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, 2018 are as follows:
Astec Australia Pty Ltd
|
Astec do Brasil Fabricacao de Equipamentos Ltda. (93% owned)
|
Astec, Inc.
|
Astec Insurance Company
|
Astec Industries LatAm SpA
|
Astec Mobile Machinery GmbH
|
Astec Mobile Screens, Inc.
|
Breaker Technology, Inc.
|
Breaker Technology Ltd.
|
Carlson Paving Products, Inc.
|
CEI Enterprises, Inc.
|
GEFCO, Inc.
|
Heatec, Inc.
|
Johnson Crushers International, Inc.
|
Kolberg-Pioneer, Inc.
|
Osborn Engineered Products SA (Pty) Ltd (99% owned)
|
Peterson Pacific Corp.
|
Power Flame Incorporated
|
RexCon, Inc.
|
Roadtec, Inc.
|
Telestack Limited
|
Telsmith, Inc.
|
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
- The preparation of
financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Foreign Currency Translation
-
Subsidiaries located in Australia, Brazil, Canada, Chile, Germany, Northern Ireland, and South Africa operate primarily using local functional currencies. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates
in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of accumulated other comprehensive income (loss). Foreign
currency transaction gains and losses, net are included in cost of sales and amounted to gains of $539 and $431 in 2018 and 2017, respectively and a loss of $246 in 2016.
Fair Value of Financial Instruments
-
For cash and cash equivalents, trade receivables, other receivables and accounts payable, the carrying amount approximates the fair value because of the short-term nature of those instruments. Trading equity investments are valued at their
estimated fair value based on their quoted market prices and debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics
obtained from a nationally recognized third party pricing service.
Financial assets and liabilities are categorized as of the end of each reporting period based upon the level of judgment associated with the
inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
Level 1 -
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
Level 2 -
|
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in
markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
|
|
Level 3 -
|
Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is
given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
|
All financial assets and liabilities held by the Company at December 31, 2018 and 2017 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.
Accounts Receivable
- The Company
sells products to a wide variety of customers. Accounts receivable are carried at their outstanding principal amounts, less an allowance for doubtful accounts. The Company extends credit to its customers based on an evaluation of the customers’
financial condition generally without requiring collateral, although the Company normally requires advance payments or letters of credit on large equipment orders. Credit risk is driven by conditions within the economy and the industry and is
principally dependent on each customer’s financial condition. To minimize credit risk, the Company monitors credit levels and financial conditions of customers on a continuing basis. After considering historical trends for uncollectible accounts,
current economic conditions and specific customer recent payment history and financial stability, the Company records an allowance for doubtful accounts at a level which management believes is sufficient to cover probable credit losses. Amounts are
deemed past due when they exceed the payment terms agreed to by the customer in the sales contract. Past due amounts are charged off when reasonable collection efforts have been exhausted and the amounts are deemed uncollectible by management. As
of December 31, 2018, 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, 2018, 2017 and 2016:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Allowance balance, beginning of year
|
|
$
|
1,716
|
|
|
$
|
1,511
|
|
|
$
|
1,837
|
|
Provision
|
|
|
223
|
|
|
|
482
|
|
|
|
280
|
|
Write offs
|
|
|
(696
|
)
|
|
|
(308
|
)
|
|
|
(560
|
)
|
Other
|
|
|
(59
|
)
|
|
|
31
|
|
|
|
(46
|
)
|
Allowance balance, end of year
|
|
$
|
1,184
|
|
|
$
|
1,716
|
|
|
$
|
1,511
|
|
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 during the fourth quarter of each year or more frequently if events or
circumstances indicate that goodwill might be impaired. Beginning in 2018, the Company changed its annual goodwill impairment testing date from December 31 to October 31 to better align the testing date with its financial planning process and
alleviate resource constraints. The Company would not expect a materially different outcome in any given year as a result of testing on October 31 as compared to December 31. The Company uses qualitative factors to determine whether it is more
likely than not (a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. The Company estimates the fair values of each of its reporting units with goodwill using 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, 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, a regulatory or political development in the market, increases
in raw materials, labor costs or other factors that have a negative effect on earnings and cash flows, a decline in actual or budgeted earnings and cash flows, or entity specific changes in management, key personnel, strategy or customer base. If
the fair value of a reporting unit is found to be less than its book value, the Company will record an impairment loss equal to the excess, if any, of the book value over the fair value.
The fair value of reporting units that do not have goodwill are estimated using either the income or market approaches, depending on which
approach is the most appropriate for each reporting unit. The fair value of the reporting units that serve operating units in supporting roles, such as the captive insurance company and the corporate reporting unit are estimated using the cost
approach. The sum of the fair values of all reporting units is compared to the fair value of the consolidated Company, calculated using the market approach, which is inferred from the market capitalization of the Company at the date of the
valuation, to confirm that the Company’s estimation of the fair value of its reporting units is reasonable.
Determining the fair values of the Company’s reporting units involves the use of significant estimates and assumptions. Due to the inherent
uncertainty involved in making these estimates and assumptions, actual results could differ materially from those estimates.
Impairment of Long-lived Assets
- In
the event that facts and circumstances indicate the carrying amounts of long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the
asset are compared to the carrying amount for each asset (or group of assets) to determine if a write-down is required. If this review indicates that the assets will not be recoverable, the carrying values of the impaired assets are reduced to
their estimated fair value. Fair value is estimated using discounted cash flows, prices for similar assets or other valuation techniques.
Self-Insurance Reserves
- The Company
retains the risk for a portion of its workers’ compensation claims and general liability claims by way of a captive insurance company, Astec Insurance Company (“Astec Insurance” or the “captive”). The objectives of Astec Insurance are to improve
control over and reduce the cost of claims; to improve focus on risk reduction with the development of a program structure which rewards proactive loss control; and to ensure management participation in the defense and settlement process for
claims.
For general liability claims, the captive is liable for the first $1,000 per occurrence. The Company carries general liability, excess
liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers’ compensation claims, the captive is liable for the first $350 per occurrence. The Company utilizes a large national insurance
company as third-party administrator for workers’ compensation claims and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.
The financial statements of the captive are consolidated into the 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 pervasive evidence of an arrangement exists, the price is fixed and determinable, the product has been delivered or services have been rendered and there is reasonable assurance of collection
of the sales proceeds. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a
specified amount of products at a specified price with specific delivery terms. A significant portion of the Company’s equipment sales represents equipment produced in the Company’s manufacturing facilities under short-term contracts for a
customer’s project or equipment designed to meet a customer’s requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer’s needs or specifications. The Company provides
customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the equipment performs according to the customer’s need, regardless of whether the Company provides installation
services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are
directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. Expected warranty costs for our standard warranties are expensed at the time
the related revenue is recognized. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically fulfilled within one year from the date of the contract, revenue adjustments
for a potential financing component or the costs to obtain the contract are not made.
Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and
recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers,
payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon the completion of production, and the
equipment is subsequently stored at the Company’s plant at the customer’s request. Revenue is recorded on such contracts upon the customer’s assumption of title and risk of ownership, which transfers control of the equipment, and when
collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer’s business practices, the Company must not have retained any specific performance obligations such that the
earnings process is not complete and the goods must have been segregated from the Company’s inventory prior to revenue recognition.
The Company had one large pellet plant sale on which revenue was recorded over time based upon the ratio of costs incurred to estimated total
costs. Penalties were accounted for as a reduction in sales.
Service and Equipment Installation Revenue – Purchasers of certain of the Company’s equipment often contract with the Company to provide
installation services. Installation is typically separately priced in the contract based upon observable market prices for stand-alone performance obligations or a cost plus margin approach when one is not available. The Company may also provide
future services on equipment sold at the customer’s request, which may be for equipment repairs after the warranty period expires. Service is billed on a cost plus margin approach or at a standard rate per hour.
