RISK FACTORS
The following risks are considered material to our business, operating results and financial condition based upon current knowledge, information and assumptions. This discussion of risk factors should be considered closely in conjunction with Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and the accompanying notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us, or that we presently deem less significant, may also impair our business, operating results and financial condition. If any of the following risks actually occur, our business operating results and financial condition could be materially adversely affected. The order of these risk factors does not reflect their relative importance or likelihood of occurrence. Some of these risks and uncertainties could affect particular lines of business, while others could affect all of our businesses. We, except as required by law, undertake no obligation to update or revise this risk factors discussion, whether as a result of new developments or otherwise.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic continues to present risks that have and could continue to materially and adversely affect our business, financial condition, results of operations and/or cash flows.
The emergence of the COVID-19 pandemic has significantly impacted our operations. Throughout 2020, our operations were adversely effected by significantly weakened demand for our products given the global economic uncertainty resulting from the pandemic. While demand for our products has recovered throughout the pandemic, our operations continue to be adversely affected by the contributory effects of the pandemic, including supply chain disruptions, higher supply costs, including, in particular, higher steel costs, and labor shortages, disruptions and higher labor costs and longer contracting times. Furthermore, any future governmental measures taken in response to the pandemic, including travel bans and restrictions, quarantines, shelter in place orders and business closures or vaccine mandates, could further impact our operations as well as demand for our products. Restrictions on access to our manufacturing facilities or on the support operations or workforce, or similar limitations for suppliers and dealers, as well as restrictions or disruptions of transportation, port closures, increased border controls or closures, and material and component supply shortages have limited and could continue to limit our ability to meet customer demand, which could have a material adverse effect on our financial condition, cash flows and results of operations. There is no certainty that current or future measures taken by governmental authorities will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.
Uncertainties related to the continuing impact of the COVID-19 pandemic on our business include: the duration and impact of the resurgence in COVID-19 cases (including as a result of new variants of the virus) and the efficacy of the COVID-19 vaccination program in any country, state, or region; prolonged reduction or closure of our operations, or a delayed recovery in our operations; additional closures as mandated or otherwise made necessary or advisable by governmental authorities; disruptions in the supply chain and a prolonged delay in resumption of operations by one or more key suppliers, or the failure of any key suppliers to deliver products; our ability to meet commitments to our customers on a timely basis as a result of increased costs and supply challenges; the ability to receive goods on a timely basis and at anticipated costs; increased logistics costs; delays in our strategic initiatives as a result of reduced spending on research and development; additional operating costs and inefficiencies due to remote working arrangements, adherence to social distancing guidelines and other pandemic related workplace challenges; absence of employees due to illness; the impact of the pandemic on our customers and dealers business operations, and their delays in their plans to invest in new equipment; requests by our customers or dealers for payment deferrals and contract modifications; the impact of disruptions in the global capital markets and/or declines in our financial performance, outlook or credit ratings, which could impact our ability to obtain funding in the future; currency fluctuations and volatility resulting from economic uncertainty due to the pandemic's global impacts; and the impact of the pandemic on demand for our products and services. All of these factors could materially and adversely affect our business, liquidity, results of operations and financial position and the ultimate magnitude of COVID-19 related effects is dependent on these uncertainties. As a result, we cannot at this time predict the impact of the COVID-19 pandemic, but it could have a continuing material and adverse effect on our business, financial condition, results of operations and/or cash flows. Furthermore, the COVID-19 pandemic could heighten the other risks and uncertainties set forth in the risk factors below. Please also see the discussion on our response to COVID-19 in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this report and Item 1. Business of this report, "Human Capital Resources and Management".
Economic and Industry Risks
Downturns in the general economy or thedecreases in commercial and residential construction industriesspending or government infrastructure spending may adversely affect our revenues and operating results.
General economic downturns, including downturns in government infrastructure spending and the commercial and residential construction industries, could result in a material decrease in our revenues and operating results. Demand for many of our products, especially in the commercial construction industry, is cyclical. Sales of our products are sensitive to the states of the U.S., foreignspecific locations and regional economies in which they are sold in general, and in particular, changes in commercial construction spending and government infrastructure spending. In addition, many of our costs are fixed and cannot be quickly reduced in response to decreased demand. TheSeveral factors, including the following, factors could cause a downturn in the commercial and residential construction industries:industries in which we operate:
| ● | •a decrease in the availability of funds for construction; |
| ● | declining economy domestically and internationally; |
| ● | labor disputes in the construction industry causing work stoppages; |
| ● | rising gas and oil prices; |
| ● | rising steel prices and steel surcharges; |
| ● | energy or building materials shortages; |
| ● | availability of credit for customers. |
Downturns in the generalavailability of funds for construction;
•declining economy domestically and restrictionsinternationally;
•labor disputes in the construction industry causing work stoppages;
•rising gas and oil prices;
•rising steel prices and steel surcharges;
•rising interest rates;
•energy or building materials shortages;
•natural disasters and inclement weather; and
•availability of credit markets may negatively impact our earnings, cash flows and/or financial position and access to financing sources by the Company and ourfor customers.
Worldwide economic conditions and the international credit markets significantly deteriorated in recent years and may remain depressed for the foreseeable future. Continued deterioration of economic conditions and credit markets could adversely impact our earnings as sales of our products are sensitive to general declines in U.S. and foreign economies and the ability of our customers to obtain credit. In addition, we rely on the capital markets and the banking markets to meet our financial commitments and short-term liquidity needs if internal funds are not available from our operations. Further disruptions in the capital and credit markets, or deterioration of our creditors' financial condition, could adversely affect the Company's ability to draw on its revolving credit facility. The Company’s current credit facility, as amended in February 2019, expires in December 2023, and deterioration in the credit markets could make it more difficult or expensive for us to replace our current credit facility, enter into a new credit facility or obtain additional financing.
A decrease or delay in government funding of highway construction and maintenance may cause our revenues and profits to decrease.
Many of our customers depend on government funding of highway construction and maintenance and other infrastructure projects. Any decrease or delay inHistorically, much of the U.S. highway infrastructure market has been driven by government funding of highway constructionspending programs, and maintenance and other infrastructure projects could cause our net sales and profits to decrease. Historically, federal government funding of infrastructure projects has typically been accomplished through bills that establish funding over a multi-year period, such asperiod. For example, the Safe, Accountable, FlexibleU.S. government funds highway and Efficient Transportation Equityroad improvements through the Federal Highway Trust Fund Program. This program provides funding to improve the nation's roadway system. In November 2021, the U.S. government enacted the Infrastructure Investment and Jobs Act - A Legacy for Users (“SAFETEA-LU”("IIJA"), which provided $286.5. The IIJA allocates $548 billion in government spending to fund federal transit projects from 2004 to 2009. SAFETEA-LU funding expired on September 30, 2009, and federal transportation funding operated on a number of shorter term appropriations until December 4, 2015 when the Fixing America’s Surface Transportation Act (“FAST Act”) was enacted. Among other expenditures, the FAST Act approved funding for highways of approximately $205 billion and funding for transit projects of approximately $48 billion fornew infrastructure over the five-year period ending September 30, 2020.concluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects.
Given the inherent uncertainty in the political process, the level of government funding for federal highway projects will similarly continue to be uncertain. Governmental funding that is committed or earmarked for federal highway projects is always subject to political decision making that may result in repeal or reduction. Although continued funding under the FAST Act is expected, it may be at lower levels than originally approved. In addition, Congress could pass legislation in future sessions that would allow for the diversion of previously appropriated highway funds for other national purposes, or it could restrict funding of infrastructure projects unless states comply with certain federal policies.
The cyclical nature of our industry and the customization of the equipment we sell may cause adverse fluctuations to our revenues and operating results.
We sell equipment primarily to contractors whose demand for equipment depends greatly upon the volume of road or utility construction projects underway or to be scheduled by both government and private entities. The volume and frequency of road and utility construction projects are cyclical; therefore, demand for many of our products is cyclical. The equipment we sell is durable and typically lasts for several years, which also contributes to the cyclical nature of the demand for our products. As a result, we may experience cyclical fluctuations to our revenues and operating results. Any difficulty in managing the Company’sour manufacturing workflow during downturns in demand could adversely affect our financial results.
A significant changeChanges in the price or availability of oilinterest rates could reduce demand for our products. Significant increases
Global interest rates have recently been at or near historic lows resulting in historically low financing costs for construction projects. While we expect rates to remain relatively low in the purchase price of certain raw materials used to manufacture our equipmentnear-term, rising interest rates could have a negative impactdampening effect on overall economic activity and/or the cost of production and related gross margins.
A significant portionfinancial condition of our revenues relates to the salecustomers, either or both of equipment involved in the production, handling, recycling or installation of asphalt mix. Liquid asphalt is a byproduct of the refining of oil, and asphalt prices correlate with the price and availability of oil. An increase in the price of oil or a decrease in the availability of oil would increase the cost of producing asphalt, which would likely decrease demand for asphalt, resulting in decreased demand for many of our products. This would likely cause our revenues and profits to decrease. Rising gasoline, diesel fuel and liquid asphalt prices will also adversely impact the operating and raw material costs of our contractor and aggregate producer customers, and if such customers do not properly adjust their pricing, they could experience reduced profits resulting in possible delays in purchasing capital equipment.
The products manufactured by the Company’s Energy Group, which are used in drilling for oil and natural gas, in heaters for refineries and oil sands, and in double fluid pump trailers for fracking and oil and gas extraction, would be negatively impacted by lower oil and natural gas prices, to the extent that such lower prices lead to decreased development in the those industries. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020.
Steel is a major component in the Company’s equipment. Steel prices fluctuate routinely. Our reliance on third-party suppliers for steel and other raw materials exposes us to volatility in the prices and availability of these materials. Price increases or a decrease in the availability of these raw materials could increase our operating costs and adversely affect our financial results.
For raw materials that we source internationally, any changes to international trade policies could result in additional tariffs, duties or other charges which could significantly increase the costs of such materials and negatively impact our costs and related gross margins.
Fluctuations in foreign currency exchange rates could affect our operating results.
We are exposed to risk as a result of fluctuations in foreign currency exchange rates from transactions involving foreign operations and currencies. Because we prepare our financial statements and projections using the U.S. dollar as our reporting currency, we have to convert international assets, liabilities and other financial statement components into U.S. dollars using applicable exchange rates. Fluctuations in currency exchange rates could negatively affect our financial results and cause such results to differ materially from those anticipated in our projections. Further, changes in foreign currency exchange rates that weaken the U.S. dollar’s position vis-à-vis a foreign currency could affect our operating results and financial condition, and may also affect the demand for our products in international markets if our foreign competitors are able to offer products at a lower cost as a result of the current exchange rate in such jurisdiction.
Operational Risks
Our quarterly operating results are likely to fluctuate, which may decrease our stock price.
Our quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. As a result, our operating results in some quarters may fall below the expectations of securities analysts and investors, which could result in a decrease in the market price of our common stock. The reasons our quarterly results may fluctuate include:
| ● | general competitive and economic conditions, domestically and internationally; |
| ● | delays in, or uneven timing in, the delivery of customer orders; |
| ● | the seasonal trend in our industry; |
| ● | the introduction of new products by us or our competitors; |
| ● | product supply shortages; and |
| ● | reduced demand due to adverse weather conditions. |
Period-to-period comparisons of such items should not be relied on as indications of future performance.
We may face product liability claims due to the nature of our business. If we are unable to obtain or maintain insurance or if our insurance does not cover such liabilities, we may incur significant costs which could reduce our profitability.
We manufacture heavy machinery, which is used by our customers at excavation and construction sites, ports and inland terminals and on high-traffic roads. Any defect in or improper operation of our equipment can result in personal injury and death, and damage to or destruction of property, any of which could cause product liability claims to be filed against us. The amount and scope of our insurance coverage may not be adequate to cover all losses or liabilities we may incur in the event of a product liability claim. We may not be able to maintain insurance of the types or at the levels we deem necessary or adequate or at rates we consider reasonable. Any liabilities not covered by insurance could reduce our profitability or have an adverse effect on our financial condition.
The Company is subject to a variety of other legal proceedings.
From time to time, the Company may be involved in various legal proceedings that arise in the ordinary course of our business. We are unable predict when claims or matters will arise and the extent to which they will affect our business, and the international nature of our business exposes us to legal and regulatory matters that arise in foreign jurisdictions as well. We could incur significant expenses to administer and defend such matters, and any judgments or fines imposed on the Company could significantly impact our financial condition. Developments in our ongoing legal matters could also affect our assessment and estimates of loss contingencies recorded as a reserve and require us to make payments in excess of our reserves, which could have an adverse effect on our results of operations and financial condition. These matters could also significantly divert the attention of our management.
If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our products may decrease or we may be forced to modify our products, which could increase our costs.
We hold numerous patents covering technology and applications related to many of our products and systems, as well as numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in foreign countries. Our existing or future patents or trademarks may not adequately protect us against infringements, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications, if any, may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents. This could reduce demand for our products and materially decrease our revenues. If our products are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products. We may be unable to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose revenues.
We rely heavily on our information technology. If the information systems we use fail or are interrupted, it could negatively affect our business, reputation and operating results.
The failure of our information technology systems or those of our business partners and suppliers to work property and in a timely manner could disrupt our business operations and negatively affect operating results. We rely on both internal technology and systems managed or hosted by third parties to support a variety of business activities and processes, including communications with our personnel, suppliers and customers, and to comply with regulatory, legal and tax requirements. Disruption of those systems could significantly harm ourcustomers' ability to process orders and service our customers, procure materials from our suppliers, effectively communicate within the Company and perform daily operations that are criticalrepay obligations to the success of our business, all of which could negatively affect our business, reputation and results of operations.
Increased cybersecurity requirements, vulnerabilities, threats and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, solutions, services and data.
Increased global cybersecurity vulnerabilities, threats, computer viruses and more sophisticated and targeted cyber-related attacks, as well as cybersecurity failures resulting from human error and technological errors, pose a risk to the security of the Company’s and its customers’, partners’, suppliers’ and third-party service providers’ products, systems and networks and the confidentiality, availability and integrity of the Company’s and its customers’ data. Despite our efforts to protect our systems and confidential information, we may be vulnerable to material security breaches, theft, misplaced, lost or corrupted data, programming errors, employee errors and/or misappropriation that could potentially lead to the compromising of confidential information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, any of which could have a material effect on our business.
If we become subject to increased governmental regulation, we may incur significant costs.
Our hot-mix asphalt plants contain air pollution control equipment and several of our other products contain engines that must comply with performance standards promulgated by the Environmental Protection Agency. These performance standards mayus. An increase in interest rates could also make it more difficult for customers to cost-effectively fund the future. Changes in these requirements could cause us to undertake costly measures to redesign or modify ourpurchase of new equipment, or otherwise adversely affect the manufacturing processes of our products. Such changes could have a material adverse effect on our operating results.
In addition, we may incur material costs or liabilities in connection with other regulatory requirements applicable to our business, including, for example, state regulation of our component equipment, the accuracy of weights and measures, and the maximum weight transportable on highways and roads.
Acquisitions that we have made in the past, future acquisitions and start-up operations involve risks thatwhich could adversely affect our future financial results.sales.
We have completed several acquisitions in the past, including the acquisition of RexCon in October 2017, and we have started new operations, including the start-up of Astec Brazil and Astec LatAm in recent years. We may acquire additional businesses or start up other operations in the future. We may be unable to achieve the benefits expected to be realized from our acquisitions or business start-ups. In addition, we may incur additional costs and our management's attention may be diverted because of unforeseen expenses, difficulties, complications, delays and other risks inherent in acquiring businesses, including the following:
| ● | we may have difficulty integrating the financial and administrative functions of new businesses; |
| ● | new or added operations may divert management's attention from our existing operations; |
| ● | fluctuations in exchange rates and a weakening of the dollar may impact the competitiveness of acquired businesses; |
| ● | we may have difficulty in competing successfully for available acquisition candidates, completing future acquisitions or accurately estimating the financial effect of any businesses we acquire; |
| ● | we may have delays in realizing the benefits of our strategies for an acquired business or new operation; |
| ● | we may not be able to retain key employees necessary to continue the operations of the acquired business; |
| ● | acquisition costs may deplete significant cash amounts or may decrease our operating income; |
| ● | we may choose to acquire a company that is less profitable or has lower profit margins than our Company; |
| ● | future acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital; and |
| ● | we may incur domestic or international economic declines that impact our acquired companies. |
Market Conditions
Competition could reduce revenue from our products and services and cause us to lose market share, and our ability to compete in international jurisdictions is dependent upon trade policies, which are subject to change.
We currently face strong competition in product performance, price and service. Some of our domestic and international competitors have greater financial, product development and marketing resources than we have. If competition in our industry intensifies or if our current competitors enhance their products or lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products. This may reduce revenue from our products and services, lower our gross margins or cause us to lose market share. In addition to the general competitive challenges we face, international trade policies could negatively affect the demand for our products and services and reduce our competitive position in such markets. In addition, unfavorable currency fluctuations could result in our products and services being more expensive than local competitors. The implementation of more restrictive trade policies, such as higher tariffs, duties or charges, in countries where we operate could negatively impact our business, results of operations and financial condition.
Our ability to attractoperations in foreign countries, and retain members of our executive team, management and other key employees, as well as the success of initiatives implemented by such individuals within the Company, are critical to our Company achieving positive outcomes.
Certain members of our senior management team are of significant importance to our business and operations. The loss of their services may adversely affect our business. During 2019, we experienced turnover in several key management positions, including our Chief Executive Officer and Chief Financial Officer positions. Similar management changes in the future could materially affect our business. In addition, our ability to attract and retain qualified engineers, skilled manufacturing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, will also be an important factor in determining our future success.
Further, our success also depends on the decision and strategic initiatives implemented by our senior management and executive officers. Currently, our Chief Executive Officer has implemented a new management structure for the Company, whereby the Company is moving to a more centralized management model. If this revised management structure does not succeed or is not implemented in a timely manner, our results of operations could be significantly affected and we risk our ability to retain senior management.
Ourcontinued expansion into additional international markets, could divert management's attention from our existing operations and expose us to increased risks with respect to violationinherent in doing business outside of international anti-corruption laws.the United States.
In 2019,2021, international sales represented approximately 22.3%23.3% of our total sales as compared to 21.8%20.2% in 2018.2020. We plan to continue increasing our already significant sales and production efforts in international markets. In furtherance thereof,Both the sales from international operations and export sales are subject in varying degrees to risks inherent in doing business outside of the United States. Such risks include the possibility of unfavorable circumstances arising from host country laws or regulations and general economic and political conditions in the countries we recently opened a new sales/service operation in Chiledo business, which are typically more volatile than the U.S. economy and are in process of opening similar operations in India and Thailand. In connection with any increase in international sales efforts, we will needmore vulnerable to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist. Any difficulties in expanding our international sales may divert management’s attention from our existing operations.geo-political conditions. In addition, international revenues are subjectthe U.S. Government has established and, from time to the following risks:
| ● | fluctuating currency exchange rates, which can reduce the profitability of foreign sales; |
| ● | the burden of complying with a wide variety of foreign laws and regulations; |
| ● | dependence on foreign sales agents; |
| ● | political and economic instability of governments; |
| ● | the imposition of protective legislation such as import or export barriers; and |
| ● | fluctuating strengths or weakness of the dollar, which can impact net sales or the cost of purchased products. |
Additionally, the Foreign Corrupt Practices Act (“FCPA”)time, revises sanctions that restrict or prohibit U.S. companies and similar international anti-corruptiontheir subsidiaries from doing business with certain foreign countries, entities and individuals. Doing business internationally also subjects us to numerous U.S. and foreign laws generally prohibit companies from making improper payments for the purpose of obtaining or retaining business.and regulations, including regulations relating to anti-bribery, privacy regulations and anti-boycott provisions. We incur meaningful costs complying with these laws and regulations. The continued expansion of our international operations could increase the risk of violations of these laws in the future. Significant violations of these laws, or allegations of such violations, could harm our reputation, disrupt our business and result in significant fines and penalties that could have a material adverse effect on our results of operations or financial condition.
Our ability to understand our customers' specific preferences and requirements, and to develop, manufacture and market products that meet customer demand as we expand into additional international markets, could significantly affect our business results.
Our ability to match new product offerings to diverse global customers' anticipated preferences for different types and sizes of equipment and various equipment features and functionality, at affordable prices, is critical to our success. This requires a thorough understanding of our existing and potential customers on a global basis, particularly in Asia, Middle East and Africa, and Latin America. Failure to deliver quality products that meet customer needs at competitive prices ahead of competitors could have a significant adverse effect on our business.
Our international sales and associated operating results are subject to currency exchange risk.
We are exposed to risk as a result of fluctuations in foreign currency exchange rates from transactions involving foreign operations and currencies. We derive significant revenue, earnings and cash flow from operations outside of the U.S., where business operations are transacted in local currencies. Ourexposure to currency exchange rate fluctuations results primarily from the translation exposure associated with the preparation of our consolidated financial statements, as well as from transaction exposure associated with transactions and assets and liabilities denominated in currencies other than the respective subsidiaries' functional currencies. While our consolidated financial statements are reported in U.S. dollars, the financial statements of our international subsidiaries are prepared using their respective functional currency and translated into U.S. dollars by applying appropriate exchange rates. As a result, fluctuations in the exchange rate of the U.S. dollar relative to the local currencies could cause significant fluctuations in the value of our assets and liabilities, equity and operating results.
Additionally, our international sales involve some level of export from the U.S., either of components or completed products. Policies and geopolitical events affecting exchange rates could adversely affect the demand for construction equipment in many areas of the world. Further, any strengthening of the U.S. dollar or any other currency of a country in which we manufacture our products (e.g. the Brazilian real and the South African rand) and/or any weakening of local currencies can increase the cost of our products in foreign markets. Irrespective of any effect on the overall demand for construction equipment, the effect of these changes can make our products less competitive relative to local producing competitors or other non-U.S. competitors and, in extreme cases, can result in our products not being cost-effective for customers. As a result, our international sales and profit margins could decline.
Manufacturing and Operations Risks
Our profitability may be negatively affected by changes in the availability and price of certain parts, components and raw materials.
We require access to various parts, components and raw materials at competitive prices in order to manufacture our products. Changes in the availability and price of these parts, components and raw materials (including steel) have changed significantly and rapidly at times. The availability and price of such items are affected by factors like demand, changes to international trade policies that may result in additional tariffs, duties or other charges, freight costs and outbreaks and shipping and container constraints, each of which can significantly increase the costs of production. Due to price competition in the market for construction equipment and certain infrastructure products which have longer contract to completion cycles, we may not be able to recoup increases in these costs through price increases for our products, which would result in reduced profitability. Whether increased operating costs can be passed through to the customer depends on a number of factors, including the price of competing products and the nature of our customers' orders. Further, we rely on a limited number of suppliers for steel and certain other raw materials, parts and components in the manufacturing process. Disruptions or delays in supply or significant price increases from these suppliers could adversely affect our operations and profitability. Such disruptions, terminations or cost increases could result in cost inefficiencies, delayed sales or reduced sales. The aforementioned risks have been, and may continue to be, exacerbated by the impact of COVID-19.
We may be adversely affected by any natural or man-made disruptions to our distribution and manufacturing facilities.
We currently maintain a broad network of distribution and manufacturing facilities throughout the U.S. as well as internationally. Any widespread disruption to our facilities resulting from fire, earthquake, weather-related events (such as tornadoes, hurricanes, flooding and other storms), an act of terrorism or any other cause could damage a significant portion of our inventory and could materially impair our ability to distribute our products to customers. Moreover, we could incur significantly higher costs and longer lead times associated with distributing our products to our customers during the time that it takes for us to reopen or replace a damaged facility. If any of these events were to occur, our financial condition, operating results and cash flows could be materially adversely affected.
In addition, general weather patterns affect our operating results throughout the year, with adverse weather historically reducing construction activity in the first and fourth quarters in the U.S., our largest market. An increase of adverse weather events, including as a result of climate change, could generally reduce or delay construction activity, which could adversely impact our revenues.
Strategic Performance Risks
We may not fully sustain targeted performance improvements and other benefits realized from our recently announced OneASTEC business model.
In March 2020, we launched our OneASTEC business model, with the strategic pillars of Simplify, Focus and Grow. This is a focused effort towards an operating model centered around continuous improvement. The OneASTEC business model was designed to better set strategic direction, define priorities and improve overall operating performance, as described in greater detail in the section titled "Corporate Strategic Objectives" in Item 1. Business. Our future success is partly dependent upon successfully executing and realizing performance improvements, revenue gains, cost savings and other benefits from this initiative. It is possible that we may not fully realize, or sustain, the expected benefits from the OneASTEC business model. Furthermore, the implementation of the OneASTEC initiatives may result in an increase in near-term expenses and negatively impact operational effectiveness and employee morale.
As part of our growth strategy, we may pursue acquisitions in the future and may not be successful in completing such acquisitions on favorable terms or be able to realize the anticipated benefits from such acquisitions.
We have historically grown, in large part, through strategic acquisitions, and our strategy is to continue to pursue attractive acquisition opportunities if and when they become available. Failure to identify and acquire suitable acquisition candidates on appropriate terms could adversely impact our growth strategy. In addition, although we have been successful in the past with the integration of numerous acquisitions, we may not be able to fully integrate the operations of any future acquired businesses with our own operations in an efficient and cost-effective manner or without significant disruption to our or the acquired companies’ existing operations. Moreover, acquisitions involve significant risks and uncertainties, including uncertainties as to the future financial performance of the acquired business, the achievement of expected synergies, difficulties integrating acquired personnel and corporate cultures into our business, the potential loss of key employees, customers or suppliers, difficulties in integrating different computer and accounting systems, exposure to unforeseen liabilities of acquired companies and the diversion of management attention and resources from existing operations. We may be unable to successfully complete potential acquisitions due to multiple factors, such as issues related to regulatory review of the proposed transactions or obtaining favorable financing. We may also be required to incur additional debt or issue additional shares of our common stock in order to consummate acquisitions in the future. Potential new indebtedness may be substantial and may limit our flexibility in using our cash flow from operations. The issuance of new shares of our common stock could dilute the equity value of our existing shareholders. Our failure to fully integrate future acquired businesses effectively or to manage other consequences of our acquisitions, including increased indebtedness, could prevent us from remaining competitive and, ultimately, could adversely affect our financial condition, operating results and cash flows.
As an innovative leader in the industries in which we operate, we occasionally undertake the engineering, design, manufacturing, construction and installation of equipment systems that are new to the market. Estimating the costs of such innovative equipment can be difficult and could result in our realization of significantly reduced or negative margins on such projects. Additionally, if the newly designed equipment were not to function as expected, we could be responsible for reimbursing the customer for their financial losses, including, but not limited to, the possible refund of the purchase price.
At various times, we have experienced negative margins on certain large projects. These large projects have included both existing and innovative equipment designs, on-site construction and promised minimum production levels. Designing innovative equipment to function as expected is inherently difficult and significant additional design phase, field testing and redesign costs may be incurred. In addition, any number of unforeseen circumstances can impact actual project costs. Production delays, design changes, adverse weather conditions and other factors can also result in construction and testing delays, which can cause significant cost overruns or failure to meet required completion dates. In certain circumstances, we may incur contractual penalties as a result of such delays or the failure to satisfy minimum production levels, and we may be liable to customers for other losses they incur in connection with such delays, including possible refund of the purchase price. We may not be able to sufficiently predict the extent of such unforeseen cost overruns and may experience significant losses on specialized projects in the future.
Failure to successfully complete restructuring activities could negatively affect our operations.
From time to time, we may wind down certain business activities, product lines, and/or perform other organizational restructuring projects in an effort to reduce costs and streamline operations. Such activities involve risks as they may divert management's attention from our core businesses, increase expenses on a short‑term basis and lead to potential issues with employees, customers or suppliers. If these activities are not completed in a timely manner, anticipated cost savings, synergies and efficiencies are not realized, business disruption occurs during the pendency of or following such activities or unanticipated charges are incurred, particularly if material, there may be a negative effect on our business, results of operations and financial condition.
Financial Risks
We may be unsuccessful in complying with the financial ratio covenants or other provisions of our credit agreement.
As of December 31, 2019,2021, we were in compliance with the financial covenants contained in our credit agreement with Wells Fargo Bank, N.A. However, in the future we may be unable to comply with the financial covenants in our credit facility or to obtain waivers with respect to such financial covenants. If such violations occur, the Company’sour creditors could elect to pursue their contractual remedies under the credit facility, including requiring immediate repayment in full of all amounts then outstanding.outstanding and requiring cash collateral to support outstanding letters of credit. As of December 31, 2019, the Company2021, we had no borrowings, but did have $8,335$2.5 million in letters of credit outstanding under the under the Wells Fargo credit agreement. We may also borrow additional amounts under the credit agreement in the future. The Company’s Osborn, AstecCertain of our international subsidiaries in South Africa, Australia, Brazil Telestack and Astec Australia subsidiariesthe United Kingdom have entered into their own independent loan agreements with other lending institutions.
The expected phase out of LIBOR could impact the interest rates paid on our variable rate indebtedness and customer financing subsidy arrangements and cause our interest expense to increase.
The ICE Benchmark Administration Limited, the authorized administrator of LIBOR, has confirmed its intention to cease the publication of the one month and three month USD LIBOR after June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, has endorsed replacing LIBOR with the Secured Overnight Financing Rate ("SOFR"), a new index calculated based on transactions in the market for short-term treasury securities. Our borrowings under the Wells Fargo credit agreement reference one month USD LIBOR. As of December 31, 2021, we had no borrowings but did have $2.5 million in letters of credit outstanding under the Wells Fargo credit agreement. We may also borrow additional amounts under the credit agreement in the future. Additionally, we pay subsidies that are, or were, based on the one month or three month USD LIBOR to third party finance companies that reduce the borrowing rate for our customers that choose to finance the purchase of our products. We have amended some of the arrangements mentioned above to reference SOFR instead of LIBOR and plan to amend the remaining such arrangements before June 30, 2023. We are not able to predict whether SOFR will become a widely accepted benchmark in place of LIBOR or what the impact of such a possible transition to SOFR may be on our financial condition.
We are subject to income taxes in the United States and certain foreign jurisdictions, and changes to the tax codes, effective tax rates and accounting principles related thereto could negatively impact our results of operations.operations.
We are subject to income taxes in the United States and other jurisdictions. Our results of operations could be adversely affected by, among other things, changes in the effective tax rates in the U.S. and foreign jurisdictions, a change in the mix of earnings between U.S. and non-U.S. jurisdictions or among jurisdictions with differing tax rates, changes in tax laws or treaties and related changes in generally accepted accounting principles. Additionally, the Companywe typically incursincur substantial research and development costs each year and hashave historically received significant research and development tax credits due to these expenditures. Congress could reduce or eliminate such tax credits in future years, which could have a material adverse effect on our operating results.
Goodwill and other intangible assets comprise a material portion of our total assets. We must test our goodwill and other intangible assets for impairment at least annually, which could result in a material, non-cash write-down of goodwill or intangible assets and could have a material adverse impact on our results of operations and shareholders’shareholders' equity.
We have completed a number of acquisitions and expect to continue to complete selected acquisitions in the future as a component of our growth strategy. In connection with acquisitions, applicable accounting standards generally require the net tangible and intangible assets of the acquired business to be recorded in the balance sheet of the acquiring company at their fair values as of the date of acquisition. As a result, any excess in the purchase price paid by us over the fair value of net tangible and intangible assets of any acquired business is recorded as goodwill. Definite lived-intangible assets are required to be amortized over their estimated useful lives and this amortization expense may be significant. If it is later determined that the anticipated future cash flows from the acquired business may be less than the carrying values of the assets and goodwill of the acquired business, the assets, including both definite-lived and indefinite-lived intangible assets, or goodwill may be deemed to be impaired. If this occurs, we may be required under applicable accounting rules to write down the value of the assets or goodwill on our balance sheet to reflect the extent of any such impairment. Any such write-down of assets or goodwill would generally be recognized as a non-cash expense in our results of operations for the accounting period during which any such write down occurs.
Goodwill and indefinite-lived intangible assets are subject to impairment assessments at least annually (or more frequently when events or changes in circumstances indicate that impairment may have occurred). During 2019, the Company’sAt October 1, 2021, our testing indicated no impairment had occurred; however, in 2018, we recorded goodwill impairment charges totaling $11,190 at two of our business units.occurred. A decrease in our market capitalization, profitability or negative or declining cash flows increases the risk of goodwill or other intangible asset impairments. Future impairment charges could have a material adverse impact on our results of operations and shareholders’shareholders' equity.
Human Capital Risks
Our performance could suffer if we cannot maintain our culture as well as attract, retain and engage our employees.
We believe our culture focused on safety, devotion, integrity, respect and collaboration, is one of our strongest assets. Our strong culture positions us to recruit and retain top-level talent across our organization. We believe our employees and experienced leadership group are competitive advantages, as the best people, over time, produce the best results. Our ability to attract and retain qualified engineers, skilled manufacturing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, will also be an important factor in determining our future success. The contributory effects of the COVID-19 pandemic have resulted in significant challenges in retaining and attracting sufficiently qualified personnel to enable us to meet customer demand efficiently resulting in longer lead times to convert backlog to revenue and materially and adversely impacting our margins. If we are unable to attract the most talented candidates, and cannot retain and engage additional highly qualified managerial, technical, manufacturing, and sales and marketing personnel by investing in their talent and personal development, our operational and financial performances could continue to suffer.
In addition, while we strive to reduce the impact of the departure of high performing employees, we could be impacted by the loss of employees, particularly when departures involve groups of employees. Our ability to meet our business objectives may be affected by the departure of employees. Further, the departure of groups of employees could increase the risk of claims or litigation from former employees. Disputes with labor unions could potentially affect our ability to operate our facilities as well as our financial results. Any strike, work stoppage or other dispute with a labor union could materially adversely affect our business, results of operations and financial condition.
Our business operations are dependent upon the ability of our new employees to learn their new roles.
In connection with the transition of our business operations and implementation of the OneASTEC business model, we have replaced many employees in key functions, including in important management roles, and otherwise hired key personnel. Any significant management change involves inherent risk and any failure to ensure the effective transfer of knowledge and a smooth transition could hinder our strategic planning, execution and future performance. As new employees gain experience in their roles, we could experience inefficiencies or a lack of business continuity due to loss of historical knowledge and a lack of familiarity of new employees with business processes, operating requirements, policies and procedures, some of which are new, and key information technologies and related infrastructure used in our day-to-day operations and financial reporting. We may also experience additional costs as these new employees learn their roles and gain necessary experience. It is important to our success that these new employees quickly adapt to and excel in their new roles. If they are unable to do so, our business and financial results could be materially adversely affected. In addition, if we were to lose the services of any one or more key employees, whether due to death, disability or termination of employment, our ability to successfully operate our business segments, financial plans, marketing and other objectives could be significantly impaired.
Our management has very minimal unencumbered equity ownership in us. If we are not able to retain our key personnel or attract additional key personnel as required, we may not be able to implement our business plan, and our results of operations could be materially and adversely affected.
We depend to a large extent on the abilities and continued participation of our executive officers and other key employees. We believe that as our activities increase and change in character, additional, experienced personnel will be required to implement our OneASTEC business model. Competition for such personnel is intense, and we cannot assure that they will be available when required, or that we will have the ability to attract and retain them. The loss of services of any one or more of these individuals may have a material and adverse effect on our Company and our business prospects.
Legal, Regulatory and Compliance Risks
We are subject to an innovative leaderongoing risk of product liability claims and other litigation arising in the industriesordinary course of business.
We manufacture heavy machinery, which is used by our customers at excavation and construction sites, ports and inland terminals and on high-traffic roads. Any defect in which we operate, we occasionally undertake the engineering, design, manufacturing, construction and installationor improper operation of equipment systems that are new to the market. Estimating the costs of such innovativeour equipment can be difficult and could result in personal injury and death, and damage to or destruction of property, any of which could cause product liability claims to be filed against us. The amount and scope of our realization of significantly reducedinsurance coverage may not be adequate to cover all losses or negative margins on such projects. Additionally, if the newly designed equipment were not to function as expected, the Company could be responsible for reimbursing the customer for its financial losses, including, but not limited to, the possible refund of the purchase price.
At various times, we have experienced negative margins on certain large projects, including wood pellet plants that we have previously produced. These large projects have included both existing and innovative equipment designs, on-site construction and promised minimum production levels. Designing innovative equipment to function as expected is inherently difficult and significant additional design phase, field testing and redesign costs may be incurred. In addition, any number of unforeseen circumstances can impact actual project costs. Production delays, design changes and adverse weather conditions, and other factors can also result in construction and testing delays, which can cause significant cost overruns or failure to meet required completion dates. In certain circumstances,liabilities we may incur contractual penalties asin the event of a result of such delays or the failure to satisfy minimum production levels, and we may be liable to customers for other losses they incur in connection with such delays, including possible refund of the purchase price.product liability claim. We may not be able to sufficientlymaintain insurance of the types or at the levels we deem necessary or adequate or at rates we consider reasonable. A successful claim brought against us in excess of available insurance coverage or a requirement to participate in a product recall may have a material adverse effect on our business.
If we become subject to increased governmental regulation, we may incur significant costs.
Certain of our equipment is subject to rules limiting emissions and other climate related rules and regulation. In addition, several of our products contain components that must comply with environmental, health and safety laws or regulations, including performance standards, promulgated by the Environmental Protection Agency and other state regulatory agencies. These performance standards may change or become more stringent in the future. In addition, we may become subject to additional legislation, regulations or accords regarding climate change, and compliance with any new rules could be difficult and costly as a result of increased energy, environmental, and other costs and capital expenditures to comply with any such legislation, regulation or accord. Changes in these requirements could also cause us to undertake costly measures to redesign or modify our equipment or otherwise adversely affect the manufacturing processes of our products. Such changes could also impact operations of our suppliers and customers. In addition, we may incur material costs or liabilities in connection with other regulatory requirements applicable to our business, including, for example, state regulation of our component equipment, the accuracy of weights and measures and the maximum weight transportable on highways and roads.
We are subject to a variety of legal proceedings, the outcome of which may be unfavorable to us.
From time to time, we may be involved in various legal proceedings that arise in the ordinary course of our business. We are unable to predict when claims or matters will arise and the extent to which they will affect our business, and the international nature of our business exposes us to legal and regulatory matters that arise in foreign jurisdictions as well. We could incur significant expenses to administer and defend such unforeseen cost overrunsmatters, and any judgments or fines imposed on us could significantly impact our financial condition. Our business may be adversely impacted by the outcome of legal proceedings and other contingencies that cannot be predicted with certainty. We estimate loss contingencies and establish reserves based on our assessment where liability is deemed probable and reasonably estimable given the facts and circumstances known to us at a particular point in time. Subsequent developments may affect our assessment and estimates of the loss contingencies recognized as liabilities. These matters could also significantly divert the attention of our management.
If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our products may decrease or we may be forced to modify our products, which could increase our costs.
We hold numerous patents covering technology and applications related to many of our products and systems, as well as numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in foreign countries. Our existing or future patents or trademarks may not adequately protect us against infringements, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications, if any, may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents. This could reduce demand for our products and materially decrease our revenues. If our products are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products. We may be unable to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose revenues.
Information Technology and Cybersecurity Risks
Our operations may be adversely affected by any disruption in our information technology systems.
Our operations are dependent upon our information technology systems, which encompass all of our major business functions. We rely upon our information technology systems to run critical functions, including accounting and financial information systems, process receivables, manage and replenish inventory, fill and ship customer orders on a timely basis and coordinate our sales activities across all products and services. A substantial disruption in our information technology systems for any prolonged time period could result in problems and delays in generating critical financial and operational information, processing receivables, receiving inventory and supplies, and filling customer orders. These disruptions could adversely affect our operations as well as our customer service and relationships. Our systems, or those of our significant customers or suppliers, might be damaged or interrupted by natural or man-made events or by computer viruses, physical or electronic break-ins or similar disruptions affecting the global Internet. In addition, we rely on a number of third-party service providers to execute certain business processes and maintain certain information technology systems and infrastructure, and any breach of security or disruption in their systems could impair our ability to operate effectively. Such disruptions, delays, problems or associated costs relating to our systems or those of our significant customers, suppliers or third-party providers could have a material adverse effect on our operations, operating results and financial condition.
Security breaches and other disruptions to our information technology infrastructure amid a general worldwide increase in threats and more sophisticated and targeted cybercrime could compromise our and our customers' and suppliers' information, exposing us to liability.
In the ordinary course of business, we rely upon information technology networks and systems to process, transmit and store electronic information and to manage or support a variety of business functions, including supply chain, manufacturing, distribution, invoicing and collection of payments. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information and the proprietary business information of customers and suppliers, as well as personally identifiable information of customers and employees, in data centers and on information technology networks. The secure operation of these networks and the processing and maintenance of this information is critical to our business operations and strategy. Despite our efforts to protect our systems and confidential information, we have experienced cybercrime in the past and may experiencebe vulnerable to material security breaches, theft, misplaced, lost or corrupted data, programming errors, employee errors and/or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, modified, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupted operations, production downtimes and damage our reputation, any of which could have an adverse effect on our business. While we have not experienced any material losses relating to cybercrime or other information security breaches to date, there can be no assurance that we will not suffer such significant losses on specialized projects in the future.
19
We may not be able to successfully implement our strategic transformation initiatives, including our new enterprise resource planning system.
a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The Coronavirus outbreakupgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and has, and will continue to, require substantial time and attention of management and key employees. We may not be able to successfully implement our ERP system without delays related to resource constraints or similar other health related outbreaks inchallenges with the future could impact or business operations and financial condition.
The ongoing coronavirus outbreak emanating from China at the beginning of 2020 has resulted in increased travel restrictions and extended shutdown of certain businesses in the region and elsewhere, and could similarly impact additional regionscritical design phases of the world. These or any further political or governmental developments or health concernsimplementation. Inefficiencies in China or other countriesour financial reporting processes due to the conversion to our new ERP could result in social, economic and labor instability. These uncertainties could have a material impact on our business operations and financial condition by restrictingadversely affect our ability to produce accurate financial statements on a timely source certain raw materials needed inbasis until the productionnew ERP and processes have matured. Additionally, the effectiveness of our products or limit our ability to sustain or grow our revenues from sales to customers in the regions or elsewhere.
Risks Related to Investing in our Common Stock
The trading price of our common stock fluctuates and it may be difficult to resell shares at desirable prices.
The trading price of our common stock has and may continue to fluctuate. Our stock price may fluctuate in response to the risk factors set forth herein, and our stock price volatility and trading volume may make it difficult for our stockholders to resell their Company shares when desired and at a price acceptable to them.
There is no assurance that the Company will continue to declare dividends or have the available cash to make dividend payments.
Although the Company has routinely declared dividends since 2012, we cannot assure our stockholders that we will continue to declare dividends or that funds will continue to be available for this purpose in the future. The declaration and payment of dividends are subject to the discretion of our Board of Directors, and will depend upon the Company’s profitability, financial condition, capital needs, future prospects, and other factors deemed relevant by our Board of Directors.
Our Articles of Incorporation and Bylaws and Tennessee law may inhibit a takeover, which could delay or prevent a transaction in which shareholders might receive a premium over market price for their shares.
Our charter and bylaws and Tennessee law contain provisions that may delay, deter or inhibit a future acquisition or an attempt to obtain control of us. This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us or obtaining control of us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter or inhibit a future acquisition or an attempt to obtain control of us include the following:
| ● | having a staggered Board of Directors; |
| ● | requiring a two-thirds vote of the total number of shares issued and outstanding to remove directors other than for cause; |
| ● | requiring advance notice of actions proposed by shareholders for consideration at shareholder meetings; |
| ● | limiting the right of shareholders to call a special meeting of shareholders; |
| ● | requiring that all shareholders entitled to vote on an action provide written consent in order for shareholders to act without holding a shareholders’ meeting; and |
| ● | being governed by the Tennessee Control Share Acquisition Act. |
We identified material weaknesses in our internal controls which, if not remediated appropriately or timely, could result in loss of investor confidence and adversely impact our stock price.
As disclosed in Part II, Item 9A, during 2019 and 2018, management identified certain material weaknesses in internal controls that are relevant to the preparation of our consolidated financial statements. As a result, management concluded that our internal control over financial reporting was not effective as of December 31, 2019 and 2018. We are implementing remedial measures and, while there can be no assurance that our efforts will be successful, we plan to remediate the material weaknesses prior to the end of 2020. These measures may result in additional technology and other expenses. If we are unable to remediate the material weaknesses, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare consolidated financial statements within required time periods, could be adversely affected which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our consolidated financial statements and adversely impact our stock price.if the new ERP is not successfully implemented.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
Item 1B. | Unresolved Staff Comments |
None.As of December 31, 2021, our manufacturing, warehouse and office facilities total approximately 3.5 million square feet of space globally. We believe all properties to be well maintained and adequate for present use, with sufficient capacities for current and business needs as our business is presently conducted. As we continue to optimize our global footprint, we may identify properties or expansion opportunities at existing locations that provide growth opportunity or determine that certain of our current properties no longer meet our requirements. Such new properties may be leased or purchased and current properties may be modified, sold, leased or utilized in another manner.
Our corporate headquarters are in owned offices located in Chattanooga, Tennessee. Additional administrative offices are located inside and outside the United States.
