ASTEC INDUSTRIES INC [ASTE] Filings

10-Q 1 aste-20230630.htm FORM 10-Q - Q2 2023 aste-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-11595

Astec Industries, Inc.

(Exact name of registrant as specified in its charter)

Tennessee

62-0873631

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1725 Shepherd Road

Chattanooga, TN

37421

(Address of principal executive offices)

(Zip Code)

(423) 899-5898

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	ASTE	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 28, 2023, there were 22,736,570 shares of Common Stock outstanding.

ASTEC INDUSTRIES, INC.

Index to Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2023


		Page
PART I
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	33
SIGNATURES		34

INDEX

PART I ‑ FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ASTEC INDUSTRIES, INC.

Consolidated Balance Sheets

(In millions, except share and per share data, unaudited)


	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	44.5	$	66.0
Investments	4.0		3.9
Trade receivables and contract assets, net of allowance for credit losses of $2.1 and $2.3, respectively	157.6		167.1
Other receivables, net of allowance for credit losses of $0.7, respectively	6.9		6.5
Inventories	429.5		393.4
Prepaid and refundable income taxes	9.1		15.9
Prepaid expenses and other assets	24.3		28.2
Assets held for sale	—		15.4
Total current assets	675.9		696.4
Property and equipment, net of accumulated depreciation of $239.2 and $233.8, respectively	180.4		173.6
Investments	17.0		15.1
Goodwill	46.1		45.2
Intangible assets, net of accumulated amortization of $48.4 and $45.1, respectively	19.1		22.5
Deferred income tax assets	36.9		32.1
Other long-term assets	35.0		29.5
Total assets	$	1,010.4	$	1,014.4
LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	0.1	$	0.2
Short-term debt	11.6		9.4
Accounts payable	109.2		107.2
Customer deposits	57.7		69.5
Accrued product warranty	16.5		11.9
Accrued employee related liabilities	37.0		35.3
Accrued loss reserves	2.1		1.9
Other current liabilities	29.9		38.6
Total current liabilities	264.1		274.0
Long-term debt	62.0		78.1
Deferred income tax liabilities	2.4		2.1
Other long-term liabilities	34.4		33.3
Total liabilities	362.9		387.5
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock – authorized 2,000,000 shares of $1.00 par value; none issued	—		—
Common stock – authorized 40,000,000 shares of $0.20 par value; issued and outstanding – 22,736,570 as of June 30, 2023 and 22,624,031 as of December 31, 2022	4.5		4.5
Additional paid-in capital	136.4		135.8
Accumulated other comprehensive loss	(39.6)		(40.1)
Company stock held by deferred compensation programs, at cost	(1.1)		(1.1)
Retained earnings	547.1		527.8
Shareholders' equity	647.3		626.9
Noncontrolling interest	0.2		—
Total equity	647.5		626.9
Total liabilities and equity	$	1,010.4	$	1,014.4

The accompanying notes are an integral part of these unaudited consolidated financial statements.

INDEX

ASTEC INDUSTRIES, INC.

Consolidated Statements of Operations

(In millions, except share and per share data, unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net sales	$	350.0	$	318.2	$	697.9	$	609.4
Cost of sales	267.1		255.3		525.8		481.8
Gross profit	82.9		62.9		172.1		127.6
Selling, general and administrative expenses	64.5		61.2		132.4		120.9
Restructuring, impairment and other asset charges, net	1.1		3.4		4.8		4.4
Income (loss) from operations	17.3		(1.7)		34.9		2.3
Other expenses, net:
Interest expense	(2.0)		(0.6)		(4.0)		(1.0)
Interest income	0.5		0.2		1.0		0.4
Other income (expenses), net	0.1		(2.6)		0.5		(1.4)
Income (loss) before income taxes	15.9		(4.7)		32.4		0.3
Income tax provision (benefit)	2.7		(0.8)		7.1		0.1
Net income (loss)	13.2		(3.9)		25.3		0.2
Net income attributable to noncontrolling interest	(0.1)		—		(0.1)		—
Net income (loss) attributable to controlling interest	$	13.1	$	(3.9)	$	25.2	$	0.2
Per share data:
Earnings (loss) per common share - Basic	$	0.58	$	(0.17)	$	1.11	$	0.01
Earnings (loss) per common share - Diluted	$	0.58	$	(0.17)	$	1.11	$	0.01
Weighted average shares outstanding - Basic	22,723,748		22,850,515		22,689,990		22,816,684
Weighted average shares outstanding - Diluted	22,769,447		22,850,515		22,772,232		22,923,868

The accompanying notes are an integral part of these unaudited consolidated financial statements.