Used Equipment Sales - Used equipment is obtained by trade-in on new equipment sales, as a separate purchase in the open market or from the
Company’s equipment rental business. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – Under a practical expedient allowed under ASU 2014-09, the Company records revenues earned for shipping and handling as
revenue at the time of shipment, regardless of whether or not it is identified as a separate performance obligation. The cost of shipping and handling is classified as cost of goods sold concurrently.
Other Revenues – Miscellaneous revenues and offsets not associated with one of the above classifications include rental revenues, extended
warranty revenues, early pay discounts and floor plan interest reimbursements.
Advertising Expense
- The cost of
advertising is expensed as incurred. The Company incurred $4,136, $3,793, and $4,045 in advertising costs during 2018, 2017 and 2016, 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 and director services received in exchange for equity awards in the consolidated financial statements
based on the grant date calculated fair value of the awards. The Company recognizes stock-based compensation expense over the period during which a recipient is required to provide service in exchange for the award (the vesting period). The
Company’s equity awards are further described in Note 16, Shareholders’ Equity.
Earnings Per Share
-
Basic earnings (loss) per share is based on the weighted average number of common shares outstanding and diluted earnings (loss) per share includes
potential dilutive effects of restricted stock units and shares held in the Company’s supplemental executive retirement plan.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings (loss) per
share:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share
|
|
|
22,902
|
|
|
|
23,025
|
|
|
|
22,992
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
|
--
|
|
|
|
96
|
|
|
|
85
|
|
Supplemental executive retirement plan
|
|
|
--
|
|
|
|
63
|
|
|
|
65
|
|
Denominator for diluted earnings (loss) per share
|
|
|
22,902
|
|
|
|
23,184
|
|
|
|
23,142
|
|
Derivatives and Hedging Activities
-
The Company recognizes all derivatives in the consolidated balance sheets at their fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through income or recognized in other comprehensive income (loss) until the hedged item is recognized in income. The
ineffective portion of a derivative’s change in fair value is immediately recognized in income. From time to time, the Company’s foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuation in currency
exchange rates. See Note 13, Derivative Financial Instruments, regarding foreign exchange contracts outstanding at December 31, 2018 and 2017.
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 21, 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, 2018 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. Certain provisions of the standard were clarified in March 2016 with the issuance of ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606)”, which provided additional
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. These new standards require companies to use more judgment and to make more estimates than under previous guidance and expand required disclosures to include information regarding contract assets and liabilities as well as a more
disaggregated view of revenue. The standards are effective for public companies for annual periods beginning after December 15, 2017 and, as such, the Company adopted the new standards effective January 1, 2018, using the modified retrospective
transition method. See Note 17, Revenue Recognition, for additional disclosures required by the standards. The adoption of the standards did not have a material impact on the Company’s financial position, results of operations or cash flows, and no
cumulative effect adjustment to retained earnings was recorded.
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 new standard was further clarified by the issuance of ASU No. 2018-03, “Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial
Liabilities” in February 2018. The standards are effective for public companies in fiscal years beginning after December 15, 2017, and the Company adopted the standard effective January 1, 2018. The adoption of these standards did not have a
material impact on the Company's financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which significantly changes the accounting for operating leases by
lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance establishes a right-of-use (“ROU”) model and requires lessees to recognize lease assets and lease liabilities in the balance
sheet, initially measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost included in the statement of operations will be calculated so that the cost of the lease
is allocated over the lease term, generally on a straight-line basis. The Company has made an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. Certain
provisions of ASU No. 2016-02 were later modified or clarified by the issuance of ASU 2018-11, “Leases (Topic 842): Targeted Improvements” and ASU 2018-10, “Codification Improvements to Topic 842, Leases”. A modified retrospective transition
approach is required by the ASU and its provisions must be applied to all leases existing at the date of initial application. An entity may choose to use either (1) the standard’s effective date or (2) the beginning of the earliest comparative
period presented in the financial statements as its date of initial application. The new standards are effective for public companies for fiscal years beginning after December 15, 2018. The Company adopted the new standards effective January 1,
2019 using the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standards will not be provided for periods before January 1, 2019. The standards
provide a number of optional practical expedients in transition which the Company is continuing to evaluate. The Company does not expect the adoption of these standards to have a material impact on its results of operations or cash flows; however,
the Company continues to evaluate the impact the adoption of the new standards will have on its financial position. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to
the recognition of new ROU assets and lease liabilities on its consolidated balance sheet for its operating leases and new disclosures about its leasing activities.
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 adoption of this standard did not 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 previous guidance, which required 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 requires 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 application of this standard did not 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 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 adopted 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.
In February 2018, the FASB issued ASU No. 2018-02, “Income Statement – Reporting Comprehensive Income (Topic 220), Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income”, which permits companies to reclassify tax effects stranded in accumulated other comprehensive income (“OCI”) as a result of tax reform impacting tax rates or other items, such as
changing from a worldwide tax system to a territorial system, from OCI to retained earnings. Other tax effects stranded in OCI due to other reasons, such as prior changes in tax laws or changes in valuation allowances, may not be reclassified.
Additional disclosures will also be required upon adoption of the new standard. The new standard is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this new standard effective January
1, 2019. The Company does not expect the adoption of this standard to have a material impact on its financial position, results of operations or cash flows.
In March 2018, the FASB issued ASU No. 2018-05 “Income Taxes (Topic 740), amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118 (SEC Update)”, which addresses the accounting and disclosures around the enactment of the Tax Cuts and Jobs Act and the Securities and Exchange Commission’s Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of
the Tax Cuts and Jobs Act (“SAB 118”). The Company adopted this new standard in the first quarter of 2018. See Note 14, Income Taxes, for the disclosures related to this amended guidance.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement” which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures. The standard is effective
for annual and interim periods beginning after December 15, 2019 with early adoption permitted. The Company expects to adopt this new standard effective January 1, 2020. The Company does not expect the adoption of this new standard to have a
material impact on its financial position, results of operations or cash flows.
2. Inventories
Inventories consist of the following:
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Raw materials and parts
|
|
$
|
173,919
|
|
|
$
|
146,144
|
|
Work-in-process
|
|
|
69,718
|
|
|
|
129,441
|
|
Finished goods
|
|
|
89,152
|
|
|
|
94,571
|
|
Used equipment
|
|
|
23,155
|
|
|
|
21,223
|
|
Total
|
|
$
|
355,944
|
|
|
$
|
391,379
|
|
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 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, 2018 and 2017 are
level 1 and level 2 in the fair value hierarchy:
|
|
December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
Trading equity securities:
|
|
|
|
|
|
|
|
|
|
SERP money market fund
|
|
$
|
229
|
|
|
$
|
--
|
|
|
$
|
229
|
|
SERP mutual funds
|
|
|
4,755
|
|
|
|
--
|
|
|
|
4,755
|
|
Preferred stocks
|
|
|
248
|
|
|
|
--
|
|
|
|
248
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
5,398
|
|
|
|
--
|
|
|
|
5,398
|
|
Municipal bonds
|
|
|
--
|
|
|
|
1,546
|
|
|
|
1,546
|
|
Floating rate notes
|
|
|
1,300
|
|
|
|
--
|
|
|
|
1,300
|
|
U.S. Treasury bills
|
|
|
2,210
|
|
|
|
--
|
|
|
|
2,210
|
|
Asset-backed securities
|
|
|
--
|
|
|
|
442
|
|
|
|
442
|
|
Other
|
|
|
--
|
|
|
|
708
|
|
|
|
708
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
333
|
|
|
|
333
|
|
Total financial assets
|
|
$
|
14,140
|
|
|
$
|
3,029
|
|
|
$
|
17,169
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities
|
|
$
|
--
|
|
|
$
|
6,641
|
|
|
$
|
6,641
|
|
Total financial liabilities
|
|
$
|
--
|
|
|
$
|
6,641
|
|
|
$
|
6,641
|
|
|
|
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
|
|
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, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities
|
|
$
|
5,546
|
|
|
$
|
50
|
|
|
$
|
365
|
|
|
$
|
5,231
|
|
Trading debt securities
|
|
|
11,817
|
|
|
|
55
|
|
|
|
267
|
|
|
|
11,605
|
|
Total
|
|
$
|
17,363
|
|
|
$
|
105
|
|
|
$
|
632
|
|
|
$
|
16,836
|
|
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
|
|
Trading equity investments are valued at their estimated fair value based on their quoted market prices and trading debt securities are
valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third-party pricing service. Additionally, a
significant portion of the trading equity securities are in equity money market and mutual funds and also comprise a portion of the Company’s liability under its SERP. See Note 12, Pension and Retirement Plans, for additional information on these
investments and the SERP.