The location, approximatefollowing table lists the principal locations (defined as greater than 20,000 square footage, acreage occupied and principal function and use by the Company’s reporting segments of the significant propertiesfeet) that are owned or leased by us, as denoted, and which are utilized in our continuing business operations:
| | | | | | | | | | | | | | | | | | | | |
| Location | | Segment | | Facility Type/Use | | Approximate Square Feet |
| United States | | | | | | |
| Chattanooga, Tennessee | | Infrastructure Solutions | | Manufacturing/rebuild, offices, training center and storage | | 999,000 | |
| Yankton, South Dakota | | Materials Solutions | | Manufacturing and offices | | 344,995 | |
| Eugene, Oregon | | Materials Solutions | | Manufacturing and offices | | 140,300 | |
| Eugene, Oregon | | Infrastructure Solutions | | Manufacturing and offices | | 135,000 | |
Tacoma, Washington (2) | | Infrastructure Solutions | | Manufacturing and offices | | 120,234 | |
| Burlington, Wisconsin | | Infrastructure Solutions | | Manufacturing and offices | | 112,100 | |
Chattanooga, Tennessee (1) | | Infrastructure Solutions | | Warehouse | | 110,000 | |
| Prairie du Chien, Wisconsin | | Infrastructure Solutions | | Manufacturing | | 100,136 | |
| Parsons, Kansas | | Infrastructure Solutions | | Manufacturing and offices | | 91,600 | |
| Blair, Nebraska | | Infrastructure Solutions | | Manufacturing and offices | | 90,813 | |
| Sterling, Illinois | | Materials Solutions | | Manufacturing and offices | | 60,000 | |
| Rossville, Georgia | | Infrastructure Solutions | | Manufacturing | | 40,500 | |
Yankton, South Dakota (1) | | Materials Solutions | | Warehouse | | 22,297 | |
West Columbia, South Carolina (1) | | Infrastructure Solutions | | Distribution center | | 20,400 | |
| | | | | | |
| International | | | | | | |
| Johannesburg, Gauteng, South Africa | | Materials Solutions | | Manufacturing and offices | | 229,000 | |
| Omagh, County Tyrone, United Kingdom | | Materials Solutions | | Manufacturing and offices | | 165,000 | |
| Vespasiano, Minas Gerais, Brazil | | Materials Solutions | | Manufacturing and offices | | 132,400 | |
| Thornbury, Ontario, Canada | | Materials Solutions | | Manufacturing and offices | | 60,500 | |
| Acacia Ridge, Queensland, Australia | | Infrastructure Solutions | | Offices, service, light fabrication, warehouse and storage | | 36,000 | |
Marieville, Quebec, Canada (1) | | Infrastructure Solutions | | Manufacturing, warehouse, offices and storage | | 27,495 | |
St-Bruno, Quebec, Canada (1) | | Infrastructure Solutions | | Warehouse and offices | | 21,800 | |
(1)These facilities are either partially or fully leased.
(2) Plans have been announced to exit this facility.
ITEM 3. LEGAL PROCEEDINGS
Currently, we are involved in a number of legal proceedings. For a discussion of contingencies related to legal proceedings, see Note 16, Commitments and Contingencies of the Company are set forth below:Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
| Location | Approximate Square Footage | Approximate Acreage | Principal Function (Use by Segment) |
| Chattanooga, Tennessee | 543,200 | 65 | Offices, manufacturing and training center – Astec (Infrastructure Group) |
| | | | |
| Chattanooga, Tennessee | -- | 4 | Storage yard – Astec (Infrastructure Group) |
| | | | |
| Rossville, Georgia | 40,500 | 3 | Manufacturing – Astec (Infrastructure Group) |
| | | | |
| Prairie du Chien, Wisconsin | 91,500 | 39 | Manufacturing – Astec Prairie du Chien/Dillman division of Astec (Infrastructure Group) |
| | | | |
| Chattanooga, Tennessee | 237,000 | 15 | Offices, manufacturing and training center – Roadtec (Infrastructure Group) |
| | | | |
| Chattanooga, Tennessee | 53,700 | 7 | Manufacturing/Rebuild – Roadtec (Infrastructure Group) |
| | | | |
| Chattanooga, Tennessee | 155,000 | -- | Leased warehouse – Roadtec (Infrastructure Group) |
| | | | |
| Orlando, Florida | 9,000 | -- | Leased machine repair and service facility – Roadtec (Infrastructure Group) |
| | | | |
| Tacoma, Washington | 95,300 | 5 | Offices and manufacturing – Carlson (Infrastructure Group) |
| | | | |
| Tacoma, Washington | 4,400 | 1 | R&D/Services Offices-Carlson (Infrastructure Group) |
| | | | |
| Acacia Ridge, Queensland Australia | 36,000 | 5 | Offices, warehousing, service, light fabrication and storage yard – Astec Australia Pty Ltd (Infrastructure Group) |
| | | | |
| Canning Vale, WA Australia | 9,000 | -- | Leased office, warehouse and workshop – Astec Australia Pty Ltd (Infrastructure Group) |
| | | | |
| Laverton North, Victoria Australia | 6,500 | -- | Leased office, warehouse and workshop – Astec Australia Pty Ltd (Infrastructure Group) |
ITEM 4. MINE SAFETY DISCLOSURES
None.
Location | Approximate Square Footage | Approximate Acreage | Principal Function (Use by Segment) |
| | | | |
| Mequon, Wisconsin | 236,000 | 30 | Offices and manufacturing – Telsmith (Aggregate and Mining Group) |
| | | | |
| Yankton, South Dakota | 314,100 | 50 | Offices and manufacturing – KPI (Aggregate and Mining Group) |
| | | | |
| Eugene, Oregon | 140,300 | 33 | Offices and manufacturing – JCI (Aggregate and Mining Group) |
| | | | |
| Sterling, Illinois | 60,000 | 8 | Offices and manufacturing – AMS (Aggregate and Mining Group) |
| | | | |
| Sterling, Illinois | 7,500 | -- | Warehouse – AMS (Aggregate and Mining Group) |
| | | | |
| Thornbury, Ontario, Canada | 60,500 | 12 | Offices and manufacturing – BTI (Aggregate and Mining Group) |
| | | | |
| Riverside, California | 12,500 | -- | Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group) |
| | | | |
| Solon, Ohio | 8,900 | -- | Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group) |
| | | | |
| Johannesburg, South Africa | 229,000 | 21 | Offices and manufacturing – Osborn (Aggregate and Mining Group) |
| | | | |
| Cape Town, South Africa | 1,100 | -- | Leased sales office and warehouse – Osborn (Aggregate and Mining Group) |
| | | | |
| Durban, South Africa | 835 | -- | Leased sales office – Osborn (Aggregate and Mining Group) |
| | | | |
| Kathu, South Africa | -- | 61 | Undeveloped land – Osborn (Aggregate and Mining Group) |
| | | | |
| Omagh, Northern Ireland | 165,000 | 15 | Offices and manufacturing – Telestack (Aggregate and Mining Group) |
| | | | |
| Vespasiano-MG, Brazil | 132,400 | 10 | Offices and manufacturing – Astec Brazil (Aggregate and Mining Group) |
| | | | |
| Chattanooga, Tennessee | 135,100 | 73 | Offices, manufacturing and storage – Heatec (Energy Group) |
| Location | Approximate Square Footage | Approximate Acreage | Principal function (use by Segment) |
| Eugene, Oregon | 135,000 | 15 | Offices and manufacturing – Peterson Pacific Corp. (Energy Group) |
| | | | |
| West Columbia, South Carolina | 20,400 | -- | Leased distribution center – Peterson Pacific Corp. (Energy Group) |
| | | | |
| Albuquerque, New Mexico | 115,000 | 14 | Offices and manufacturing – CEI (Energy Group) |
| | | | |
| Enid, Oklahoma | 350,000 | 42 | Offices and manufacturing – GEFCO, Inc. (Energy Group) |
| | | | |
| Parsons, Kansas | 91,600 | 7 | Offices and manufacturing – Power Flame (Energy Group) |
| | | | |
| Burlington, Wisconsin | 112,100 | 26 | Offices and manufacturing – RexCon (Energy Group) |
| | | | |
| Chattanooga, Tennessee | 10,000 | 2 | Corporate offices – Astec Industries, Inc. (Corporate) |
| | | | |
| Chattanooga, Tennessee | 14,100 | -- | Leased Hanger and Offices – Astec Industries, Inc. (Corporate) |
| | | | |
| Presidente Riesco (REGUS), Chile | 538 | -- | Leased sales office – Astec LatAm (Corporate) |
The properties above are owned by the Company unless they are indicated as being leased.
The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal costs) or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a material loss arising from such claims and legal proceedings is either (i) probable but cannot be reasonably estimated or (ii) reasonably possible but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter.
The Company and certain of its current and former executive officers have been named as defendants in a putative shareholder class action lawsuit filed on February 1, 2019, as amended on August 26, 2019, in the United States District Court for the Eastern District of Tennessee (the “Court”). The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-00024-PLR-CHS. The amended complaint generally alleges that the defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements. The amended complaint further alleges that the individual defendants are liable for such violations as control persons under Section 20(a) of the Exchange Act. The putative class action was purportedly filed on behalf of shareholders who purchased shares of the Company’s stock between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of the purported class. The Company disputes the allegations and intends to defend this lawsuit vigorously. Defendants named in the action filed a motion to dismiss the lawsuit on October 25, 2019, which is fully briefed and pending before the Court. The Company is unable to determine whether or not a future loss will be incurred due to this litigation, or estimate a range of loss, if any, at this time.
The Company’s GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018 with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rejection (rescission) of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of the equipment was approximately $8,500. GEFCO disputes the plaintiff’s allegations and intends to defend this lawsuit vigorously. The Company is unable to estimate the possible loss or range of loss at this time.
Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company’s financial position, cash flows or results of operations.
Item 4. | Mine Safety Disclosures |
None.
The name, title, ages and business experience of the executive officers of the Company are listed below.
Barry A. Ruffalo has served as Chief Executive Officer and President of Astec Industries since August 2019. Prior to joining Astec Industries, he was employed by Valmont Industries, a publicly-traded global producer of highly-engineered fabricated metal products, where he had served from 2015 to 2016 as Executive Vice President, Operational Excellence, from 2016 to 2017 as Group President-Energy & Mining, during 2017 as Group President-North America Structures/Energy/Mining and from 2018 to July 2019 as Group President of Global Engineered Support Structures. Preceding his career at Valmont Industries, from 2007 to 2013, Mr. Ruffalo served as President-Irrigation and from 2013 to 2015, as President-Infrastructure of Lindsay Corporation, a global leader in proprietary water management and road infrastructure products and services. He is 50.
Rebecca A. Weyenberg has served as Chief Financial Officer since December 2019. Prior to joining Astec Industries, she served from 2017 to 2019 as Vice President of Global Finance Operations for Welbilt, Inc., a publicly-traded global manufacturer of commercial foodservice equipment. Prior to her work with Welbilt, she served from 2015 to 2017 as Chief Financial Officer and Assistant General Manager for Berkeley Hall Club, a premier golf club in Bluffton, South Carolina. Previously, she served from 2010 to 2015 as Vice President, Global Processes, Standards and Shared Services and Vice President Finance, North American Region with AGCO Corporation, a publicly-traded global leader in the design manufacture and distribution of agricultural machinery. She is 56.
Timothy A. Averkamp has served as Group President-Mobile since November 2019. Prior to joining Astec Industries, he worked for Deere & Company for 22 years in various leadership positions. His positions included President of the Transaxle Manufacturing of America Joint Venture (JV) business between Deere and Yanmar/Kanzaki, Director of Business Partner Integration (BPI) over Deere’s JV businesses with Hitachi Construction Equipment Company, Director BPI over the partnership businesses with Bell Equipment, Engineering Manager Advanced R&D (Construction/Forestry Equipment), Product Marketing Manager, amongst other technical and commercial positions. He is 48.
Jaco van der Merwe has served as Group President-Infrastructure since January 2019 after having previously served as Group President-Energy since August 2016. From 1998 until 2016, he held various positions at Atlas Copco, including Vice President Marketing for the Deephole Drilling group (2013-2016), President/General Manager for the Mining and Rock Excavation Customer Center (2010-2013), and various other division leadership positions. Mr. van der Merwe’s career with Atlas Copco began as Quality Manager in 1998. Prior to joining Atlas Copco, he held various positions at Denel Aviation. He is 47.
Jeffrey M. Schwarz has served as Group President-Aggregate and Mining since August 2018. Prior to this role, he served as President of Johnson Crushers, Inc. (“JCI”) since July 2014. He joined JCI as General Manager of AggReCon West, a division of JCI responsible for direct selling to end users in the Pacific Northwest. Prior to joining JCI, he was Aggregates Manager for Kerr Contractors and held several management positions with a construction materials supplier from 1995 to 2008. He is 53.
J. Scott Barker has served as Senior VP, Innovation since November 2019. He previously served as Group President-Energy from January 2019 to November 2019 and as President of GEFCO, Inc. from April 2017 to January 2019. Before joining Astec Industries, he held several leadership roles with Ingersoll Rand and Atlas Copco during his 12 year tenure, including Vice President of Operations for the Drilling solutions division, President of the Rocktec division, and President of the Underground Rock Excavation division. He is 56.
Stephen C. Anderson has served as Vice President of Administration since August 2011, as Secretary of the Company since January 2007 and as the Director of Investor Relations since January 2003. Mr. Anderson also manages the commercial insurance program and aviation department. He has also been President of Astec Insurance Company since January 2007. He was Vice President of Astec Financial Services, Inc. from 1999 to 2002. Prior to his employment with the Company, Mr. Anderson spent a combined 14 years in commercial banking with AmSouth and SunTrust Banks. He is 56.
Matthew T. Litchfield Sr. has served as the Chief Information Officer since September 30, 2019. Before joining Astec Industries, he was Vice President of Information Technology at JD Norman Industries from 2014 to 2019. Prior to joining JD Norman, he was Global IT Director at Methode Electronics, Inc. from 2010 to 2014. He is 45.
Gregory G. Oswald has served as Senior Vice President of Global Operational Excellence since October 2019. Before joining Astec Industries, he was Senior Vice President-Global Operations at Lindsay Corporation from 2017 to 2019; Vice President of North America Operations from 2009 to 2017 and Director of Lean manufacturing from 2008 to 2009. He is 55.
Robin A. Leffew has served as Corporate Controller since August 2011 and also serves as Secretary of Astec Insurance Company. She previously served as the Company’s Director of Internal Audit from 2005 to 2011 and Controller of Astec, Inc. from 1990 to 2005. From 1987 to 1990, she served as Corporate Financial Analyst for the Company. She is 58.
PART II
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company’s
Common Stock and Cash Dividends
Our common stock is traded inon the Nasdaq National Market under the ticker symbol “ASTE.” The Company"ASTE".
Holders
As of February 24, 2022, there were 259 holders of record of our common stock.
Dividend Policy
We paid quarterly dividends of $0.11 per common share to shareholders in the first, second and third quarters of 2021 and the first, second, third and fourth quarters 2020. Our Board of Directors ("Board") increased the dividend payment $0.01 to a cash dividendtotal of $1.00$0.12 per common share on its Common Stock into shareholders for the fourth quarter of 20122021. We paid cash of $10.2 million and $10.0 million for dividends in 2021 and 2020, respectively. Dividends are paid when, as and if declared at the discretion of our Board from funds legally available for that purpose. While our Board currently expects to continue regular quarterly cash dividends, the declaration and amount of $0.10 per quarter fromfuture cash dividends are subject to the second quarterBoard's sole discretion and their periodic review of 2013 through the second quarterour dividend policy and will depend upon our earnings, financial condition, liquidity needs, business plans and opportunities and other factors in making and setting dividend policy.
Issuer Purchases of 2018. Beginning in the third quarter of 2018, the quarterly cash dividend was increased to $0.11 per share. Prior to 2012, the Company had not paid any cash dividends.Equity Securities
As announced to the public in a Form 8-K filing on July 30, 2018, the Companywe approved a stockshare repurchase program, which authorizes the Companyus to repurchase up to $150$150.0 million of itsour common stock. As of December 31, 2019,2021, the maximum dollar value of shares available for repurchase under the plan is approximately $126$126.0 million. No shares were repurchased under the plan during 2019.2021.
Performance Graph
The high and low sales pricesstock performance graph below compares the cumulative five-year total return provided to shareholders of Astec Industries, Inc.'s common stock relative to the cumulative total returns of the Company’s Common StockRussell 2000 index, our updated peer group ("2021 Peer Group") and our previous per group ("2020 Peer Group"). The companies included in the 2021 Peer Group and the 2020 Peer Group are representative of our definitive Proxy peer group, which we believe reflects industrial manufacturing companies of comparable size and complexity for the corresponding period and are reviewed annually and revised as reported onnecessary.
The ticker symbol of the Nasdaq National Market forcompanies included in our each quarter during the last two fiscal yearsof our peer groups are as follows:
| | Price Per Share | |
| 2019 | | High | | | Low | |
1st Quarter | | $ | 43.26 | | | $ | 29.21 | |
2nd Quarter | | $ | 42.78 | | | $ | 28.76 | |
3rd Quarter | | $ | 35.49 | | | $ | 26.20 | |
4th Quarter | | $ | 43.92 | | | $ | 28.63 | |
| | Price Per Share | |
| 2018 | | High | | | Low | |
1st Quarter | | $ | 64.80 | | | $ | 53.89 | |
2nd Quarter | | $ | 61.61 | | | $ | 52.84 | |
3rd Quarter | | $ | 63.69 | | | $ | 44.92 | |
4th Quarter | | $ | 52.88 | | | $ | 27.86 | |
As of February 21, 2021 Peer Group: ALG, AIMC, B, GTLS, CIR, CMCO, CVGI, EPAC, NPO, FSS, GBX, HY, JBT, LNN, MTW, MWA, SHYF, SPXC, SXI and WNC
2020 there were approximately 200 holders of record of the Company’s Common Stock. For information regarding the Company’s securities authorized for issuance under its equity compensation plans, please see Part II, Item 12 below in this Report.
Item 6Peer Group: ALG, AIMC, CIR, CMCO, CVGI, EPAC, NPO, FSS, GBX, LNN, MTW, NDSN, SHYF, SPXC, SXI, TTC and WNC. | Selected Financial Data |
The information required to be disclosed in this Item appears in Appendix A of this Report.
The graph assumes that the value of an investment in our common stock, in the Russell 2000 index, in the 2021 Peer Group and in the 2020 Peer Group was $100 on December 31, 2016 and assumes reinvestment of all dividends as well as the relative performance of each through December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| (in dollars) | 2016 | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Astec Industries, Inc. | 100.00 | | 87.35 | | 45.47 | | 64.08 | | 89.25 | | 107.52 |
| Russell 2000 | 100.00 | | 114.63 | | 101.99 | | 127.98 | | 153.49 | | 176.18 |
| 2021 Peer Group | 100.00 | | 126.84 | | 94.70 | | 124.42 | | 140.77 | | 166.01 |
| 2020 Peer Group | 100.00 | | 127.07 | | 97.01 | | 134.43 | | 158.87 | | 186.45 |
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The information required to be disclosed in this Item appears in Appendix A of this Report.
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
The information required to be disclosed in this Item appears in Appendix A of this Report under the heading “Market Risk and Risk Management Policies.”
Item 8. | Financial Statements and Supplementary Data |
The information required to be disclosed in this Item appears in Appendix A of this Report.
Item 9. | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure |
None.
Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this Report, the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were not effective as of December 31, 2019 due to the material weaknesses in internal control over financial reporting described in Management’s Report on Internal Control over Financial Reporting in Appendix A of this Report.
Management’s Report on Internal Control over Financial Reporting
Management’s report appears in Appendix A of this Report.
Management’s Remediation Plan
Management’s remediation plan with respect to the material weaknesses in internal control over financial reporting described above appears in Appendix A of this Report.
Changes in Internal Control over Financial Reporting
Except for remediation of the material weakness related to the existence of inventories that existed as of December 31, 2018, there have been no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. | Other Information |
None.
PART III
Item 10. | Directors, Executive Officers and Corporate Governance |
Information required to be disclosed by this Item will be contained in the Company’s Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 30, 2020 (referred to herein as the “Company’s 2020 Proxy Statement”) under the headings “Certain Information Concerning Nominees and Directors,” “Corporate Governance,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance”, which information is incorporated herein by reference. Information with respect to our executive officers is set forth in Part I of this Report under the caption “Executive Officers.”
The Company’s Board of Directors has approved a Code of Conduct and Ethics that applies to the Company’s employees, directors and officers (including the Company’s principal executive officer, principal financial officer and principal accounting officer). The Code of Conduct and Ethics is available on the Company’s website at www.astecindustries.com/investors/.
Item 11. | Executive Compensation |
Information required to be disclosed by this Item, including Items 402(b) and 407(e)(4) and (e)(5) of Regulation S-K, will be contained in the Company’s 2020 Proxy Statement under the headings “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”, “Corporate Governance—Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report,” which information is incorporated herein by reference.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related ShareholderMattersEquity Compensation Plan Information
|
The following table provides information as of December 31, 2019 regarding compensation plans under which the Company’s equity securities are authorized for issuance.
| Plan Category | | (a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, Rights and RSU’s | | (b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(3) | | (c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reelected in Column (a)) |
Equity Compensation Plans Approved by Shareholders (1) | | 187,646(2) | | N/A | | 445,969(4) |
| | | | | | | |
Equity Compensation Plans Not Approved by Shareholders (5) | | 30,574(6) | | N/A | | 65,898(7) |
| Total | | 218,220 | | | | 511,867 |
| (1) | Our 2011 Incentive Plan. |
| (2) | Represents unvested RSUs granted under our 2011 Incentive Plan. |
| (3) | Restricted Stock Units do not have an exercise price. |
| (4) | Represents shares available for issuance under our 2011 Incentive Plan. |
| (5) | Our Amended and Restated Non-Employee Director Stock Incentive Plan. |
| (6) | Represents Deferred Stock Units granted under our Amended and Restated Non-Employee Director Stock Incentive Plan. |
| (7) | Represents shares available for issuance under our Amended and Restated Non-Employee Director Stock Incentive Plan. |
Equity Compensation Plans Not Approved by Shareholders
Our Amended and Restated Non-Employee Directors Compensation Plan provides that annual retainers payable to our non-employee directors will be paid in the form of cash, unless the director elects to receive the annual retainer in the form of common stock, which may, at the director’s option, be received on a deferred basis. If the director elects to receive Common Stock, whether on a current or deferred basis, the number of shares to be received is determined by dividing the dollar value of the annual retainer by the fair market value of the Common Stock on the date the retainer is payable.
In addition, our Amended and Restated Non-Employee Directors Compensation Plan also provides that each non-employee director will receive an annual stock award in the form of restricted stock units (RSUs) that vest on the day preceding the Company’s next annual shareholder’s meeting. The RSUs have no right to dividends prior to their conversion to shares of Common Stock. Individual directors can elect to defer the conversion to Common Stock if they so choose.
Security Ownership of Certain Beneficial Owners and Management
Information included under the caption “Stock Ownership of Certain Beneficial Owners and Management” in the Company’s 2020 Proxy Statement is incorporated herein by reference.
Item 13. | Certain Relationships and Related Transactions and Director Independence |
Information required by this Item is provided under the captions “Corporate Governance—Independent Directors” and “Transactions with Related Persons” in the Company’s 2020 Proxy Statement is incorporated herein by reference.
Item 14. | Principal Accounting Fees and Services |
Information included under the caption “Audit Matters” in the Company’s 2020 Proxy Statement is incorporated herein by reference.
PART IV
Item 15. | Exhibits and Financial Statement Schedules |
(a)(1) The following financial statements and the other information listed below appear in Appendix A to this Report and are filed as a part hereof:
| ● | Selected Consolidated Financial Data. |
| ● | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| ● | Management’s Report on Internal Control over Financial Reporting. |
| ● | Reports of Independent Registered Public Accounting Firm. |
| ● | Consolidated Balance Sheets as of December 31, 2019 and 2018. |
| ● | Consolidated Statements of Operations for the Years Ended December 31, 2019, 2018 and 2017. |
| ● | Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2019, 2018 and 2017. |
| ● | Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017. |
| ● | Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017. |
| ● | Notes to Consolidated Financial Statements. |
(a)(2) Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto.
(a)(3) The following Exhibits are incorporated by reference into or are filed with this Report:
| | Amended and Restated Charter of the Company, adopted on April 28, 1986 and amended on September 7, 1988, May 31, 1989 and January 15, 1999 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011). |
| | Amended and Restated Bylaws of the Company, adopted on March 14, 1990 and amended on July 29, 1993, July 26, 2007, July 23, 2008 and July 25, 2019 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019). |
| | Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated January 1, 1996 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1995). * |
| | Astec Industries, Inc. 1998 Long-Term Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the 1998 Annual Meeting of Shareholders). * |
| | Astec Industries, Inc. 2006 Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the 2006 Annual Meeting of Shareholders). * |
| | Amendment Number 1 to Astec Industries, Inc. 2006 Incentive Plan (incorporated by reference from the Company’s Annual Report on form 10-K for the year ended December 31, 2008).* |
| | Astec Industries, Inc. Supplemental Executive Retirement Plan, as amended and restated through January 1, 2009 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2008). * |
| | Amendment One to the Amended and Restated Astec Industries, Inc. Supplemental Executive Retirement Plan, effective October 21, 2010 (incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2010). * |
| | Astec Industries, Inc. 2011 Incentive Plan (incorporated by reference from Appendix A of the Company’s Definitive Proxy Statement for the 2011 Annual Meeting of Shareholders). * |
| | Amended and Restated Credit Agreement, dated as of April 12, 2012, between Astec Industries, Inc. and Certain of its Subsidiaries and Wells Fargo Bank, National Association (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2012). |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective April 28, 2016 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2016). * |
| | Astec Industries, Inc. Executive Change in Control Severance Plan, effective July 28, 2016 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2016). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective October 27, 2016 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2016). * |
| | Astec Industries, Inc. Amended and Restated Non-Employee Directors Compensation Plan, original effective April 23, 1998 with amended and restated provisions effective April 29, 2016 (incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2016). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective April 27, 2017 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2017). * |
| | First Amendment to Amended and Restated Credit Agreement, dated as of April 12, 2017, between Astec Industries, Inc. and Certain of its Subsidiaries and Wells Fargo Bank, National Association (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2017) |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective July 27, 2017 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2017). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective October 26, 2017 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2017). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective February 23, 2018 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2018). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective August 2, 2018 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2018). * |
| | Pellet Plant Agreement between Astec, Inc., Astec Industries, Inc. Highlands Pellets, LLC, Highlands, LLC, Arkansas Teacher Retirement System and GIP CAPS Pine L.P. (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2018). |
| | Separation Agreement and General Release, dated January 21, 2019, between Benjamin G. Brock and Astec Industries, Inc. (incorporated by reference from the Company’s Current Report on Form 8-K filed on January 22, 2019). * |
| | Amendment to Exhibit A of the Astec Industries, Inc. Executive Change in Control Severance Plan, effective February 21, 2019 (incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2018). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective January 1, 2019 (incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2018). * |
| | Second Amendment to Amended and Restate Credit Agreement, effective February 26, 2019 (incorporated by reference from the Company’s Annual Report on Form 10-K for the period ending December 31, 2018). |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective April 25, 2019 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending March 31, 2019). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective July 25, 2019 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending June 30, 2019). * |
| | Separation Agreement and General Release, dated as of September 18, 2019, by and between Astec Industries, Inc. and Richard J. Dorris (incorporated by reference from the Company’s Current Report on Form 8-K filed on September 18, 2019). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective October 24, 2019 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ending September 30, 2019). * |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective December 5, 2019. * |
| | Separation Agreement and General Release, dated as of December 31, 2019, by and between Astec Industries, Inc. and David C. Silvious. |
| | Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective February 28, 2020. * |
| | Subsidiaries of the Registrant. |
| | Consent of Independent Registered Public Accounting Firm. |
| | Certification of Chief Executive Officer of Astec Industries, Inc. pursuant Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. |
| | Certification of Chief Financial Officer of Astec Industries, Inc. pursuant Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002. |
| | Certification of Chief Executive Officer and Chief Financial Officer of Astec Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002. |
101.INS | | XBRL Instance Document |
101.SCH | | XBRL Taxonomy Extension Schema |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase |
101.LAB | | XBRL Taxonomy Extension Label Linkbase |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase |
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* | | Management contract or compensatory plan or arrangement. |
(b) The Exhibits filed with this Report are listed on Appendix A.
(c) The Financial Statement Schedules to this Report are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto.
The Exhibits are numbered in accordance with Item 601 of Regulation S-K. Inapplicable Exhibits are not included in the list.
Item 16. | Form 10-K Summary |
None
to
ANNUAL REPORT ON FORM 10-K
ITEMS 6, 7, 7A, 8, 9A, 15(a)(1) , and 15(b)
AND
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
ASTEC INDUSTRIES, INC.
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Items 8 and 15(a)(1): Financial Statements and Supplementary Data | |
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FINANCIAL
INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA(in thousands, except as noted*)
| | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
| Consolidated Statement of Operations Data | | | | | | | | | | | | | | | |
| Net sales | | $ | 1,169,613 | | | $ | 1,171,599 | | | $ | 1,184,739 | | | $ | 1,147,431 | | | $ | 983,157 | |
| Gross profit | | | 239,408 | | | | 135,766 | | | | 243,129 | | | | 265,269 | | | | 218,843 | |
| Gross profit % | | | 20.5 | % | | | 11.6 | % | | | 20.5 | % | | | 23.1 | % | | | 22.3 | % |
| Selling, general and administrative expenses | | | 183,934 | | | | 180,795 | | | | 160,775 | | | | 153,145 | | | | 145,180 | |
| Research and development | | | 27,214 | | | | 28,332 | | | | 26,817 | | | | 24,969 | | | | 23,676 | |
| Restructuring and asset impairment charges | | | 3,204 | | | | 13,060 | | | | – | | | | – | | | | – | |
| Income (loss) from operations | | | 25,056 | | | | (86,421 | ) | | | 55,537 | | | | 87,155 | | | | 49,987 | |
| Interest expense | | | (1,367 | ) | | | (1,045 | ) | | | (840 | ) | | | (1,395 | ) | | | (1,611 | ) |
| Other income | | | 305 | | | | 536 | | | | 1,218 | | | | 529 | | | | 3,055 | |
| Net income (loss) | | | 22,174 | | | | (60,744 | ) | | | 37,590 | | | | 54,988 | | | | 31,966 | |
| Net income (loss) attributable to controlling interest | | | 22,306 | | | | (60,449 | ) | | | 37,795 | | | | 55,159 | | | | 32,797 | |
| Earnings (loss) per common share*: | | | | | | | | | | | | | | | | | | | | |
| Net income (loss) attributable to controlling interest | | | | | | | | | | | | | | | | | | | | |
| Basic | | | 0.99 | | | | (2.64 | ) | | | 1.64 | | | | 2.40 | | | | 1.43 | |
| Diluted | | | 0.98 | | | | (2.64 | ) | | | 1.63 | | | | 2.38 | | | | 1.42 | |
| | | | | | | | | | | | | | | | | | | | | |
| Consolidated Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 333,537 | | | $ | 371,760 | | | $ | 423,823 | | | $ | 407,972 | | | $ | 399,785 | |
| Total assets | | | 800,498 | | | | 855,457 | | | | 889,579 | | | | 843,601 | | | | 777,353 | |
| Short-term debt | | | 1,130 | | | | – | | | | – | | | | 4,632 | | | | – | |
| Current maturities of long-term debt | | | 209 | | | | 413 | | | | 2,469 | | | | 2,538 | | | | 4,528 | |
| Long-term debt, less current maturities | | | 690 | | | | 59,709 | | | | 1,575 | | | | 4,116 | | | | 5,154 | |
| Total equity | | | 602,487 | | | | 585,290 | | | | 686,765 | | | | 648,841 | | | | 609,858 | |
| Cash dividends declared per common share* | | | 0.44 | | | | 0.42 | | | | 0.40 | | | | 0.40 | | | | 0.40 | |
| Book value per share at year-end (shareholders’ equity / diluted shares outstanding for the year)* | | | 26.55 | | | | 25.53 | | | | 29.58 | | | | 27.99 | | | | 26.30 | |
SUPPLEMENTARY FINANCIAL DATA(in thousands, except as noted*)
Quarterly Financial Highlights (Unaudited) | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| | | | | | | | | |
| 2019 | Net sales | $325,780 | | $304,802 | | $255,807 | | $283,224 |
| | Gross profit(1) | 76,850 | | 83,317 | | 51,860 | | 27,381 |
| | Net income (loss) | 14,217 | | 23,361 | | 2,955 | | (18,359) |
| | Net income (loss) attributable to controlling interest | 14,274 | | 23,377 | | 3,010 | | (18,355) |
| | Earnings (loss) per common share* | | | | | | | |
| | Net income (loss) attributable to controlling interest: | | | | | | | |
| | Basic | 0.63 | | 1.04 | | 0.13 | | (0.81) |
| | Diluted | 0.63 | | 1.03 | | 0.13 | | (0.81) |
| | Dividends paid | 0.11 | | 0.11 | | 0.11 | | 0.11 |
| | | | | | | | | |
| 2018 | Net sales | $325,453 | | $272,528 | | $256,613 | | $317,005 |
| | Gross profit (loss) | 78,005 | | 1,108 | | 58,284 | | (1,631) |
| | Net income (loss) | 20,216 | | (40,768) | | 6,903 | | (47,095) |
| | Net income (loss) attributable to controlling interest | 20,267 | | (40,674) | | 6,995 | | (47,037) |
| | Earnings (loss) per common share* | | | | | | | |
| | Net income (loss) attributable to controlling interest: | | | | | | | |
| | Basic | 0.88 | | (1.76) | | 0.31 | | (2.08) |
| | Diluted | 0.87 | | (1.76) | | 0.30 | | (2.08) |
| | Dividends paid | 0.10 | | 0.10 | | 0.11 | | 0.11 |
| | | | | | | | | |
| Common Stock Price* | | | | | | | |
| | 2019 High | $43.26 | | $42.78 | | $35.49 | | $43.92 |
| | 2019 Low | $29.21 | | $28.76 | | $26.20 | | $28.63 |
| | | | | | | | | |
| | 2018 High | $64.80 | | $61.61 | | $63.69 | | $52.88 |
| | 2018 Low | 53.89 | | 52.84 | | 44.92 | | 27.86 |
The Company’s common stock is traded in the Nasdaq National Market under the symbol ASTE. Prices shown are the high and low sales prices as announced by the Nasdaq National Market. As determined by the proxy search on the record date for the Company’s 2020 annual shareholders’ meeting, the number of holders of record is approximately 200.
(1) Amounts for the first and second quarters have been revised from amounts reported in the respective Form 10-Q’s to reflect separate restructuring charge presentation that began with the third quarter Form 10-Q reporting.
MANAGEMENT’SITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar and share amounts in thousands, except per share amounts, unless otherwise specified)
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the related notes included in Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2021. The results of operations and other information included herein are not necessarily indicative of the financial condition, results of operations and cash flows that may be expected in future periods. This Annual Report on Form 10-K, including matters discussed in this Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to our plans, estimates and beliefs that involve inherentimportant risks and uncertainties. ActualSee "Safe Harbor Statements Under the Private Securities Litigation Reform Act" and Part I, Item 1A. Risk Factors for a discussion of uncertainties and assumptions that may cause actual results mayto differ materially from those containedexpressed or implied in thesethe forward-looking statements. For additional information regarding forward-looking statements, see “Forward-looking Statements”.
OverviewThis section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020.
The Company is a leading manufacturerfinancial condition and sellerresults of equipment foroperations 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 road building, aggregate processing, geothermal, water, oil and gas and wood processing industries. The Company’s businesses:
| ● | design, engineer, manufacture and market equipment used in each phase of road building, including mining, quarrying and crushing the aggregate, mobile bulk and material handling solutions, producing asphalt or concrete, recycling old asphalt or concrete and applying the asphalt; |
| ● | design, engineer, manufacture and market additional equipment and components, including equipment for geothermal drilling, oil and natural gas, industrial heat transfer, wood chipping and grinding, 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 22 companies that are consolidated in our financial statements, which include 17 manufacturing companies, three companies that operate as dealers for the manufacturing companies, a captive insurance company and the parent company. The companies fall within three reportable operating segments: the Infrastructure Group, the Aggregate and Mining Group and the Energy Group.
Infrastructure Group
- This segment consists of five business units, three of which
Business Overview
We design, engineer, manufacture and market a complete line of asphalt plants, asphalt paversequipment 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 are Company-owned dealers which sell, service and install equipment produced by the manufacturing subsidiariesaggregate to application of the Company, with the majority of sales to the infrastructure industry. In late 2018, the Company announced the closing of its Company-owned dealer in Germany. All assets of the German Company-owned dealer have been liquidated or transferred to other Company subsidiaries, (with the sale of the landroad surface for both asphalt and buildings closing in January 2020). Minimal costs are expected to be incurred in 2020 associated with the final closing of the German Company-owned dealer.
Aggregate 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 six 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.
Executive Summary
Highlights of our financial results as of and for the year ended December 31, 2021 as compared to the oilsame period of the prior year include the following:
•Net sales were $1,097.2 million, an increase of 7.1%
•Gross profit was $251.7 million, an increase of 4.8%
•Income from operations decreased $20.9 million to $22.1 million
•Net income attributable to Astec decreased to $17.8 million, or 62.0%
•Diluted earnings per share were $0.78, a decrease of 62.0%
Significant Items Impacting Operations in 2021
COVID-19 Pandemic
The COVID-19 pandemic has caused significant disruptions to national and gas, construction,global economies and water well industries. RexCon, Inc. was added to our business. While our businesses have generally remained operational throughout the pandemic, with temporary closures in the United Kingdom and South Africa early in the pandemic, our business has been significantly affected by the contributory effects of the pandemic such as decreased demand for our products in 2020, material price increases, increased lead times from production materials, supplies and parts and labor shortages. These trends continue to impact our business today and may continue to impact our business in the near-term.
We have also taken precautions to protect our employees and their families and our customers and suppliers from COVID-19 and continually monitor the markets in which we operate for the effects of COVID-19 and the related actions of governments and other authorities to contain COVID-19.
The COVID-19 pandemic may continue to negatively disrupt our business and results of operations in the future. The ongoing impact of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments including, but not limited to, government directives, treatment availability and acceptance, vaccine mandates and the spread of new variants, such as the Delta and Omicron variants, and cannot be accurately predicted. See Part I, Item 1A. Risk Factors in this Group effective October 1, 2017 as described below.Annual Report on Form 10-K.
Closure of Tacoma Facility
In January 2021, management announced plans to close the Tacoma facility. The Company announcedTacoma facility ceased manufacturing operations at the pending closingend of its CEI, Inc. business location in October 2019.2021. The products manufactured by CEI will be transferredtransfer of the manufacturing and marketing of the Tacoma product lines to other Astec companies for future production. The closing of CEIfacilities within the Infrastructure Solutions segment is expected to be completed during early 2022.
Simplify, Focus and Grow Strategic Transformation ("SFG")
Beginning in March 2020. The Companylate 2019, we initiated a strategic transformation initiative focused on implementing new business strategies and a new operating structure. This transformation is concentrated on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow. SFG is an ongoing, multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improve productivity and embed continuous improvement in our processes. These efforts are considered critical to enabling us to operate competitively and supporting future growth, which are expected to broadly benefit our customers, partners, employees and shareholders.
Since initiating SFG, we have consolidated certain of our sites as a key part of these initiatives. Site consolidation costs including headcount reductions, inventory movement and facility shut-down costs are included in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations.
In addition, in late 2020 we launched a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems. The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency. An implementation of discontinuing its GEFCO oilthis scale is a major financial undertaking and gas product linewill require substantial time and disposingattention of all of GEFCO’s oilmanagement and gas related inventories,key employees. Costs incurred during 2021 were $13.4 million, which represent costs directly associated with an expected completion date of mid-2020.
Individual Company subsidiariesthe SFG initiative and which cannot be capitalized in accordance with U.S. GAAP. These costs are included in the composition of the Company’s segments are as follows:
| 1. | Infrastructure Group – Astec, Inc., Roadtec, Inc., Carlson Paving Products, Inc., Astec Australia, Pty Ltd and Astec Mobile Machinery GmbH (which is being dissolved).
|
| 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.
|
| 3. | Energy Group – Heatec, Inc., CEI, Inc. (which is being closed), GEFCO, Inc., Peterson Pacific Corp., Power Flame Incorporated and RexCon, Inc. RexCon, Inc. was added to the Group upon its formation and acquired substantially all of the assets and liabilities of RexCon LLC in October 2017.
|
The Company also has one other category, Corporate, that contains the business units that do not meet the requirements for separate disclosure as a separate operating segment or inclusion in one of the other reporting segments. The business units"Selling, general and administrative expenses" in the Corporate category are Astec Insurance Company (“Astec Insurance” or “the captive”), Astec Industries LatAm SpA, a Company-owned distributor in Chile in the start-up phaseConsolidated Statements of operationsOperations.
Industry and Astec Industries, Inc., the parent company.Business Condition
The Company’sOur financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets it serves.we serve. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development and changes in the prices of liquid asphalt, oil, and natural gas and steel.
In addition, many of our markets are highly competitive, and our products compete worldwide with a number of other manufacturers and dealers that produce and sell similar products.
We ended 2020 with a strong backlog of orders, which has grown throughout 2021 across our global organization as well as in both the Infrastructure Solutions and Materials Solutions segments. The backlog of orders as of December 31, 2021 was $762.6 million compared to $360.5 million as of December 31, 2020, an increase of $402.1 million or 111.5%. Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of COVID-19 as well as in anticipation of future infrastructure investment by the United States' government under the Infrastructure Investment and Jobs Act ("IIJA") enacted in November 2021. Additionally, we are continuing to experience constrained production cycles due to increased lead times for certain production materials, parts and supplies and manufacturing labor shortages which have and may continue to impact our ability to satisfy the orders in our backlog in a manner that meets the timelines of our customers.
Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. The Company believesWe believe that federal highway funding influences the purchasing decisions of the Company’sour customers, who are typically more comfortableamenable to making capital equipment purchases with long-term federal legislation in place.
In July 2012, Federal transportation funding under the “Moving Ahead for Progress 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,Fixing America's Surface Transportation Act expired December 3, 2021. As noted above, the U.S. government approved short-term funding of $10.8enacted the IIJA in November 2021. The IIJA allocates $548 billion through May 2015. Federal transportation funding operated on short-term appropriations until December 4, 2015, when the Fixing America’s Surface Transportation Act (“FAST Act”) was signed into law. The $305 billion FAST Act approved funding for highways of approximately $205 billion and transit projects of approximately $48 billion forin government spending to new infrastructure over the five-year period ending September 30, 2020.
The Company believes aconcluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects. We believe that multi-year highway programprograms (such as the FAST Act)IIJA) will have the greatest positive impact on the road construction industry and allows itsallow our customers to plan and execute longer-term projects. Given the inherent uncertainty in the political process, the level of governmental funding for federal highway projects will similarly continue to be uncertain. Since elected in late 2016, the current executive branch of the federal government has stressed that one of its priorities is a new infrastructure bill including increased funding for roads, bridges, tunnels, airports, railroads, ports and waterways, pipelines, clean water infrastructure, energy infrastructure and telecommunication needs. Proposals being considered may 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 current 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 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.
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 liquid asphalt, the price of oil and natural gas, 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, cause 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 increased the Federal Funds Rate beginning in December 2016 through 2018 but decreased rates by 0.25% in late July 2019 and again in September and October 2019. Future rate changes are expected; however, the current Federal Funds Rate is still considered in the historically low range.
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 application of asphalt mix. Liquid asphalt is a by-product of oil 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. OilWhile oil prices have increased throughout 2021, its price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. Oil prices have routinely fluctuated in recent years and are expected to continue to fluctuate in the future. Minor fluctuations in oilBased on the current macroeconomic environment, we expect 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 duewill continue 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. The Company believes the continued funding of the FAST Act federal highway bill passed in December 2015, together with the prospect of potential replacement funding, have a greater potential to impact the buying decisions of the Company’s customers than does the fluctuation of oil prices in 2020.increase into 2022.
Contrary to the impact of oil prices on many of the Company’s Infrastructure Group products as discussed above, certain products manufactured by the Energy Group, which are used in heaters for refineries and oil sands, 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 demand for the Company’s oil and gas related products.
Steel is a major component of the Company’sour equipment. SteelWith a drop in supply, similar to oil, steel prices declined during the second half of 2019, and by late 2019, returned to levels prior to Section 232 and 301 tariffs recently enacted. The Company expects seasonal strengthening to occur as it enters 2020 as service centers replenish inventories and anticipates some additional moderate strengthening as some supply has been temporarily constrained. The Company expects pricing to weakenbegan increasing in the latter part of 2020 dueand have continued to seasonalityincrease throughout the year. As a result, we have experienced a rising cost of steel throughout 2021. We anticipate that steel demand will remain strong into 2022, bolstered by the IIJA. However, we expect new steelmaking capacity to enter the market in 2022 moving us towards a more historical balance of supply and additional supply slated to come onlinedemand, thus slowing the pace of price inflation we experienced in 2021. The Company continuesIn response to utilize forward-looking contracts coupled with advanced steel purchasesthese factors, we continue to employ flexible strategies to ensure supply and minimize the impact of any price increases. The Companyvolatility. Ongoing constraints in the supply of certain steel products will reviewcontinue pressuring the trendsavailability of other components used in our manufacturing process.Furthermore, given the recent volatility of steel prices and the nature of our customers' orders, we are often not able to pass through all of the increases in steel prices entering intocosts to our customers, which negatively impacts our gross profit.
We actively manage our global supply chain for any identified constraints and volatility. Challenges related to our supply chain, including potential labor shortages at our vendors and logistics partners and the second halfavailability of 2020shipping containers, cargo ships and establishunloading space, have continued to drive increased lead times for certain components used in our manufacturing processes. We cannot estimate the full impact that any future contract pricing accordingly.disruptions might have on our operations. We will continue to monitor potential future supply costs and availability.
In addition, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations. This has resulted in a variety of challenges in running our operations efficiently to meet strong customer demand. We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.
Whenever possible, we attempt to cover increased costs of production by adjusting the factors stated above, manyprices of our products. Backlog fulfillment times from the Company’s markets are highly competitive,initial order to completing the contracted sale vary 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 conditions in certain foreign economies, had a positive impactcan extend past twelve months. For this reason, we have limitations on the Company’s international sales. The continued strengthened U.S. dollar since mid-2012 has negatively impacted pricing in certain foreign markets the Company serves. The Company expects the U.S. dollarour ability to remain strong in the near term relativepass on cost increases to most foreign currencies. Increasing domestic interest rates or weakening economic conditions abroad could cause the U.S. dollar to further 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 2019, approximately 60% of the Company’s sales were to the end user. The Company expects this ratio to be between 60% and 70% for 2020.
The Company operated in 2019 on a centrally led, but decentralized basis, with a complete operating 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 managed at the Corporate level (i.e., Astec Industries, Inc., the parent company). The engineering, design, sales, manufacturing and basic accounting functions are the responsibility of each individual subsidiary. Standard accounting procedures are prescribed and followedcompetition limits our ability to pass through cost increases in all reporting.
In 2019, the Company operated under an interim CEO while the Astec Board of Directors searched for a new Chief Executive Officer. In August 2019, the Astec Board of Directors hired Barry A. Ruffalo as President and CEO of the Company. Mr. Ruffalo spent the remainder of 2019 visiting all Astec subsidiaries to familiarize himself with the Company’s products, people, products and markets the Company serves. A new Chief Financial Officer, Rebecca A. Weyenberg, was also hired in late 2019.
