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ANNUAL REPORT
2019
1725 Shepherd Road • Chattanooga, TN 37421
+423.899.5898 • astecindustries.com
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Transfer Agent
Computershare
250 Royall Street, Canton, MA 02021
800.617.6437
www.computershare.com/investor
Stock Exchange
NASDAQ, National Market—ASTE
Independent Auditors
KPMG LLP, Knoxville, TN
General Counsel and Litigation
Chambliss, Bahner & Stophel, P.C.,
Chattanooga, TN
Securities Counsel
Alston & Bird LLP, Atlanta, GA
Investor Relations
Stephen C. Anderson
423.553.5934
Corporate Office
Astec Industries, Inc.
1725 Shepherd Road
Chattanooga, TN 37421
Ph 423.899.5898 Fax 423.899.4456
www.astecindustries.com
The Form 10-K, as filed with the
Securities and Exchange Commission,
may be obtained at no cost by any
shareholder upon written request to
Astec Industries, Inc., Attention
Investor Relations.
The Company’s Code of Conduct is
posted at www.astecindustries.com.
The Annual Meeting will be held on
April 30, 2020, at 10:00 A.M. EST in
the Training Center of Astec, Inc.
located at 4101 Jerome Avenue,
Chattanooga, TN 37407.
Simplify . Focus . Grow
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2019 ANNUAL REPORT
1
CORE VALUES
Dedication
Continuous devotion
to meeting the needs
of our customers.
Integrity
Honesty and integrity in all
aspects of business.
Respect
Respect for all individuals.
Innovation
Preserving entrepreneurial spirit
and innovation.
Safety
Safety, quality and productivity
as means to ensure success.
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2
ASTEC INDUSTRIES, INC.
STRATEGIC PILLARS
SIMPLIFY
FOCUS
GROW
Leverage global
footprint and scale
while maintaining strong
customer relationships
Reduce organizational
structure complexity
Consolidate and
rationalize footprint
and product portfolio
Optimize supply chain
by leveraging size and
scale of business
Strengthen customer-
centric approach by
providing a holistic
set of solutions
Drive commercial
excellence
Embrace and
streamline operational
excellence processes
Enhance accountability
through a performance-
based culture
with aligned KPIs
and incentives
Reinvigorate innovation
with a new product
development approach
Leverage technology
and digital connectivity
to enhance
customer experience
Capitalize on global
growth opportunities
Allocate capital
effectively to
drive greatest
shareholder value
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2019 ANNUAL REPORT
3
William D. Gehl
Chairman of the Board
Barry Ruffalo
President // CEO
DEAR FELLOW SHAREHOLDERS:
2019 was transformative for Astec Industries
as challenges provided an opportunity for
observation, reflection and action. As a
result, the board of directors asked Barry
Ruffalo to lead Astec Industries as President
and CEO. We are very excited about the
prospects this great company possesses and
look forward to building upon the incredible
legacy of the founders of Astec Industries.
Guided by our enduring Core Values, we are
in an enviable position with industry leading
brands within attractive markets in industries
benefitting from long-term secular trends. These
trends include population growth, increased
urbanization and aging infrastructure. In
addition, we benefit from having products with
industry-leading reputations for innovation,
best in class quality and superior customer
service. This level of industry regard for our
brands and products constitutes a stable
and reliable foundation to build upon.
During a listening tour to each facility, we met
with many committed and enthusiastic team
members and observed the passion and the
pride with which they carried out their work.
Paired with the respect customers have for
our products, a community of keen and willing
employees provides a solid structure more than
capable of supporting the growth of Astec.
SIMPLIFY . FOCUS . GROW
After assessing the feedback gathered through
the listening tour, the Astec leadership team
identified the pillars that will frame our strategy
going forward: Simplify, Focus and Grow.
Simplify, Focus and Grow was conceived as
a disciplined and sustainable approach to
achieve our organizational goals. These three
pillars are instrumental to how we will move
forward as an organization. As we implement
the Simplify, Focus and Grow strategy, initiatives
are underway to identify those elements that
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4
ASTEC INDUSTRIES, INC.
CONSOLIDATED
NET SALES
(in billions)
2019 NET SALES
BY SEGMENT
2019 NET SALES
GEOGRAPHY
1.18
1.17
1.17
1.15
42%
Infrastructure
35%
Aggregate
and Mining
78%
Domestic
22%
International
2016
2017
2018
2019
23%
Energy
add value to our business and our product lines
and create a plan to invest in these areas.
Among those actions undertaken to simplify
the organization, we have streamlined the
management structure to improve our agility,
speed of decision making and strategic focus.
We also made the difficult decision to exit our
German operation, divest of the GEFCO business
and close our facility in New Mexico by moving
products to other existing manufacturing sites.
As we move forward, we will continue to reduce
complexity while optimizing our organizational
structure, footprint and product portfolio.
As we target our areas of focus, we will continue
to strengthen our customer-centric approach
by providing a holistic set of solutions to
drive commercial excellence. We are pleased
with the enthusiasm with which our team has
embraced and is beginning to implement
operational excellence processes. Our next
steps are to enhance accountability through a
performance-based culture with key performance
indicators and incentives that better align
our team with shareholder value creation.
With the Simplify, Focus and Grow pillars as
our framework, Astec Industries is building
an organizational structure centered on
product platforms and functional roles versus
independent subsidiary companies. The new,
lean structure is more efficient, agile and well
positioned for growth while still demonstrating
our core values on a daily basis. Responses
from employees have been positive and we are
encouraged by the enthusiasm within Astec
Industries to the changes being implemented.
RENEWED FOCUS ON INNOVATION
To enhance sustainable growth, we have
launched programs to reinvigorate innovation
across all brands with a new, product
development approach. To that effort, a new
position entitled Senior Vice President of
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2019 ANNUAL REPORT
5
Innovation was created and a new product
development council was formed. Through a
disciplined process we will identify investment
opportunities that meet return on invested
capital objectives. Furthermore, we are
strengthening our product management group
to leverage the voice of the customer. Building
strategies for product lines on a company-
wide basis versus independent subsidiary
companies will reduce complexity, redundancy
and costs, and allow us to redeploy cash in
areas that support efficient value creation and
growth. Our invigorated innovation program
creates market advantages that will benefit
our customers, shareholders and employees.
OPERATIONAL EXCELLENCE AND
TECHNOLOGICAL ADVANCEMENT
Astec Industries has an excellent foundation
in place bolstered by new and existing talents.
Among the new talents were the creation of the
roles of Senior Vice President of Operational
Excellence and Chief Information Officer.
Our sales and operations planning process
provides the foundation to deploy resources
in a way that yields maximum productivity
and efficiency throughout our company. A
key initiative of Operational Excellence is to
fully realize the benefit of the Astec strategic
sourcing program. We are seeing results from
the strategic procurement initiative we began in
2018. Data analytics led to an operational shift to
best cost sourcing while providing organization
wide transparency to inventory and stock levels.
Installation of key performance indicators
and reporting standards across procurement
ensures progress is maintained going forward.
The newly created position of Chief Information
Officer is the first such position in the history of
our company. We can now leverage technology
and digital connectivity to enhance the customer
experience and streamline back office support.
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6
ASTEC INDUSTRIES, INC.
Additionally, we will optimize and consolidate
computer systems by use of innovative products
such as middleware that allow for significant
progress without undue risk and expense.
INTERNATIONAL OPPORTUNITIES
Internationally, the demographics are compelling
and opportunity exists to drive incremental
growth. To execute our international strategy
we have, and will continue to establish, regional
offices around the world while allocating capital
effectively. By being in region we are able to
develop best-in-class products for the right
markets and provide excellent customer service.
In closing, we are excited about the outlook
for Astec Industries. We have taken positive
actions to build the foundation of an agile and
resilient organization ready to take advantage
of opportunities to better deliver growth,
operational performance and shareholder value.
On behalf of our leadership team and the board
of directors, we thank you for your support.
Sincerely,
Barry Ruffalo
President and CEO
William D. Gehl
Chairman of the Board
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2019 ANNUAL REPORT
7
(Pictured from left to right) Jeff Schwarz // Michael Norris // Scott Barker // Becky Weyenberg // Greg Oswald // Barry Ruffalo // Matt Litchfield
Tim Averkamp // Jaco van der Merwe // Steve Anderson
LEADERSHIP TEAM
Barry Ruffalo
President and Chief Executive Officer
Tim Averkamp
Group President
Becky Weyenberg
Chief Financial Officer
Jaco van der Merwe
Group President
Jeff Schwarz
Group President
Michael Norris
Vice President, International
Matt Litchfield
Chief Information Officer
Scott Barker
Senior Vice President, Innovation
Greg Oswald
Senior Vice President,
Operational Excellence
Steve Anderson
Senior Vice President of Administration,
Investor Relations and
Corporate Secretary
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8
ASTEC INDUSTRIES, INC.
(Pictured from left to right) Glen Tellock // William Gehl // William Dorey // Barry Ruffalo // William Sansom // Brad Southern
Charles Potts // Mary Howell // Tracey Cook // Daniel Frierson // James Baker
BOARD OF DIRECTORS
William Gehl (1)
Chairman of the Board
Chairman of FreightCar America,
Chairman of IBD of Southeast Wisconsin
Barry Ruffalo
President and
Chief Executive Officer
James Baker (1,3)
Managing Partner,
River Associates Investments, LLC.
Audit Committee, Chair
William Dorey (1,3)
Former CEO & President,
Granite Construction, Inc.
Compensation Committee, Chair
Daniel Frierson (1,2)
Chairman and CEO,
Dixie Group, Inc.
Nominating & Corp. Governance, Chair
Mary Howell (1,2)
Founder and CEO,
Howell Strategy Group
Tracey Cook (1,3)
President,
(AMECO) American Equipment Company, Inc.
Charles Potts (1,2)
Chairman of Heritage Construction Materials
(1) Audit Committee • (2) Nominating & Corporate Governance • (3) Compensation Committee
William Sansom (1,2)
Chairman & CEO,
The H.T. Hackney Company
Brad Southern (1,3)
CEO,
Louisiana-Pacific Corp.
Glen Tellock (1,3)
President and CEO,
Lakeside Foods, Inc.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
Form 10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________________
Commission file number 001-11595
ASTEC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Tennessee
(State or other jurisdiction of incorporation or organization)
62-0873631
(I.R.S. Employer Identification No.)
1725 Shepherd Road, Chattanooga, Tennessee
(Address of principal executive offices)
37421
(Zip Code)
Registrant's telephone number, including area code:
(423) 899-5898
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Common Stock
Trading Symbol(s)
ASTE
Name of each exchange on which registered
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.
Yes ☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically 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).
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ☒
Non-accelerated Filer ☐
Accelerated 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
As of June 28, 2019, 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 based upon the closing sales price as reported on the NASDAQ National Market System.
As of February 21, 2020, there were 22,551,781 shares of Common Stock outstanding, par value $0.20.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document(s) have been incorporated by reference into Parts of this Annual Report on Form 10-K as
indicated below:
Proxy Statement relating to Annual Meeting of Shareholders to be held on April 30, 2020
Document
Form 10-K
Part III
ASTEC INDUSTRIES, INC.
2019 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Executive Officers
Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
Appendix A ITEMS 6, 7, 7A, 8, 9A, 15(a)(1), and 15(b)
Signatures Signatures
Page
2
14
21
21
23
24
24
25
25
26
26
26
26
26
26
27
27
27
28
28
28
30
A-1
GENERAL
Unless otherwise indicated by the context, all references in this Annual Report on Form 10-K to “we,” “us,” “our,” or the
“Company” refer to Astec Industries, Inc. and our subsidiaries. References to “Parent Company” in this Annual Report on Form 10-
K refer to Astec Industries, Inc. only. 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 STATEMENTS
This Annual Report on Form 10-K 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 on Form 10-K that are not
limited to historical information are considered forward-looking statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding:
execution of the Company’s growth and operation strategy;
changes in tax laws and tariffs;
interest rates;
integration of acquisitions;
industry trends;
●
● 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;
●
forecasting of results;
●
● general economic trends, political uncertainty and the impact of the coronavirus on our business;
● government funding and growth of highway construction and commercial projects;
●
●
●
●
● 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;
●
●
●
●
●
● product liability and other claims;
●
● obligations with respect to pellet plants and other products;
● protection of proprietary technology and dependence on information technology systems;
●
● demand for products and services;
suitability of our current facilities;
fluctuations in our stock price;
anti-takeover measures;
future payment of dividends;
competition in our business segments;
legal proceedings and non-compliance;
cybersecurity risks;
1
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;
● our backlog;
●
●
●
●
● 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.
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;
inventories;
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”) 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 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.
Item 1.
Business
Part I
Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers,
manufactures and markets equipment and components used primarily in road building and related construction activities, as well as
other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the
aggregate to application of the road surface. 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;
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's products are marketed both domestically and internationally. In addition to equipment
sales, the Company manufactures and sells replacement parts for equipment in each of its product lines and replacement parts for some
competitors' equipment. The distribution and sale of replacement parts is an integral part of the Company's business.
2
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.
Aggregate 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
3.
the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets;
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.
3
The Company also has a business unit in Chile (Astec Industries, LatAm SpA (“Astec LatAm”)) and is in the start-up phase of
new sales operations in India and Thailand that market, service and install equipment and provide parts in the regions in which they
operate for many of the products produced by the Company’s manufacturing subsidiaries.
The Company's strategy is to be the industry's most cost-efficient producer in each of its product lines while continuing to
develop innovative new products and provide first-class service for its customers. Management believes that the Company is the
technological innovator in the markets in which it operates and is well positioned to capitalize on the need to rebuild and enhance
roadway and utility infrastructure as well as in other areas in which it offers products and services, both in the United States and abroad.
Segment Reporting
The Company’s business units have historically had their own management teams and offer different products and
services. The Company’s business units are aggregated into three reportable business segments based upon the nature of the product 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 to as (i) the Infrastructure Group, (ii) the Aggregate and Mining Group and (iii) the Energy Group. The remaining business
units not included in one of the reportable 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 limited operations to date. We refer to these companies as the “Corporate” category throughout this document. 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.
Financial information in connection with the Company's financial reporting for segments of a business and for geographic areas
under FASB Accounting Standards Codification 280 is included in Note 18, Operations by Industry Segment and Geographic Area, in
“Notes to Consolidated Financial Statements” presented in Appendix A of this Report.