INDEX

ASTEC INDUSTRIES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(In millions, unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net income (loss)	$	13.2	$	(3.9)	$	25.3	$	0.2
Other comprehensive income (loss):


Foreign currency translation adjustments	0.5		(8.5)		0.6		(4.3)
Other comprehensive income (loss)	0.5		(8.5)		0.6		(4.3)
Comprehensive income (loss)	13.7		(12.4)		25.9		(4.1)
Comprehensive income attributable to noncontrolling interest	(0.1)		—		(0.2)		(0.1)
Comprehensive income (loss) attributable to controlling interest	$	13.6	$	(12.4)	$	25.7	$	(4.2)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

INDEX

ASTEC INDUSTRIES, INC.

Consolidated Statements of Cash Flows

(In millions, unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	25.3	$	0.2
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	12.5		13.6
Provision for credit losses	0.2		0.2
Provision for warranties	10.6		6.4
Deferred compensation expense (benefit)	0.1		(0.9)
Share-based compensation	2.2		3.4
Deferred tax benefit	(4.7)		(8.0)
Gain on disposition of property and equipment, net	(3.5)		—


Asset impairment charges, net	0.8		3.0
Amortization of debt issuance costs	0.2		—
Distributions to deferred compensation programs' participants	(0.4)		(0.4)
Change in operating assets and liabilities:
Purchase of trading securities, net	(1.1)		(0.5)
Receivables and other contract assets	9.7		(21.5)
Inventories	(37.2)		(71.5)
Prepaid expenses	5.7		(3.8)
Other assets	(8.3)		(4.8)
Accounts payable	1.3		22.7

Accrued loss reserves	0.6		0.5
Accrued employee related liabilities	1.6		6.1
Other accrued liabilities	(7.4)		2.6
Accrued product warranty	(6.0)		(5.2)
Customer deposits	(11.4)		14.2
Income taxes payable/prepaid	6.7		1.8

Net cash used in operating activities	(2.5)		(41.9)
Cash flows from investing activities:
Acquisitions, net of cash acquired	—		(17.8)

Expenditures for property and equipment	(17.1)		(18.8)
Proceeds from sale of property and equipment	20.1		0.2
Purchase of investments	(0.5)		(0.6)
Sale of investments	0.1		0.1
Net cash provided by (used in) investing activities	2.6		(36.9)

(Continued)

INDEX

ASTEC INDUSTRIES, INC.

Consolidated Statements of Cash Flows (Continued)

(In millions, unaudited)


	Six Months Ended June 30,
	2023		2022
Cash flows from financing activities:
Payment of dividends	(5.9)		(5.5)
Proceeds from borrowings on credit facilities and bank loans	113.6		28.5
Repayments of borrowings on credit facilities and bank loans	(128.1)		(25.3)

Sale of Company stock by deferred compensation programs, net	—		0.2
Withholding tax paid upon vesting of share-based compensation awards	(1.6)		(1.6)

Net cash used in financing activities	(22.0)		(3.7)
Effect of exchange rates on cash	0.4		(1.3)
Decrease in cash, cash equivalents and restricted cash	(21.5)		(83.8)
Cash, cash equivalents and restricted cash, beginning of period	66.0		134.4
Cash, cash equivalents and restricted cash, end of period	$	44.5	$	50.6

Supplemental cash flow information:
Cash paid during the year for:
Interest, net of capitalized interest	$	2.6	$	0.2
Income taxes paid	$	5.5	$	6.7

Supplemental disclosures of non-cash items:
Non-cash investing activities:
Capital expenditures in accounts payable	$	0.5	$	1.2

Non-cash financing activities:
Additions to right-of-use assets and lease liabilities	$	0.2	$	2.5

The accompanying notes are an integral part of these unaudited consolidated financial statements.

INDEX

ASTEC INDUSTRIES, INC.

