Notes to Consolidated Financial Statements
1. Business and Organization
Description of Business
Astec Industries, Inc. is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface for both asphalt and concrete. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction, demolition, land clearing and recycling 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's products are marketed both domestically and internationally primarily to asphalt producers; highway and heavy equipment contractors; utility contractors; sand and gravel producers; construction, demolition, recycle and crushing contractors; forestry and environmental recycling contractors; mine and quarry operators; port and inland terminal authorities; power stations and domestic and foreign government agencies. In addition to equipment sales, the Company manufactures and sells replacement parts for equipment in each of its product lines and replacement parts for some competitors' equipment. The distribution and sale of replacement parts is an integral part of the Company's business.
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 produced or services provided, 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.
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Astec Industries, Inc. 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 consolidated financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). 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 loss (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.
Use of Estimates
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.
All dollar amounts, except share and per share amounts, are in millions of dollars unless otherwise indicated.
Significant Accounting Policies
Cash, Cash Equivalents and Restricted Cash - All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. The Company maintains cash balances with high credit quality institutions, the balances of which may exceed federally insured limits.
The Company had $25.9 million and $117.0 million in a government money market fund at December 31, 2022 and 2021, respectively, which is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets.
The Company had cash of $3.2 million and $0.3 million at December 31, 2022 and 2021, respectively, that is restricted as to withdrawal or use, which is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets.
Investments - Investments consist primarily of investment-grade marketable securities. All investments held at December 31, 2022 are classified as trading securities and are carried at fair value, with unrealized holding gains and losses included in "Other (expenses) income, net" in the Consolidated Statements of Operations. 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 credit losses. 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.
Allowance for Credit Losses - The Company measures its credit losses on receivables using an expected loss model. The Company currently 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. An allowance for credit losses is maintained in "Trade receivables and contract assets, net" in the Consolidated Balance Sheets at a level which management believes is sufficient to cover all probable future credit losses as of the balance sheet date based on a rolling twelve-month "look-back", specific reserves and an expectation of future economic conditions that might impact customers. The corresponding provision for credit losses is recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
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. The majority of the Company’s receivables are related to equipment that requires significant down payment with other terms allowing for payment shortly after shipment, typically 30 days, which the Company believes is short-term in nature.
The following table represents a rollforward of the allowance for credit losses for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Allowance balance, beginning of year | | $ | 2.3 | | | $ | 1.7 | | | $ | 1.4 | |
Provision | | 1.2 | | | 0.7 | | | 0.9 | |
Write offs | | (1.2) | | | (0.4) | | | (0.6) | |
Recoveries and other | | — | | | 0.3 | | | — | |
Allowance balance, end of year | | $ | 2.3 | | | $ | 2.3 | | | $ | 1.7 | |
In addition, an allowance for credit losses related to an outstanding note receivable of $0.7 million is included in "Other receivables, net" in the Consolidated Balance Sheets for the years ended December 31, 2022 and 2021.
Inventories - The Company's inventory is comprised of raw materials and parts, work-in-process, finished goods and used equipment.
Raw material and parts inventory comprises purchased steel and other purchased items for use in the manufacturing process or held for sale for the after-market parts business. The category also includes the manufacturing cost of completed equipment sub-assemblies produced for either integration into equipment manufactured at a later date or for sale in the Company's after-market parts business.
Work-in-process inventory consists of the value of materials, labor and overhead incurred to date in the manufacturing of incomplete equipment or incomplete equipment sub-assemblies being produced.
Finished goods inventory consists of completed equipment manufactured for sale to customers.
Used equipment inventory consists of equipment accepted in trade or purchased on the open market. This category also includes equipment rented to prospective customers on a short-term or month-to-month basis. Used equipment is valued at the lower of acquired or trade-in cost or net realizable value determined on each separate unit. Each unit of rental equipment is valued at the lower of original manufacturing, acquired or trade-in cost or net realizable value.