Infrastructure Group
The Infrastructure Group 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 and related components primarily for the asphalt
production and paving industries. Certain component equipment supplied by Astec for asphalt plants is manufactured by other Company
subsidiaries such as heating and storage equipment (manufactured by the Company’s Energy Group) and material handling equipment
(manufactured by the Company’s Aggregate and Mining Group). 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. Astec introduced the concept of high plant portability for asphalt plants in 1979. Its
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.
Astec 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 Astec 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.
4
Astec is focused on producing equipment with the most advanced mix recycling technology in the industry. More tons of
recyclable asphalt pavement (“RAP”) are available than are currently being utilized due to restrictions in the amount of RAP allowed
by various governmental agencies. Astec’s 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’s 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’s 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, Astec completed testing of its new Voyager 140 portable asphalt
plant designed specifically for the international market. The Voyager 140’s design is based upon Astec’s proven Double Barrel drum
mixer and has production capacity of 140 tons per hour and RAP mixing capabilities of 50%; the Voyager 140 also provides full-size
plant features in a compact highly-portable configuration.
Roadtec manufactures asphalt pavers, material transfer vehicles, milling machines, soil stabilizing-reclaiming machinery and
other equipment used in road building and resurfacing. Roadtec pavers have been designed to minimize maintenance costs while
exceeding road surface smoothness requirements. The 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 mobile, self-propelled material transfer vehicle which 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 Buggy remixes the material to a uniform
temperature and gradation, thus eliminating these problems. Roadtec’s newest versions of its highly successful 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 time location information to the owner. Roadtec’s 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 milling machines designed to remove old asphalt from the road surface before new asphalt mix is
applied. Roadtec's 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 its half-lane and larger highway class milling machines, Roadtec also manufactures a smaller, utility class machine for two-to-four
foot cutting widths and a utility class cold planer model mounted on steel wheels.
Additionally, Roadtec currently produces soil stabilizers in 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 its patented screeds which attach to asphalt paving machines and place asphalt on the roadbed at a desired
thickness and width while smoothing and compacting the surface. Carlson screeds can be configured to fit many types of asphalt paving
machines, including machines manufactured by both the Company and its competitors. The Carlson screed uses a hydraulic powered
generator 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.
5
Astec Australia is a dealer that markets relocatable and portable asphalt plants and components produced by Astec, Heatec and
CEI, asphalt paving equipment and components produced by Roadtec and Carlson, and aggregate equipment produced by the
Company’s Aggregate & Mining Group. In prior years, a majority of its sales were to customers in the infrastructure industry; however,
in 2019, Astec Australia’s sales of the Company’s Aggregate and Mining products increased, and now the split between infrastructure
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.
Marketing
The Company markets its hot-mix asphalt products domestically under the Astec and Astec Dillman trademarks and
internationally under the Astec trademarks. Asphalt plants and related equipment are sold directly to asphalt producers or domestic and
foreign government agencies through Astec's domestic sales department and the International Sales Group of Astec Industries and
through a Company-owned dealership (Astec Australia).
The Company markets its asphalt paving equipment both domestically and internationally to highway and heavy equipment
contractors, utility contractors and foreign and domestic governmental agencies both directly and through dealers (including Astec
Australia in the Australian and New Zealand markets). Mobile construction equipment and factory authorized machine rebuild services
are marketed both directly and through dealers.
This segment’s products are marketed by 76 direct sales staff, 51 domestic independent distributors and 59 international
independent distributors, including Astec’s subsidiary in Australia.
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-held companies and various smaller manufacturers. Domestic hot-mix asphalt plant 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.
Employees
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 Group at December 31, 2019 and 2018 was approximately $139,081 and $149,436,
respectively. Management expects the entire current backlog to be filled in 2020.
6
Aggregate and Mining Group
The Company's Aggregate and Mining Group is comprised of eight business units which are focused on designing and
manufacturing heavy processing equipment, as well as servicing and supplying parts for the aggregate, metallic mining, recycling, ports
and bulk handling markets. These business units are Telsmith, KPI, AMS, JCI, BTI, Osborn, Astec Brazil and Telestack.
Products
Telsmith designs, engineers, manufactures and supports equipment servicing the construction, aggregate, metallic mining and
recycling markets. Telsmith’s core products are crushers, vibrating equipment, modular relocatable stationary plants, mobile portable
plants and larger track-mounted systems. Telsmith also provides consulting and engineering services to provide complete “turnkey”
processing systems. These systems often include electrical control centers and plant automation products engineered and produced by
Telsmith.
Telsmith maintains an ISO 9001:2015 certification, an internationally recognized standard of quality assurance. In addition,
Telsmith has achieved CE designation (a standard for quality assurance and safety) on its crushing and vibration equipment products
marketed into European Union countries.
Telsmith is a world leader in the development of hydraulic relief jaw crushers having patented its first model in 2002. Hydraulic
relief jaw crushers are a significant improvement in safety, adjustment and clearing of material in jaw crushers. The company’s current
Hydra-Jaw® line includes four models: H2238, H2550, H3244 and H3450.
Telsmith offers 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 crushers include technology features that deliver a
distinct performance advantage, such as hydraulic overload protection, chamber clearing, push button adjustment and Telsmith’s
proprietary anti-spin system.
Telsmith’s Vibro-King TL vibrating screen line features sizes from 4x10 single deck to 8x24 quadruple deck screens. The “TL”
screen vibrator, with its many service minded features, was introduced to the marketplace in 2006 and has been well received by
customers. The “Neverwear” sealing system is guaranteed to keep lubricants in and to never wear out. The “TL” includes wide 233
series bearings for added capacity, simple counterweight adjustments and Telsmith’s unique J-beam tray design.
KPI, JCI and AMS design, engineer, manufacture and support a complete line of stationary and portable aggregate processing
equipment for the aggregate metallic and nonmetallic, bulk handling, sand and gravel, mining, quarrying, concrete and asphalt recycling
and industrial markets. This equipment is marketed through an extensive network of KPI/JCI/AMS dealers.
KPI/JCI/AMS products include 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 also offer the highly-portable Fast Pack System, featuring
quick setup and teardown, thereby maximizing production time and minimizing downtime. KPI/JCI/AMS also offers portable fully self-
contained and self-propelled Fast Trax track-mounted jaw, cone, VSI and horizontal shaft crushers, which are ideal for either recycle or
hard rock applications, allowing the producer to move the equipment to the material. The KPI/JCI/AMS expanded GT line of track-
mounted crushing and screening plants focuses more specifically on the need for rental and global markets.
KPI/JCI/AMS portable plants combine various combinations of crushing, screening and conveying equipment mounted on tow
away chassis and track chassis configurations. Due to high transportation costs of construction materials, many producers use portable
equipment to process materials they need in close proximity to their job sites. Portable plants allow aggregate producers the ability to
quickly and efficiently move equipment from one location to another as their jobs necessitate. The portable track plants are fully self-
contained and allow operators to be producing materials within minutes of unloading equipment off of their transport trucks. 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.
7
KPI/JCI/AMS sand classifying and washing equipment is designed to clean, separate and re-blend material from sand deposits
to meet the size specifications for critical applications. Products offered include fine and coarse material washers, log washers, blade
mills, sand classifying tanks, cyclones, dewatering screens, density classifiers, sieve 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 conveying equipment is designed to move or store aggregate and other bulk materials in radial cone-shaped or
windrow stockpiles. The 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/AMS product lines.
BTl designs, engineers, manufactures and markets a complete line of industry leading rockbreaker systems for the mining,
quarry and recycling markets, and provides large-scale stationary rockbreakers for open pit mining, as well as mid-sized stationary rock
breakers for underground applications. In addition, BTI offers a full line of smaller rock breaker systems for mobile track and portable
primary crushing plants. BTl also designs, engineers, manufactures and markets a complete line of four wheel drive articulated
production and utility vehicles, scalers and rock breakers for underground mining.
In addition to supplying equipment for the mining and quarry industries, BTl also designs, manufactures and markets a complete
line of hydraulic breakers, compactors and demolition attachments for the North American construction and demolition markets.
BTl currently maintains ISO 9001:2015 (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 markets 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 suite of product offerings is sold on a global basis 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
(health and safety assurance) accreditations. Telestack is also an approved supplier of equipment that conforms to Australian Mining
Standards (AS 4324:1 and AS 3000).
8
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 highway and heavy equipment contractors, sand and gravel producers, recycle and crushing contractors, mine operators, quarry
operators, port and inland terminal authorities, power stations and foreign and domestic governmental agencies.
Raw Materials
Raw materials used in the manufacture of products in the Aggregate and Mining Group include carbon steel and various types
of alloy steel, which are normally purchased from distributors. 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, 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. 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.
9
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. Components used in the manufacturing process include engines, hydraulic pumps and motors,
gearboxes, track clutches, burners, power transmissions and electronic systems.
10
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.
11
Government Regulations
The Company is 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’s operations. Many of these federal and state agencies may seek fines and penalties for violations of these laws and
regulations. The Company has been able to operate under these laws and regulations without any material adverse effect on its business.
None of the Company's operating segments operate within highly regulated industries. However, air pollution control
equipment manufactured by the Company, principally for hot-mix asphalt plants, must comply with certain performance standards
promulgated by the federal Environmental Protection Agency under the Clean Air Act applicable to “new sources” or new
plants. Management believes the Company's 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 Company and its 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.
Compliance with these government regulations has no material effect on the Company’s capital expenditures, earnings or
competitive position within the market.
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.
12
Patents and Trademarks
The Company seeks to obtain patents to protect the novel features of its products and processes. The Company's subsidiaries
hold 103 United States patents and 119 foreign patents. The Company’s subsidiaries have 60 United States and 101 foreign patent
applications pending.
The Company and its subsidiaries have 86 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 Company
also has 113 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 subsidiaries have 12 United States and 12 foreign
trademark registration applications pending.
Engineering and Product Development
The Company dedicates substantial resources to engineering and product development. At December 31, 2019, the Company
and its subsidiaries had 439 full-time individuals employed in engineering and design capacities.
Seasonality and Backlog
Revenues for recent years, adjusted for acquisitions, have been strongest during the first, second and fourth quarters with the
third quarter consistently being weaker. We expect future operations in the near term to be typical of this historical trend.
As of December 31, 2019 and 2018, the Company had a backlog for delivery of products at certain dates in the future of
approximately $263,705 and $344,962, respectively. Approximately $66,000 of the decline in backlog between periods relates to orders
from domestic customers. The Company's 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 Company in the United States, except for milling machines and track-mounted crushers. In international
sales, however, the Company often competes with foreign manufacturers that may have a local presence in the market the Company is
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 States
are paved with asphalt. Although concrete is used for some new road surfaces, asphalt is used for most resurfacing.
Available Information
The Company’s internet website can be found at www.astecindustries.com. We make available, free of charge on or through
our internet website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed 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. Information contained in our website is not part of, and
is not incorporated into, this Annual Report on Form 10-K.
13
Item 1A. Risk Factors
Economic and Industry Risks
Downturns in the general economy or the commercial and residential construction industries may adversely affect our revenues
and operating results.
General economic downturns, including downturns in 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., foreign and regional economies 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. The following factors could cause a downturn in the commercial
and residential construction industries:
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;
rising interest rates;
energy or building materials shortages;
inclement weather; and
availability of credit for customers.
Downturns in the general economy and restrictions in the credit markets may negatively impact our earnings, cash flows and/or
financial position and access to financing sources by the Company and our 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 in government funding of highway construction 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 as the Safe, Accountable, Flexible and Efficient
Transportation Equity Act - A Legacy for Users (“SAFETEA-LU”), which provided $286.5 billion 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 for the five-year period ending September 30, 2020.
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 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.
14
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’s manufacturing
workflow during downturns in demand could adversely affect our financial results.
A significant change in the price or availability of oil could reduce demand for our products. Significant increases in the
purchase price of certain raw materials used to manufacture our equipment could have a negative impact on the cost of
production and related gross margins.
A significant portion of our revenues relates to the sale of equipment involved in the production, handling, recycling or
installation of asphalt mix. Liquid asphalt is a byproduct of the refining of oil, and asphalt prices correlate with the price and availability
of oil. 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.
15
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;
●
●
● product supply shortages; and
●
the seasonal trend in our industry;
the introduction of new products by us or our competitors;
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.
16
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 our ability to process orders and service our customers, procure materials from our suppliers, effectively communicate
within the Company and perform daily operations that are critical 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 may increase
in the future. Changes in these requirements could 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 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 that could adversely affect
our future financial results.
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;
●
● we may have difficulty in competing successfully for available acquisition candidates, completing future acquisitions or
fluctuations in exchange rates and a weakening of the dollar may impact the competitiveness of acquired businesses;
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;
●
● we may choose to acquire a company that is less profitable or has lower profit margins than our Company;
●
acquisition costs may deplete significant cash amounts or may decrease our operating income;
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.
17
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. 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 attract 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.
Our expansion into international markets could divert management's attention from our existing operations and expose us to
increased risks with respect to violation of international anti-corruption laws.
In 2019, international sales represented approximately 22.3% of our total sales as compared to 21.8% in 2018. We plan to
continue increasing our already significant sales and production efforts in international markets. In furtherance thereof, we recently
opened a new sales/service operation in Chile and are in process of opening similar operations in India and Thailand. In connection
with any increase in international sales efforts, we will need 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. In addition, international revenues are subject to the following risks:
fluctuating currency exchange rates, which can reduce the profitability of foreign sales;
the burden of complying with a wide variety of foreign laws and regulations;
●
●
● dependence on foreign sales agents;
● political and economic instability of governments;
●
●
the imposition of protective legislation such as import or export barriers; and
fluctuating strengths or weakness of the dollar, which can impact net sales or the cost of purchased products.
Additionally, the Foreign Corrupt Practices Act (“FCPA”) and similar international anti-corruption laws generally prohibit companies
from making improper payments for the purpose of obtaining or retaining business. 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.
18
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, we were in compliance with the financial covenants contained in our credit agreement with Wells
Fargo Bank, N.A. However, in the future we may be unable to comply with the financial covenants in our credit facility or to obtain
waivers with respect to such financial covenants. If such violations occur, the Company’s creditors could elect to pursue their contractual
remedies under the credit facility, including requiring immediate repayment in full of all amounts then outstanding. As of December
31, 2019, the Company had no borrowings, but did have $8,335 in letters of credit outstanding under the under the Wells Fargo credit
agreement. We may borrow additional amounts under the credit agreement in the future. The Company’s Osborn, Astec Brazil,
Telestack and Astec Australia subsidiaries have entered into their own independent loan agreements with other lending institutions.
We are subject to income taxes in the United States and certain foreign jurisdictions, and changes to the tax codes, effective tax
rates and accounting principles related thereto could negatively impact our results of operations.