Trading debt securities are comprised mainly of marketable debt securities held by Astec Insurance. Astec Insurance has an investment
strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities.
5. Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations.
Current U.S. accounting guidance provides that goodwill and indefinite-lived intangible assets be tested for impairment at least annually. The Company performs the required valuation procedures each year as of December 31 after the following year’s
forecasts are submitted and reviewed.
Goodwill impairment is the excess of the carrying amount of a reporting unit (that includes goodwill) over its fair value. Impairment is
limited to the carrying amount of goodwill allocated to the reporting unit. The Company estimated the fair value of its reporting units as of December 31, 2018 based upon a combination of discounted cash flows and market approaches. Weighted
average cost of capital assumptions used in the calculations ranged from 23.9% to 25.8% and terminal growth rate of 3% was also assumed. The sum of the reporting units valuations determined by the Company was reconciled to the Company’s overall
market capitalization. The valuations performed in the fourth quarter of 2018 indicated impairment in the amount of $11,190 in two of the Company’s reporting units in the Energy Group. The valuations performed in 2017 and 2016 indicated no
impairment of goodwill. In addition, as part of a business unit restructuring, additional goodwill of $955 was written off.
The changes in the carrying amount of goodwill and accumulated impairment losses by reporting segment during the years ended December 31,
2018 and 2017 are as follows:
|
|
Infrastructure
Group
|
|
|
Aggregate and
Mining Group
|
|
|
Energy
Group
|
|
|
Total
|
|
Balance, December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
10,758
|
|
|
$
|
31,920
|
|
|
$
|
19,369
|
|
|
$
|
62,047
|
|
Accumulated impairment
|
|
|
(2,310
|
)
|
|
|
(12,196
|
)
|
|
|
(6,737
|
)
|
|
|
(21,243
|
)
|
Net
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
10,883
|
|
|
|
33,235
|
|
|
|
22,857
|
|
|
|
66,975
|
|
Accumulated impairment losses
|
|
|
(2,310
|
)
|
|
|
(12,196
|
)
|
|
|
(6,737
|
)
|
|
|
(21,243
|
)
|
Net
|
|
|
8,573
|
|
|
|
21,039
|
|
|
|
16,120
|
|
|
|
45,732
|
|
Restructuring write off
|
|
|
(955
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(955
|
)
|
Foreign currency translation
|
|
|
(49
|
)
|
|
|
(790
|
)
|
|
|
--
|
|
|
|
(839
|
)
|
Impairment
|
|
|
--
|
|
|
|
--
|
|
|
|
(11,190
|
)
|
|
|
(11,190
|
)
|
Balance, December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
9,879
|
|
|
|
32,445
|
|
|
|
22,857
|
|
|
|
65,181
|
|
Accumulated impairment
|
|
|
(2,310
|
)
|
|
|
(12,196
|
)
|
|
|
(17,927
|
)
|
|
|
(32,433
|
)
|
Net
|
|
$
|
7,569
|
|
|
$
|
20,249
|
|
|
$
|
4,930
|
|
|
$
|
32,748
|
|
6. Intangible Assets
Intangible assets consisted of the following at December 31, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
|
Gross
Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Value
|
|
Dealer network and customer relationships
|
|
$
|
30,909
|
|
|
$
|
14,472
|
|
|
$
|
16,437
|
|
|
$
|
31,376
|
|
|
$
|
10,856
|
|
|
$
|
20,520
|
|
Trade names
|
|
|
9,536
|
|
|
|
2,509
|
|
|
|
7,027
|
|
|
|
9,650
|
|
|
|
1,914
|
|
|
|
7,736
|
|
Other
|
|
|
6,618
|
|
|
|
4,712
|
|
|
|
1,906
|
|
|
|
6,821
|
|
|
|
4,125
|
|
|
|
2,696
|
|
Total
|
|
$
|
47,063
|
|
|
$
|
21,693
|
|
|
$
|
25,370
|
|
|
$
|
47,847
|
|
|
$
|
16,895
|
|
|
$
|
30,952
|
|
Amortization expense on intangible assets was $5,125, $4,064 and $3,562 for 2018, 2017 and 2016, respectively. Intangible asset amortization
expense is expected to be $3,944, $3,511, $3,118, $2,660 and $2,178 in the years ending December 31, 2019, 2020, 2021, 2022 and 2023, respectively, and $9,959 thereafter.
7. Property and Equipment
Property and equipment at cost, less accumulated depreciation, is as follows:
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
Land
|
|
$
|
15,774
|
|
|
$
|
15,568
|
|
Building and land improvements
|
|
|
145,913
|
|
|
|
143,339
|
|
Construction in progress
|
|
|
10,410
|
|
|
|
10,680
|
|
Manufacturing and office equipment
|
|
|
260,420
|
|
|
|
244,324
|
|
Aviation equipment
|
|
|
14,424
|
|
|
|
14,227
|
|
Less accumulated depreciation
|
|
|
(254,493
|
)
|
|
|
(237,742
|
)
|
Total
|
|
$
|
192,448
|
|
|
$
|
190,396
|
|
Depreciation expense was $22,411, $21,312 and $20,818 for the years ended December 31, 2018, 2017 and 2016, 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 $3,618, $3,211 and $2,792 for the years ended December 31, 2018, 2017 and 2016, respectively.
Minimum rental commitments for all noncancelable operating leases at December 31, 2018 are as follows:
2019
|
|
$
|
1,992
|
|
2020
|
|
|
1,100
|
|
2021
|
|
|
388
|
|
2022
|
|
|
144
|
|
2023
|
|
|
66
|
|
Thereafter
|
|
|
12
|
|
|
|
$
|
3,702
|
|
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. As of December 31, 2018, outstanding borrowings under the agreement totaled $58,778, which are included in
long-term debt in the accompanying consolidated balance sheets. No amounts were outstanding at December 31, 2017 under the agreement. Letters of credit totaling $11,044, 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, 2018, resulting in additional borrowing ability of $30,178 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 3.27% as of December 31, 2018. 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.
In February 2019, the $100,000 amended and restated credit agreement discussed above was again amended to increase the unsecured line of
credit to a maximum of $150,000 and to extend the maturity date of the agreement to December 29, 2023. Upon disposition of the Georgia wood pellet plant, the Company is required to apply the proceeds, if any, as a payment against any outstanding
balance on the line of credit. Other significant terms were left unchanged.
The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $6,600 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, 2018 and 2017, Osborn had no outstanding borrowings but had $397 in
performance, advance payment and retention guarantees outstanding under the facility at December 31, 2018. 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, 2018, Osborn had available credit under the facility of $6,203. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.0% as of December 31, 2018.
The Company's Brazilian subsidiary has outstanding working capital loans totaling $1,207 and $3,402 from Brazilian banks with interest rates
ranging from 10.4% to 11.0% at December 31, 2018 and 2017, respectively. The loans’ maturity dates ranging from January 2019 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 $137 and $642 as of December 31, 2018 and 2017, respectively, that have interest rates ranging
from 3.5% to 16.3%. These equipment loans have maturity dates ranging from January 2019 to April 2020. Astec Brazil's loans are included in the accompanying consolidated balance sheets as current maturities of long-term debt of $413 and long-term
debt of $931 as of December 31, 2018.
