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, 2017 are as follows:
Astec Australia Pty Ltd
|
Astec do Brasil Fabricacao de Equipamentos Ltda. (92% owned)
|
Astec, Inc.
|
Astec Insurance Company
|
Astec Mobile Machinery GmbH
|
Astec Mobile Screens, Inc.
|
Breaker Technology, Inc.
|
Breaker Technology Ltd.
|
Carlson Paving Products, Inc.
|
CEI Enterprises, Inc.
|
GEFCO, Inc.
|
Heatec, Inc.
|
Johnson Crushers International, Inc.
|
Kolberg-Pioneer, Inc.
|
Osborn Engineered Products SA (Pty) Ltd
|
Peterson Pacific Corp.
|
(99% owned)
|
Power Flame Incorporated
|
RexCon, Inc.
|
Roadtec, Inc.
|
Telestack Limited
|
Telsmith, Inc.
|
All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the 2016 consolidated financial statements to conform to the 2017 presentation.
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, Germany, Northern Ireland, and South Africa operate primarily using local functional currencies. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains and losses, net are included in cost of sales and amounted to a gain of $431 in 2017 and losses of $246 and $1,377 in 2016 and 2015, respectively.
Fair Value of Financial Instruments
- For cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable, the carrying amount approximates the fair value because of the short-term nature of those instruments. Trading equity investments are valued at their estimated fair value based on their quoted market prices and debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service.
Financial assets and liabilities are categorized as of the end of each reporting period based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
Level 1 -
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
Level 2 -
|
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
|
|
Level 3 -
|
Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
|
All financial assets and liabilities held by the Company at December 31, 2017 and 2016 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.
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. 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.
Concentration of Credit Risk
- 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, 2017, 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, 2017, 2016 and 2015:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Allowance balance, beginning of year
|
|
$
|
1,511
|
|
|
$
|
1,837
|
|
|
$
|
2,248
|
|
Provision
|
|
|
482
|
|
|
|
280
|
|
|
|
18
|
|
Write offs
|
|
|
(308
|
)
|
|
|
(560
|
)
|
|
|
(357
|
)
|
Other
|
|
|
31
|
|
|
|
(46
|
)
|
|
|
(72
|
)
|
Allowance balance, end of year
|
|
$
|
1,716
|
|
|
$
|
1,511
|
|
|
$
|
1,837
|
|
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. The 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 our 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.
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 obsolete inventory based upon quantities of items on hand, the age of those items and their recent and expected future usage or sale.
When the Company determines that the value of inventory has become impaired through damage, deterioration, obsolescence, changes in price levels, excessive levels of inventory or other causes, the Company reduces the carrying value to the net realizable value based on estimates, assumptions and judgments made from the information available at that time. Abnormal amounts of idle facility expense, freight, handling cost and wasted materials are recognized as current period charges.
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 intangible assets with definite lives subject to amortization or goodwill.
The Company tests intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a 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: 15 years; other: 5-19 years.
Goodwill is not amortized. The Company tests goodwill for impairment annually or more frequently if events or circumstances indicate that goodwill might be impaired. The Company uses qualitative factors to determine whether it is more likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. The Company estimates the fair values of each of its reporting units using the income approach.
The income approach uses a reporting unit's projection of estimated future operating 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, and changes in operating margins, selling, general and administrative expenses, working capital requirements and capital expenditures. Other factors used in evaluating the fair value of a reporting unit could include deterioration in the general economy, fluctuations in foreign exchange, deterioration in the industry or markets in which the reporting unit operates, an increased competitive market, regulatory or political developments in the market, increases in raw materials, labor costs or other factors that have a negative effect on earnings and cash flows, a decline in actual or budgeted earnings or cash flows, and entity specific changes in management, key personnel, strategy or customer base. If the fair value of a reporting unit is found to be less than its book value, the company will record an impairment loss equal to the excess, if any, of the book value over the fair value of its goodwill.
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"). Astec Insurance was originally incorporated under the laws of the state of Vermont but was redomiciled to the state of Tennessee in late 2017. 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 and $3,000 per year in the aggregate. The Company carries general liability, excess liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers' compensation claims, the captive is liable for the first $350 per occurrence and $3,250 per year in the aggregate. The Company utilizes a large national insurance company as third-party administrator for workers' compensation claims and carries insurance coverage for 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, respectively, in the consolidated balance sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined to cover the ultimate cost of each claim based 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.
Revenue Recognition
- Revenue is generally recognized on sales at the point in time when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product has been delivered or services have been rendered and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specified delivery terms. A significant portion of the Company's equipment sales represents equipment produced in the Company's plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer needs or specifications. The Company provides customers with technical design and performance specifications and performs pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether the Company provides installation services in addition to selling the equipment.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon completion of equipment production, which is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and risk of ownership and when collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company's inventory prior to revenue recognition.
The Company has certain sales accounted for as multiple-element arrangements, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed. Consideration is allocated to deliverables using the relative selling price method using vendor specific objective evidence, if it exists. Otherwise, the Company uses third-party evidence of selling price or the Company's best estimate of the selling price for the deliverables. The Company evaluates sales with multiple deliverable elements (such as an agreement to deliver equipment and related installation services) to determine whether revenue related to individual elements should be recognized separately, or as a combined unit. In addition to the previously mentioned general revenue recognition criteria, the Company only recognizes revenue on individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the customer on a standalone basis and there is no right of return.
The Company has certain sales accounted for under the percentage of completion method using the ratio of costs incurred to estimated total costs. Revenue, in an amount equal to cost incurred, is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty. The factors considered in this evaluation include the stage of design completion, the stage of equipment manufacturing completion, the state of construction completion, the status of outstanding subcontracts, certainty of quantities of labor and materials, certainty of schedule and the relationship with the customer.
The Company presents in the consolidated statements of income any 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, on a net (excluded from revenue) basis.
Advertising Expense
- The cost of advertising is expensed as incurred. The Company incurred $3,793, $4,045, and $4,231 in advertising costs during 2017, 2016 and 2015, respectively, which is included in selling, general and administrative expenses.
Income Taxes
- Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax 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.
The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers. Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from 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 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 an employee 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 per share is based on the weighted average number of common shares outstanding and diluted earnings per share includes potential dilutive effects of restricted stock units and shares held in the Company's supplemental executive retirement plan.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings per share:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
23,025
|
|
|
|
22,992
|
|
|
|
22,934
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
96
|
|
|
|
85
|
|
|
|
123
|
|
Supplemental executive retirement plan
|
|
|
63
|
|
|
|
65
|
|
|
|
63
|
|
Denominator for diluted earnings per share
|
|
|
23,184
|
|
|
|
23,142
|
|
|
|
23,120
|
|
Derivatives and Hedging Activities
- The Company recognizes all derivatives in the consolidated balance 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 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, 2017 and 2016.
Shipping and Handling Fees and Cost
- The Company records revenues earned for shipping and handling as revenue, while the cost of shipping and handling is classified as cost of sales.