We are subject to income taxes in the United States and other jurisdictions. Our results of operations could be adversely affected
by, among other things, changes in the effective tax rates in the U.S. and foreign jurisdictions, a change in the mix of earnings between
U.S. and non-U.S. jurisdictions or among jurisdictions with differing tax rates, changes in tax laws or treaties, and related changes in
generally accepted accounting principles. Additionally, the Company typically incurs substantial research and development costs each
year and has historically received significant research and development tax credits due to these expenditures. Congress could reduce or
eliminate such tax credits in future years, which could have a material adverse effect on our operating results.
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’ equity.
Goodwill and 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’s testing indicated no impairment
had occurred; however, in 2018, we recorded goodwill impairment charges totaling $11,190 at two of our business units. A decrease in
our market capitalization, profitability or negative or declining cash flows increases the risk of goodwill or other intangible asset
impairments. Future impairment charges could have a material adverse impact on our results of operations and shareholders’ equity.
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, 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, 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.
19
The Coronavirus outbreak or similar other health related outbreaks in 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 regions of the world.
These or any further political or governmental developments or health concerns in China or other countries could result in social,
economic and labor instability. These uncertainties could have a material impact on our business operations and financial condition by
restricting our ability to timely source certain raw materials needed in the production 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.
20
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The location, approximate square footage, acreage occupied and principal function and use by the Company’s reporting
segments of the significant properties owned or leased by the Company are set forth below:
Location
Chattanooga, Tennessee
Approximate
Square Footage
543,200
Approximate
Acreage
65
Principal Function (Use by Segment)
Offices, manufacturing and training center – Astec (Infrastructure
Group)
Chattanooga, Tennessee
Rossville, Georgia
Prairie du Chien, Wisconsin
--
40,500
91,500
Chattanooga, Tennessee
237,000
Chattanooga, Tennessee
Chattanooga, Tennessee
Orlando, Florida
Tacoma, Washington
Tacoma, Washington
Acacia Ridge, Queensland
Australia
53,700
155,000
9,000
95,300
4,400
36,000
Canning Vale, WA Australia
9,000
Laverton North, Victoria
Australia
6,500
4
3
39
15
7
--
--
5
1
5
--
--
Storage yard – Astec (Infrastructure Group)
Manufacturing – Astec (Infrastructure Group)
Manufacturing – Astec Prairie du Chien/Dillman division of
Astec (Infrastructure Group)
Offices, manufacturing and training center – Roadtec
(Infrastructure Group)
Manufacturing/Rebuild – Roadtec (Infrastructure Group)
Leased warehouse – Roadtec (Infrastructure Group)
Leased machine repair and service facility – Roadtec
(Infrastructure Group)
Offices and manufacturing – Carlson (Infrastructure Group)
R&D/Services Offices-Carlson (Infrastructure Group)
Offices, warehousing, service, light fabrication and storage yard –
Astec Australia Pty Ltd (Infrastructure Group)
Leased office, warehouse and workshop – Astec Australia Pty
Ltd (Infrastructure Group)
Leased office, warehouse and workshop – Astec Australia Pty
Ltd (Infrastructure Group)
21
Location
Approximate
Square Footage
Approximate
Acreage
Principal Function (Use by Segment)
Mequon, Wisconsin
236,000
Yankton, South Dakota
Eugene, Oregon
Sterling, Illinois
Sterling, Illinois
Thornbury, Ontario, Canada
Riverside, California
Solon, Ohio
314,100
140,300
60,000
7,500
60,500
12,500
8,900
Johannesburg, South Africa
229,000
Cape Town, South Africa
1,100
Durban, South Africa
Kathu, South Africa
835
--
Omagh, Northern Ireland
165,000
Vespasiano-MG, Brazil
132,400
30
50
33
8
--
12
--
--
21
--
--
61
15
10
Offices and manufacturing – Telsmith (Aggregate and Mining
Group)
Offices and manufacturing – KPI (Aggregate and Mining Group)
Offices and manufacturing – JCI (Aggregate and Mining Group)
Offices and manufacturing – AMS (Aggregate and Mining
Group)
Warehouse – AMS (Aggregate and Mining Group)
Offices and manufacturing – BTI (Aggregate and Mining Group)
Leased offices, sales, assembly and warehouse – BTI (Aggregate
and Mining Group)
Leased offices, sales, assembly and warehouse – BTI (Aggregate
and Mining Group)
Offices and manufacturing – Osborn (Aggregate and Mining
Group)
Leased sales office and warehouse – Osborn (Aggregate and
Mining Group)
Leased sales office – Osborn (Aggregate and Mining Group)
Undeveloped land – Osborn (Aggregate and Mining Group)
Offices and manufacturing – Telestack (Aggregate and Mining
Group)
Offices and manufacturing – Astec Brazil (Aggregate and Mining
Group)
Chattanooga, Tennessee
135,100
73
Offices, manufacturing and storage – Heatec (Energy Group)
22
Location
Eugene, Oregon
Approximate
Square Footage
135,000
Approximate
Acreage
15
West Columbia, South Carolina
20,400
Albuquerque, New Mexico
115,000
Enid, Oklahoma
Parsons, Kansas
Burlington, Wisconsin
Chattanooga, Tennessee
Chattanooga, Tennessee
Presidente Riesco (REGUS),
Chile
350,000
91,600
112,100
10,000
14,100
538
--
14
42
7
26
2
--
--
Principal function (use by Segment)
Offices and manufacturing – Peterson Pacific Corp. (Energy
Group)
Leased distribution center – Peterson Pacific Corp. (Energy
Group)
Offices and manufacturing – CEI (Energy Group)
Offices and manufacturing – GEFCO, Inc. (Energy Group)
Offices and manufacturing – Power Flame (Energy Group)
Offices and manufacturing – RexCon (Energy Group)
Corporate offices – Astec Industries, Inc. (Corporate)
Leased Hanger and Offices – Astec Industries, Inc. (Corporate)
Leased sales office – Astec LatAm (Corporate)
The properties above are owned by the Company unless they are indicated as being leased.
Item 3.
Legal Proceedings
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.
23
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.
Executive Officers
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.
24
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 is traded in the Nasdaq National Market under the symbol “ASTE.” The Company paid a
cash dividend of $1.00 per share on its Common Stock in the fourth quarter of 2012 and paid quarterly cash dividends of $0.10 per
quarter from the second quarter of 2013 through the second quarter 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.
As announced to the public in a Form 8-K filing on July 30, 2018, the Company approved a stock repurchase program, which
authorizes the Company to repurchase up to $150 million of its common stock. As of December 31, 2019, the maximum dollar value
of shares available for repurchase under the plan is approximately $126 million. No shares were repurchased under the plan during
2019.
The high and low sales prices of the Company’s Common Stock as reported on the Nasdaq National Market for each quarter
during the last two fiscal years are as follows:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
2019
2018
Price Per Share
High
Low
43.26 $
42.78 $
35.49 $
43.92 $
29.21
28.76
26.20
28.63
Price Per Share
High
Low
64.80 $
61.61 $
63.69 $
52.88 $
53.89
52.84
44.92
27.86
$
$
$
$
$
$
$
$
As of February 21, 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 6.
Selected Financial Data
The information required to be disclosed in this Item appears in Appendix A of this Report.
25
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.
26
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 Shareholder Matters Equity
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
Equity Compensation Plans Approved by Shareholders (1)
(a) Number of
Securities
to be Issued Upon
Exercise of
Outstanding
Options, Warrants,
Rights and RSU’s
187,646(2)
(b) Weighted
Average Exercise
Price
of Outstanding
Options, Warrants
and Rights(3)
Equity Compensation Plans Not Approved by
Shareholders (5)
Total
30,574(6)
218,220
(c) Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
(Excluding Securities
Reelected in Column (a))
445,969(4)
65,898(7)
511,867
N/A
N/A
(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.
27
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.
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(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.
28
(a)(3) The following Exhibits are incorporated by reference into or are filed with this Report:
3.1
3.2
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).
10.1
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). *
10.2
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). *
10.3
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). *
10.4
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).*
10.5
10.6
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). *
10.7
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). *
10.8
10.9
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). *
10.10
Astec Industries, Inc. Executive Change in Control Severance Plan, effective July 28, 2016 (incorporated by reference from
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
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).
29
10.20
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). *
10.21
10.22
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). *
10.23
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).
10.24
10.25
10.26
10.27
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). *
10.28
Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective December 5,
2019. *
10.29
Separation Agreement and General Release, dated as of December 31, 2019, by and between Astec Industries, Inc. and
David C. Silvious.
10.30
Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective February 28,
2020. *
21
23
31.1
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.
31.2
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.
32
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
* 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
30
APPENDIX A
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.
Contents
Items 6 and 15(a)(1): Selected Consolidated Financial Data
Items 6 and 15(a)(1): Supplementary Financial Data
Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A: Quantitative and Qualitative Disclosures about Market Risk
Item 9A: Management’s Report on Internal Control over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Items 8 and 15(a)(1): Financial Statements and Supplementary Data
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
Comparison of 5-Year Cumulative Total Return
Item 15(b): Index of Exhibits Filed with this Form 10-K
Page
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A-64
A-1
FINANCIAL
INFORMATION
A-2
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except as noted*)
2019
2018
2017
2016
2015
Consolidated Statement of Operations Data
Net sales
Gross profit
Gross profit %
Selling, general and administrative expenses
Research and development
Restructuring and asset impairment charges
Income (loss) from operations
Interest expense
Other income
Net income (loss)
Net income (loss) attributable to controlling interest
Earnings (loss) per common share*:
$ 1,169,613 $ 1,171,599 $ 1,184,739 $ 1,147,431 $
265,269
23.1 %
153,145
24,969
–
87,155
(1,395 )
529
54,988
55,159
243,129
20.5 %
160,775
26,817
–
55,537
(840 )
1,218
37,590
37,795
239,408
20.5 %
183,934
27,214
3,204
25,056
(1,367 )
305
22,174
22,306
135,766
11.6 %
180,795
28,332
13,060
(86,421 )
(1,045 )
536
(60,744 )
(60,449 )
983,157
218,843
22.3 %
145,180
23,676
–
49,987
(1,611 )
3,055
31,966
32,797
Net income (loss) attributable to controlling interest
Basic
Diluted
0.99
0.98
(2.64 )
(2.64 )
1.64
1.63
2.40
2.38
1.43
1.42
Consolidated Balance Sheet Data
Working capital
Total assets
Short-term debt
Current maturities of long-term debt
Long-term debt, less current maturities
Total equity
Cash dividends declared per common share*
Book value per share at year-end (shareholders’
$
333,537 $
800,498
1,130
209
690
602,487
0.44
371,760 $
855,457
–
413
59,709
585,290
0.42
423,823 $
889,579
–
2,469
1,575
686,765
0.40
407,972 $
843,601
4,632
2,538
4,116
648,841
0.40
399,785
777,353
–
4,528
5,154
609,858
0.40
equity / diluted shares outstanding for the year)*
26.55
25.53
29.58
27.99
26.30
A-3
SUPPLEMENTARY FINANCIAL DATA
(in thousands, except as noted*)
Quarterly Financial Highlights
(Unaudited)
2019 Net sales
Gross profit(1)
Net income (loss)
Net income (loss) attributable to controlling interest
Earnings (loss) per common share*
Net income (loss) attributable to controlling interest:
Basic
Diluted
Dividends paid
2018 Net sales
Gross profit (loss)
Net income (loss)
Net income (loss) attributable to controlling interest
Earnings (loss) per common share*
Net income (loss) attributable to controlling interest:
Basic
Diluted
Dividends paid
Common Stock Price*
2019 High
2019 Low
2018 High
2018 Low
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$325,780
76,850
14,217
14,274
$304,802
83,317
23,361
23,377
$255,807
51,860
2,955
3,010
$283,224
27,381
(18,359)
(18,355)
0.63
0.63
0.11
1.04
1.03
0.11
0.13
0.13
0.11
(0.81)
(0.81)
0.11
$325,453
78,005
20,216
20,267
$272,528
1,108
(40,768)
(40,674)
$256,613
58,284
6,903
6,995
$317,005
(1,631)
(47,095)
(47,037)
0.88
0.87
0.10
$43.26
$29.21
$64.80
53.89
(1.76)
(1.76)
0.10
$42.78
$28.76
$61.61
52.84
0.31
0.30
0.11
$35.49
$26.20
$63.69
44.92
(2.08)
(2.08)
0.11
$43.92
$28.63
$52.88
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.
A-4
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 contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ
materially from those contained in these forward-looking statements. For additional information regarding forward-looking statements,
see “Forward-looking Statements”.
Overview
The Company is a leading manufacturer and seller of equipment for the road building, aggregate processing, geothermal, water, oil and
gas and wood processing industries. The Company’s businesses:
● design, engineer, manufacture and market equipment used in each phase of road building, including mining, quarrying and
crushing the aggregate, mobile bulk and material handling solutions, producing asphalt or concrete, recycling old asphalt or
concrete and applying the asphalt;
● design, engineer, manufacture and market additional equipment and components, including equipment for geothermal
drilling, oil and natural gas, 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 design, engineer, manufacture and market a
complete line of asphalt plants, asphalt pavers and related components and ancillary equipment. The two remaining companies in the
Infrastructure Group are Company-owned dealers which sell, service and install equipment produced by the manufacturing subsidiaries
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 land 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, manufacture and market heavy equipment
and parts in the aggregate, metallic mining, quarrying, recycling, ports and bulk handling industries.
Energy Group - This segment consists of six business units that design, manufacture and market heaters, gas, oil and combination
gas/oil burners, combustion control systems, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, commercial and
industrial burners, combustion control systems, storage equipment and related parts to the oil and gas, construction, and water well
industries. RexCon, Inc. was added to this Group effective October 1, 2017 as described below. The Company announced the pending
closing of its CEI, Inc. business location in October 2019. The products manufactured by CEI will be transferred to other Astec
companies for future production. The closing of CEI is expected to be completed in March 2020. 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.
A-5
Individual Company subsidiaries included in the composition of the Company’s segments are as follows:
1.
Infrastructure Group – Astec, Inc., Roadtec, Inc., Carlson Paving Products, Inc., Astec Australia, Pty Ltd and Astec Mobile
Machinery GmbH (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 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 phase of operations and Astec Industries, Inc., the parent company.
The Company’s financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the
markets it serves. 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.
Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States. The
Company believes that federal highway funding influences the purchasing decisions of the Company’s customers, who are typically
more comfortable making capital equipment purchases with long-term federal legislation in place.
