Company Quick10K Filing
Astec Industries
Price31.53 EPS2
Shares23 P/E18
MCap715 P/FCF8
Net Debt-25 EBIT53
TEV690 TEV/EBIT13
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-17
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-03-18
10-Q 2018-09-30 Filed 2018-11-02
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-06
10-Q 2017-06-30 Filed 2017-08-07
10-Q 2017-03-31 Filed 2017-05-08
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-11-07
10-Q 2016-06-30 Filed 2016-08-05
10-Q 2016-03-31 Filed 2016-05-06
10-K 2015-12-31 Filed 2016-02-29
10-Q 2015-09-30 Filed 2015-11-03
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-06
10-K 2014-12-31 Filed 2015-03-02
10-Q 2014-09-30 Filed 2014-11-04
10-Q 2014-06-30 Filed 2014-08-05
10-Q 2014-03-31 Filed 2014-05-12
10-K 2013-12-31 Filed 2014-03-03
10-Q 2013-09-30 Filed 2013-11-12
10-Q 2013-06-30 Filed 2013-08-09
10-Q 2013-03-31 Filed 2013-05-10
10-K 2012-12-31 Filed 2013-03-01
10-Q 2012-09-30 Filed 2012-11-09
10-Q 2012-06-30 Filed 2012-08-09
10-Q 2012-03-31 Filed 2012-05-10
10-K 2011-12-31 Filed 2012-02-29
10-Q 2011-09-30 Filed 2011-11-09
10-Q 2011-06-30 Filed 2011-08-09
10-Q 2011-03-31 Filed 2011-05-10
10-K 2010-12-31 Filed 2011-03-01
10-Q 2010-09-30 Filed 2010-11-09
10-Q 2010-06-30 Filed 2010-08-09
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-01
8-K 2020-05-06
8-K 2020-04-30
8-K 2020-04-01
8-K 2020-03-03
8-K 2020-02-28
8-K 2019-11-04
8-K 2019-10-29
8-K 2019-10-24
8-K 2019-09-13
8-K 2019-07-25
8-K 2019-07-25
8-K 2019-07-23
8-K 2019-04-26
8-K 2019-04-23
8-K 2019-03-01
8-K 2019-02-26
8-K 2019-02-21
8-K 2019-01-21
8-K 2018-11-14
8-K 2018-10-26
8-K 2018-10-25
8-K 2018-10-23
8-K 2018-08-23
8-K 2018-07-30
8-K 2018-07-24
8-K 2018-07-20
8-K 2018-04-26
8-K 2018-04-24
8-K 2018-02-23
8-K 2018-02-20

ASTE 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1. Significant Accounting Policies
Note 2. Earnings per Share
Note 3. Trade Receivables and Contract Assets, Net
Note 4. Inventories
Note 5. Property and Equipment
Note 6. Fair Value Measurements
Note 7. Goodwill
Note 8. Debt
Note 9. Product Warranty Reserves
Note 10. Accrued Loss Reserves
Note 11. Leases
Note 12. Income Taxes
Note 13. Revenue Recognition:
Note 14. Segment Information
Note 15. Contingent Matters
Note 16. Shareholders' Equity
Note 17. Other Income, Net of Expenses
Note 18. Derivative Financial Instruments
Note 19. Restructuring and Asset Impairment Charges
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 ex10_1.htm
EX-31.1 ex31_1.htm
EX-31.2 ex31_2.htm
EX-32 ex32.htm

Astec Industries Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.00.80.60.40.20.02012201420172020
Assets, Equity
0.40.30.20.10.0-0.12012201420172020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin



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 March 31, 2020
OR
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number  001-11595

Astec Industries, Inc.
(Exact name of registrant as specified in its charter)

Tennessee
 
62-0873631
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
   
1725 Shepherd Road, Chattanooga, Tennessee
 
37421
(Address of principal executive offices)
 
(Zip Code)

(423) 899-5898
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each Class
Trading Symbol
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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class
Outstanding at May 2, 2020
Common Stock, par value $0.20
22,585,814



1




ASTEC INDUSTRIES, INC.
 INDEX

3
 
 
3
 
 
3
 
 
4
 
 
5
 
 
6
     
 
7
     
 
8
     
 
22
 
 
32
 
 
32
     
33
     
 
33
     
 
33
     
 
34
     
 
35

2




PART I – FINANCIAL INFORMATION
Item 1.  Financial Statements
Astec Industries, Inc.
Condensed Consolidated Balance Sheets
(in thousands) (unaudited)