Business Combinations
- 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. See Note 20, Business Combinations, regarding acquisitions completed by the Company in the years ended December 31, 2017 and 2016.
Subsequent Events Review
- Management has evaluated events occurring between December 31, 2017 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 May 2014, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which supersedes existing revenue guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The implementation of this new standard will require companies to use more judgment and to make more estimates than under current guidance and to expand their disclosures to include information regarding contract assets and liabilities as well as a more disaggregated view of revenue. The standard, as amended, is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018 using the modified retrospective transition method and will expand its disclosures in the first quarter 2018 consolidated financial statements to comply with the disclosure provisions of the new rule. The Company does not expect the adoption of the standard to have a material impact on its financial position, results of operations or cash flows.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10)", which requires, among other things, equity investments with readily determinable fair values, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The Company does not expect the adoption of this standard to have a material impact on the Company's financial position, cash flows or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which significantly changes the accounting for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet, initially measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost included in the statement of income will be calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Lessees may make an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The new standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company plans to adopt the new standard effective January 1, 2019. The Company does not expect the adoption of this standard to have a material impact on its results of operations or cash flows; however, the Company has not determined the impact the adoption of this new standard will have on its financial position.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606)", which does not change the core principles of ASU No. 2014-09 discussed above, but rather clarifies the implementation guidance in order to eliminate the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance. Under the new guidance, when an entity determines it is a principal in a transaction, the entity recognizes revenue in the gross amount of consideration; however, in transactions where an entity determines it is an agent, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The standard is effective for public companies for annual periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the adoption of this new standard to have a material impact on the Company's financial position, results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments". The standard changes how credit losses are measured for most financial 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. The standard is effective for public companies for periods beginning after December 15, 2019 and the Company expects to adopt the new standard as of January 1, 2020. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position results of operations or cash flows.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)" which clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows. The statement also addresses how the predominance principle should be applied when cash payments have aspects of more than one class of cash flows. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The Company does not expect the adoption of this new standard to have a material impact on the Company's consolidated statements of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory, such as intangible assets, when the transfer occurs. This is a change from current guidance, which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized by being depreciated, amortized, or impaired. The new guidance will require companies to defer the income tax effects of only intercompany transfers of inventory. The standard is effective for public companies in fiscal years beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the application of this standard to have a material impact on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805), Clarifying the Definition of a Business," which provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard is effective for public companies for annual or interim periods beginning after December 15, 2017. The Company adopted the new standard effective January 1, 2018. The Company does not expect the application of this standard to have a material impact on its financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment," which eliminates Step 2 from the goodwill impairment test for public companies. Previously, Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. The new guidance stipulates that an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, up to the amount of goodwill allocated to the reporting unit. The standard is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. The Company elected to adopt this standard as of December 31, 2017. The application of this standard did not 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 plans to adopt the new standard effective January 1, 2019. The Company does not expect the application of this standard to have a material impact on its financial position, results of operations or cash flows.
2. Inventories
Inventories consist of the following:
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Raw materials and parts
|
|
$
|
146,144
|
|
|
$
|
137,763
|
|
Work-in-process
|
|
|
129,441
|
|
|
|
115,613
|
|
Finished goods
|
|
|
94,571
|
|
|
|
84,898
|
|
Used equipment
|
|
|
21,223
|
|
|
|
22,130
|
|
Total
|
|
$
|
391,379
|
|
|
$
|
360,404
|
|
3. Fair Value Measurements
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance, and marketable equity securities held in an 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, other receivables, revolving debt 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, 2017 and 2016 are level 1 and level 2 in the fair value hierarchy:
|
|
December 31, 2017
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Trading equity securities:
|
|
|
|
|
|
|
|
|
|
SERP money market fund
|
|
$
|
124
|
|
|
$
|
--
|
|
|
$
|
124
|
|
SERP mutual funds
|
|
|
4,839
|
|
|
|
--
|
|
|
|
4,839
|
|
Preferred stocks
|
|
|
364
|
|
|
|
--
|
|
|
|
364
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
5,661
|
|
|
|
--
|
|
|
|
5,661
|
|
Municipal bonds
|
|
|
--
|
|
|
|
1,912
|
|
|
|
1,912
|
|
Floating rate notes
|
|
|
753
|
|
|
|
--
|
|
|
|
753
|
|
U.S. Treasury bills
|
|
|
1,030
|
|
|
|
--
|
|
|
|
1,030
|
|
Asset-backed securities
|
|
|
--
|
|
|
|
526
|
|
|
|
526
|
|
Other
|
|
|
--
|
|
|
|
968
|
|
|
|
968
|
|
Total financial assets
|
|
$
|
12,771
|
|
|
$
|
3,406
|
|
|
$
|
16,177
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities
|
|
$
|
--
|
|
|
$
|
8,552
|
|
|
$
|
8,552
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
112
|
|
|
|
112
|
|
Total financial liabilities
|
|
$
|
--
|
|
|
$
|
8,664
|
|
|
$
|
8,664
|
|
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Trading equity securities:
|
|
|
|
|
|
|
|
|
|
SERP money market fund
|
|
$
|
92
|
|
|
$
|
--
|
|
|
$
|
92
|
|
SERP mutual funds
|
|
|
3,335
|
|
|
|
--
|
|
|
|
3,335
|
|
Preferred stocks
|
|
|
475
|
|
|
|
--
|
|
|
|
475
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
5,413
|
|
|
|
--
|
|
|
|
5,413
|
|
Municipal bonds
|
|
|
--
|
|
|
|
2,248
|
|
|
|
2,248
|
|
Floating rate notes
|
|
|
118
|
|
|
|
--
|
|
|
|
118
|
|
U.S. Treasury bills
|
|
|
388
|
|
|
|
--
|
|
|
|
388
|
|
Asset-backed securities
|
|
|
--
|
|
|
|
637
|
|
|
|
637
|
|
Other
|
|
|
--
|
|
|
|
2,283
|
|
|
|
2,283
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
144
|
|
|
|
144
|
|
Total financial assets
|
|
$
|
9,821
|
|
|
$
|
5,312
|
|
|
$
|
15,133
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities
|
|
$
|
--
|
|
|
$
|
7,882
|
|
|
$
|
7,882
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
89
|
|
|
|
89
|
|
Total financial liabilities
|
|
$
|
--
|
|
|
$
|
7,971
|
|
|
$
|
7,971
|
|
The Company reevaluates the volume of trading activity for each of its investments at the end of each reporting period and adjusts the level within the fair value hierarchy as needed.
4. Investments
The Company's trading securities consist of the following:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
(Net Carrying
Amount)
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities
|
|
$
|
4,964
|
|
|
$
|
394
|
|
|
$
|
31
|
|
|
$
|
5,327
|
|
Trading debt securities
|
|
|
10,971
|
|
|
|
58
|
|
|
|
179
|
|
|
|
10,850
|
|
Total
|
|
$
|
15,935
|
|
|
$
|
452
|
|
|
$
|
210
|
|
|
$
|
16,177
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities
|
|
$
|
3,980
|
|
|
$
|
40
|
|
|
$
|
118
|
|
|
$
|
3,902
|
|
Trading debt securities
|
|
|
11,312
|
|
|
|
23
|
|
|
|
248
|
|
|
|
11,087
|
|
Total
|
|
$
|
15,292
|
|
|
$
|
63
|
|
|
$
|
366
|
|
|
$
|
14,989
|
|
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.