In July 2012, 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, the U.S. government approved short-term funding of $10.8 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 for the five-year period ending September 30, 2020.
The Company believes a multi-year highway program (such as the FAST Act) will have the greatest positive impact on the road
construction industry and allows its 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.
A-6
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’s revenues from the Infrastructure Group 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 Company products.
While increasing oil prices may have a negative financial impact on many of the Company’s customers, the Company’s equipment can
use a significant amount of recycled asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of
asphalt for the customer. The Company continues to develop products and initiatives to reduce the amount of oil and related products
required to produce asphalt. Oil 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 oil prices should not have a significant impact on customers’ buying decisions. Other factors such as
political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other
economic factors could significantly impact oil prices, which could negatively impact demand for the Company’s products. 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.
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’s equipment. 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 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.
In addition to the factors stated above, many of the Company’s markets are highly competitive, and its products compete worldwide
with a number of other manufacturers and dealers that produce and sell similar products. From 2010 through mid-2012, a weak U.S.
dollar, combined with improving economic conditions in certain foreign economies, had a positive impact 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. dollar to remain strong in the near term relative to most foreign currencies.
Increasing domestic interest rates or weakening economic conditions abroad could cause the U.S. dollar to further strengthen, which
could negatively impact the Company’s international sales.
In the United States and internationally, the Company’s equipment is marketed directly to customers as well as through dealers. During
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 accounting 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
followed in all reporting.
A-7
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 and operational excellence as well as enhanced accountability through a
performance-based culture with key performance indicators 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 multiple
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.
A-8
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)
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.
A-9
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: 2019 vs. 2018
Net Sales
Net sales decreased $1,986 or 0.2% to $1,169,613 in 2019 from $1,171,599 in 2018. Sales are generated primarily from new equipment
purchases made by customers for use in construction of privately funded infrastructure, public sector spending on infrastructure and
sales of equipment for the aggregate, mining, wood pellet, quarrying and recycling markets, and for oil and gas and geothermal
industries. Excluding the $75,315 one-time pellet plant sales reduction in 2018 and the $20,000 pellet plant sale recorded in the second
quarter 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. Sales reported by the Company for 2019 would have been $8,641 higher
had 2019 foreign exchange rates been the same as 2018 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.
Parts sales for 2019 were $319,063 or 27.3% of net sales compared to $308,703 or 26.3% of net sales for 2018, an increase of $10,360
or 3.4%. All of the Company’s segments experienced increased parts sales in 2019 as compared to 2018 as the Company continues to
emphasize growth in this line of business.
Gross Profit
Gross profit for 2019 was $239,408 or 20.5% of net sales as compared to $135,766 or 11.6% of net sales in 2018, an increase of $103,642
or 76.3%. Excluding pellet plant related transactions in each period, the 2019 gross profit would have been $219,408 or 19.1% of net
sales compared to $285,082 or 22.9% 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.
A-10
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, an increase of $3,140 or 1.7%, 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); and increased costs for the upcoming Con Expo in March 2020
(which is held once every three years) and exhibit expense of ($1,214); offset primarily by a decrease in airplane repairs and maintenance
expense of $2,159.
Research and Development
Research and development expenses decreased $1,118 or 3.9% to $27,214 in 2019 from $28,332 in 2018. During 2019, the Company
presented various new and/or improved equipment models from the 2018 research and development spending while continuing its 2019
effort on 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.
Impairment and Restructuring Charges
Impairment and restructuring charges total $3,204 in 2019 and include charges of $1,282 related to the closing 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 one of the Company’s airplanes. Impairment and restructuring charges totaled $13,060 in 2018 and included
a goodwill impairment charge of $11,190 and a charge of $1,870 related to the closing of AMM.
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
Income tax expense for 2019 was $3,012 compared to income tax benefit of $25,234 for 2018. The effective tax rates for 2019 and 2018
were 12.0% and 29.3%, respectively. The Company’s 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, the
items having the most significant impact on the effective tax rate for 2019 include a benefit of $6,614 for research and development tax
credits, a 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 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 impact
of the Company’s stock buy-back program adopted in 2018.
Backlog
The backlog of orders at December 31, 2019 was $263,705 compared to $344,962 at December 31, 2018, a decrease of $81,257 or
23.6%. The decrease in the backlog of orders was due to a decrease in domestic backlog of $66,243 or 25.4% 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; 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.
A-11
Net Sales by Segment
Infrastructure Group
Aggregate and Mining Group
Energy Group
$
2019
492,118 $
404,971
272,122
2018
442,289 $
453,164
276,146
$ Change % Change
49,829
(48,193 )
(4,024 )
11.3 %
(10.6 )%
(1.5 )%
Infrastructure Group: Sales in this group increased $49,829 or 11.3%. Domestic sales for the Infrastructure Group increased $50,925 or
13.6% in 2019 compared to 2018. The increase in domestic sales was due to the increase in pellet plant related 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 sales of mobile asphalt paving
equipment 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. International sales for the Infrastructure Group decreased $1,096 or 1.6% in 2019 compared to 2018 and was due to increased
asphalt plant sales offset by decreased mobile asphalt equipment sales. The decrease in international 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.
Aggregate and Mining Group: Sales in this group decreased $48,193 or 10.6%. Domestic sales for the Aggregate and Mining Group
decreased $48,383 or 16.0% in 2019 compared to 2018. A late start to the construction season, 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 less equipment sales and a surplus of available equipment in the domestic market. International
sales for the Aggregate and Mining Group remained relatively flat in 2019 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 was primarily due to increased sales of industrial heaters
and related equipment. The increase 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.
Segment Profit (Loss)
Infrastructure Group
Aggregate and Mining Group
Energy Group
Corporate
$
2019
36,106 $
22,790
556
(38,440 )
2018
(112,954 ) $
45,464
3,070
1,586
$ Change % Change
149,060
(22,674 )
(2,514 )
(40,026 )
132.0 %
(49.9 )%
(81.9 )%
-- %
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 to 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, profit for 2019 would be $16,106 compared to
$23,781 for 2018. The Infrastructure Group’s profit in 2019 was also negatively impacted by a net realizable inventory adjustment of
$12,122 discussed above. Selling, general and administrative expenses for the Group for 2019 declined by $5,601 as compared to 2018,
due primarily to a $4,329 decrease in selling expenses, primarily at Roadtec due to lower domestic sales and a $1,915 reduction in the
Group’s international selling expenses.
A-12
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 in gross profit of $28,055 on decreased sales of $48,193 and by a 390 basis point decrease in gross margin due to higher raw
materials 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 expenses 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 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 reduction in the group’s selling expenses
totaling $1,707 (due primarily to a reduction in domestic selling expense of $1,189).
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's primary sources of liquidity and capital resources are its cash on hand, borrowing capacity under a $150,000 revolving
credit facility and cash flows from operations. The Company had $48,857 of cash available for operating purposes as of December 31,
2019, of which $19,770 was held by the Company's 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, 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 $58,778 at December 31, 2018, were reduced to zero during 2019. No
borrowings were made under the line of credit during the fourth quarter of 2019. The Company’s outstanding letters of credit totaling
$8,335 resulted in the Company having borrowing availability of $141,665 under the revolving credit facility as of December 31, 2019.
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 was in compliance with the financial covenants of the agreement at
December 31, 2019.
The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $6,760 with a
South African bank to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and
retention guarantees. As of December 31, 2019 and 2018, Osborn had no outstanding borrowings. Osborn had $1,076 in performance,
advance payment and retention guarantees outstanding under the facility as of December 31, 2019. The facility has been guaranteed by
Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As
of December 30, 2019, Osborn had available credit under the facility of $5,684.
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.
A-13
Cash Flows from Operating Activities
Net income (loss)
Depreciation and amortization
Provision for warranties
Deferred income tax provision (benefit)
Asset impairment charges
(Increase) decrease in receivables and other contract assets
Decrease in inventories
Increase in prepaid expenses
Increase in (decrease) accounts payable
Decrease in customer deposits
Decrease in accrued product warranties
Income taxes payable / prepaid
Other, net
Net cash provided (used) by operating activities
2019
2018
Increase /
Decrease
$
$
22,174 $
26,200
9,762
1,715
250
7,531
61,297
(2,260 )
(12,968 )
(5,299 )
(10,473 )
12,192
2,313
112,434 $
(60,744 ) $
27,913
13,219
(25,385 )
13,060
(16,189 )
30,757
(11,943 )
9,843
(522 )
(17,539 )
3,683
4,062
(29,785 ) $
82,918
(1,713 )
(3,457 )
27,100
(12,810 )
23,720
30,540
9,683
(22,811 )
(4,777 )
7,066
8,509
(1,749 )
142,219
Net 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
Expenditures for property and equipment
Other
Net cash used by investing activities
2019
2018
Increase /
Decrease
$
$
(23,360 ) $
1,820
(21,540 ) $
(27,440 ) $
15
(27,425 ) $
4,080
1,805
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
Payment of dividends
Borrowings/repayments under bank loans
Repurchase of Company stock
Other, net
Net cash provided (used) by financing activities
2019
2018
Increase /
Decrease
$
$
(9,916 ) $
(58,054 )
--
(115 )
(68,085 ) $
(9,625 ) $
56,540
(24,138 )
(83 )
22,694 $
(291 )
(114,594 )
24,138
(32 )
(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.
A-14
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 due as of December 31, 2019 are as follows:
Contractual Obligations
Operating lease obligations
Inventory purchase obligations
Debt obligations
Total
Payments Due by Period
Years
2 to 3
Less Than
1 Year
Years
4 to 5
More Than
5 Years
Total
$
$
4,269 $
9,808
899
14,976 $
1,960 $
9,808
209
11,977 $
1,135 $
--
621
1,756 $
398 $
--
69
467 $
776
--
--
776
The above table excludes the Company’s liability for unrecognized tax benefits, which totaled $5,723 at December 31, 2019, since the
timing of cash settlements to the respective taxing authorities cannot be reliably predicted.
In 2019 and 2018, the Company made contributions of approximately $1,613 and $1,376, respectively, to its KPI pension plan.
Currently, the Company has not planned any contributions to the pension plan in 2020. The Company’s funding policy is to make at
least the minimum annual contributions required by applicable regulations.
Contingencies
Management has reviewed all claims and lawsuits and has made adequate provision for any losses that can be reasonably estimated.
Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current
claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s financial
position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings
unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect
on the Company’s financial position, cash flows or results of operations.
Certain customers have financed purchases of the Company’s products through arrangements in which the Company is contingently
liable for customer debt in the aggregate amount of $1,466 at December 31, 2019. These arrangements expire at 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.
A-15
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 amount of future payments under these letters of credit and guarantees for which the Company could be liable
is $10,958 as of December 31, 2019.
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’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles.
Application of these principles requires the Company 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’s inventories is steel. Open market prices (including tariffs recently enacted) are subject to volatility and determine the
cost of steel for the Company. During periods when open market prices decline, the Company may need to reduce the carrying value of
the inventory. In addition, certain items in inventory become obsolete over time, and the Company reduces the carrying value of these
items to their net realizable value. These reductions are determined by the Company based on estimates, assumptions and judgments
made from the information available at that time. See Note 1, Summary of Significant Accounting Policies, of the Notes to Consolidated
Financial Statements included in this Annual Report, for a description of the process used by the Company to value inventories at the
lower of first-in first-out cost or market. The Company does not believe it is reasonably likely that the inventory values will materially
change in the near future.
A-16
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 product at a specified price with specified delivery terms. A significant portion of the Company’s equipment sales represents
equipment produced in the Company’s plants under short-term contracts for a specific customer project or equipment designed to meet
a customer’s specific requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are
modified to meet customer needs or specifications. The Company provides customers with technical design and performance
specifications and performs pre-shipment testing to ensure the equipment performs according to design specifications, regardless of
whether the Company provides installation services in addition to selling the equipment. 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. 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. Other contract assets and liabilities are typically not
material.
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 recognizes revenues upon completion of equipment
production, which is subsequently stored at the Company’s plant at the customer’s request. Revenue is recorded on such contracts upon
the customer’s assumption of title and transfer of control and when collectability is reasonably assured. In addition, there must be a fixed
schedule of delivery of the goods consistent with the customer’s business practices, the Company must not have retained any specific
performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company’s
inventory prior to revenue recognition.
The Company has certain sales 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 uses third-party
evidence of selling price or the Company’s best estimate of the selling price for the deliverables. The Company evaluates sales with
multiple 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 Company only recognizes revenue on
individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the
customer on a standalone basis and there is no right of return.
A-17
Goodwill and Other Intangible Assets: Intangible assets are classified into two categories: (1) intangible assets with definite lives subject
to amortization, and (2) goodwill. 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 that could have a negative
impact on the cost of production and gross profit as well as others more fully described in the Risk Factors section of our 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’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life
of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have
definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 3 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. A valuation allowance, which represents a reserve on
deferred tax assets for which utilization is not more likely than not, is recorded. 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 Company 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, 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.
A-18
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which significantly changes the accounting for operating
leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance
establishes a right-of-use (“ROU”) model and requires lessees to recognize lease assets and lease liabilities in the balance sheet, initially
measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease
cost included in the statement of operations will be calculated so that the cost 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” 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 presented in the financial statements as its date 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 10, Leases, for additional information regarding the Company’s adoption
of these standards.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments”. The standard changes how credit losses are measured for most financial assets and certain other instruments
that currently are not measured through net income. The standard will require an expected loss model for instruments measured at
amortized cost as opposed to the current incurred loss approach. In valuing available for sale debt securities, allowances will be required
to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative
adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflect the impact of applying the
provisions of the standard. 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.
A-19
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;
●
forecasting of results;
●
● general economic trends, political uncertainty and the impact of the coronavirus on our business;
● government funding and growth of highway construction and commercial projects;
●
●
●
●
● 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;
●
●
●
changes in tax laws and tariffs;
interest rates;
integration of acquisitions;
industry trends;
suitability of our current facilities;
fluctuations in our stock price;
anti-takeover measures;
A-20
cybersecurity risks;
legal proceedings and non-compliance;
future payment of dividends;
competition in our business segments;
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;
●
●
● product liability and other claims;
●
● obligations with respect to pellet plants and other products;
● protection of proprietary technology and dependence on information technology systems;
●
● demand for products and services;
●
●
●
●
●
● goodwill and intangible asset value;
● our backlog;
●
●
●
●
● 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.
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;
inventories;
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.
A-21
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.
A-22
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.
A-23
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.
2.
3.
4.