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, which requires the Company to make specific estimates, assumptions and judgments in determining the amount, if any, of reductions in the valuation of inventories to their net realizable values. The net realizable values of the Company's products are impacted by a number of factors, including changes in the price of steel, competitive sales pricing, quantities of inventories on hand, the age of the individual inventory items, market acceptance of the Company's products, the Company's normal gross margins, actions by the Company or its competitors, the condition of its used and rental equipment 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 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 equipment inventory, prior sales offers or lack thereof, the physical condition of the specific items and general market conditions for the specific items. Additionally, an analysis of raw material inventory is performed to calculate reserves needed for slow-moving or 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.
Assets Held for Sale – Assets are classified as held for sale when any ongoing operations have ceased, and the Company has committed to a plan to sell the assets in their current condition at a price that is reasonable in relation to the current fair value of the assets. Assets held for sale are generally expected to be sold within one year of meeting the designation criteria. Upon designation as held for sale, the assets are recorded at the lower of their carrying value or fair value, less costs to sale and related depreciation and amortization is ceased. The held for sale designation and carrying value of assets held for sale is periodically reviewed and adjusted as facts and circumstances indicate that a change may be necessary. As of December 31, 2022, the Company recorded assets held for sale of $15.4 million related to land and building assets of its former site in Tacoma, which are being marketed for sale. The Company accounted for certain Enid land and building assets as assets held for sale as of December 31, 2021. The sale of the Enid land and building was completed in the fourth quarter of 2022. See Note 22, Strategic Transformation and Restructuring, Impairment and Other Asset Charges for additional discussion of the transactions related to these assets.
Property and Equipment - Property and equipment is stated at cost. Expenditures for maintenance, repairs and minor renewals are charged against earnings as incurred. Expenditures for major renewals and improvements that substantially extend the capacity or useful life of an asset are capitalized and are then depreciated. The cost and accumulated depreciation for property and equipment sold, retired or otherwise disposed of are relieved from the accounts and resulting gains or losses are reflected in earnings.
Property and equipment are depreciated over the estimated useful lives of the assets using the straight-line depreciation method for financial reporting and on accelerated methods for income tax purposes. Land is recorded at historical cost and is not depreciated. The useful lives are estimated based on historical experience with similar assets, considering anticipated technological or other changes. The Company periodically reviews these lives relative to physical factors and industry trends. If there are changes in the planned use of property or equipment or if technological changes were to occur more rapidly than anticipated, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of accelerated depreciation expense in future periods.
Property and equipment are primarily depreciated over the following useful lives:
| | | | | |
| Years |
Buildings and improvements | 5 - 40 |
Airplanes and aviation equipment | 5 - 20 |
Machinery, equipment and tooling | 3 - 10 |
Furniture and fixtures | 5 - 10 |
Computer hardware and software | 3 - 5 |
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.
Leases - The Company leases certain real estate, material handling equipment, automobiles and other equipment. The Company determines if a contract is a lease (or contains an embedded lease) at the inception of the agreement. For a contract to be determined to be a lease or contain a lease, it must include explicitly or implicitly identified assets where the Company has the right to substantially all of the economic benefits of the assets and has the ability to direct how and for what purpose the assets are used during the lease term. Leases are classified as either operating or finance. For operating leases, the Company recognizes a lease liability equal to the present value of the remaining lease payments, and a right-of-use ("ROU") asset equal to the lease liability, subject to certain adjustments, such as prepaid rent. ROU assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. As of December 31, 2022 and 2021, the Company did not have any finance leases.
The Company uses its incremental borrowing rate to determine the present value of the lease payments. The Company's incremental borrowing rate is the rate of interest that it would incur to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company determines the incremental borrowing rates based upon secured borrowing rates quoted by the Company's banks for loans of a corresponding length to the lease.
The lease term at the lease commencement date is determined based on the non-cancellable period for which the Company has the right to use the underlying asset, together with any periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option, periods covered by an option to terminate the lease if the Company is reasonably certain not to exercise that option and periods covered by an option to extend (or not to terminate) the lease in which the exercise of the option is controlled by the lessor. The Company considers a number of factors when evaluating whether the options in its lease contracts are reasonably certain of exercise, such as length of time before an option exercise, expected value of the leased asset at the end of the initial lease term, importance of the lease to the Company's operations, costs to negotiate a new lease and any contractual or economic penalties.
The Company does not recognize ROU assets or lease liabilities for leases with a term of 12 months or less.