Net unrealized gains or losses incurred on investments still held as of the end of each reporting period amounted to losses of $319, $107 and $429 in 2017, 2016 and 2015, respectively.
5. 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 December 31 after the following year's forecasts are submitted and reviewed. The valuations performed in 2017, 2016 and 2015 indicated no impairment of goodwill.
The changes in the carrying amount of goodwill by reporting segment during the years ended December 31, 2017 and 2016 are as follows:
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
$
|
8,481
|
|
|
$
|
22,354
|
|
|
$
|
--
|
|
|
$
|
30,835
|
|
Acquisition
|
|
|
--
|
|
|
|
--
|
|
|
|
12,632
|
|
|
|
12,632
|
|
Foreign currency translation
|
|
|
(33
|
)
|
|
|
(2,630
|
)
|
|
|
--
|
|
|
|
(2,663
|
)
|
Balance, December 31, 2016
|
|
|
8,448
|
|
|
|
19,724
|
|
|
|
12,632
|
|
|
|
40,804
|
|
Acquisition
|
|
|
--
|
|
|
|
--
|
|
|
|
3,488
|
|
|
|
3,488
|
|
Foreign currency translation
|
|
|
125
|
|
|
|
1,315
|
|
|
|
--
|
|
|
|
1,440
|
|
Balance, December 31, 2017
|
|
$
|
8,573
|
|
|
$
|
21,039
|
|
|
$
|
16,120
|
|
|
$
|
45,732
|
|
6. Intangible Assets
Intangible assets consisted of the following at December 31, 2017 and 2016:
|
|
2017
|
|
|
2016
|
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
Dealer network and customer
relationships
|
|
$
|
31,376
|
|
|
$
|
10,856
|
|
|
$
|
20,520
|
|
|
$
|
26,035
|
|
|
$
|
7,584
|
|
|
$
|
18,451
|
|
Trade names
|
|
|
9,650
|
|
|
|
1,914
|
|
|
|
7,736
|
|
|
|
7,021
|
|
|
|
1,362
|
|
|
|
5,659
|
|
Other
|
|
|
6,821
|
|
|
|
4,125
|
|
|
|
2,696
|
|
|
|
5,764
|
|
|
|
3,231
|
|
|
|
2,533
|
|
Total
|
|
$
|
47,847
|
|
|
$
|
16,895
|
|
|
$
|
30,952
|
|
|
$
|
38,820
|
|
|
$
|
12,177
|
|
|
$
|
26,643
|
|
Amortization expense on intangible assets was $4,064, $3,562 and $2,953 for 2017, 2016 and 2015, respectively. Intangible asset amortization expense is expected to be $5,172, $4,069, $3,628, $3,191 and $2,686 in the years ending December 31, 2018, 2019, 2020, 2021 and 2022 respectively, and $12,206 thereafter.
7. Property and Equipment
Property and equipment consist of the following:
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Land
|
|
$
|
15,568
|
|
|
$
|
14,768
|
|
Building and land improvements
|
|
|
154,019
|
|
|
|
140,229
|
|
Manufacturing and office equipment
|
|
|
244,324
|
|
|
|
231,816
|
|
Aviation equipment
|
|
|
14,227
|
|
|
|
14,169
|
|
Less accumulated depreciation
|
|
|
(237,742
|
)
|
|
|
(220,444
|
)
|
Total
|
|
$
|
190,396
|
|
|
$
|
180,538
|
|
Depreciation expense was $21,312, $20,818 and $20,744 for the years ended December 31, 2017, 2016 and 2015, respectively.
8. Leases
The Company leases certain land, buildings and equipment for use in its operations under various operating leases. Total rental expense charged to operations under operating leases was approximately $3,211, $2,792 and $2,786 for the years ended December 31, 2017, 2016 and 2015, respectively.
Minimum rental commitments for all noncancelable operating leases at December 31, 2017 are as follows:
2018
|
|
$
|
2,146
|
|
2019
|
|
|
1,965
|
|
2020
|
|
|
1,006
|
|
2021
|
|
|
634
|
|
2022
|
|
|
279
|
|
Thereafter
|
|
|
233
|
|
|
|
$
|
6,263
|
|
9. Debt
On April 12, 2017, 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 $100,000, including a sub-limit for letters of credit of up to $30,000. There were no outstanding revolving or term loan borrowings under the credit facility at December 31, 2017 or 2016. Letters of credit totaling $9,757, including $3,200 of letters of credit issued to banks in Brazil to secure the local debt of Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), were outstanding under the credit facility as of December 31, 2017, resulting in additional borrowing ability of $90,243 under the credit facility. The credit agreement has a five-year term expiring in April 2022. 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 2.32% as of December 31, 2017. 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 $7,672 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, 2017, Osborn had no outstanding borrowings but had $813 in performance, advance payment and retention guarantees outstanding under the facility. The facility has been guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of December 31, 2017, Osborn had available credit under the facility of $6,859. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.0% as of December 31, 2017.
The Company's Brazilian subsidiary has outstanding working capital loans totaling $3,402 from Brazilian banks with interest rates ranging from 10.4% to 11.0%. The loans' maturity dates ranging from November 2018 to April 2024 and are secured by Astec Brazil's manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has various five-year equipment financing loans outstanding with Brazilian banks in the aggregate of $642 as of December 31, 2017 that have interest rates ranging from 3.5% to 16.3%. These equipment loans have maturity dates ranging from September 2018 to April 2020. Astec Brazil's loans are included in the accompanying consolidated balance sheets as current maturities of long-term debt of $2,469 and long-term debt of $1,575 as of December 31, 2017.
Long-term debt maturities are expected to be $2,469, $729, $251, $251 and $251 in the years ending December 31, 2018, 2019, 2020, 2021 and 2022, respectively, and $93 thereafter.
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 2017, 2016 and 2015 are as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Reserve balance, beginning of year
|
|
$
|
13,156
|
|
|
$
|
9,100
|
|
|
$
|
10,032
|
|
Warranty liabilities accrued
|
|
|
16,725
|
|
|
|
18,912
|
|
|
|
13,743
|
|
Warranty liabilities settled
|
|
|
(14,642
|
)
|
|
|
(15,125
|
)
|
|
|
(14,177
|
)
|
Other
|
|
|
171
|
|
|
|
269
|
|
|
|
(498
|
)
|
Reserve balance, end of year
|
|
$
|
15,410
|
|
|
$
|
13,156
|
|
|
$
|
9,100
|
|
11. Accrued Loss Reserves
The Company accrues reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own 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, 2017 were $8,119 and $7,892 at December 31, 2016, of which $5,615 and $5,040 were included in other long-term liabilities at December 31, 2017 and 2016, 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.