In 2020, under leadership of the new CEO, new business strategies, as well as a new operating structure was implemented across the Company. The three pillars that frame the Company’s business strategy going forward will be “Simplify, Focus and Grow”. The Company will “Simplify” by leveraging its global footprint and scale while maintaining strong customer relationships, reducing the complexity of the organizational structure, consolidating and rationalizing its product portfolio and optimizing the supply chain by leveraging the size and scale of the Company. The Company’s “Focus” will be to strengthen the customer-centric approach by providing a holistic set of solutions while driving commercial andmany cases. Through our operational excellence as well as enhanced accountabilityinitiatives, we also strive to minimize the effect of inflation through a performance-based culture with key performance indicatorscost reductions and incentives. The Company will “Grow” by capitalizing on global growth opportunities, reinvigorating innovation with a new product development approach and leveraging technology and digital connectivity to enhance our customer experience and effectively allocate capital to drive increased shareholder value.
The new business strategy includes the change to a matrix organization from the previous individual decentralized company structure, which will improve the agility and speed of decision making and strategic focus. The new organizational structure is centered on product platforms and functional roles instead of the past independent subsidiary structure. The Company will migrate to operating under two core groups managed by Group Presidents who report directly to the CEO. Each Group President is responsible for multipleimproved manufacturing sites based on the commonality of products and markets those sites serve. The Group Presidents have functional Vice Presidents as direct reports and include VP of Product Management, VP of Sales and Marketing, VP of Engineering, VP of Finance and VP of Operations. These Vice Presidents are responsible for their individual functional lines of the business at all sites within their Group. The positon of Subsidiary President has been eliminated, with most of the previous subsidiary presidents assuming a role of Group vice president suited for their particular area of expertise. The Company believes the new leaner structure is more efficient and agile and will reduce duplicate processes and positions across all sites as well as improve communication and drive focus on the manufacture/sell/service of all products while maintaining the Company’s core values.
The Company’s current profit sharing plans allow Corporate officers, subsidiary presidents and other key management employees at each subsidiary 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 target incentive compensation. Each subsidiary also 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’s current long-term incentive plans allow Corporate officers, subsidiary presidents and other corporate or subsidiary management employees to 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 150% of their base salary, depending upon their responsibilities, and the plans allow for awards of up to 200% of target incentive compensation. Additional RSUs may be granted to other key subsidiary management employees based upon individual subsidiary profits.
The Company’s Board, with the assistance of management and an outside consultant, are in the process of redesigning the Company’s annual incentive and long-term incentive plans to better fit the new management structure. Approval is expected in early 2020.
Beginning in 2018 and continuing through mid-2019, the Company retained the services of a specialized consulting firm to assist with the accumulation of Company-wide purchasing data and a system for maintaining similar data in the future for management to utilize in negotiations with suppliers or potential suppliers in order to obtain reduced prices on raw materials and purchased equipment components. The firm also assisted with the development of sales and operational planning procedures designed to achieve significant reductions in inventory levels maintained for normal production needs and to reduce existing excess inventories. The results of these efforts had a positive impact on the Company’s gross profit and inventory levels in 2019, and the Company anticipates an increased impact in 2020 and forward as process improvements mature.
Significant Items Impacting Operations 2019 and 2018
Georgia Pellet Plant Agreement (Q2 2019)
The Company manufactured its first wood pellet plant for a customer under a Company-financed arrangement whereby the Company deferred the recognition of revenue as payment under the arrangement was not assured. After considering the uncertainty of completing the sale to the customer due to its inability to obtain financing; the lack of success in attempting to market the plant to other pellet plant operators; the cost of repossessing the plant; and the Company’s decision to exit the pellet plant business line, the pellet plant inventory’s net realizable value was written down from $59,522 to zero in the fourth quarter of 2018. The Company ultimately sold the pellet plant to the original customer at a discounted sales price of $20,000 at the end of the second quarter of 2019. The sales agreement also included provisions to release the Company from any further financial obligations related to the plant. The $20,000 sale of this pellet plant is included in the results of operations for the year ended December 31, 2019 and is non-recurring.
Arkansas Pellet Plant Agreement (Q2 2018)
The Company’s sales contract with the purchaser of a large wood pellet plant in Arkansas, on which $143,300 of revenue (prior to the $75,315 charge discussed below) was recorded through June 30, 2018 (2018 revenues were not material) based on the over-time method, contained certain production output and operational provisions, which if not timely met, could have resulted in the Company having to refund the purchase price to the customer. Additional contract provisions required the Company to compensate the customer for production shortfalls caused by the Company and other potential costs (depending on the market price of wood pellets). As the plant did not meet the production output and operational specifications by the deadline set forth in the contract (June 29, 2018), the Company entered into an agreement with the customer on July 20, 2018, whereby the Company paid its customer $68,000 over 120 days following execution of the agreement and forgave $7,315 in accounts receivables to obtain a full release of all the Company’s contractual obligations under the sales contract. The terms of the pellet plant agreement resulted in the Company’s Infrastructure Group recording non-recurring charges against sales of $75,315 and gross profit of $71,029 in the second quarter of 2018.
Restructuring Charges (2019)efficiencies.
The Company has completed the plan it announced in 2018 to exit from the wood pellet plant line of business and is in the final stages of the closing of Astec Mobile Machinery (“AMM”) in Germany. In the fourth quarter of 2019, the Company also announced the closing of CEI, Inc. (“CEI”) in Albuquerque, New Mexico. The Company is in the process of discontinuing its GEFCO oil and gas product line and disposing of all of GEFCO’s oil and gas related inventories, with an expected completion date of mid-2020. Costs totaling $3,204 were incurred in 2019 related to its business closings and divestitures outlined above and are classified on the accompanying consolidated statements of operations as restructuring and asset impairment charges and are comprised of $1,282 of costs related to the closing of AMM; $530 of costs related to exiting the wood pellet plant line of business and $247 of costs related to GEFCO discontinuing the oil and gas product line (primarily employee severance pay); $895 related to the closing of CEI and an asset impairment charge of $250 related to one of the Company’s airplanes. Additional costs may be incurred in 2020 related to restructuring. Accrued costs at December 31, 2019 related to the restructuring activities are not significant.
Net Realizable Inventory Adjustment (2019)
Inventories are valued at the lower of cost or net realizable value which requires the Company the make specific estimates, assumptions and professional judgement to determine if adjustments of inventory values to their net realizable value are necessary. In the fourth quarter of 2019, after considering new management’s revised inventory control and working capital control objectives and the Company’s assessment of the age, quantities on hand, market acceptance of the equipment, and other related factors, it was determined that various specific equipment models in each of the Company’s business units required additions to their net realizable value reserves. An adjustment of $12,122 was recorded by the Infrastructure group and was primarily due to new company strategies regarding the marketing of aged used mobile equipment primarily received in trade on new equipment sales and certain aged mobile equipment models not widely accepted in the industry. The Aggregate and Mining group recorded an adjustment of $4,261, which was due primarily to the previous years’ production of two units of a large crusher model which remain unsold with no viable prospects at year end 2019. An adjustment of $16,247 was recorded in the Energy group, with $11,907 of the adjustment due to GEFCO discontinuing its oil and gas product line and $3,041 due to the announced closing of CEI.
Net Realizable Value Inventory Adjustment (2018)
In the fourth quarter of 2018, after an in-depth analysis of the age, quantities on hand, market acceptance of the equipment, management’s inventory and working capital control objectives, and other related factors, it was determined that various specific equipment models of the Company’s Energy Group inventories, primarily related to oil and gas equipment, required an adjustment of $7,487 to cost of sales to reduce inventories to their net realizable values.
Liquidation of Subsidiary (2018)
While reviewing performance criteria against actual results of all Astec companies during a strategic planning meeting held by management in late 2018, it was determined that Astec Mobile Machinery GmbH (“AMM”) did not meet the desired performance metrics. Documents were filed by the Company in the German court system in December 2018 to begin the process of liquidating AMM. A restructuring charge of $1,870 was recorded by the Infrastructure Group in December 2018 related to the liquidation of AMM.
Goodwill Impairment (2018)
The Company tests goodwill at least annually for impairment. Goodwill tests and valuation procedures were performed by the Company in the fourth quarter of 2018 using actual financial results and forecasts approved by the Company. The testing resulted in impairments at two of the businesses recently acquired by the Company, RexCon, Inc. and Power Flame Incorporated. As a result, the Energy Group recorded goodwill impairment of $11,190 in the fourth quarter of 2018.
Results of Operations: 20192021 vs. 20182020
Net Sales
Net sales decreased $1,986increased $72.8 million or 0.2%7.1% to $1,169,613$1,097.2 million in 20192021 from $1,171,599$1,024.4 million in 2018. Sales are2020. The increase was primarily driven by changes in the volume, pricing and mix of sales that generated primarily from newincreases in equipment purchases made by customers for use in construction of privately funded infrastructure, public sector spending on infrastructure and parts and component sales of $45.2 million and $29.8 million, respectively, partially offset by decreases in used equipment forand service and equipment installation sales of $7.3 million and $3.4 million, respectively. Additionally, we recognized $33.1 million of net incremental sales from acquired businesses partially offset by reduced sales from the aggregate, mining, wood pellet, quarrying and recycling markets, and forexit of our Enid oil and gas and geothermal industries. Excluding the $75,315 one-time pellet plant sales reduction in 2018 and the $20,000 pellet plant sale recorded in the second quarterdrilling product lines of 2019, total net sales decreased $97,301 or 7.8% between the years.
Domestic sales for 2019 were $908,466 or 77.7% of net sales compared to $915,814 or 78.2% of net sales for 2018, a decrease of $7,348 or 0.8%. Excluding pellet related sales, domestic sales for 2019 were $888,466 or 77.3% of net sales compared to $991,129 or 79.5% of net sales for 2018, a decrease of $102,663 or 10.4%. The Company experienced improved domestic sales for its Infrastructure equipment during 2019 while sales of Aggregate and Mining and Energy related equipment decreased during 2019.
International sales for 2019 were $261,147 or 22.3% of net sales compared to $255,785 or 21.8% of net sales for 2018, an increase of $5,362 or 2.1%. The Company experienced improved international sales in 2019 for its Energy related equipment, primarily heating and storage equipment. Sales of Infrastructure related equipment between periods decreased while equipment sold by the Aggregate and Mining Group remained relatively flat between 2018 and 2019.$25.0 million. Sales reported by the Companyour foreign subsidiaries in U.S. dollars for 20192021 would have been $8,641 higher$11.6 million lower had 2019exchange foreign exchange rates been the same as 20182020 rates. The increase in international sales occurred primarily in Europe, Brazil, the West Indies, Canada, Post-Soviet States and Australia, offset by decreased sales in South America, the Middle East, Russia and Mexico. The Company continues its efforts to grow its international business by increasing its presence in the markets it serves including the opening of additional Company-owned distributors in select international countries.
PartsDomestic sales for 20192021 were $319,063$842.1 million or 27.3%76.7% of net sales compared to $308,703$817.0 million or 26.3%79.8% of net sales for 2018,2020, an increase of $10,360$25.1 million or 3.4%3.1%. AllDomestic sales increased primarily due to: (i) net incremental sales of $26.0 million from acquired businesses, (ii) $19.1 million higher equipment sales, and (iii) $14.6 million of higher parts and components sales. These increases were partially offset by: (i) reduced sales from the Company’s segments experienced increased partsexit of our Enid oil and gas drilling product lines of $24.0 million, (ii) lower used equipment sales in 2019 asof $6.2 million and (iii) reduced service and equipment installation sales of $4.2 million.
International sales for 2021 were $255.1 million or 23.3% of net sales compared to 2018 as$207.4 million or 20.2% of net sales for 2020, an increase of $47.7 million or 23.0%. International sales increased primarily due to: (i) $26.1 million higher equipment sales mainly from COVID-19 related temporary site closures in the Company continues to emphasize growth in this lineprior year, (ii) $15.2 million of business.higher parts and components sales and (iii) net incremental sales of $7.1 million from acquired businesses.
Gross Profit
Gross
Consolidated gross profit for 20192021 was $239,408$251.7 million or 20.5%22.9% of net sales as compared to $135,766$240.1 million or 11.6%23.4% of net sales in 2018,2020, an increase of $103,642$11.6 million or 76.3%4.8%. Excluding pellet plant related transactions in each period,The increase was primarily driven by: (i) the 2019impact of net favorable volume, pricing and mix that generated $39.8 million higher gross profit, would have been $219,408(ii) $16.8 million in manufacturing efficiencies, (iii) net incremental gross profit of $5.6 million from acquired businesses and (iv) reduced costs from the exit of our Enid oil and gas drilling product lines of $2.9 million. These increases were partially offset by the impact of inflation on materials, labor and overhead of $53.5 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for 2021 were $200.6 million or 19.1%18.3% of net sales compared to $285,082$166.9 million or 22.9%16.3% of net sales for 2018, a decrease of $65,674 or 23.0%. Overall gross margins were negatively impacted by reduced sales volumes impacting manufacturing overhead absorption, tariffs on incoming materials from certain foreign countries, competitive pricing pressures and additional inventory reserves booked in 2019.
Selling, General and Administrative Expense
Selling, general and administrative expense for 2019 was $183,935 or 15.7% of net sales compared to $180,795 or 15.4% of net sales for 2018,2020, an increase of $3,140$33.7 million or 1.7%20.2%, primarily due to increases in the market value of Company stock held in the SERP ($2,172); employee annual incentive pay on higher company earnings ($1,572); increased management recruitment and relocation costs associated with the hiring of the Company’s new CEO, CFO and several other management positions associated with the transition from decentralized management to a matrix form of management ($1,174); andto: (i) increased costs for the upcoming Con Expo in March 2020 (which is held once every three years)centralization and exhibit expenseinfrastructure efforts associated with our transformation initiatives, (ii) $12.9 million of ($1,214);higher technology and software licensing costs, (iii) $5.4 million of incremental expenses for acquired businesses and (iv) $2.1 million of higher amortization expense. These increases were partially offset primarily by a decrease in airplane repairsdecreases of $7.1 million for reduced expenses associated with closed locations and maintenance expense$4.9 million of $2,159.lower trade show and promotional expenses.
Research and Development Expenses
Research and development expenses decreased $1,118increased $4.4 million or 3.9%19.9% to $27,214$26.5 million in 20192021 from $28,332$22.1 million in 2018.2020. During 2019, the Company presented various new and/or improved equipment models from the 2018 research and development spending while continuing its 2019 effort on2021, we increased efforts related to research and development of new products and improvements to existing product lines as well as adaptation of those products to other markets. The Company will present its new products at the ConExpo trade show in March 2020.markets as compared to prior year that experienced COVID-19 constraints and restructuring.
Restructuring, Impairment and Other Asset Charges, Net
We are in the process of a strategic transformation under which we have completed various restructuring and right-sizing actions. Restructuring, Chargesasset impairment charges and the net gain on the sale of property and equipment for the year ended December 31, 2021 and 2020 are presented below:
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 |
| Restructuring charges: | | | | |
| | | | |
| Costs associated with closing Tacoma | | $ | 1.6 | | | $ | 0.9 | |
| Costs associated with closing Enid | | 0.7 | | | 2.5 | |
| Costs associated with closing Mequon | | 0.6 | | | 3.3 | |
| Costs associated with closing Albuquerque | | — | | | 1.3 | |
| Costs associated with closing AMM | | — | | | 0.3 | |
| Workforce reductions at multiple sites | | — | | | 1.3 | |
| Other restructuring charges | | — | | | 0.3 | |
| Total restructuring related charges | | 2.9 | | | 9.9 | |
| | | | |
| Asset impairment charges: | | | | |
| Airplane impairment charges | | — | | | 2.3 | |
| Goodwill impairment charges | | — | | | 1.6 | |
| Other impairment charges | | 0.2 | | | 0.5 | |
| Total asset impairment charges | | 0.2 | | | 4.4 | |
| | | | |
| Gain on sale of property and equipment, net: | | | | |
| Gain on sale of property and equipment, net | | (0.6) | | | (6.2) | |
| Total gain on sale of property and equipment, net | | (0.6) | | | (6.2) | |
| | | | |
| Restructuring, impairment and other asset charges, net | | $ | 2.5 | | | $ | 8.1 | |
See Note 22, "Strategic Transformation and Restructuring, Impairment and restructuring charges total $3,204 in 2019 and include chargesOther Asset Charges", of $1,282 relatedthe Notes to the closingConsolidated Financial Statements included in Part II, Item 8 of AMM, a Company-owned distributor in Germany; $895 related to the closing of CEI; $530 of costs related to exiting the wood pellet plant line of business; and $247 of costs related to exiting GEFCO’s oil and gas product line (primarily employee severance pay); and an asset impairment charge of $250 related to onethis Annual Report on Form 10-K for discussion of the Company’s airplanes. Impairmentindividual restructuring actions taken and restructuringthe impairment charges totaled $13,060 in 2018 and included a goodwill impairment chargerecorded.
Interest Expense
Interest expense in 2019 increased $322 or 30.8% to $1,367 from $1,045 in 2018 due to a temporary increase in the Company’s borrowings under its line of credit in the first nine months of 2019.
Interest Income
Interest income increased $240 or 25.2% to $1,192 in 2019 from $952 in 2018 due primarily to an increase in interest received in 2019 by one foreign subsidiary due to an increased level of cash on hand.
Other Income
Other income decreased $231 or 43.1% to $305 in 2019 from $536 in 2018.
Income Tax Provision
Income tax expensebenefit for 2019the year ended December 31, 2021 was $3,012$1.4 million compared to income tax benefit of $25,234$1.2 million for 2018.2020. The effective tax rates for 20192021 and 20182020 were 12.0%(8.5)% and 29.3%(2.6)%, respectively. The Company’sOur tax rates are affected by recurring items which are generally consistent from period to period, as well as discrete items that may occur in any given period but are not consistent from period to period. In addition to the U.S. federal tax rate reduction from 35% to 21% for tax years beginning in 2018 and state income tax expense or benefit items, theThe items having the most significant impact on the effective tax rate for 20192021 include a benefit from net releases of $6,614valuation allowances of $8.1 million primarily related to net operating losses ("NOLs"), where deductions exceed taxable income, at our Brazilian subsidiary, the dissolution of Astec Mobile Machinery GmbH ("AMM") during the year and a benefit of $4.1 million for research and development tax credits,credits. These benefits were partially offset by a $4.4 million change in the NOLs of our foreign entities. Significantly impacting the 2020 income tax benefit was a net discrete tax benefit of $918 for the liquidation of a foreign subsidiary, expense of $5,785 for domestic and foreign valuation allowance changes and expense of $5,723 related to unrecognized tax benefits for tax positions taken in 2019.
Net Income Attributable To Controlling Interest
The Company had a net income attributable to controlling interest of $22,306 in 2019 compared to net loss of $60,449 in 2018, an increase of $82,755. Earnings per diluted share increased $3.62 to income of $0.98 in 2019$9.5 million resulting from a loss of $2.64 in 2018. Weighted average diluted shares outstanding for the years ended December 31, 2019 decreased to 22,674 from 22,902 in 2018 due to the impactprovisions of the Company’s stock buy-back program adoptedCoronavirus Aid, Relief and Economic Security Act ("CARES Act"). Among other provisions, the CARES Act modified the NOL carryback provisions, which allowed us to carryback its 2018 NOL to prior tax years. This change not only favorably impacted the timing of the NOL benefit, but also increased the tax benefit amount as the federal tax rates in 2018.the prior years (35%) were higher than the current federal tax rate (21%).
Backlog
The backlog of orders at December 31, 20192021 was $263,705$762.6 million compared to $344,962$360.5 million at December 31, 2018, a decrease2020, an increase of $81,257$402.1 million or 23.6%111.5%. Domestic and international backlogs increased $346.4 million or 123.4% and $55.7 million or 69.7%, respectively. The decreasebacklog increased $231.1 million to $449.3 million in the backlogInfrastructure Solutions segment and increased $171.0 million to $313.3 million in the Materials Solutions segment. Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of orders wasCOVID-19 as well as in anticipation of future infrastructure investment by the United States' government combined with slower production cycles due to a decrease in domestic backlog of $66,243 or 25.4%increased lead times for certain production materials, parts and a decrease in international backlog of $15,014 or 17.8%. The Aggregate Mining Group’s backlog decreased $56,564 or 43.3% from 2018; the Energy Group’s backlog decreased $14,337 or 22.1% from 2018;supplies and the Infrastructure Group’s backlogs decreased $10,356 or 6.9% from 2018 levels. The Company is unable to determine whether the changes in backlogs were experienced by the industry as a whole.manufacturing labor shortages.
Net Sales by Segment
| | 2019 | | | 2018 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 492,118 | | | $ | 442,289 | | | $ | 49,829 | | | | 11.3 | % |
| Aggregate and Mining Group | | | 404,971 | | | | 453,164 | | | | (48,193 | ) | | | (10.6 | )% |
| Energy Group | | | 272,122 | | | | 276,146 | | | | (4,024 | ) | | | (1.5 | )% |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| (in millions) | | 2021 | | 2020 | | $ Change | | % Change |
| Infrastructure Solutions | | $ | 748.0 | | | $ | 702.8 | | | $ | 45.2 | | | 6.4 | % |
| Materials Solutions | | $ | 349.2 | | | $ | 321.6 | | | $ | 27.6 | | | 8.6 | % |
Infrastructure Group: Solutions
Sales in this group increased $49,829segment were $748.0 million for 2021 compared to $702.8 million for 2020, an increase of $45.2 million or 11.3%6.4%. The increase was primarily driven by a positive impact of changes in the volume, pricing and mix of sales that generated increases in equipment and parts and components sales of $28.8 million and $18.0 million respectively, partially offset by decreases in used equipment and service and equipment installation sales of $6.3 million and $2.8 million, respectively. Additionally, we recognized $33.1 million of net incremental sales from acquired businesses partially offset by reduced sales from the exit of our Enid oil and gas drilling product lines of $25.0 million.
Domestic sales for the Infrastructure GroupSolutions segment increased $50,925by $13.0 million or 13.6% in 20192.2% for 2021 compared to 2018. The increase in domestic sales was2020 primarily due to the increase in pellet plant related(i) $26.0 million of net incremental sales from acquired businesses, (ii) increased equipment sales of $95,315 between the periods, which includes a one-time pellet plant recovery sale of $20,000 in 2019, compared to the sales reversal of $75,315 in 2018 for a pellet plant related settlement. The increase in pellet plant related sales was offset by a decrease in$14.2 million and (iii) increased parts and component sales of mobile asphalt paving$6.1 million. These increases were partially offset by: (i) reduced sales from the exit of our Enid oil and gas drilling product lines of $24.0 million, (ii) $4.8 million of lower used equipment sales and (iii) $3.5 million of $51,063 between the periods. A decrease in sales of highway class road pavers is due in part to overstocking of Company product at dealers in 2018 which resulted in higher levels of dealer inventories prevalent throughout much of 2019, thereby reducing reorders. lower service and equipment installation sales.
International sales for the Infrastructure Group decreased $1,096Solutions segment increased $32.2 million or 1.6% in 201928.2% for 2021 compared to 20182020 driven by: (i) increased equipment sales of $14.6 million, (ii) increased parts and was due to increased asphalt plantcomponent sales offset by decreased mobile asphalt equipment sales. The decrease in internationalof $11.9 million and (iii) $7.1 million of net incremental sales for the Infrastructure Group occurred mainly in Australia, Russia, and Mexico. In 2019, the Company introduced a new asphalt plant model specifically designed to meet the needs of the international market, which is expected to help drive increased sales internationally. Parts sales for the Infrastructure Group increased $1,413 or 1.0% in 2019 compared to 2018.from acquired businesses.
Aggregate and Mining Group: Materials Solutions
Sales in this group decreased $48,193segment were $349.2 million for 2021 compared to $321.6 million for 2020, an increase of $27.6 million or 10.6%. 8.6% driven by the favorable impact of changes in volume, pricing and mix of sales that generated increases in equipment and parts and components sales of $16.4 million and $11.8 million, respectively.
Domestic sales for the Aggregate and Mining Group decreased $48,383Materials Solutions segment increased $12.1 million or 16.0% in 20195.3% for 2021 compared to 2018. A late start to the construction season,2020 primarily due to extremely wet weather domestically contributed to decreased inventory turns for dealers throughout 2019 resulting in an 18% increase in dealer inventory stocking levels between the periods. Many dealers indicated that their rental business increased during 2019 but that slower than normal rental to retail conversion rates also contributed to lessparts and component sales of $8.5 million and increased equipment sales and a surplus of available$5.0 million partially offset by lower used equipment in the domestic market. sales.
International sales for the Aggregate and Mining Group remained relatively flat in 2019Materials Solutions segment increased $15.5 million or 16.6% for 2021 compared to 2018. Parts sales for the Aggregate and Mining Group increased 4.3% in 2019 compared to 2018 due to an increase in wear parts sales between the periods.
Energy Group: Sales in this group decreased $4,024 or 1.5%. Domestic sales for the Energy Group decreased $9,890 or 4.1% in 2019 compared to 2018 due to decreased sales of whole tree chippers, debarkers, grinders and asphalt, thermal fluid and process heating equipment, offset by an increase in sales of concrete plants and direct and indirect fired and forced draft burners. International sales for the Energy Group increased $5,866 or 16.0% in 2019 compared to 2018 and was2020 primarily due to increased equipment sales of industrial heaters$11.4 million and increased parts and component sales of $3.3 million related equipment. The increaseto the recovery from COVID-19 related temporary site closures in international sales occurred in Canada, Africa and Europe and was offset by decreased sales in Australia and South America (excluding Brazil). Parts sales for the Energy Group increased 7.1% in 2019 compared to 2018 due to increased sales in all major product lines.prior year.
Segment Profit (Loss)
| | | 2019 | | | 2018 | | | $ Change | | | % Change | |
| Infrastructure Group | | $ | 36,106 | | | $ | (112,954 | ) | | $ | 149,060 | | | | 132.0 | % |
| Aggregate and Mining Group | | | 22,790 | | | | 45,464 | | | | (22,674 | ) | | | (49.9 | )% |
| Energy Group | | | 556 | | | | 3,070 | | | | (2,514 | ) | | | (81.9 | )% |
| Corporate | | | (38,440 | ) | | | 1,586 | | | | (40,026 | ) | | | -- | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | | | |
| (in millions) | | 2021 | | 2020 | | $ Change | | % Change |
| Infrastructure Solutions | | $ | 53.0 | | | $ | 53.8 | | | $ | (0.8) | | | (1.5) | % |
| Materials Solutions | | $ | 29.3 | | | $ | 32.1 | | | $ | (2.8) | | | (8.7) | % |
| Corporate | | $ | (64.8) | | | $ | (40.1) | | | $ | (24.7) | | | (61.6) | % |
Infrastructure Group: Profit for this group increased $149,060 from 2018. This group’s profits were impacted by an increase in gross profit of $105,012 due primarily toSolutions
Segment profit for 2018 being negatively impacted by pellet plant related sales reversals and margin charges totaling $136,735 and 2019 gross profits being favorably impacted by $20,000 of pellet plant margins as discussed above. Restructuring charges totaling $1,812 were recorded in 2019 due to the closing of AMM and severance related expense due to the Company’s exit of pellet plant production and sales. Excluding pellet plant related charges in both periods, profitInfrastructure Solutions segment was $53.0 million for 2019 would be $16,1062021 compared to $23,781$53.8 million for 2018.2020, a decrease of $0.8 million or 1.5%. The Infrastructure Group’sdecrease in segment profit in 2019 was also negatively impacted by a net realizable inventory adjustmentresulted primarily from the impact of $12,122 discussed above. Selling,higher inflation on materials, labor and overhead costs of $33.1 million and increased general and administrative expensescosts of $6.6 million. These increased costs were partially offset by: (i) the impact of favorable volume, pricing and mix that generated $25.1 million higher gross profit, (ii) reduced losses from divested businesses of $7.0 million, (iii) $4.0 million of increased manufacturing efficiencies and (iv) $3.1 million in decreased restructuring costs.
Materials Solutions
Segment profit for the GroupMaterials Solutions segment was $29.3 million for 2019 declined by $5,601 as2021 compared to 2018, due primarily to$32.1 million for 2020, a $4,329decrease of $2.8 million or 8.7%. The decrease in sellingsegment profits resulted primarily from: (i) the impact of higher inflation on materials, labor and overhead costs of $20.5 million, (ii) increased general and administrative costs of $7.3 million, (iii) a settlement loss on pension termination of $5.2 million and (iv) increased research and development expenses primarily at Roadtec due to lower domestic salesof $3.0 million. These increased costs were partially offset by: (i) the impact of favorable volume, pricing and a $1,915 reduction in the Group’s international selling expenses.
Aggregate and Mining Group: Profit for this group decreased $22,674 or 49.9% from 2018. This group’s profits were impacted by a decrease inmix that generated $14.7 million higher gross profit, (ii) $11.5 million in manufacturing efficiencies, (iii) $5.5 million reduced income tax expense and (iv) reduced expenses associated with closed locations of $28,055 on decreased sales$4.1 million.
Corporate
Corporate operations incurred expenses of $48,193$64.8 million for 2021 compared to expenses of $40.1 million for 2020, an unfavorable change of $24.7 million or 61.6%. The increase in expenses resulted primarily from: (i) increased costs related to centralization and by a 390 basis point decreaseinfrastructure efforts associated with our transformation initiatives, (ii) the net change in gross margin due to higher raw materialsincome tax benefit and expense of $4.3 million and (iii) increased research and development expenses of $2.7 million. These increased costs in the first part of the year as well as lower plant operating levels in 2019. The Aggregate and Mining Group profit in 2019 was also negatively impacted by a net realizable inventory adjustment of $4,261 discussed above. The lower gross profits were partially offset by reduced selling expensesnon-recurring impairment charges incurred in the prior year of $3,050 resulting from the lower sales volumes.
Energy Group: Profit for this group decreased $2,514 or 81.9% from 2018. This group’s profits were impacted by a 410 basis point decrease in gross margins which translates$2.7 million primarily related to a decrease of $12,078 in gross profit dollars on decreased sales of $4,024. The primary causes of the reduced margins were net realizable inventory adjustments of $16,247, due primarily to the announced closing of CEI and GEFCO exiting its oil and gas product line as discussed above. Restructuring charges of $1,142, primarily severance pay at CEI and at GEFCO due to exiting its oil and gas line of business, were also recorded in 2019. Restructuring charges of $11,190 were recorded in 2018 due to goodwill impairment charges. The decreased gross profits were partially offset by a reductionCompany airplane that was subsequently sold in the group’s selling expenses totaling $1,707 (due primarily to a reduction in domestic selling expensefirst quarter of $1,189).2021.
Corporate: Net Corporate expenses increased $40,026 from 2018, primarily due to increases in income taxes of $30,412; SERP compensation expense of $2,172; annual incentive pay of $2,115; start-up operating costs of a Company-owned distributor in Latin America of $1,765; recruitment and relocation expense of $1,234; and procurement expenses of $1,198 due the formation of a Corporate procurement department to take advantage of Company-wide purchasing strengths identified during a year-long consulting engagement concluded in mid-2019.
Results of Operations: 2018 vs. 2017
A comparison of 2018 versus 2017 operations can be found in the Form 10-K filed for the year ended December 31, 2018.
Liquidity and Capital Resources
The Company'sOur primary sources of liquidity and capital resources are its cash and cash equivalents on hand, borrowing capacity under a $150,000$150.0 million revolving credit facility (the "Credit Facility") and cash flows from operations. The CompanyWe had $48,857$134.1 million of cash and cash equivalents available for operating purposes as of December 31, 2019,2021, of which $19,770$21.7 million was held by the Company'sour foreign subsidiaries. The transition of U.S. international taxation from a worldwide tax system to a territorial system, as provided under the Tax Act passed in December 2017, should greatly reduce, or eliminate,We did not have any additional taxes on these funds should the Company decide to repatriate these funds to the United States. The Company’s outstanding borrowings under its $150,000 line of credit, which totaled $58,778on the Credit Facility at December 31, 2018, were reduced to zero during 2019. No2021 or 2020. In addition, no borrowings were made under the line of creditCredit Facility during the fourth quarter of 2019. The Company’s2021 or 2020. Our outstanding letters of credit totaling $8,335 resulted in the Company having$2.5 million decreased borrowing availability of $141,665to $147.5 million under the revolving credit facility as of December 31, 2019.2021. The revolving credit facility agreement contains certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth. The Company wasWe were in compliance with the financial covenants of the agreementCredit Facility at December 31, 2019.2021.
The Company’sCertain of our international subsidiaries in South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has aAfrica, Australia, Brazil and the United Kingdom each have separate credit facility of $6,760facilities with a South African banklocal financial institutions to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. As of December 31, 2019In addition, the Brazilian subsidiary maintains an independent credit facility at a separate financial institution and 2018, Osborn had noalso enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings. Osborn had $1,076 in performance, advance payment and retention guarantees outstandingborrowings under the facility ascredit facilities of December 31, 2019. The facility has beenthe international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% and/or secured with certain assets of the facility is utilized. As of December 30, 2019, Osborn had available credit under the facility of $5,684.local subsidiary.
The Company’s Brazilian subsidiary, Astec do Brasil Fabricacao de Equipamentos, Ltda. (“Astec Brazil”), reduced its outstanding working capital loans from $1,207 at December 31, 2018 to $897 at December 31, 2019. The loan’s final monthly payment is due in April 2024, and the debt is secured by Astec Brazil’s manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Additionally, Astec Brazil reduced its outstanding five-year equipment financing loans from $137 at December 31, 2018 to $2 at December 31, 2019. Additionally, Astec Brazil borrowed an additional $1,130 during 2019 under order anticipation agreements with a local bank with maturity dates through September 2020.
Cash Flows from Operating Activities
| | | 2019 | | | 2018 | | | Increase / Decrease | |
| Net income (loss) | | $ | 22,174 | | | $ | (60,744 | ) | | $ | 82,918 | |
| Depreciation and amortization | | | 26,200 | | | | 27,913 | | | | (1,713 | ) |
| Provision for warranties | | | 9,762 | | | | 13,219 | | | | (3,457 | ) |
| Deferred income tax provision (benefit) | | | 1,715 | | | | (25,385 | ) | | | 27,100 | |
| Asset impairment charges | | | 250 | | | | 13,060 | | | | (12,810 | ) |
| (Increase) decrease in receivables and other contract assets | | | 7,531 | | | | (16,189 | ) | | | 23,720 | |
| Decrease in inventories | | | 61,297 | | | | 30,757 | | | | 30,540 | |
| Increase in prepaid expenses | | | (2,260 | ) | | | (11,943 | ) | | | 9,683 | |
| Increase in (decrease) accounts payable | | | (12,968 | ) | | | 9,843 | | | | (22,811 | ) |
| Decrease in customer deposits | | | (5,299 | ) | | | (522 | ) | | | (4,777 | ) |
| Decrease in accrued product warranties | | | (10,473 | ) | | | (17,539 | ) | | | 7,066 | |
| Income taxes payable / prepaid | | | 12,192 | | | | 3,683 | | | | 8,509 | |
| Other, net | | | 2,313 | | | | 4,062 | | | | (1,749 | ) |
| Net cash provided (used) by operating activities | | $ | 112,434 | | | $ | (29,785 | ) | | $ | 142,219 | |
NetMaterial cash provided by operating activities increased $142,219 in 2019 compared to 2018. The primary reasons for the increase in operating cash flows relates to improved net income of $82,918, and the related deferred tax benefit in 2018, and increased reductions in inventories of $30,540 due to a Company initiative.
Cash Flows from Investing Activities
| | 2019 | | | 2018 | | | Increase / Decrease | |
| Expenditures for property and equipment | | $ | (23,360 | ) | | $ | (27,440 | ) | | $ | 4,080 | |
| Other | | | 1,820 | | | | 15 | | | | 1,805 | |
| Net cash used by investing activities | | $ | (21,540 | ) | | $ | (27,425 | ) | | $ | 5,885 | |
Net cash used by investing activities decreased by $5,885 in 2019 compared to 2018 due primarily to the reductions in expenditures for property and equipment.
Cash Flows from Financing Activities
| | 2019 | | | 2018 | | | Increase / Decrease | |
| Payment of dividends | | $ | (9,916 | ) | | $ | (9,625 | ) | | $ | (291 | ) |
| Borrowings/repayments under bank loans | | | (58,054 | ) | | | 56,540 | | | | (114,594 | ) |
| Repurchase of Company stock | | | -- | | | | (24,138 | ) | | | 24,138 | |
| Other, net | | | (115 | ) | | | (83 | ) | | | (32 | ) |
| Net cash provided (used) by financing activities | | $ | (68,085 | ) | | $ | 22,694 | | | $ | (90,779 | ) |
Financing activities used cash of $68,085 in 2019 and provided cash of $22,694 in 2018, resulting in a total decrease between periods of $90,779. The change is primarily due to the borrowings under the Company’s line of credit during 2018 being repaid during 2019, partially offset by the Company’s non-recurring repurchase of the Company’s stock under its buy-back program during 2018.
Financial Condition
The Company’s current assets decreased to $506,304 at December 31, 2019 from $560,991 at December 31, 2018, a decrease of $54,687. The decrease is due primarily to decreases in inventories of $61,408 and trade receivables and contract assets of $10,298 offset by increases in cash and cash equivalents of $23,036. Accounts receivable days outstanding increased from 38.2 in 2018 to 39.3 in 2019.
The Company’s current liabilities decreased to $172,767 at December 31, 2019 from $189,231 at December 31, 2018, a decrease of $16,464. The decrease is primarily due to decreases in accounts payable of $13,452.
Market Risk and Risk Management Policies
The Company is exposed to changes in interest rates, primarily from its revolving credit agreements. A hypothetical 100 basis point adverse move (increase) would not have materially affected interest expense for the year ended December 31, 2019 and 2018. The Company does not hedge variable interest.
The Company is subject to foreign exchange risk at its foreign operations. Foreign operations represent 18.4% and 16.1% of total assets at December 31, 2019 and 2018, respectively, and 11.9% and 11.6% of total net sales for the years ended December 31, 2019 and 2018, respectively. Each period, the balance sheets and related results of operations of the Company’s foreign subsidiaries are translated from their functional foreign currency into U.S. dollars for reporting purposes. As the U.S. dollar strengthens against those foreign currencies, the foreign denominated net assets and operating results become less valuable in the Company’s reporting currency. When the U.S. dollar weakens against those currencies, the foreign denominated net assets and operating results become more valuable in the Company’s reporting currency. At each reporting date, the fluctuation in the value of the net assets and operating results due to foreign exchange rate changes is recorded as an adjustment to other comprehensive income (loss) in equity. The Company views its investments in foreign subsidiaries as long-term and does not hedge the net investments in foreign subsidiaries.
From time to time, the Company’s foreign subsidiaries enter into transactions not denominated in their functional currency. In these situations, the Company evaluates the need to hedge those transactions against foreign currency rate fluctuations. When the Company determines a need to hedge a transaction, the subsidiary enters into a foreign currency exchange contract. The Company does not apply hedge accounting to these contracts and, therefore, recognizes the fair value of these contracts in the consolidated balance sheets and the change in the fair value of the contracts in current earnings.
Due to the limited exposure to foreign exchange rate risk, a 10% fluctuation in the foreign exchange rates at December 31, 2019 or 2018 would not have a material impact on the Company’s consolidated financial statements.
Contractual Obligations
Contractual obligations and the period in which payments are duerequirements as of December 31, 20192021 include working capital needs, capital expenditures, vendor hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments.
We regularly enter into agreements primarily to purchase inventory in the ordinary course of business. As of December 31, 2021, open purchase obligations totaled $243.0 million, of which $231.3 million are as follows:expected to be fulfilled within one year.
| | | Payments Due by Period | |
Contractual Obligations | | Total | | | Less Than 1 Year | | | Years 2 to 3 | | | Years 4 to 5 | | | More Than 5 Years | |
| Operating lease obligations | | $ | 4,269 | | | $ | 1,960 | | | $ | 1,135 | | | $ | 398 | | | $ | 776 | |
| Inventory purchase obligations | | | 9,808 | | | | 9,808 | | | | -- | | | | -- | | | | -- | |
| Debt obligations | | | 899 | | | | 209 | | | | 621 | | | | 69 | | | | -- | |
| Total | | $ | 14,976 | | | $ | 11,977 | | | $ | 1,756 | | | $ | 467 | | | $ | 776 | |
We estimate that our capital expenditures will be between $30 and $40 million for the Company’syear ending December 31, 2022, which may be impacted by general economic, financial or operational changes, including the impact of COVID-19 on our operating results, and competitive, legislative and regulatory factors, among other considerations.
In late 2020 and early 2021, we entered into certain vendor hosted software arrangements in conjunction with our transformation initiatives to convert our internal operations, manufacturing and finance systems to cloud-based platforms globally. These agreements include software-related payments of $45.9 million to be paid through September 2027. Payments of $5.8 million will be made during 2022, $16.9 million during the years 2023 to 2024, $16.7 million during the years 2025 to 2026 and $6.5 million after 2026. These cash payments are exclusive of the separately contracted implementation costs that are project-based and are committed at each phase of the implementation.
Our liability for unrecognized tax benefits which totaled $5,723$10.8 million at December 31, 2019, since2021 for which the timing of cash settlements to the respective taxing authorities, if any, cannot be reliably predicted.
In 2019As of December 31, 2021, our short and 2018,long-term operating lease liabilities are $1.8 million and $4.7 million, respectively. These balances represent our contractual obligation to make future payments on our leases, discounted to reflect our cost of borrowing. See Note 10, Leases, for information regarding our leases, including obligations by fiscal year.
Beginning in 2022, the Company made contributionsTax Cuts and Jobs Act of approximately $1,6132017 eliminates the option to deduct research and $1,376, respectively,development expenditures in the year incurred and requires taxpayers to its KPI pension plan. Currently,amortize domestic expenditures over five years and foreign expenditures over 15 years. If this component of the Company haslegislation is not planned any contributionsdeferred, repealed or modified, operating cash flows will be materially decreased beginning in 2022.
Cash Flows from Operating Activities
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | |
| (in millions) | | 2021 | | 2020 | | Increase / Decrease |
| Net income | | $ | 17.9 | | | $ | 46.9 | | | $ | (29.0) | |
| Deferred tax (benefit) provision | | (1.3) | | | 8.6 | | | (9.9) | |
| Gain on disposition of property and equipment | | (0.6) | | | (6.2) | | | 5.6 | |
| Non-cash curtailment and settlement loss (gain) on pension and postretirement benefits, net | | 3.2 | | | (0.5) | | | 3.7 | |
| Asset impairment charges, net | | 0.2 | | | 4.4 | | | (4.2) | |
| (Purchase) sale of trading securities, net | | (3.1) | | | 0.2 | | | (3.3) | |
| (Increase) decrease in receivables and other contract assets | | (30.8) | | | 12.2 | | | (43.0) | |
| (Increase) decrease in inventories | | (53.8) | | | 44.7 | | | (98.5) | |
| Increase in prepaid expenses | | (6.2) | | | — | | | (6.2) | |
| Increase (decrease) in accounts payable | | 30.8 | | | (8.6) | | | 39.4 | |
| Increase (decrease) in accrued payroll and related expenses | | 3.0 | | | (5.1) | | | 8.1 | |
| Increase (decrease) in customer deposits | | 26.5 | | | (11.2) | | | 37.7 | |
| Income taxes payable/prepaid | | (13.6) | | | 16.0 | | | (29.6) | |
| Other, net | | 35.2 | | | 40.1 | | | (4.9) | |
| Net cash provided by operating activities | | $ | 7.4 | | | $ | 141.5 | | | $ | (134.1) | |
Net cash provided by operating activities decreased $134.1 million in 2021 compared to 2020. The primary drivers of the decrease in operating cash flows were the increase of inventories on hand due to higher backlog and supply chain logistics challenges of $98.5 million, the timing of receivables and other contract assets of $43.0 million and payable/prepaid income taxes of $29.6 million and lower net income of $29.0 million. These decreases were partially offset by increases related to the pension plantiming of accounts payable payments of $39.4 million and higher customer deposits of $37.7 million associated with higher backlog amounts in 2020.the current year.
Cash Flows from Investing Activities
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | |
| (in millions) | | 2021 | | 2020 | | Increase / Decrease |
| Acquisitions, net of cash acquired | | $ | 0.1 | | | $ | (32.5) | | | $ | 32.6 | |
| (Price adjustment on prior) proceeds from sale of subsidiary | | (1.1) | | | 9.1 | | | (10.2) | |
| Expenditures for property and equipment | | (20.1) | | | (15.4) | | | (4.7) | |
| Proceeds from sale of property and equipment | | 1.9 | | | 17.7 | | | (15.8) | |
| Purchase of investments | | (1.0) | | | (1.1) | | | 0.1 | |
| Sale of investments | | 1.8 | | | 1.3 | | | 0.5 | |
| Net cash used in investing activities | | $ | (18.4) | | | $ | (20.9) | | | $ | 2.5 | |
Net cash used in investing activities decreased by $2.5 million in 2021 as compared to 2020 primarily due to acquisitions occurring in the prior year that did not recur in 2021 partially offset by higher proceeds from the sale of property and equipment and divestiture activity in 2020 that did not recur in 2021 combined with increased property and equipment expenditures in 2021.
Cash Flows from Financing Activities
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | | |
| (in millions) | | 2021 | | 2020 | | Increase / Decrease |
| Payment of dividends | | $ | (10.2) | | | $ | (10.0) | | | $ | (0.2) | |
| Borrowings, net under bank loans | | 1.0 | | | 0.1 | | | 0.9 | |
| Withholding tax paid upon vesting of share-based compensation awards | | (3.5) | | | (0.8) | | | (2.7) | |
| Other, net | | 0.6 | | | 0.3 | | | 0.3 | |
| Net cash used in financing activities | | $ | (12.1) | | | $ | (10.4) | | | $ | (1.7) | |
Net cash used in financing activities increased by $1.7 million in 2021 as compared to 2020 primarily due to higher withholding tax payments on the vesting of share-based compensation awards.
Financial Condition
Our current assets increased to $641.7 million at December 31, 2021 from $565.8 million at December 31, 2020, an increase of $75.9 million or 13.4%. The Company’s funding policyincrease is due primarily to makeincreases in inventories of $53.3 million, increases in trade receivables and contract assets, net of $28.2 million, increases in prepaid and refundable income taxes of $10.7 million and increases in prepaid expenses and other assets of $6.0 million partially offset by decreases in cash, cash equivalents and restricted cash of $24.2 million. Accounts receivable days outstanding increased from 45.3 in 2020 to 50.3 in 2021.