Long-term debt maturities are expected to be $413, $217, $214, $58,992 and $214 in the years ending December 31, 2019, 2020, 2021, 2022 and
2023, respectively, and $72 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 2018, 2017 and 2016 are as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Reserve balance, beginning of year
|
|
$
|
15,410
|
|
|
$
|
13,156
|
|
|
$
|
9,100
|
|
Warranty liabilities accrued
|
|
|
13,219
|
|
|
|
16,725
|
|
|
|
18,912
|
|
Warranty liabilities settled
|
|
|
(17,539
|
)
|
|
|
(14,642
|
)
|
|
|
(15,125
|
)
|
Other
|
|
|
(162
|
)
|
|
|
171
|
|
|
|
269
|
|
Reserve balance, end of year
|
|
$
|
10,928
|
|
|
$
|
15,410
|
|
|
$
|
13,156
|
|
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, 2018
were $8
,
261 and $8
,
119 at December 31, 2017, of which $6
,
429 and $5
,
615 were included in other long-term liabilities at December 31, 2018 and 2017,
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
|
|
|
|
2018
|
|
|
2017
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
16,916
|
|
|
$
|
16,104
|
|
Interest cost
|
|
|
578
|
|
|
|
630
|
|
Actuarial (gain)/loss
|
|
|
(1,021
|
)
|
|
|
867
|
|
Benefits paid
|
|
|
(732
|
)
|
|
|
(685
|
)
|
Benefit obligation, end of year
|
|
|
15,741
|
|
|
|
16,916
|
|
Accumulated benefit obligation
|
|
|
15,741
|
|
|
|
16,916
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
14,717
|
|
|
|
13,241
|
|
Actual gain/(loss) on plan assets
|
|
|
(909
|
)
|
|
|
1,746
|
|
Employer contribution
|
|
|
1,376
|
|
|
|
415
|
|
Benefits paid
|
|
|
(732
|
)
|
|
|
(685
|
)
|
Fair value of plan assets, end of year
|
|
|
14,452
|
|
|
|
14,717
|
|
Funded status, end of year
|
|
$
|
(1,289
|
)
|
|
$
|
(2,199
|
)
|
Amounts recognized in the consolidated balance sheets
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
$
|
(1,289
|
)
|
|
$
|
(2,199
|
)
|
Net amount recognized
|
|
$
|
(1,289
|
)
|
|
$
|
(2,199
|
)
|
Amounts recognized in accumulated other comprehensive loss consist of
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
5,687
|
|
|
$
|
5,463
|
|
Net amount recognized
|
|
$
|
5,687
|
|
|
$
|
5,463
|
|
Weighted average assumptions used to determine benefit obligations as of December 31
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.10
|
%
|
|
|
3.50
|
%
|
Expected return on plan assets
|
|
|
6.00
|
%
|
|
|
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:
|
|
Actual Allocation
|
|
|
|
|
Asset Category
|
|
2018
|
|
|
2017
|
|
|
2018 & 2017 Target Allocation Ranges
|
|
Equity securities
|
|
|
46.9
|
%
|
|
|
49.4
|
%
|
|
|
40 - 65
|
%
|
Debt securities
|
|
|
46.2
|
%
|
|
|
43.2
|
%
|
|
|
30 - 50
|
%
|
Cash and equivalents
|
|
|
6.9
|
%
|
|
|
7.4
|
%
|
|
|
0 - 15
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Net periodic benefit cost for 2018, 2017 and 2016 included the following components:
|
|
Pension Benefits
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
578
|
|
|
$
|
630
|
|
|
$
|
650
|
|
Expected return on plan assets
|
|
|
(802
|
)
|
|
|
(720
|
)
|
|
|
(782
|
)
|
Amortization of actuarial loss
|
|
|
465
|
|
|
|
530
|
|
|
|
480
|
|
Net periodic benefit cost
|
|
|
241
|
|
|
|
440
|
|
|
|
348
|
|
Other changes in plan assets and benefit obligations recognized in
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial (gain) loss for the year
|
|
|
690
|
|
|
|
(159
|
)
|
|
|
533
|
|
Amortization of net loss
|
|
|
(465
|
)
|
|
|
(530
|
)
|
|
|
(480
|
)
|
Total recognized in other comprehensive income
|
|
|
225
|
|
|
|
(689
|
)
|
|
|
53
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
466
|
|
|
$
|
(249
|
)
|
|
$
|
401
|
|
Weighted average assumptions used to determine net periodic benefit
cost for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.50
|
%
|
|
|
4.00
|
%
|
|
|
4.28
|
%
|
Expected return on plan assets
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
|
|
7.00
|
%
|
No contributions are expected to be funded by the Company during 2019.
Amounts in accumulated other comprehensive loss expected to be recognized in net periodic benefit cost in 2019 for the amortization of a net
loss is $520.
The following estimated future benefit payments are expected in the years indicated:
|
|
Pension Benefits
|
|
2019
|
|
$
|
840
|
|
2020
|
|
|
870
|
|
2021
|
|
|
910
|
|
2022
|
|
|
920
|
|
2023
|
|
|
940
|
|
2024 - 2028
|
|
|
4,920
|
|
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 $7,451, $7,182 and $5,943 in 2018, 2017 and 2016, 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, 2018
|
|
December 31, 2017
|
|
|
Cost
|
|
Market
|
|
Cost
|
|
Market
|
|
Company stock
|
|
$
|
1,886
|
|
|
$
|
1,658
|
|
|
$
|
1,960
|
|
|
$
|
3,589
|
|
Equity securities
|
|
|
5,262
|
|
|
|
4,983
|
|
|
|
4,589
|
|
|
|
4,963
|
|
Total
|
|
$
|
7,148
|
|
|
$
|
6,641
|
|
|
$
|
6,549
|
|
|
$
|
8,552
|
|
At the end of each quarter, the Company 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 operations because the acquisition cost of the Company stock in the SERP is recorded as a reduction of shareholders’ equity and is not adjusted to fair market value; however, the related liability is
adjusted to the fair market value of the stock as of each period end. The Company recognized income of $1,556 and $575 in 2018 and 2017, respectively, and expense of $1,742 in 2016, 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 balance sheet and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the consolidated
statements of operations in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of
outstanding foreign currency exchange contracts was $11
,0
82 during 2018. At December 31, 2018, the Company reported $333 of derivative assets in other current
assets. The Company reported $112 of derivative liabilities in other current liabilities at December 31, 2017. The Company recognized, as a component of cost of sales, a net gain on the change in fair value of derivative instruments of $1,147 for
the year ended December 31, 2018. The Company recognized net losses on the change in fair value of derivative instruments of $663 and $336 for the years ended December 31, 2017 and 2016, respectively. There were no derivatives that were designated
as hedges at December 31, 2018 or 2017
.