 
March 31,
2020
   
December 31,
2019
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
43,854
   
$
48,857
 
Investments
   
2,056
     
1,547
 
Trade receivables and contract assets, net
   
136,710
     
120,271
 
Other receivables
   
4,246
     
4,576
 
Inventories
   
294,848
     
294,536
 
Prepaid and refundable income taxes
   
34,025
     
15,234
 
Assets held for sale
   
2,771
     
3,084
 
Prepaid expenses and other assets
   
15,672
     
18,199
 
Total current assets
   
534,182
     
506,304
 
Property and equipment, net
   
185,315
     
190,363
 
Investments
   
15,352
     
16,104
 
Goodwill
   
30,670
     
33,176
 
Intangible assets, net
   
22,342
     
23,536
 
Deferred income tax assets
   
11,118
     
24,696
 
Other long-term assets
   
5,941
     
6,319
 
Total assets
 
$
804,920
   
$
800,498
 
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current maturities of long-term debt
 
$
174
   
$
209
 
Short-term debt
   
504
     
1,130
 
Accounts payable
   
64,130
     
57,162
 
Customer deposits
   
37,720
     
42,874
 
Accrued product warranty
   
10,652
     
10,261
 
Accrued payroll and related liabilities
   
20,159
     
24,718
 
Accrued loss reserves
   
2,450
     
2,299
 
Other current liabilities
   
33,101
     
34,114
 
Total current liabilities
   
168,890
     
172,767
 
Long-term debt
   
493
     
690
 
Deferred income tax liabilities
   
812
     
896
 
Other long-term liabilities
   
22,248
     
23,658
 
Total liabilities
   
192,443
     
198,011
 
Shareholders’ equity
   
612,203
     
601,949
 
Non-controlling interest
   
274
     
538
 
Total equity
   
612,477
     
602,487
 
Total liabilities and equity
 
$
804,920
   
$
800,498
 

See Notes to Unaudited Condensed Consolidated Financial Statements

3




Astec Industries, Inc.
Condensed Consolidated Statements of Income
(in thousands, except per share data)
(unaudited)

   
Three Months Ended
March 31,
 
   
2020
   
2019
 
Net sales
 
$
288,848
   
$
325,780
 
Cost of sales
   
214,827
     
248,930
 
Gross profit
   
74,021
     
76,850
 
Selling, general, administrative and engineering expenses
   
56,167
     
58,160
 
Restructuring and asset impairment charges
   
2,711
     
512
 
Income from operations
   
15,143
     
18,178
 
Interest expense
   
(37
)
   
(648
)
Other income, net of expenses
   
234
     
468
 
Income from operations before income taxes
   
15,340
     
17,998
 
Income tax provision (benefit)
   
(5,143
)
   
3,781
 
Net income
   
20,483
     
14,217
 
Net loss attributable to non-controlling interest
   
161
     
57
 
Net income attributable to controlling interest
 
$
20,644
   
$
14,274
 
                 
Earnings per common share
               
Net income attributable to controlling interest:
               
Basic
 
$
0.92
   
$
0.63
 
Diluted
 
$
0.91
   
$
0.63
 
Weighted average number of common shares outstanding:
               
Basic
   
22,545
     
22,498
 
Diluted
   
22,713
     
22,646
 
Dividends declared per common share
 
$
0.11
   
$
0.11
 

See Notes to Unaudited Condensed Consolidated Financial Statements

4



Astec Industries, Inc.
Condensed Consolidated Statements of Comprehensive Income
(in thousands)
(unaudited)

   
Three Months Ended
March 31,
 
   
2020
   
2019
 
Net income
 
$
20,483
   
$
14,217
 
Other comprehensive income (loss):
               
Foreign currency translation adjustments
   
(9,312
)
   
963
 
Other comprehensive income (loss)
   
(9,312
)
   
963
 
Comprehensive income
   
11,171
     
15,180
 
Comprehensive loss attributable to non-controlling interest
   
263
     
59
 
Comprehensive income attributable to controlling interest
 
$
11,434
   
$
15,239
 

See Notes to Unaudited Condensed Consolidated Financial Statements

5



Astec Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

 
Three Months Ended
March 31,
 
   
2020
   
2019
 
Cash flows from operating activities:
           