Our current liabilities increased to $225.3 million at least the minimum annual contributions requiredDecember 31, 2021 from $170.3 million at December 31, 2020, an increase of $55.0 million or 32.3%. The increase is primarily due to increases in accounts payable of $30.8 million, increases in customer deposits of $26.0 million and increases in accrued payroll and related liabilities of $2.8 million partially offset by applicable regulations.decreases in other accrued liabilities of $4.8 million.
Contingencies
Management has reviewed all claims and lawsuits and has made adequate provision for any losses that are probable and can be reasonably estimated. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of itsour current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’sour financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Companyus could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company’sour financial position, cash flows or results of operations.
Certain customers have financed purchasesSee Note 16, Commitments and Contingencies of the Company’s products through arrangementsNotes to the Consolidated Financial Statements included in which the Company is contingently liablePart II, Item 8 of this Annual Report on Form 10-K for discussion of contingent liabilities for customer debt in the aggregate amount of $1,466 at December 31, 2019. These arrangements expire atpurchases, various dates through December 2023 and have an average remaining term of 1.9 years. Additionally, the Company is also potentially liable for 1.75% of the unpaid balance, determined as of December 31 of the prior year (or approximately $932 for 2019), on certain past customer equipment purchases financed by an outside finance company. The agreements provide that the Company will receive the lender’s full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $1,666 related to these guarantees as of December 31, 2019.
The Company is contingently liable under domestic issued letters of credit of approximately $8,335, primarily for performance guarantees to customers, banks or insurance carriers, including $3,200 of letters of credit guaranteeing certain Astec Brazil bank debt. The outstanding letters of credit expire at various dates through January 2021. As of December 31, 2019, the Company’s foreign subsidiaries are contingently liable for a total of $2,623 in performance letters of credit, advance payments and retention guarantees. The maximum potential amountguarantees as well as contingencies related to legal proceedings in which we are involved.
The Company and certain of its current and former executive officers have been named as defendants in a putative shareholder class action lawsuit filed on February 1, 2019, as amended on August 26, 2019, in the United States District Court for the Eastern District of Tennessee (the “Court”). The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-00024-PLR-CHS. The amended complaint generally alleges that the defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements. The amended complaint further alleges that the individual defendants are liable for such violations as control persons under Section 20(a) of the Exchange Act. The putative class action was purportedly filed on behalf of shareholders who purchased shares of the Company’s stock between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of the purported class. The Company disputes the allegations and intends to defend this lawsuit vigorously. Defendants named in the action filed a motion to dismiss the lawsuit on October 25, 2019, which is fully briefed and pending before the Court. The Company is unable to determine whether or not a future loss will be incurred due to this litigation, or estimate a range of loss, if any, at this time.
The Company’s GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018 with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rejection (rescission) of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of the equipment was approximately $8,500. GEFCO disputes the plaintiff’s allegations and intends to defend this lawsuit vigorously. The Company is unable to estimate the possible loss or range of loss at this time.
Off-balance Sheet Arrangements
As of December 31, 2019, the Company does not have off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies and Estimates
The Company’sOur consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. Application of these principles requires the Companyus to make estimates and judgments that affect the amounts as reported in the consolidated financial statements. Accounting policies that are critical to aid in understanding and evaluating the results of operations and financial position of the Company include the following:
Inventory Valuation: Inventories are valued at the lower of first-in first-out cost or net realizable value. The most significant component of the Company’sour inventories is steel. Open market prices (includingand tariffs recently enacted) are subject to volatility and determine theour cost of steel for the Company.steel. During periods when open market prices decline, the Companywe may need to reduce the carrying value of the inventory. In addition, certain items in inventory become obsolete over time, and the Company reduceswe reduce the carrying value of these items to their net realizable value. These reductions are determined by the Companymanagement based on estimates, assumptions and judgments made from the information available at that time. See Note 1, Summary2, Basis of Presentation and Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K, for a description of theour process used by the Company to value inventories at the lower of first-in first-out cost or market. The Company doesnet realizable value. We do not believe it is reasonably likely that the inventory values will materially change in the near future.
Revenue Recognition: Revenue is generally recognized when the Company satisfieswe satisfy a performance obligation by transferring control of goods or providing services. Revenue is measured as the amount of consideration the Company expectswe expect to receive in exchange for transferring goods or providing services. The CompanyWe generally obtainsobtain purchase authorizations from itsour customers for a specified amount of product at a specified price with specified delivery terms. A significant portion of the Company’sour equipment sales represents equipment produced in the Company’sour plants under short-term contracts for a specific customer project or equipment designed to meet a customer’scustomer's specific requirements. Most of the equipment sold by the Companyus is based on standard configurations, some of which are modified to meet customer needs or specifications. The Company providesWe provide customers with technical design and performance specifications and performsperform pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether the Company provideswe provide installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Companyus and itsour customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. Expected warranty costs for our standard warranties are expensed at the time the related revenue is recognized. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically fulfilledpaid within one year from the date of the contract fulfillment, revenue adjustments for a potential financing component or the costs to obtain the contract are not made. Other contract assets and liabilities are typically not material.material as a percentage of total assets or total liabilities, respectively.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.
Certain contracts include terms and conditions through which the Company recognizeswe recognize revenues upon completion of equipment production, which is subsequently stored at the Company’s plantone of our plants at the customer’scustomer's request. Revenue is recorded on such contracts upon the customer’scustomer's assumption of title and transfer of control and when collectabilitycollectibility is reasonably assured.probable. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer’scustomer's business practices, the Companywe must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company’sour inventory prior to revenue recognition.
The Company hasWe have certain sales containing multiple performance obligations, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed. Consideration is allocated to deliverables using observable market prices from stand-alone performance obligations or a cost plus margin approach when one is not available. Otherwise, the Company useswe use third-party evidence of selling price or the Company’sour best estimate of the selling price for the deliverables. The Company evaluatesWe evaluate sales with multiple performance obligations to determine whether revenue related to individual elements should be recognized separately or as a combined unit. In addition to the previously mentioned general revenue recognition criteria, the Companywe only recognizesrecognize revenue on individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the customer on a standalone basis and there is no right of return.
A-17
We have certain sales orders on which we record revenue over time based upon the ratio of costs incurred to estimated total costs.
Goodwill and Other Intangible Assets: Intangible assets are classified into two categories: (1) intangible assets with definite lives subject Goodwill is not amortized but is tested for impairment annually or more frequently if events or circumstances indicate that such goodwill might be impaired. See Note 2, Basis of Presentation and Significant Accounting Policies, and Note 7, Goodwill, of the Notes to amortization,Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for a detail of the testing management performed for goodwill impairment, goodwill reported by segment and (2) goodwill. impairment charges recorded in 2020.
Intangible assets with definite lives are tested for impairment if conditions exist that indicate the carrying value may not be recoverable. Risk factors that may be considered include an economic downturn in the general economy, a geographic market or the commercial and residential construction industries, a change in the assessment of future operations as well as the cyclical nature of our industry and the customization of the equipment we sell, each of which may cause adverse fluctuations in operating results. Other risk factors considered would be an increase in the price or a decrease in the availability of oil that could reduce the demand for our products in addition to the significant fluctuations in the purchase price of raw materials not recoverable through selling price increases that could have a negative impact on the cost of production and gross profit as well as others more fully described in the Part I, Item 1A. Risk Factors section of ourthis Annual Report on Form 10-K. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset. Some of the inputs used in the impairment testing are highly subjective and are affected by changes in business factors and other conditions. Changes in any of the inputs could have an effect on future tests and result in impairment charges.
Goodwill is not amortized but is tested for impairment annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. See Note 1, Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this Annual Report, for a description of testing performed by the Company to determine if the recorded value of intangible assets or goodwill has been impaired. See Note 5, Goodwill, of the Notes to Consolidated Financial Statements included in this Annual Report, for a detail of goodwill by segment and impairment charges recorded in 2018.
The useful lives of identifiable intangible assets are determined after considering the specific facts and circumstances related to each intangible asset. Factors considered when determining useful lives include the contractual term of any agreement, the history of the asset, the Company’sour long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 32 to 19 years.
Income Taxes:The Company accounts for income taxes under the guidance of FASB Accounting Standards Codification Topic 740-10, “Income Taxes”. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. AWe periodically assess the need to establish valuation allowance, which represents a reserve onallowances against our deferred tax assets for which utilizationto the extent we no longer believe it is not more likely than not is recorded.that the tax assets will be fully utilized. Judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against net deferred tax assets. Income tax contingency accruals are determined and recorded under the guidance of ASC Topic 740-10. Liabilities for uncertain income tax positions are based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires an estimate and measurement of the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Companywe must determine the probability of various possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis or when new information becomes available. These reevaluations are based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, successfully settled issues under audit, expirations due to statutes and new audit activity. Such a change in recognition or measurement could result in the recognition of a tax benefit or an increase to accrued taxes.
U.S. Tax Reform:
On December 22, 2017,
Recent Accounting Changes and Pronouncements
See Note 2, Basis of Presentation and Significant Accounting Policies of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changesNotes to the Internal Revenue Code. Changes include, butConsolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting pronouncements applicable to us and the impact of those standards on our consolidated financial statements and related disclosures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk and Risk Management Policies
Interest Rate Risk
We are exposed to changes in interest rates, primarily from our domestic Credit Facility and our international term loan and credit facilities. A hypothetical 100 basis point increase in the interest rates would not limited to, a federal corporate tax rate decrease from 35% to 21%have materially affected interest expense for taxthe years beginning afterended December 31, 2017,2021 and 2020 due to low outstanding balances and borrowings during the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings.respective periods. We do not hedge variable interest.
Recent Accounting PronouncementsForeign Exchange Risk
In February 2016,We are subject to foreign exchange risk at our foreign operations. Foreign operations represent 18.9% and 22.2% of total assets at December 31, 2021 and 2020, respectively, and 14.7% and 12.1% of total net sales for the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which significantly changesyears ended December 31, 2021 and 2020, respectively. Each period, the accountingbalance sheets and related results of operations of our foreign subsidiaries are translated from their functional foreign currency into U.S. dollars for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance establishes a right-of-use (“ROU”) model and requires lessees to recognize leasereporting purposes. As the U.S. dollar strengthens against those foreign currencies, the foreign denominated net assets and lease liabilitiesoperating results become less valuable in our reporting currency. When the balance sheet, initially measured atU.S. dollar weakens against those currencies, the presentforeign denominated net assets and operating results become more valuable in our reporting currency. At each reporting date, the fluctuation in the value of the lease payments, for leases which were classifiednet assets and operating results due to foreign exchange rate changes is recorded as operating leases under previous guidance. Lease cost includedan adjustment to other comprehensive income in equity. We view our investments in foreign subsidiaries as long-term and do not hedge the net investments in foreign subsidiaries.
From time to time, our foreign subsidiaries enter into transactions not denominated in their functional currency. In these situations, we evaluate the need to hedge those transactions against foreign currency rate fluctuations. When we determine a need to hedge a transaction, the subsidiary enters into a foreign currency exchange contract. We do not apply hedge accounting to these contracts and, therefore, recognize the fair value of these contracts in the statement of operations will be calculated so thatConsolidated Balance Sheets and the costchange in the fair value of the lease is allocated overcontracts in current earnings.
Due to the lease term, generally onlimited exposure to foreign exchange rate risk, a straight-line basis. Certain provisions of ASU No. 2016-02 were later modified or clarified by the issuance of ASU 2018-11, “Leases (Topic 842): Targeted Improvements”, ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2019-01, “Leases (Topic 842), Codification Improvements”. A modified retrospective transition approach is required by the ASU and its provisions must be applied to all leases existing at the date of initial application. An entity may choose to use either (1) the standard’s effective date or (2) the beginning of the earliest comparative period presented10% fluctuation in the financial statements as its date of initial application. The new standards were effective for public companies for fiscal years beginning afterforeign exchange rates at December 15, 2018 and the Company adopted the new standards effective January 1, 2019 using the effective date as the date of initial application. Consequently, financial information and the disclosures required under the new standards have not been provided for periods prior to January 1, 2019. As allowed under the ASU's provisions, the Company made an accounting policy election to exclude leases with a term of 12 months31, 2021 or less from the requirement to record related assets and liabilities. The adoption of these standards did2020 would not have a material impact on our consolidated financial statements.
Commodity Risk
We purchase raw materials and some manufactured components and replacement parts for our products from leading suppliers both domestically and internationally. Raw materials used in the Company’s financial position, resultsmanufacture of operations or cash flows. See Note 10, Leases, for additional information regardingour products include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors and other sources. Most steel is delivered on a "just-in-time" arrangement from the Company’s adoptionsupplier to reduce inventory requirements at the manufacturing facilities but is occasionally inventoried after purchase. The most significant component of our inventory is steel. Significant increases in the market price of steel can negatively impact our gross profit as we are often unable to pass along all of these standards.
In June 2016,price increases to our customers. A significant decline in the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurementmarket price of Credit Losses on Financial Instruments”. The standard changes how credit losses are measured for most financial assetssteel could result in a decline in the market value of our equipment or parts. We utilize strategies that include forward-looking contracts and certain other instruments that currently are not measured through net income. The standard will require an expected loss model for instruments measured at amortized cost as opposedadvanced steel purchases to the current incurred loss approach. In valuing available for sale debt securities, allowances will be required to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflectensure supply and minimize the impact of applying the provisions of the standard. Certain provisions of ASU No. 2016-13 were modified or amended by the issuance of ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The ASU makes several narrow–scope amendments to the new credit losses standard, including an amendment requiring entities to include certain expected recoveries of the amortized cost basis of previously written off, or expected to be written off, in the allowance for credit losses for purchase credit deteriorated assets. The amendment also provides transition relief related to troubled debt restructurings, allow entities to exclude accrued interest amounts from certain required disclosures and clarify the requirements for applying the collateral maintenance expedient. The standards are effective for public companies for periods beginning after December 15, 2019 and the Company expects to adopt the new standards as of January 1, 2020. As the Company’s credit losses are typically minimal, the Company does not expect the adoption of this new standard to have a material impact on the Company's financial position, results of operations or cash flows.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815), Targeted Improvements to Hedging Activities”, to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The new guidance is effective for public companies for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted in any interim period after its issuance. The Company adopted the new standard effective January 1, 2019. The application of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which permits companies to reclassify tax effects stranded in accumulated other comprehensive income (“OCI”) as a result of U.S. tax reform impacting tax rates or other items, such as changing from a worldwide tax system to a territorial system, from OCI to retained earnings. Other tax effects stranded in OCI due to other reasons, such as prior changes in tax laws or changes in valuation allowances, may not be reclassified. The new standard was effective for fiscal years beginning after December 15, 2018, and the Company adopted its provisions as of January 1, 2019. As a result of adopting this new standard, the Company reclassified $721 of previously stranded tax effects from accumulated comprehensive loss to retained earnings as shown on the accompanying consolidated statement of equity for the year ended December 31, 2019.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. The standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company adopted this new standard effective January 1, 2020. The adoption of this new standard did not have a material impact on its financial position, results of operations or cash flows.
In December, 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted in interim or annual periods if the Company has not yet issued financial statements. If the Company elects to early adopt the amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes the interim period and must adopt all amendments in the same period applying all guidance prospectively, except for certain amendments. The Company has not yet adopted this new standard and has not evaluated its impact, if any, on the Company’s financial position, results of operations or cash flows.
Cautionary Statement Regarding Forward-Looking Statements
This annual report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements contained anywhere in this Annual Report that are not limited to historical information are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding:
| ● | execution of the Company’s growth and operation strategy; |
| ● | plans for, and costs of, technological innovation; |
| ● | compliance with covenants in our credit facility; |
| ● | liquidity and capital expenditures; |
| ● | ability to access credit markets; |
| ● | ability to obtain advances from our credit markets; |
| ● | compliance with the Company’s credit facilities; |
| ● | compliance with and changes to government regulations; |
| ● | compliance with manufacturing and delivery timetables; |
| ● | general economic trends, political uncertainty and the impact of the coronavirus on our business; |
| ● | government funding and growth of highway construction and commercial projects; |
| ● | changes in tax laws and tariffs; |
| ● | integration of acquisitions; |
| ● | pricing, demand and availability of steel, oil and liquid asphalt; |
| ● | development of domestic oil and natural gas production; |
| ● | condition of the economies in which we do business; |
| ● | fluctuations in foreign current exchange rates; |
| ● | the introduction of new products and the success of new product lines; |
| ● | presence in the international marketplace; |
| ● | suitability of our current facilities; |
| ● | fluctuations in our stock price; |
| ● | future payment of dividends; |
| ● | competition in our business segments; |
| ● | product liability and other claims; |
| ● | legal proceedings and non-compliance; |
| ● | obligations with respect to pellet plants and other products; |
| ● | protection of proprietary technology and dependence on information technology systems; |
| ● | demand for products and services; |
| ● | future fillings of backlogs; |
| ● | executive officers, management and employees; |
| ● | the seasonality of our business; |
| ● | tax assets and reserves for uncertain tax positions; |
| ● | critical accounting policies and the impact of accounting changes; |
| ● | goodwill and intangible asset value; |
| ● | ability to satisfy contingencies; |
| ● | contributions to retirement plans and plan expenses; |
| ● | reserve levels for self-insured insurance plans and product warranties; |
| ● | construction of new manufacturing facilities; |
| ● | demand, availability and cost of raw materials; |
| ● | plans to exit the GEFCO oil and gas product line; and |
| ● | material weaknesses identified in our internal controls. |
These forward-looking statements are based largely on management’s expectations, which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this report and in other documents filed by the Company with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements to reflect future events or circumstances. You can identify these statements by forward-looking words such as “expect”, “believe”, “anticipate”, “goal”, “plan”, “intend”, “estimate”, “may”, “will”, “should”, “could” and similar expressions.
In addition to the risks and uncertainties identified elsewhere herein and in other documents filed by us with the Securities and Exchange Commission, the risk factors described in this document under the caption “Risk Factors” should be carefully considered when evaluating our business and future prospects, including without limitation risks relating to: changes or delays in highway funding; rising interest rates; changes in oil prices; changes in steel prices; changes in the general economy; unexpected capital expenditures and decreases in liquidity; the timing of large contracts; production capacity; general business conditions in the industry; non-compliance with covenants in the Company’s credit facilities; demand for the Company’s products; and those other factors listed from time to time in the Company’s reports filed with the Securities and Exchange Commission. Certain of the risks, uncertainties and other factors discussed above are more fully described in the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
ASTEC INDUSTRIES, INC.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Astec Industries, Inc. and subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013) (“COSO 2013 Framework”).
Based on this assessment, the following control deficiencies in internal control over financial reporting were identified as of December 31, 2019.
Corporate
We did not hold certain individuals accountable for their internal control responsibilities and did not have sufficient Corporate monitoring activities over certain business units. We did not have a sufficient number of trained resources at Corporate that were knowledgeable and experienced in the application of the COSO 2013 Framework for certain financial reporting processes and the related internal controls, which resulted in the following control deficiencies:
Goodwill Impairment
We did not design effective management review controls over the goodwill impairment process. Specifically, (i) we did not corroborate assumptions and inputs used in the third-party valuation analyses at a sufficient level of precision and (ii) we did not design effective management review controls over the methods and accuracy of calculations performed by a third-party valuation specialist retained by the Company.
These deficiencies were due to insufficient knowledge and experience of the Company’s personnel with a quantitative goodwill impairment assessment in accordance with FASB ASC Topic 350, Intangibles – Goodwill and Other, and the fact that the Company did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with the valuation of goodwill.
Income Taxes
We did not design effective management review controls over the income tax calculations, including (i) the completeness and accuracy of the data used in the determination of the current and deferred income tax balances at a sufficient level of precision and (ii) the formulas embedded in the spreadsheets used in the income tax calculations.
These deficiencies were due to insufficient knowledge and experience of the Company’s personnel and the fact that the Company did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with the income tax provision and related disclosures.
Business Units
We did not have a sufficient number of trained resources that were knowledgeable and experienced in the application of the COSO 2013 Framework to our financial reporting processes and related internal controls at certain business units, which resulted in the following control deficiencies:
General Information Technology Controls
We did not design effective general information technology controls (“GITCs”) related to the enterprise resource planning (“ERP”) systems at certain business units. Specifically, we did not design and implement effective:
program change management controls over certain ERP systems; and
user access controls over certain ERP systems to provide for appropriate segregation of duties and to adequately restrict user and privileged access to appropriate personnel.
These deficiencies were due to insufficient knowledge and experience of IT personnel at certain business units and an ineffective risk assessment process to evaluate relevant risks inherent in information technology. As a result of these GITC deficiencies, the automated controls across substantially all financial reporting processes of these business units that depend on the effective operation of the GITCs and manual controls that are dependent upon the completeness and accuracy of information derived from these ERP systems were also considered to be ineffective.
Revenue Recognition
We did not design effective controls over the completeness, existence, accuracy and disclosure of revenue recognized from the Company’s contracts with customers at certain business units. These deficiencies were due to management of certain business units not sufficiently understanding the requirements of FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), and insufficient knowledge and experience in the application of the COSO 2013 Framework to the revenue processes and related internal controls. Management at certain business units did not perform an effective risk assessment process to evaluate the relevant risks in the underlying revenue processes and design and implement controls within these processes to address the risks relating to the recognition, measurement and presentation of revenue in accordance with ASC 606.
Inventories
We did not design and effectively operate controls over the accuracy and valuation of inventories at certain business units. These deficiencies were due to insufficient knowledge and experience of management at certain business units in the application of the COSO 2013 Framework to the inventories processes and related internal controls and the fact that management at certain business units did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with the accuracy and valuation of inventories.
Journal Entries
We did not design effective controls over manual journal entries at certain business units. Specifically, we did not design effective controls to provide reasonable assurance that all manual journal entries were reviewed. These deficiencies were due to insufficient knowledge and experience of management at certain business units in the functionality of their respective ERP systems and the application of the COSO 2013 Framework to the manual journal entries process and related internal controls and the fact that management at certain business units did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with manual journal entries.
Additionally, we did not design effective controls over automated journal entries at the Company’s business units. Specifically, we did not design effective controls to provide reasonable assurance that changes to the configuration of automated journal entries in our ERP systems were reviewed and approved. These deficiencies were due to the fact that the Company did not perform an effective risk assessment process to evaluate relevant risks of material misstatement associated with automated journal entries.
The control deficiencies described above, certain aspects of which existed in the prior year but were identified in the current year, resulted in several misstatements to the Company’s preliminary consolidated financial statements that were corrected prior to the issuance of the annual consolidated financial statements. These control deficiencies create a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis and, therefore, we concluded that the deficiencies represent material weaknesses in our internal control over financial reporting and, therefore, that our internal control over financial reporting was not effective as of December 31, 2019.
Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this annual report on Form 10-K, has expressed an adverse opinion on the effectiveness of the Company's internal control over financial reporting. KPMG LLP's report appears on page A-25 of this annual report on Form 10-K.
Management’s Remediation Plan
Management has been implementing and continues to implement measures designed to remediate the control deficiencies contributing to the material weaknesses, such that these controls are designed, implemented and operating effectively. The remediation actions include:
| 1. | designing and implementing enhanced controls for the goodwill impairment process, including control activities associated with the review of data provided to third-party valuation specialists and the appropriateness of the assumptions and methodology used to measure the fair value of reporting units and the reasonableness of the conclusions in the third-party valuation specialists’ reports; |
| 2. | evaluating the assignment of responsibilities associated with the accounting for goodwill impairment, including considering hiring additional resources or providing additional training to existing resources; |
| 3. | implementing income tax software to automate the calculation of our income tax provision and the impact on the income tax related balance sheet accounts and disclosures; |
| 4. | evaluating the assignment of responsibilities associated with the calculation of the income tax provision, including considering hiring additional resources or providing additional training to existing resources; |
| 5. | educating and re-training resources at Corporate and certain business units on our business processes and the COSO 2013 Framework such that the resources are aware of the importance of designing, implementing and operating effective internal controls to mitigate the risks identified; |
| 6. | designing, implementing and assessing the structures, authorities and responsibilities needed to establish accountability for internal controls at all levels of the Company; |
| 7. | hiring additional resources, with the appropriate expertise and competence, to assume assigned responsibility for monitoring the financial reporting processes and internal controls at certain business units; |
| 8. | designing and implementing additional Corporate monitoring activities over internal controls at certain business units; |
| 9. | designing and implementing enhanced controls at certain business units related to program change management and user access, including appropriate segregation of duties, over systems impacting financial reporting; |
| 10. | designing and implementing enhanced controls to monitor the effectiveness of the underlying business process controls at certain business units that are dependent on the data and financial reports generated from our ERP systems; |
| 11. | developing a training program for management at certain business units to increase their knowledge of revenue recognition and the related disclosures in accordance with ASC 606; |
| 12. | designing and implementing enhanced controls over the completeness, existence, accuracy and disclosure of revenue at certain business units; |
| 13. | designing and implementing enhanced controls over the accuracy and valuation of inventories at certain business units; |
| 14. | designing and implementing enhanced controls over the completeness of manual journal entries subject to review at certain business units; |
| 15. | designing and implementing enhanced controls over the configuration of automated journal entries in our ERP systems; and |
| 16. | educating and re-training resources at certain business units on the functionalities in our ERP systems. |
Management believes that these actions, and the improvements achieved as a result, will effectively remediate the material weaknesses. However, the material weaknesses in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Management is committed to implementing the planned remediation actions as promptly as possible and will provide regular updates (at least on a quarterly basis) to the Audit Committee of the Board of Directors regarding the progress of its remediation efforts.
As a result of the material weaknesses noted above, the Company completed additional substantive procedures prior to filing this Form 10-K for the year ended December 31, 2019. Based on these procedures, management believes that the Company’s consolidated financial statements included in this Form 10-K have been prepared in accordance with generally accepted accounting principles. In addition, these material weaknesses did not result in any restatement of prior-period consolidated financial statements. The Company’s principal executive officer and principal financial officer have certified that, based on such officer’s knowledge, the consolidated financial statements, and other financial information included in this Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Form 10-K. In addition, management developed a remediation plan for these material weaknesses, which is described above.
Report of Independent Registered Public Accounting
Firm
To the Shareholders and Board of Directors
Astec Industries, Inc.:
Opinion on Internal Control Over
We have audited Astec Industries, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued byAll schedules are omitted because they are not applicable, or the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the yearsrequired information is shown in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated March 17, 2020 expressed an unqualified opinion on those consolidated financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment:
● | Lack of a sufficient number of trained resources at Corporate and certain business units that were knowledgeable and experienced in the application of Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission for certain financial reporting processes, insufficient accountability for internal control responsibilities, and insufficient Corporate monitoring activities of certain business units; |
● | Ineffective management review controls over the goodwill impairment assessment due to insufficient knowledge and experience of the Company’s personnel with a quantitative goodwill impairment assessment and an ineffective risk assessment process; |
● | Ineffective management review controls over the income tax calculations, including the completeness and accuracy of data and formulas embedded in the spreadsheets used in the income tax calculations, due to insufficient knowledge and experience of the Company’s personnel and an ineffective risk assessment process; |
notes thereto.
Ineffective general information technology controls over the enterprise resource planning (ERP) systems at certain business units, the automated controls across substantially all financial reporting processes at those business units, and manual controls that are dependent upon the completeness and accuracy of information derived from those ERP systems, due to insufficient knowledge and experience of information technology personnel at those business units and an ineffective risk assessment process;35
Ineffective controls over the completeness, existence, accuracy, and disclosure of revenue at certain business units due to insufficient understanding of the requirements of revenue recognition and an ineffective risk assessment process;
Ineffective controls over the accuracy and valuation of inventories at certain business units due to an ineffective risk assessment process; and
Ineffective controls over manual journal entries at certain business units and automated journal entries due to insufficient knowledge and experience in the functionality of certain ERP systems and an ineffective risk assessment process.
The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2019 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Knoxville, Tennessee
March 17, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Astec Industries, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. and subsidiaries (the Company) as of December 31, 20192021 and 2018,2020, the related consolidated statements of operations, comprehensive income, (loss), equity, and cash flows for each of the years in the three-year period ended December 31, 2019,2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, Also in accordance withour opinion, the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’smaintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 17, 2020 expressed an adverse opinion on the effectiveness of the Company’sCommission.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting.
Basisreporting, and for Opinion
These consolidated financial statements are the responsibilityits assessment of the Company’s management.effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on thesethe Company's consolidated financial statements and an opinion on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our auditsaudit of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our auditsaudit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the sufficiency of audit evidence over inventories and net sales
As disclosed in Notes 24 and 1718 to the Company’sCompany's consolidated financial statements, and disclosed in the consolidated balance sheet and consolidated statement of operations, the Company recorded $294,536 thousand$303.0 million in inventories and $1,169,613 thousand$1,097.2 million in net sales as of December 31, 20192021 and for the year then ended.ended, respectively. Inventories are comprised of raw materials, work-in-process, and finished goods and used equipment that are physically located at each of the Company’s business units.Company's sites. Net sales are recognized primarily from the sale of equipment and replacement parts from each of the Company’s business units. The Company has also identified material weaknesses related to inventories and net sales at certain business units as of December 31, 2019.Company's sites.
We identified the evaluation of the sufficiency of audit evidence over inventories and net sales as a critical audit matter. Evaluating the sufficiency of the audit evidence obtained required especially subjective auditor judgment because of the decentralized structure and geographic dispersion of the Company’sCompany's manufacturing locations, the different types of net sales and revenue recognition processes, and the material weaknesses noted above.locations. This included determining the business unitssites at which procedures were performed.
The following are the primary procedures we performed to address this critical audit matter included the following. At certain business units, we tested certain internal controls over the Company’s inventories and net sales processes, including controls over the amounts recorded in inventories and the amounts recorded in net sales.matter. We used our judgment to determine the nature and extent of procedures to be performed over inventories and net sales, including the determination of the business units atsites for which those procedures were performed. For certain sites where procedures were performed, we evaluated the design and tested the operating effectiveness of certain internal controls over the Company's inventories and net sales processes, including controls over the amounts recorded in inventories and the amounts recorded in net sales. We assessed the recorded inventories atfor each business unitsite where procedures were performed by physically inspectingparticipating in a physical inventory count and observed a sample of inventories on hand and comparingcompared the cost recorded for a sample of inventories on hand to underlying documentation. We evaluated the method and assumptions used to estimate the net realizable value of inventories. We assessed recorded net sales atfor each business unitsite where procedures were performed by assessing the nature of the net sales generated by each business unit and selecting a sample of net sales transactions and comparing the amount recognized to underlying documentation, such as contracts with customers and shipping documentation. For those business units where controls were not designed and operating effectively, we increased the number of inventories and net sales transactions samples selected to perform certain procedures compared to those we would have selected if those business units’ internal controls were designed and operating effectively during the year. We evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed over inventories and net sales.
/s/ KPMG LLP
We have served as the Company’sCompany's auditor since 2015.
Knoxville, Tennessee
March 17, 2020
Atlanta, Georgia
February 28, 2022
ASTEC INDUSTRIES, INC.
Consolidated Balance Sheets
(In millions, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| ASSETS | | | |
| Current assets: | | | |
| Cash, cash equivalents and restricted cash | $ | 134.4 | | | $ | 158.6 | |
| Investments | 8.6 | | | 4.3 | |
| Trade receivables and contract assets, net | 144.1 | | | 115.9 | |
| Other receivables, net | 3.5 | | | 4.7 | |
| Inventories | 303.0 | | | 249.7 | |
| Prepaid and refundable income taxes | 19.5 | | | 8.8 | |
| Prepaid expenses and other assets | 23.5 | | | 17.5 | |
| Assets held for sale | 5.1 | | | 6.3 | |
| Total current assets | 641.7 | | | 565.8 | |
| Property and equipment, net | 171.7 | | | 172.8 | |
| Investments | 12.2 | | | 13.7 | |
| Goodwill | 38.6 | | | 38.7 | |
| Intangible assets, net | 22.7 | | | 31.2 | |
| Deferred income tax assets | 16.0 | | | 15.0 | |
| Other long-term assets | 8.4 | | | 11.0 | |
| Total assets | $ | 911.3 | | | $ | 848.2 | |
| LIABILITIES AND EQUITY | | | |
| Current liabilities: | | | |
| Current maturities of long-term debt | $ | 0.1 | | | $ | 0.2 | |
| Short-term debt | 2.6 | | | 1.4 | |
| Accounts payable | 83.5 | | | 52.7 | |
| Customer deposits | 60.2 | | | 34.2 | |
| Accrued product warranty | 10.5 | | | 10.3 | |
| Accrued payroll and related liabilities | 23.6 | | | 20.8 | |
| Accrued loss reserves | 1.9 | | | 3.0 | |
| Other current liabilities | 42.9 | | | 47.7 | |
| Total current liabilities | 225.3 | | | 170.3 | |
| Long-term debt | 0.2 | | | 0.4 | |
| Deferred income tax liabilities | 1.4 | | | 0.5 | |
| Other long-term liabilities | 29.6 | | | 34.0 | |
| Total liabilities | 256.5 | | | 205.2 | |
| Commitments and contingencies (Note 16) | 0 | | 0 |
| Shareholders' equity: | | | |
| Preferred stock – authorized 4,000,000 shares of $1.00 par value; none issued | — | | | — | |
| Common stock – authorized 40,000,000 shares of $0.20 par value; issued and outstanding – 22,767,052 in 2021 and 22,611,976 in 2020 | 4.5 | | | 4.5 | |
| Additional paid-in capital | 130.6 | | | 127.8 | |
| Accumulated other comprehensive loss | (32.4) | | | (33.5) | |
| Company stock held by deferred compensation programs, at cost | (1.2) | | | (1.5) | |
| Retained earnings | 552.8 | | | 545.2 | |
| Shareholders' equity: | 654.3 | | | 642.5 | |
| Noncontrolling interest | 0.5 | | | 0.5 | |
| Total equity | 654.8 | | | 643.0 | |
| Total liabilities and equity | $ | 911.3 | | | $ | 848.2 | |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEETSASTEC INDUSTRIES, INC.Consolidated Statements of Operations
(DollarIn millions, except share and share amounts in thousands, except per share amounts unless otherwise specified)data)
| | December 31 | |
| Assets | | 2019 | | | 2018 | |
| | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 48,857 | | | $ | 25,821 | |
| Investments | | | 1,547 | | | | 1,946 | |
| Trade receivables and contract assets | | | 120,271 | | | | 130,569 | |
| Other receivables | | | 4,576 | | | | 3,409 | |
| Inventories | | | 294,536 | | | | 355,944 | |
| Prepaid income taxes | | | 15,234 | | | | 24,459 | |
| Prepaid expenses and other assets | | | 18,199 | | | | 18,843 | |
| Assets held for sale | | | 3,084 | | | | – | |
| Total current assets | | | 506,304 | | | | 560,991 | |
| Property and equipment, net | | | 190,363 | | | | 192,448 | |
| Investments | | | 16,104 | | | | 14,890 | |
| Goodwill | | | 33,176 | | | | 32,748 | |
| Intangible assets, net | | | 23,536 | | | | 25,370 | |
| Deferred tax assets | | | 24,696 | | | | 27,490 | |
| Other long-term assets | | | 6,319 | | | | 1,520 | |
| Total assets | | $ | 800,498 | | | $ | 855,457 | |
| | | | | | | | | |
| Liabilities and Equity | | | | | | | | |
| | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Current maturities of long-term debt | | $ | 209 | | | $ | 413 | |
| Short-term debt | | | 1,130 | | | | – | |
| Accounts payable | | | 57,162 | | | | 70,614 | |
| Customer deposits | | | 42,874 | | | | 48,069 | |
| Accrued product warranty | | | 10,261 | | | | 10,928 | |
| Accrued payroll and related liabilities | | | 24,718 | | | | 24,126 | |
| Accrued loss reserves | | | 2,299 | | | | 1,832 | |
| Other accrued liabilities | | | 34,114 | | | | 33,249 | |
| Total current liabilities | | | 172,767 | | | | 189,231 | |
| Long-term debt | | | 690 | | | | 59,709 | |
| Deferred tax liabilities | | | 896 | | | | 1,020 | |
| Other long-term liabilities | | | 23,658 | | | | 20,207 | |
| Total liabilities | | | 198,011 | | | | 270,167 | |
| | | | | | | | | |
| Equity: | | | | | | | | |
| Preferred stock - authorized 4,000 shares of $1.00 par value; NaN issued | | | – | | | | – | |
| Common stock – authorized 40,000 shares of $0.20 par value; issued and outstanding – 22,551 in 2019 and 22,513 in 2018 | | | 4,510 | | | | 4,503 | |
| Additional paid-in capital | | | 122,613 | | | | 120,601 | |
| Accumulated other comprehensive loss | | | (31,803 | ) | | | (33,883 | ) |
| Company shares held by SERP, at cost | | | (1,714 | ) | | | (1,886 | ) |
| Retained earnings | | | 508,343 | | | | 495,245 | |
| Shareholders’ equity | | | 601,949 | | | | 584,580 | |
| Non-controlling interest | | | 538 | | | | 710 | |
| Total equity | | | 602,487 | | | | 585,290 | |
| Total liabilities and equity | | $ | 800,498 | | | $ | 855,457 | |
See | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net sales | $ | 1,097.2 | | | $ | 1,024.4 | | | $ | 1,169.6 | |
| Cost of sales | 845.5 | | | 784.3 | | | 930.2 | |
| Gross profit | 251.7 | | | 240.1 | | | 239.4 | |
| Selling, general and administrative expenses | 200.6 | | | 166.9 | | | 183.9 | |
| Research and development expenses | 26.5 | | | 22.1 | | | 27.2 | |
| Restructuring, impairment and other asset charges, net | 2.5 | | | 8.1 | | | 3.2 | |
| Income from operations | 22.1 | | | 43.0 | | | 25.1 | |
| Other income: | | | | | |
| Interest expense | (1.1) | | | (0.7) | | | (1.4) | |
| Interest income | 0.5 | | | 0.8 | | | 1.2 | |
| Other (expenses) income, net | (5.0) | | | 2.6 | | | 0.3 | |
| Income from operations before income taxes | 16.5 | | | 45.7 | | | 25.2 | |
| Income tax (benefit) provision | (1.4) | | | (1.2) | | | 3.0 | |
| Net income | 17.9 | | | 46.9 | | | 22.2 | |
| Net (income) loss attributable to noncontrolling interest | (0.1) | | | — | | | 0.1 | |
| Net income attributable to controlling interest | $ | 17.8 | | | $ | 46.9 | | | $ | 22.3 | |
| Per share data: | | | | | |
| Earnings per common share - Basic | $ | 0.78 | | | $ | 2.08 | | | $ | 0.99 | |
| Earnings per common share - Diluted | $ | 0.78 | | | $ | 2.05 | | | $ | 0.98 | |
| Weighted average shares outstanding - Basic | 22,726,767 | | | 22,585,515 | | | 22,515,161 | |
| Weighted average shares outstanding - Diluted | 22,948,632 | | | 22,877,743 | | | 22,674,182 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Comprehensive Income
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Net income | $ | 17.9 | | | $ | 46.9 | | | $ | 22.2 | |
| Other comprehensive income (loss): | | | | | |
| Change in unrecognized pension and postretirement benefit costs | 3.1 | | | 0.1 | | | 1.0 | |
| Tax expense on change in unrecognized pension and postretirement benefit costs | — | | | — | | | (0.2) | |
| Foreign currency translation adjustments | (2.1) | | | (1.8) | | | 2.0 | |
| Other comprehensive income (loss) | 1.0 | | | (1.7) | | | 2.8 | |
| Comprehensive loss attributable to noncontrolling interest | — | | | — | | | 0.1 | |
| Comprehensive income attributable to controlling interest | $ | 18.9 | | | $ | 45.2 | | | $ | 25.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Cash Flows
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash flows from operating activities | | | | | |
| Net income | $ | 17.9 | | | $ | 46.9 | | | $ | 22.2 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 20.1 | | | 20.8 | | | 21.4 | |
| Amortization | 10.1 | | | 6.1 | | | 4.8 | |
| Provision for credit losses | 1.4 | | | 0.9 | | | 1.2 | |
| Provision for warranties | 10.9 | | | 9.8 | | | 9.8 | |
| Deferred compensation expense | 0.5 | | | 0.7 | | | 0.6 | |
| Share-based compensation | 6.0 | | | 5.1 | | | 2.6 | |
| Deferred tax (benefit) provision | (1.3) | | | 8.6 | | | 1.7 | |
| (Gain) loss on disposition of property and equipment | (0.6) | | | (6.2) | | | 0.3 | |
| Non-cash curtailment and settlement loss (gain) on pension and postretirement benefits, net | 3.2 | | | (0.5) | | | — | |
| Gain on disposition of subsidiary | — | | | (1.6) | | | — | |
| Asset impairment charges, net | 0.2 | | | 4.4 | | | 0.3 | |
| Distributions to deferred compensation programs participants | (2.5) | | | (1.4) | | | (2.2) | |
| Change in operating assets and liabilities, excluding the effects of acquisitions: | | | | | |
| (Purchase) sale of trading securities, net | (3.1) | | | 0.2 | | | (0.9) | |
| Receivables and other contract assets | (30.8) | | | 12.2 | | | 7.5 | |
| Inventories | (53.8) | | | 44.7 | | | 61.3 | |
| Prepaid expenses | (6.2) | | | — | | | (2.3) | |
| Other assets | 1.5 | | | (0.2) | | | 0.2 | |
| Accounts payable | 30.8 | | | (8.6) | | | (13.0) | |
| Accrued retirement benefit costs | (0.1) | | | — | | | (1.3) | |
| Accrued loss reserves | (1.3) | | | 0.3 | | | (1.1) | |
| Accrued payroll and related expenses | 3.0 | | | (5.1) | | | 0.7 | |
| Other accrued liabilities | (0.7) | | | 9.8 | | | 1.3 | |
| Accrued product warranty | (10.7) | | | (10.2) | | | (10.5) | |
| Customer deposits | 26.5 | | | (11.2) | | | (5.3) | |
| Income taxes payable/prepaid | (13.6) | | | 16.0 | | | 12.2 | |
| Other | — | | | — | | | 1.1 | |
| Net cash provided by operating activities | 7.4 | | | 141.5 | | | 112.6 | |
| Cash flows from investing activities: | | | | | |
| Acquisitions, net of cash acquired | 0.1 | | | (32.5) | | | — | |
| (Price adjustment on prior) proceeds from sale of subsidiary | (1.1) | | | 9.1 | | | — | |
| Expenditures for property and equipment | (20.1) | | | (15.4) | | | (23.4) | |
| Proceeds from sale of property and equipment | 1.9 | | | 17.7 | | | 0.5 | |
| Purchase of investments | (1.0) | | | (1.1) | | | (0.6) | |
| Sale of investments | 1.8 | | | 1.3 | | | 1.9 | |
| Net cash used in investing activities | $ | (18.4) | | | $ | (20.9) | | | $ | (21.6) | |
(Continued)
ASTEC INDUSTRIES, INC.
Consolidated Statements of Cash Flows (Continued)
(In millions)
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Cash flows from financing activities: | | | | | |
| Payment of dividends | $ | (10.2) | | | $ | (10.0) | | | $ | (10.0) | |
| Borrowings under bank loans | 7.2 | | | 6.0 | | | 166.0 | |
| Repayments of bank loans | (6.2) | | | (5.9) | | | (224.0) | |
| | | | | |
| Sale of Company stock by deferred compensation programs, net | 0.6 | | | 0.3 | | | 0.3 | |
| Withholding tax paid upon vesting of share-based compensation awards | (3.5) | | | (0.8) | | | (0.4) | |
| | | | | |
| Net cash used in financing activities | (12.1) | | | (10.4) | | | (68.1) | |
| Effect of exchange rates on cash | (1.1) | | | (0.5) | | | 0.2 | |
| (Decrease) increase in cash and cash equivalents and restricted cash | (24.2) | | | 109.7 | | | 23.1 | |
| Cash and cash equivalents and restricted cash, beginning of period | 158.6 | | | 48.9 | | | 25.8 | |
| Cash and cash equivalents and restricted cash, end of period | $ | 134.4 | | | $ | 158.6 | | | $ | 48.9 | |
| | | | | |
| Supplemental Cash Flow Information | | | | | |
| Cash paid during the year for: | | | | | |
| Interest, net of capitalized interest | $ | 0.3 | | | $ | 0.3 | | | $ | 1.8 | |
| Income taxes paid (refunded), net | $ | 10.0 | | | $ | (20.2) | | | $ | (11.3) | |
| | | | | |
| Supplemental disclosures of non-cash items | | | | | |
| Non-cash investing activities: | | | | | |
| Capital expenditures in accounts payable | $ | 1.4 | | | $ | 0.7 | | | $ | 2.0 | |
| | | | | |
| Non-cash financing activities: | | | | | |
| Additions to right-of-use assets and lease liabilities | $ | 1.8 | | | $ | 1.5 | | | $ | 3.2 | |
| Liability award converted to equity | $ | — | | | $ | 0.8 | | | $ | — | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Consolidated Statements of Equity
(In millions, except share and per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock Shares | | Common Stock Amount | | Additional Paid-in-
Capital | | Accumulated Other Comprehensive Loss | | Company Shares Held by Deferred Compensation Programs, at Cost | | Retained Earnings | | Non-controlling Interest | | Total Equity |
| Balance, December 31, 2018 | 22,513,015 | | | $ | 4.5 | | | $ | 120.6 | | | $ | (33.9) | | | $ | (1.9) | | | $ | 495.3 | | | $ | 0.6 | | | $ | 585.2 | |
| Net income (loss) | — | | | — | | | — | | | — | | | — | | | 22.3 | | | (0.1) | | | 22.2 | |
| Other comprehensive income | — | | | — | | | — | | | 2.8 | | | — | | | — | | | — | | | 2.8 | |
| Dividends ($0.44 per share) | — | | | — | | | — | | | — | | | — | | | (10.0) | | | — | | | (10.0) | |
| Share-based compensation | 2,910 | | | — | | | 2.3 | | | — | | | — | | | — | | | — | | | 2.3 | |
| Issuance of common stock under incentive plan | 35,258 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (0.4) | | | — | | | — | | | — | | | — | | | (0.4) | |
| | | | | | | | | | | | | | | |
| SERP transactions, net | — | | | — | | | 0.1 | | | — | | | 0.2 | | | — | | | — | | | 0.3 | |
| Cumulative impact of ASU No. 2018-02 | — | | | — | | | — | | | (0.7) | | | — | | | 0.7 | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2019 | 22,551,183 | | | $ | 4.5 | | | $ | 122.6 | | | $ | (31.8) | | | $ | (1.7) | | | $ | 508.3 | | | $ | 0.5 | | | $ | 602.4 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 46.9 | | | — | | | 46.9 | |
| Other comprehensive loss | — | | | — | | | — | | | (1.7) | | | — | | | — | | | — | | | (1.7) | |
| Dividends ($0.44 per share) | — | | | — | | | — | | | — | | | — | | | (10.0) | | | — | | | (10.0) | |
| Share-based compensation | — | | | — | | | 5.1 | | | — | | | — | | | — | | | — | | | 5.1 | |
| Conversion of liability awards to equity | — | | | — | | | 0.8 | | | — | | | — | | | — | | | — | | | 0.8 | |
| Issuance of common stock under incentive plan | 60,793 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (0.8) | | | — | | | — | | | — | | | — | | | (0.8) | |
| | | | | | | | | | | | | | | |
| SERP transactions, net | — | | | — | | | 0.1 | | | — | | | 0.2 | | | — | | | — | | | 0.3 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2020 | 22,611,976 | | | $ | 4.5 | | | $ | 127.8 | | | $ | (33.5) | | | $ | (1.5) | | | $ | 545.2 | | | $ | 0.5 | | | $ | 643.0 | |
| Net income | — | | | — | | | — | | | — | | | — | | | 17.8 | | | 0.1 | | | 17.9 | |
| Other comprehensive income (loss) | — | | | — | | | — | | | 1.1 | | | — | | | — | | | (0.1) | | | 1.0 | |
| Dividends ($0.45 per share) | — | | | — | | | — | | | — | | | — | | | (10.2) | | | — | | | (10.2) | |
| Share-based compensation | — | | | — | | | 6.0 | | | — | | | — | | | — | | | — | | | 6.0 | |
| | | | | | | | | | | | | | | |
| Issuance of common stock under incentive plan | 155,076 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Withholding tax paid upon equity award vesting | — | | | — | | | (3.5) | | | — | | | — | | | — | | | — | | | (3.5) | |
| | | | | | | | | | | | | | | |
| Deferred compensation programs transactions, net | — | | | — | | | 0.3 | | | — | | | 0.3 | | | — | | | — | | | 0.6 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance, December 31, 2021 | 22,767,052 | | | $ | 4.5 | | | $ | 130.6 | | | $ | (32.4) | | | $ | (1.2) | | | $ | 552.8 | | | $ | 0.5 | | | $ | 654.8 | |
The accompanying notes are an integral part of these consolidated financial statements.