The following provides information regarding benefit obligations, plan assets and the funded status of the plan:
|
|
Pension Benefits
|
|
|
|
2017
|
|
|
2016
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
16,104
|
|
|
$
|
15,565
|
|
Interest cost
|
|
|
630
|
|
|
|
650
|
|
Actuarial loss
|
|
|
867
|
|
|
|
514
|
|
Benefits paid
|
|
|
(685
|
)
|
|
|
(625
|
)
|
Benefit obligation, end of year
|
|
|
16,916
|
|
|
|
16,104
|
|
Accumulated benefit obligation
|
|
|
16,916
|
|
|
|
16,104
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
13,241
|
|
|
|
12,688
|
|
Actual gain on plan assets
|
|
|
1,746
|
|
|
|
763
|
|
Employer contribution
|
|
|
415
|
|
|
|
415
|
|
Benefits paid
|
|
|
(685
|
)
|
|
|
(625
|
)
|
Fair value of plan assets, end of year
|
|
|
14,717
|
|
|
|
13,241
|
|
Funded status, end of year
|
|
$
|
(2,199
|
)
|
|
$
|
(2,863
|
)
|
Amounts recognized in the consolidated balance sheets
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
$
|
(2,199
|
)
|
|
$
|
(2,863
|
)
|
Net amount recognized
|
|
$
|
(2,199
|
)
|
|
$
|
(2,863
|
)
|
Amounts recognized in accumulated other comprehensive loss
consist of
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
5,463
|
|
|
$
|
6,152
|
|
Net amount recognized
|
|
$
|
5,463
|
|
|
$
|
6,152
|
|
Weighted average assumptions used to determine benefit obligations as of December 31
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.50
|
%
|
|
|
4.00
|
%
|
Expected return on plan assets
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
The measurement date used for the plan was December 31. In determining the expected return on plan assets, the historical experience of the plan assets, the current and expected allocation of the plan assets and the expected long-term rates of return were considered.
All assets in the plan are invested in an exchange traded mutual fund (level 1 in the fair value hierarchy). The allocation of assets within the mutual fund as of December 31 and the target asset allocation ranges by asset category are as follows:
Asset Category
|
|
Actual
Allocation
2017
|
|
|
Actual
Allocation
2016
|
|
|
2017 &
2016 Target
Allocation
Ranges
|
|
Equity securities
|
|
|
49.4
|
%
|
|
|
63.6
|
%
|
|
|
40 - 65
|
%
|
Debt securities
|
|
|
43.2
|
%
|
|
|
33.5
|
%
|
|
|
30 - 50
|
%
|
Cash and Equivalents
|
|
|
7.4
|
%
|
|
|
2.9
|
%
|
|
|
0 - 15
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Net periodic benefit cost for 2017, 2016 and 2015 included the following components:
|
|
Pension Benefits
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
630
|
|
|
$
|
650
|
|
|
$
|
596
|
|
Expected return on plan assets
|
|
|
(720
|
)
|
|
|
(782
|
)
|
|
|
(840
|
)
|
Amortization of actuarial loss
|
|
|
530
|
|
|
|
480
|
|
|
|
500
|
|
Net periodic benefit cost
|
|
|
440
|
|
|
|
348
|
|
|
|
256
|
|
Other changes in plan assets and benefit obligations recognized in
other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial gain (loss) for the year
|
|
|
(159
|
)
|
|
|
533
|
|
|
|
702
|
|
Amortization of net loss
|
|
|
(530
|
)
|
|
|
(480
|
)
|
|
|
(500
|
)
|
Total recognized in other comprehensive income (loss)
|
|
|
(689
|
)
|
|
|
53
|
|
|
|
202
|
|
Total recognized in net periodic benefit cost and other comprehensive income (loss)
|
|
$
|
(249
|
)
|
|
$
|
401
|
|
|
$
|
458
|
|
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.00
|
%
|
|
|
4.28
|
%
|
|
|
3.81
|
%
|
Expected return on plan assets
|
|
|
6.25
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
No contributions are expected to be funded by the Company during 2018.
Amounts in accumulated other comprehensive loss expected to be recognized in net periodic benefit cost in 2018 for the amortization of a net loss is $466.
The following estimated future benefit payments are expected in the years indicated:
|
|
Pension Benefits
|
|
2018
|
|
$
|
800
|
|
2019
|
|
|
830
|
|
2020
|
|
|
860
|
|
2021
|
|
|
890
|
|
2022
|
|
|
9,100
|
|
2023 - 2027
|
|
|
4,810
|
|
The Company sponsors a 401(k) defined contribution plan to provide eligible employees with additional income upon retirement. The Company's contributions to the plan are based on employee contributions. The Company's contributions totaled $7,182, $5,943 and $5,292 in 2017, 2016 and 2015, respectively.
The Company maintains a SERP for certain of its executive officers. The 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:
|
December 31, 2017
|
|
December 31, 2016
|
|
|
Cost
|
|
Market
|
|
Cost
|
|
Market
|
|
Company stock
|
|
$
|
1,960
|
|
|
$
|
3,589
|
|
|
$
|
1,958
|
|
|
$
|
4,455
|
|
Equity securities
|
|
|
4,589
|
|
|
|
4,963
|
|
|
|
3,474
|
|
|
|
3,427
|
|
Total
|
|
$
|
6,549
|
|
|
$
|
8,552
|
|
|
$
|
5,432
|
|
|
$
|
7,882
|
|
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.
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 income 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 $575 in 2017 and expense of $1,742 and $241 in 2016 and 2015, 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 sheets and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the consolidated statements of income in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $11,099 during 2017. At December 31, 2017, the Company reported $112 of derivative liabilities in other current liabilities. The Company reported $144 of derivative assets in other current assets and $89 of derivative liabilities in other current liabilities at December 31, 2016. The Company recognized, as a component of cost of sales, a net loss on the change in fair value of derivative instruments of $663 and $336 for the years ended December 31, 2017 and 2016, respectively. The Company recognized a net gain on the change in fair value of derivative instruments of $606 for the year ended December 31, 2015. There were no derivatives that were designated as hedges at December 31, 2017 or 2016.
14. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
|
Year Ended December 31
|
|
|
2017
|
|
2016
|
|
2015
|
|
United States
|
|
$
|
55,980
|
|
|
$
|
87,326
|
|
|
$
|
57,846
|
|
Foreign
|
|
|
1,237
|
|
|
|
(231
|
)
|
|
|
(5,873
|
)
|
Income before income taxes
|
|
$
|
57,217
|
|
|
$
|
87,095
|
|
|
$
|
51,973
|
|
The provision for income taxes consists of the following:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
16,178
|
|
|
$
|
30,623
|
|
|
$
|
19,758
|
|
State
|
|
|
2,866
|
|
|
|
4,098
|
|
|
|
2,553
|
|
Foreign
|
|
|
874
|
|
|
|
907
|
|
|
|
255
|
|
Total current provision
|
|
|
19,918
|
|
|
|
35,628
|
|
|
|
22,566
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
107
|
|
|
|
(2,653
|
)
|
|
|
(1,183
|
)
|
State
|
|
|
(455
|
)
|
|
|
(1,213
|
)
|
|
|
(275
|
)
|
Foreign
|
|
|
57
|
|
|
|
345
|
|
|
|
(1,101
|
)
|
Total deferred benefit
|
|
|
(291
|
)
|
|
|
(3,521
|
)
|
|
|
(2,559
|
)
|
Total provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
16,285
|
|
|
|
27,970
|
|
|
|
18,575
|
|
State
|
|
|
2,411
|
|
|
|
2,885
|
|
|
|
2,278
|
|
Foreign
|
|
|
931
|
|
|
|
1,252
|
|
|
|
(846
|
)
|
Total income tax provision
|
|
$
|
19,627
|
|
|
$
|
32,107
|
|
|
$
|
20,007
|
|
The Company's income tax provision is computed based on the domestic and foreign federal statutory rates and the average state statutory rates, net of related federal benefit.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. A reconciliation of the provision for income taxes at the statutory federal income tax rate to the amount provided is as follows:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Tax at the statutory federal income tax rate
|
|
$
|
20,026
|
|
|
$
|
30,483
|
|
|
$
|
18,191
|
|
Qualified production activity deduction
|
|
|
(1,661
|
)
|
|
|
(1,641
|
)
|
|
|
(1,174
|
)
|
State income tax, net of federal income tax
|
|
|
1,520
|
|
|
|
1,876
|
|
|
|
1,386
|
|
Other permanent differences
|
|
|
551
|
|
|
|
673
|
|
|
|
393
|
|
Research and development tax credits
|
|
|
(855
|
)
|
|
|
(785
|
)
|
|
|
(291
|
)
|
Valuation allowance impact
|
|
|
1,585
|
|
|
|
1,638
|
|
|
|
2,036
|
|
U.S. Tax Reform impact
|
|
|
(1,056
|
)
|
|
|
--
|
|
|
|
--
|
|
Other items
|
|
|
(483
|
)
|
|
|
(137
|
)
|
|
|
(534
|
)
|
Total income tax provision
|
|
$
|
19,627
|
|
|
$
|
32,107
|
|
|
$
|
20,007
|
|
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:
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
4,287
|
|
|
$
|
8,507
|
|
Warranty reserves
|
|
|
3,560
|
|
|
|
4,527
|
|
Bad debt reserves
|
|
|
299
|
|
|
|
456
|
|
State tax loss carryforwards
|
|
|
2,710
|
|
|
|
3,403
|
|
Accrued vacation
|
|
|
1,712
|
|
|
|
2,351
|
|
SERP
|
|
|
367
|
|
|
|
299
|
|
Deferred compensation
|
|
|
1,293
|
|
|
|
2,124
|
|
Restricted stock units
|
|
|
1,664
|
|
|
|
1,845
|
|
Pension and post-employment benefits
|
|
|
1,448
|
|
|
|
2,530
|
|
Foreign net operating losses
|
|
|
6,310
|
|
|
|
5,461
|
|
Other
|
|
|
2,478
|
|
|
|
2,516
|
|
Valuation allowances
|
|
|
(8,318
|
)
|
|
|
(8,280
|
)
|
Total deferred tax assets
|
|
|
17,810
|
|
|
|
25,739
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
14,562
|
|
|
|
20,167
|
|
Intangibles
|
|
|
769
|
|
|
|
1,244
|
|
Goodwill
|
|
|
654
|
|
|
|
1,605
|
|
Pension
|
|
|
758
|
|
|
|
1,205
|
|
Outside basis differences
|
|
|
--
|
|
|
|
511
|
|
Total deferred tax liabilities
|
|
|
16,743
|
|
|
|
24,732
|
|
Total net deferred assets
|
|
$
|
1,067
|
|
|
$
|
1,007
|
|
As of December 31, 2017, the Company has state net operating loss carryforwards of $17,579 and foreign net operating loss carryforwards of approximately $19,876, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2018 and 2030. A significant portion of the valuation allowance for deferred tax assets relates to the future utilization of state and foreign net operating loss and state tax credit carryforwards. Future utilization of these net operating loss and state tax credit carryforwards is evaluated by the Company on a periodic basis and the valuation allowance is adjusted accordingly. In 2017, the valuation allowance on these carryforwards was increased by $7 due to the uncertainty about whether certain entities will realize their state and foreign net operating loss carryforwards. The Company has also determined that the recovery of certain other deferred tax assets is uncertain. The valuation allowance for these deferred tax assets was increased by $31 during 2017.
The following table represents a roll forward of the deferred tax asset valuation allowance for the years ended December 31, 2017, 2016 and 2015:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Allowance balance, beginning of year
|
|
$
|
8,280
|
|
|
$
|
8,065
|
|
|
$
|
6,029
|
|
Provision
|
|
|
1,585
|
|
|
|
1,639
|
|
|
|
2,036
|
|
Write-offs
|
|
|
(1,862
|
)
|
|
|
(289
|
)
|
|
|
--
|
|
Other
|
|
|
315
|
|
|
|
(1,135
|
)
|
|
|
--
|
|
Allowance balance, end of year
|
|
$
|
8,318
|
|
|
$
|
8,280
|
|
|
$
|
8,065
|
|
Undistributed earnings of the Company's Canadian subsidiary, Breaker Technology Ltd. ("BTL") and South African subsidiary, Osborn Engineered Products SA, (PTY), Ltd. ("Osborn") are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. As of December 31, 2017, the cumulative amounts of undistributed GAAP earnings for BTL and Osborn are $4,026 and $28,249, respectively. A portion of these amounts may be subject to taxation under the one-time transition tax included in the Tax Cuts and Jobs Act of 2017. Based upon the provisions in the Tax Cuts and Jobs Act of 2017, any future qualified dividends out of these amounts will not be subject to U.S. income taxes. However, upon any future inclusion as Subpart F income or capital gains, the Company would be subject to additional U.S. income taxes (subject to an adjustment 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 2012.
The Company has a liability for unrecognized tax benefits of $365 and $238 (excluding accrued interest and penalties) as of December 31, 2017 and 2016, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized tax benefits of $22 and $16 in 2017 and 2016, 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 $370 and $238 at December 31, 2017 and 2016, respectively. The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next twelve months.