Net income
 
$
20,483
   
$
14,217
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
6,328
     
6,551
 
Provision for doubtful accounts
   
588
     
56
 
Provision for warranties
   
2,732
     
2,746
 
Deferred compensation expense (benefit)
   
(343
)
   
411
 
Stock-based compensation
   
1,134
     
1,038
 
Deferred income tax provision
   
13,494
     
3,931
 
(Gain) loss on disposition of fixed assets
   
(694
)
   
251
 
   Asset impairment charge
   
1,646
     
 
Distributions to SERP participants
   
(136
)
   
(312
)
Change in operating assets and liabilities:
               
Sale (purchase) of trading securities, net
   
(369
)
   
1,044
 
Trade and other receivables
   
(16,644
)
   
(3,809
)
Inventories
   
(315
)
   
(10,891
)
Prepaid expenses and other assets
   
2,495
     
1,156
 
Accounts payable
   
7,792
     
3,970
 
Accrued and payroll related expenses
   
(4,559
)
   
(4,966
)
Accrued product warranty
   
(2,129
)
   
(2,643
)
Customer deposits
   
(5,154
)
   
(4,769
)
Prepaid, refundable and income taxes payable, net
   
(18,469
)
   
594
 
Other
   
(2,319
)
   
3,412
 
Net cash provided by operating activities
   
5,561
     
11,987
 
Cash flows from investing activities:
               
Expenditures for property and equipment
   
(5,774
)
   
(3,723
)
Proceeds from sale of property and equipment
   
1,912
     
40
 
Other
   
(186
)
   
(91
)
Net cash used by investing activities
   
(4,048
)
   
(3,774
)
Cash flows from financing activities:
               
Payment of dividends
   
(2,485
)
   
(2,478
)
Borrowings under bank loans
   
     
64,862
 
Repayments of bank loans
   
(696
)
   
(68,075
)
Sale of Company shares held by SERP
   
(38
)
   
263
 
Withholding tax paid upon vesting of restricted stock units
   
(565
)
   
(160
)
Net cash used by financing activities
   
(3,784
)
   
(5,588
)
Effect of exchange rates on cash
   
(2,732
)
   
160
 
Net change in cash and cash equivalents
   
(5,003
)
   
2,785
 
Cash and cash equivalents, beginning of period
   
48,857
     
25,821
 
Cash and cash equivalents, end of period
 
$
43,854
   
$
28,606
 

See Notes to Unaudited Condensed Consolidated Financial Statements

6




Astec Industries, Inc.
Condensed Consolidated Statements of Equity
For the Three Months Ended March 31, 2020 and 2019
(in thousands)
(unaudited)

For the Three Months Ended March 31, 2020
 
   
Common
Stock
Shares
   
Common
Stock
Amount
   
Additional
Paid-in-
Capital
   
Accum-
ulated
Other
Compre-
hensive
Loss
   
Company
Shares
Held
by SERP
   
Retained
Earnings
   
Non-
controlling
Interest
   
Total
Equity
 
Balance, December 31, 2019
   
22,551
   
$
4,510
   
$
122,613
   
$
(31,803
)
 
$
(1,714
)
 
$
508,343
   
$
538
   
$
602,487
 
Net income
   
     
     
     
     
     
20,644
     
(161
)
   
20,483
 
Other comprehensive loss
   
     
     
     
(9,210
)
   
     
     
(102
)
   
(9,312
)
Dividends declared
   
     
     
     
     
     
(2,485
)
   
     
(2,485
)
Stock-based compensation
   
1
     
     
1,908
     
     
     
     
     
1,908
 
RSU vesting
   
32
     
6
     
(6
)
   
     
     
     
     
 
Withholding tax paid upon vesting of RSUs
   
     
     
(565
)
   
     
     
     
     
(565
)
SERP transactions, net
   
     
     
     
     
(38
)
   
     
     
(38
)
Other
   
     
     
     
     
     
     
(1
)
   
(1
)
Balance, March 31, 2020
   
22,584
   
$
4,516
   
$
123,950
   
$
(41,013
)
 
$
(1,752
)
   
526,502
   
$
274
   
$
612,477
 

For the Three Months Ended March 31, 2019
 
   
Common
Stock
Shares
   
Common
Stock
Amount
   
Additional
Paid-in-
Capital
   
Accum-
ulated
Other
Compre-
hensive
Loss
   
Company
Shares
Held
by SERP
   
Retained
Earnings
   
Non-
controlling
Interest
   
Total
Equity
 
Balance, December 31, 2018
   
22,513
   
$
4,503
   
$
120,601
   
$
(33,883
)
 