Consolidated Statements of Equity

(In millions except share and per share data, unaudited)


	Common Stock	Common Stock Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Company Shares Held by DCP		Retained Earnings		Noncontrolling Interest		Total Equity




























Balance, December 31, 2022	22,624,031	$	4.5	$	135.8	$	(40.1)	$	(1.1)	$	527.8	$	—	$	626.9
Net income	—	—		—		—		—		12.1		—		12.1
Other comprehensive income	—	—		—		—		—		—		0.1		0.1
Dividends ($0.13 per share)	—	—		—		—		—		(2.9)		—		(2.9)
Share-based compensation	—	—		0.8		—		—		—		—		0.8

Issuance of common stock under incentive plan	66,536	—		—		—		—		—		—		—
Withholding tax paid upon equity award vesting	—	—		(1.4)		—		—		—		—		(1.4)






Balance, March 31, 2023	22,690,567	$	4.5	$	135.2	$	(40.1)	$	(1.1)	$	537.0	$	0.1	$	635.6
Net income	—	—		—		—		—		13.1		0.1		13.2
Other comprehensive income	—	—		—		0.5		—		—		—		0.5
Dividends ($0.13 per share)	—	—		—		—		—		(3.0)		—		(3.0)
Share-based compensation	—	—		1.4		—		—		—		—		1.4

Issuance of common stock under incentive plan	46,003	—		—		—		—		—		—		—
Withholding tax paid upon equity award vesting	—	—		(0.2)		—		—		—		—		(0.2)






Balance, June 30, 2023	22,736,570	$	4.5	$	136.4	$	(39.6)	$	(1.1)	$	547.1	$	0.2	$	647.5


	Common Stock	Common Stock Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Company Shares Held by DCP		Retained Earnings		Noncontrolling Interest		Total Equity




























Balance, December 31, 2021	22,767,052	$	4.5	$	130.6	$	(32.4)	$	(1.2)	$	549.3	$	0.5	$	651.3
Net income	—	—		—		—		—		4.1		—		4.1
Other comprehensive income	—	—		—		4.1		—		—		0.1		4.2
Dividends ($0.12 per share)	—	—		—		—		—		(2.8)		—		(2.8)
Share-based compensation	—	—		1.8		—		—		—		—		1.8

Issuance of common stock under incentive plan	69,995	0.1		—		—		—		—		—		0.1
Withholding tax paid upon equity award vesting	—	—		(1.3)		—		—		—		—		(1.3)






Balance, March 31, 2022	22,837,047	$	4.6	$	131.1	$	(28.3)	$	(1.2)	$	550.6	$	0.6	$	657.4
Net loss	—	—		—		—		—		(3.9)		—		(3.9)
Other comprehensive loss	—	—		—		(8.5)		—		—		—		(8.5)
Dividends ($0.12 per share)	—	—		0.1		—		—		(2.7)		—		(2.6)
Share-based compensation	—	—		1.6		—		—		—		—		1.6

Issuance of common stock under incentive plan	27,482	—		—		—		—		—		—		—
Withholding tax paid upon equity award vesting	—	—		(0.3)		—		—		—		—		(0.3)

Deferred compensation programs' transactions, net	—	—		0.1		—		0.1		—		—		0.2




Balance, June 30, 2022	22,864,529	$	4.6	$	132.6	$	(36.8)	$	(1.1)	$	544.0	$	0.6	$	643.9

The accompanying notes are an integral part of these unaudited consolidated financial statements.

INDEX

ASTEC INDUSTRIES, INC.

Notes To Unaudited Consolidated Financial Statements

Note 1. Basis of Presentation and Significant Accounting Policies

Description of Business

Astec Industries, Inc. ("Astec" or the "Company") is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; commercial and industrial burners; and combustion control systems.

The Company operates in two reportable segments (plus Corporate and Other) - Infrastructure Solutions and Materials Solutions. The Company's two reportable business segments comprise sites based upon the nature of the products or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations.

The Corporate and Other category consists primarily of the parent company, Astec Insurance Company ("Astec Insurance" or the "captive"), a captive insurance company, and the controls and automation business, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of Astec and its subsidiaries and have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The Company prepares its financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the SEC rules and regulations governing interim financial statements. However, the Company believes that the disclosures made in the unaudited consolidated financial statements and related notes are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. All intercompany balances and transactions between the Company and its affiliates have been eliminated in consolidation.