Goodwill and Other Intangible Assets - Goodwill represents the excess of the purchase price over the fair value of identifiable net assets of businesses acquired. Goodwill is not amortized but is tested at the reporting unit level for impairment annually on October 1, or more frequently, as events dictate. A reporting unit is an operating segment or, under certain circumstances, a component of an operating segment that constitutes a business, has available discrete financial information, and whose operating results are regularly reviewed by management. Components of an operating segment are combined and aggregated as a single reporting unit if the components have similar economic characteristics.
Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors that includes, but is not limited to, the macroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations to determine whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. The Company may elect not to perform the qualitative assessment for some or all reporting units and perform the quantitative impairment test. The quantitative goodwill impairment test requires the comparison the carrying value of the reporting unit's net assets to the fair value of the reporting unit. The Company determines fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. This analysis requires significant assumptions, including projected net sales, projected earnings before interest, tax, depreciation and amortization, terminal growth rates, the cost of capital, the selection of appropriate guideline companies and related valuation multiples. Management's estimates are subject to change given the inherent uncertainty in predicting future results. Additionally, the discount rate and the terminal growth rate are based on management's judgment of the rates that would be utilized by a hypothetical market participant.
The Company's intangible assets have definite lives and are subject to amortization. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that their carrying values may not be recoverable. 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.
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, which are evaluated at the asset group level.
Intangible assets with definite lives are amortized on a straight-line basis over the following estimated useful lives:
| | | | | |
| Years |
Dealer network and customer relationships | 8 - 18 |
Trade names | 3 |
Other | 3 - 19 |
Product Warranty Reserve - The Company accrues for the estimated cost of product warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For equipment, the Company's standard product warranty terms generally include post-sales support and repairs of products at no additional charge for periods ranging from three months to two years or up to a specified number of hours of operation. For parts from component suppliers, the Company relies on the original manufacturer's warranty that accompanies those parts. Generally, Company fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the Company's policy is to replace fabricated parts at no additional charge.
Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from the Company's estimates, revisions to the estimated warranty liability may be required.
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 a 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.
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. 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 $1.0 million 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 $0.35 million 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 included in the consolidated financial statements of the Company. The short-term and long-term reserves for claims and potential claims related to general liability and workers' compensation under the captive are included in "Accrued loss reserves" or "Other long-term liabilities" in the Consolidated Balance Sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined to cover the ultimate cost of each claim based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual
experience, could cause these estimates to change in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.
The Company is self-insured for health and prescription claims under its Group Health Insurance Plan for all of the Company's domestic employees. 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" in 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.
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 when the Company satisfies a performance obligation by transferring control of goods or providing services. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specific delivery terms. A significant portion of the Company's equipment sales represents equipment produced in the Company's manufacturing facilities under short-term contracts for a customer's project or equipment designed to meet a customer’s requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer's needs or specifications. The Company provides customers with technical design and performance specifications and typically performs pre-shipment testing, when feasible, to ensure the equipment performs according to the customer's need, regardless of whether the Company provides installation services in addition to selling the equipment. Significant down payments are required on many equipment orders with other terms allowing for payment shortly after shipment, typically 30 days. Taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, are excluded from revenue. The Company offers extended warranties for sale on certain equipment sold to its customers. Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred. As contracts are typically paid within one year from the date of the contract fulfillment, 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 the Company has 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 the Company's dealer customers, payments for extended warranties 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 collectibility is probable. 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 orders totaling $20.7 million and $29.3 million in 2022 and 2021 respectively, and nominal orders in 2020 on which revenue was recorded over time based upon the ratio of costs incurred to estimated total costs.
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 typically obtained by trade-in on new equipment sales or as a separate purchase in the open market. Revenues from the sale of used equipment are recognized upon transfer of control to the customer at agreed upon pricing.