$
(1,886
)
 
$
495,245
   
$
710
   
$
585,290
 
Net income
   
     
     
     
     
     
14,274
     
(57
)
   
14,217
 
Other comprehensive income
   
     
     
     
963
     
     
     
     
963
 
Dividends declared
   
     
     
3
     
     
     
(2,481
)
   
     
(2,478
)
Stock-based compensation
   
1
     
     
1,177
     
     
     
     
     
1,177
 
RSU vesting
   
9
     
2
     
(2
)
   
-
     
-
     
-
     
-
     
-
 
Withholding tax paid upon vesting of RSUs
   
-
     
-
     
(160
)
   
-
     
-
     
-
     
-
     
(160
)
Cumulative impact of No. ASU 2018-02
   
-
     
-
     
-
     
(721
)
   
-
     
721
     
-
     
-
 
SERP transactions, net
   
     
     
46
     
     
217
     
     
     
263
 
Other
   
     
     
     
     
     
     
(6
)
   
(6
)
Balance, March 31, 2019
   
22,523
   
$
4,505
   
$
121,665
     
(33,641
)
 
$
(1,669
)
 
$
507,759
   
$
647
   
$
599,266
 

See Notes to Unaudited Condensed Consolidated Financial Statements

7



ASTEC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands, except per share amounts, unless otherwise specified)

Note 1.  Significant Accounting Policies

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

U.S. GAAP requires us to make estimates based on assumptions about current and, for some estimates, future economic and market conditions which affect reported amounts and related disclosures in our financial statements. Although our current estimates contemplate current and expected future conditions, as applicable, it is reasonably possible that actual conditions could differ from our expectations, which could materially affect our results of operations and financial position. In particular, a number of estimates have been and will continue to be affected by the ongoing novel coronavirus pandemic (“COVID-19”). The severity, magnitude and duration, as well as the economic consequences of COVID-19, are uncertain, rapidly changing and difficult to predict. As a result, our accounting estimates and assumptions may change over time in response to COVID-19. Such changes could result in future impairments of goodwill, intangibles, long-lived assets and investment securities and incremental credit losses on receivables, among other issues.

Operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.  It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Astec Industries, Inc. Annual Report on Form 10-K for the year ended December 31, 2019.

The unaudited condensed consolidated balance sheet as of December 31, 2019 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Certain reclassifications in amounts previously reported have been made to conform to current presentation.

Recent Accounting Pronouncements
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 requires 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 adopted the new standard as of January 1, 2020. As the Company’s credit losses are typically minimal, the adoption of this new standard did not have a material impact on the Company's financial position, results of operations or cash flows and no cumulative adjustment to retained earnings was necessitated.

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 permitted companies to reclassify tax effects stranded in accumulated other comprehensive income (“AOCI”) as a result of U.S. tax reform impacting tax rates or other items, such as changing from a worldwide tax system to a territorial system, from AOCI to retained earnings.  Other tax effects stranded in AOCI due to other reasons, such as prior changes in tax laws or changes in valuation allowances, could not be reclassified.  The new standard was effective for fiscal years beginning after December 15, 2018, and the Company adopted its provisions as of January 1, 2019.  As a result of adopting this new standard, the Company reclassified $721 of previously stranded tax effects from accumulated other comprehensive loss to retained earnings as shown on the accompanying unaudited condensed consolidated statement of equity for the three months ended March 31, 2019.

8


In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement” which aims to improve the overall usefulness of disclosures to financial statement users and reduce unnecessary costs to companies when preparing fair value measurement disclosures.  The standard is effective for annual and interim periods beginning after December 15, 2019 with early adoption permitted.  The Company adopted this new standard effective January 1, 2020.  The adoption of this new standard did not have a material impact on its financial position, results of operations, cash flows or disclosures.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The new standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years with early adoption permitted in interim or annual periods if the Company has not yet issued financial statements. If the Company elects to early adopt the amendments in an interim period, it should reflect any adjustments as of the beginning of the annual period that includes the interim period and must adopt all amendments in the same period applying all guidance prospectively, except for certain amendments. The Company has not determined the impact of the statement’s provision on its financial position, results of operations or cash flows.