Noncontrolling interest in the Company's consolidated financial statements represents the 7% interest in a consolidated subsidiary which is not owned by the Company. Since the Company controls this subsidiary, the subsidiary's financial statements are consolidated with those of the Company, and the noncontrolling owner's 7% share of the subsidiary's net assets and results of operations is deducted and reported as "Noncontrolling interest" in the Consolidated Balance Sheets and as "Net income attributable to noncontrolling interest" in the Consolidated Statements of Operations. The Company executed an agreement in February 2022 with the noncontrolling interest holder, which is undergoing a judicial reorganization in Brazil, to acquire their outstanding interest in full for R$10.0M (approximately $2.0 million, subject to the effect of exchange rates). Completion of the transaction is subject to obtaining certain judicial approval in Brazil.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Significant items subject to such estimates and assumptions include excess and obsolete inventory, inventory net realizable value, product warranty obligations, self-insurance loss reserves, capitalization of internal use software, goodwill impairment and the measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results could differ from those estimates.

In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022, the financial position as of June 30, 2023 and December 31, 2022 and the cash flows for the six months ended June 30, 2023 and 2022, and except as otherwise discussed herein, such adjustments consist only of those of a normal recurring nature. The interim results are not necessarily indicative of results that may be achieved in a full reporting year.

All dollar amounts, except share and per share amounts, are in millions of dollars unless otherwise indicated.

INDEX

Reclassifications and Adjustments

Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the six months ended June 30, 2023.

•The Company elected to present research and development expenses in "Selling, general and administrative expenses". These amounts were previously included in a separate financial statement caption in the Consolidated Statements of Operations.

•The Company reclassified certain accrued liability balances from "Other current liabilities" to "Accrued employee related liabilities" to more appropriately reflect the nature of such accrued balances.

•The Company elected to present gains and losses recognized on the change in fair value of derivative instruments and foreign currency transaction gains and losses, net in "Other (expenses) income, net". These amounts were previously included in "Cost of sales".

There was no change to previously reported "Total current liabilities" or "Net income (loss) attributable to controlling interest" related to these reclassifications.

During the first quarter of 2023, the Company identified immaterial errors associated with over-accruals of inventory-related expenses in its historical financial statements. The cumulative effect of the errors generated in 2021 and 2022 was corrected during the first quarter of 2023, resulting in a decrease in "Cost of sales" of $1.9 million. Such adjustment was not considered material to the Company's consolidated financial statements for the year ended December 31, 2022 or any of the financial statements for the previously filed annual periods.

Recently Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers", which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt this guidance on April 1, 2022. The adoption of this new standard did not have a material impact on its financial position, results of operations, cash flows or disclosures.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.

Note 2. Acquisition

MINDS Acquisition - The Company entered into a Share Purchase Agreement, dated as of March 22, 2022, by and between MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry in Canada. The acquisition was completed on April 1, 2022 at a purchase price of $19.3 million, which was paid in cash. The Company's allocation of the purchase price resulted in the recognition of $9.3 million of goodwill and $9.3 million of intangible assets primarily consisting of customer relationships (9 year life) and developed technology (7 year life). Significant inputs and assumptions used in determining the fair values of these intangible assets include management's forecasts of future revenues, earnings and cash flows, a discount rate based on the median weighted average cost of capital of the Company and select market competitors, and the proportion of intangible assets acquired in relation to tangible assets. Goodwill acquired is attributable to future growth opportunities provided by the acquired intellectual capital and the ability to generate cross-selling synergies. The acquisition provides the Company with a broader line of controls and automation products designed to deliver enhanced productivity through improved equipment performance. Results of operations have been consolidated from the date of acquisition. The goodwill is not deductible for income tax purposes. Proforma financial information is not included since not significant.

Acquisition and integration costs incurred were nominal during the three and six months ended June 30, 2023 for this acquisition. Acquisition and integration costs incurred were $0.4 million and $0.9 million during the three and six months ended June 30, 2022, respectively. These costs are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

INDEX

The following table summarizes the allocations of the total purchase price:


(in millions)	Amount
Cash	$	1.5
Trade receivables	2.7
Inventories	0.7
Prepaid expenses and other assets	0.4
Property and equipment	0.2
Goodwill	9.3
Intangible assets	9.3

Other long-term assets	0.5
Total assets acquired	$	24.6
Accounts payable	(0.7)
Accrued payroll and related liabilities	(0.8)
Other current liabilities	(1.1)
Deferred income tax liabilities	(2.4)
Other long-term liabilities	(0.3)
Total liabilities assumed	(5.3)
Total purchase price	$	19.3

Note 3. Inventories

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.