A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Balance, beginning of year
|
|
$
|
238
|
|
|
$
|
603
|
|
|
$
|
2,585
|
|
Additions for tax positions related to the current year
|
|
|
127
|
|
|
|
73
|
|
|
|
206
|
|
Additions for tax positions related to prior years
|
|
|
--
|
|
|
|
162
|
|
|
|
549
|
|
Reductions due to lapse of statutes of limitations
|
|
|
--
|
|
|
|
(16
|
)
|
|
|
(162
|
)
|
Decreases related to settlements with tax authorities
|
|
|
--
|
|
|
|
(584
|
)
|
|
|
(2,575
|
)
|
Balance, end of year
|
|
$
|
365
|
|
|
$
|
238
|
|
|
$
|
603
|
|
The December 31, 2017 balance of unrecognized tax benefits includes no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain. Accordingly, there is no impact to the deferred tax accounting for certain tax benefits.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Tax Act") was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company's fourth quarter 2017 provision for income taxes was reduced by $1,056, (comprised of a $1,548 reduction in income tax expense recorded in connection with the remeasurement of deferred tax assets and liabilities and $492 of additional income tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings) due to applying the provisions of the Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company determined that the $492 additional 2017 income tax expense is a provisional amount and constitutes a reasonable estimate at December 31, 2017, based upon the best information currently available. The ultimate impact may differ from the provisional amount, possibly materially, due to, among other things, additional analysis, changes in interpretations and assumptions the Company has made, additional regulatory guidance that may be issued and actions the Company may take as a result of the Tax Act. Any subsequent adjustment to the amount will be recorded to current income tax expense when the analysis is complete, which is expected in 2018 shortly after the filing of the Company's 2017 U.S. income tax return.
While the Tax Act provides for a territorial tax system, beginning in 2018, it includes two new U.S. tax base erosion provisions, the global intangible low-taxed income ("GILTI") provisions and the base-erosion and anti-abuse tax ("BEAT") provisions.
The GILTI provisions require the Company to include, in its U.S. income tax return, foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary's tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has not provided any deferred tax impacts of GILTI in its consolidated financial statements for the year ended December 31, 2017.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose a minimum tax, if greater than regular tax. The Company does not expect it will be subject to this tax, and therefore, has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2017.
The changes to existing U.S. tax laws as a result of the Tax Act, which we believe have the most significant impact on the Company's federal income taxes are as follows:
Reduction of the U.S. Corporate Income Tax Rate:
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company recognized a deferred tax 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 determination of the transition tax requires further analysis regarding the amount and composition of the Company's historical foreign earnings and foreign taxes, which is expected to be completed in 2018.
Repeal of Domestic Production Activities Deduction:
While not effective until 2018, the Tax Act repeals the Domestic Production Activities Deduction ("DPAD") previously provided under IRC §199. The DPAD benefit has historically been very material to the Company's federal income taxes. The DPAD benefits included in the effective tax rate reconciliations for 2017, 2016 and 2015 were $1,661, $1,641 and $1,174, respectively.
15. Contingent Matters
Certain customers have financed purchases of Company products through arrangements in which the Company is contingently liable for customer debt of $3,805 at December 31, 2017. These arrangements expire at various dates through December 2020 and provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $836 related to these guarantees as of December 31, 2017.
In addition, the Company is contingently liable under letters of credit issued by a lender totaling $9,757 as of December 31, 2017, including $3,200 of letters of credit guaranteeing certain Astec Brazil bank debt. The outstanding letters of credit expire at various dates through October 2020. As of December 31, 2017, the Company's foreign subsidiaries are contingently liable for a total of $3,557 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 $13,314 as of December 31, 2017.
The Company has a sales contract with the purchaser of a large wood pellet plant, on which revenues of $7,987 and $135,187 were recorded in 2017 and 2016, respectively. As the plant has not yet met the production output and the operational specifications set forth in the original contract, as amended through December 31, 2017, the Company entered into a contract amendment in February 2018, whereby the Company agreed to compensate the customer for production shortfalls caused by the Company and other potential costs (depending upon the market price of wood pellets), from January 1, 2018 through June 15, 2018. The Company incurred production shortfalls in January and February 2018.
The Company 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 after 2016 are scheduled to have a three-year vesting 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. The fair value of the RSUs vested during 2017, 2016 and 2015 was $1,991, $3,289 and $2,785, respectively. The grant date tax benefit was increased by $290, $220 and $336, respectively, upon the vesting of RSUs in 2017, 2016 and 2015.
Compensation expense of $2,978, $2,426 and $1,019 was recorded in the years ended December 31, 2017, 2016 and 2015, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2017 performance) amortized over the portion of the vesting period occurring during the period. Related income tax benefits of $1,132, $934 and $362 were recorded in 2017, 2016 and 2015, respectively. Based upon the grant date fair value of RSUs, it is anticipated that $5,210 of additional compensation costs will be recognized in future periods through 2021 for RSUs earned through December 31, 2017. The weighted average period over which this additional compensation cost will be expensed is 2.6 years. RSUs do not participate in Company-paid dividends.
Changes in restricted stock units during the year ended December 31, 2017 are as follows:
|
|
2017
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested restricted stock units, beginning of year
|
|
|
112
|
|
|
$
|
41.48
|
|
Units granted
|
|
|
83
|
|
|
|
65.20
|
|
Units forfeited
|
|
|
(3
|
)
|
|
|
53.11
|
|
Units vested
|
|
|
(31
|
)
|
|
|
43.51
|
|
Unvested restricted stock units, end of year
|
|
|
161
|
|
|
|
53.09
|
|
The grant date fair value of the restricted stock units granted during 2017, 2016 and 2015 was $5,399, $1,946 and $937, respectively.
17. 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
- This segment consists of five business units, three of which design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants, wood pellet plants, asphalt pavers, material transfer vehicles, soil stabilizing – reclaiming machinery, milling machines, paver screeds and related ancillary equipment. The other two business units in this segment primarily operate as Company-owned dealers in the foreign countries in which they are domiciled. These two business units 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. The principal purchasers of the products produced by this group are asphalt producers, highway and heavy equipment contractors, wood pellet processors and foreign and domestic governmental agencies. The Infrastructure Group had sales to one pellet plant customer totaling $7,987, or 0.7% of total Company sales in 2017 and $135,187, or 11.8% of total Company sales in 2016. Portions of the equipment sold to this customer were manufactured by each of the Company's segments.
Aggregate and Mining Group
- This segment consists of eight business units that design, engineer, manufacture and market a complete line of jaw crushers, cone crushers, horizontal shaft impactors, vertical shaft impactors, material handling, roll rock crushers and stationary rockbreaker systems, vibrating feeders and high frequency vibrating screens, conveyors, inclined, vertical and horizontal screens and sand classifying and washing equipment. 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
- This segment consists of six business units that design, engineer, manufacture and market a complete line of drilling rigs for the oil and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells, concrete plants, commercial and industrial burners, combustion control systems, a variety of industrial heaters to fit a broad range of applications including heating equipment for refineries, roofing material plants, chemical processing, rubber plants, oil sands and energy related processing, heat transfer processing equipment, thermal fluid storage tanks, waste heat recovery equipment, whole-tree pulpwood and biomass chippers and horizontal grinders. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production, ready mix concrete producers and contractors in the construction and demolition recycling markets. This group includes the operations of RexCon, Inc., which was acquired in October 2017.
Corporate
- 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., and a captive insurance company. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes and corporate overhead and thus these costs are included in the Corporate category.