Note 2.  Earnings per Share
Basic earnings per share are determined by dividing earnings by the weighted average number of common shares outstanding during each period.  Diluted earnings per share include the potential dilutive effect of restricted stock units and shares held in the Company’s Supplemental Executive Retirement Plan.

The following table sets forth net income attributable to controlling interest and the number of basic and diluted shares used in the computation of earnings per share:

   
Three Months Ended
March 31,
 
   
2020
   
2019
 
Numerator:
           
Net income attributable to controlling interest
 
$
20,644
   
$
14,274
 
Denominator:
               
Denominator for basic earnings per share
   
22,545
     
22,498
 
Effect of dilutive securities:
               
Restricted stock units
   
119
     
100
 
Supplemental Executive Retirement Plan
   
49
     
48
 
Denominator for diluted earnings per share
   
22,713
     
22,646
 


Note 3.  Trade Receivables and Contract Assets, net
Trade receivables and contract assets are net of allowances for credit losses of $1,891 and $1,416 as of March 31, 2020 and December 31, 2019, respectively.


Note 4.  Inventories
Inventories consist of the following:

 
March 31,
2020
   
December 31,
2019
 
Raw materials and parts
 
$
164,510
   
$
160,872
 
Work-in-process
   
71,514
     
61,287
 
Finished goods
   
45,493
     
53,650
 
Used equipment
   
13,331
     
18,727
 
Total
 
$
294,848
   
$
294,536
 

9


Raw materials and parts are 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 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 consist of completed equipment manufactured for sale to customers.

Used equipment 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, 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 adjustment 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 Company’s equipment or parts. During periods of significant declining steel prices, the Company reviews the valuation of its inventories to determine if reductions are needed in the recorded value of inventory on hand to its net realizable value.

The Company reviews the individual items included in its finished goods, used equipment and rental equipment inventory on a model-by-model or unit-by-unit basis to determine if any item’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.


Note 5.  Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation of $266,010 and $267,719 as of March 31, 2020 and December 31, 2019, respectively.


10



Note 6.  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 Company (“Astec Insurance”), the Company’s captive insurance company; marketable equity securities held in an unqualified Supplemental Executive Retirement Plan (“SERP”); and a money market fund held by a foreign subsidiary.  The obligations of the Company associated with the financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes and are included in other long-term liabilities in the accompanying unaudited condensed 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, short-term debt 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.

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.

The Company reevaluates the volume of trading activity for each of its investments at the end of each quarter and adjusts the level within the fair value hierarchy as needed. As indicated in the tables below (which excludes the Company’s pension assets), the Company has determined that all of its financial assets and liabilities as of March 31, 2020 and December 31, 2019 are Level 1 and Level 2 in the fair value hierarchy as defined above:

 
March 31, 2020
 
   
Level 1
   
Level 2
   
Total
 
Financial Assets:
                 
Trading equity securities:
                 
SERP money market fund
 
$
227
   
$
   
$
227
 
SERP mutual funds
   
3,612
     
     
3,612
 
Preferred stocks
   
259
     
     
259
 
Money market fund
   
211
     
     
211
 
Trading debt securities:
                       
Corporate bonds
   
5,425
     
     
5,425
 
Municipal bonds
   
     
1,147
     
1,147
 
Floating rate notes
   
332
     
     
332
 
U.S. government securities
   
2,082
     
     
2,082
 
Asset backed securities
   
     
2,548
     
2,548
 
Other
   
201
     
1,364
     
1,565
 
Derivative financial instruments
   
     
466
     
466
 
Total financial assets
 
$
12,349
   
$
5,525
   
$
17,874
 
                         
Financial Liabilities:
                       
SERP liabilities
 
$
   
$
5,552
   
$
5,552
 
Total financial liabilities
 
$
   
$
5,552
   
$
5,552
 

11



 
December 31, 2019
 
   
Level 1
   
Level 2
   
Total
 
Financial Assets:
                 
Trading equity securities:
                 
SERP money market fund
 
$
208
   
$
   
$
208
 
SERP mutual funds
   
4,419
     
     
4,419
 
Preferred stocks
   
282
     
     
282
 
Trading debt securities:
                       
Corporate bonds
   
5,117
     
     
5,117
 
Municipal bonds
   
     
1,154
     
1,154
 
Floating rate notes
   
535
     
     
535
 
U.S. government securities
   
2,035
     
     
2,035
 
Asset backed securities
   
     
2,316
     
2,316
 
Other
   
473
     
1,112
     
1,585
 
Derivative financial instruments
   
     
4
     
4
 
Total financial assets
 
$
13,069
   
$
4,586
   
$
17,655
 
                         
Financial Liabilities:
                       