Freight Revenue – 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 $2.1 million, $1.5 million and $2.6 million in advertising costs during 2022, 2021 and 2020, respectively, which are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Share-based Compensation - The grant date fair value of share-based compensation awards is based upon the closing market price of the Company's common stock on the day prior to the grant date, except for performance stock awards with a total shareholder return ("TSR") market metric for which the Company estimates fair value using a Monte-Carlo simulation model. The Company recognizes compensation expense for all awards over the requisite service period. Forfeitures are recognized as they occur. Compensation expense is based on the grant date fair value as described above, except for performance stock awards with a return on invested capital ("ROIC") performance metric. For these awards, compensation expense is based on the probable outcome of achieving the specified performance conditions. The Company reassesses whether achievement of the ROIC performance metric is probable at each reporting date. The Company's equity awards are further described in Note 17, Share-Based Compensation.
Acquisitions - 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. Acquisition costs are expensed as incurred and contingent consideration, if applicable, is booked at its fair value as part of the purchase price. See Note 3, Acquisitions for additional information on the Company's acquisitions.
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.
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. The fair value of the derivative financial instrument is recorded in the Consolidated Balance Sheets and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the Consolidated Statements of Operations in the current period. The Company does not engage in speculative transactions, nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $10.3 million during 2022. The Company reported nominal derivative assets at December 31, 2022 and $0.1 million of derivative assets in "Prepaid expenses and other assets" at December 31, 2021. The Company held nominal derivative liabilities at December 31, 2022 or 2021.
The Company recognized, as a component of "Other (expenses) income, net", a net loss on the change in fair value of derivative instruments of $0.5 million for the year ended December 31, 2022 and a net gain of $0.8 million and $0.2 million for the years ended December 31, 2021 and 2020, respectively. There were no derivatives that were designated as hedges at December 31, 2022 or 2021.
Foreign Currency - Subsidiaries located in Australia, Belgium, Brazil, Canada, Chile, France, India, South Africa, Thailand and the United Kingdom 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 in effect during the period. The resulting adjustments are presented as a separate component of "Accumulated other comprehensive loss". Foreign currency transaction gains and losses, net are included in "Other (expenses) income, net" and amounted to losses of $0.4 million and $1.3 million in 2022 and 2021, respectively, and a gain of $1.1 million in and 2020.
Earnings Per Share - Basic earnings per share is computed by dividing "Net (loss) income attributable to controlling interest" by the weighted average number of shares outstanding during the reported period. Deferred stock units are fully vested and, as such, are included in basic earnings per share. Diluted earnings per share includes the dilutive effect of common stock equivalents consisting of restricted stock units, performance stock units, related dividend equivalents and stock held in the Company's deferred compensation programs, using the treasury stock method. Potential common shares that have an antidilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. Performance stock units, which are considered contingently issuable, are considered dilutive when the related performance criterion has been met.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings per share:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2022 | | 2021 | | 2020 |
Denominator: | | | | | |
Denominator for basic earnings per share | 22,790,717 | | | 22,726,767 | | | 22,585,515 | |
Effect of dilutive securities: | | | | | |
Restricted stock units | — | | | 150,754 | | | 185,965 | |
Unvested performance share units | — | | | 35,747 | | | 65,404 | |
Deferred compensation programs | — | | | 35,364 | | | 40,859 | |
Denominator for diluted earnings per share | 22,790,717 | | | 22,948,632 | | | 22,877,743 | |
| | | | | |
Antidilutive securities excluded from the calculation of diluted earnings per share | 255,738 | | | 75,451 | | | 6,184 | |
Adjustments and Reclassifications
During the first quarter of 2022, the Company identified errors in its previously issued financial statements related to an overstatement of work-in-process inventory that mainly accumulated over the periods from 2018 through 2021 thereby understating "Cost of sales" in those periods and an overstatement of "Net sales" and "Cost of sales" as well as impacts to certain consolidated balance sheet financial statement line items as a result of over-time revenue recognition calculation errors at one of the Company's sites which impacted the second, third and fourth quarters of 2021.
The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior period consolidated financial statements taken as a whole. To reflect the correction of the above errors, the Company is revising the previously issued consolidated financial statements for the years ended and as of December 31, 2021 and 2020 in this Form 10-K. The Company is also disclosing the impact of the revisions on the previously filed audited Consolidated Balance Sheet as of December 31, 2021 and the opening balance sheet equity impact for December 31, 2020. As a result, the Company has corrected the misstatements as disclosed in the following tables for all impacted financial statement line items in prior periods.
In addition, certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the year ended December 31, 2022.