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 2017
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
553,691
|
|
|
$
|
403,720
|
|
|
$
|
227,328
|
|
|
$
|
--
|
|
|
$
|
1,184,739
|
|
Intersegment revenues
|
|
|
25,965
|
|
|
|
16,209
|
|
|
|
24,877
|
|
|
|
--
|
|
|
|
67,051
|
|
Interest expense
|
|
|
49
|
|
|
|
634
|
|
|
|
9
|
|
|
|
148
|
|
|
|
840
|
|
Depreciation and amortization
|
|
|
7,581
|
|
|
|
9,363
|
|
|
|
7,904
|
|
|
|
954
|
|
|
|
25,802
|
|
Income taxes
|
|
|
1,318
|
|
|
|
462
|
|
|
|
491
|
|
|
|
17,356
|
|
|
|
19,627
|
|
Profit (loss)
|
|
|
26,641
|
|
|
|
35,748
|
|
|
|
16,219
|
|
|
|
(40,963
|
)
|
|
|
37,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
666,651
|
|
|
|
558,684
|
|
|
|
304,158
|
|
|
|
390,300
|
|
|
|
1,919,793
|
|
Capital expenditures
|
|
|
7,424
|
|
|
|
9,194
|
|
|
|
3,540
|
|
|
|
604
|
|
|
|
20,762
|
|
Segment information for 2016
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
608,908
|
|
|
$
|
359,760
|
|
|
$
|
178,763
|
|
|
$
|
--
|
|
|
$
|
1,147,431
|
|
Intersegment revenues
|
|
|
16,957
|
|
|
|
35,031
|
|
|
|
24,946
|
|
|
|
--
|
|
|
|
76,934
|
|
Interest expense
|
|
|
31
|
|
|
|
948
|
|
|
|
4
|
|
|
|
412
|
|
|
|
1,395
|
|
Depreciation and amortization
|
|
|
7,205
|
|
|
|
10,033
|
|
|
|
6,655
|
|
|
|
920
|
|
|
|
24,813
|
|
Income taxes
|
|
|
3,033
|
|
|
|
664
|
|
|
|
437
|
|
|
|
27,973
|
|
|
|
32,107
|
|
Profit (loss)
|
|
|
71,482
|
|
|
|
34,877
|
|
|
|
4,145
|
|
|
|
(55,992
|
)
|
|
|
54,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
657,225
|
|
|
|
518,351
|
|
|
|
271,121
|
|
|
|
417,351
|
|
|
|
1,864,048
|
|
Capital expenditures
|
|
|
14,451
|
|
|
|
7,437
|
|
|
|
5,018
|
|
|
|
178
|
|
|
|
27,084
|
|
Segment information for 2015
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
428,737
|
|
|
$
|
370,813
|
|
|
$
|
183,607
|
|
|
$
|
--
|
|
|
$
|
983,157
|
|
Intersegment revenues
|
|
|
22,947
|
|
|
|
28,701
|
|
|
|
16,010
|
|
|
|
--
|
|
|
|
67,658
|
|
Interest expense
|
|
|
258
|
|
|
|
1,005
|
|
|
|
10
|
|
|
|
338
|
|
|
|
1,611
|
|
Depreciation and amortization
|
|
|
6,907
|
|
|
|
10,719
|
|
|
|
5,553
|
|
|
|
899
|
|
|
|
24,078
|
|
Income taxes
|
|
|
1,224
|
|
|
|
764
|
|
|
|
(129
|
)
|
|
|
18,148
|
|
|
|
20,007
|
|
Profit (loss)
|
|
|
33,890
|
|
|
|
30,690
|
|
|
|
3,609
|
|
|
|
(36,623
|
)
|
|
|
31,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
567,936
|
|
|
|
496,089
|
|
|
|
256,978
|
|
|
|
306,511
|
|
|
|
1,627,514
|
|
Capital expenditures
|
|
|
8,043
|
|
|
|
8,807
|
|
|
|
4,049
|
|
|
|
389
|
|
|
|
21,288
|
|
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Net income attributable to controlling interest
|
|
|
|
|
|
|
|
|
|
Total profit for reportable segments
|
|
$
|
78,608
|
|
|
$
|
110,504
|
|
|
$
|
68,189
|
|
Corporate expenses, net
|
|
|
(40,963
|
)
|
|
|
(55,992
|
)
|
|
|
(36,623
|
)
|
Net loss attributable to non-controlling interest
|
|
|
205
|
|
|
|
171
|
|
|
|
831
|
|
Recapture (elimination) of intersegment profit
|
|
|
(55
|
)
|
|
|
476
|
|
|
|
400
|
|
Total consolidated net income attributable to controlling interest
|
|
$
|
37,795
|
|
|
$
|
55,159
|
|
|
$
|
32,797
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
1,529,493
|
|
|
$
|
1,446,697
|
|
|
$
|
1,321,003
|
|
Corporate assets
|
|
|
390,300
|
|
|
|
417,351
|
|
|
|
306,511
|
|
Elimination of intercompany profit in inventory
|
|
|
(7,075
|
)
|
|
|
(7,020
|
)
|
|
|
(7,496
|
)
|
Elimination of intercompany receivables
|
|
|
(717,873
|
)
|
|
|
(688,369
|
)
|
|
|
(583,834
|
)
|
Elimination of investment in subsidiaries
|
|
|
(303,209
|
)
|
|
|
(272,766
|
)
|
|
|
(223,500
|
)
|
Other eliminations
|
|
|
(2,057
|
)
|
|
|
(52,292
|
)
|
|
|
(35,331
|
)
|
Total consolidated assets
|
|
$
|
889,579
|
|
|
$
|
843,601
|
|
|
$
|
777,353
|
|
Sales into major geographic regions were as follows:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
932,294
|
|
|
$
|
941,273
|
|
|
$
|
722,287
|
|
Canada
|
|
|
65,509
|
|
|
|
37,539
|
|
|
|
54,321
|
|
Australia and Oceania
|
|
|
40,201
|
|
|
|
29,948
|
|
|
|
29,995
|
|
Africa
|
|
|
36,847
|
|
|
|
31,557
|
|
|
|
45,671
|
|
Other European Countries
|
|
|
18,679
|
|
|
|
19,198
|
|
|
|
23,867
|
|
South America (excluding Brazil)
|
|
|
18,562
|
|
|
|
28,204
|
|
|
|
32,454
|
|
Russia
|
|
|
13,609
|
|
|
|
3,185
|
|
|
|
8,466
|
|
Brazil
|
|
|
10,478
|
|
|
|
4,300
|
|
|
|
8,376
|
|
Other Asian Countries
|
|
|
10,286
|
|
|
|
6,926
|
|
|
|
9,513
|
|
Mexico
|
|
|
8,508
|
|
|
|
13,489
|
|
|
|
6,990
|
|
China
|
|
|
6,113
|
|
|
|
4,595
|
|
|
|
1,330
|
|
Post-Soviet States (excluding Russia)
|
|
|
5,951
|
|
|
|
3,293
|
|
|
|
8,345
|
|
Middle East
|
|
|
4,881
|
|
|
|
3,403
|
|
|
|
18,995
|
|
Japan and Korea
|
|
|
4,760
|
|
|
|
10,825
|
|
|
|
3,574
|
|
West Indies
|
|
|
3,421
|
|
|
|
2,994
|
|
|
|
1,532
|
|
Central America (excluding Mexico)
|
|
|
2,929
|
|
|
|
5,904
|
|
|
|
4,404
|
|
India
|
|
|
1,026
|
|
|
|
318
|
|
|
|
2,706
|
|
Other
|
|
|
685
|
|
|
|
480
|
|
|
|
331
|
|
Total foreign
|
|
|
252,445
|
|
|
|
206,158
|
|
|
|
260,870
|
|
Total consolidated sales
|
|
$
|
1,184,739
|
|
|
$
|
1,147,431
|
|
|
$
|
983,157
|
|
Long-lived assets by major geographic region are as follows:
|
|
December 31
|
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
158,683
|
|
|
$
|
151,470
|
|
Brazil
|
|
|
11,114
|
|
|
|
11,288
|
|
Northern Ireland
|
|
|
6,342
|
|
|
|
4,279
|
|
South Africa
|
|
|
5,684
|
|
|
|
5,372
|
|
Australia
|
|
|
4,532
|
|
|
|
4,234
|
|
Canada
|
|
|
2,893
|
|
|
|
2,860
|
|
Germany
|
|
|
1,148
|
|
|
|
1,035
|
|
Total foreign
|
|
|
31,713
|
|
|
|
29,068
|
|
Total
|
|
$
|
190,396
|
|
|
$
|
180,538
|
|
18. Accumulated Other Comprehensive Loss
The after-tax components comprising accumulated other comprehensive loss is summarized below:
|
December 31
|
|
|
2017