14. Income Taxes
For financial reporting purposes, income (loss) before income taxes includes the following components:
|
Year Ended December 31
|
|
|
2018
|
|
2017
|
|
2016
|
|
United States
|
|
$
|
(86,874
|
)
|
|
$
|
55,980
|
|
|
$
|
87,326
|
|
Foreign
|
|
|
896
|
|
|
|
1,237
|
|
|
|
(231
|
)
|
Income (loss) before income taxes
|
|
$
|
(85,978
|
)
|
|
$
|
57,217
|
|
|
$
|
87,095
|
|
The provision (benefit) for income taxes consists of the following:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Current provision (benefit):
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,995
|
)
|
|
$
|
16,178
|
|
|
$
|
30,623
|
|
State
|
|
|
892
|
|
|
|
2,866
|
|
|
|
4,098
|
|
Foreign
|
|
|
3,254
|
|
|
|
874
|
|
|
|
907
|
|
Total current provision
|
|
|
151
|
|
|
|
19,918
|
|
|
|
35,628
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(19,142
|
)
|
|
|
107
|
|
|
|
(2,653
|
)
|
State
|
|
|
(5,788
|
)
|
|
|
(455
|
)
|
|
|
(1,213
|
)
|
Foreign
|
|
|
(455
|
)
|
|
|
57
|
|
|
|
345
|
|
Total deferred benefit
|
|
|
(25,385
|
)
|
|
|
(291
|
)
|
|
|
(3,521
|
)
|
Total provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(23,137
|
)
|
|
|
16,285
|
|
|
|
27,970
|
|
State
|
|
|
(4,896
|
)
|
|
|
2,411
|
|
|
|
2,885
|
|
Foreign
|
|
|
2,799
|
|
|
|
931
|
|
|
|
1,252
|
|
Total income tax provision (benefit)
|
|
$
|
(25,234
|
)
|
|
$
|
19,627
|
|
|
$
|
32,107
|
|
The Company’s income tax provision (benefit) is computed based on the domestic and foreign federal statutory rates and the average state
statutory rates, net of related federal benefit.
The provision (benefit) for income taxes differs from the amount computed by applying the statutory federal income tax rate to income (loss)
before income taxes. A reconciliation of the provision (benefit) for income taxes at the statutory federal income tax rate to the amount provided is as follows:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Tax expense (benefit) at the statutory federal income tax rate
|
|
$
|
(18,055
|
)
|
|
$
|
20,026
|
|
|
$
|
30,483
|
|
Domestic production activity deduction
|
|
|
--
|
|
|
|
(1,661
|
)
|
|
|
(1,641
|
)
|
State income tax, net of federal income tax
|
|
|
(2,976
|
)
|
|
|
1,520
|
|
|
|
1,876
|
|
Research and development tax credits
|
|
|
(4,660
|
)
|
|
|
(922
|
)
|
|
|
(785
|
)
|
FIN 48 impact
|
|
|
1,856
|
|
|
|
124
|
|
|
|
(240
|
)
|
Liquidation of subsidiary
|
|
|
(1,403
|
)
|
|
|
--
|
|
|
|
--
|
|
Valuation allowance impact
|
|
|
978
|
|
|
|
1,585
|
|
|
|
1,638
|
|
U.S. tax reform impact
|
|
|
(193
|
)
|
|
|
(505
|
)
|
|
|
--
|
|
Other items
|
|
|
(781
|
)
|
|
|
(540
|
)
|
|
|
776
|
|
Total income tax provision (benefit)
|
|
$
|
(25,234
|
)
|
|
$
|
19,627
|
|
|
$
|
32,107
|
|
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
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
4,513
|
|
|
$
|
4,287
|
|
Warranty reserves
|
|
|
2,275
|
|
|
|
3,560
|
|
Bad debt reserves
|
|
|
182
|
|
|
|
299
|
|
State tax loss carryforwards
|
|
|
7,265
|
|
|
|
2,710
|
|
Accrued vacation
|
|
|
1,612
|
|
|
|
1,712
|
|
SERP
|
|
|
364
|
|
|
|
367
|
|
Deferred compensation
|
|
|
881
|
|
|
|
1,293
|
|
Restricted stock units
|
|
|
1,728
|
|
|
|
1,664
|
|
Goodwill
|
|
|
2,157
|
|
|
|
--
|
|
Pension and post-employment benefits
|
|
|
1,536
|
|
|
|
1,448
|
|
Outside basis difference
|
|
|
4,496
|
|
|
|
--
|
|
Federal net operating loss
|
|
|
15,655
|
|
|
|
--
|
|
Foreign net operating losses
|
|
|
5,069
|
|
|
|
6,310
|
|
Other
|
|
|
5,025
|
|
|
|
2,478
|
|
Valuation allowances
|
|
|
(8,540
|
)
|
|
|
(8,318
|
)
|
Total deferred tax assets
|
|
|
44,218
|
|
|
|
17,810
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
16,156
|
|
|
|
14,562
|
|
Intangibles
|
|
|
541
|
|
|
|
769
|
|
Goodwill
|
|
|
--
|
|
|
|
654
|
|
Pension
|
|
|
1,051
|
|
|
|
758
|
|
Total deferred tax liabilities
|
|
|
17,748
|
|
|
|
16,743
|
|
Total net deferred assets
|
|
$
|
26,470
|
|
|
$
|
1,067
|
|
As of December 31, 2018, the Company has a federal net operating loss carryforward of $74,548 from year 2018. The Company expects to utilize
the 2018 federal net operating loss against earnings in future years.
As of December 31, 2018, the Company has state net operating loss carryforwards of $261,673 and foreign net operating loss carryforwards of
approximately $16,759, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2019 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 2018, the valuation allowance on these carryforwards was increased by $978 due to the unrealizable portion of certain entities’ state and foreign net operating loss carryforwards. The Company has also determined that the
recovery of certain other deferred tax assets is realizable. The valuation allowance for these deferred tax assets was decreased by $756 during 2018.
The following table represents a roll forward of the deferred tax asset valuation allowance for the years ended December 31, 2018, 2017 and
2016:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Allowance balance, beginning of year
|
|
$
|
8,318
|
|
|
$
|
8,280
|
|
|
$
|
8,065
|
|
Provision
|
|
|
978
|
|
|
|
1,585
|
|
|
|
1,639
|
|
Write-offs
|
|
|
--
|
|
|
|
(1,862
|
)
|
|
|
(289
|
)
|
Other
|
|
|
(756
|
)
|
|
|
315
|
|
|
|
(1,135
|
)
|
Allowance balance, end of year
|
|
$
|
8,540
|
|
|
$
|
8,318
|
|
|
$
|
8,280
|
|
Undistributed earnings of the Company’s Canadian subsidiary, Breaker Technology Ltd. (“BTL”), South African subsidiary, Osborn Engineered
Products SA, (Pty), Ltd. (“Osborn”), Australian subsidiary, Astec Australia Pty, Ltd. (“Astec Australia”), and Northern Ireland subsidiary, Telestack Limited (“Telestack”), are considered to be indefinitely reinvested; accordingly, no provision for
U.S. federal and state income taxes has been provided thereon. As of December 31, 2018, the cumulative amounts of undistributed GAAP earnings for BTL, Osborn, Astec Australia and Telestack are $7,789, $29,800, $490 and $1,477, 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 2013.
The Company has a liability for unrecognized tax benefits of $2,048 and $365 (excluding accrued interest and penalties) as of December 31,
2018 and 2017, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized tax benefits of $66 and $22 in 2018 and 2017, 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 $2,243 and $370 at December 31, 2018 and 2017,
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
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Balance, beginning of year
|
|
$
|
365
|
|
|
$
|
238
|
|
|
$
|
603
|
|
Additions for tax positions taken in current year
|
|
|
1,722
|
|
|
|
127
|
|
|
|
235
|
|
Reductions due to lapse of statutes of limitations
|
|
|
(39
|
)
|
|
|
--
|
|
|
|
(16
|
)
|
Decreases related to settlements with tax authorities
|
|
|
--
|
|
|
|
--
|
|
|
|
(584
|
)
|
Balance, end of year
|
|
$
|
2,048
|
|
|
$
|
365
|
|
|
$
|
238
|
|
The December 31, 2018 balance of unrecognized tax benefits includes no tax positions for which the ultimate deductibility is highly certain
but the timing of such deductibility is uncertain. Accordingly, there is no impact to the deferred tax accounting for certain tax benefits.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law making significant changes to the Internal
Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide tax system to a territorial
system and a one-time transition tax on the mandatory deemed repatriation of foreign earnings. The Company’s fourth quarter 2017 provision for income taxes was reduced by $1,056, (comprised of a $1,548 reduction in income tax expense recorded in
connection with the remeasurement of deferred tax assets and liabilities and $492 of additional income tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings) due to applying the
provisions of the Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a
registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company
determined that the $492 additional 2017 income tax expense was a provisional amount and constituted a reasonable estimate at December 31, 2017, based upon the best information then available. The final impact was $1,727 and differed from the
provisional amount due to, among other things, additional analysis, changes in interpretations and assumptions the Company made, additional regulatory guidance issued and actions the Company took as a result of the Tax Act. The subsequent
adjustment, $1,235, is included in 2018 income tax expense.