ASTEC INDUSTRIES, INC.
Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF OPERATIONSAstec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; commercial and industrial burners; and combustion control systems.(
The Company's products are marketed both domestically and internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, the Company manufactures and sells replacement parts for equipment in thousands, except per share data)each of its product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of the Company's business.
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | |
| Net sales | | $ | 1,169,613 | | | $ | 1,171,599 | | | $ | 1,184,739 | |
| Cost of sales | | | 930,205 | | | | 1,035,833 | | | | 941,610 | |
| Gross profit | | | 239,408 | | | | 135,766 | | | | 243,129 | |
| Selling, general and administrative expenses | | | 183,934 | | | | 180,795 | | | | 160,775 | |
| Research and development expenses | | | 27,214 | | | | 28,332 | | | | 26,817 | |
| Restructuring and asset impairment charges | | | 3,204 | | | | 13,060 | | | | – | |
| Income (loss) from operations | | | 25,056 | | | | (86,421 | ) | | | 55,537 | |
| Other income: | | | | | | | | | | | | |
| Interest expense | | | (1,367 | ) | | | (1,045 | ) | | | (840 | ) |
| Interest income | | | 1,192 | | | | 952 | | | | 1,302 | |
| Other income | | | 305 | | | | 536 | | | | 1,218 | |
| Income (loss) before income taxes | | | 25,186 | | | | (85,978 | ) | | | 57,217 | |
| Income tax provision (benefit) | | | 3,012 | | | | (25,234 | ) | | | 19,627 | |
| Net income (loss) | | | 22,174 | | | | (60,744 | ) | | | 37,590 | |
| Net loss attributable to non-controlling interest | | | 132 | | | | 295 | | | | 205 | |
| Net income (loss) attributable to controlling interest | | $ | 22,306 | | | $ | (60,449 | ) | | $ | 37,795 | |
| | | | | | | | | | | | | |
| Earnings (loss) per Common Share: | | | | | | | | | | | | |
| Net income (loss) attributable to controlling interest: | | | | | | | | | | | | |
| Basic | | $ | 0.99 | | | $ | (2.64 | ) | | $ | 1.64 | |
| Diluted | | $ | 0.98 | | | $ | (2.64 | ) | | $ | 1.63 | |
| Weighted average number of common shares outstanding: | | | | | | | | | | | | |
| Basic | | | 22,515 | | | | 22,902 | | | | 23,025 | |
| Diluted | | | 22,674 | | | | 22,902 | | | | 23,184 | |
See NotesThe Company operates manufacturing sites and sites that operate as sales offices for the Company's manufacturing locations. During the first quarter of 2020, management completed an internal reorganization focused on transitioning from a decentralized management structure to Consolidated Financial Statementsa more centralized structure with major directives and decisions being made at the segment and/or parent company level. As a result of this reorganization, the Company's reportable segments were realigned moving from 3 to 2 reportable segments (plus Corporate) - Infrastructure Solutions and Materials Solutions. The Company's 2 reportable business segments comprise sites based upon the nature of the products or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations.
A-30
The Corporate category consists primarily of the parent company and Astec Insurance Company ("Astec Insurance" or the "captive"), a captive insurance company, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments. Management evaluates performance and allocates resources to the operating segments based on profit or loss from operations before United States ("U.S.") federal income taxes, state deferred taxes and corporate overhead and, thus, these costs are included in the Corporate category.
Amounts previously reported under the previous segment structure have been restated to conform to the new segment structure.
COVID-19 Pandemic
The COVID-19 pandemic has caused significant disruptions to national and global economies. Since its identification in March 2020, the COVID-19 pandemic has negatively disrupted the Company's business and results of Contents
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(in thousands)
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| | | | | | | | | | |
| Net income (loss) | | $ | 22,174 | | | $ | (60,744 | ) | | $ | 37,590 | |
| Other comprehensive income (loss): | | | | | | | | | | | | |
| Change in unrecognized pension and post-retirement benefit costs | | | 1,016 | | | | (162 | ) | | | 689 | |
| Tax (expense) benefit on change in unrecognized pension and post-retirement benefit costs | | | (244 | ) | | | 38 | | | | (69 | ) |
| Foreign currency translation adjustments | | | 2,014 | | | | (9,516 | ) | | | 6,699 | |
| Other comprehensive income (loss) | | | 2,786 | | | | (9,640 | ) | | | 7,319 | |
| Comprehensive loss attributable to non-controlling interest | | | 154 | | | | 439 | | | | 232 | |
| Comprehensive income (loss) attributable to controlling interest | | $ | 25,114 | | | $ | (69,945 | ) | | $ | 45,141 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Cash Flows from Operating Activities | | | | | | | | | |
| Net income (loss) | | $ | 22,174 | | | $ | (60,744 | ) | | $ | 37,590 | |
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: | | | | | | | | | | | | |
| Depreciation | | | 21,436 | | | | 22,411 | | | | 21,312 | |
| Amortization | | | 4,764 | | | | 5,502 | | | | 4,490 | |
| Provision for doubtful accounts | | | 1,249 | | | | 223 | | | | 482 | |
| Provision for warranties | | | 9,762 | | | | 13,219 | | | | 16,725 | |
| Deferred compensation provision (benefit) | | | 617 | | | | (1,554 | ) | | | (574 | ) |
| Deferred tax provision (benefit) | | | 1,715 | | | | (25,385 | ) | | | (291 | ) |
| (Gain) loss on disposition of fixed assets | | | 255 | | | | (71 | ) | | | (388 | ) |
| Stock-based compensation | | | 2,637 | | | | 2,182 | | | | 3,142 | |
| Asset impairment charges | | | 250 | | | | 13,060 | | | | – | |
| Distributions to SERP participants | | | (2,207 | ) | | | (767 | ) | | | (206 | ) |
| Change in operating assets and liabilities, net of effects of acquisitions: | | | | | | | | | | | | |
| Sale (purchase) of trading securities, net | | | (864 | ) | | | (758 | ) | | | 473 | |
| Receivables and other contract assets | | | 7,531 | | | | (16,189 | ) | | | (7,749 | ) |
| Inventories | | | 61,297 | | | | 30,757 | | | | (19,618 | ) |
| Prepaid expenses | | | (2,260 | ) | | | (11,943 | ) | | | (5,181 | ) |
| Other assets | | | 216 | | | | (3,698 | ) | | | (779 | ) |
| Accounts payable | | | (12,968 | ) | | | 9,843 | | | | 630 | |
| Customer deposits | | | (5,299 | ) | | | (522 | ) | | | 9,379 | |
| Accrued product warranty | | | (10,473 | ) | | | (17,539 | ) | | | (14,642 | ) |
| Income taxes payable/prepaid | | | 12,192 | | | | 3,683 | | | | (597 | ) |
| Accrued retirement benefit costs | | | (1,276 | ) | | | (1,100 | ) | | | 45 | |
| Accrued loss reserves | | | (1,073 | ) | | | (125 | ) | | | 122 | |
| Other accrued liabilities | | | 2,033 | | | | 8,887 | | | | (1,118 | ) |
| Other | | | 726 | | | | 843 | | | | (1,366 | ) |
| Net cash provided (used) by operating activities | | | 112,434 | | | | (29,785 | ) | | | 41,881 | |
| | | | | | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | | | | | |
| Business acquisition, net of cash acquired | | | – | | | | – | | | | (26,443 | ) |
| Proceeds from sale of property and equipment | | | 483 | | | | 375 | | | | 480 | |
| Expenditures for property and equipment | | | (23,360 | ) | | | (27,440 | ) | | | (20,046 | ) |
| Sale (purchase) of investments | | | 1,337 | | | | (360 | ) | | | (891 | ) |
| Net cash used by investing activities | | | (21,540 | ) | | | (27,425 | ) | | | (46,900 | ) |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Cash Flows from Financing Activities | | | | | | | | | |
| Payment of dividends | | $ | (9,916 | ) | | $ | (9,625 | ) | | $ | (9,226 | ) |
| Borrowings under bank loans | | | 165,980 | | | | 148,504 | | | | – | |
| Repayment of bank loans | | | (224,034 | ) | | | (91,964 | ) | | | (7,242 | ) |
| Purchase of shares of subsidiaries | | | (16 | ) | | | (28 | ) | | | (106 | ) |
| Sale (purchase) of Company shares by SERP, net | | | 256 | | | | 377 | | | | 289 | |
| Withholding tax paid upon vesting of restricted stock units | | | (355 | ) | | | (432 | ) | | | (507 | ) |
| Repurchase of Company stock | | | – | | | | (24,138 | ) | | | – | |
| Net cash provided (used) by financing activities | | | (68,085 | ) | | | 22,694 | | | | (16,792 | ) |
| Effect of exchange rates on cash | | | 227 | | | | (1,943 | ) | | | 1,720 | |
| Increase (decrease) in cash and cash equivalents | | | 23,036 | | | | (36,459 | ) | | | (20,091 | ) |
| Cash and cash equivalents, beginning of year | | | 25,821 | | | | 62,280 | | | | 82,371 | |
| Cash and cash equivalents, end of year | | $ | 48,857 | | | $ | 25,821 | | | $ | 62,280 | |
| | | | | | | | | | | | | |
| Supplemental Cash Flow Information | | | | | | | | | | | | |
| Cash paid during the year for: | | | | | | | | | | | | |
| Interest, net of capitalized interest | | $ | 1,771 | | | $ | 856 | | | $ | 588 | |
| Income taxes paid (refunded), net | | $ | (11,262 | ) | | $ | 8,523 | | | $ | 26,917 | |
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF EQUITYFor the Years Ended December 31, 2019, 2018Presentation and 2017 (in thousands)
| | Common Stock Shares | | | Common Stock Amount | | | Additional Paid-In Capital | | | Accumulated
Other
Comprehensive
Loss | | | Company Shares Held by SERP | | | Retained Earnings | | | Non- Controlling Interest | | | Total Equity | |
| Balance December 31, 2016 | | | 23,046 | | | $ | 4,609 | | | $ | 139,970 | | | $ | (31,562 | ) | | $ | (1,958 | ) | | $ | 536,771 | | | $ | 1,011 | | | $ | 648,841 | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 37,795 | | | | (205 | ) | | | 37,590 | |
| Dividends ($0.40 per share) | | | | | | | | | | | 10 | | | | | | | | | | | | (9,236 | ) | | | | | | | (9,226 | ) |
| Other comprehensive income | | | | | | | | | | | | | | | 7,319 | | | | | | | | | | | | | | | | 7,319 | |
| Change in ownership percentage of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (43 | ) | | | (43 | ) |
| Stock-based compensation | | | 1 | | | | | | | | 2,172 | | | | | | | | | | | | | | | | | | | | 2,172 | |
| RSU vesting | | | 23 | | | | 5 | | | | (5 | ) | | | | | | | | | | | | | | | | | | | – | |
| Withholding tax on vested RSUs | | | | | | | | | | | (507 | ) | | | | | | | | | | | | | | | | | | | (507 | ) |
| Sale of Company stock held by SERP, net | | | | | | | | | | | 291 | | | | | | | | (2 | ) | | | | | | | | | | | 289 | |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | 330 | | | | 330 | |
| Balance December 31, 2017 | | | 23,070 | | | | 4,614 | | | | 141,931 | | | | (24,243 | ) | | | (1,960 | ) | | | 565,330 | | | | 1,093 | | | | 686,765 | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (60,449 | ) | | | (295 | ) | | | (60,744 | ) |
| Dividends ($0.42 per share) | | | | | | | | | | | 11 | | | | | | | | | | | | (9,636 | ) | | | | | | | (9,625 | ) |
| Other comprehensive loss | | | | | | | | | | | | | | | (9,640 | ) | | | | | | | | | | | | | | | (9,640 | ) |
| Change in ownership percentage of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (159 | ) | | | (159 | ) |
| Stock-based compensation | | | 2 | | | | | | | | 2,815 | | | | | | | | | | | | | | | | | | | | 2,815 | |
| RSU vesting | | | 23 | | | | 5 | | | | (5 | ) | | | | | | | | | | | | | | | | | | | – | |
| Withholding tax on vested RSUs | | | | | | | | | | | (432 | ) | | | | | | | | | | | | | | | | | | | (432 | ) |
| Sale of Company stock held by SERP, net | | | | | | | | | | | 303 | | | �� | | | | | 74 | | | | | | | | | | | | 377 | |
| Repurchase of Company stock | | | (582 | ) | | | (116 | ) | | | (24,022 | ) | | | | | | | | | | | | | | | | | | | (24,138 | ) |
| Other | | | | | | | | | | | | | | | | | | | | | | | | | | | 71 | | | | 71 | |
| Balance December 31, 2018 | | | 22,513 | | | | 4,503 | | | | 120,601 | | | | (33,883 | ) | | | (1,886 | ) | | | 495,245 | | | | 710 | | | | 585,290 | |
| Net income | | | | | | | | | | | | | | | | | | | | | | | 22,306 | | | | (132 | ) | | | 22,174 | |
| Dividends ($0.44 per share) | | | | | | | | | | | 13 | | | | | | | | | | | | (9,929 | ) | | | | | | | (9,916 | ) |
| Other comprehensive income | | | | | | | | | | | | | | | 2,808 | | | | | | | | | | | | (22 | ) | | | 2,786 | |
| Change in ownership percentage of subsidiary | | | | | | | | | | | | | | | | | | | | | | | | | | | (15 | ) | | | (15 | ) |
| Stock-based compensation | | | 3 | | | | | | | | 2,277 | | | | | | | | | | | | | | | | | | | | 2,277 | |
| RSU vesting | | | 35 | | | | 7 | | | | (7 | ) | | | | | | | | | | | | | | | | | | | – | |
| Withholding tax on vested RSUs | | | | | | | | | | | (355 | ) | | | | | | | | | | | | | | | | | | | (355 | ) |
| Cumulative impact of ASU No. 2018-02 | | | | | | | | | | | | | | | (721 | ) | | | | | | | 721 | | | | | | | | – | |
| Sale of Company stock held by SERP, net | | | | | | | | | | | 84 | | | | | | | | 172 | | | | | | | | | | | | 256 | |
| Other | | | | | | | | | | | | | | | (7 | ) | | | | | | | | | | | (3 | ) | | | (10 | ) |
| Balance December 31, 2019 | | | 22,551 | | | $ | 4,510 | | | $ | 122,613 | | | $ | (31,803 | ) | | $ | (1,714 | ) | | $ | 508,343 | | | $ | 538 | | | $ | 602,487 | |
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Dollar and share amounts in thousands, except per share amounts unless otherwise specified)
1. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
-
The accompanying consolidated financial statements include the accounts of Astec Industries, Inc. and its domesticsubsidiaries and foreign subsidiaries (the “Company”have been prepared by the Company, pursuant to the rules and regulations of the U.S Securities and Exchange Commission ("SEC"). The Company’s significant wholly-owned andCompany prepares its consolidated subsidiaries at December 31, 2019 are as follows:
Astec Australia Pty Ltd | Astec do Brasil Fabricacao de Equipamentos Ltda. (93% owned) |
Astec, Inc. | Astec Insurance Company |
Astec Industries LatAm SpA | Astec Mobile Machinery GmbH |
Astec Mobile Screens, Inc. | Breaker Technology, Inc. |
Breaker Technology Ltd. | Carlson Paving Products, Inc. |
CEI Enterprises, Inc. | GEFCO, Inc. |
Heatec, Inc. | Johnson Crushers International, Inc. |
Kolberg-Pioneer, Inc. | Osborn Engineered Products SA (Pty) Ltd |
Peterson Pacific Corp. | Power Flame Incorporated |
RexCon, Inc. | Roadtec, Inc. |
Telestack Limited | Telsmith, Inc. |
financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). All intercompany accountsbalances and transactions between the Company and its affiliates have been eliminated in consolidation.
Noncontrolling interest in the Company's consolidated financial statements represents the 7% interest in a consolidated subsidiary which is not owned by the Company. Since the Company controls this subsidiary, the subsidiary's financial statements are consolidated with those of the Company, and the noncontrolling owner's 7% share of the subsidiary's net assets and results of operations is deducted and reported as "Noncontrolling interest" in the Consolidated Balance Sheets and as "Net (income) loss attributable to noncontrolling interest" in the Consolidated Statements of Operations. The Company executed an agreement in February 2022 with the noncontrolling interest holder, which is undergoing a judicial reorganization in Brazil, to acquire their outstanding interest in full for R$10.0M (approximately $2.0 million, subject to the effect of exchange rates). Completion of the transaction is subject to obtaining certain judicial approval in Brazil.
Use of Estimates
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The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include inventory obsolescence costs, warranty costs, inventory net realizable value, self-insurance loss reserves, share-based compensation and the measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results could differ from those estimates.
Foreign Currency Translation
- Subsidiaries located in Australia, Brazil, Canada, Chile, Germany, Northern Ireland, and South Africa operate primarily using local functional currencies. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of accumulated other comprehensive income (loss). Foreign currency transaction gains and losses, net are included in cost of sales and amounted to a loss of $618 in 2019, and gains of $539 and $431 in 2018 and 2017, respectively.
Fair Value of Financial Instruments - For cash and cash equivalents, trade receivables and contract assets, other receivables and accounts payable, the carrying amount approximates the fair value because of the short-term nature of those instruments. Trading equity investments are valued at their estimated fair value based on their quoted market prices and debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third-party pricing service. Financial assets and liabilities are categorized as of the end of each reporting period based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
| Level 1 - | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| Level 2 - | Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability. |
| Level 3 - | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
All financial assetsdollar amounts, except share and liabilities held by the Company at December 31, 2019 and 2018per share amounts, are classified as Level 1 or Level 2, as summarized in Note 3, Fair Value Measurements.
Significant Accounting Policies
Cash, and Cash Equivalentsand Restricted Cash - All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash andequivalents. The Company maintains cash equivalents.balances with high credit quality institutions, the balances of which may exceed federally insured limits.
A-35
The Company had $117.0 million and $137.0 million in a government money market fund at December 31, 2021 and December 31, 2020, respectively, which is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets.
$0.3 million at December 31, 2021 that is restricted as to withdrawal or use by the captive, which is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets.
Investments - Investments consist primarily of investment-grade marketable securities. Trading securities are carried at fair value, with unrealized holding gains and losses included in net"Other (expenses) income, (loss).net" in the Consolidated Statements of Operations. Realized gains and losses are accounted for on the specific identification method. Purchases and sales are recorded on a trade-date basis. Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date.
Accounts Receivable - The Company sells products to a wide variety of customers. Accounts receivable are carried at their outstanding principal amounts, less an allowance for doubtful accounts.credit losses. The Company extends credit to its customers based on an evaluation of the customers’customers' financial condition generally without requiring collateral, although the Company normally requires advance payments or letters of credit on large equipment orders.
Allowance for Credit risk is driven by conditions withinLosses - The Company adopted the economyprovisions of Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments – Credit Losses (Topic 326)" on January 1, 2020 and, the industry and is principally dependentaccordingly, measures its credit losses on each customer’s financial condition. To minimize credit risk, thereceivables using an expected loss model. See additional disclosure of this adoption below in Recently Adopted Accounting Pronouncements.
The Company currently monitors credit levels and financial conditions of customers on a continuing basis. After considering historical trends for uncollectible accounts, current economic conditions and specific customer recent payment history and financial stability, the Company records an allowance for doubtful accountscredit losses is recorded in "Trade receivables and contract assets, net" in the Consolidated Balance Sheets at a level which management believes is sufficient to cover all probable future credit losses. losses as of the balance sheet date based on a rolling twelve-month "look-back", specific reserves and an expectation of future economic conditions that might impact customers, which would currently include the impact of COVID-19.
Amounts are deemed past due when they exceed the payment terms agreed to by the customer in the sales contract. Past due amounts are charged off when reasonable collection efforts have been exhausted and the amounts are deemed uncollectible by management. AsThe majority of December 31, 2019, concentrations of credit risk with respect tothe Company’s receivables are limited duerelated to equipment that requires significant down payment with other terms allowing for payment shortly after shipment, typically 30 days, which the wide variety of customers.Company believes is short-term in nature.
Allowance for Doubtful Accounts - The following table represents a rollforward of the allowance for doubtful accountscredit losses for the years ended December 31, 2019, 20182021, 2020 and 20172019:
:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Allowance balance, beginning of year | | $ | 1.7 | | | $ | 1.4 | | | $ | 1.2 | |
| Provision | | 0.7 | | | 0.9 | | | 1.2 | |
| Write offs | | (0.4) | | | (0.6) | | | (1.0) | |
| | | | | | |
| Allowance balance, end of year | | $ | 2.3 | | | $ | 1.7 | | | $ | 1.4 | |
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Allowance balance, beginning of year | | $ | 1,184 | | | $ | 1,716 | | | $ | 1,511 | |
| Provision | | | 1,249 | | | | 223 | | | | 482 | |
| Write offs | | | (1,016 | ) | | | (696 | ) | | | (308 | ) |
| Other | | | (1 | ) | | | (59 | ) | | | 31 | |
| Allowance balance, end of year | | $ | 1,416 | | | $ | 1,184 | | | $ | 1,716 | |
In addition, an allowance for credit losses related to an outstanding note receivable of $0.7 million is included in "Other receivables, net" in the Consolidated Balance Sheets for the year ended December 31, 2021.
Inventories - The Company’sCompany's inventory is comprised of raw materials and parts, work-in-process, finished goods and used equipment.
Raw material and parts inventory is comprised ofcomprises purchased steel and other purchased items for use in the manufacturing process or held for sale for the after-market parts business. The category also includes the manufacturing cost of completed equipment sub-assemblies produced for either integration into equipment manufactured at a later date or for sale in the Company’sCompany's after-market parts business.
Work-in-process inventory consists of the value of materials, labor and overhead incurred to date in the manufacturing of incomplete equipment or incomplete equipment sub-assemblies being produced.
Finished goods inventory consists of completed equipment manufactured for sale to customers.
Used equipment inventory consists of equipment accepted in trade or purchased on the open market. This category also includes equipment rented to prospective customers on a short-term or month-to-month basis. Used equipment is valued at the lower of acquired or trade-in cost or net realizable value determined on each separate unit. Each unit of rental equipment is valued at the lower of original manufacturing, acquired or trade-in cost or net realizable value.
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, which requires the Company to make specific estimates, assumptions and judgments in determining the amount, if any, of reductions in the valuation of inventories to their net realizable values. The net realizable values of the Company’sCompany's products are impacted by a number of factors, including changes in the price of steel, competitive sales pricing, quantities of inventories on hand, the age of the individual inventory items, market acceptance of the Company’sCompany's products, the Company’sCompany's normal gross margins, actions by the Company or its competitors, the condition of ourits used and rental equipment inventory and general economic factors. Once an inventory item’sitem's value has been deemed to be less than cost, a net realizable value allowance is calculated and a new “cost basis”cost basis for that item is effectively established. This new cost is retained for that item until such time as the item is disposed of or the Company determines that an additional write-down is necessary. Additional write-downs may be required in the future based upon changes in assumptions due to general economic downturns in the markets in which the Company operates, changes in competitor pricing, new product design or other technological advances introduced by the Company or its competitors and other factors unique to individual inventory items.
The most significant component of the Company’sCompany's inventory is steel. A significant decline in the market price of steel could result in a decline in the market value of the Company's equipment or parts we sell.parts. During periods of significant declining steel prices, the Company reviews the valuation of its inventories to determine if reductions are needed in the recorded value of inventory on hand to its net realizable value.
The Company reviews the individual items included in its finished goods, used equipment and rental equipment inventory on a model-by-model or unit-by-unit basis to determine if any item’sitem's net realizable value is below its carrying value. This analysis is expanded to include items in work-in-process and raw material inventory if factors indicate those items may also be impacted. In performing this review, judgments are made and, in addition to the factors discussed above, additional consideration is given to the age of the specific items of used or rental equipment inventory, prior sales offers or lack thereof, the physical condition of the specific items and general market conditions for the specific items. Additionally, an analysis of raw material inventory is performed to calculate reserves needed for slow-moving or obsolete inventory based upon quantities of items on hand, the age of those items and their recent and expected future usage or sale.
When the Company determines that the value of inventory has become impaired through damage, deterioration, obsolescence, changes in price levels, excessive levels of inventory or other causes, the Company reduces the carrying value to the net realizable value based on estimates, assumptions and judgments made from the information available at that time. Abnormal amounts of idle facility expense, freight, handling cost and wasted materials are recognized as current period charges.
Assets Held for Sale – In connection with the closingAs of AMM-Germany and CEI,December 31, 2021, the Company hasrecorded assets held for sale of $5.1 million related to land and building assets of its former Enid business, which are being marketed for sale. The Company accounted for theirthe Enid land and buildingsbuilding and one of the Company's planes as assets held for sale as of December 31, 2019.2020. The AMM-Germany land and buildings sale of the plane was completed in early 2020 and the salefirst quarter of the CEI facilities is expected to be completed prior to the end of 2020.
Property and Equipment - Property and equipment is stated at cost. Depreciation is calculatedExpenditures for financial reporting purposes usingmaintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and improvements that substantially extend the straight-line method based oncapacity or useful life of an asset are capitalized and are then depreciated. The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are relieved from the accounts and resulting gains or losses are reflected in earnings.
Property and equipment are depreciated over the estimated useful lives of the assets as follows: airplanes (20 years), buildings (40 years)using the straight-line depreciation method for financial reporting and equipment (3 to 10 years). Bothon accelerated methods for income tax purposes. Land is recorded at historical cost and straight-line methodsis not depreciated. The useful lives are used for tax compliance purposes. Routine repair and maintenance costs and planned major maintenance are expensed when incurred.
Goodwill and Other Intangible Assets -estimated based on historical experience with similar assets, considering anticipated technological or other changes. The Company classifies intangible assets as either goodwill or intangible assets with definiteperiodically reviews these lives subjectrelative to amortization.
The Company tests intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a changephysical factors and industry trends. If there are changes in the assessment of future operations. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the future undiscounted cash flows expected to be generated from theplanned use of the asset.
The Company determinesproperty or equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of identifiable intangible assets after considering the specific factsaccelerated depreciation expense in future periods.
Property and circumstances related to each intangible asset. Factors considered when determining useful lives include the contractual terms of agreements, the history of the asset, the Company’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets thatequipment are deemed to have definite lives are amortized over their useful lives as follows: dealer network and customer relationships: 8-19 years; trade names: 14-15 years; other: 3-19 years.
Goodwill is not amortized. The Company tests goodwill for impairment during the fourth quarter of each year or more frequently if events or circumstances indicate that goodwill might be impaired. Beginning in 2018, the Company changed its annual goodwill impairment testing date from December 31 to October 31 to better align the testing date with its financial planning process and alleviate resource constraints. The Company would not expect a materially different outcome in any given year as a result of testing on October 31 as compared to December 31. The Company uses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. The Company estimates the fair values of each of its reporting units with goodwill using a combination of the income and market approaches.
The income approach uses a reporting unit’s projection of estimated future operating results and cash flows which are then discounted using a weighted average cost of capital determined based on current market conditions for the individual reporting unit. The projection uses management’s best estimates of cash flowsprimarily depreciated over the projection period based on estimates of annual and terminal growth rates in sales and costs, changes in operating margins, selling, general and administrative expenses, working capital requirements and capital expenditures. The market approach relies upon valuation multiples derived from stock prices and enterprise values of publicly traded companies comparable to the Company. The multiples under the market approach are used to develop estimates of the operating value of the reporting units. Other factors used in evaluating the fair value of a reporting unit could include deterioration in the general economy, fluctuations in foreign exchange, deterioration in the industry or markets in which the reporting unit operates, an increased competitive market, a regulatory or political development in the market, increases in raw materials, labor costs or other factors that have a negative effect on earnings and cash flows, a decline in actual or budgeted earnings and cash flows, or entity specific changes in management, key personnel, strategy or customer base. If the fair value of a reporting unit is found to be less than its book value, the Company will record an impairment loss equal to the excess, if any, of the book value over the fair value.following useful lives:
The fair value of reporting units that do not have goodwill are estimated using either the income or market approaches, depending on which approach is the most appropriate for each reporting unit. The fair value of the reporting units that serve operating units in supporting roles, such as the captive insurance company and the corporate reporting unit are estimated using the cost approach. The sum of the fair values of all reporting units is compared to the fair value of the consolidated Company, calculated using the market approach, which is inferred from the market capitalization of the Company at the date of the valuation, to confirm that the Company’s estimation of the fair value of its reporting units is reasonable.
Determining the fair values of the Company’s reporting units involves the use of significant estimates and assumptions. Due to the inherent uncertainty involved in making these estimates and assumptions, actual results could differ materially from those estimates.
| | | | | |
| Years |
| Buildings and improvements | 5 - 40 |
| Airplanes and aviation equipment | 5 - 20 |
| Machinery, equipment and tooling | 3 - 10 |
| Furniture and fixtures | 5 - 10 |
| Computer hardware and software | 3 - 5 |
Impairment of Long-livedLong-Lived Assets - In the event that facts and circumstances indicate the carrying amounts of long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the carrying amount for each asset (or group of assets) to determine if a write-down is required. If this review indicates that the assets will not be recoverable, the carrying values of the impaired assets are reduced to their estimated fair value. Fair value is estimated using discounted cash flows, prices for similar assets or other valuation techniques.
Self-Insurance ReservesLeases - The Company retainsleases certain real estate, material handling equipment, offices, automobiles and other equipment. The Company determines if a contract is a lease (or contains an embedded lease) at the riskinception of the agreement. For a contract to be determined to be a lease or contain a lease, it must include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or finance. For operating leases, the Company recognizes a portionlease liability equal to the present value of the remaining lease payments, and a right-of-use ("ROU") asset equal to the lease liability, subject to certain adjustments, such as prepaid rent. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease.
The Company uses its workers’ compensation claims and general liability claimsincremental borrowing rate to determine the present value of the lease payments. The Company's incremental borrowing rate is the rate of interest that it would incur to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determines the incremental borrowing rates based upon secured borrowing rates quoted by waythe Company's banks for loans of a captive insurance company, Astec Insurancecorresponding length to the lease.
The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company (“Astec Insurance”has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considers a number of factors when evaluating whether the options in its lease contracts are reasonably certain of exercise, such as length of time before an option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to the Company's operations, costs to negotiate a new lease and any contractual or economic penalties.
The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less.
Goodwill and Other Intangible Assets - Goodwill represents the “captive”).excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized but is tested for impairment annually in the fourth quarter, or more frequently, as events dictate. Beginning in 2021, the Company changed its annual goodwill impairment testing date from October 31 to October 1 to better align the testing date with its financial planning process and alleviate resource constraints. The objectivesCompany would not expect a materially different outcome in any given year as a result of Astec Insurance aretesting on October 1 as compared to improve controlOctober 31.
Goodwill impairment is the excess of the carrying amount of a reporting unit (that includes goodwill) over its fair value. Impairment is limited to the carrying amount of goodwill allocated to the reporting unit. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, management determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the quantitative impairment test is unnecessary and reduce the costgoodwill is considered to be unimpaired. However, if based on the qualitative assessment management concludes that it is more likely than not that the fair value of claims; to improve focus on risk reductiona reporting unit is less than its carrying amount, the Company will proceed with performing the quantitative evaluation process.
The quantitative evaluation compares the carrying value of each reporting unit that has goodwill with the developmentestimated fair value of the respective reporting unit. Should the carrying value of a program structure which rewards proactive loss control; and to ensure management participation in the defense and settlement process for claims.
For general liability claims, the captive is liable for the first $1,000 per occurrence. The Company carries general liability, excess liability and umbrella policies for claimsreporting unit be in excess of amounts coveredthe estimated fair value of that reporting unit, a goodwill impairment charge will be recognized in the amount by which the captive.reporting unit's carrying amount exceeds its fair value, but not to exceed the total goodwill assigned to the reporting unit. The determination of the fair value of the Company's reporting units is based on a combination of a market approach, that considers benchmark company market multiples, and an income approach, that utilizes discounted cash flows for each reporting unit. The cash flows used to determine fair value are dependent on a number of significant management assumptions such as expectations of future performance and the expected future economic environment, which are partly based upon historical experience. Management's estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on management's judgment of the rates that would be utilized by a hypothetical market participant. As part of the goodwill impairment testing, management also considers the Company's market capitalization in assessing the reasonableness of the combined fair values estimated for its reporting units. While management believes such assumptions and estimates are reasonable, the actual results may differ materially from the projected amounts.
For workers’ compensation claims,The Company's intangible assets have definite lives and are subject to amortization. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. The Company determines the captive is liableuseful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors considered when determining useful lives include the contractual terms of agreements, the history of the asset, the Company's long-term strategy for the first $350 per occurrence. use of the asset, any laws or other local regulations which could impact the useful life of the asset and other economic factors, including competition and specific market conditions.
The Company utilizestests intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a large national insurance company as third-party administrator for workers’ compensation claims and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.
The financial statements of the captive are consolidated into the consolidated financial statements of the Company. The short-term and long-term reserves for claims and potential claims related to general liability and workers’ compensation under the captive are included in accrued loss reservesgeographic market or other long-term liabilities in the consolidated balance sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined to cover the ultimate cost of each claim based on the Company’s evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates toa change in the future. However,assessment of future operations. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the future undiscounted cash flows expected to be generated from the use of the asset, which are evaluated at the asset group level.
Intangible assets with definite lives are amortized on a straight-line basis over the following estimated useful lives:
| | | | | |
| Years |
| Dealer network and customer relationships | 8 - 18 |
| Trade names | 2 - 4 |
| Other | 3 - 19 |
Pension and Retirement Plans - In October 2021, the Company does not believe it is reasonably likelysettled its obligations under its defined benefit pension plan. Historically, the determination of obligations and expenses under the Company's pension plan was dependent on the Company's selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions are described in Note 14, Employee Benefit Plans and include among others, the discount rate, expected return on plan assets and the expected mortality rates. Actual results that differ from assumptions were accumulated and amortized over future periods and, therefore, generally affected the reserve level will materially changerecognized expense in such periods.
The Company recognized the overfunded or underfunded status of its pension plan as an asset or liability. Actuarial gains and losses were recognized through "Other comprehensive income (loss)" in the foreseeable future.
year in which the changes occurred. The Company is self-insured for health and prescription claims undermeasured the funded status of its Group Health Insurance Plan at all but onepension plan as of the Company’s domestic manufacturing subsidiaries. The Company carries reinsurance coverage to limit its exposure for individual health claims above certain limits. Third parties administer health claims and prescription medication claims. The Company maintains a reserve for the self-insured health plan which is included in accrued loss reserves on the Company’s consolidated balance sheets. This reserve includes both unpaid claims and an estimate of claims incurred but not reported, based on historical claims and payment experience. Historically, the reserves have been sufficient to provide for claims payments. Changes in actual claims experience or payment patterns could cause the reserve to change, but the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.
The remaining U.S. subsidiary is covered under a fully insured group health plan. Employees of the Company’s foreign subsidiaries are insured under separate health plans. No reserves are necessary for these fully-insured health plans.
Revenue Recognition - Revenue is generally recognized when the Company satisfies a performance obligation by transferring control of goods or providing services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specific delivery terms. A significant portion of the Company’s equipment sales represents equipment produced in the Company’s manufacturing facilities under short-term contracts for a customer’s project or equipment designed to meet a customer’s requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer’s needs or specifications. The Company provides customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the equipment performs according to the customer’s need, regardless of whether the Company provides installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. Expected warranty costs for our standard warranties are expensed at the time the related revenue is recognized. The Company also offers extended warranties for sale on certain equipment sold to its customers. Total extended warranty sales were $1,895 in 2019. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically fulfilled within one year from the date of the contract, revenue adjustments for a potential financing component or the costs to obtain the contract are not made. AsCompany's fiscal year-end.
Table of December 31, 2019, the Company had contract assets of $4,660, primarily related to billings on one large ($7,249) order in the Energy group, and contract liabilities of $6,511, including $3,536 of deferred revenue related to extended warranties. Contract assets and liabilities were not material as of December 31, 2018.Contents
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon the completion of production, and the equipment is subsequently stored at the Company’s plant at the customer’s request. Revenue is recorded on such contracts upon the customer’s assumption of title and risk of ownership, which transfers control of the equipment, and when collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer’s business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company’s inventory prior to revenue recognition.
Product Warranty Reserve - The Company had one large wood pellet plant sale through 2018 and other smaller non-wood pellet plant orders in 2019 on which revenue was recorded over time based uponaccrues for the ratioestimated cost of costs incurred to estimated total costs. Penalties were accounted for as a reduction in sales.
Service and Equipment Installation Revenue – Purchasers of certain of the Company’s equipment often contract with the Company to provide installation services. Installation is typically separately priced in the contract based upon observable market prices for stand-alone performance obligations or a cost plus margin approach when one is not available. The Company may also provide future services on equipment sold at the customer’s request, which may be for equipment repairs after the warranty period expires. Service is billed on a cost plus margin approach or at a standard rate per hour.
Used Equipment Sales - Used equipment is obtained by trade-in on new equipment sales, as a separate purchase in the open market or from the Company’s equipment rental business. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – Under a practical expedient allowed under ASU 2014-09, the Company records revenues earned for shipping and handling as revenueproduct warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For equipment, the Company's standard product warranty terms generally include post-sales support and repairs of shipment, regardlessproducts at no additional charge for periods ranging from three months to two years or up to a specified number of whetherhours of operation. For parts from component suppliers, the Company relies on the original manufacturer's warranty that accompanies those parts. Generally, Company fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or notworkmanship is rare, if it occurs, the Company's policy is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues, extended warranty revenues, early pay discounts and floor plan interest reimbursements.
Advertising Expense
- The cost of advertising is expensed as incurred. The Company incurred $3,668, $4,136
Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and $3,793 in advertisingcurrent period machine shipments. If actual product failure rates, repair costs, during 2019, 2018 and 2017, respectively, which are included in selling, general and administrative expenses.service delivery costs or post-sales support costs differ from the Company's estimates, revisions to the estimated warranty liability may be required.
Income Taxes - Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-notmore likely than not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-notmore likely than not recognition threshold, no benefit is recognized. The Company is periodically audited by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict a final outcome or timing of resolution of any particular tax matter, the Company believes its reserve for uncertain tax positions is adequate to reduce the uncertain positions to the greatest amount of benefit that is more likely than not realizable.
Product Warranty ReserveSelf-Insurance Reserves - The Company accruesretains the risk for a portion of its workers' compensation claims and general liability claims by way of a captive insurance company, Astec Insurance. The objectives of Astec Insurance are to improve control over and reduce the cost of claims; to improve focus on risk reduction with the development of a program structure which rewards proactive loss control; and to ensure management participation in the defense and settlement process for claims.
For general liability claims, the captive is liable for the estimatedfirst $1.0 million per occurrence. The Company carries general liability, excess liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers' compensation claims, the captive is liable for the first $0.35 million per occurrence. The Company utilizes a large national insurance company as third-party administrator for workers' compensation claims and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.
The financial statements of the captive are consolidated into the consolidated financial statements of the Company. The short-term and long-term reserves for claims and potential claims related to general liability and workers' compensation under the captive are included in "Accrued loss reserves" or "Other long-term liabilities" in the Consolidated Balance Sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined to cover the ultimate cost of product warrantieseach claim based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.
The Company is self-insured for health and prescription claims under its Group Health Insurance Plan at all of the time revenueCompany's domestic manufacturing subsidiaries. The Company carries reinsurance coverage to limit its exposure for individual health claims above certain limits. Third parties administer health claims and prescription medication claims. The Company maintains a reserve for the self-insured health plan which is recognized. Warranty obligations by product line or model are evaluatedincluded in "Accrued loss reserves" in the Company's Consolidated Balance Sheets. This reserve includes both unpaid claims and an estimate of claims incurred but not reported, based on historical warranty claims and payment experience. For equipment,Historically, the Company’s standard product warranty termsreserves have been sufficient to provide for claims payments. Changes in actual claims experience or payment patterns could cause the reserve to change, but the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.
Employees of the Company's foreign subsidiaries are insured under separate health plans. No reserves are necessary for these fully-insured health plans.
Revenue Recognition - Revenue is generally include post-sales support and repairsrecognized when the Company satisfies a performance obligation by transferring control of goods or providing services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a specified amount of products at no additional charge for periods ranging from three months to two years or up to a specified numberprice with specific delivery terms. A significant portion of hoursthe Company's equipment sales represents equipment produced in the Company's manufacturing facilities under short-term contracts for a customer's project or equipment designed to meet a customer’s requirements. Most of operation. For parts from component suppliers,the equipment sold by the Company reliesis based on standard configurations, some of which are modified to meet customer's needs or specifications. The Company provides customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the original manufacturer’s warranty that accompanies those parts. Generally, Company fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the Company’s policy is to replace fabricated parts at no additional charge.
Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from our estimates, revisionsequipment performs according to the estimated warranty liability may be required.
Pensioncustomer's need, regardless of whether the Company provides installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and Retirement Plans - The determination of obligationsits customers, such as sales, use, value-added and expenses under the Company’s pension plan is dependent on the Company’s selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptionssome excise taxes, are described in Note 12, Pension and Retirement Plans and include among others, the discount rate, expected return on plan assets and the expected mortality rates. In accordance with U.S. generally accepted accounting principles, actual results that differexcluded from assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense in such periods. Significant differences in actual experience or significant changes in the assumptions used may materially affect the pension obligations and future expenses.
revenue. The Company recognizes the overfundedoffers extended warranties for sale on certain equipment sold to its customers. Costs of obtaining sales contracts with an expected duration of one year or underfunded status of its pension planless are expensed as an asset or liability. Actuarial gains and losses, amortization of prior service cost (credit) and amortization of transition obligationsincurred. As contracts are recognized through other comprehensive income (loss) in thetypically paid within one year in which the changes occur. The Company measures the funded status of its pension plan as offrom the date of the Company’s fiscal year-end.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if the Company has to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to the Company's dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.
Stock-based Compensation
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon the completion of production, and the equipment is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and risk of ownership, which transfers control of the equipment, and when collectibility is probable. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company's inventory prior to revenue recognition.
The Company had orders totaling $29.3 million in 2021 and nominal orders in 2020 and 2019 on which revenue was recorded over time based upon the ratio of costs incurred to estimated total costs.
Service and Equipment Installation Revenue – Purchasers of certain of the Company's equipment often contract with the Company to provide installation services. Installation is typically separately priced in the contract based upon observable market prices for stand-alone performance obligations or a cost plus margin approach when one is not available. The Company may also provide future services on equipment sold at the customer's request, which may be for equipment repairs after the warranty period expires. Service is billed on a cost plus margin approach or at a standard rate per hour.
Used Equipment Sales – Used equipment is typically obtained by trade-in on new equipment sales or as a separate purchase in the open market. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – The Company records revenues earned for shipping and handling as revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues, extended warranty revenues, early pay discounts and floor plan interest reimbursements.
0Advertising Expense - The cost of advertising is expensed as incurred. The Company incurred $1.5 million, $2.6 million and $3.7 million in advertising costs during 2021, 2020 and 2019, respectively, which are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
0Share-based Compensation-The grant date fair value of share-based compensation awards is based upon the closing market price of the Company's common stock on the day prior to the grant date, except for performance stock awards with a total shareholder return ("TSR") market metric for which the Company estimates fair value using a Monte-Carlo simulation model. The Company recognizes compensation expense for all awards over the cost of employee and director services received in exchange for equity awards in the consolidated financial statementsrequisite service period. Forfeitures are recognized as they occur. Compensation expense is based on the grant date calculated fair value as described above, except for performance stock awards with a return on invested capital ("ROIC") performance metric. For these awards, compensation expense is based on the probable outcome of achieving the specified performance conditions. The Company reassesses whether achievement of the awards.ROIC performance metric is probable at each reporting date. The Company recognizes stock-based compensation expense over the period during which a recipient is required to provide service in exchange for the award (the vesting period). The Company’sCompany's equity awards are further described in Note 16, Shareholders’ Equity.17, Share-Based Compensation.