•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 (loss) income attributable to controlling interest" related to these reclassifications.
The Company recorded a $1.5 million out-of-period expense during the first quarter of 2021 in "Selling, general and administrative expenses" for certain vendor hosted software licensing fees for contract costs incurred in the fourth quarter of 2020, which is not reflected as an adjustment in the tables below.
Balance Sheet
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
(in millions) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
Trade receivables and contract assets, net | $ | 144.1 | | | $ | (2.4) | | | $ | — | | | $ | 141.7 | |
Inventories | 303.0 | | | (4.3) | | | — | | | 298.7 | |
Prepaid and refundable income taxes | 19.5 | | | 1.0 | | | — | | | 20.5 | |
Total current assets | 641.7 | | | (5.7) | | | — | | | 636.0 | |
Deferred income tax assets | 16.0 | | | 0.2 | | | — | | | 16.2 | |
Total assets | 911.3 | | | (5.5) | | | — | | | 905.8 | |
Accounts payable | 83.5 | | | (1.3) | | | — | | | 82.2 | |
Accrued employee related liabilities | 23.6 | | | — | | | 7.0 | | | 30.6 | |
Other current liabilities | 42.9 | | | (0.7) | | | (7.0) | | | 35.2 | |
Total current liabilities | 225.3 | | | (2.0) | | | — | | | 223.3 | |
Total liabilities | 256.5 | | | (2.0) | | | — | | | 254.5 | |
| | | | | | | |
Retained earnings | 552.8 | | | (3.5) | | | — | | | 549.3 | |
Shareholders' equity | 654.3 | | | (3.5) | | | — | | | 650.8 | |
Total equity | 654.8 | | | (3.5) | | | — | | | 651.3 | |
Total liabilities and equity | 911.3 | | | (5.5) | | | — | | | 905.8 | |
Statement of Operations
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
(in millions, except per share data) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
Net sales | $ | 1,097.2 | | | $ | (1.7) | | | $ | — | | | $ | 1,095.5 | |
Cost of sales | 845.5 | | | 1.0 | | | (0.5) | | | 846.0 | |
Gross profit | 251.7 | | | (2.7) | | | 0.5 | | | 249.5 | |
Income (loss) from operations | 22.1 | | | (2.7) | | | 0.5 | | | 19.9 | |
Other income (expenses), net | (5.0) | | | — | | | (0.5) | | | (5.5) | |
Income (loss) before income taxes | 16.5 | | | (2.7) | | | — | | | 13.8 | |
Income tax provision (benefit) | (1.4) | | | (0.7) | | | — | | | (2.1) | |
Net (loss) income | 17.9 | | | (2.0) | | | — | | | 15.9 | |
Net (loss) income attributable to controlling interest | 17.8 | | | (2.0) | | | — | | | 15.8 | |
Per share data: | | | | | | | |
(Loss) earnings per common share - Basic | 0.78 | | | (0.08) | | | — | | | 0.70 | |
(Loss) earnings per common share - Diluted | 0.78 | | | (0.09) | | | — | | | 0.69 | |
| | | | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
| | | | | | | |
Cost of sales | $ | 784.3 | | | $ | 1.2 | | | $ | 1.3 | | | $ | 786.8 | |
Gross profit | 240.1 | | | (1.2) | | | (1.3) | | | 237.6 | |
Income (loss) from operations | 43.0 | | | (1.2) | | | (1.3) | | | 40.5 | |
Other income (expenses), net | 2.6 | | | — | | | 1.3 | | | 3.9 | |
Income (loss) before income taxes | 45.7 | | | (1.2) | | | — | | | 44.5 | |
Income tax provision (benefit) | (1.2) | | | (0.3) | | | — | | | (1.5) | |
Net (loss) income | 46.9 | | | (0.9) | | | — | | | 46.0 | |
Net (loss) income attributable to controlling interest | 46.9 | | | (0.9) | | | — | | | 46.0 | |
Per share data: | | | | | | | |
(Loss) earnings per common share - Basic | 2.08 | | | (0.04) | | | — | | | 2.04 | |
(Loss) earnings per common share - Diluted | 2.05 | | | (0.04) | | | — | | | 2.01 | |
Statements of Comprehensive Income
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
(in millions) | As Previously Reported | | Adjustment | | As Revised / Reclassified |
Net (loss) income | $ | 17.9 | | | $ | (2.0) | | | $ | 15.9 | |
| | | | | |
| | | | | |
| | | | | |
Comprehensive income (loss) attributable to controlling interest | 18.9 | | | (2.0) | | | 16.9 | |
| | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | As Revised / Reclassified |
Net (loss) income | $ | 46.9 | | | $ | (0.9) | | | $ | 46.0 | |
| | | | | |
| | | | | |
| | | | | |
Comprehensive income (loss) attributable to controlling interest | 45.2 | | | (0.9) | | | 44.3 | |