5.
6.
7.
8.
9.
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;
evaluating the assignment of responsibilities associated with the accounting for goodwill impairment, including considering
hiring additional resources or providing additional training to existing resources;
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;
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;
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;
designing, implementing and assessing the structures, authorities and responsibilities needed to establish accountability for
internal controls at all levels of the Company;
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;
designing and implementing additional Corporate monitoring activities over internal controls at certain business units;
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.
A-24
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Astec Industries, Inc.:
Opinion on Internal Control Over Financial Reporting
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 by 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 years 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;
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;
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.
A-25
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.
Knoxville, Tennessee
March 17, 2020
/s/ KPMG LLP
A-26
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, 2019 and 2018, 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, and the related notes (collectively, the consolidated financial
statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, 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’s internal control over financial
reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining,
on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
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 2 and 17 to the Company’s consolidated financial statements, and disclosed in the consolidated balance
sheet and consolidated statement of operations, the Company recorded $294,536 thousand in inventories and $1,169,613
thousand in net sales as of December 31, 2019 and for the year then ended. Inventories are comprised of raw materials, work-
in-process, finished goods, and used equipment that are physically located at each of the Company’s business units. 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.
A-27
We identified the evaluation of the sufficiency of audit evidence over inventories and net sales as a critical audit matter.
Evaluating the sufficiency of the audit evidence obtained required especially subjective auditor judgment because of the
decentralized structure and geographic dispersion of the Company’s manufacturing locations, the different types of net sales
and revenue recognition processes, and the material weaknesses noted above. This included determining the business units at
which procedures were performed.
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. 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 at which those
procedures were performed. We assessed the recorded inventories at each business unit where procedures were performed by
physically inspecting a sample of inventories on hand and comparing 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 at each business unit 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 over
inventories and net sales.
We have served as the Company’s auditor since 2015.
/s/ KPMG LLP
Knoxville, Tennessee
March 17, 2020
A-28
CONSOLIDATED BALANCE SHEETS
(Dollar and share amounts in thousands, except per share amounts unless otherwise specified)
Assets
Current assets:
Cash and cash equivalents
Investments
Trade receivables and contract assets
Other receivables
Inventories
Prepaid income taxes
Prepaid expenses and other assets
Assets held for sale
Total current assets
Property and equipment, net
Investments
Goodwill
Intangible assets, net
Deferred tax assets
Other long-term assets
Total assets
Liabilities and Equity
Current liabilities:
Current maturities of long-term debt
Short-term debt
Accounts payable
Customer deposits
Accrued product warranty
Accrued payroll and related liabilities
Accrued loss reserves
Other accrued liabilities
Total current liabilities
Long-term debt
Deferred tax liabilities
Other long-term liabilities
Total liabilities
Equity:
Preferred stock - authorized 4,000 shares of $1.00 par value; none issued
Common stock – authorized 40,000 shares of $0.20 par value; issued and outstanding – 22,551 in
2019 and 22,513 in 2018
Additional paid-in capital
Accumulated other comprehensive loss
Company shares held by SERP, at cost
Retained earnings
Shareholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See Notes to Consolidated Financial Statements
A-29
$
$
$
December 31
2019
2018
48,857 $
1,547
120,271
4,576
294,536
15,234
18,199
3,084
506,304
190,363
16,104
33,176
23,536
24,696
6,319
800,498 $
209 $
1,130
57,162
42,874
10,261
24,718
2,299
34,114
172,767
690
896
23,658
198,011
25,821
1,946
130,569
3,409
355,944
24,459
18,843
–
560,991
192,448
14,890
32,748
25,370
27,490
1,520
855,457
413
–
70,614
48,069
10,928
24,126
1,832
33,249
189,231
59,709
1,020
20,207
270,167
–
–
4,510
122,613
(31,803 )
(1,714 )
508,343
601,949
538
602,487
800,498 $
4,503
120,601
(33,883 )
(1,886 )
495,245
584,580
710
585,290
855,457
$
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Restructuring and asset impairment charges
Income (loss) from operations
Other income:
Interest expense
Interest income
Other income
Income (loss) before income taxes
Income tax provision (benefit)
Net income (loss)
Net loss attributable to non-controlling interest
Net income (loss) attributable to controlling interest
Earnings (loss) per Common Share:
Net income (loss) attributable to controlling interest:
Basic
Diluted
Weighted average number of common shares outstanding:
Basic
Diluted
See Notes to Consolidated Financial Statements
Year Ended December 31
2018
2017
2019
$ 1,169,613 $ 1,171,599 $ 1,184,739
941,610
243,129
160,775
26,817
–
55,537
930,205 1,035,833
135,766
239,408
180,795
183,934
28,332
27,214
13,060
3,204
(86,421 )
25,056
(1,367 )
1,192
305
25,186
3,012
22,174
132
22,306 $
(1,045 )
952
536
(85,978 )
(25,234 )
(60,744 )
295
(60,449 ) $
(840 )
1,302
1,218
57,217
19,627
37,590
205
37,795
0.99 $
0.98 $
(2.64 ) $
(2.64 ) $
1.64
1.63
22,515
22,674
22,902
22,902
23,025
23,184
$
$
$
A-30
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Change in unrecognized pension and post-retirement benefit costs
Tax (expense) benefit on change in unrecognized pension and post-retirement benefit
costs
Foreign currency translation adjustments
Other comprehensive income (loss)
Comprehensive loss attributable to non-controlling interest
Comprehensive income (loss) attributable to controlling interest
See Notes to Consolidated Financial Statements
Year Ended December 31
2018
2017
2019
$
22,174 $
(60,744 ) $
37,590
1,016
(162 )
689
(244 )
2,014
2,786
154
25,114 $
38
(9,516 )
(9,640 )
439
(69,945 ) $
(69 )
6,699
7,319
232
45,141
$
A-31
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating
Year Ended December 31
2018
2017
2019
$
22,174 $
(60,744 ) $
37,590
activities:
Depreciation
Amortization
Provision for doubtful accounts
Provision for warranties
Deferred compensation provision (benefit)
Deferred tax provision (benefit)
(Gain) loss on disposition of fixed assets
Stock-based compensation
Asset impairment charges
Distributions to SERP participants
Change in operating assets and liabilities, net of effects of acquisitions:
Sale (purchase) of trading securities, net
Receivables and other contract assets
Inventories
Prepaid expenses
Other assets
Accounts payable
Customer deposits
Accrued product warranty
Income taxes payable/prepaid
Accrued retirement benefit costs
Accrued loss reserves
Other accrued liabilities
Other
Net cash provided (used) by operating activities
Cash Flows from Investing Activities
Business acquisition, net of cash acquired
Proceeds from sale of property and equipment
Expenditures for property and equipment
Sale (purchase) of investments
Net cash used by investing activities
See Notes to Consolidated Financial Statements
21,436
4,764
1,249
9,762
617
1,715
255
2,637
250
(2,207 )
(864 )
7,531
61,297
(2,260 )
216
(12,968 )
(5,299 )
(10,473 )
12,192
(1,276 )
(1,073 )
2,033
726
112,434
22,411
5,502
223
13,219
(1,554 )
(25,385 )
(71 )
2,182
13,060
(767 )
(758 )
(16,189 )
30,757
(11,943 )
(3,698 )
9,843
(522 )
(17,539 )
3,683
(1,100 )
(125 )
8,887
843
(29,785 )
–
483
(23,360 )
1,337
(21,540 )
–
375
(27,440 )
(360 )
(27,425 )
21,312
4,490
482
16,725
(574 )
(291 )
(388 )
3,142
–
(206 )
473
(7,749 )
(19,618 )
(5,181 )
(779 )
630
9,379
(14,642 )
(597 )
45
122
(1,118 )
(1,366 )
41,881
(26,443 )
480
(20,046 )
(891 )
(46,900 )
A-32
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Cash Flows from Financing Activities
Payment of dividends
Borrowings under bank loans
Repayment of bank loans
Purchase of shares of subsidiaries
Sale (purchase) of Company shares by SERP, net
Withholding tax paid upon vesting of restricted stock units
Repurchase of Company stock
Net cash provided (used) by financing activities
Effect of exchange rates on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental Cash Flow Information
Cash paid during the year for:
Interest, net of capitalized interest
Income taxes paid (refunded), net
See Notes to Consolidated Financial Statements
Year Ended December 31
2018
2017
2019
$
$
(9,916 ) $
165,980
(224,034 )
(16 )
256
(355 )
–
(68,085 )
227
23,036
25,821
48,857 $
(9,625 ) $
148,504
(91,964 )
(28 )
377
(432 )
(24,138 )
22,694
(1,943 )
(36,459 )
62,280
25,821 $
(9,226 )
–
(7,242 )
(106 )
289
(507 )
–
(16,792 )
1,720
(20,091 )
82,371
62,280
$
$
1,771 $
(11,262 ) $
856 $
8,523 $
588
26,917
A-33
CONSOLIDATED STATEMENTS OF EQUITY
For the Years Ended December 31, 2019, 2018 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
(1,958 ) $ 536,771 $
37,795
(9,236 )
1,011 $
(205 )
648,841
37,590
(9,226 )
Balance December 31,
2016
23,046 $
4,609 $ 139,970 $
(31,562 ) $
Net income
Dividends ($0.40 per share)
Other comprehensive
income
Change in ownership
percentage of subsidiary
Stock-based compensation
RSU vesting
Withholding tax on vested
RSUs
Sale of Company stock
held by SERP, net
Other
Balance December 31,
10
7,319
1
23
5
2,172
(5 )
(507 )
291
23,070
2017
Net loss
Dividends ($0.42 per share)
Other comprehensive loss
Change in ownership
4,614 141,931
(24,243 )
11
(9,640 )
percentage of subsidiary
Stock-based compensation
RSU vesting
Withholding tax on vested
RSUs
Sale of Company stock
held by SERP, net
Repurchase of Company
stock
Other
Balance December 31,
2
23
5
2,815
(5 )
(432 )
303
74
(582 )
(116 )
(24,022 )
2018
22,513
4,503 120,601
(33,883 )
(2 )
(1,960 ) 565,330
(60,449 )
(9,636 )
(1,886 ) 495,245
22,306
(9,929 )
2,808
(22 )
2,786
13
2,277
(7 )
(355 )
3
35
7
Net income
Dividends ($0.44 per share)
Other comprehensive
income
Change in ownership
percentage of subsidiary
Stock-based compensation
RSU vesting
Withholding tax on vested
RSUs
Cumulative impact of ASU
No. 2018-02
Sale of Company stock
held by SERP, net
Other
Balance December 31,
(721 )
721
84
172
(7 )
(3 )
2019
22,551 $
4,510 $ 122,613 $
(31,803 ) $
(1,714 ) $ 508,343 $
538 $
602,487
See Notes to Consolidated Financial Statements
A-34
(43 )
330
1,093
(295 )
(159 )
71
710
(132 )
7,319
(43 )
2,172
–
(507 )
289
330
686,765
(60,744 )
(9,625 )
(9,640 )
(159 )
2,815
–
(432 )
377
(24,138 )
71
585,290
22,174
(9,916 )
(15 )
(15 )
2,277
–
(355 )
–
256
(10 )
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 - The consolidated financial statements include the accounts of Astec Industries, Inc. and its domestic and foreign
subsidiaries (the “Company”). The Company’s significant wholly-owned and consolidated subsidiaries at December 31, 2019 are as
follows:
Astec Australia Pty Ltd
Astec, Inc.
Astec Industries LatAm SpA
Astec Mobile Screens, Inc.
Breaker Technology Ltd.
CEI Enterprises, Inc.
Heatec, Inc.
Kolberg-Pioneer, Inc.
Peterson Pacific Corp.
RexCon, Inc.
Telestack Limited
Astec do Brasil Fabricacao de Equipamentos Ltda. (93% owned)
Astec Insurance Company
Astec Mobile Machinery GmbH
Breaker Technology, Inc.
Carlson Paving Products, Inc.
GEFCO, Inc.
Johnson Crushers International, Inc.
Osborn Engineered Products SA (Pty) Ltd
Power Flame Incorporated
Roadtec, Inc.
Telsmith, Inc.
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and
accompanying notes. 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 assets and liabilities held by the Company at December 31, 2019 and 2018 are classified as Level 1 or Level 2, as
summarized in Note 3, Fair Value Measurements.
Cash and Cash Equivalents - All highly liquid investments with an original maturity of three months or less when purchased are
considered to be cash and cash equivalents.
A-35
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 income (loss). 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. The Company extends credit to its customers based on an evaluation of the
customers’ financial condition generally without requiring collateral, although the Company normally requires advance payments or
letters of credit on large equipment orders. Credit risk is driven by conditions within the economy and the industry and is principally
dependent on each customer’s financial condition. To minimize credit risk, the Company 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 accounts at a level
which management believes is sufficient to cover probable credit losses. 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. As of December 31, 2019, concentrations of credit risk with
respect to receivables are limited due to the wide variety of customers.
Allowance for Doubtful Accounts - The following table represents a rollforward of the allowance for doubtful accounts for the years
ended December 31, 2019, 2018 and 2017:
Allowance balance, beginning of year
Provision
Write offs
Other
Allowance balance, end of year
Year Ended December 31
2018
2017
2019
$
$
1,184 $
1,249
(1,016 )
(1 )
1,416 $
1,716 $
223
(696 )
(59 )
1,184 $
1,511
482
(308 )
31
1,716
Inventories - The Company’s inventory is comprised of raw materials, work-in-process, finished goods and used equipment.
Raw material inventory is comprised of purchased steel and other purchased items for use in the manufacturing process or held for sale
for the after-market parts business. The category also includes the manufacturing cost of completed equipment sub-assemblies produced
for either integration into equipment manufactured at a later date or for sale in the Company’s after-market parts business.
Work-in-process inventory consists of the value of materials, labor and overhead incurred to date in the manufacturing of incomplete
equipment or incomplete equipment sub-assemblies being produced.
Finished goods inventory consists of completed equipment manufactured for sale to customers.
Used equipment inventory consists of equipment accepted in trade or purchased on the open market. 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’s products are impacted by a number of factors, including changes in the
price of steel, competitive sales pricing, quantities of inventories on hand, the age of the individual inventory items, market acceptance
of the Company’s products, the Company’s normal gross margins, actions by the Company or its competitors, the condition of our used
and rental inventory and general economic factors. Once an inventory item’s value has been deemed to be less than cost, a net realizable
value allowance is calculated and a new “cost basis” for that item is effectively established. This new cost is retained for that item until
such time as the item is disposed of or the Company determines that an additional write-down is necessary. Additional write-downs may
be required in the future based upon changes in assumptions due to general economic downturns in the markets in which the Company
operates, changes in competitor pricing, new product design or other technological advances introduced by the Company or its
competitors and other factors unique to individual inventory items.