Derivative financial instruments
 
$
   
$
49
   
$
49
 
SERP liabilities
   
     
6,645
     
6,645
 
Total financial liabilities
 
$
   
$
6,694
   
$
6,694
 

The trading equity securities noted above are valued at their fair value based on their quoted market prices, and the 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 with the assistance of a nationally recognized third-party pricing service.  Additionally, a significant portion of the SERP’s investments in trading equity securities are in money market and mutual funds.  As these money market and mutual funds are held in a SERP, they are also included in the Company’s liability under its SERP.

Trading debt securities are comprised 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.


Note 7.  Goodwill
The Company tests goodwill and indefinite-lived intangible assets for impairment during the fourth quarter of each year, or more frequently should circumstances change or events occur that would more likely than not reduce the fair value of a reporting unit below its carrying value. During the first quarter of 2020, the Company’s reporting units producing products for the mobile asphalt equipment industry performed at well below previous expectations. The COVID-19 pandemic will likely have a negative impact on results for the second quarter of 2020 and perhaps for the remainder of 2020 and longer.

As of the most recent annual goodwill impairment testing date (October 31, 2019), the Company’s testing indicated that the business enterprise value for the mobile asphalt equipment reporting unit exceeded its carrying value by approximately 22%. Sensitivity analysis performed on uncertain assumptions included in the testing in 2019 further reduced the excess of fair value over the reporting unit’s carrying value, but still indicated its goodwill was not impaired. As a result, in the first quarter of 2020 as part of the Company’s ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value, the Company performed an interim goodwill impairment test as of March 31, 2020 over the mobile asphalt equipment reporting unit. Based on the results of this testing, the Company recorded a $1,646 pre-tax non-cash impairment charge (in the Infrastructure Solutions segment) to fully impair the mobile asphalt equipment reporting unit’s goodwill in the first quarter of 2020. This charge was included along with other restructuring and asset impairment charges in the accompanying unaudited condensed statement of income for three months ended March 31, 2020.

After evaluating and weighing all relevant events and circumstances, and considering the substantial excess fair values for the other reporting units, we concluded that it is not more likely than not that the fair values of these reporting units were less than their carrying values. Consequently, we determined that it was not necessary to perform an interim impairment test for the other reporting units.

12


The only other change to goodwill from values reported as of December 31, 2019 was the impact of foreign exchange rate changes on certain goodwill in the Materials Solutions segment, also referred to herein as the Materials Solutions Group, during the first quarter of 2020.


Note 8. Debt
In February 2019, the Company and certain of its subsidiaries entered into an amended and restated credit agreement whereby the lender extended to the Company an unsecured line of credit of up to $150,000, including a sub-limit for letters of credit of up to $30,000 and extended the maturity date to December 29, 2023. Other significant terms were left unchanged.  There were no borrowings outstanding under the agreement as of March 31, 2020, December 31, 2019 or at any time during the three months ended March 31, 2020. Letters of credit totaling $7,877, 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 March 31, 2020. Additional borrowing available under the credit facility was $142,123 as of March 31, 2020.  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 1.74% as of March 31, 2020. The unused facility fee is 0.125%. Interest only payments are due monthly. The amended and restated credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth.

The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $5,338 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 March 31, 2020, Osborn had no outstanding borrowings but had $883 in performance, advance payment and retention guarantees outstanding under the facility. The facility has been guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of March 31, 2020, Osborn had available credit under the facility of $4,455. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 8.5% as of March 31, 2020.

The Company’s Brazilian subsidiary, Astec Brazil, had a $667 and $897 working capital loan outstanding as of March 31, 2020 and December 31, 2019, respectively, from a Brazilian bank with an interest rate of 10.4%.  The loan’s final monthly payment is due in April 2024 and the debt is secured by Astec Brazil’s manufacturing facility and also by letters of credit totaling $3,200 issued by Astec Industries, Inc. Astec Brazil’s debt is included in the accompanying unaudited condensed consolidated balance sheets as current maturities of long-term debt ($174 and $209) and long-term debt ($493 and $690) as of March 31, 2020 and December 31, 2019, respectively. Additionally, as of March 31, 2020 and December 31, 2019, respectively, Astec Brazil had $504 and $1,130 outstanding under order anticipation agreements with a local bank with maturity dates through September 2020, which are included as short-term debt in the accompanying unaudited condensed consolidated balance sheets.