While the Tax Act provides for a territorial tax system beginning in 2018, it includes two new U.S. tax base erosion provisions, the global
intangible low-taxed income (“GILTI”) provisions and the base-erosion and anti-abuse tax (“BEAT”) provisions.
The GILTI provisions require the Company to include, in its U.S. income tax return, foreign subsidiary earnings in excess of an allowable
return on the foreign subsidiary’s tangible assets. The Company has elected to account for GILTI tax in the period in which it is incurred, and therefore, has recorded tax benefits of $545 in its consolidated financial statements for the year ended
December 31, 2018.
The BEAT provisions in the Tax Act eliminates the deduction of certain base-erosion payments made to related foreign corporations, and impose
a minimum tax, if greater than regular tax. The Company does not expect to be subject to this tax, and therefore, has not included any tax impacts of BEAT in its consolidated financial statements for the year ended December 31, 2018.
The changes to existing U.S. tax laws as a result of the Tax Act, which we believe have the most significant impact on the Company’s federal
income taxes are as follows:
Reduction of the U.S. Corporate Income Tax
Rate:
The Company measures deferred tax assets and liabilities using enacted tax rates that will apply in the years in which the temporary differences are expected to be recovered or paid. Accordingly, the Company recognized a deferred
tax benefit and related increase in deferred tax assets of $1,548 in its 2017 consolidated financial statements due to the remeasurement necessitated by the Tax Act’s provision reducing the reduction in the U.S. corporate income tax rate from 35%
to 21%. This benefit is attributable to the Company being in a net deferred tax liability position when considering only U.S. federal deferred items. The Company has significant deferred tax assets related to foreign jurisdictions and U.S. state
income taxes.
Transition Tax on Foreign Earnings:
The
Company recognized a provisional income tax expense of $492 for the year ended December 31, 2017 related to the one-time transition tax on certain foreign earnings. The final determination of the transition tax of $1,727 was completed in 2018.
Repeal of Domestic Production Activities
Deduction:
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 material to the Company’s federal income
taxes. The DPAD benefits included in the effective tax rate reconciliations for 2017 and 2016 were $1,661 and $1,641, 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 $2,247 at December 31, 2018. These arrangements expire at various dates through July 2021 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 $1,183 related to these guarantees as of December 31, 2018.
In addition, the Company is contingently liable under letters of credit issued by a lender totaling $11,044 as of December 31, 2018,
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, 2018, the Company’s foreign subsidiaries are contingently liable
for a total of $2,016 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 $13,060 as of
December 31, 2018.
The Company manufactured its first wood pellet plant for a customer under a Company-financed arrangement whereby the Company deferred
the recognition of revenue as payment under the arrangement was not assured. The original customer is attempting to obtain financing to purchase the plant at a reduced price; however, the Company believes the ultimate consummation of the sale to
this customer is uncertain. After considering the uncertainty of completing the sale to the existing customer; the lack of success in attempting to market the plant to other pellet plant operators; the cost of repossessing the plant; and the
Company’s decision to exit the pellet plant business line, the pellet plant inventory’s net realizable value has been written down to zero.
The Company and certain of its current and former executive officers have been named as defendants in a putative shareholder class action
lawsuit filed on February 1, 2019, in the United States District Court for the Eastern District of Tennessee. The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-00024-PLR-CHS.
The complaint generally alleges that the defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and that the individual
defendants are control person under Section 20(a) of the Exchange Act. The complaint was filed on behalf of shareholders who purchased shares of the Company’s stock between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of
the purported class. We dispute these allegations and intend to defend this lawsuit vigorously. The Company is unable to estimate the possible loss or range of loss at this time.
The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management
believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal fees) or the minimum estimated liability when the loss is
estimated using a range and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates
are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is either (i) probable but cannot be reasonably estimated or (ii) reasonably possible but not probable, the Company does not record the
amount of the loss, but does make specific disclosure of such matter. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually
and in the aggregate, will not have a material adverse effect on the Company's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the
Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company's financial position, cash flows or results of operations.
16. Shareholders’ Equity
The Company rewards key members of management with restricted stock units (“RSUs”) each year based upon the financial performance of the
Company and its subsidiaries. Under the terms of the Company’s shareholder-approved 2011 Incentive Plan, up to 700 shares of newly-issued Company stock is available for awards. Awards granted in 2016 and prior vest at the end of five years from the
date of grant, or at the time a recipient retires after reaching age 65, if earlier
,
while awards granted 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 2018, 2017 and 2016 was $1,869, $1
,
991 and $3
,
289, respectively. The grant date tax benefit was increased by $67
,
$290 and $220, respectively, upon the vesting of RSUs in 2018, 2017 and 2016
.
Compensation expense of $2,032, $2,978 and $2,426 was recorded in the years ended December 31, 2018, 2017 and 2016, respectively, to reflect
the fair value of RSUs granted (or anticipated to be granted for 2018 performance) amortized over the portion of the vesting period occurring during the period. Related income tax benefits of $528, $1,132 and $934 were recorded in 2018, 2017 and
2016, respectively. Based upon the grant date fair value of RSUs, it is anticipated that $3,022 of additional compensation costs will be recognized in future periods through 2022 for RSUs earned through December 31, 2018. The weighted average
period over which this additional compensation cost will be expensed is 1.8 years. RSUs do not participate in Company
-
paid dividends.
Changes in restricted stock units during the year ended December 31, 2018 are as follows:
|
|
2018
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested restricted stock units, beginning of year
|
|
|
161
|
|
|
$
|
53.09
|
|
Units granted
|
|
|
61
|
|
|
|
58.45
|
|
Units forfeited
|
|
|
(25
|
)
|
|
|
50.84
|
|
Units vested
|
|
|
(32
|
)
|
|
|
45.79
|
|
Unvested restricted stock units, end of year
|
|
|
165
|
|
|
|
56.82
|
|
The grant date fair value of the restricted stock units granted during 2018, 2017 and 2016 was $3,553, $5,399 and $1,946, respectively.
17. Revenue Recognition
As discussed in Note 1, Summary of Significant Accounting Policies, the Company adopted the provisions of ASU No. 2014-09, “Revenue from
Contracts with Customers” and its related amendments effective January 1, 2018. The adoption of this standard did not have a material impact on the timing or amounts of revenues recognized by the Company, and, as such, no cumulative effect
adjustment was recorded as of the adoption of the standard.