Statement of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
(in millions) | As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
Net (loss) income | $ | 17.9 | | | $ | (2.0) | | | $ | — | | | $ | 15.9 | |
| | | | | | | |
Receivables and other contract assets | (30.8) | | | 2.4 | | | — | | | (28.4) | |
Inventories | (53.8) | | | 2.3 | | | — | | | (51.5) | |
Accounts payable | 30.8 | | | (1.3) | | | — | | | 29.5 | |
Accrued employee related liabilities | 3.0 | | | — | | | 7.0 | | | 10.0 | |
Other accrued liabilities | (0.7) | | | (0.7) | | | (7.0) | | | (8.4) | |
Income taxes payable/prepaid | (13.6) | | | (0.7) | | | — | | | (14.3) | |
| | | | | | | |
| | | | | | | |
| Year Ended December 31, 2020 |
| As Previously Reported | | Adjustment | | Reclassification | | As Revised / Reclassified |
Net (loss) income | $ | 46.9 | | | $ | (0.9) | | | $ | — | | | $ | 46.0 | |
| | | | | | | |
| | | | | | | |
Inventories | 44.7 | | | 1.2 | | | — | | | 45.9 | |
| | | | | | | |
Accrued employee related liabilities | (5.1) | | | — | | | 6.7 | | | 1.6 | |
Other accrued liabilities | 9.8 | | | — | | | (6.7) | | | 3.1 | |
Income taxes payable/prepaid | 16.0 | | | (0.3) | | | — | | | 15.7 | |
| | | | | | | |
| | | | | | | |
Statement of Equity
| | | | | | | | | | | | | | | | | |
(in millions) | As Previously Reported | | Adjustment | | As Revised / Reclassified |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance, December 31, 2020 | | | | | |
| | | | | |
Retained Earnings | $ | 545.2 | | | $ | (1.5) | | | $ | 543.7 | |
Total Equity | 643.0 | | | (1.5) | | | 641.5 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance, December 31, 2021 | | | | | |
| | | | | |
Retained Earnings | 552.8 | | | (3.5) | | | 549.3 | |
Total Equity | 654.8 | | | (3.5) | | | 651.3 | |
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 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 Company adopted this new standard effective January 1, 2021. The adoption of this standard had an immaterial impact on the Company's financial position, results of operations or cash flows.
In October 2021, the FASB issued 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 ASC 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.
In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832)", which aims to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance and the effect of the assistance on an entity’s financial statements. The new guidance requires expanded disclosure about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This new standard was effective for the Company on January 1, 2022. Availability of government assistance has typically been limited. The Company did not receive government assistance in 2022.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
3. Acquisitions
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 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 of $1.2 million were expensed as incurred during the year ended December 31, 2022 for this acquisition. These costs are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
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 | |
CON-E-CO Acquisition - The Company entered into a Stock Purchase Agreement, dated as of July 20, 2020, by and between Oshkosh Corporation for the purchase of the CON-E-CO concrete equipment company in Nebraska. The purchase price was $13.8 million, after adjustments, and was paid in cash. The acquisition provides the Company with a broader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations have been consolidated from the date of acquisition.
BMH Systems Acquisition - The Company entered into a Share Purchase Agreement, dated as of August 3, 2020, by and between BMH Systems Corporation ("St-Bruno") for the purchase of the concrete equipment company in Quebec, Canada. The purchase price was $15.6 million, after adjustments, and was paid in cash. The acquisition provides the Company with a broader line of concrete batch plant manufacturing, which will strengthen the Infrastructure Solutions segment. Results of operations have been consolidated from the date of acquisition.