A-36
The most significant component of the Company’s inventory is steel. A significant decline in the market price of steel could result in a
decline in the market value of the equipment or parts we sell. During periods of significant declining steel prices, the Company reviews
the valuation of its inventories to determine if reductions are needed in the recorded value of inventory on hand to its net realizable
value.
The Company reviews the individual items included in its finished goods, used equipment and rental equipment inventory on a model-
by-model or unit-by-unit basis to determine if any item’s net realizable value is below its carrying value. This analysis is expanded to
include items in work-in-process and raw material inventory if factors indicate those items may also be impacted. In performing this
review, judgments are made and, in addition to the factors discussed above, additional consideration is given to the age of the specific
items of used or rental 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 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 closing of AMM-Germany and CEI, the Company has accounted for their land and
buildings as assets held for sale as of December 31, 2019. The AMM-Germany land and buildings sale was completed in early 2020
and the sale 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 calculated for financial reporting purposes using
the straight-line method based on the estimated useful lives of the assets as follows: airplanes (20 years), buildings (40 years) and
equipment (3 to 10 years). Both accelerated and straight-line methods are used for tax compliance purposes. Routine repair and
maintenance costs and planned major maintenance are expensed when incurred.
Goodwill and Other Intangible Assets - The Company classifies intangible assets as either goodwill or intangible assets with definite
lives subject 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 change 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 the use of the asset.
The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related
to each intangible asset. Factors considered when determining useful lives include the contractual terms of agreements, the history of
the asset, the Company’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful
life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to
have definite lives are amortized over their useful lives as follows: dealer network and customer relationships: 8-19 years; trade names:
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 flows 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.
A-37
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.
Impairment of Long-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 Reserves - The Company retains the risk for a portion of its workers’ compensation claims and general liability claims
by way of a captive insurance company, Astec Insurance Company (“Astec Insurance” or the “captive”). 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 first $1,000 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 $350 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 each claim based on the Company’s
evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with
assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change
in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the
foreseeable future.
The Company is self-insured for health and prescription claims under its Group Health Insurance Plan at all but one 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.
A-38
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. As 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.
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.
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 upon the ratio 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 revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost
of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues,
extended warranty revenues, early pay discounts and floor plan interest reimbursements.
Advertising Expense - The cost of advertising is expensed as incurred. The Company incurred $3,668, $4,136 and $3,793 in advertising
costs during 2019, 2018 and 2017, respectively, which are included in selling, general and administrative expenses.
A-39
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-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-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 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 Reserve - The Company accrues for the estimated cost of product warranties at the time revenue is recognized.
Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For equipment, the
Company’s standard product warranty terms generally include post-sales support and repairs of products at no additional charge for
periods ranging from three months to two years or up to a specified number of hours of operation. For parts from component suppliers,
the Company relies on the original manufacturer’s warranty that accompanies those parts. Generally, Company fabricated parts are not
covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the
Company’s policy is to replace fabricated parts at no additional charge.
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, revisions to the
estimated warranty liability may be required.
Pension and Retirement Plans - The determination of obligations 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 assumptions 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 differ from assumptions
are accumulated and amortized over future periods and, therefore, generally affect the recognized expense in such periods. Significant
differences in actual experience or significant changes in the assumptions used may materially affect the pension obligations and future
expenses.
The Company recognizes the overfunded or underfunded status of its pension plan as an asset or liability. Actuarial gains and losses,
amortization of prior service cost (credit) and amortization of transition obligations are recognized through other comprehensive income
(loss) in the year in which the changes occur. The Company measures the funded status of its pension plan as of the date of the
Company’s fiscal year-end.
Stock-based Compensation - The Company recognizes the cost of employee and director services received in exchange for equity
awards in the consolidated financial statements based on the grant date calculated fair value of the awards. 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’s equity awards are further described in Note 16, Shareholders’ Equity.
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.
A-40
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings (loss) per
share:
Denominator:
Denominator for basic earnings (loss) per share
Effect of dilutive securities:r
Restricted stock units
Supplemental executive retirement plan
Denominator for diluted earnings (loss) per share
Year Ended December 31
2018
2017
2019
22,515
22,902
23,025
111
48
22,674
–
–
22,902
96
63
23,184
Derivatives and Hedging Activities - The Company recognizes all derivatives in the consolidated balance sheets at their fair value.
Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the
hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments
through income or recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective
portion of a derivative’s change in fair value is immediately recognized in income. From time to time, the Company’s foreign
subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuation in currency exchange rates. See Note 13,
Derivative Financial Instruments, regarding foreign exchange contracts outstanding at December 31, 2019 and 2018.
Business Combinations and Divestitures - The Company accounts for business combinations using the acquisition method.
Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable
from goodwill. Related third-party acquisition costs are expensed as incurred and contingent consideration is booked at its fair value as
part of the purchase price. Business divestitures are accounted 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, 2018 and 2017.
Subsequent Events Review - Management has evaluated events occurring between December 31, 2019 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 lease assets and lease liabilities in the balance sheet, initially measured at the present value of the lease payments, for leases
which were classified as operating leases under previous guidance. Lease cost included in the statements of operating income will be
calculated so that the cost 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” 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 presented in the financial statements as its date 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.
A-41
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses
on Financial Instruments”. The standard changes how credit losses are measured for most financial assets and certain other instruments
that currently are not measured through net income (loss). The standard will require an expected loss model for instruments measured
at amortized cost as opposed to the current incurred loss approach. In valuing available for sale debt securities, allowances will be
required to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A
cumulative adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflect the impact of
applying the provisions of the standard. 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 the new standards 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 has not yet adopted this
new standard. The Company does not expect the adoption of this new standard to 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 determined the impact of the statement’s provision on its financial
position, results of operations or cash flows.
A-42
2. Inventories
Inventories consist of the following:
Raw materials and parts
Work-in-process
Finished goods
Used equipment
Total
3. Fair Value Measurements
December 31
2019
160,872 $
61,287
53,650
18,727
294,536 $
2018
173,919
69,718
89,152
23,155
355,944
$
$
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and
equity securities held by Astec Insurance, and marketable equity securities held in an unqualified Supplemental Executive Retirement
Plan (“SERP”). The financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes. The
Company’s subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency
exchange rates.
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 these instruments. Investments are carried at their fair value based on
quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. The fair values
of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market
based inputs.
As indicated in the tables below, the Company has determined that its financial assets and liabilities at December 31, 2019 and 2018 are
level 1 and level 2 in the fair value hierarchy:
Financial Assets:
Trading equity securities:
SERP money market fund
SERP mutual funds
Preferred stocks
Trading debt securities:r
Corporate bonds
Municipal bonds
Floating rate notes
U.S. Government Securities
Asset-backed securities
Other
Derivative financial instruments
Total financial assets
Financial Liabilities:
Derivative financial instruments
SERP liabilities
Total financial liabilities
Level 1
December 31, 2019
Level 2
Total
$
$
$
$
208 $
4,419
282
5,117
–
535
2,035
–
473
–
13,069 $
– $
–
– $
– $
–
–
–
1,154
–
–
2,316
1,112
4
4,586 $
49 $
6,645
6,694 $
208
4,419
282
5,117
1,154
535
2,035
2,316
1,585
4
17,655
49
6,645
6,694
A-43
Financial Assets:
Trading equity securities:
SERP money market fund
SERP mutual funds
Preferred stocks
Trading debt securities:
Corporate bonds
Municipal bonds
Floating rate notes
U.S. Government Securities
Asset-backed securities
Other
Derivative financial instruments
Total financial assets
Financial Liabilities:
SERP liabilities
Total financial liabilities
Level 1
December 31, 2018
Level 2
Total
$
$
$
$
229 $
4,755
248
5,398
–
1,300
2,210
–
–
–
14,140 $
– $
–
–
–
1,546
–
–
442
708
333
3,029 $
229
4,755
248
5,398
1,546
1,300
2,210
442
708
333
17,169
– $
– $
6,641 $
6,641 $
6,641
6,641
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’s trading securities consist of the following:
December 31, 2019
Trading equity securities
Trading debt securities
Total
December 31, 2018
Trading equity securities
Trading debt securities
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
(Net Carrying
Amount)
$
$
$
$
4,722 $
12,681
17,403 $
5,546 $
11,817
17,363 $
273 $
115
388 $
50 $
55
105 $
86 $
54
140 $
364 $
268
632 $
4,909
12,742
17,651
5,232
11,604
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’s liability
under its SERP. See Note 12, Pension and Retirement Plans, for additional information on these investments and the SERP.
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. Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.
Current U.S. accounting guidance provides that goodwill and indefinite-lived intangible assets be tested for impairment at least annually.
The Company performs the required valuation procedures each year as of October 31 after the following year’s forecasts are submitted
and reviewed.
A-44
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 estimated the fair value of its reporting units
as of October 31, 2019 based upon a combination of discounted cash flows and market approaches. Weighted average cost of capital
used in the discounted cash flow calculations was 13% and terminal growth rate of 2% was assumed. The sum of the reporting units
valuations determined by the Company was reconciled to the Company’s overall market capitalization. The valuations performed in the
fourth quarter of 2019 indicated no impairment. The valuations performed in 2018 and 2017 indicated $11,190 impairment in the Energy
Group in 2018 and no impairment of goodwill in 2017. In addition, as part of a business unit restructuring, additional goodwill of $955
was written off in 2018.
The changes in the carrying amount of goodwill and accumulated impairment losses by reporting segment during the years ended
December 31, 2019 and 2018 are as follows:
Balance, December 31, 2017:
Goodwill
Accumulated impairment
Net
2018 Activity:
Restructuring write off
Foreign currency translation
Impairment
Total 2018 activity
Balance, December 31, 2018:
Goodwill
Accumulated impairment losses
Net
2019 Activity:
Foreign currency translation
Total 2019 activity
Balance, December 31, 2019:
Goodwill
Accumulated impairment
Net
6. Intangible Assets
Infrastructure
Group
Aggregate and
Mining Group
Energy
Group
Total
$
10,883 $
(2,310 )
8,573
33,235 $
(12,196 )
21,039
22,857 $
(6,737 )
16,120
66,975
(21,243 )
45,732
(955 )
(49 )
–
(1,004 )
9,879
(2,310 )
7,569
–
(790 )
–
(790 )
–
–
(11,190 )
(11,190 )
32,445
(12,196 )
20,249
22,857
(17,927 )
4,930
(955 )
(839 )
(11,190 )
(12,984 )
65,181
(32,433 )
32,748
–
–
428
428
–
–
428
428
9,879
(2,310 )
7,569 $
32,873
(12,196 )
20,677 $
22,857
(17,927 )
4,930 $
65,609
(32,433 )
33,176
$
Intangible assets consisted of the following at December 31, 2019 and 2018:
2019
2018
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
Accumulated
Amortization
Net
Carrying
Value
Dealer network and customer
relationships
Trade names
Other
Total
$
$
31,086 $
9,593
8,737
49,416 $
17,656 $
3,170
5,054
25,880 $
13,430 $
6,423
3,683
23,536 $
30,909 $
9,536
6,618
47,063 $
14,472 $
2,509
4,712
21,693 $
16,437
7,027
1,906
25,370
Amortization expense on intangible assets was $4,409, $5,125 and $4,064 for 2019, 2018 and 2017, respectively. Intangible asset
amortization expense is expected to be $4,057, $3,666, $3,204, $2,626 and $1,910 in the years ending December 31, 2020, 2021, 2022,
2023 and 2024, respectively, and $8,073 thereafter.
A-45
7. Property and Equipment
Property and equipment at cost, less accumulated depreciation, is as follows:
Land
Building and land improvements
Construction in progress
Manufacturing and office equipment
Aviation equipment
Less accumulated depreciation
Total
December 31
2019
15,198 $
151,628
10,167
266,650
14,439
(267,719 )
190,363 $
2018
15,774
145,913
10,410
260,420
14,424
(254,493 )
192,448
$
$
Depreciation expense was $21,436, $22,411 and $21,312 for the years ended December 31, 2019, 2018 and 2017, respectively.
8. Leases
The Company leases certain real estate, computer systems, material handling equipment, offices, automobiles and other equipment. The
Company determines if a contract is a lease (or contains an embedded lease) at the inception 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,
none of the Company’s leases were deemed to be financing 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.
Other information concerning the Company’s operating leases accounted for under ASC 842 guidelines and the related expense, assets
and liabilities follows:
Operating lease expense
Cash paid for operating leases included in operating cash flows
Operating lease right-of-use asset
Operating lease short-term liability included in other current liabilities
Operating lease long-term liability included in other long-term liabilities
Weighted average remaining lease term (in years)
Weighted average discount rate used in calculating right-of-use asset
A-46
Year Ended
December 31, 2019
2,629
$
2,727
As of
December 31, 2019
3,853
$
1,846
2,020
4.66
3.56 %
Future annual minimum lease payments as of December 31, 2019 are as follows:
2020
2021
2022
2023
2024
2025 and thereafter
Total
Less interest
Present value of lease liabilities
$
$
1,960
717
418
252
146
776
4,269
(403 )
3,866
Operating lease expense under prior guidance for 2018 and 2017 was $3,618 and $3,211, respectively.
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
2020
2021
2022
2023
2024 and thereafter
Total
9. Debt
$
$
1,992
1,100
388
144
66
12
3,702
In February 2019, the Company and certain of its subsidiaries entered into an amended and restated credit agreement whereby the lender
extended to the Company an unsecured line of credit of up to $150,000, including a sub-limit for letters of credit of up to $30,000, and
extended the maturity date to December 29, 2023. Other significant terms were left unchanged. There were no 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. The unused facility fee is 0.125%. Interest only payments
are due monthly. The amended and restated credit agreement contains certain financial covenants, including provisions concerning
required levels of annual net income and minimum tangible net worth.
The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $6,760 with a
South African bank to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and
retention guarantees. As of December 31, 2019 and 2018, Osborn had no outstanding borrowings but had $1,076 in performance,
advance payment and retention guarantees outstanding under the facility at December 31, 2019. The facility has been guaranteed by
Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As
of 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.
A-47
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 two five-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 $209 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 and $69 in the years ending December 31, 2020, 2021, 2022 and 2023,
respectively.