Earnings Per Share -Basic earnings (loss) per share is based on the weighted average number of common shares outstanding and diluted earnings (loss) per share includes potential dilutive effects of restricted stock units and shares held in the Company’s supplemental executive retirement plan.
Acquisitions - The following table sets forth a reconciliationCompany accounts for business combinations using the acquisition method. Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Acquisition costs are expensed as incurred and contingent consideration is booked at its fair value as part of the number of shares used inpurchase price. See Note 3, Acquisitions for additional information on the computation of basic and diluted earnings (loss) per share:
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Denominator: | | | | | | | | | |
| Denominator for basic earnings (loss) per share | | | 22,515 | | | | 22,902 | | | | 23,025 | |
| Effect of dilutive securities: | | | | | | | | | | | | |
| Restricted stock units | | | 111 | | | | – | | | | 96 | |
| Supplemental executive retirement plan | | | 48 | | | | – | | | | 63 | |
| Denominator for diluted earnings (loss) per share | | | 22,674 | | | | 22,902 | | | | 23,184 | |
Derivatives and Hedging Activities - The Company recognizes all derivatives in the consolidated balance sheetsConsolidated Balance Sheets at their fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities or firm commitments through income or recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective portion of a derivative’sderivative's change in fair value is immediately recognized in income. From time to time, the Company’sCompany's foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuation in currency exchange rates. See Note 13, Derivative Financial Instruments, regarding
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency risk. The fair value of the derivative financial instrument is recorded in the Consolidated Balance Sheets and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the Consolidated Statements of Operations in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts outstandingwas $7.8 million during 2021. The Company reported $0.1 million of derivative assets in "Prepaid expenses and other assets" at both December 31, 2021 and December 31, 2020. The Company held no derivative liabilities at December 31, 20192021 and 2018.$0.5 million of derivative liabilities reported in "Other current liabilities" at December 31, 2020.
Business Combinations and Divestitures - The Company accounts for business combinations usingrecognized, as a component of "Cost of sales", a net gain on the acquisition method. Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Related third-party acquisition costs are expensed as incurred and contingent consideration is booked at itschange in fair value as part of the purchase price. Business divestitures are accountedderivative instruments of $0.8 million and $0.2 million for using the exit and disposal method including the assets held for sale guidance. See Note 21, Business Combinations, regarding acquisitions and divestitures announced or completed by the Company in the years ended December 31, 2019, 20182021 and 2017.2020, respectively. The Company recognized a net loss of $0.1 million for the year ended December 31, 2019. There were no derivatives that were designated as hedges at December 31, 2021 or 2020.
Subsequent Events ReviewForeign Currency - Management has evaluated events occurring between December 31, 2019Subsidiaries located in Australia, Brazil, Canada, Chile, India, the United Kingdom, South Africa and the date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording or disclosure therein.
Recent Accounting Pronouncements - In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which significantly changed the accounting for operating leases by lessees beginning 2019. The accounting applied by lessors was largely unchanged from that applied under previous guidance. The new guidance establishes a right-of-use (“ROU”) model and requires lessees to recognize leaseThailand operate primarily using local functional currencies. Accordingly, assets and lease liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of "Accumulated other comprehensive loss". Foreign currency transaction gains and losses, net are included in "Cost of sales" and amounted to a loss of $1.3 million in 2021, a gain of $1.1 million in 2020 and a loss of $0.6 million in 2019.
Earnings Per Share -Basic earnings per share is computed by dividing "Net income attributable to controlling interest" by the weighted average number of shares outstanding during the reported period. Deferred stock units are fully vested and, as such, are included in basic earnings per share. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of restricted stock units, performance stock units and stock held in the balance sheet, initially measured atCompany's deferred compensation programs, using the present valuetreasury stock method. Performance stock units, which are considered contingently issuable, are considered dilutive when the related performance criterion has been met.
The following table sets forth a reconciliation of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost includednumber of shares used in the statementscomputation of operating income will be calculated so thatbasic and diluted earnings per share:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Denominator: | | | | | |
| Denominator for basic earnings per share | 22,726,767 | | | 22,585,515 | | | 22,515,161 | |
| Effect of dilutive securities: | | | | | |
| Restricted stock units | 150,754 | | | 185,965 | | | 110,974 | |
| Unvested performance share units | 35,747 | | | 65,404 | | | — | |
| Deferred compensation programs | 35,364 | | | 40,859 | | | 48,047 | |
| Denominator for diluted earnings per share | 22,948,632 | | | 22,877,743 | | | 22,674,182 | |
Reclassifications and Adjustments
The Company recorded a $1.5 million out-of-period expense during the costfirst quarter of the lease is allocated over the lease term, generally on a straight-line basis. Certain provisions of ASU No. 2016-02 were later modified or clarified by the issuance of ASU 2018-11, “Leases (Topic 842): Targeted Improvements”, ASU 2018-10, “Codification Improvements to Topic 842, Leases”2021 in "Selling, general and ASU 2019-01, “Leases (Topic 842), Codification Improvements”. A modified retrospective transition approach is required by the ASU and its provisions must be applied to all leases existing at the date of initial application. An entity may choose to use either (1) the standard’s effective date or (2) the beginning of the earliest comparative period presentedadministrative expenses" for certain vendor hosted software licensing fees for contract costs incurred in the financial statements as its datefourth quarter of initial application. The new standards were effective for public companies for fiscal years beginning after December 15, 2018 and the Company adopted the new standards effective January 1, 2019 using the effective date as the date of initial application. Consequently, financial information and the disclosures required under the new standards have not been provided for periods prior to January 1, 2019. As allowed under the ASU's provisions, the Company made an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The adoption of these standards did not have a material impact on the Company’s financial position, results of operations or cash flows. See Note 8, Leases, for additional information regarding the Company’s adoption of these standards.2020.
In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued ASUAccounting Standards Update ("ASU") No. 2016-13, “Financial"Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”Instruments" including subsequent amendments issued thereafter (collectively "Topic 326"). The standard changes how credit losses are measured for most financial assets and certain other instruments that currently are not measured through net income (loss). The standard will requirerequires an expected loss model for instruments measured at amortized cost as opposed to the current incurred loss approach. In valuing available for sale debt securities, allowances will be required to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative adjustment to retained earnings iswas to be recorded as of the beginning of the period of adoption to reflect the impact of applying the provisions of the standard. Certain provisions of ASU No. 2016-13 were modified or amended by the issuance of ASU 2019-11, Codification Improvements to Topic 326, Financial Instruments – Credit Losses. The ASU makes several narrow–scope amendments to the new credit losses standard including an amendment requiring entities to include certain expected recoveries of the amortized cost basis of previously written off, or expected to be written off, in the allowance for credit losses for purchase credit deteriorated assets. The amendment also provides transition relief related to troubled debt restructurings, allow entities to exclude accrued interest amounts from certain required disclosures and clarify the requirements for applying the collateral maintenance expedient. The standards arewas effective for public companies for periods beginning after December 15, 2019, and the Company expects to adoptadopted the new standardsstandard as of January 1, 2020. As the Company’sCompany's credit losses are typically minimal, the Company does not expect the adoption of the new standards tostandard did not have a materialsignificant impact on the Company's financial position, results of operations or cash flows.flows and no cumulative adjustment to retained earnings was recorded.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging (Topic 815), Targeted Improvements to Hedging Activities”, to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The new guidance is effective for public companies for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted in any interim period after its issuance. The Company adopted the new standard effective January 1, 2019. The application of this standard did not have a material impact on the Company’s financial position, results of operations or cash flows.
In February 2018, the FASB issued ASU No. 2018-02, “Income2018-2, "Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”Income", which permits companies to reclassify tax effects stranded in accumulated other comprehensive income (“OCI”("OCI") as a result of U.S. tax reform impacting tax rates or other items, such as changing from a worldwide tax system to a territorial system, from OCI to retained earnings. Other tax effects stranded in OCI due to other reasons, such as prior changes in tax laws or changes in valuation allowances, may not be reclassified. The new standard was effective for fiscal years beginning after December 15, 2018, and the Company adopted its provisions as of January 1, 2019. As a result of adopting this new standard, the Company reclassified $721$0.7 million of previously stranded tax effects from accumulated"Accumulated other comprehensive lossloss" to retained earnings"Retained earnings" as shown onin the accompanying consolidated statementConsolidated Statements of equityEquity for the year ended December 31, 2019.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use-Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. This ASU is effective for fiscal years, and interim periods, beginning after December 15, 2019. The Company adopted the provisions of this standard as of January 1, 2020, and it has been applied prospectively for applicable implementation costs incurred subsequent to the effective date. The adoption of this new standard did not have a material impact on its financial position, results of operations, cash flows or disclosures.
In August 2018, the FASB issued ASU No. 2018-13, “Fair"Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement”Measurement" which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. The standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company has not yet adopted this new standard.standard effective January 1, 2020. The Company does not expect the adoption of this new standard todid not have a material impact on its financial position, results of operations, cash flows or cash flows.disclosures.
In December 2019, the FASBFinancial Accounting Standards Board issued ASUAccounting Standards Update 2019-12, “Income"Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”Taxes", which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The Company adopted this new standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with earlyJanuary 1, 2021. The adoption permitted in interim or annual periods ifof this standard had an immaterial impact on the Company has not yet issued financial statements. If the Company elects to early adopt the amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes the interim period and must adopt all amendments in the same period applying all guidance prospectively, except for certain amendments. The Company has not determined the impact of the statement’s provision on itsCompany's financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", which provides optional guidance for a limited period of time to ease the potential burden in accounting (or recognizing the effects of) reference rate reform on financial reporting. This was in response to stakeholders raising certain operational challenges likely to arise in accounting for contract modifications and hedge accounting because of reference rate reform. Some of those challenges relate to the significant volume of contracts and other arrangements, such as debt agreements, lease agreements and derivative instruments, which will be modified to replace references to discontinued rates with references to replacement rates. For accounting purposes, such contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. Stakeholders indicated that due to the significant volume of affected contracts and other arrangements, together with a compressed time frame for making contract modifications, the application of existing accounting standards on assessing modifications versus extinguishments could be costly and burdensome. In addition, stakeholders indicated that financial reporting results should reflect the intended continuation of such contracts and arrangements during the period of the market-wide transition to alternative reference rates. This new standard is optional and may be elected effective through December 31, 2022. The Company has limited contracts or other arrangements impacted by
the use of LIBOR. The most significant of these is the $150.0 million revolving credit facility discussed in Note 11, Debt, for which no amounts have been drawn in 2021 or 2020. As such, this standard, if adopted, is not expected to have a material impact on the Company's financial position or disclosures.
In November 2021, the FASB issued ASU 2021-10, "Government Assistance (Topic 832)", which aims to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance and the effect of the assistance on an entity’s financial statements. The new guidance requires expanded disclosure about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This new standard is effective for annual periods beginning after December 15, 2021. Availability of government assistance has typically been limited. The Company will continue to evaluate the impact on its disclosures based on government assistance received in future periods.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
3. Acquisitions
CON-E-CO Acquisition - The Company entered into a Stock Purchase Agreement, dated as of July 20, 2020, by and between Oshkosh Corporation for the purchase of the CON-E-CO concrete equipment company in Nebraska. The purchase price was $13.8 million, after adjustments, and was paid in cash. The Company's allocation of the purchase price, net of the adjustments in the first and second quarters of 2021 discussed below, resulted in the recognition of $4.3 million of intangible assets primarily consisting of customer relationships (eight year life) and trade name (three year life). Significant inputs and assumptions used in determining the fair values of these intangible assets include management's forecasts of future revenues, earnings and cash flows, a discount rate based on the median weighted average cost of capital of the Company and select market competitors, and proportion of intangible assets acquired in relation to tangible assets. The acquisition provides the Company with a broader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations have been consolidated from the date of acquisition.
In the first quarter of 2021, the Company recorded a $0.4 million adjustment related to a refined valuation of deferred tax liabilities, which was offset in intangible assets. In the second quarter of 2021, the Company recorded a $0.3 million adjustment related to right-of-use lease assets, which was offset in accounts payable and other.
The following table summarizes the final allocations of the total purchase price:
| | | | | | | | |
| (in millions) | | Amount |
| | |
| Accounts receivable | | $ | 2.3 | |
| Inventories | | 8.1 | |
| Other assets | | 6.3 | |
| Intangible assets | | 4.3 | |
| Total assets acquired | | $ | 21.0 | |
| Accounts payable and other | | (4.4) | |
| Advance customer deposits | | (2.8) | |
| Total liabilities assumed | | (7.2) | |
| Total purchase price | | $ | 13.8 | |
BMH Systems Acquisition - The Company entered into a Share Purchase Agreement, dated as of August 3, 2020, by and between BMH Systems Corporation ("St-Bruno") for the purchase of the concrete equipment company in Quebec, Canada. The purchase price was $15.6 million, after adjustments, and was paid in cash. The Company's allocation of the purchase price resulted in the recognition of $6.3 million of goodwill and $5.7 million of other intangible assets primarily consisting of customer relationships (nine year life) and of trade name (15 year life). Significant inputs and assumptions used in determining the fair values of these intangible assets include management's forecasts of future revenues, earnings and cash flows, a discount rate based on the median weighted average cost of capital of the Company and select market competitors, and proportion of intangible assets acquired in relation to tangible assets. The acquisition provides the Company with a broader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations have been consolidated from the date of acquisition. The goodwill is not deductible for income tax purposes.
In the first quarter of 2021, a working capital adjustment was made that resulted in the decrease of goodwill of $0.1 million.
The following table summarizes the final allocations of the total purchase price:
2.
| | | | | | | | |
| (in millions) | | Amount |
| Cash | | $ | 1.2 | |
| Accounts receivable and contract assets | | 6.4 | |
| Inventories | | 2.0 | |
| Goodwill | | 6.3 | |
| Other assets | | 3.8 | |
| Intangible assets | | 5.7 | |
| Total assets acquired | | $ | 25.4 | |
| Total liabilities assumed | | (9.8) | |
| Total purchase price | | $ | 15.6 | |
Proforma financial information is not included since not significant.
On November 2, 2020, the Company closed a transaction pursuant to which it purchased certain assets of Grathwol Automation, LLC ("Grathwol"). Grathwol is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services. Assets purchased primarily comprise technology assets. The total purchase price was $6.0 million, of which $1.8 million was deferred and will be recognized as expense and be paid out in two equal annual installments on the anniversary date of the acquisition.
4. Inventories
Inventories consist of the following:
| | December 31 | |
| | | 2019 | | | 2018 | |
| Raw materials and parts | | $ | 160,872 | | | $ | 173,919 | |
| Work-in-process | | | 61,287 | | | | 69,718 | |
| Finished goods | | | 53,650 | | | | 89,152 | |
| Used equipment | | | 18,727 | | | | 23,155 | |
| Total | | $ | 294,536 | | | $ | 355,944 | |
| | | | | | | | | | | | | | |
| | December 31, |
| (in millions) | | 2021 | | 2020 |
| Raw materials and parts | | $ | 216.1 | | | $ | 154.6 | |
| Work-in-process | | 54.0 | | | 57.3 | |
| Finished goods | | 29.6 | | | 34.0 | |
| Used equipment | | 3.3 | | | 3.8 | |
| Total | | $ | 303.0 | | | $ | 249.7 | |
3.During the year ended December 31, 2020, in conjunction with exiting the oil and gas drilling product lines, Enid's inventories were written down by $4.4 million, which was reported within "Cost of sales" in the Company's Consolidated Statements of Operations.
In the fourth quarter of 2019, through the Company’s assessment of the age, quantities on hand, market acceptance of the equipment, the Company’s exit of the Enid oil and gas drilling product lines and other related factors, it was determined that various specific equipment models at each of the Company’s sites and certain other inventories required adjustments to their net realizable values. As such, during the fourth quarter of 2019, the Company recorded an inventory write-down of $32.6 million within "Cost of sales" in the Consolidated Statements of Operations.
5. Fair Value Measurements
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance, andInsurance; marketable equity securities held in an unqualifieda non-qualified Supplemental Executive Retirement Plan (“SERP”("SERP") and a separate non-qualified Deferred Compensation Plan (collectively, the "Deferred Compensation Programs"). Although the Deferred Compensation Programs' investments are allocated to individual participants and investment decisions are made solely by those participants, they are non-qualified plans. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal. The financialDeferred Compensation Programs' assets heldand related offsetting liabilities are recorded in non-current "Investments" and "Other long-term liabilities", respectively, in the SERP also constitute a liability of the Company for financial reporting purposes.Consolidated Balance Sheets. The Company’sCompany's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.
The carrying amount of cash, and cash equivalents and restricted cash, trade receivables and contract assets, other receivables, and accounts payable, the carrying amountshort-term debt and long-term debt approximates thetheir fair value because of thetheir short-term nature of theseand/or interest rates associated with the instruments. Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market based inputs.
Financial assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
| | | | | | | | |
| Level 1 - | | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| | |
| Level 2 - | | Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability. |
| | |
| Level 3 - | | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
As indicated in the tables below, the Company has determined that all of its financial assets and liabilities atas of December 31, 20192021 and 20182020 are levelLevel 1 and levelLevel 2 in the fair value hierarchy:hierarchy as defined above:
| | December 31, 2019 | | | | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Total | | | December 31, 2021 |
| Financial Assets: | | | | | | | | | | |
| (in millions) | | (in millions) | | Level 1 | | Level 2 | | Total |
| Financial assets: | | Financial assets: | | | | | | |
| Trading equity securities: | | | | | | | | | | Trading equity securities: | |
| SERP money market fund | | $ | 208 | | | $ | – | | | $ | 208 | | |
| SERP mutual funds | | | 4,419 | | | | – | | | | 4,419 | | |
| | Deferred compensation programs mutual funds | | Deferred compensation programs mutual funds | | $ | 4.9 | | | $ | — | | | $ | 4.9 | |
| Preferred stocks | | | 282 | | | | – | | | | 282 | | Preferred stocks | | 0.3 | | | — | | | 0.3 | |
| Equity funds | | Equity funds | | 3.0 | | | — | | | 3.0 | |
| Trading debt securities: | | | | | | | | | | | | | Trading debt securities: | |
| Corporate bonds | | | 5,117 | | | | – | | | | 5,117 | | Corporate bonds | | 3.3 | | | — | | | 3.3 | |
| Municipal bonds | | | – | | | | 1,154 | | | | 1,154 | | Municipal bonds | | — | | | 0.2 | | | 0.2 | |
| Floating rate notes | | | 535 | | | | – | | | | 535 | | Floating rate notes | | 0.4 | | | — | | | 0.4 | |
| U.S. Government Securities | | | 2,035 | | | | – | | | | 2,035 | | |
| U.S. government securities | | U.S. government securities | | 1.1 | | | — | | | 1.1 | |
| Asset-backed securities | | | – | | | | 2,316 | | | | 2,316 | | Asset-backed securities | | — | | | 3.5 | | | 3.5 | |
| Other | | | 473 | | | | 1,112 | | | | 1,585 | | Other | | 3.1 | | | 1.0 | | | 4.1 | |
| Derivative financial instruments | | | – | | | | 4 | | | | 4 | | Derivative financial instruments | | — | | | 0.1 | | | 0.1 | |
| Total financial assets | | $ | 13,069 | | | $ | 4,586 | | | $ | 17,655 | | Total financial assets | | $ | 16.1 | | | $ | 4.8 | | | $ | 20.9 | |
| Financial Liabilities: | | | | | | | | | | | | | |
| Derivative financial instruments | | $ | – | | | $ | 49 | | | $ | 49 | | |
| SERP liabilities | | | – | | | | 6,645 | | | | 6,645 | | |
| Financial liabilities: | | Financial liabilities: | | | | | | |
| | Deferred compensation programs liabilities | | Deferred compensation programs liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
| Total financial liabilities | | $ | – | | | $ | 6,694 | | | $ | 6,694 | | Total financial liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| (in millions) | | Level 1 | | Level 2 | | Total |
| Financial assets: | | | | | | |
| Trading equity securities: | | | | | | |
| Deferred compensation programs money market fund | | $ | 0.2 | | | $ | — | | | $ | 0.2 | |
| Deferred compensation programs mutual funds | | 4.8 | | | — | | | 4.8 | |
| Preferred stocks | | 0.3 | | | — | | | 0.3 | |
| Equity funds | | 1.7 | | | — | | | 1.7 | |
| Trading debt securities: | | | | | | |
| Corporate bonds | | 4.8 | | | — | | | 4.8 | |
| Municipal bonds | | — | | | 0.9 | | | 0.9 | |
| Floating rate notes | | 0.4 | | | — | | | 0.4 | |
| U.S. government securities | | 1.8 | | | — | | | 1.8 | |
| Asset-backed securities | | — | | | 2.1 | | | 2.1 | |
| Other | | — | | | 1.0 | | | 1.0 | |
| Derivative financial instruments | | — | | | 0.1 | | | 0.1 | |
| Total financial assets | | $ | 14.0 | | | $ | 4.1 | | | $ | 18.1 | |
| Financial liabilities: | | | | | | |
| Derivative financial instruments | | $ | — | | | $ | 0.5 | | | $ | 0.5 | |
| Deferred compensation programs liabilities | | — | | | 7.3 | | | 7.3 | |
| Total financial liabilities | | $ | — | | | $ | 7.8 | | | $ | 7.8 | |
| | December 31, 2018 | |
| | | Level 1 | | | Level 2 | | | Total | |
| Financial Assets: | | | | | | | | | |
| Trading equity securities: | | | | | | | | | |
| SERP money market fund | | $ | 229 | | | $ | – | | | $ | 229 | |
| SERP mutual funds | | | 4,755 | | | | – | | | | 4,755 | |
| Preferred stocks | | | 248 | | | | – | | | | 248 | |
| Trading debt securities: | | | | | | | | | | | | |
| Corporate bonds | | | 5,398 | | | | – | | | | 5,398 | |
| Municipal bonds | | | – | | | | 1,546 | | | | 1,546 | |
| Floating rate notes | | | 1,300 | | | | – | | | | 1,300 | |
| U.S. Government Securities | | | 2,210 | | | | – | | | | 2,210 | |
| Asset-backed securities | | | – | | | | 442 | | | | 442 | |
| Other | | | – | | | | 708 | | | | 708 | |
| Derivative financial instruments | | | – | | | | 333 | | | | 333 | |
| Total financial assets | | $ | 14,140 | | | $ | 3,029 | | | $ | 17,169 | |
| Financial Liabilities: | | | | | | | | | | | | |
| SERP liabilities | | $ | – | | | $ | 6,641 | | | $ | 6,641 | |
| Total financial liabilities | | $ | – | | | $ | 6,641 | | | $ | 6,641 | |
6. Investments
The Company reevaluates the volume of trading activity for each of its investments at the end of each reporting period and adjusts the level within the fair value hierarchy as needed.
4. Investments
The Company’sCompany's trading securities consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (Net Carrying Amount) |
| December 31, 2021 | | | | | | | | |
| Trading equity securities | | $ | 7.8 | | | $ | 0.4 | | | $ | — | | | $ | 8.2 | |
| Trading debt securities | | 12.6 | | | 0.1 | | | 0.1 | | | 12.6 | |
| Total | | $ | 20.4 | | | $ | 0.5 | | | $ | 0.1 | | | $ | 20.8 | |
| December 31, 2020 | | | | | | | | |
| Trading equity securities | | $ | 6.4 | | | $ | 0.6 | | | $ | — | | | $ | 7.0 | |
| Trading debt securities | | 10.8 | | | 0.3 | | | 0.1 | | | 11.0 | |
| Total | | $ | 17.2 | | | $ | 0.9 | | | $ | 0.1 | | | $ | 18.0 | |
| | Amortized Cost | | | Gross Unrealized Gains | | | Gross Unrealized Losses | | | Fair Value (Net Carrying Amount) | |
| December 31, 2019 | | | | | | | | | | | | |
| Trading equity securities | | $ | 4,722 | | | $ | 273 | | | $ | 86 | | | $ | 4,909 | |
| Trading debt securities | | | 12,681 | | | | 115 | | | | 54 | | | | 12,742 | |
| Total | | $ | 17,403 | | | $ | 388 | | | $ | 140 | | | $ | 17,651 | |
| December 31, 2018 | | | | | | | | | | | | | | | | |
| Trading equity securities | | $ | 5,546 | | | $ | 50 | | | $ | 364 | | | $ | 5,232 | |
| Trading debt securities | | | 11,817 | | | | 55 | | | | 268 | | | | 11,604 | |
| Total | | $ | 17,363 | | | $ | 105 | | | $ | 632 | | | $ | 16,836 | |
Trading equity investments are valued at their estimated fair value based on their quoted market prices, and trading debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third-party pricing service. Additionally, a significant portion of the trading equity securities are in equity money market and mutual funds and also comprise a portion of the Company’sCompany's liability under its SERP.deferred compensation programs. See Note 12, Pension and Retirement14, Employee Benefit Plans, for additional information on these investments and the SERP.deferred compensation programs.
Trading debt securities are comprised mainly of marketable debt securities held by Astec Insurance. Astec Insurance has an investment strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities.
5.7. Goodwill
Goodwill representsThe Company tests goodwill for impairment annually in the excess of the purchase price overfourth quarter, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of identifiable net assets acquireda reporting unit below its carrying value. Management performed a qualitative assessment for the October 1, 2021 annual impairment analysis, which indicated no impairment. This review included the Company's evaluation of relevant events and circumstances in totality that affect the fair value of the
reporting units. These events and circumstances include, but are not limited to, macroeconomic conditions (including the impact of the COVID-19 pandemic), industry and competitive environment conditions, overall financial performance, business combinations. Current U.S. accounting guidance providesspecific events and market considerations. The majority of the Company's goodwill were generated on a legacy basis and as a result have fair values that sufficiently exceed their underlying carrying values.
For the annual test of goodwill and indefinite-lived intangible assets be tested for impairment at least annually. The Company performs the required valuation procedures each yearperformed as of October 31, after2020, management performed a qualitative assessment as described above and concluded that there was no impairment of goodwill. Management performed a quantitative valuation for the following year’s forecasts are submittedOctober 31, 2019 annual impairment analysis, which indicated no impairment.
The Company completed the acquisitions of CON-E-CO and reviewed.BMH Systems during the year ended December 31, 2020, which increased goodwill $6.3 million.
Goodwill impairment is the excess2020, as part of the carrying amountCompany's ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit (that includes goodwill)below its carrying value, the Company performed an interim goodwill impairment test as of March 31, 2020 over its fair value. Impairment is limited to the carrying amount of goodwill allocated to themobile asphalt equipment reporting unit. TheBased on the results of this testing, the Company estimated the fair value of its reporting units as of October 31, 2019 based uponrecorded a combination of discounted cash flows and market approaches. Weighted average cost of capital used$1.6 million pre-tax non-cash impairment charge in the discounted cash flow calculations was 13% and terminal growth rate of 2% was assumed. The sum ofInfrastructure Solutions segment to fully impair the mobile asphalt equipment reporting units valuations determined by the Company was reconciled to the Company’s overall market capitalization. The valuations performedunit’s goodwill in the fourthfirst quarter of 2019 indicated 0 impairment. The valuations performed in 20182020. This impairment charge was reflected as a component of "Restructuring, impairment and 2017 indicated $11,190 impairment inother asset charges, net" for the Energy Group in 2018 and 0 impairment of goodwill in 2017. In addition, as part of a business unit restructuring, additional goodwill of $955 was written off in 2018.year ended December 31, 2020.
The changes in the carrying amount of goodwill and accumulated impairment losses by reporting segment during the years ended December 31, 20192021 and 20182020 are as follows:
| | Infrastructure Group | | | Aggregate and Mining Group | | | Energy Group | | | Total | |
| Balance, December 31, 2017: | | | | | | | | | | | | |
| Goodwill | | $ | 10,883 | | | $ | 33,235 | | | $ | 22,857 | | | $ | 66,975 | |
| Accumulated impairment | | | (2,310 | ) | | | (12,196 | ) | | | (6,737 | ) | | | (21,243 | ) |
| Net | | | 8,573 | | | | 21,039 | | | | 16,120 | | | | 45,732 | |
| 2018 Activity: | | | | | | | | | | | | | | | | |
| Restructuring write off | | | (955 | ) | | | – | | | | – | | | | (955 | ) |
| Foreign currency translation | | | (49 | ) | | | (790 | ) | | | – | | | | (839 | ) |
| Impairment | | | – | | | | – | | | | (11,190 | ) | | | (11,190 | ) |
| Total 2018 activity | | | (1,004 | ) | | | (790 | ) | | | (11,190 | ) | | | (12,984 | ) |
| Balance, December 31, 2018: | | | | | | | | | | | | | | | | |
| Goodwill | | | 9,879 | | | | 32,445 | | | | 22,857 | | | | 65,181 | |
| Accumulated impairment losses | | | (2,310 | ) | | | (12,196 | ) | | | (17,927 | ) | | | (32,433 | ) |
| Net | | | 7,569 | | | | 20,249 | | | | 4,930 | | | | 32,748 | |
| 2019 Activity: | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | – | | | | 428 | | | | – | | | | 428 | |
| Total 2019 activity | | | – | | | | 428 | | | | – | | | | 428 | |
| Balance, December 31, 2019: | | | | | | | | | | | | | | | | |
| Goodwill | | | 9,879 | | | | 32,873 | | | | 22,857 | | | | 65,609 | |
| Accumulated impairment | | | (2,310 | ) | | | (12,196 | ) | | | (17,927 | ) | | | (32,433 | ) |
| Net | | $ | 7,569 | | | $ | 20,677 | | | $ | 4,930 | | | $ | 33,176 | |
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Total |
| Balance, December 31, 2019: | | | | | | |
| Goodwill | | $ | 32.7 | | | $ | 32.8 | | | $ | 65.5 | |
| Accumulated impairment losses | | (20.2) | | | (12.2) | | | (32.4) | |
| Net | | $ | 12.5 | | | $ | 20.6 | | | $ | 33.1 | |
| 2020 Activity: | | | | | | |
| Foreign currency translation | | $ | 0.3 | | | $ | 0.5 | | | $ | 0.8 | |
| Acquisitions | | 6.4 | | | — | | | 6.4 | |
| Impairment | | (1.6) | | | — | | | (1.6) | |
| Total 2020 activity | | $ | 5.1 | | | $ | 0.5 | | | $ | 5.6 | |
| Balance, December 31, 2020: | | | | | | |
| Goodwill | | $ | 39.4 | | | $ | 33.3 | | | $ | 72.7 | |
| Accumulated impairment | | (21.8) | | | (12.2) | | | (34.0) | |
| Net | | $ | 17.6 | | | $ | 21.1 | | | $ | 38.7 | |
| 2021 Activity: | | | | | | |
| Foreign currency translation | | $ | 0.1 | | | $ | (0.1) | | | $ | — | |
| Acquisitions | | (0.1) | | | — | | | (0.1) | |
| | | | | | |
| Total 2021 activity | | $ | — | | | $ | (0.1) | | | $ | (0.1) | |
| Balance, December 31, 2021: | | | | | | |
| Goodwill | | $ | 39.4 | | | $ | 33.2 | | | $ | 72.6 | |
| Accumulated impairment | | (21.8) | | | (12.2) | | | (34.0) | |
| Net | | $ | 17.6 | | | $ | 21.0 | | | $ | 38.6 | |
8. Intangible Assets
Intangible assets consisted of the following at December 31, 20192021 and 2018:2020:
| | 2019 | | | 2018 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | Gross Carrying Value | | | Accumulated Amortization | | | Net Carrying Value | | | 2021 | | 2020 |
| (in millions) | | (in millions) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| Dealer network and customer relationships | | $ | 31,086 | | | $ | 17,656 | | | $ | 13,430 | | | $ | 30,909 | | | $ | 14,472 | | | $ | 16,437 | | Dealer network and customer relationships | | $ | 37.1 | | | $ | 22.9 | | | $ | 14.2 | | | $ | 39.2 | | | $ | 20.9 | | | $ | 18.3 | |
| Trade names | | | 9,593 | | | | 3,170 | | | | 6,423 | | | | 9,536 | | | | 2,509 | | | | 7,027 | | Trade names | | 10.2 | | | 7.8 | | | 2.4 | | | 10.8 | | | 4.8 | | | 6.0 | |
| Other | | | 8,737 | | | | 5,054 | | | | 3,683 | | | | 6,618 | | | | 4,712 | | | | 1,906 | | Other | | 13.5 | | | 7.4 | | | 6.1 | | | 12.5 | | | 5.6 | | | 6.9 | |
| Total | | $ | 49,416 | | | $ | 25,880 | | | $ | 23,536 | | | $ | 47,063 | | | $ | 21,693 | | | $ | 25,370 | | Total | | $ | 60.8 | | | $ | 38.1 | | | $ | 22.7 | | | $ | 62.5 | | | $ | 31.3 | | | $ | 31.2 | |
Amortization expense on intangible assets was $4,409, $5,125$10.1 million, $6.1 million and $4,064$4.4 million for 2021, 2020 and 2019, 2018 and 2017, respectively. Intangible asset
Future annual expected amortization expense is expected to be $4,057, $3,666, $3,204, $2,626 and $1,910 in the years endingon intangible assets as of December 31, 2020, 2021 2022, 2023 and 2024, respectively, and $8,073 thereafter.
are as follows (in millions):
A-45
| | | | | | | | |
| 2022 | | $ | 8.1 | |
| 2023 | | 4.3 | |
| 2024 | | 3.5 | |
| 2025 | | 1.8 | |
| 2026 | | 1.3 | |
| 2027 and thereafter | | 3.7 | |
7.9. Property and Equipment
Property and equipment at cost, less accumulated depreciation, is as follows:
| | December 31 | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 |
| Land | | $ | 15,198 | | | $ | 15,774 | | Land | | $ | 13.9 | | | $ | 15.6 | |
| Building and land improvements | | | 151,628 | | | | 145,913 | | Building and land improvements | | 154.3 | | | 148.3 | |
| Construction in progress | | | 10,167 | | | | 10,410 | | Construction in progress | | 7.6 | | | 3.1 | |
| Manufacturing and office equipment | | | 266,650 | | | | 260,420 | | Manufacturing and office equipment | | 239.2 | | | 238.7 | |
| Aviation equipment | | | 14,439 | | | | 14,424 | | Aviation equipment | | 4.7 | | | 4.7 | |
| Less accumulated depreciation | | | (267,719 | ) | | | (254,493 | ) | Less accumulated depreciation | | (248.0) | | | (237.6) | |
| Total | | $ | 190,363 | | | $ | 192,448 | | Total | | $ | 171.7 | | | $ | 172.8 | |
Depreciation expense was $21,436, $22,411$20.1 million, $20.8 million and $21,312$21.4 million for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively.
8.10. Leases
The Company leases certain real estate, computer systems, material handling equipment, offices, automobilesrecords its operating lease ROU assets in "Other long-term assets" and other equipment. The Company determines if a contract is aits operating lease (or contains an embedded lease) at the inceptionliabilities in "Other current liabilities" and "Other long-term liabilities". As of the agreement. The Company adopted ASU No. 2016-02, Leases, on January 1, 2019 using the effective date method. Upon adoption, right-of-use (“ROU”) assets totaling $4,993 were recorded on the Company’s balance sheet. Incremental borrowing rates used in the calculation of the ROU asset, when not apparent in the lease agreements, were estimated based upon secured borrowing rates quoted by the Company’s banks for loans of various lengths ranging from one to 20 years. Operating leases with original maturities less than one year in duration were excluded. The calculation of the ROU asset considered lease agreement provisions concerning termination, extensions, end of lease purchase and whether or not those provisions were reasonably certain of being exercised. Certain agreements contain lease and non-lease components, which are accounted for separately. The financial results for periods prior to January 1, 2019 are unchanged from results previously reported. No cumulative effect adjustment was necessary at the time of adoption. Based upon a contract review and related calculations,December 31, 2021, none of the Company’sCompany's leases were deemed to be financingfinance leases. Lease expense recorded in the twelve-month period ended December 31, 2019 under ASC 842 was not materially different from lease expense that would have been recorded under the previous lease accounting standard. Other transitional practical expedients allowed under ASU No. 2016-02 were adopted.
OtherAdditional information concerningrelated to the Company’s operating leases accounted for under ASC 842 guidelines andis reflected in the related expense, assets and liabilities follows:tables below:
| | Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | |
| | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 | | 2019 |
| Operating lease expense | | $ | 2,629 | | Operating lease expense | | $ | 2.3 | | | $ | 2.6 | | | $ | 2.6 | |
| Short-term lease expense | | Short-term lease expense | | 1.5 | | | 1.0 | | | 1.3 | |
| Cash paid for operating leases included in operating cash flows | | | 2,727 | | Cash paid for operating leases included in operating cash flows | | 2.5 | | | 2.7 | | | 2.7 | |
| | As of December 31, 2019 | |
| Operating lease right-of-use asset | | $ | 3,853 | |
| Operating lease short-term liability included in other current liabilities | | | 1,846 | |
| Operating lease long-term liability included in other long-term liabilities | | | 2,020 | |
| Weighted average remaining lease term (in years) | | | 4.66 | |
| Weighted average discount rate used in calculating right-of-use asset | | | 3.56 | % |
| | | | | | | | | | | | | | |
| | December 31, |
| (in millions) | | 2021 | | 2020 |
| Operating lease right-of-use asset | | $ | 5.8 | | | $ | 6.6 | |
| Operating lease short-term liability | | 1.6 | | | 1.9 | |
| Operating lease long-term liability | | 4.2 | | | 4.7 | |
| Weighted average remaining lease term (in years) | | 6.15 | | 6.55 |
| Weighted average discount rate used in calculating right-of-use asset | | 3.49 | % | | 3.66 | % |
Future annual minimum lease payments as of December 31, 20192021 are as follows:follows (in millions):
| 2020 | | $ | 1,960 | |
| 2021 | | | 717 | |
| 2022 | | | 418 | |
| 2023 | | | 252 | |
| 2024 | | | 146 | |
| 2025 and thereafter | | | 776 | |
| Total | | | 4,269 | |
| Less interest | | | (403 | ) |
| Present value of lease liabilities | | $ | 3,866 | |
Operating lease expense under prior guidance for 2018 and 2017 was $3,618 and $3,211, respectively. | | | | | |
| 2022 | $ | 1.8 |
| 2023 | 1.1 |
| 2024 | 0.8 |
| 2025 | 0.5 |
| 2026 | 0.5 |
| 2027 and thereafter | 1.8 |
| Total lease payments | $ | 6.5 |
| Less: Interest | (0.7) |
| Operating lease liabilities | $ | 5.8 |
The Company adopted ASU No. 2016-02 on January 1, 2019 as noted above. As required by the ASU, the following table discloses the minimum rental commitments for all non-cancelable operating leases at December 31, 2018 as reported in the Company’s 2018 Form10-K under previous ASC 840 guidance:
| 2019 | | $ | 1,992 | |
| 2020 | | | 1,100 | |
| 2021 | | | 388 | |
| 2022 | | | 144 | |
| 2023 | | | 66 | |
| 2024 and thereafter | | | 12 | |
| Total | | $ | 3,702 | |
9.11. Debt
In February 2019, the Company and certain of its subsidiaries entered into anamended the 2012 amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Credit Facility") whereby the lender extended toincreased the Company anCompany's unsecured line of credit of up to $150,000,$150.0 million, including a sub-limit for letters of credit of up to $30,000,$30.0 million, and extended the maturity date to December 29, 2023. Other significant terms were left unchanged. There were 0 borrowings outstanding under the agreement as of December 31,2019. Outstanding borrowings under the agreement were $58,778 as of December 31,2018, which are included in long-term debt in the accompanying consolidated balance sheets. The highest borrowing amount outstanding at any time during the twelve months period ended December 31,2019 was $81,776. Letters of credit totaling $8,335, including $3,200 of letters of credit issued to banks in Brazil to secure the local debt of Astec do Brasil Fabricacao de Equipamentos Ltda. (“Astec Brazil”), were outstanding under the credit facility as of December 31,2019. Additional borrowing available under the credit facility was $141,665 as of December 31,2019. Borrowings under the agreement are subject to an interest rate equal to the daily one-month LIBOR rate plus a 0.75% margin, resulting in a rate of 2.52% as of December 31,2019. margin. The unused facility fee is 0.125%. Interest only payments are due monthly. The amended and restated credit agreementCredit Facility contains certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth.
The Company’s South AfricanCompany's Brazilian subsidiary Osborn Engineered Products SA (Pty) Ltd (“Osborn”), hasmaintains a credit facility of $6,760separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility.
Certain of the Company's international subsidiaries in South African bankAfrica, Australia, Brazil and the United Kingdom each have separate credit facilities with local financial institutions to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. As of December 31,2019The Brazilian subsidiary maintains an independent credit facility at a separate financial institution and 2018, Osborn had 0also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings but had $1,076 in performance, advance payment and retention guarantees outstanding under the facility at December 31,2019. The facility has beencredit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in the Company's Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% and/or secured with certain assets of the facility is utilized. As of December 31,2019, Osborn had available credit under the facility of $5,684. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 9.75% as of December 31,2019.local subsidiary.
| | | | | | | | | | | | | | |
| (in millions, except maturity dates and interest rates) | | December 31, 2021 | | December 31, 2020 |
| | | | |
| Credit Facility | | | | |
| Unsecured line of credit - maximum | | $ | 150.0 | | | $ | 150.0 | |
| Letters of credit - maximum | | 30.0 | | | 30.0 | |
| Borrowings outstanding | | — | | | — | |
| Amount of letters of credit outstanding | | 2.5 | | | 7.6 | |
| Line of credit, additional borrowing capacity | | 147.5 | | | 142.4 | |
| | | | |
| Term Loan | | | | |
| Current maturities | | $ | 0.1 | | | $ | 0.2 | |
| Long-term maturities | | 0.2 | | | 0.4 | |
| Interest rate | | 10.37 | % | | 10.37 | % |
| Maturity date | | April 15, 2024 | | April 15, 2024 |
| | | | |
| International Credit Facilities and Short-Term Debt | | | | |
| Total credit line | | $ | 12.3 | | | $ | 12.8 | |
| Available credit line | | 9.7 | | | 11.4 | |
| Letters of credit - maximum | | 6.6 | | | 7.3 | |
| Amount of letters of credit outstanding | | 1.6 | | | 2.6 | |
| Short-term debt | | 2.6 | | | 1.4 | |
| Interest rate range | | 1.77% - 6.75% | | 2.40% - 6.75% |
The
Debt maturities for the Company's Brazilian subsidiary, Astec Brazil, has an $897 working capital loan outstanding as of December 31,2019 from a Brazilian bank with an interest rate of 10.4%. The loan’s final monthly payment is due in April 2024. As of December 31,2018, Astec Brazil had outstanding working capital loans totaling $1,207 from Brazilian banks with interest rates ranging from 10.4% to 11.0% and maturity dates ranging from January 2019 to April 2024. The debt is secured by Astec Brazil’s manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has 2five-year equipment financing loans outstanding with Brazilian banks in the aggregate of $2 as of December 31,2019 that have interest rates of 9.5% to 16.3%. Each equipment loan has a maturity date in April 2020. As of December 31,2018, Astec Brazil had various five-year equipment financing loans outstanding with Brazilian banks in the aggregate of $137. Astec Brazil’s loans are including in the accompanying consolidated balance sheets as current maturities of long-term debt of $209short-term and long-term debt of $690 as of December 31,2019. Additionally, Astec Brazil borrowed an additional $1,130 during 2019 under order anticipation agreements with a local bank with maturities date through September 2020, which are included as short-term debt in the accompanying consolidated balance sheet as of December 31, 2019.
Long-term debt maturities are expected to be $209,$414,$207$2.7 million, $0.1 million and $69$0.1 million in the years ending December 31,2020,2021,2022, 2023 and 2023,2024, respectively.
respectively.
10.12. Product Warranty Reserves
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by product but generally range from three months to two years or up to a specified number of hours of operation. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warranty liability is primarily based on historical claim rates, nature of claims and the associated costs.
Changes in the Company’sCompany's product warranty liability during 2019, 20182021, 2020 and 20172019 are as follows:
| | 2019 | | | 2018 | | | 2017 | |
| Reserve balance, beginning of year | | $ | 10,928 | | | $ | 15,410 | | | $ | 13,156 | |
| Warranty liabilities accrued | | | 9,762 | | | | 13,219 | | | | 16,725 | |
| Warranty liabilities settled | | | (10,473 | ) | | | (17,539 | ) | | | (14,642 | ) |
| Other | | | 44 | | | | (162 | ) | | | 171 | |
| Reserve balance, end of year | | $ | 10,261 | | | $ | 10,928 | | | $ | 15,410 | |
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Reserve balance, January 1 | | $ | 10.3 | | | $ | 10.3 | | | $ | 10.9 | |
| Warranty liabilities accrued | | 10.9 | | | 9.8 | | | 9.8 | |
| Warranty liabilities settled | | (10.7) | | | (10.2) | | | (10.5) | |
| Other | | — | | | 0.4 | | | 0.1 | |
| Reserve balance, December 31 | | $ | 10.5 | | | $ | 10.3 | | | $ | 10.3 | |
11.
13. Accrued Loss Reserves
The Company accrues reserves for losses related to known workers’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’sCompany's evaluation of the type and severity of individual claims and historical information, primarily its own claimclaims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. Total accrued loss reserves were $5.8 million and $7.2 million at December 31, 20192021 and 2020, respectively, of which $3.9 million and $4.2 million were $6,817 and $7,889included in "Other long-term liabilities" in the Consolidated Balance Sheets at December 31, 2018,2021 and 2020, respectively.
12. Pension and Retirement14. Employee Benefit Plans
Pension Plan
Prior to December 31, 2003, all employees of the Company’sCompany's Kolberg-Pioneer, Inc. subsidiary, which is included in the Company's Materials Solutions reportable segment, were covered by a defined benefit pension plan.plan (the "Pension Plan"). After December 31, 2003, all benefit accruals under the plan ceased and no new employees could become participants in the plan. Benefits paid under this plan arewere based on years of service multiplied by a monthly amount. The Company’sCompany's funding policy for the plan iswas to make at least the minimum annual contributions required by applicable regulations.
The Company’sCompany's investment strategy for the plan iswas to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The investment policy statesstated that the Plan Committee in its sole discretion shall determine the allocation of plan assets among the following four asset classes: cash equivalents, fixed-income securities, domestic equities and international equities. The Plan Committee attemptsattempted to ensure adequate diversification of the invested assets through investment in an exchange traded mutual fund that invests in a diversified portfolio of stocks, bonds and money market securities.