|
|
2016
|
|
Foreign currency translation adjustment
|
|
$
|
(21,140
|
)
|
|
$
|
(27,839
|
)
|
Unrecognized pension and post-retirement benefit cost, net of tax of
$2,192 and $2,261, respectively
|
|
|
(3,103
|
)
|
|
|
(3,723
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(24,243
|
)
|
|
$
|
(31,562
|
)
|
See Note 12, Pension and Retirement Plans, for discussion of the amounts recognized in accumulated other comprehensive loss related to the Company's Kolberg-Pioneer, Inc. defined pension plan.
19. Other Income
Other income consists of the following:
|
|
Year Ended December 31
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Investment loss
|
|
$
|
(96
|
)
|
|
$
|
(276
|
)
|
|
$
|
(381
|
)
|
Licensing fees
|
|
|
651
|
|
|
|
546
|
|
|
|
641
|
|
Income from life insurance policies
|
|
|
--
|
|
|
|
--
|
|
|
|
1,204
|
|
Other
|
|
|
663
|
|
|
|
259
|
|
|
|
1,591
|
|
Total
|
|
$
|
1,218
|
|
|
$
|
529
|
|
|
$
|
3,055
|
|
20. Business Combinations
In October, 2017, the Company acquired substantially all of the assets and liabilities of RexCon, Inc. ("RexCon") for a total purchase price of $26,443. The purchase price was paid in cash with $3,000 deposited into escrow for a period of time not to exceed 18 months pending final resolution of certain post-closing adjustments and any indemnification claims. The Company's preliminary allocation of the purchase price includes the recognition of $3,488 of goodwill and $7,778 of other intangible assets consisting of non-compete agreements (5-year useful life), technology (19-year useful life), trade names (15-year useful life), and customer relationships (18-year useful life). The revenues and results of operations of RexCon were not significant in relation to the Company's consolidated financial statements for the period ended December 31, 2017 and would 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.
RexCon, located in Burlington, Wisconsin was founded in 2003 through an asset acquisition with the original company founded over 100 years ago. RexCon is a manufacturer of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. RexCon specializes in providing portable, high-production concrete equipment to contractors and producers worldwide in a totally integrated turnkey production system, including customized site layout and design engineering, batch plants, mixers, water heaters and chillers, ice production and delivery systems, material handling conveyors, gensets and power distribution, cement silos and screws, central dust collection, aggregate heating and cooling systems, batch automation controls and batch office trailers.
In August 2016, the Company acquired substantially all of the assets and certain liabilities of Power Flame Incorporated ("PFI") for a total purchase price of $39,765. The purchase price was paid in cash with $4,000 deposited into escrow for a period of time not to exceed two years pending final resolution of certain post-closing adjustments and any indemnification claims. The Company's allocation of the purchase price resulted in the recognition of $12,632 of goodwill and $17,990 of other intangible assets consisting of technology (19 year useful life), trade names (15 year useful life) and customer relationships (18 year useful life). The revenues and results of operations of PFI were not significant in relation to the Company's consolidated financial statements for the period ended December 31, 2016 and would not have been material on a proforma basis to any earlier period. PFI's operating results are included in the Energy Group beginning in the third quarter of 2016.
PFI, located in Parsons, Kansas, began operations in 1948 and manufactures and sells gas, oil and combination gas/oil and low NOx burners with outputs ranging from 400 thousand BTU's per hour to 120 million BTU's per hour as well as combustion control systems designed for commercial, industrial and process heating applications.
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 1980-2018.
|
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 2018. 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, 2012 and assumes that all dividends were invested on the date paid.
|
ASTEC INDUSTRIES, INC.
FORM 10-K
INDEX OF EXHIBITS FILED HEREWITH
Exhibit
Number
|
|
Description
|
|
|
|
Exhibit 21
|
|
Subsidiaries of the Registrant.
|
|
|
|
Exhibit 23
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
Exhibit 31.1
|
|
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 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
|
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.
|
ASTEC INDUSTRIES, INC.
(Registrant)
|
|
|
|
|
|
By:
/s/ Benjamin G. Brock
|
|
|
Benjamin G. Brock, Chief Executive
Officer and Director
|
|
|
|
|
|
Date: March 1, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
SIGNATURE
|
TITLE
|
DATE
|
|
|
|
/s/ Benjamin G. Brock
Benjamin G. Brock
|
Chief Executive Officer and President (Principal Executive Officer) and Director
|
March 1, 2018
|
|
|
|
/s/ David C. Silvious
David C. Silvious
|
Chief Financial Officer, Vice President and Treasurer (Principal Financial and Accounting Officer)
|
March 1, 2018
|
|
|
|
/s/ W. Norman Smith
W. Norman Smith
|
Director
|
March 1, 2018
|
|
|
|
/s/ William B. Sansom
William B. Sansom
|
Director
|
March 1, 2018
|
|
|
|
/s/ Charles F. Potts
Charles F. Potts
|
Director
|
March 1, 2018
|
|
|
|
/s/ Glen E. Tellock
Glen E. Tellock
|
Director
|
March 1, 2018
|
|
|
|
/s/ William D. Gehl
William D. Gehl
|
Director
|
March 1, 2018
|
|
|
/s/ Daniel K. Frierson
Daniel K. Frierson
|
Director
|
March 1, 2018
|
|
|
/s/ William G. Dorey
William G. Dorey
|
Director
|
March 1, 2018
|
|
|
|
/s/ James B. Baker
James B. Baker
|
Director
|
March 1, 2018
|