Inventories consist of the following:


(in millions)	June 30, 2023		December 31, 2022
Raw materials and parts	$	315.9	$	302.9
Work-in-process	67.7		57.3
Finished goods	44.8		32.1
Used equipment	1.1		1.1
Total	$	429.5	$	393.4

Note 4. 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 the Company's deferred compensation programs. The Company's deferred compensation programs ("DCP") include a non-qualified Supplemental Executive Retirement Plan ("SERP") and a separate non-qualified Deferred Compensation Plan. Although the deferred compensation programs' investments are allocated to individual participants, and investment decisions are made solely by those participants, they are non-qualified plans. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal. The SERP assets and related offsetting liability are recorded in non-current "Investments" and "Other long-term liabilities", respectively, in the Consolidated Balance Sheets. The Company's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.

The carrying amount of cash and cash equivalents, trade receivables and contract assets, other receivables, accounts payable and short-term and long-term debt approximates their fair value because of their short-term nature and/or interest rates associated with the instruments. Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market-based inputs.

INDEX

Financial assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:


Level 1 -						Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 -						Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.

Level 3 -						Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

As indicated in the tables below, the Company has determined that all of its financial assets and liabilities as of June 30, 2023 and December 31, 2022 are Level 1 and Level 2 in the fair value hierarchy as defined above:


	June 30, 2023
(in millions)	Level 1		Level 2		Total
Financial assets:
Trading equity securities:
Deferred compensation programs' mutual funds	$	5.3	$	—	$	5.3
Preferred stocks	0.3		—		0.3
Equity funds	0.6		—		0.6
Trading debt securities:
Corporate bonds	4.0		—		4.0
Municipal bonds	—		0.4		0.4
Agency bonds	—		2.2		2.2
Floating rate notes	0.1		—		0.1
U.S. government securities	1.9		—		1.9
Asset-backed securities	—		4.3		4.3
Other	1.3		0.6		1.9
Derivative financial instruments	—		0.2		0.2
Total financial assets	$	13.5	$	7.7	$	21.2
Financial liabilities:

Deferred compensation programs' liabilities	$	—	$	6.6	$	6.6
Total financial liabilities	$	—	$	6.6	$	6.6

INDEX


	December 31, 2022
(in millions)	Level 1		Level 2		Total
Financial assets:
Trading equity securities:
Deferred compensation programs' mutual funds	$	4.4	$	—	$	4.4
Preferred stocks	0.3		—		0.3
Equity funds	0.6		—		0.6
Trading debt securities:
Corporate bonds	5.0		—		5.0
Municipal bonds	—		0.3		0.3

Floating rate notes	0.2		—		0.2
U.S. government securities	0.8		—		0.8
Asset-backed securities	—		5.4		5.4
Other	1.3		0.7		2.0

Total financial assets	$	12.6	$	6.4	$	19.0
Financial liabilities:

Deferred compensation programs' liabilities	$	—	$	5.7	$	5.7
Total financial liabilities	$	—	$	5.7	$	5.7

Note 5. Product Warranty Reserves

The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products, but generally range from three months to two years or up to a specified number of hours of operation. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The product warranty liability is primarily based on historical claim rates, nature of claims and the associated cost.

Changes in the Company's product warranty liability for the three and six month periods ended June 30, 2023 and 2022 are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in millions)	2023		2022		2023		2022
Reserve balance, beginning of the period	$	12.4	$	11.3	$	11.9	$	10.5
Warranty liabilities accrued	6.7		3.2		10.6		6.4
Warranty liabilities settled	(2.6)		(2.8)		(6.0)		(5.2)
Other	—		(0.1)		—		(0.1)
Reserve balance, end of the period	$	16.5	$	11.6	$	16.5	$	11.6

Note 6. Accrued Loss Reserves

The Company records reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. Total accrued loss reserves were $6.4 million and $5.8 million at June 30, 2023 and December 31, 2022, respectively, of which $4.3 million and $3.9 million were included in "Other long-term liabilities" in the Consolidated Balance Sheets at June 30, 2023 and December 31, 2022, respectively.