A-48
In October 2021, the Company settled its obligations under the Pension Plan by providing $5.5 million in lump sum payments to eligible participants who elected to receive them and through the purchase of annuity contracts from a highly rated insurance company for $12.2 million. The settlement of the plan resulted in excess plan assets of approximately $1.5 million, which is subject to a 50% excise tax. A charge of $5.2 million, including excise tax, was recognized in the fourth quarter of 2021 in "Other (expenses) income, net" in the Consolidated Statements of Operations.
The following provides information regarding benefit obligations, plan assets and the funded status of the plan:
| | Pension Benefits | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | Pension Benefits |
| (in millions) | | (in millions) | | 2021 | | 2020 |
| Change in benefit obligation: | | | | | | | Change in benefit obligation: | | | | |
| Benefit obligation, beginning of year | | $ | 15,741 | | | $ | 16,916 | | Benefit obligation, beginning of year | | $ | 18.4 | | | $ | 17.1 | |
| Interest cost | | | 628 | | | | 578 | | Interest cost | | 0.4 | | | 0.5 | |
| Actuarial (gain)/loss | | | 1,577 | | | | (1,021 | ) | |
| Actuarial (gain) loss | | Actuarial (gain) loss | | (0.3) | | | 1.6 | |
| Benefits paid | | | (789 | ) | | | (732 | ) | Benefits paid | | (0.8) | | | (0.8) | |
| Pension settlement | | Pension settlement | | (17.7) | | | — | |
| Benefit obligation, end of year | | | 17,157 | | | | 15,741 | | Benefit obligation, end of year | | — | | | 18.4 | |
| Accumulated benefit obligation | | | 17,157 | | | | 15,741 | | Accumulated benefit obligation | | — | | | 18.4 | |
| | Change in plan assets: | | | | | | | | | Change in plan assets: | |
| Fair value of plan assets, beginning of year | | | 14,452 | | | | 14,717 | | Fair value of plan assets, beginning of year | | 19.4 | | | 18.0 | |
| Actual gain/(loss) on plan assets | | | 2,729 | | | | (909 | ) | |
| Employer contribution | | | 1,613 | | | | 1,376 | | |
| Actual gain on plan assets | | Actual gain on plan assets | | 0.6 | | | 2.2 | |
| Excess plan assets returned | | Excess plan assets returned | | (1.5) | | | — | |
| Benefits paid | | | (789 | ) | | | (732 | ) | Benefits paid | | (0.8) | | | (0.8) | |
| Pension settlement | | Pension settlement | | (17.7) | | | — | |
| Fair value of plan assets, end of year | | | 18,005 | | | | 14,452 | | Fair value of plan assets, end of year | | — | | | 19.4 | |
| Funded status, end of year | | $ | 848 | | | $ | (1,289 | ) | Funded status, end of year | | $ | — | | | $ | 1.0 | |
| | Amounts recognized in the consolidated balance sheets: | | Amounts recognized in the consolidated balance sheets: | |
| Long-term asset | | Long-term asset | | $ | — | | | $ | 1.0 | |
| Net amount recognized | | Net amount recognized | | $ | — | | | $ | 1.0 | |
| | Amounts recognized in accumulated other comprehensive loss consist of: | | Amounts recognized in accumulated other comprehensive loss consist of: | |
| Net loss | | Net loss | | $ | — | | | $ | 4.9 | |
| Net amount recognized | | Net amount recognized | | $ | — | | | $ | 4.9 | |
| | Weighted average assumptions used to determine the benefit obligation: | | Weighted average assumptions used to determine the benefit obligation: | |
| Discount rate | | Discount rate | | N/A | | 2.30 | % |
| Rate of compensation increase | | Rate of compensation increase | | N/A | | N/A |
| Amounts recognized in the consolidated balance sheets: | | | | | | |
| Noncurrent asset / (liability) | | $ | 848 | | | $ | (1,289 | ) |
| Net amount recognized | | $ | 848 | | | $ | (1,289 | ) |
| Amounts recognized in accumulated other comprehensive loss consist of: | | | | | | |
| Net loss | | $ | 4,860 | | | $ | 5,687 | |
| Net amount recognized | | $ | 4,860 | | | $ | 5,687 | |
| Weighted average assumptions used to determine benefit obligations as of December 31: | | | | | | |
| Discount rate | | | 3.10 | % | | | 4.10 | % |
| Expected return on plan assets | | | 6.00 | % | | | 6.00 | % |
| Rate of compensation increase | | | N/A | | | | N/A | |
The measurement date used for the plan was December 31. In determining the expected return on plan assets, the historical experienceprimary driver of the plan assets,actuarial loss in the current and expected allocationCompany's Pension Plan in 2020 within the change in benefit obligation is a result of a decrease in the plan assets and the expected long-term ratesdiscount rate assumption.
All assets in the plan arewere invested in an exchange-traded mutual fund (level(Level 1 in the fair value hierarchy). at December 31, 2020 and through the date of settlement. The allocation of assets within the mutual fund as of December 31, 2020 and the target asset allocation ranges by asset category arewere as follows:
| | Actual Allocation | | |
| Asset Category | | 2019 | | 2018 | | 2019 & 2018 Target Allocation Ranges |
| Equity securities | | 45.9% | | 46.9% | | 40 - 65% |
| Debt securities | | 42.2% | | 46.2% | | 30 - 50% |
| Cash and equivalents | | 11.9% | | 6.9% | | 0 - 15% |
| Total | | 100.0% | | 100.0% | | |
| | | | | | | | | | | | | | |
| Asset Category | | Actual Allocation | | Target Allocation Ranges |
| Equity Securities | | 48.4 | % | | 40% - 65% |
| Debt Securities | | 41.0 | % | | 30% - 50% |
| Cash and Cash Equivalents | | 10.6 | % | | 0% - 15% |
| Total | | 100.0 | % | | |
Net periodic benefit cost for 2019, 20182021, 2020 and 20172019 included the following components:
| | Pension Benefits | |
| | | 2019 | | | 2018 | | | 2017 | |
| Components of net periodic benefit cost: | | | | | | | | | |
| Interest cost | | $ | 628 | | | $ | 578 | | | $ | 630 | |
| Expected return on plan assets | | | (844 | ) | | | (802 | ) | | | (720 | ) |
| Amortization of actuarial loss | | | 520 | | | | 465 | | | | 530 | |
| Net periodic benefit cost | | | 304 | | | | 241 | | | | 440 | |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | | | | | | | |
| Net actuarial (gain) loss for the year | | | (308 | ) | | | 690 | | | | (159 | ) |
| Amortization of net loss | | | (520 | ) | | | (465 | ) | | | (530 | ) |
| Total recognized in other comprehensive income (loss) | | | (828 | ) | | | 225 | | | | (689 | ) |
| Total recognized in net periodic benefit cost and other comprehensive income (loss) | | $ | (524 | ) | | $ | 466 | | | $ | (249 | ) |
| Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | | | | | | | |
| Discount rate | | | 4.10 | % | | | 3.50 | % | | | 4.00 | % |
| Expected return on plan assets | | | 6.00 | % | | | 6.25 | % | | | 6.25 | % |
NaN contributions are | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Components of net periodic benefit cost (income): | | | | | | |
| Interest cost | | $ | 0.4 | | | $ | 0.5 | | | $ | 0.6 | |
| Expected return on plan assets | | (1.0) | | | (1.0) | | | (0.8) | |
| Amortization of actuarial loss | | 0.4 | | | 0.4 | | | 0.5 | |
| Pension settlement | | 4.5 | | | — | | | — | |
| Net periodic benefit cost (income) | | $ | 4.3 | | | $ | (0.1) | | | $ | 0.3 | |
| Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): | | | | | | |
| Net actuarial loss (gain) for the year | | $ | — | | | $ | 0.4 | | | $ | (0.3) | |
| Amortization of net loss | | (0.4) | | | (0.4) | | | (0.5) | |
| Pension settlement | | (4.5) | | | — | | | — | |
| Total recognized in other comprehensive income (loss) | | (4.9) | | | — | | | (0.8) | |
| Total recognized in net periodic benefit cost and other comprehensive income (loss) | | $ | (0.6) | | | $ | (0.1) | | | $ | (0.5) | |
| Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | |
| Discount rate | | N/A | | 3.10 | % | | 4.10 | % |
| Expected return on plan assets | | N/A | | 6.00 | % | | 6.00 | % |
| Rate of compensation increase | | N/A | | N/A | | N/A |
To develop the expected to be funded bylong-term rate of return on assets assumptions, the Company during 2020. Amountsconsidered the historical returns and future expectations for returns in accumulated other comprehensive loss expected to be recognized in net periodic benefit cost in 2020 foreach asset class, as well as targeted asset allocation percentages within the amortization of a net loss is $403.asset portfolios.
The following estimated future benefit payments are expected in the years indicated:Deferred Compensation Programs
| | Pension Benefits | |
| 2020 | | $ | 870 | |
| 2021 | | | 910 | |
| 2022 | | | 910 | |
| 2023 | | | 930 | |
| 2024 | | | 960 | |
| 2025 - 2029 | | | 4,860 | |
The Company sponsors a 401(k) defined contribution plan to provide eligible employees with additional income upon retirement. The Company’s contributions to the plan are based on employee contributions. The Company’s contributions totaled $6,977, $7,451 and $7,182 in 2019, 2018 and 2017, respectively.Supplemental Executive Retirement Plan
The Company maintains a SERP for certain of its executive officers. The plan is a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which the Company makes quarterly cash contributions of a certain percentage of executive officers’officers' compensation. Investments are self-directed by participants and can include Company stock. Upon retirement, participants receive their apportioned share of the plan assets in the form of cash.
Deferred Compensation Plan
The Company implemented a Deferred Compensation Plan for certain of its executive officers during 2021. The plan is a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which eligible employees can defer the receipt of base and bonus compensation to a future date. Investments are self-directed by participants and can include Company stock. Upon distribution, participants receive their apportioned share of the plan assets in the form of cash.
Assets of the SERPDeferred Compensation Programs consist of the following:
| | December 31, 2019 | | | December 31, 2018 | | | | | | | | | | | | | | | | | | | | | | | |
| | | Cost | | | Market | | | Cost | | | Market | | | December 31, 2021 | | December 31, 2020 |
| (in millions) | | (in millions) | | Cost | | Market | | Cost | | Market |
| Money market fund | | Money market fund | | $ | 0.1 | | | $ | 0.1 | | | $ | — | | | $ | — | |
| Company stock | | $ | 1,714 | | | $ | 2,018 | | | $ | 1,886 | | | $ | 1,658 | | Company stock | | 1.2 | | | 2.2 | | | 1.5 | | | 2.3 | |
| Equity securities | | | 4,437 | | | | 4,627 | | | | 5,262 | | | | 4,983 | | Equity securities | | 4.5 | | | 4.9 | | | 4.5 | | | 5.0 | |
| Total | | $ | 6,151 | | | $ | 6,645 | | | $ | 7,148 | | | $ | 6,641 | | Total | | $ | 5.8 | | | $ | 7.2 | | | $ | 6.0 | | | $ | 7.3 | |
The Company periodically adjusts the deferred compensation liability related to the Deferred Compensation Programs such that the balance of the liability equals the total fair market value of all assets held by the trusttrusts established under the SERP.programs. Such liabilities are included in other"Other long-term liabilities onliabilities" in the consolidated balance sheets.Consolidated Balance Sheets. The money market fund is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets. The equity securities are included in investments"Investments" in the consolidated balance sheetsConsolidated Balance Sheets and classified as trading equity securities. See Note 4,6, Investments, for additional information. The cost of the Company stock held by the plan is included as a reduction in shareholders’ equity"Company stock held by deferred compensation programs, at cost" in the consolidated balance sheets.Consolidated Balance Sheets.
The change in the fair market value of Company stock held in the SERPprograms results in a charge or credit to selling,"Selling, general and administrative expensesexpenses" in the consolidated statementsConsolidated Statements of operationsOperations because the acquisition cost of the Company stock in the SERPprograms is recorded as a reduction of shareholders’ equityin "Company stock held by deferred compensation programs, at cost" and is not adjusted to fair market value; however, the related liability is adjusted to the fair market value of the stock as of each period end. The Company recognized incomeexpense of $616, $1,556$0.5 million, $0.6 million and $575$0.6 million in 2019, 20182021, 2020 and 2017,2019, respectively, related to the change in the fair value of the Company stock held in the SERP.
Deferred Compensation Programs.
13. Derivative Financial InstrumentsOther Employee Benefit Plan
401(k) Plan
The Company is exposedsponsors a 401(k) defined contribution plan to certain risks relatingprovide eligible employees with additional income upon retirement. The Company's contributions to its ongoing business operations.the plan are based on employee contributions. The primary risk managed by using derivative instruments is foreign currency risk. From time to time, the Company’s foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuationsCompany's contributions totaled $7.2 million, $6.9 million and $7.0 million in currency exchange rates. The fair value of the derivative financial instrument is recorded on the Company’s consolidated balance sheet2021, 2020 and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the consolidated statements of operations in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $10,304 during 2019. At December 31, 2019, the Company reported $4 of derivative assets in other current assets and $49 of derivative liabilities in other current liabilities. The Company reported $333 of derivative assets in other current assets at December 31, 2018. The Company recognized, as a component of cost of sales, a net loss on the change in fair value of derivative instruments of $74 for the year ended December 31, 2019. The Company recognized a net gain on the change in fair value of derivative instruments of $1,147 and a net loss of $663 for the years ended December 31, 2018 and 2017, respectively. There were no derivatives that were designated as hedges at December 31, 2019 or 2018.
14.15. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
| | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 | | 2019 |
| United States | | $ | 26,675 | | | $ | (86,874 | ) | | $ | 55,980 | | United States | | $ | 14.1 | | | $ | 42.1 | | | $ | 26.7 | |
| Foreign | | | (1,489 | ) | | | 896 | | | | 1,237 | | Foreign | | 2.4 | | | 3.6 | | | (1.5) | |
| Income (loss) before income taxes | | $ | 25,186 | | | $ | (85,978 | ) | | $ | 57,217 | | |
| Income before income taxes | | Income before income taxes | | $ | 16.5 | | | $ | 45.7 | | | $ | 25.2 | |
The (benefit) provision (benefit) for income taxes consists of the following:
| | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | | | Years Ended December 31, |
| Current provision (benefit): | | | | | | | | | | |
| (in millions) | | (in millions) | | 2021 | | 2020 | | 2019 |
| Current (benefit) provision: | | Current (benefit) provision: | | | | | | |
| Federal | | $ | (495 | ) | | $ | (3,995 | ) | | $ | 16,178 | | Federal | | $ | (0.2) | | | $ | (14.0) | | | $ | (0.5) | |
| State | | | 769 | | | | 892 | | | | 2,866 | | State | | (0.6) | | | 2.4 | | | 0.8 | |
| Foreign | | | 1,023 | | | | 3,254 | | | | 874 | | Foreign | | 0.7 | | | 1.8 | | | 1.0 | |
| Total current provision | | | 1,297 | | | | 151 | | | | 19,918 | | |
| Deferred provision (benefit): | | | | | | | | | | | | | |
| Total current (benefit) provision | | Total current (benefit) provision | | (0.1) | | | (9.8) | | | 1.3 | |
| Deferred (benefit) provision: | | Deferred (benefit) provision: | | | | | | |
| Federal | | | 2,818 | | | | (19,142 | ) | | | 107 | | Federal | | (0.1) | | | 12.3 | | | 2.8 | |
| State | | | (1,052 | ) | | | (5,788 | ) | | | (455 | ) | State | | 1.1 | | | (1.4) | | | (1.0) | |
| Foreign | | | (51 | ) | | | (455 | ) | | | 57 | | Foreign | | (2.3) | | | (2.3) | | | (0.1) | |
| Total deferred benefit | | | 1,715 | | | | (25,385 | ) | | | (291 | ) | |
| Total provision (benefit): | | | | | | | | | | | | | |
| Total deferred (benefit) provision | | Total deferred (benefit) provision | | (1.3) | | | 8.6 | | | 1.7 | |
| Total (benefit) provision: | | Total (benefit) provision: | | | | | | |
| Federal | | | 2,323 | | | | (23,137 | ) | | | 16,285 | | Federal | | (0.3) | | | (1.7) | | | 2.3 | |
| State | | | (283 | ) | | | (4,896 | ) | | | 2,411 | | State | | 0.5 | | | 1.0 | | | (0.3) | |
| Foreign | | | 972 | | | | 2,799 | | | | 931 | | Foreign | | (1.6) | | | (0.5) | | | 0.9 | |
| Total income tax provision (benefit) | | $ | 3,012 | | | $ | (25,234 | ) | | $ | 19,627 | | |
| Total income tax (benefit) provision | | Total income tax (benefit) provision | | $ | (1.4) | | | $ | (1.2) | | | $ | 3.0 | |
The Company’s incomeCompany's "Income tax provision (benefit) provision" is computed based on the domestic and foreign federal statutory rates and the average state statutory rates, net of related federal benefit.
The (benefit) provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to income (loss) before income taxes. A reconciliation of the (benefit) provision (benefit) for income taxes at the statutory federal income tax rate to the amount provided is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Tax expense at the statutory federal income tax rate | | $ | 3.5 | | | $ | 9.6 | | | $ | 5.3 | |
| State income tax, net of federal income tax | | 1.4 | | | 0.3 | | | (2.3) | |
| Research and development tax credits | | (4.1) | | | (4.3) | | | (6.7) | |
| FIN 48 impact | | 1.8 | | | 4.0 | | | 3.2 | |
| Liquidation of subsidiary | | (0.8) | | | — | | | (0.9) | |
| Change in foreign subsidiary net operating loss carryforward | | 4.4 | | | (0.3) | | | (1.4) | |
| Valuation allowance impact | | (8.1) | | | (1.0) | | | 5.8 | |
| Changes in tax rates | | 0.7 | | | 0.3 | | | 0.1 | |
| Effects of Cares Act - 2018 NOL carryback | | — | | | (9.5) | | | — | |
| Share-based compensation | | 0.4 | | | 0.3 | | | 1.2 | |
| Other items | | (0.6) | | | (0.6) | | | (1.3) | |
| Total income tax (benefit) provision | | $ | (1.4) | | | $ | (1.2) | | | $ | 3.0 | |
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Tax expense (benefit) at the statutory federal income tax rate | | $ | 5,289 | | | $ | (18,055 | ) | | $ | 20,026 | |
| Domestic production activity deduction | | | – | | | | – | | | | (1,661 | ) |
| State income tax, net of federal income tax | | | (2,291 | ) | | | (2,976 | ) | | | 1,520 | |
| Research and development tax credits | | | (6,614 | ) | | | (4,660 | ) | | | (922 | ) |
| FIN 48 impact | | | 3,215 | | | | 1,856 | | | | 124 | |
| Liquidation of subsidiary | | | (918 | ) | | | (1,403 | ) | | | – | |
| True-up of foreign subsidiary net operation loss carryforward | | | (1,441 | ) | | | – | | | | – | |
| Valuation allowance impact | | | 5,785 | | | | 978 | | | | 1,585 | |
| Changes in tax rates | | | 83 | | | | (193 | ) | | | (505 | ) |
| Other items | | | (96 | ) | | | (781 | ) | | | (540 | ) |
| Total income tax provision (benefit) | | $ | 3,012 | | | $ | (25,234 | ) | | $ | 19,627 | |
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’sCompany's deferred tax assets and liabilities are as follows:
| | December 31 | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 |
| Deferred tax assets: | | | | | | | Deferred tax assets: | | | | |
| Inventory reserves | | $ | 5,798 | | | $ | 4,513 | | Inventory reserves | | $ | 3.7 | | | $ | 3.2 | |
| Warranty reserves | | | 2,198 | | | | 2,275 | | Warranty reserves | | 2.0 | | | 2.0 | |
| Bad debt reserves | | | 261 | | | | 182 | | |
| Credit loss reserves | | Credit loss reserves | | 0.5 | | | 0.3 | |
| State tax loss carryforwards | | | 9,762 | | | | 7,265 | | State tax loss carryforwards | | 11.9 | | | 11.6 | |
| Accrued vacation | | | 1,412 | | | | 1,612 | | Accrued vacation | | 1.4 | | | 1.4 | |
| SERP | | | – | | | | 364 | | |
| Deferred compensation | | | 1,063 | | | | 881 | | Deferred compensation | | 1.4 | | | 1.5 | |
| Restricted stock units | | | 1,539 | | | | 1,728 | | |
| Share-based compensation | | Share-based compensation | | 2.0 | | | 1.5 | |
| Goodwill | | | 1,981 | | | | 2,157 | | Goodwill | | 2.0 | | | 2.1 | |
| Outside basis difference | | Outside basis difference | | — | | | 4.7 | |
| | Foreign net operating loss | | Foreign net operating loss | | 4.3 | | | 9.5 | |
| Lease obligation | | Lease obligation | | 0.4 | | | 0.9 | |
| Employee & Iinsurance accruals | | Employee & Iinsurance accruals | | 0.8 | | | 0.7 | |
| Domestic credit carryforwards | | Domestic credit carryforwards | | 1.4 | | | 1.6 | |
| Deferred revenue | | Deferred revenue | | 1.3 | | | 1.2 | |
| Deferred payroll tax - CARES Act | | Deferred payroll tax - CARES Act | | 1.1 | | | 2.4 | |
| Pension and post-employment benefits | | | 1,309 | | | | 1,536 | | Pension and post-employment benefits | | — | | | 1.0 | |
| Outside basis difference | | | 4,017 | | | | 4,496 | | |
| Federal net operating loss | | | 12,118 | | | | 15,655 | | |
| Foreign net operating losses | | | 8,615 | | | | 5,069 | | |
| Lease obligation | | | 849 | | | | – | | |
| Valuation allowances | | Valuation allowances | | (6.0) | | | (14.1) | |
| Other | | | 5,800 | | | | 5,025 | | Other | | 1.6 | | | 0.8 | |
| Valuation allowances | | | (14,586 | ) | | | (8,540 | ) | |
| Total deferred tax assets | | | 42,136 | | | | 44,218 | | Total deferred tax assets | | 29.8 | | | 32.3 | |
| Deferred tax liabilities: | | | | | | | | | Deferred tax liabilities: | | | | |
| Property and equipment | | | 16,000 | | | | 16,156 | | Property and equipment | | 13.0 | | | 14.7 | |
| Intangibles | | | 121 | | | | 541 | | Intangibles | | 1.1 | | | 0.9 | |
| Right of use asset | | | 843 | | | | – | | |
| Right-of-use assets | | Right-of-use assets | | 0.5 | | | 0.9 | |
| Pension | | | 1,372 | | | | 1,051 | | Pension | | 0.6 | | | 1.3 | |
| Total deferred tax liabilities | | | 18,336 | | | | 17,748 | | Total deferred tax liabilities | | 15.2 | | | 17.8 | |
| Total net deferred assets | | $ | 23,800 | | | $ | 26,470 | | Total net deferred assets | | $ | 14.6 | | | $ | 14.5 | |
As of December 31, 2019,2021, the Company has a federal net operating loss carryforward of $57,705 from year 2018, which the Company expects to utilize against earnings in 2020 and in future years.
As of December 31, 2019, the Company hasgross state net operating lossNOL carryforwards of $179,076$235.4 million and has gross foreign net operating lossNOL carryforwards of approximately $27,357,$13.0 million, which will be available to offset future taxable income. If not used, these carryforwards will expire between 20202022 and 2033. The Company does not have a federal net operating loss carryforward.
2031
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed which modified the NOL carryback provisions allowing the Company to carryback its 2018 NOL to prior years. The tax provision for the year ended December 31, 2020 includes a $9.5 million tax benefit related to the NOL carryback which occurred due to a change in rates from 35% to 21%.
A significant portion of the valuation allowance for deferred tax assets relates to the future utilization of state and foreign net operating loss and state tax credit carryforwards. Future utilization of these net operating loss and state tax credit carryforwards is evaluated by the Company on a periodic basis, and the valuation allowance is adjusted accordingly. The Company has also determined that the recovery of certain other deferred tax assets in foreign jurisdictions is unrealizable. In 2019,2021, the valuation allowance on these carryforwards decreased by $8.1 million mainly due to the release of the $3.4 million valuation allowance as the NOLs are expected to be fully utilized by the Company's Brazilian subsidiary and deferred tax assetsthe release of the $3.8 million valuation allowance associated with AMM whose dissolution was increased by $5,785completed during 2021. The remaining change in valuation allowances is due to the unrealizable portion of certain entities’ state and foreign net operating loss carryforwards and certain other deferred tax assets in foreign jurisdictions.
The following table represents a roll forwardrollforward of the deferred tax asset valuation allowance for the years ended December 31, 2019, 20182021, 2020 and 2017:2019:
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Allowance balance, beginning of year | | $ | 8,540 | | | $ | 8,318 | | | $ | 8,280 | |
| Provision | | | 5,785 | | | | 978 | | | | 1,585 | |
| Write-offs | | | – | | | | – | | | | (1,862 | ) |
| Other | | | 261 | | | | (756 | ) | | | 315 | |
| Allowance balance, end of year | | $ | 14,586 | | | $ | 8,540 | | | $ | 8,318 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Allowance balance, beginning of year | | $ | 14.1 | | | $ | 14.6 | | | $ | 8.5 | |
| Provision | | 0.6 | | | 1.5 | | | 5.8 | |
| Reversals | | (8.1) | | | (1.5) | | | — | |
| Other | | (0.6) | | | (0.5) | | | 0.3 | |
| Allowance balance, end of year | | $ | 6.0 | | | $ | 14.1 | | | $ | 14.6 | |
Undistributed foreign earnings of the Company’s Canadian subsidiary, Breaker Technology Ltd. (“BTL”), South African subsidiary, Osborn Engineered Products SA, (Pty), Ltd. (“Osborn”), and Northern Ireland subsidiary, Telestack Limited (“Telestack”), are considered to be indefinitely reinvested; accordingly,reinvested outside the U.S. as of December 31, 2021. Because those earnings are considered to be indefinitely reinvested, no provision for U.S. federal and statedeferred income taxes hashave been provided thereon. If the Company were to make a distribution of any portion of those earnings in the form of dividends or otherwise, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax. As of December 31, 2019,2021, the cumulative amountsamount of undistributed U.S. GAAP earnings for BTL, Osborn and Telestack are $10,124, $30,908 and $2,496, respectively. A portion of these amounts were subjected to taxation under the one-time transition tax included in the Tax Cuts and Jobs Act of 2017. Based upon the provisions in the Tax Cuts and Jobs Act of 2017, any future qualified dividends out of these amounts will not be subject to U.S. income taxes. However, upon any future inclusion as Subpart F income or capital gains, the Company would be subject to additional U.S. income taxes (subject to an adjustment forCompany's foreign tax credits). Upon any repatriation, withholding taxes due to the foreign jurisdictions may have to be paid. At this time, it is not practicable to determine the amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries.subsidiaries was $52.2 million.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by authorities for years prior to 2014. With few exceptions, the Company is no longer subject to state and local or non-U.S. income tax examinations by authorities for years prior to 2013.2017.
The Company has a liability for unrecognized tax benefits of $5,723$10.8 million and $2,048$9.7 million (excluding accrued interest and penalties) as of December 31, 20192021 and 2018,2020, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognizeddid not recognize any tax benefits of $120 and $66 in 2019 and 2018, respectively, for penalties and interest related to amounts that were settled for less than previously accrued.accrued in 2021 or 2020. The net total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate is $6,148$11.9 million and $2,243$10.5 million at December 31, 20192021 and 2018,2020, respectively. The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next twelve months.
A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows:
| | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 | | 2019 |
| Balance, beginning of year | | $ | 2,048 | | | $ | 365 | | | $ | 238 | | Balance, beginning of year | | $ | 9.7 | | | $ | 5.7 | | | $ | 2.1 | |
| Additions for tax positions taken in current year | | | 2,985 | | | | 1,722 | | | | 127 | | Additions for tax positions taken in current year | | 1.0 | | | 0.5 | | | 3.0 | |
| Additions for tax positions taken in prior period | | | 719 | | | | – | | | | – | | Additions for tax positions taken in prior period | | 0.8 | | | 3.5 | | | 0.7 | |
| Reductions due to lapse of statutes of limitations | | | – | | | | (39 | ) | | | – | | |
| Decreases related to settlements with tax authorities | | | (29 | ) | | | – | | | | – | | |
| | Decreases related to sustained tax positions | | Decreases related to sustained tax positions | | (0.7) | | | — | | | (0.1) | |
| Balance, end of year | | $ | 5,723 | | | $ | 2,048 | | | $ | 365 | | Balance, end of year | | $ | 10.8 | | | $ | 9.7 | | | $ | 5.7 | |
The tax positions in the December 31, 20192021 balance of unrecognized tax benefits includes no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain. Accordingly, there is no impact to the deferred tax accounting for certain tax benefits.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company’s fourth quarter 2017 provision for income taxes was reduced by $1,056, (comprised of a $1,548 reduction in income tax expense recorded in connection with the remeasurement of deferred tax assets and liabilities and $492 of additional income tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings) due to applying the provisions of the Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company determined that the $492 additional 2017 income tax expense was a provisional amount and constituted a reasonable estimate at December 31, 2017, based upon the best information then available. The final impact was $1,727 and differed from the provisional amount due to, among other things, additional analysis, changes in interpretations and assumptions the Company made, additional regulatory guidance issued and actions the Company took as a result of the Tax Act. The subsequent adjustment, $1,235, was included in 2018 income tax expense.
While the Tax Act provides for a territorial tax system beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include, in its U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred. For 2019, the Company’s foreign subsidiaries are in an overall tested loss position, and therefore, have no GILTI inclusion for 2019.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax, if greater than regular tax. The Company does not expect to be subject to this tax, and therefore, has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2019.
The changes to existing U.S. tax laws as a result of the Tax Act, which we believe have the most significant impact on the Company’s federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate: The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company recognized a deferred tax benefitreverse through income in future years.
16. Commitments and related increase in deferred tax assets of $1,548 in its 2017 consolidated financial statements due to the remeasurement necessitated by the Tax Act’s provision reducing the reduction in the U.S. corporate income tax rate from 35% to 21%. This benefit is attributable to the Company being in a net deferred tax liability position when considering only U.S. federal deferred items. The Company has significant deferred tax assets related to foreign jurisdictions and U.S. state income taxes.
Transition Tax on Foreign Earnings:
The Company recognized a provisional income tax expense of $492 for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The final determination of the transition tax of $1,727 was completed in 2018.
Repeal of Domestic Production Activities Deduction: The Tax Act repealed the Domestic Production Activities Deduction (“DPAD”) previously provided under IRC §199. As such, there were 0 DPAD benefits in 2019 or 2018 to include in the effective tax rate reconciliations; however, the Company included $1,661 of DPAD benefit in the effective tax rate reconciliation in 2017 under previous regulations.
15. Contingent Matters
Certain customers have financed purchases of Company products through arrangements with a bankthird-party financing institutions in which the Company is contingently liable for customer debt of $1,466$2.4 million and $2.9 million at December 31,2019. 2021 and 2020, respectively. These arrangements expire at various dates through December 2023.July 2025. Additionally, the Company is also potentiallycontingently liable for 1.75% of the unpaid balance, determined as of December 31 of the prior year (or approximately $932$0.4 million for 2019)2021), on certain past customer equipment purchases that were financed by an outside finance company. The agreements provide that the Company will receive the lender’slender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $1,666$1.1 million and $2.0 million related to these guarantees, which were included in "Other current liabilities"in the Consolidated Balance Sheets as of December 31, 2021 and 2020, respectively.31,2019.
The Company reviews off-balance sheet guarantees individually and at the loss pool level based on one agreement. Prior history is considered in regard to the Company having to perform on any off-balance sheet guarantees, as well as future projections of individual customer credit worthiness including consideration of the implications of COVID-19 in regard to assessing credit losses related to off-balance sheet guarantees.
In addition, the Company is contingently liable under letters of credit issued by a lenderunder its Credit Facility totaling $8,335$2.5 million as of December 31,2019, including $3,200 of letters of credit guaranteeing certain Astec Brazil bank debt. 2021. The outstanding letters of credit expire at various dates through January 2021.June 2023. The maximum potential amount of future payments under letters of credit issued under the Credit Facility for which the Company could be liable is $30.0 million as of December 31, 2021. As of December 31,2019, 2021, the Company’sCompany's foreign subsidiaries are contingently liable for a total of $2,623$1.6 million in performance letters of credit, advance payments and retention guarantees. The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $10,958$6.6 million as of December 31,2019. 2021.
The Company and certain of its current and former executive officers have beenwere named as defendants in a putative shareholder class action lawsuit filed on February 1,2019, as amended on August 26,2019, in the United States District Court for the Eastern District of Tennessee. The action iswas styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-00024-PLR-CHS.1:19-cv-24-CEA-CHS. The complaint generally allegesalleged that the defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”"Exchange Act"), and Rule 10b-510b-5 promulgated thereunder by making allegedly false and misleading statements and that the individual defendants arewere control personpersons under Section 20(a)20(a) of the Exchange Act. The complaint was filed on behalf of shareholders who purchased sharesstock of the Company’s stockCompany between July 26,2016 and October 22,2018 and seekssought monetary damages on behalf of the purported class. The Company disputesdisputed these allegations and intends to defend this lawsuit vigorously and filed a motion to dismiss the lawsuit on October 25, 2019. On February 19, 2021, the motion to dismiss was granted with prejudice and judgment was entered for the defendants.25, 2019.On March 19, 2021, plaintiff filed a Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint, which was denied on May 5, 2021. The CompanyOn June 4, 2021, plaintiff filed a notice of appeal to the United States Court of Appeals for the Sixth Circuit, which is unable to determine whether or not a future loss will be incurred due to this litigation, or estimate a range of loss, if any, at this time.pending.
The Company’sCompany's GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16,2018 with an amended complaint filed on January 25,2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP.CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rejection (rescission)rescission of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of the equipment was approximately $8,500.$8.5 million. GEFCO disputes the plaintiff’splaintiff's allegations and intends to defend this lawsuit vigorously. On July 7, 2020, the plaintiffs filed a separate lawsuit directly against Astec Industries, Inc. Besides a new claim based on fraudulent transfer, the allegations essentially mirror the GEFCO suit. Astec Industries, Inc. is vigorously defending this suit as well. The Company is unable to determine whether or not a future loss will be incurred due to this litigation or estimate the possible loss or range of loss, if any, at this time.
The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal fees) or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is eithereither: (i) probable but cannot be reasonably estimated or (ii) reasonably possibleestimable but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter.
Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’sCompany's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company’sCompany's financial position, cash flows or results of operations.
17. Share-Based Compensation
Prior to its expiration on February 25, 2021, the Company's 2011 Incentive Plan ("2011 Plan") provided for the grant of share-based awards to its employees, officers, directors and consultants. The 2011 Plan authorized the grant of options, share appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend equivalents and other share-based and cash awards. Under the 2011 Plan, the Company has outstanding restricted stock units, performance stock units and deferred stock units none of which participate in Company-paid dividends.
16. Shareholders’On April 27, 2021 ("Plan Effective Date"), the Company's shareholders approved the 2021 Equity
The Company rewards
Each of the above incentive plans are administered by the Company's Compensation Committee of the Board of Directors.
Share-based compensation expense of $6.0 million, $5.1 million and $2.6 million was recorded in the years ended December 31, 2021, 2020 and 2019, respectively, and recognized in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Restricted Stock Units ("RSUs")
Prior to 2020, key members of management were awarded with restricted stock units (“RSUs”("RSUs") each year based upon the financial performance of the Company and its subsidiaries. Under the termsBeginning in 2020, awards were determined based on a predetermined award value of the Company’s shareholder-approved 2011 Incentive Plan, upbase salary of eligible employees aligned to a total compensation program.
700 shares of newly-issued Company
Restricted stock is available for awards. Awardsunit awards granted in 2016 and prior vest at the end of five years from the date of grant, or at the time a recipient retires after reaching age 65, if earlier, while awards granted in 2017 to February 2019 and 2018 vest three years from the date of grant. RSUs granted in early 2019, 2020 for 2019 performance and 2021 vest ratably, at the end of each 12 month12-month period, over a three yearthree-year period. A participant generally must be employed by the Company on the vesting date of each award. However, awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at age 65. Additional RSUs are granted on an annual basis to the Company’sCompany's outside directors under the Company’sCompany's Non-Employee Directors Compensation Plan with a one-year vesting period. During 2019, the Company granted a total of 34 RSUs to newly hired members of executive management as of their respective dates of hire which will vest ratably, at the end of each 12 month period from their date of hire, over a three-year period. The fair value of the RSUs vesting during 2019,2018 and 2017 was $1,577,$1,869 and $1,991, respectively. The tax impact upon the vesting of RSUs was tax expense of $278 in 2019 and tax benefits of $67 and $290, respectively, in 2018 and 2017.
Compensation expense of $2,567, $2,032 and $2,978 was recorded in the years ended December 31, 2019, 2018 and 2017, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2019 performance) amortized over the portion of the vesting period occurring during the period. Related income tax benefits of $706, $528 and $1,132 were recorded in 2019, 2018 and 2017, respectively. Based upon the grant date fair value of RSUs, it is anticipated that $3,869 of additional compensation costs will be recognized in future periods through 2023 for RSUs earned through December 31, 2019. The weighted average period over which this additional compensation cost will be expensed is 1.8 years. RSUs do not participate in Company-paid dividends.
Changes in restricted stock units during the year ended December 31, 20192021 are as follows:
| | 2019 | | | Weighted Average Grant Date Fair Value | |
| Unvested restricted stock units, beginning of year | | | 165 | | | $ | 56.82 | |
| Units granted | | | 92 | | | | 34.57 | |
| Units forfeited | | | (23 | ) | | | 56.52 | |
| Units vested | | | (46 | ) | | | 57.65 | |
| Unvested restricted stock units, end of year | | | 188 | | | | 45.78 | |
| | | | | | | | | | | | | | |
| (in thousands, except weighted average grant date fair value) | | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
| Unvested as of January 1, 2021 | | 279 | | | $ | 37.72 | |
| Granted | | 66 | | | $ | 77.38 | |
| Vested | | (132) | | | $ | 41.03 | |
| Forfeited | | (26) | | | $ | 41.16 | |
| Unvested as of December 31, 2021 | | 187 | | | $ | 48.88 | |
The grantfollowing additional activity occurred for the Company's restricted stock units:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except weighted average grant date fair value per award granted) | | 2021 | | 2020 | | 2019 |
| Weighted average grant date fair value per award | | $ | 77.38 | | | $ | 34.99 | | | $ | 34.57 | |
| Fair value of awards vested | | $ | 9.3 | | | $ | 3.8 | | | $ | 1.6 | |
| Tax benefit (expense) for restricted stock compensation expense | | $ | 3.8 | | | $ | (0.4) | | | $ | 0.7 | |
As of December 31, 2021, the Company had $4.9 million of unrecognized compensation expense before tax related to restricted stock, which is expected to be recognized over a weighted average period of 1.8 years.
Performance Stock Units ("PSUs")
Beginning in 2020, PSUs were granted to officers and other key employees. Vesting is subject to both the continued employment of the participant with the Company and the achievement of certain performance metrics established by the Compensation Committee. A participant generally must be employed by the Company on the vesting date of each award. However, adjusted awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at age 65.
PSUs granted in 2020 were divided into three equal tranches with cliff vesting periods of one year, two years and three years. Awards granted in 2021 cliff vest three years from the date of grant. The number of PSUs that vest may range from zero to 200% of the target shares granted and is determined for each tranche based on the achievement of two equally weighted performance criteria: ROIC and TSR. The PSUs are settled in common stock of the Company, with holders receiving one common share for each PSU that vests.
Changes in PSUs during the year ended December 31, 2021 are as follows:
| | | | | | | | | | | | | | |
| (in thousands, except weighted average grant date fair value) | | Performance Stock Units | | Weighted Average Grant Date Fair Value |
| Unvested as of January 1, 2021 | | 87 | | | $ | 35.41 | |
| Granted | | 51 | | | $ | 92.98 | |
| Vested* | | (29) | | | $ | 36.08 | |
| Forfeited | | (10) | | | $ | 53.44 | |
| Unvested as of December 31, 2021 | | 99 | | | $ | 63.16 | |
* The vested PSUs presented are based on the target amount of the award for the first tranche of the 2020 awards. In accordance with the terms of the underlying award agreements, the actual shares earned and distributed for the one-year performance period ended during 2021 was 200% of the target shares granted, rounded up the nearest whole share.
The following additional activity occurred for the Company's performance stock units:
| | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions, except weighted average grant date fair value per award granted) | | 2021 | | 2020 | | |
| Weighted average grant date fair value per award | | $ | 92.98 | | | $ | 34.66 | | | |
| Fair value of awards vested | | $ | 4.5 | | | $ | — | | | |
| Tax benefit for performance stock compensation expense | | $ | 2.3 | | | $ | — | | | |
As of December 31, 2021, the Company had $3.9 million of unrecognized compensation expense before tax related to PSUs, which is expected to be recognized over a weighted average period of 2.2 years.
Deferred Stock Units ("DSUs")
The 2011 Plan and the Non-Employee Directors Compensation Plan each allow for deferred delivery of shares as received including at vesting. As of December 31, 2021, there were 34,949 fully vested deferred stock units, which were excluded from the tables above. The aggregate fair value of the restricted stockthese units granted during 2019, 2018 and 2017at December 31, 2021 was $3,168, $3,553 and $5,399, respectively.$2.4 million.