The following table disaggregates the Company’s revenue by major source for the period ended December 31, 2018 (excluding intercompany
sales):
|
|
Infrastructure
Group
|
|
|
Aggregate and
Mining Group
|
|
|
Energy
Group
|
|
|
Total
|
|
Net Sales - Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
$
|
296,974
|
|
|
$
|
220,015
|
|
|
$
|
178,584
|
|
|
$
|
695,573
|
|
Pellet plant agreement sale reduction
|
|
|
(75,315
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(75,315
|
)
|
Parts and component sales
|
|
|
119,823
|
|
|
|
71,862
|
|
|
|
42,666
|
|
|
|
234,351
|
|
Service and equipment installation revenue
|
|
|
10,822
|
|
|
|
1,844
|
|
|
|
6,355
|
|
|
|
19,021
|
|
Used equipment sales
|
|
|
8,098
|
|
|
|
3,127
|
|
|
|
4,358
|
|
|
|
15,583
|
|
Freight revenue
|
|
|
12,502
|
|
|
|
6,265
|
|
|
|
5,896
|
|
|
|
24,663
|
|
Other
|
|
|
1,022
|
|
|
|
(741
|
)
|
|
|
1,657
|
|
|
|
1,938
|
|
Total domestic revenue
|
|
|
373,926
|
|
|
|
302,372
|
|
|
|
239,516
|
|
|
|
915,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales - International:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment sales
|
|
|
43,516
|
|
|
|
98,604
|
|
|
|
24,308
|
|
|
|
166,428
|
|
Parts and component sales
|
|
|
19,215
|
|
|
|
44,609
|
|
|
|
10,528
|
|
|
|
74,352
|
|
Service and equipment installation revenue
|
|
|
3,152
|
|
|
|
1,069
|
|
|
|
390
|
|
|
|
4,611
|
|
Used equipment sales
|
|
|
1,693
|
|
|
|
2,948
|
|
|
|
908
|
|
|
|
5,549
|
|
Freight revenue
|
|
|
1,043
|
|
|
|
3,266
|
|
|
|
417
|
|
|
|
4,726
|
|
Other
|
|
|
(256
|
)
|
|
|
296
|
|
|
|
79
|
|
|
|
119
|
|
Total international revenue
|
|
|
68,363
|
|
|
|
150,792
|
|
|
|
36,630
|
|
|
|
255,785
|
|
Total net sales
|
|
$
|
442,289
|
|
|
$
|
453,164
|
|
|
$
|
276,146
|
|
|
$
|
1,171,599
|
|
Revenue is recognized when obligations under the terms of a contract are satisfied and generally occurs with the transfer of control of the
product or services at a point in time. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. See Note 1, Summary of Significant Accounting Policies, for further
information regarding the types and timing of the Company’s revenue transactions. Contract assets and liabilities, excluding customer deposits, are immaterial at December 31, 2018.
The Company had a pellet plant sale which was accounted for over time using the ratio of costs incurred to estimated total costs. Pellet
plant sales recognized under the over-time method in 2018 for production activities were not significant. Penalties are accounted for as a reduction in net sales. During July 2018, the Company entered into an agreement with its pellet plant
customer due to unresolved issues which inhibited the plant’s ability to meet contractual provisions by the date required in the Company’s sales contract with its customer. Under the terms of the pellet plant agreement, the Company paid its
customer $68,000. Considering this payment and other provisions of the pellet plant agreement, including the forgiveness of $7,315 of accounts receivable due from the customer, a $75,315 reduction in sales was recorded in 2018.
18. Operations by Industry Segment and Geographic Area
The Company has three reportable segments, each of which is comprised of multiple business units that offer similar products and services and
meet the requirements for aggregation. A brief description of each segment is as follows:
Infrastructure Group
- The
Infrastructure Group segment is made up of five business units. These business units include Astec, Inc. (“Astec”), Roadtec, Inc. (“Roadtec”), Carlson Paving Products, Inc. (“Carlson”),
Astec
Mobile Machinery GmbH (“AMM”) and Astec Australia Pty Ltd (“Astec Australia”). Three of the business units (Astec, Roadtec and Carlson) design, engineer, manufacture and market a complete line of asphalt plants and their related components, asphalt
pavers, screeds, milling machines, material transfer vehicles, stabilizers and related ancillary equipment. The other two business units (AMM and Astec Australia) primarily sell, service and install products produced by the manufacturing
subsidiaries of the Company and a majority of their sales are to customers in the infrastructure industry. During late 2018, the Company decided to close AMM, located in Germany, in 2019, and its assets are being liquidated. The principal
purchasers of the products produced by this group are asphalt producers, highway and heavy equipment contractors, and foreign and domestic governmental agencies. 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. Pellet plant sales in 2018, excluding the pellet plant agreement sales reduction of $75,315, as discussed in Note 17, Revenue Recognition, were not material.
The pellet plant equipment sold to this customer was manufactured by each of the Company’s segments.
Aggregate and Mining Group
- The
Company's Aggregate and Mining Group is comprised of eight business units which are focused on designing and manufacturing heavy processing equipment, as well as servicing and supplying parts for the aggregate, metallic mining, recycling, ports and
bulk handling markets. These business units are Telsmith, Inc. (“Telsmith”), Kolberg-Pioneer, Inc. (“KPI”), Astec Mobile Screens, Inc. (“AMS”), Johnson Crushers International, Inc. (“JCI”), Breaker Technology Ltd/Breaker Technology, Inc. (“BTI”),
Osborn Engineered Products, SA (Pty) Ltd (“Osborn”), Astec do Brasil Fabricacao de Equipamentos Ltda. (“Astec Brazil”) and Telestack Limited (“Telestack”). The principal purchasers of products produced by this group are distributors, open mine
operators, quarry operators, port and inland terminal operators, highway and heavy equipment contractors and foreign and domestic governmental agencies.
Energy Group
- The Company’s Energy
Group is currently comprised of six business units focused on supplying heavy equipment such as heaters, drilling rigs, concrete plants, wood chippers and grinders, pump trailers, storage equipment and related parts to the oil and gas,
construction, and water well industries, as well as commercial and industrial burners used primarily in commercial, industrial and process heating applications. The business units currently included in the Energy Group are Heatec, Inc. (“Heatec”),
CEI Enterprises, Inc. (“CEI”), GEFCO, Inc. (“GEFCO”), Peterson Pacific Corp. (“Peterson”), Power Flame Incorporated (“Power Flame”) and RexCon, Inc. (“RexCon”). Power Flame, located in Parsons, Kansas, was acquired in August 2016. RexCon, located
in Burlington, WI, was formed to acquire substantially all of the assets and liabilities of RexCon, LLC on October 1, 2017. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors,
processors of oil, gas and biomass for energy production, ready mix concrete producers and contractors in the construction and demolition recycling markets.
Corporate
- This category consists of
business units that do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes the Company's parent company, Astec Industries, Inc., a captive insurance company and
a Company-owned distributor in the start-up phase of operations in Chile. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes, state deferred
taxes and corporate overhead and thus these costs are included in the Corporate category.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are valued at prices comparable to those for unrelated parties.