Note 7. Income Taxes

For the three months ended June 30, 2023, the Company recorded an income tax expense of $2.7 million, reflecting a 17.0% effective tax rate, compared to a $0.8 million income tax benefit for the three months ended June 30, 2022, reflecting a 17.0% effective tax rate. The income tax expense for the three months ended June 30, 2023 as compared to the benefit for the same period in 2022 was primarily due to higher pretax book income and changes in the relative weighting of jurisdictional income and loss, partially offset by a net discrete tax benefit related to a research and development credit.

INDEX

For the six months ended June 30, 2023, the Company recorded an income tax provision of $7.1 million, reflecting a 21.9% effective tax rate, compared to $0.1 million expense for the six months ended June 30, 2022. The income tax expense for the six months ended June 30, 2023 was higher compared to the same period in 2022, primarily due to higher pretax book income and changes in the relative weighting of jurisdictional income and loss, partially offset by a net discrete tax benefit related to a research and development credit.

The Company's recorded liability for uncertain tax positions was $12.5 million and $12.0 million as of June 30, 2023 and December 31, 2022, respectively. The increase is the result of $0.5 million of incremental reserves associated with the 2023 research and development credit. The Company does not anticipate a significant change in unrecognized tax benefits due to the expiration of relevant statutes of limitations and federal, state and foreign tax audit resolutions over the next twelve months.

The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. The Company is currently under audit by the U.S. Internal Revenue Service for the federal income tax return from the 2018 tax year as well as various other state income tax and jurisdictional audits. As of June 30, 2023, the Company believes that it is more-likely-than-not that the tax positions it has taken will be sustained upon the resolution of its audits, resulting in no material impact on its consolidated financial position, results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties and/or interest assessments.

On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA levies a 1% excise tax on net stock repurchases after December 31, 2022 and imposes a 15% corporate alternative minimum tax ("CAMT") for tax years beginning after December 31, 2022. The Company did not repurchase any shares during the three and six months ended June 30, 2023. CAMT does not impact the Company's results of operations or financial position.

Note 8. Commitments and Contingencies

Certain customers have financed purchases of Company products through arrangements with third-party financing institutions. Under these arrangements, the Company is contingently liable for customer debt of $1.0 million and $2.4 million at June 30, 2023 and December 31, 2022, respectively. These arrangements expire at various dates running through September 2026. Additionally, the Company is also contingently liable for 1.75% of the unpaid balance, determined as of December 31 of the prior year (or approximately $0.1 million for 2023), on certain past customer equipment purchases that were financed by an outside finance company. The agreements provide that the Company will receive the lender's full security interest in the financed equipment if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $0.6 million and $1.0 million related to these guarantees, which were included in "Other current liabilities" in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022, respectively.

The Company reviews off-balance sheet guarantees individually and at the loss pool level based on one agreement. Prior history is considered with respect to the Company having to perform on any off-balance sheet guarantees, as well as future projections of individual customer credit worthiness with respect to assessing credit losses related to off-balance sheet guarantees.

In addition, the Company is contingently liable under letters of credit issued under its $250.0 million revolving credit facility (the "Credit Facilities"), which outstanding letters of credit totaled $2.6 million as of June 30, 2023. The outstanding letters of credit expire at various dates through April 2024. As of June 30, 2023, the Company's foreign subsidiaries are contingently liable for a total of $7.5 million in performance letters of credit, advance payments and retention guarantees, of which $5.6 million is secured by separate credit facilities with local financial institutions.

The Company and certain of its former executive officers were named as defendants in a putative shareholder class action lawsuit filed on February 1, 2019, as amended on August 26, 2019, in the United States District Court for the Eastern District of Tennessee. The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-24-CEA-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 were control persons under Section 20(a) of the Exchange Act. The complaint is filed on behalf of shareholders who purchased stock of the Company between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of the purported class. On October 25, 2019, the defendants filed a Motion to Dismiss. On February 19, 2021, the Motion to Dismiss was granted with prejudice and judgment was entered for the defendants. On March 19, 2021, plaintiff filed a Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint, which was denied on May 5, 2021. Plaintiff appealed the Motion to Dismiss and denial of its Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint to the United States Court of Appeals for the Sixth Circuit. On March 31, 2022, the United States Court of Appeals for the Sixth Circuit issued an opinion reversing the dismissal of the Company and one former executive officer, affirming the dismissal of certain other former executive officers and remanding the action to the United States District Court for the Eastern District of Tennessee for proceedings consistent with the opinion. On July 11, 2022 Defendants filed an answer to the complaint, and the action is now in discovery.