17.18. Revenue Recognition
The following tables disaggregates the Company’sCompany's revenue by major source for the periodperiods ended December 31, 20192021, 2020 and 20182019 (excluding intercompany sales):
| | For the Year Ended December 31, 2019 | | | | | | | | | | | | | | | | | | | | | | | |
| | | Infrastructure Group | | | Aggregate and Mining Group | | | Energy Group | | | Other Group | | | Total | | | For the Year Ended December 31, 2021 |
| Net Sales – Domestic: | | | | | | | | | | | | | | | | |
| (in millions) | | (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Net Sales-Domestic: | | Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 253,227 | | | $ | 166,868 | | | $ | 160,359 | | | $ | – | | | $ | 580,454 | | Equipment sales | | $ | 374.8 | | | $ | 157.6 | | | $ | — | | | $ | 532.4 | |
| Pellet plant revenue | | | 20,000 | | | | – | | | | – | | | | – | | | | 20,000 | | |
| | Parts and component sales | | | 121,354 | | | | 74,503 | | | | 47,622 | | | | – | | | | 243,479 | | Parts and component sales | | 180.2 | | | 77.7 | | | — | | | 257.9 | |
| Service and equipment installation revenue | | | 13,389 | | | | 8,039 | | | | 5,837 | | | | – | | | | 27,265 | | Service and equipment installation revenue | | 17.0 | | | 0.5 | | | — | | | 17.5 | |
| Used equipment sales | | | 5,569 | | | | 1,244 | | | | 5,874 | | | | – | | | | 12,687 | | Used equipment sales | | 9.4 | | | 0.8 | | | — | | | 10.2 | |
| Freight revenue | | | 11,989 | | | | 6,279 | | | | 5,993 | | | | – | | | | 24,261 | | Freight revenue | | 20.9 | | | 5.9 | | | — | | | 26.8 | |
| Other | | | (677 | ) | | | (2,944 | ) | | | 3,941 | | | | – | | | | 320 | | Other | | (0.6) | | | (2.1) | | | — | | | (2.7) | |
| Total domestic revenue | | | 424,851 | | | | 253,989 | | | | 229,626 | | | | – | | | | 908,466 | | Total domestic revenue | | 601.7 | | | 240.4 | | | — | | | 842.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales – International: | | | | | | | | | | | | | | | | | | | | | |
| Net Sales-International: | | Net Sales-International: | |
| Equipment sales | | | 39,477 | | | | 95,514 | | | | 30,725 | | | | 206 | | | | 165,922 | | Equipment sales | | 98.5 | | | 69.7 | | | — | | | 168.2 | |
| | Parts and component sales | | | 19,097 | | | | 46,984 | | | | 9,344 | | | | 159 | | | | 75,584 | | Parts and component sales | | 41.1 | | | 32.6 | | | — | | | 73.7 | |
| Service and equipment installation revenue | | | 5,606 | | | | 1,977 | | | | 617 | | | | 39 | | | | 8,239 | | Service and equipment installation revenue | | 3.1 | | | 1.9 | | | — | | | 5.0 | |
| Used equipment sales | | | 1,180 | | | | 3,272 | | | | 1,059 | | | | – | | | | 5,511 | | Used equipment sales | | 0.9 | | | 2.5 | | | — | | | 3.4 | |
| Freight revenue | | | 1,892 | | | | 3,000 | | | | 558 | | | | – | | | | 5,450 | | Freight revenue | | 2.4 | | | 1.8 | | | — | | | 4.2 | |
| Other | | | 15 | | | | 235 | | | | 193 | | | | (2 | ) | | | 441 | | Other | | 0.3 | | | 0.3 | | | — | | | 0.6 | |
| Total international revenue | | | 67,267 | | | | 150,982 | | | | 42,496 | | | | 402 | | | | 261,147 | | Total international revenue | | 146.3 | | | 108.8 | | | — | | | 255.1 | |
| Total net sales | | $ | 492,118 | | | $ | 404,971 | | | $ | 272,122 | | | $ | 402 | | | $ | 1,169,613 | | Total net sales | | $ | 748.0 | | | $ | 349.2 | | | $ | — | | | $ | 1,097.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2020 |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 354.1 | | | $ | 152.0 | | | $ | — | | | $ | 506.1 | |
| | | | | | | | |
| Parts and component sales | | 172.8 | | | 69.2 | | | — | | | 242.0 | |
| Service and equipment installation revenue | | 21.0 | | | 1.2 | | | — | | | 22.2 | |
| Used equipment sales | | 19.3 | | | 2.1 | | | — | | | 21.4 | |
| Freight revenue | | 19.7 | | | 5.1 | | | — | | | 24.8 | |
| Other | | 1.8 | | | (1.3) | | | — | | | 0.5 | |
| Total domestic revenue | | 588.7 | | | 228.3 | | | — | | | 817.0 | |
| | | | | | | | |
| Net Sales-International: | | | | | | | | |
| Equipment sales | | 78.0 | | | 58.1 | | | — | | | 136.1 | |
| | | | | | | | |
| Parts and component sales | | 29.1 | | | 29.4 | | | — | | | 58.5 | |
| Service and equipment installation revenue | | 2.4 | | | 1.7 | | | — | | | 4.1 | |
| Used equipment sales | | 2.4 | | | 2.2 | | | — | | | 4.6 | |
| Freight revenue | | 2.0 | | | 1.6 | | | — | | | 3.6 | |
| Other | | 0.2 | | | 0.3 | | | — | | | 0.5 | |
| Total international revenue | | 114.1 | | | 93.3 | | | — | | | 207.4 | |
| Total net sales | | $ | 702.8 | | | $ | 321.6 | | | $ | — | | | $ | 1,024.4 | |
| | For the Year Ended December 31, 2018 | |
| | | Infrastructure Group | | | Aggregate and Mining Group | | | Energy Group | | | Other Group | | | Total | |
| Net Sales – Domestic: | | | | | | | | | | | | | | | |
| Equipment sales | | $ | 296,974 | | | $ | 220,015 | | | $ | 178,584 | | | $ | – | | | $ | 695,573 | |
| Pellet plant agreement sale reduction | | | (75,315 | ) | | | – | | | | – | | | | – | | | | (75,315 | ) |
| Parts and component sales | | | 119,823 | | | | 71,862 | | | | 42,666 | | | | – | | | | 234,351 | |
| Service and equipment installation revenue | | | 10,822 | | | | 1,844 | | | | 6,355 | | | | – | | | | 19,021 | |
| Used equipment sales | | | 8,098 | | | | 3,127 | | | | 4,358 | | | | – | | | | 15,583 | |
| Freight revenue | | | 12,502 | | | | 6,265 | | | | 5,896 | | | | – | | | | 24,663 | |
| Other | | | 1,022 | | | | (741 | ) | | | 1,657 | | | | – | | | | 1,938 | |
| Total domestic revenue | | | 373,926 | | | | 302,372 | | | | 239,516 | | | | – | | | | 915,814 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net Sales – International: | | | | | | | | | | | | | | | | | | | | |
| Equipment sales | | | 43,516 | | | | 98,604 | | | | 24,308 | | | | – | | | | 166,428 | |
| Parts and component sales | | | 19,215 | | | | 44,609 | | | | 10,528 | | | | – | | | | 74,352 | |
| Service and equipment installation revenue | | | 3,152 | | | | 1,069 | | | | 390 | | | | – | | | | 4,611 | |
| Used equipment sales | | | 1,693 | | | | 2,948 | | | | 908 | | | | – | | | | 5,549 | |
| Freight revenue | | | 1,043 | | | | 3,266 | | | | 417 | | | | – | | | | 4,726 | |
| Other | | | (256 | ) | | | 296 | | | | 79 | | | | – | | | | 119 | |
| Total international revenue | | | 68,363 | | | | 150,792 | | | | 36,630 | | | | – | | | | 255,785 | |
| Total net sales | | $ | 442,289 | | | $ | 453,164 | | | $ | 276,146 | | | $ | – | | | $ | 1,171,599 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2019 |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Net Sales-Domestic: | | | | | | | | |
| Equipment sales | | $ | 413.6 | | | $ | 166.9 | | | $ | — | | | $ | 580.5 | |
| Pellet plant sales | | 20.0 | | | — | | | — | | | 20.0 | |
| Parts and component sales | | 169.0 | | | 74.5 | | | — | | | 243.5 | |
| Service and equipment installation revenue | | 19.2 | | | 8.0 | | | — | | | 27.2 | |
| Used equipment sales | | 11.4 | | | 1.2 | | | — | | | 12.6 | |
| Freight revenue | | 18.0 | | | 6.3 | | | — | | | 24.3 | |
| Other | | 3.3 | | | (2.9) | | | — | | | 0.4 | |
| Total domestic revenue | | 654.5 | | | 254.0 | | | — | | | 908.5 | |
| | | | | | | | |
| Net Sales-International: | | | | | | | | |
| Equipment sales | | 70.4 | | | 95.5 | | | — | | | 165.9 | |
| | | | | | | | |
| Parts and component sales | | 28.6 | | | 47.0 | | | — | | | 75.6 | |
| Service and equipment installation revenue | | 6.2 | | | 2.0 | | | — | | | 8.2 | |
| Used equipment sales | | 2.2 | | | 3.3 | | | — | | | 5.5 | |
| Freight revenue | | 2.5 | | | 3.0 | | | — | | | 5.5 | |
| Other | | 0.2 | | | 0.2 | | | — | | | 0.4 | |
| Total international revenue | | 110.1 | | | 151.0 | | | — | | | 261.1 | |
| Total net sales | | $ | 764.6 | | | $ | 405.0 | | | $ | — | | | $ | 1,169.6 | |
Revenue is recognized when obligations under the terms of a contract are satisfied and generally occurs with the transfer of control of the product or services at a point in time. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specific delivery terms. A significant portion of the Company’s equipment sales represents equipment produced in the Company’s manufacturing facilities under short-term contracts for a customer’s project or equipment designed to meet a customer’s requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer’s needs or specifications. The Company provides customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the equipment performs according to the customer’s need, regardless of whether the Company provides installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. Expected warranty costs for our standard warranties are expensed at the time the related revenue is recognized. The Company also offers extended warranties for sale to customers. Total extended warranty sales were $1,895 in 2019. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically fulfilled within one year from the date of the contract, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, annual rebates given to certain high volume customers or obligations for future estimated returns to be allowed based upon historical trends. As of December 31, 2019,2021, the Company had contract assets of $4,660, primarily related to billings on one large ($7,249) order in the Energy group,$5.5 million and contract liabilities, excluding customer deposits, of $6,511, including $3,536$6.3 million, of which $2.7 million was deferred revenue related to extended warranties. Contract assets and liabilities were not material asAs of December 31, 2018.
Certain contracts include terms and conditions pursuant to which2020, the Company recognizes revenues upon the completionhad contract assets of production,$4.3 million and the equipment is subsequently stored at the Company’s plant at the customer’s request. Revenue is recorded on such contracts upon the customer’s assumptioncontract liabilities, excluding customer deposits, of title and risk$8.9 million, of ownership, which transfers control of the equipment, and when collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer’s business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company’s inventory prior$2.9 million was deferred revenue related to revenue recognition.
Service and Equipment Installation Revenue – Purchasers of certain of the Company’s equipment often contract with the Company to provide installation services. Installation is typically separately priced in the contract based upon observable market prices for stand-alone performance obligations or a cost plus margin approach when one is not available. The Company may also provide future services on equipment sold at the customer’s request, which may be for equipment repairs after the warranty period expires. Service is billed on a cost plus margin approach or at a standard rate per hour.
Used Equipment Sales – Used equipment is obtained by trade-in on new equipment sales, as a separate purchase in the open market or from the Company’s equipment rental business. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – Under a practical expedient allowed under ASU No. 2014-09, the Company records revenues earned for shipping and handling as revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues,extended warranties. Total extended warranty revenues, early pay discountssales were $1.5 million and floor plan interest reimbursements.$1.7 million in 2021 and 2020, respectively.
18.19. Operations by Industry Segment and Geographic Area
The Company has 32 reportable segments, each of which is comprisedcomprise sites based upon the nature of multiple business units that offer similarthe products or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and services and meet the requirements for aggregation.nature of the production process, among other considerations. A brief description of each segment is as follows:
Infrastructure GroupSolutions – The Infrastructure GroupSolutions segment is made up of 5 business units. These business units include Astec, Inc. (“Astec”), Roadtec, Inc. (“Roadtec”), Carlson Paving Products, Inc. (“Carlson”), Astec Mobile Machinery GmbH (“AMM”)comprises 12 sites and Astec Australia Pty Ltd (“Astec Australia”). NaN of the business units (Astec, Roadtecdesigns, engineers, manufactures and Carlson) design, engineer, manufacture and marketmarkets a complete line of asphalt plants, concrete plants and their related components asphalt pavers, screeds, milling machines, material transfer vehicles, stabilizers and related ancillary equipment as well as supplying other heavy equipment. The other 2 business units (AMM and Astec Australia)sites based in North America within the Infrastructure Solutions segment are primarily sell,manufacturing operations while those located outside of North America, service and install equipment and provide parts in the regions in which they operate for many of the products produced by the manufacturing subsidiariesall of the Company and a majority of their sales are to customers in the infrastructure industry. During late 2018, the Company decided to close AMM, located in Germany, in 2019, and its assets are being liquidated.Company's manufacturing sites. The principalprimary purchasers of the products produced by this groupsegment are asphalt producers, highway and heavy equipment contractors, ready mix concrete producers, contractors in the construction and demolition recycling markets and domestic and foreign and domestic governmental agencies.
Aggregate and Mining Group
Materials Solutions– The Company’s AggregateMaterials Solutions segment comprises 9 sites and Mining Group is comprised of 8 business units which are focused on designingdesigns and manufacturingmanufactures heavy processing equipment, as well asin addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. These business unitsThe sites within the Materials Solutions segment are Telsmith, Inc. (“Telsmith”), Kolberg-Pioneer, Inc. (“KPI”), Astec Mobile Screens, Inc. (“AMS”), Johnson Crushers International, Inc. (“JCI”), Breaker Technology Ltd/Breaker Technology, Inc. (“BTI”), Osborn Engineered Products, SA (Pty) Ltd (“Osborn”), Astec do Brasil Fabricacao de Equipamentos Ltda. (“Astec Brazil”)primarily manufacturing operations with the AME and Telestack Limited (“Telestack”).India sites functioning to market, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of the Company's manufacturing sites. Additionally, the Materials Solutions segment offers consulting and engineering services to provide complete "turnkey" processing systems. The principal purchasers of products produced by this group areaggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal operators, highway and heavy equipment contractorsauthorities, power stations and foreign and domestic governmental agencies.
Energy Group
– The Company’s Energy Group is currently comprised of 6 business units focused on supplying heavy equipment such as heaters, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, storage equipment and related parts to the oil and gas, construction, and water well industries, as well as commercial and industrial burners used primarily in commercial, industrial and process heating applications. The business units currently included in the Energy Group are Heatec, Inc. (“Heatec”), CEI Enterprises, Inc. (“CEI”), GEFCO, Inc. (“GEFCO”), Peterson Pacific Corp. (“Peterson”), Power Flame Incorporated (“Power Flame”) and RexCon, Inc. (“RexCon”). RexCon, located in Burlington, WI, was formed to acquire substantially all of the assets and liabilities of RexCon, LLC on October 1,2017. In the fourth quarter of 2019, the Company announced it was closing its CEI manufacturing site in Albuquerque, NM (the CEI product lines will continue to be produced and marketed at other Company locations). The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production, ready mix concrete producers and contractors in the construction and demolition recycling markets.
Corporate – ThisThe Corporate category consists primarily of business units thatthe parent company and the captive insurance company, Astec Insurance, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes the Company’ssegments. The parent company Astec Industries, Inc., aand the captive insurance company provide support and a Company-owned distributor incorporate oversight for all of the start-up phase of operations in Chile.sites. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes, state deferred taxes and corporate overhead and thus these costs are included in the Corporate category.
The accounting policies of the reportable segments are the same as those described in the summaryNote 2, Basis of significant accounting policies.Presentation and Significant Accounting Policies. Intersegment sales and transfers are valued at prices comparable to those for unrelated parties.
Segment information for 20192021:
| | Infrastructure Group | | | Aggregate and Mining Group | | | Energy Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 492,118 | | | $ | 404,971 | | | $ | 272,122 | | | $ | 402 | | | $ | 1,169,613 | |
| Intersegment revenues | | | 10,860 | | | | 22,164 | | | | 18,353 | | | | – | | | | 51,377 | |
| Restructuring and asset impairment charges | | | 1,811 | | | | 250 | | | | 1,143 | | | | – | | | | 3,204 | |
| Interest expense | | | 6 | | | | 311 | | | | 13 | | | | 1,037 | | | | 1,367 | |
| Interest income | | | 1 | | | | 574 | | | | 47 | | | | 570 | | | | 1,192 | |
| Depreciation and amortization | | | 8,484 | | | | 8,211 | | | | 8,371 | | | | 1,134 | | | | 26,200 | |
| Income taxes | | | 349 | | | | 624 | | | | 397 | | | | 1,642 | | | | 3,012 | |
| Profit (loss) | | | 36,106 | | | | 22,790 | | | | 556 | | | | (38,440 | ) | | | 21,012 | |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 564,808 | | | | 608,369 | | | | 301,014 | | | | 420,931 | | | | 1,895,122 | |
| Capital expenditures | | | 11,097 | | | | 7,442 | | | | 3,096 | | | | 985 | | | | 22,620 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Revenues from external customers | | $ | 748.0 | | | $ | 349.2 | | | $ | — | | | $ | 1,097.2 | |
| Intersegment revenues | | 47.5 | | | 58.0 | | | — | | | 105.5 | |
| Restructuring and asset impairment charges | | 1.9 | | | 0.6 | | | — | | | 2.5 | |
| Interest expense | | 0.1 | | | 0.5 | | | 0.5 | | | 1.1 | |
| Interest income | | — | | | 0.2 | | | 0.3 | | | 0.5 | |
| Depreciation and amortization | | 20.8 | | | 8.0 | | | 1.4 | | | 30.2 | |
| Income taxes | | 1.4 | | | (4.3) | | | 1.5 | | | (1.4) | |
| Profit (loss) | | 53.0 | | | 29.3 | | | (64.8) | | | 17.5 | |
| | | | | | | | |
| Assets | | 996.9 | | | 667.8 | | | 648.9 | | | 2,313.6 | |
| Capital expenditures | | 12.2 | | | 5.6 | | | 2.3 | | | 20.1 | |
Segment information for 20182020:
| | Infrastructure
Group | | | Aggregate and Mining Group | | | Energy Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 442,289 | | | $ | 453,164 | | | $ | 276,146 | | | $ | – | | | $ | 1,171,599 | |
| Intersegment revenues | | | 21,568 | | | | 16,603 | | | | 17,578 | | | | – | | | | 55,749 | |
| Restructuring and asset impairment charges | | | 1,870 | | | | – | | | | 11,190 | | | | – | | | | 13,060 | |
| Interest expense | | | 10 | | | | 384 | | | | 17 | | | | 634 | | | | 1,045 | |
| Interest income | | | 49 | | | | 372 | | | | 29 | | | | 502 | | | | 952 | |
| Depreciation and amortization | | | 8,424 | | | | 9,383 | | | | 9,149 | | | | 957 | | | | 27,913 | |
| Income taxes | | | 880 | | | | 2,349 | | | | 306 | | | | (28,769 | ) | | | (25,234 | ) |
| Profit (loss) | | | (112,954 | ) | | | 45,464 | | | | 3,070 | | | | 1,586 | | | | (62,834 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 536,744 | | | | 590,512 | | | | 309,397 | | | | 367,211 | | | | 1,803,864 | |
| Capital expenditures | | | 14,823 | | | | 8,731 | | | | 4,580 | | | | 769 | | | | 28,903 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Revenues from external customers | | $ | 702.8 | | | $ | 321.6 | | | $ | — | | | $ | 1,024.4 | |
| Intersegment revenues | | 33.5 | | | 40.7 | | | — | | | 74.2 | |
| Restructuring and asset impairment charges | | 6.6 | | | (1.3) | | | 2.8 | | | 8.1 | |
| Interest expense | | — | | | 0.2 | | | 0.5 | | | 0.7 | |
| Interest income | | 0.1 | | | 0.3 | | | 0.4 | | | 0.8 | |
| Depreciation and amortization | | 17.8 | | | 7.9 | | | 1.2 | | | 26.9 | |
| Income taxes | | 0.4 | | | 1.2 | | | (2.8) | | | (1.2) | |
| Profit (loss) | | 53.8 | | | 32.1 | | | (40.1) | | | 45.8 | |
| | | | | | | | |
| Assets | | 938.8 | | | 639.3 | | | 535.3 | | | 2,113.4 | |
| Capital expenditures | | 7.9 | | | 4.8 | | | 2.7 | | | 15.4 | |
Segment information for 20172019:
| | Infrastructure
Group | | | Aggregate and Mining Group | | | Energy Group | | | Corporate | | | Total | |
| Revenues from external customers | | $ | 553,691 | | | $ | 403,720 | | | $ | 227,328 | | | $ | – | | | $ | 1,184,739 | |
| Intersegment revenues | | | 25,965 | | | | 16,209 | | | | 24,877 | | | | – | | | | 67,051 | |
| Interest expense | | | 49 | | | | 634 | | | | 9 | | | | 148 | | | | 840 | |
| Interest income | | | 509 | | | | 276 | | | | 8 | | | | 509 | | | | 1,302 | |
| Depreciation and amortization | | | 7,581 | | | | 9,363 | | | | 7,904 | | | | 954 | | | | 25,802 | |
| Income taxes | | | 1,318 | | | | 462 | | | | 491 | | | | 17,356 | | | | 19,627 | |
| Profit (loss) | | | 26,641 | | | | 35,748 | | | | 16,219 | | | | (40,963 | ) | | | 37,645 | |
| | | | | | | | | | | | | | | | | | | | | |
| Assets | | | 666,651 | | | | 558,684 | | | | 304,158 | | | | 390,300 | | | | 1,919,793 | |
| Capital expenditures | | | 7,424 | | | | 9,194 | | | | 3,540 | | | | 604 | | | | 20,762 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate | | Total |
| Revenues from external customers | | $ | 764.6 | | | $ | 405.0 | | | $ | — | | | $ | 1,169.6 | |
| Intersegment revenues | | 29.2 | | | 22.2 | | | — | | | 51.4 | |
| Restructuring and asset impairment charges | | 2.9 | | | 0.3 | | | — | | | 3.2 | |
| Interest expense | | — | | | 0.3 | | | 1.1 | | | 1.4 | |
| Interest income | | — | | | 0.6 | | | 0.6 | | | 1.2 | |
| Depreciation and amortization | | 16.9 | | | 8.2 | | | 1.1 | | | 26.2 | |
| Income taxes | | 0.8 | | | 0.6 | | | 1.6 | | | 3.0 | |
| Profit (loss) | | 33.8 | | | 22.8 | | | (35.6) | | | 21.0 | |
| | | | | | | | |
| Assets | | 865.8 | | | 608.4 | | | 420.9 | | | 1,895.1 | |
| Capital expenditures | | 14.2 | | | 7.4 | | | 1.0 | | | 22.6 | |
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
| | 2019 | | | 2018 | | | 2017 | |
| Net income attributable to controlling interest | | | | | | | | | |
| Total profit (loss) for reportable segments | | $ | 59,452 | | | $ | (64,420 | ) | | $ | 78,608 | |
| Corporate expenses, net | | | (38,440 | ) | | | 1,586 | | | | (40,963 | ) |
| Net loss attributable to non-controlling interest | | | 132 | | | | 295 | | | | 205 | |
| Recapture (elimination) of intersegment profit | | | 1,162 | | | | 2,090 | | | | (55 | ) |
| Total consolidated net income (loss) attributable to controlling interest | | $ | 22,306 | | | $ | (60,449 | ) | | $ | 37,795 | |
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Net income (loss) attributable to controlling interest | | | | | | |
| Total profit for reportable segments | | $ | 82.3 | | | $ | 85.9 | | | $ | 56.6 | |
| Corporate expenses, net | | (64.8) | | | (40.1) | | | (35.6) | |
| Net (income) loss attributable to noncontrolling interest | | (0.1) | | | — | | | 0.1 | |
| Recapture of intersegment profit | | 0.4 | | | 1.1 | | | 1.2 | |
| Total consolidated net income attributable to controlling interest | | $ | 17.8 | | | $ | 46.9 | | | $ | 22.3 | |
| | | | | | |
| Assets | | | | | | |
| Total assets for reportable segments | | $ | 1,664.7 | | | $ | 1,578.1 | | | $ | 1,474.2 | |
| Corporate assets | | 648.9 | | | 535.3 | | | 420.9 | |
| Elimination of intercompany profit in inventory | | (2.4) | | | (2.8) | | | (3.8) | |
| Elimination of intercompany receivables | | (921.0) | | | (906.2) | | | (767.9) | |
| Elimination of investment in subsidiaries | | (456.8) | | | (329.6) | | | (296.7) | |
| Other | | (22.1) | | | (26.6) | | | (26.2) | |
| Total consolidated assets | | $ | 911.3 | | | $ | 848.2 | | | $ | 800.5 | |
| Assets | | | | | | | | | |
| Total assets for reportable segments | | $ | 1,474,191 | | | $ | 1,436,653 | | | $ | 1,529,493 | |
| Corporate assets | | | 420,931 | | | | 367,211 | | | | 390,300 | |
| Elimination of intercompany profit in inventory | | | (3,823 | ) | | | (4,986 | ) | | | (7,075 | ) |
| Elimination of intercompany receivables | | | (767,907 | ) | | | (664,914 | ) | | | (717,873 | ) |
| Elimination of investment in subsidiaries | | | (296,650 | ) | | | (300,709 | ) | | | (303,209 | ) |
| Other | | | (26,244 | ) | | | 22,202 | | | | (2,057 | ) |
| Total consolidated assets | | $ | 800,498 | | | $ | 855,457 | | | $ | 889,579 | |
Sales into major geographic regions were as follows:
| | Year Ended December 31 | | | | | | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | 2017 | | | Years Ended December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 | | 2019 |
| United States | | $ | 908,466 | | | $ | 915,814 | | | $ | 932,294 | | United States | | $ | 842.1 | | | $ | 817.0 | | | $ | 908.5 | |
| Canada | | | 66,855 | | | | 61,582 | | | | 65,509 | | Canada | | 69.8 | | | 57.9 | | | 66.8 | |
| Australia and Oceania | | Australia and Oceania | | 43.4 | | | 28.5 | | | 42.3 | |
| Africa | | | 44,749 | | | | 45,613 | | | | 36,847 | | Africa | | 33.9 | | | 22.4 | | | 44.7 | |
| Australia and Oceania | | | 42,304 | | | | 38,645 | | | | 40,201 | | |
| Other European Countries | | | 32,170 | | | | 25,985 | | | | 18,679 | | Other European Countries | | 32.7 | | | 23.2 | | | 32.2 | |
| Brazil | | Brazil | | 21.5 | | | 20.4 | | | 11.6 | |
| South America (excluding Brazil) | | | 17,928 | | | | 30,081 | | | | 18,562 | | South America (excluding Brazil) | | 15.2 | | | 21.9 | | | 17.9 | |
| Brazil | | | 11,582 | | | | 6,292 | | | | 10,478 | | |
| Mexico | | Mexico | | 13.5 | | | 2.9 | | | 5.3 | |
| Other Asian Countries | | Other Asian Countries | | 5.0 | | | 2.7 | | | 6.5 | |
| Central America (excluding Mexico) | | Central America (excluding Mexico) | | 3.9 | | | 1.3 | | | 4.9 | |
| Post-Soviet States (excluding Russia) | | | 7,276 | | | | 2,730 | | | | 5,951 | | Post-Soviet States (excluding Russia) | | 3.6 | | | 3.1 | | | 7.3 | |
| Other Asian Countries | | | 6,520 | | | | 5,472 | | | | 10,286 | | |
| Middle East | | Middle East | | 2.9 | | | 3.2 | | | 2.6 | |
| Japan and Korea | | Japan and Korea | | 2.7 | | | 8.1 | | | 3.6 | |
| India | | India | | 2.7 | | | 0.5 | | | 1.0 | |
| Russia | | Russia | | 2.6 | | | 4.0 | | | 5.1 | |
| West Indies | | | 6,366 | | | | 1,494 | | | | 3,421 | | West Indies | | 1.3 | | | 6.1 | | | 6.4 | |
| Mexico | | | 5,280 | | | | 9,632 | | | | 8,508 | | |
| Russia | | | 5,097 | | | | 9,571 | | | | 13,609 | | |
| Central America (excluding Mexico) | | | 4,910 | | | | 2,706 | | | | 2,929 | | |
| Japan and Korea | | | 3,594 | | | | 3,649 | | | | 4,760 | | |
| Middle East | | | 2,584 | | | | 7,877 | | | | 4,881 | | |
| China | | | 2,231 | | | | 2,765 | | | | 6,113 | | China | | 0.4 | | | 1.2 | | | 2.2 | |
| India | | | 1,003 | | | | 957 | | | | 1,026 | | |
| Other | | | 698 | | | | 734 | | | | 685 | | Other | | — | | | — | | | 0.7 | |
| Total foreign | | | 261,147 | | | | 255,785 | | | | 252,445 | | Total foreign | | 255.1 | | | 207.4 | | | 261.1 | |
| Total consolidated sales | | $ | 1,169,613 | | | $ | 1,171,599 | | | $ | 1,184,739 | | Total consolidated sales | | $ | 1,097.2 | | | $ | 1,024.4 | | | $ | 1,169.6 | |
Long-lived assets by major geographic region are as follows:
| | December 31 | |
| | | 2019 | | | 2018 | |
| United States | | $ | 157,872 | | | $ | 162,775 | |
| Northern Ireland | | | 10,790 | | | | 7,641 | |
| Brazil | | | 8,349 | | | | 8,866 | |
| Australia | | | 4,649 | | | | 4,624 | |
| South Africa | | | 4,512 | | | | 4,682 | |
| Canada | | | 4,007 | | | | 3,480 | |
| Chile | | | 184 | | | | 35 | |
| Germany | | | – | | | | 345 | |
| Total foreign | | | 32,491 | | | | 29,673 | |
| Total | | $ | 190,363 | | | $ | 192,448 | |
| | | | | | | | | | | | | | |
| | December 31, |
| (in millions) | | 2021 | | 2020 |
| United States | | $ | 140.3 | | | $ | 140.3 | |
| United Kingdom | | 11.7 | | | 11.9 | |
| Brazil | | 5.6 | | | 6.3 | |
| Canada | | 5.3 | | | 4.8 | |
| Australia | | 4.6 | | | 5.1 | |
| South Africa | | 3.9 | | | 4.0 | |
| Chile | | 0.3 | | | 0.4 | |
| | | | |
| Total foreign | | 31.4 | | | 32.5 | |
| Total consolidated assets | | $ | 171.7 | | | $ | 172.8 | |
19.20. Accumulated Other Comprehensive Loss
The after-tax components comprising accumulated"Accumulated other comprehensive loss isloss" are summarized below:
| | December 31 | | | | | | | | | | | | | |
| | | 2019 | | | 2018 | | | December 31, |
| (in millions) | | (in millions) | | 2021 | | 2020 |
| Foreign currency translation adjustment | | $ | (28,627 | ) | | $ | (30,656 | ) | Foreign currency translation adjustment | | $ | (32.4) | | | $ | (30.4) | |
| Unrecognized pension and post-retirement benefit cost, net of tax of $1,265 and $2,230, respectively | | | (3,176 | ) | | | (3,227 | ) | |
| Unrecognized pension and postretirement benefits cost, net of tax of $1.3 in 2020 | | Unrecognized pension and postretirement benefits cost, net of tax of $1.3 in 2020 | | — | | | (3.1) | |
| Accumulated other comprehensive loss | | $ | (31,803 | ) | | $ | (33,883 | ) | Accumulated other comprehensive loss | | $ | (32.4) | | | $ | (33.5) | |
See Note 12, Pension and Retirement14, Employee Benefit Plans, for discussion of the amounts recognized in accumulated"Accumulated other comprehensive lossloss" related to the Company’s Kolberg-Pioneer, Inc.Company's defined pension plan.
20.21. Other Expenses and Income
Other income consists of the following:
| | Year Ended December 31 | |
| | | 2019 | | | 2018 | | | 2017 | |
| Investment income (loss) | | $ | 202 | | | $ | (228 | ) | | $ | (96 | ) |
| Licensing fees | | | – | | | | – | | | | 651 | |
| Other | | | 103 | | | | 764 | | | | 663 | |
| Total | | $ | 305 | | | $ | 536 | | | $ | 1,218 | |
21. Business Combinations and Divestitures
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Investment (loss) income | | $ | (0.3) | | | $ | — | | | $ | 0.2 | |
| | | | | | |
| Gain on disposal of subsidiary | | — | | | 1.6 | | | — | |
| Curtailment and settlement (loss) gain on pension and postretirement benefits, net | | (4.7) | | | 0.5 | | | — | |
| Other | | — | | | 0.5 | | | 0.1 | |
| Total | | $ | (5.0) | | | $ | 2.6 | | | $ | 0.3 | |
22. Strategic Transformation and Restructuring, Impairment and Other Asset Charges
In October 2017,2018, the Company acquired substantially allmade several strategic decisions to divest of the assets and liabilities of RexCon LLC (“RexCon”) for a total cash purchase price of $26,443. The Company’s allocation of the purchase price includes the recognition of $3,488 of goodwill and $7,778 of other intangible assets consisting of non-compete agreements (5-year useful life), technology (19-year useful life), trade names (15-year useful life), and customer relationships (18-year useful life). The revenues and results of operations of RexCon were not significant in relation to the Company’s consolidated financial statements for the period ended December 31, 2017 and would not have been material on a proforma basis to any earlier period. RexCon’s operating results are included in the Company’s Energy Group beginning in the fourth quarter of 2017. The Company determined that the full $3,488 of goodwill recorded due to the acquisition was impaired in the fourth quarter of 2018.
RexCon, located in Burlington, Wisconsin was founded in 2003 through an asset acquisition with the original company founded over 100 years ago. RexCon is a manufacturer of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. RexCon specializes in providing portable, high-production concrete equipment to contractors and producers worldwide in a totally integrated turnkey production system,underperforming manufacturing sites or product lines, including customized site layout and design engineering, batch plants, mixers, water heaters and chillers, ice production and delivery systems, material handling conveyors, gensets and power distribution, cement silos and screws, central dust collection, aggregate heating and cooling systems, batch automation controls and batch office trailers.
On October 21,2019, the Company announced the closing of CEI Enterprises, Inc. (“CEI”) located in Albuquerque, New Mexico. The decision to close certain of its subsidiaries, close and sell its manufacturing sites and relocate the business was based in part on market conditions and manufacturing facilities underutilization. The marketing and manufacturingproduct lines manufactured at each of products previously produced by CEI will be transferredthese sites to other Company facilities.locations; exit the oil, gas and water well product lines; and sell certain assets. These actions, which have subsequently been incorporated into the Company's Simplify, Focus and Grow Strategic Transformation ("SFG") initiative beginning in 2019, generally include facility rationalization, asset impairment, workforce reduction and the associated costs of organizational integration activities. The industrialCompany has incurred $13.4 million of incremental costs for the SFG initiative in 2021, which are recorded in "Selling, general and heat-related products and inventory of CEI will be transferred to the Company’s Heatec, Inc. location, while the concrete-related products and inventory will be relocated to RexCon, Inc. CEI’s land, building and leasehold improvements (which are included in assets held for sale and valued at $2,749administrative expenses" in the accompanying consolidated balance sheetConsolidated Statements of Operations. In addition, the Company periodically sells or disposes of its assets in the normal course of its business operations as they are no longer needed or used and may incur gains or losses on these disposals. Certain of the costs associated with these decisions are separately identified as restructuring. The Company reports asset impairment charges and gains or losses on the sales of property and equipment collectively, with restructuring charges in"Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The Company incurred costs for these activities of $2.5 million, $8.1 million and $3.2 million in 2021, 2020 and 2019, respectively.
The restructuring, asset impairment charges and net gain on sale of property and equipment incurred in 2021, 2020 and 2019 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Restructuring related charges: | | | | | | |
| Costs associated with closing Tacoma | | $ | 1.6 | | | $ | 0.9 | | | $ | — | |
| Costs associated with closing Enid | | 0.7 | | | 2.5 | | | — | |
| Costs associated with closing Mequon | | 0.6 | | | 3.3 | | | — | |
| Costs associated with closing Albuquerque | | — | | | 1.3 | | | — | |
| Costs associated with closing AMM | | — | | | 0.3 | | | 1.3 | |
| Costs associated with exiting the wood pellet business | | — | | | — | | | 0.5 | |
| Workforce reductions at multiple sites | | — | | | 1.3 | | | 1.1 | |
| Other restructuring charges | | — | | | 0.3 | | | — | |
| Total restructuring related charges | | 2.9 | | | 9.9 | | | 2.9 | |
| | | | | | |
| Asset impairment charges: | | | | | | |
| Airplane impairment charges | | — | | | 2.3 | | | 0.3 | |
| Goodwill impairment charges | | — | | | 1.6 | | | — | |
| Other impairment charges | | 0.2 | | | 0.5 | | | — | |
| Total asset impairment charges | | 0.2 | | | 4.4 | | | 0.3 | |
| | | | | | |
| Gain on sale of property and equipment, net: | | | | | | |
| Gain on sale of property and equipment, net | | (0.6) | | | (6.2) | | | — | |
| Total gain on sale of property and equipment, net | | (0.6) | | | (6.2) | | | — | |
| | | | | | |
| Restructuring, impairment and other asset charges, net | | $ | 2.5 | | | $ | 8.1 | | | $ | 3.2 | |
Restructuring charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Infrastructure Solutions | | $ | 2.4 | | | $ | 6.2 | | | $ | 2.9 | |
| Materials Solutions | | 0.5 | | | 3.6 | | | — | |
| Corporate | | — | | | 0.1 | | | — | |
| Total restructuring related charges | | $ | 2.9 | | | $ | 9.9 | | | $ | 2.9 | |
Impairment charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Infrastructure Solutions | | $ | — | | | $ | 1.9 | | | $ | — | |
| Materials Solutions | | 0.2 | | | (0.2) | | | 0.3 | |
| Corporate | | — | | | 2.7 | | | — | |
| Total impairment charges | | $ | 0.2 | | | $ | 4.4 | | | $ | 0.3 | |
The net gain on sale of property and equipment by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| (in millions) | | 2021 | | 2020 | | 2019 |
| Infrastructure Solutions | | $ | (0.5) | | | $ | (1.5) | | | $ | — | |
| Materials Solutions | | (0.1) | | | (4.7) | | | — | |
| | | | | | |
| Total gain on sale of property and equipment, net | | $ | (0.6) | | | $ | (6.2) | | | $ | — | |
Restructuring charges accrued, but not paid, were $1.2 million and $1.1 million as of December 31,2019) are expected to be sold “as-is”. Selected equipment has been transferred to the Heatec, Inc. 2021 and RexCon, Inc. facilities. CEI is scheduled to close during the first quarter of 2020.
December 31, 2020, respectively.
While reviewing performance criteria against actual results of all Astec companies during a strategic planning meeting held by management inIn late 2018, it was determined that Astec Mobile Machinery GmbH (“AMM”)AMM did not meet the desired performance metrics.metrics, and the decision was made to close this site. Documents were filed by the Company in the German court system in December 2018 to begin the process of liquidating AMM. Essentially all of the assets were liquidated prior to December 31,2019, with the exception of the sale of its land and building, which arewere included in assets held for sale and valued at $335$0.3 million in the accompanying consolidated balance sheetConsolidated Balance Sheets at December 31, 2019.2019 and sold in January 2020. Losses on the liquidation incurred in 2019are included in restructuring"Restructuring, impairment and other asset impairment charges, net" in the accompanying statementConsolidated Statement of operationsOperations for the year ended December 31, 2019.2020. The sale of AMM’sAMM's land and building was completed in January 2020 and the resulting gain on sale of fixed assets of $0.7 million was recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the first quarter of 2020.
with no additional loss being incurred.
On October 21, 2019, the Company announced the closing of its Albuquerque, New Mexico location. The decision to close the site was based in part on market conditions and manufacturing facility underutilization. The marketing and manufacturing of products previously produced by the site were transferred to other Company had totalfacilities. The site was closed as of March 31, 2020. The site's land, building and leasehold improvements, which were included in assets held for sale of $3,084and valued at December 31, 2019, including $335 at AMM and $2,749 at CEI.
22. Restructuring and Asset Impairment Charges
During 2018 and 2019, the Company made several strategic decisions to divest of non-performing product lines or manufacturing sites, including its plan to exit from the wood pellet plant line of business; the closing of its subsidiary in Germany (Astec Mobile Machinery (“AMM”)); its plan to close and sell its CEI, Inc. manufacturing site in Albuquerque, NM (the CEI product lines will continue to be produced and marketed at other Company locations); its plan to exit the GEFCO oil and gas product line; and its plan to sell a Company-owned airplane. Certain of the costs associated with these decisions are separately identified as restructuring and asset impairment charges of $3,204 and $13,060 in 2019 and 2018, respectively,$2.8 million in the accompanying consolidated statements of operations.
The restructuring and asset impairment charges incurred in 2019 and 2018 are as follows:
| | 2019 | | | 2018 | |
| Costs associated with exiting the wood pellet business | | $ | 530 | | | $ | – | |
| Costs associated with closing AMM | | | 1,282 | | | | 1,870 | |
| Goodwill impairment charges | | | – | | | | 11,190 | |
| Energy Group severance and other costs | | | 1,142 | | | | – | |
| Airplane impairment charge | | | 250 | | | | – | |
| Total restructuring and asset impairment charges | | $ | 3,204 | | | $ | 13,060 | |
Restructuring charges accrued, but not paid,Consolidated Balance Sheets as of December 31, 2019, were sold in the third quarter of 2020 for $3.2 million. The resulting $0.4 million gain was recorded in "Restructuring, impairment and 2018other asset charges, net" in the Consolidated Statements of Operations during the third quarter of 2020.
In late 2019, the oil and gas drilling product lines produced at the Enid, Oklahoma location were impaired and discontinued. The remaining assets were sold in the third quarter of 2020 for $1.1 million, which is reported in "Other (expenses) income, net" in the Consolidated Statements of Operations. Additional restructuring costs of $0.7 million were incurred during 2021. Enid's land and building assets totaling $5.1 million are not significant.included in "Assets held for sale" in the Consolidated Balance Sheets at December 31, 2021 and December 31, 2020.
In June 2020, the Company announced the closing of the Mequon site in order to simplify and consolidate operations. The Mequon facility ceased production operations in August 2020, and the sale of the land and building for $8.5 million was completed in December 2020. The Company recorded a gain on the sale of $4.7 million, which was recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the fourth quarter of 2020. Charges primarily related to production facility transition activities of $0.6 million were incurred during 2021.
In October 2020, the Company closed a transaction for the sale of water well assets of the Company's Enid location, which included equipment, inventories and intangible assets. The purchase price for this transaction was approximately $6.9 million, net of purchase price adjustments completed in January 2021 whereby the Company had an obligation to pay the buyer $1.1 million. This obligation is included in "Other current liabilities" in the Consolidated Balance Sheets at December 31, 2020. The Company recorded a $0.5 million gain on the sale of this business in the fourth quarter of 2020 in "Other (expenses) income, net" in the Consolidated Statements of Operations.
In January 2021, the Company announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of the Tacoma product lines to other facilities within the Infrastructure Solutions segment is expected to be completed during early 2022. In conjunction with this action, the Company recorded $0.9 million of restructuring related charges during the fourth quarter of 2020 in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. Additional restructuring charges of $1.6 million were incurred during 2021 primarily associated with severance and retention costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has established and maintains disclosure controls and procedures that are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2021, the Company's disclosure controls and procedures were effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f) under the Exchange Act). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management carried out an evaluation of the effectiveness of the Company's internal control over financial reporting as of December 31, 2021, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013) ("COSO"). Based on that evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is set forth in Part II, Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the three month period ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our Board of 5 Year Cumulative Total ReturnDirectors has approved a Code of Conduct and Ethics that applies to our employees, directors and officers (including our principal executive officer, principal financial officer and principal accounting officer). The Code of Conduct and Ethics is available on our website at www.astecindustries.com/investors/. We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Conduct and Ethics by posting such information on our website at the address specified above.
Assumes Initial Investment
The remaining information required by this Item 10 will be included in our 2022 Definitive Proxy Statement for our Annual Meeting of $100Shareholders (the "Proxy Statement") and is incorporated herein by reference.
Performance Graph for Astec Industries, Inc.
Notes:The information required to be disclosed by this Item 11 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
The information required to be disclosed by this Item 12 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required to be disclosed by this Item 13 will be included in the Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Atlanta, Georgia, Auditor Firm ID: 185
The information required to be disclosed by this Item 14 will be included in the Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) The following financial statements and the other information listed below appear in Part II, Item 8. Financial Statements and Supplementary Data to this Report and are filed as a part hereof:
•Reports of Independent Registered Public Accounting Firm
•Consolidated Balance Sheets as of December 31, 2021 and 2020
•Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019
•Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019
•Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019
•Consolidated Statements of Equity for the Years Ended December 31, 2021, 2020 and 2019
•Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Consolidated Financial Statements or Notes thereto.
(b) The following Exhibits are incorporated by reference into or are filed with this Report:
| A. | Data complete through last fiscal year. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| B. | Corporate Performance Graph with peer group uses peer group only performance (excludes only company). |
| C. | Peer group indices use beginning of period market capitalization weighting. |
| D. | PreparedIncorporated by Zacks Investment Research, Inc. Used with permission. All rights reserved Copyright 1980-2020.Reference |
| Exhibit Number | | E.Exhibit Description | Calculated (or Derived) based from CRSP NYSE/AMEX/NASDAQ Market (US Companies), Center for Research in Security Prices (CRSP®), Graduate School of Business, The University of Chicago. Copyright 2020. Used with permission. All rights reserved. |
| F.Filed Herewith | The graph assumes $100 invested at the closing price | Form | | Period Ended | | Filing Date |
| 3.1 | | |
January 15, 1999
ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX OF EXHIBITS FILED HEREWITH
Exhibit Number | Description | | | 10-Q | | 9/30/2011 | | 11/9/2011 |
| 3.2 | | | | | | 10-Q | | 6/30/2019 | | 8/7/2019 |
| 10.1 | | | | | | 10-Q | | 3/31/2012 | | 5/10/2012 |
| 10.2 | | | | | | 10-Q | | 3/31/2017 | | 5/8/2017 |
| 10.3 | | | | | | 10-K | | 12/31/2018 | | 3/18/2019 |
| 10.4 | | | | | | DEF 14A | | | | 3/23/1998 |
| 10.5 | | | | | | DEF 14A | | | | 3/4/2011 |
| 10.6 | | | | | | DEF 14A | | | | 3/18/2021 |
| 10.7 | | | | | | 10-Q | | 6/30/2016 | | 8/5/2016 |
| 10.8 | | | | | | 8-K | | 1/5/2022 | | 1/5/2022 |
| 10.9 | | | | | | 8-K | | 1/5/2022 | | 1/5/2022 |
| 10.10 | | | | | | 10-K | | 12/31/1995 | | 3/15/1996 |
| 10.11 | | | | | | 10-K | | 12/31/2008 | | 2/27/2009 |
| 10.12 | Separation Agreement and General Release, dated as of December 31, 2019, by and between | | | | | 10-K | | 12/31/2016 | | 3/1/2017 |
| 10.13 | | | Amendment to "Appendix A" | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 10.14 | | | | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 10.15 | | | | | | 10-Q | | 3/31/2021 | | 5/6/2021 |
| 21 | | | | X | | | | | | |
| | | | X | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
| CertificationAstec Industries, Inc. pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.Of 2002 | | X | | | | | | |
| 31.2 | | | | X | | | | | | |
| 32.1 | | | | X | | | | | | |
101.INS32.2 | Inline XBRL Instance Document (the instance document does not appear in | | | X | | | | | | |
101.SCH101 | | The following materials from the Company's Annual Report on Form 10-K for the year ended December 31, 2021 formatted in Inline XBRL Taxonomy Extension SchemaExtensible Business Reporting Language ("iXBRL"): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Comprehensive Income (Loss), (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Equity and (vi) related notes, tagged as blocks of text and including detailed tags. | | X | | | | | | |
101.CAL104 | Inline XBRL Taxonomy Extension Calculation Linkbase | Cover page from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, formatted in iXBRL (included as Exhibit 101). | | X | | | | | | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
101.PRE*Management contract or compensatory plan or arrangement | Inline XBRL Taxonomy Extension Presentation Linkbase |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | | | | | | |
ITEM 16. FORM 10-K SUMMARY
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Astec Industries, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: February 28, 2022
| | | | | | | | |
| ASTEC INDUSTRIES, INC. (Registrant) | |
| | |
| BY: /s//s/ Barry A. Ruffalo | |
| Barry A. Ruffalo, President and Chief Executive Officer and President | |
Date: March 17, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE | TITLE | DATE | | | | | | | | | | | | |
| SIGNATURE | | TITLE | | DATE |
| | | | |
| /s/ Barry A. Ruffalo | | President and Chief Executive Officer and President (PrincipalDirector | March 17, 2020 | February 28, 2022 |
| Barry A. Ruffalo | | (Principal Executive Officer) and Director | | |
| | | | |
| /s/ Rebecca A. Weyenberg | | Chief Financial Officer (Principal Financial and Accounting | March 17, 2020 | February 28, 2022 |
| Rebecca A. Weyenberg | Officer) | (Principal Financial Officer) | | |
| | | | |
| /s/ Jamie E. Palm | | Vice President, Chief Accounting Officer and Corporate Controller | | February 28, 2022 |
| Jamie E. Palm | | (Principal Accounting Officer) | | |
| | | | |
| /s/ William D. Gehl | | Director and Chairman of the Board | March 17, 2020 | February 28, 2022 |
| William D. Gehl | | | | |
| | | | |
| /s/ James B. Baker | Director | March 17, 2020Director | | February 28, 2022 |
| James B. Baker | | | | |
| | | | |
| /s/ Tracey H. Cook | Director | March 17, 2020Director | | February 28, 2022 |
| Tracey H. Cook | | | | |
| | | | |
| /s/ William G. Dorey | Director | March 17, 2020Director | | February 28, 2022 |
| William G. Dorey | | | | |
| | | | |
/s/ Daniel K. FriersonMary L. Howell | Director | March 17, 2020Director | | February 28, 2022 |
Daniel K. FriersonMary L. Howell | | | | |
| | | | |
| /s/ Charles F. Potts | Director | March 17, 2020Director | | February 28, 2022 |
| Charles F. Potts | | | | |
| | | | |
| /s/ William B. Sansom | | Director | | February 28, 2022 |
| William B. Sansom | | | | |
| | | | |
| /s/ William Bradley Southern | | Director | | February 28, 2022 |
| William Bradley Southern | | | | |
| | | | |
| /s/ Glen E. Tellock | Director | March 17, 2020Director | | February 28, 2022 |
| Glen E. Tellock | | |
| | |
/s/ William B. Sansom | Director | March 17, 2020 |
William B. Sansom | | |
| | |
/s/ William Bradley Southern | Director | March 17, 2020 |
William Bradley Southern | | |
| | |
/s/ Mary L. Howell | Director | March 17, 2020 |
Mary L. Howell | | |