10. Product Warranty Reserves
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and
performance standards vary by product, but generally range from three months to two years or up to a specified number of hours of
operation. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales
are recorded. The warranty liability is primarily based on historical claim rates, nature of claims and the associated costs.
Changes in the Company’s product warranty liability during 2019, 2018 and 2017 are as follows:
Reserve balance, beginning of year
Warranty liabilities accrued
Warranty liabilities settled
Other
Reserve balance, end of year
11. Accrued Loss Reserves
2019
2018
2017
$
$
10,928 $
9,762
(10,473 )
44
10,261 $
15,410 $
13,219
(17,539 )
(162 )
10,928 $
13,156
16,725
(14,642 )
171
15,410
The Company accrues reserves for losses related to known workers’ compensation and general liability claims that have been incurred
but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially
determined based on the Company’s evaluation of the type and severity of individual claims and historical information, primarily its
own claim experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience,
could cause these estimates to change in the future. Total accrued loss reserves at December 31, 2019 were $6,817 and $7,889 at
December 31, 2018, of which $4,518 and $6,057 were included in other long-term liabilities at December 31, 2019 and 2018,
respectively.
12. Pension and Retirement Plans
Prior to December 31, 2003, all employees of the Company’s Kolberg-Pioneer, Inc. subsidiary were covered by a defined benefit pension
plan. After December 31, 2003, all benefit accruals under the plan ceased and no new employees could become participants in the plan.
Benefits paid under this plan are based on years of service multiplied by a monthly amount. The Company’s funding policy for the plan
is to make at least the minimum annual contributions required by applicable regulations.
The Company’s investment strategy for the plan is to earn a rate of return sufficient to match or exceed the long-term growth of pension
liabilities. The investment policy states 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 attempts to ensure adequate diversification of the invested assets through investment in an exchange traded mutual fund that
invests in a diversified portfolio of stocks, bonds and money market securities.
A-48
The following provides information regarding benefit obligations, plan assets and the funded status of the plan:
Change in benefit obligation:
Benefit obligation, beginning of year
Interest cost
Actuarial (gain)/loss
Benefits paid
Benefit obligation, end of year
Accumulated benefit obligation
Change in plan assets:
Fair value of plan assets, beginning of year
Actual gain/(loss) on plan assets
Employer contribution
Benefits paid
Fair value of plan assets, end of year
Funded status, end of year
Amounts recognized in the consolidated balance sheets:
Noncurrent asset / (liability)
Net amount recognized
Amounts recognized in accumulated other comprehensive loss consist of:
Net loss
Net amount recognized
Weighted average assumptions used to determine benefit obligations as of December 31:
Discount rate
Expected return on plan assets
Rate of compensation increase
$
$
$
$
$
$
Pension Benefits
2019
2018
15,741 $
628
1,577
(789 )
17,157
17,157
14,452
2,729
1,613
(789 )
18,005
848 $
16,916
578
(1,021 )
(732 )
15,741
15,741
14,717
(909 )
1,376
(732 )
14,452
(1,289 )
848 $
848 $
(1,289 )
(1,289 )
4,860 $
4,860 $
5,687
5,687
3.10 %
6.00 %
N/A
4.10 %
6.00 %
N/A
The measurement date used for the plan was December 31. In determining the expected return on plan assets, the historical experience
of the plan assets, the current and expected allocation of the plan assets and the expected long-term rates of return were considered.
All assets in the plan are invested in an exchange-traded mutual fund (level 1 in the fair value hierarchy). The allocation of assets within
the mutual fund as of December 31 and the target asset allocation ranges by asset category are as follows:
Asset Category
Equity securities
Debt securities
Cash and equivalents
Total
Actual Allocation
2019
2018
2019 & 2018
Target
Allocation
Ranges
45.9%
42.2%
11.9%
100.0%
46.9%
46.2%
6.9%
100.0%
40 - 65%
30 - 50%
0 - 15%
A-49
Net periodic benefit cost for 2019, 2018 and 2017 included the following components:
Components of net periodic benefit cost:
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Net periodic benefit cost
Other changes in plan assets and benefit obligations recognized in other
comprehensive income (loss):
Net actuarial (gain) loss for the year
Amortization of net loss
Total recognized in other comprehensive income (loss)
Total recognized in net periodic benefit cost and other comprehensive income (loss)
Weighted average assumptions used to determine net periodic benefit cost for
$
$
years ended December 31:
Discount rate
Expected return on plan assets
2019
Pension Benefits
2018
2017
628 $
(844 )
520
304
(308 )
(520 )
(828 )
(524 ) $
578 $
(802 )
465
241
690
(465 )
225
466 $
630
(720 )
530
440
(159 )
(530 )
(689 )
(249 )
4.10 %
6.00 %
3.50 %
6.25 %
4.00 %
6.25 %
No contributions are expected to be funded by the Company during 2020. Amounts in accumulated other comprehensive loss expected
to be recognized in net periodic benefit cost in 2020 for the amortization of a net loss is $403.
The following estimated future benefit payments are expected in the years indicated:
2020
2021
2022
2023
2024
2025 - 2029
Pension Benefits
870
$
910
910
930
960
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.
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’ 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.
Assets of the SERP consist of the following:
Company stock
Equity securities
Total
December 31, 2019
Cost
Market
December 31, 2018
Cost
Market
$
$
1,714 $
4,437
6,151 $
2,018 $
4,627
6,645 $
1,886 $
5,262
7,148 $
1,658
4,983
6,641
The Company periodically adjusts the deferred compensation liability such that the balance of the liability equals the total fair market
value of all assets held by the trust established under the SERP. Such liabilities are included in other long-term liabilities on the
consolidated balance sheets. The equity securities are included in investments in the consolidated balance sheets and classified as trading
equity securities. See Note 4, Investments, for additional information. The cost of the Company stock held by the plan is included as a
reduction in shareholders’ equity in the consolidated balance sheets.
A-50
The change in the fair market value of Company stock held in the SERP results in a charge or credit to selling, general and administrative
expenses in the consolidated statements of operations because the acquisition cost of the Company stock in the SERP is recorded as a
reduction of shareholders’ equity and is not adjusted to fair market value; however, the related liability is adjusted to the fair market
value of the stock as of each period end. The Company recognized income of $616, $1,556 and $575 in 2019, 2018 and 2017,
respectively, related to the change in the fair value of the Company stock held in the SERP.
13. Derivative Financial Instruments
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. From time to time, the Company’s foreign subsidiaries enter into foreign currency exchange
contracts to mitigate exposure to fluctuations in currency exchange rates. The fair value of the derivative financial instrument is recorded
on the Company’s consolidated balance sheet 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. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
United States
Foreign
Income (loss) before income taxes
The provision (benefit) for income taxes consists of the following:
Current provision (benefit):
Federal
State
Foreign
Total current provision
Deferred provision (benefit):
Federal
State
Foreign
Total deferred benefit
Total provision (benefit):
Federal
State
Foreign
Total income tax provision (benefit)
Year Ended December 31
2018
2017
2019
$
$
26,675 $
(1,489 )
25,186 $
(86,874 ) $
896
(85,978 ) $
55,980
1,237
57,217
Year Ended December 31
2018
2017
2019
$
(495 ) $
769
1,023
1,297
(3,995 ) $
892
3,254
151
16,178
2,866
874
19,918
2,818
(1,052 )
(51 )
1,715
(19,142 )
(5,788 )
(455 )
(25,385 )
107
(455 )
57
(291 )
2,323
(283 )
972
3,012 $
(23,137 )
(4,896 )
2,799
(25,234 ) $
16,285
2,411
931
19,627
$
The Company’s income tax provision (benefit) is computed based on the domestic and foreign federal statutory rates and the average
state statutory rates, net of related federal benefit.
A-51
The 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 provision (benefit) for income taxes at the statutory federal income tax rate to the
amount provided is as follows:
Tax expense (benefit) at the statutory federal income tax rate
Domestic production activity deduction
State income tax, net of federal income tax
Research and development tax credits
FIN 48 impact
Liquidation of subsidiary
True-up of foreign subsidiary net operation loss carryforward
Valuation allowance impact
Changes in tax rates
Other items
Total income tax provision (benefit)
Year Ended December 31
2018
2017
2019
5,289 $
–
(2,291 )
(6,614 )
3,215
(918 )
(1,441 )
5,785
83
(96 )
3,012 $
(18,055 ) $
–
(2,976 )
(4,660 )
1,856
(1,403 )
–
978
(193 )
(781 )
(25,234 ) $
20,026
(1,661 )
1,520
(922 )
124
–
–
1,585
(505 )
(540 )
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’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Inventory reserves
Warranty reserves
Bad debt reserves
State tax loss carryforwards
Accrued vacation
SERP
Deferred compensation
Restricted stock units
Goodwill
Pension and post-employment benefits
Outside basis difference
Federal net operating loss
Foreign net operating losses
Lease obligation
Other
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Property and equipment
Intangibles
Right of use asset
Pension
Total deferred tax liabilities
Total net deferred assets
December 31
2019
2018
$
$
5,798 $
2,198
261
9,762
1,412
–
1,063
1,539
1,981
1,309
4,017
12,118
8,615
849
5,800
(14,586 )
42,136
16,000
121
843
1,372
18,336
23,800 $
4,513
2,275
182
7,265
1,612
364
881
1,728
2,157
1,536
4,496
15,655
5,069
–
5,025
(8,540 )
44,218
16,156
541
–
1,051
17,748
26,470
As of December 31, 2019, 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.
A-52
As of December 31, 2019, the Company has state net operating loss carryforwards of $179,076 and foreign net operating loss
carryforwards of approximately $27,357, which will be available to offset future taxable income. If not used, these carryforwards will
expire between 2020 and 2031. 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, the valuation
allowance on these carryforwards and deferred tax assets was increased by $5,785 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 forward of the deferred tax asset valuation allowance for the years ended December 31, 2019, 2018
and 2017:
Allowance balance, beginning of year
Provision
Write-offs
Other
Allowance balance, end of year
Year Ended December 31
2018
2017
2019
$
$
8,540 $
5,785
–
261
14,586 $
8,318 $
978
–
(756 )
8,540 $
8,280
1,585
(1,862 )
315
8,318
Undistributed 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, no provision for U.S. federal and state income taxes has been provided thereon. As of December
31, 2019, the cumulative amounts of undistributed 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 for 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.
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.
The Company has a liability for unrecognized tax benefits of $5,723 and $2,048 (excluding accrued interest and penalties) as of
December 31, 2019 and 2018, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits
in tax expense. The Company recognized 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. The net total amount of unrecognized tax benefits that, if recognized,
would affect the Company’s effective tax rate is $6,148 and $2,243 at December 31, 2019 and 2018, 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:
Balance, beginning of year
Additions for tax positions taken in current year
Additions for tax positions taken in prior period
Reductions due to lapse of statutes of limitations
Decreases related to settlements with tax authorities
Balance, end of year
Year Ended December 31
2018
2017
2019
$
$
2,048 $
2,985
719
–
(29 )
5,723 $
365 $
1,722
–
(39 )
–
2,048 $
238
127
–
–
–
365
The December 31, 2019 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.
A-53
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 benefit 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 no 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 bank in which the Company is
contingently liable for customer debt of $1,466 at December 31, 2019. These arrangements expire at various dates through December
2023. 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 that were financed by an outside finance company.
The agreements provide that the Company will receive the lender’s full security interest in the equipment financed if the Company is
required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $1,666 related to these
guarantees as of December 31, 2019.
A-54
In addition, the Company is contingently liable under letters of credit issued by a lender totaling $8,335 as of December 31, 2019,
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 amount of future payments under
these letters of credit and guarantees for which the Company could be liable is $10,958 as of December 31, 2019.
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 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 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 and that the
individual defendants are control person under Section 20(a) of the Exchange Act. The complaint was 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 these allegations and intends to defend this lawsuit vigorously and filed a motion to dismiss
the lawsuit on October 25, 2019. 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.
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 either (i) probable but cannot be reasonably estimated
or (ii) reasonably possible but not probable, the Company does not record the amount of the loss, but does make specific disclosure of
such matter. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome
of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company’s
financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and
rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse
effect on the Company’s financial position, cash flows or results of operations.
16. Shareholders’ Equity
The Company rewards key members of management with restricted stock units (“RSUs”) each year based upon the financial
performance of the Company and its subsidiaries. Under the terms of the Company’s shareholder-approved 2011 Incentive Plan, up to
700 shares of newly-issued Company stock is available for awards. 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 vest
three years from the date of grant. RSUs granted in early 2020 for 2019 performance vest ratably, at the end of each 12 month period,
over a three year period. Additional RSUs are granted to the Company’s outside directors under the Company’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.
A-55
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, 2019 are as follows:
Unvested restricted stock units, beginning of year
Units granted
Units forfeited
Units vested
Unvested restricted stock units, end of year
Weighted Average
Grant Date
Fair Value
2019
165 $
92
(23 )
(46 )
188
56.82
34.57
56.52
57.65
45.78
The grant date fair value of the restricted stock units granted during 2019, 2018 and 2017 was $3,168, $3,553 and $5,399, respectively.
17. Revenue Recognition
The following tables disaggregates the Company’s revenue by major source for the period ended December 31, 2019 and 2018
(excluding intercompany sales):
Infrastructure
Group
For the Year Ended December 31, 2019
Other
Energy
Group
Group
Aggregate and
Mining Group
166,868 $
–
74,503
8,039
1,244
6,279
(2,944 )
253,989
160,359 $
–
47,622
5,837
5,874
5,993
3,941
229,626
Total
580,454
20,000
243,479
27,265
12,687
24,261
320
908,466
– $
–
–
–
–
–
–
–
95,514
46,984
1,977
3,272
3,000
235
150,982
404,971 $
30,725
9,344
617
1,059
558
193
42,496
272,122 $
165,922
206
75,584
159
8,239
39
5,511
–
5,450
–
441
(2 )
402
261,147
402 $ 1,169,613
Net Sales – Domestic:
Equipment sales
Pellet plant revenue
Parts and component sales
Service and equipment installation revenue
Used equipment sales
Freight revenue
Other
Total domestic revenue
Net Sales – International:
Equipment sales
Parts and component sales
Service and equipment installation revenue
Used equipment sales
Freight revenue
Other
Total international revenue
Total net sales
$
$
253,227 $
20,000
121,354
13,389
5,569
11,989
(677 )
424,851
39,477
19,097
5,606
1,180
1,892
15
67,267
492,118 $
A-56
Net Sales – Domestic:
Equipment sales
Pellet plant agreement sale reduction
Parts and component sales
Service and equipment installation revenue
Used equipment sales
Freight revenue
Other
Total domestic revenue
Net Sales – International:
Equipment sales
Parts and component sales
Service and equipment installation revenue
Used equipment sales
Freight revenue
Other
Total international revenue
Total net sales
Infrastructure
Group
For the Year Ended December 31, 2018
Other
Energy
Group
Group
Aggregate and
Mining Group
$
$
296,974 $
(75,315 )
119,823
10,822
8,098
12,502
1,022
373,926
43,516
19,215
3,152
1,693
1,043
(256 )
68,363
442,289 $
220,015 $
–
71,862
1,844
3,127
6,265
(741 )
302,372
178,584 $
–
42,666
6,355
4,358
5,896
1,657
239,516
98,604
44,609
1,069
2,948
3,266
296
150,792
453,164 $
24,308
10,528
390
908
417
79
36,630
276,146 $
Total
– $
–
–
–
–
–
–
–
695,573
(75,315 )
234,351
19,021
15,583
24,663
1,938
915,814
166,428
–
74,352
–
4,611
–
5,549
–
4,726
–
119
–
255,785
–
– $ 1,171,599
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, 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.