INDEX

The Company's GEFCO, Inc. ("GEFCO") subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018, with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rescission of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of the equipment was approximately $8.5 million. On July 7, 2020, the plaintiffs filed a separate lawsuit directly against Astec Industries, Inc. that generally mirrored the allegations in the GEFCO suit. In January 2023, the court allowed Astec Industries, Inc. to be added as a defendant to the GEFCO suit and, as a result, the separate suit against Astec Industries, Inc. was dismissed. The Company and GEFCO each dispute the plaintiffs' allegations and are vigorously defending the GEFCO suit. The Company is unable to determine whether or not a future loss will be incurred due to this litigation or estimate the possible loss or range of loss, if any, at this time.

In addition to the two matters noted above, the Company is currently a party, and may become a party, to various other claims and legal proceedings in the ordinary course of business. If management believes that a loss arising from any claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal fees) or, when the loss is estimated using a range and no point within the range is more probable than another, the minimum estimated liability. 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 estimable 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.

INDEX

Note 9. Revenue Recognition

The following tables disaggregate the Company's revenue by major source for the three and six month periods ended June 30, 2023 and 2022 (excluding intercompany sales):


	Three Months Ended June 30, 2023								Three Months Ended June 30, 2022
(in millions)	Infrastructure Solutions		Materials Solutions		Corporate and Other		Total		Infrastructure Solutions		Materials Solutions		Corporate and Other		Total
Net Sales-Domestic:
Equipment sales	$	113.3	$	75.4	$	0.4	$	189.1	$	114.1	$	55.8	$	0.1	$	170.0

Parts and component sales	50.3		22.3		—		72.6		43.7		21.1		—		64.8
Service and equipment installation revenue	17.9		0.2		0.1		18.2		5.9		0.1		—		6.0
Used equipment sales	1.7		—		—		1.7		0.3		—		—		0.3
Freight revenue	5.3		2.4		—		7.7		6.2		2.2		—		8.4
Other	0.1		(2.9)		(0.1)		(2.9)		0.1		(1.2)		—		(1.1)
Total domestic revenue	188.6		97.4		0.4		286.4		170.3		78.0		0.1		248.4

Net Sales-International:
Equipment sales	17.8		20.4		1.2		39.4		27.0		18.1		0.8		45.9

Parts and component sales	9.2		10.3		—		19.5		11.0		10.1		0.1		21.2
Service and equipment installation revenue	1.3		1.4		0.1		2.8		0.6		0.5		0.2		1.3
Used equipment sales	0.2		0.4		—		0.6		—		0.1		—		0.1
Freight revenue	1.0		0.3		—		1.3		0.7		0.4		—		1.1
Other	—		—		—		—		—		0.2		—		0.2
Total international revenue	29.5		32.8		1.3		63.6		39.3		29.4		1.1		69.8
Total net sales	$	218.1	$	130.2	$	1.7	$	350.0	$	209.6	$	107.4	$	1.2	$	318.2

INDEX


	Six Months Ended June 30, 2023								Six Months Ended June 30, 2022
(in millions)	Infrastructure Solutions		Materials Solutions		Corporate and Other		Total		Infrastructure Solutions		Materials Solutions		Corporate and Other		Total
Net Sales-Domestic:
Equipment sales	$	220.2	$	143.1	$	1.7	$	365.0	$	209.3	$	101.4	$	0.1	$	310.8

Parts and component sales	109.6		43.6		0.1		153.3		100.1		41.9		—		142.0
Service and equipment installation revenue	34.4		0.4		0.1		34.9		12.6		0.3		—		12.9
Used equipment sales	2.6		—		—		2.6		2.0		—		—		2.0
Freight revenue	12.2		4.5		—		16.7		12.8		3.8		—		16.6
Other	0.1		(5.1)		0.2		(4.8)		0.2		(1.6)		—		(1.4)
Total domestic revenue	379.1		186.5		2.1		567.7		337.0		145.8		0.1		482.9

Net Sales-International:
Equipment sales	42.0		33.8		3.2		79.0