Note 9.  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-month periods ended March 31, 2020 and 2019 are as follows:

   
Three Months Ended
March 31,
 
   
2020
   
2019
 
Reserve balance, beginning of the period
 
$
10,261
   
$
10,928
 
Warranty liabilities accrued
   
2,732
     
2,746
 
Warranty liabilities settled
   
(2,129
)
   
(2,643
)
Other
   
(212
)
   
20
 
Reserve balance, end of the period
 
$
10,652
   
$
11,051
 


13



Note 10.  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 $6,777 and $6,817 as of March 31, 2020 and December 31, 2019, respectively, of which $4,327 and $4,518 were included in other long-term liabilities in the accompanying unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.


Note 11.  Leases
The Company leases certain real estate, computer systems, material handling equipment, offices, automobiles and other equipment.  The Company determines if a contract is a lease (or contains an embedded lease) at the inception of the agreement.  The Company adopted ASU No. 2016-02, Leases, on January 1, 2019 using the effective date method.  Upon adoption, right-of-use (“ROU”) assets totaling $4,993 were recorded on the Company’s balance sheet.  Incremental borrowing rates used in the calculation of the ROU asset, when not apparent in the lease agreements, were estimated based upon secured borrowing rates quoted by the Company’s banks for loans of various lengths ranging from one to 20 years.  Operating leases with original maturities less than one year in duration were excluded.  The calculation of the ROU asset considered lease agreement provisions concerning termination, extensions, end of lease purchase and whether or not those provisions were reasonably certain of being exercised.  Certain agreements contain lease and non-lease components, which are accounted for separately. No cumulative effect adjustment was necessary at the time of adoption.  Based upon a contract review and related calculations, none of the Company’s leases were deemed to be financing leases.

Other information concerning the Company’s operating leases accounted for under ASC 842 guidelines and the related expense, assets and liabilities follow:

 
Three Months Ended
 
   
March 31, 2020
   
March 31, 2019
 
Operating lease expense
 
$
663
   
$
601
 
Cash paid for operating leases included in operating cash flows
   
697
     
645
 

 
March 31, 2020
   
December 31, 2019
 
Operating lease right-of-use asset
 
$
3,481
   
$
3,853
 
Operating lease short-term liability included in other current liabilities
   
1,449
     
1,846
 
Operating lease long-term liability included in other long-term liabilities
   
2,025
     
2,020
 
Weighted average remaining lease term (in years)
   
5.13
     
4.66
 
Weighted average discount rate used in calculating right-of-use asset
   
3.72
%
   
3.56
%

Future annual minimum lease payments as of March 31, 2020 are as follows:

 
 
Amount
 
Remainder of 2020
 
$
1,290
 
2021
   
731
 
2022
   
458
 
2023
   
303
 
2024
   
200
 
2025 and thereafter
   
784
 
Total
   
3,766
 
Less interest
   
(292
)
Present value of lease liabilities
 
$
3,474
 

14



Note 12.  Income Taxes
The Company's combined effective income tax rates were (33.5)% and 21.0% for the three-month periods ended March 31, 2020 and 2019, respectively. The Company's effective tax rate for both periods includes the effect of state income taxes, benefits for federal and state research and development credits, net benefits for international provisions of US tax reform that became effective in 2018 and various discrete items. Additionally, the tax provision for the three months ended March 31, 2020 includes a $9,532 tax benefit resulting from provisions of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act enacted on March 27, 2020.  Among other provisions, the CARES Act modified the net operating loss (“NOL”) carryback provisions, which allowed the Company to carryback its 2018 NOL to prior tax years.  This change not only favorably impacted the timing of the NOL benefit, but also increased the tax benefit amount as the federal tax rates in the prior years (35%) were higher than the current federal tax rate (21%).

The Company's recorded liability for uncertain tax positions as of March 31, 2020 increased by $125, as compared to December 31, 2019 due to exposure related to federal and state credits, plus additional taxes and interest on existing reserves.


Note 13.  Revenue Recognition:
The following tables disaggregate our revenue by major source for the three-month periods ended March 31, 2020 and 2019 (excluding intercompany sales):

   
Three Months Ended March 31, 2020
 
   
Infrastructure
Solutions
   
Materials
Solutions
   
Total
 
Net Sales-Domestic:
                 
Equipment sales
 
$