Segment information for 2018
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
442,289
|
|
|
$
|
453,164
|
|
|
$
|
276,146
|
|
|
$
|
--
|
|
|
$
|
1,171,599
|
|
Intersegment revenues
|
|
|
21,568
|
|
|
|
16,603
|
|
|
|
17,578
|
|
|
|
--
|
|
|
|
55,749
|
|
Restructuring and asset impairment charges
|
|
|
1,870
|
|
|
|
--
|
|
|
|
11,190
|
|
|
|
--
|
|
|
|
13,060
|
|
Interest expense
|
|
|
10
|
|
|
|
384
|
|
|
|
17
|
|
|
|
634
|
|
|
|
1,045
|
|
Depreciation and amortization
|
|
|
8,424
|
|
|
|
9,383
|
|
|
|
9,149
|
|
|
|
957
|
|
|
|
27,913
|
|
Income taxes
|
|
|
880
|
|
|
|
2,349
|
|
|
|
306
|
|
|
|
(28,769
|
)
|
|
|
(25,234
|
)
|
Profit (loss)
|
|
|
(112,954
|
)
|
|
|
45,464
|
|
|
|
3,070
|
|
|
|
1,586
|
|
|
|
(62,834
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
536,744
|
|
|
|
590,512
|
|
|
|
309,397
|
|
|
|
367,211
|
|
|
|
1,803,864
|
|
Capital expenditures
|
|
|
14,823
|
|
|
|
8,731
|
|
|
|
4,580
|
|
|
|
769
|
|
|
|
28,903
|
|
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
|
|
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Net income attributable to controlling interest
|
|
|
|
|
|
|
|
|
|
Total profit (loss) for reportable segments
|
|
$
|
(64,420
|
)
|
|
$
|
78,608
|
|
|
$
|
110,504
|
|
Corporate expenses, net
|
|
|
1,586
|
|
|
|
(40,963
|
)
|
|
|
(55,992
|
)
|
Net loss attributable to non-controlling interest
|
|
|
295
|
|
|
|
205
|
|
|
|
171
|
|
Recapture (elimination) of intersegment profit
|
|
|
2,090
|
|
|
|
(55
|
)
|
|
|
476
|
|
Total consolidated net income (loss) attributable to controlling interest
|
|
$
|
(60,449
|
)
|
|
$
|
37,795
|
|
|
$
|
55,159
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
1,436,653
|
|
|
$
|
1,529,493
|
|
|
$
|
1,446,697
|
|
Corporate assets
|
|
|
367,211
|
|
|
|
390,300
|
|
|
|
417,351
|
|
Elimination of intercompany profit in inventory
|
|
|
(4,986
|
)
|
|
|
(7,075
|
)
|
|
|
(7,020
|
)
|
Elimination of intercompany receivables
|
|
|
(664,914
|
)
|
|
|
(717,873
|
)
|
|
|
(688,369
|
)
|
Elimination of investment in subsidiaries
|
|
|
(300,709
|
)
|
|
|
(303,209
|
)
|
|
|
(272,766
|
)
|
Other
|
|
|
22,202
|
|
|
|
(2,057
|
)
|
|
|
(52,292
|
)
|
Total consolidated assets
|
|
$
|
855,457
|
|
|
$
|
889,579
|
|
|
$
|
843,601
|
|
Sales into major geographic regions were as follows:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
United States
|
|
$
|
915,814
|
|
|
$
|
932,294
|
|
|
$
|
941,273
|
|
Canada
|
|
|
61,582
|
|
|
|
65,509
|
|
|
|
37,539
|
|
Africa
|
|
|
45,613
|
|
|
|
36,847
|
|
|
|
31,557
|
|
Australia and Oceania
|
|
|
38,645
|
|
|
|
40,201
|
|
|
|
29,948
|
|
South America (excluding Brazil)
|
|
|
30,081
|
|
|
|
18,562
|
|
|
|
28,204
|
|
Other European Countries
|
|
|
25,985
|
|
|
|
18,679
|
|
|
|
19,198
|
|
Mexico
|
|
|
9,632
|
|
|
|
8,508
|
|
|
|
13,489
|
|
Russia
|
|
|
9,571
|
|
|
|
13,609
|
|
|
|
3,185
|
|
Middle East
|
|
|
7,877
|
|
|
|
4,881
|
|
|
|
3,403
|
|
Brazil
|
|
|
6,292
|
|
|
|
10,478
|
|
|
|
4,300
|
|
Other Asian Countries
|
|
|
5,472
|
|
|
|
10,286
|
|
|
|
6,926
|
|
Japan and Korea
|
|
|
3,649
|
|
|
|
4,760
|
|
|
|
10,825
|
|
China
|
|
|
2,765
|
|
|
|
6,113
|
|
|
|
4,595
|
|
Post-Soviet States (excluding Russia)
|
|
|
2,730
|
|
|
|
5,951
|
|
|
|
3,293
|
|
Central America (excluding Mexico)
|
|
|
2,706
|
|
|
|
2,929
|
|
|
|
5,904
|
|
West Indies
|
|
|
1,494
|
|
|
|
3,421
|
|
|
|
2,994
|
|
India
|
|
|
957
|
|
|
|
1,026
|
|
|
|
318
|
|
Other
|
|
|
734
|
|
|
|
685
|
|
|
|
480
|
|
Total foreign
|
|
|
255,785
|
|
|
|
252,445
|
|
|
|
206,158
|
|
Total consolidated sales
|
|
$
|
1,171,599
|
|
|
$
|
1,184,739
|
|
|
$
|
1,147,431
|
|
Long-lived assets by major geographic region are as follows:
|
|
December 31
|
|
|
|
2018
|
|
|
2017
|
|
United States
|
|
$
|
162,775
|
|
|
$
|
158,683
|
|
Brazil
|
|
|
8,866
|
|
|
|
11,114
|
|
Northern Ireland
|
|
|
7,641
|
|
|
|
6,342
|
|
South Africa
|
|
|
4,682
|
|
|
|
5,684
|
|
Australia
|
|
|
4,624
|
|
|
|
4,532
|
|
Canada
|
|
|
3,480
|
|
|
|
2,893
|
|
Germany
|
|
|
345
|
|
|
|
1,148
|
|
Chile
|
|
|
35
|
|
|
|
--
|
|
Total foreign
|
|
|
29,673
|
|
|
|
31,713
|
|
Total
|
|
$
|
192,448
|
|
|
$
|
190,396
|
|
19. Accumulated Other Comprehensive Loss
The after-tax components comprising accumulated other comprehensive loss is summarized below:
|
December 31
|
|
|
2018
|
|
2017
|
|
Foreign currency translation adjustment
|
|
$
|
(30,656
|
)
|
|
$
|
(21,140
|
)
|
Unrecognized pension and post-retirement benefit cost, net of tax
of $2,230 and $2,192, respectively
|
|
|
(3,227
|
)
|
|
|
(3,103
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(33,883
|
)
|
|
$
|
(24,243
|
)
|
See Note 12, Pension and Retirement Plans, for discussion of the amounts recognized in accumulated other comprehensive loss related to the
Company’s Kolberg-Pioneer, Inc. defined pension plan.
20. Other Income
Other income consists of the following:
|
|
Year Ended December 31
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Investment loss
|
|
$
|
(228
|
)
|
|
$
|
(96
|
)
|
|
$
|
(276
|
)
|
Licensing fees
|
|
|
--
|
|
|
|
651
|
|
|
|
546
|
|
Other
|
|
|
764
|
|
|
|
663
|
|
|
|
259
|
|
Total
|
|
$
|
536
|
|
|
$
|
1,218
|
|
|
$
|
529
|
|
21. Business Combinations
In October, 2017, the Company acquired substantially all of the assets and liabilities of RexCon LLC (“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 allocation of the
purchase price includes the recognition of $3,488 of goodwill and $7,778 of other intangible assets consisting of non-compete agreements (5-year useful life), technology (19-year useful life), trade names (15-year useful life), and customer
relationships (18-year useful life). The revenues and results of operations of RexCon were not significant in relation to the Company’s consolidated financial statements for the period ended December 31, 2017 and would not have been material on a
proforma basis to any earlier period. RexCon’s operating results are included in the Company’s Energy Group beginning in the fourth quarter of 2017. The Company determined that the full $3,488 of goodwill that was acquired in the acquisition was
impaired in the fourth quarter of 2018.
RexCon, located in Burlington, Wisconsin was founded in 2003 through an asset acquisition with the original company founded over 100 years
ago. RexCon is a manufacturer of high-quality stationary and portable, central mix and ready mix concrete batch plants, concrete mixers and concrete paving equipment. RexCon specializes in providing portable, high-production concrete equipment to
contractors and producers worldwide in a totally integrated turnkey production system, including customized site layout and design engineering, batch plants, mixers, water heaters and chillers, ice production and delivery systems, material handling
conveyors, gensets and power distribution, cement silos and screws, central dust collection, aggregate heating and cooling systems, batch automation controls and batch office trailers.
In August 2016, the Company acquired substantially all of the assets and certain liabilities of Power Flame Incorporated (“Power Flame”) 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 Power Flame 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. Power Flame’s operating results are included in the Energy Group beginning in the third quarter of 2016. The Company determined that an amount equal to $7,702 of the goodwill that was acquired in the acquisition was impaired
in the fourth quarter of 2018.
Power Flame, 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 1980-2019.
|
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, 2013 and assumes that all dividends were invested on the date paid.
|