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.
A-57
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 warranty revenues, early pay discounts and floor plan interest reimbursements.
18. Operations by Industry Segment and Geographic Area
The Company has three reportable segments, each of which is comprised of multiple business units that offer similar products and
services and meet the requirements for aggregation. A brief description of each segment is as follows:
Infrastructure Group – The Infrastructure Group segment is made up of five business units. These business units include Astec, Inc.
(“Astec”), Roadtec, Inc. (“Roadtec”), Carlson Paving Products, Inc. (“Carlson”), Astec Mobile Machinery GmbH (“AMM”) and Astec
Australia Pty Ltd (“Astec Australia”). Three of the business units (Astec, Roadtec and Carlson) design, engineer, manufacture and
market a complete line of asphalt 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 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. The principal purchasers of the products produced by this group are asphalt producers, highway and heavy equipment
contractors, and foreign and domestic governmental agencies.
Aggregate and Mining Group – The Company’s Aggregate and Mining Group is comprised of eight business units which are focused
on designing and manufacturing heavy processing equipment, as well as servicing and supplying parts for the aggregate, metallic mining,
recycling, ports and bulk handling markets. These business units are Telsmith, Inc. (“Telsmith”), Kolberg-Pioneer, Inc. (“KPI”), Astec
Mobile Screens, Inc. (“AMS”), Johnson Crushers International, Inc. (“JCI”), Breaker Technology Ltd/Breaker Technology, Inc.
(“BTI”), Osborn Engineered Products, SA (Pty) Ltd (“Osborn”), Astec do Brasil Fabricacao de Equipamentos Ltda. (“Astec Brazil”)
and Telestack Limited (“Telestack”). The principal purchasers of products produced by this group are distributors, open mine operators,
quarry operators, port and inland terminal operators, highway and heavy equipment contractors and foreign and domestic governmental
agencies.
Energy Group – The Company’s Energy Group is currently comprised of six business units focused on supplying heavy equipment
such as heaters, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, storage equipment and related parts to the oil
and gas, construction, and water well industries, as well as commercial and industrial burners used primarily in commercial, industrial
and process heating applications. The business units currently included in the Energy Group are Heatec, Inc. (“Heatec”), CEI Enterprises,
Inc. (“CEI”), GEFCO, Inc. (“GEFCO”), Peterson Pacific Corp. (“Peterson”), Power Flame Incorporated (“Power Flame”) and RexCon,
Inc. (“RexCon”). 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.
A-58
Corporate – This category consists of business units that 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’s parent company, Astec Industries, Inc., a captive
insurance company and a Company-owned distributor in the start-up phase of operations in Chile. 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 summary of significant accounting policies.
Intersegment sales and transfers are valued at prices comparable to those for unrelated parties.
Segment information for 2019
Revenues from external customers
Intersegment revenues
Restructuring and asset impairment charges
Interest expense
Interest income
Depreciation and amortization
Income taxes
Profit (loss)
Infrastructure
Group
Aggregate
and Mining
Group
Energy
Group
Corporate
Total
$
492,118 $
10,860
1,811
6
1
8,484
349
36,106
404,971 $
22,164
250
311
574
8,211
624
22,790
272,122 $
18,353
1,143
13
47
8,371
397
556
402 $ 1,169,613
51,377
3,204
1,367
1,192
26,200
3,012
21,012
–
–
1,037
570
1,134
1,642
(38,440 )
Assets
Capital expenditures
564,808
11,097
608,369
7,442
301,014
3,096
420,931 1,895,122
22,620
985
Segment information for 2018
Revenues from external customers
Intersegment revenues
Restructuring and asset impairment charges
Interest expense
Interest income
Depreciation and amortization
Income taxes
Profit (loss)
Infrastructure
Group
Aggregate
and Mining
Group
Energy
Group
Corporate
Total
$
442,289 $
21,568
1,870
10
49
8,424
880
(112,954 )
453,164 $
16,603
–
384
372
9,383
2,349
45,464
276,146 $
17,578
11,190
17
29
9,149
306
3,070
– $ 1,171,599
55,749
–
13,060
–
1,045
634
502
952
27,913
957
(25,234 )
(28,769 )
(62,834 )
1,586
Assets
Capital expenditures
536,744
14,823
590,512
8,731
309,397
4,580
367,211 1,803,864
28,903
769
Segment information for 2017
Revenues from external customers
Intersegment revenues
Interest expense
Interest income
Depreciation and amortization
Income taxes
Profit (loss)
Assets
Capital expenditures
Infrastructure
Group
Aggregate
and Mining
Group
Energy
Group
Corporate
Total
$
553,691 $
25,965
49
509
7,581
1,318
26,641
403,720 $
16,209
634
276
9,363
462
35,748
227,328 $
24,877
9
8
7,904
491
16,219
– $ 1,184,739
67,051
–
148
840
1,302
509
25,802
954
19,627
17,356
37,645
(40,963 )
666,651
7,424
558,684
9,194
304,158
3,540
390,300 1,919,793
20,762
604
A-59
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
Net income attributable to controlling interest
Total profit (loss) for reportable segments
Corporate expenses, net
Net loss attributable to non-controlling interest
Recapture (elimination) of intersegment profit
Total consolidated net income (loss) attributable to controlling interest
2019
2018
2017
$
$
59,452 $
(38,440 )
132
1,162
22,306 $
(64,420 ) $
1,586
295
2,090
(60,449 ) $
78,608
(40,963 )
205
(55 )
37,795
Assets
Total assets for reportable segments
Corporate assets
Elimination of intercompany profit in inventory
Elimination of intercompany receivables
Elimination of investment in subsidiaries
Other
Total consolidated assets
Sales into major geographic regions were as follows:
United States
Canada
Africa
Australia and Oceania
Other European Countries
South America (excluding Brazil)
Brazil
Post-Soviet States (excluding Russia)
Other Asian Countries
West Indies
Mexico
Russia
Central America (excluding Mexico)
Japan and Korea
Middle East
China
India
Other
Total foreign
Total consolidated sales
Long-lived assets by major geographic region are as follows:
United States
Northern Ireland
Brazil
Australia
South Africa
Canada
Chile
Germany
Total foreign
Total
A-60
$ 1,474,191 $ 1,436,653 $ 1,529,493
390,300
(7,075 )
(717,873 )
(303,209 )
(2,057 )
889,579
367,211
(4,986 )
(664,914 )
(300,709 )
22,202
855,457 $
420,931
(3,823 )
(767,907 )
(296,650 )
(26,244 )
800,498 $
$
$
Year Ended December 31
2018
915,814 $
61,582
45,613
38,645
25,985
30,081
6,292
2,730
5,472
1,494
9,632
9,571
2,706
3,649
7,877
2,765
957
734
255,785
2017
932,294
65,509
36,847
40,201
18,679
18,562
10,478
5,951
10,286
3,421
8,508
13,609
2,929
4,760
4,881
6,113
1,026
685
252,445
$ 1,169,613 $ 1,171,599 $ 1,184,739
2019
908,466 $
66,855
44,749
42,304
32,170
17,928
11,582
7,276
6,520
6,366
5,280
5,097
4,910
3,594
2,584
2,231
1,003
698
261,147
December 31
2019
157,872 $
10,790
8,349
4,649
4,512
4,007
184
–
32,491
190,363 $
2018
162,775
7,641
8,866
4,624
4,682
3,480
35
345
29,673
192,448
$
$
19. Accumulated Other Comprehensive Loss
The after-tax components comprising accumulated other comprehensive loss is summarized below:
$
Foreign currency translation adjustment
Unrecognized pension and post-retirement benefit cost, net of tax of $1,265 and $2,230, respectively
$
Accumulated other comprehensive loss
(28,627 ) $
(3,176 )
(31,803 ) $
(30,656 )
(3,227 )
(33,883 )
December 31
2019
2018
See Note 12, Pension and Retirement Plans, for discussion of the amounts recognized in accumulated other comprehensive loss related
to the Company’s Kolberg-Pioneer, Inc. defined pension plan.
20. Other Income
Other income consists of the following:
Investment income (loss)
Licensing fees
Other
Total
21. Business Combinations and Divestitures
Year Ended December 31
2018
2017
2019
$
$
202 $
–
103
305 $
(228 ) $
–
764
536 $
(96 )
651
663
1,218
In October 2017, the Company acquired substantially all 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, 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 the business was based in part on market conditions and manufacturing facilities underutilization. The marketing and
manufacturing of products previously produced by CEI will be transferred to other Company facilities. The industrial 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 $2,749 in the accompanying consolidated balance sheet as of December 31, 2019) are expected to be sold “as-is”. Selected
equipment has been transferred to the Heatec, Inc. and RexCon, Inc. facilities. CEI is scheduled to close during the first quarter of 2020.
A-61
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. Essentially all of the assets were liquidated prior to December 31, 2019, with the exception of the sale of its land and building,
which are included in assets held for sale and valued at $335 in the accompanying consolidated balance sheet at December 31,
2019. Losses on the liquidation incurred in 2019 are included in restructuring and asset impairment charges in the accompanying
statement of operations for the year ended December 31, 2019. The sale of AMM’s land and building was completed in January 2020,
with no additional loss being incurred.
The Company had total assets held for sale of $3,084 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, in the accompanying consolidated statements of operations.
The restructuring and asset impairment charges incurred in 2019 and 2018 are as follows:
Costs associated with exiting the wood pellet business
Costs associated with closing AMM
Goodwill impairment charges
Energy Group severance and other costs
Airplane impairment charge
Total restructuring and asset impairment charges
2019
2018
530 $
1,282
–
1,142
250
3,204 $
–
1,870
11,190
–
–
13,060
$
$
Restructuring charges accrued, but not paid, as of December 31, 2019 and 2018 are not significant.
A-62
Comparison of 5 Year Cumulative Total Return
Assumes Initial Investment of $100
Performance Graph for Astec Industries, Inc.
Notes:
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. Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved Copyright 1980-2020.
E. 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. The graph assumes $100 invested at the closing price of the Company’s common stock on December 31, 2014 and assumes
that all dividends were invested on the date paid.
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ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX OF EXHIBITS FILED HEREWITH
Exhibit Number Description
Exhibit 10.28
Amendment to “Appendix A” of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective
December 5, 2019.
Exhibit 10.29
Separation Agreement and General Release, dated as of December 31, 2019, by and between Astec Industries,
Exhibit 10.30
Amendment to "Appendix A" of the Astec Industries, Inc. Supplemental Executive Retirement Plan, effective
Inc. and David C. Silvious
February 28, 2020.
Exhibit 21
Exhibit 23
Exhibit 31.1
Subsidiaries of the Registrant.
Consent of Independent Registered Public Accounting Firm.
Certification pursuant to Rule 13a-14(a)/15d-14(a),as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
Exhibit 31.2
Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
Exhibit 32
Certification pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
XBRL tags are embedded within the Inline XBRL document)
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation Linkbase
Inline XBRL Taxonomy Extension Definition Linkbase
Inline XBRL Taxonomy Extension Label Linkbase
Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
A-64
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.
SIGNATURES
ASTEC INDUSTRIES, INC.
(Registrant)
BY: /s/ Barry A. Ruffalo
Barry A. Ruffalo, 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
/s/ Barry A. Ruffalo
Barry A. Ruffalo
/s/ Rebecca A. Weyenberg
Rebecca A. Weyenberg
Chief Executive Officer and President (Principal
March 17, 2020
Executive Officer) and Director
Chief Financial Officer (Principal Financial and Accounting
March 17, 2020
Officer)
/s/ William D. Gehl
William D. Gehl
/s/ James B. Baker
James B. Baker
/s/ Tracey H. Cook
Tracey H. Cook
/s/ William G. Dorey
William G. Dorey
/s/ Daniel K. Frierson
Daniel K. Frierson
/s/ Charles F. Potts
Charles F. Potts
/s/ Glen E. Tellock
Glen E. Tellock
/s/ William B. Sansom
William B. Sansom
/s/ William Bradley Southern
William Bradley Southern
/s/ Mary L. Howell
Mary L. Howell
Director and Chairman of the Board
March 17, 2020
Director
Director
Director
Director
Director
Director
Director
Director
Director
A-65
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
March 17, 2020
Transfer Agent
Computershare
250 Royall Street, Canton, MA 02021
800.617.6437
www.computershare.com/investor
Stock Exchange
NASDAQ, National Market—ASTE
Independent Auditors
KPMG LLP, Knoxville, TN
General Counsel and Litigation
Chambliss, Bahner & Stophel, P.C.,
Chattanooga, TN
Securities Counsel
Alston & Bird LLP, Atlanta, GA
Investor Relations
Stephen C. Anderson
423.553.5934
Corporate Office
Astec Industries, Inc.
1725 Shepherd Road
Chattanooga, TN 37421
Ph 423.899.5898 Fax 423.899.4456
www.astecindustries.com
The Form 10-K, as filed with the
Securities and Exchange Commission,
may be obtained at no cost by any
shareholder upon written request to
Astec Industries, Inc., Attention
Investor Relations.
The Company’s Code of Conduct is
posted at www.astecindustries.com.
The Annual Meeting will be held on
April 30, 2020, at 10:00 A.M. EST in
the Training Center of Astec, Inc.
located at 4101 Jerome Avenue,
Chattanooga, TN 37407.
Simplify . Focus . Grow
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ANNUAL REPORT
2019
1725 Shepherd Road • Chattanooga, TN 37421
+423.899.5898 • astecindustries.com
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