Grathwol Asset Acquisition - On November 2, 2020, the Company closed a transaction pursuant to which it purchased certain assets of Grathwol Automation, LLC ("Grathwol"). Grathwol is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services. Assets purchased primarily comprise technology assets. The total purchase price was $6.0 million, of which $1.8 million was deferred and will be recognized as expense and be paid out in two equal annual installments on the anniversary date of the acquisition.
4. Inventories
Inventories consist of the following:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Raw materials and parts | | $ | 302.9 | | | $ | 216.1 | |
Work-in-process | | 57.3 | | | 50.4 | |
Finished goods | | 32.1 | | | 28.9 | |
Used equipment | | 1.1 | | | 3.3 | |
Total | | $ | 393.4 | | | $ | 298.7 | |
During the year ended December 31, 2020, in conjunction with exiting the oil and gas drilling product lines, Enid's inventories were written down by $4.4 million, which was reported within "Cost of sales" in the Company's Consolidated Statements of Operations.
5. 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 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 deferred compensation programs' 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, cash equivalents and restricted cash, 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. |
As indicated in the tables below, the Company has determined that all of its financial assets and liabilities as of December 31, 2022 and 2021 are Level 1 and Level 2 in the fair value hierarchy as defined above:
| | | | | | | | | | | | | | | | | | | | |
| | 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 | |
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(in millions) | | Level 1 | | Level 2 | | Total |
Financial assets: | | | | | | |
Trading equity securities: | | | | | | |
Deferred compensation programs' mutual funds | | $ | 4.9 | | | $ | — | | | $ | 4.9 | |
Preferred stocks | | 0.3 | | | — | | | 0.3 | |
Equity funds | | 3.0 | | | — | | | 3.0 | |
Trading debt securities: | | | | | | |
Corporate bonds | | 3.3 | | | — | | | 3.3 | |
Municipal bonds | | — | | | 0.2 | | | 0.2 | |
Floating rate notes | | 0.4 | | | — | | | 0.4 | |
U.S. government securities | | 1.1 | | | — | | | 1.1 | |
Asset-backed securities | | — | | | 3.5 | | | 3.5 | |
Other | | 3.1 | | | 1.0 | | | 4.1 | |
Derivative financial instruments | | — | | | 0.1 | | | 0.1 | |
Total financial assets | | $ | 16.1 | | | $ | 4.8 | | | $ | 20.9 | |
Financial liabilities: | | | | | | |
| | | | | | |
Deferred compensation programs' liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
Total financial liabilities | | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
6. Investments
The Company's trading securities consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value (Net Carrying Amount) |
December 31, 2022 | | | | | | | | |
Trading equity securities | | $ | 5.9 | | | $ | 0.1 | | | $ | 0.7 | | | $ | 5.3 | |
Trading debt securities | | 14.3 | | | — | | | 0.6 | | | 13.7 | |
Total | | $ | 20.2 | | | $ | 0.1 | | | $ | 1.3 | | | $ | 19.0 | |
December 31, 2021 | | | | | | | | |
Trading equity securities | | $ | 7.8 | | | $ | 0.4 | | | $ | — | | | $ | 8.2 | |
Trading debt securities | | 12.6 | | | 0.1 | | | 0.1 | | | 12.6 | |
Total | | $ | 20.4 | | | $ | 0.5 | | | $ | 0.1 | | | $ | 20.8 | |
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 mutual funds and also comprise a portion of the Company's liability under its deferred compensation programs. See Note 14, Employee Benefit Plans, for additional information on these investments and the deferred compensation programs.
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.
7. Goodwill
The Company tests goodwill for impairment annually on October 1, 2022, 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 between annual impairment tests. The goodwill impairment test is performed for each of the Company's four reporting units which have goodwill recorded.
Management elected to perform a quantitative assessment for the October 1, 2022 annual impairment analysis based on its decline in operating performance, declines in the Company's stock price and the overall macroeconomic environment. The
Company determined fair values of each reporting unit using an equally weighted combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. The significant assumptions used under the discounted cash flow method are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”), terminal growth rates, and the cost of capital. Projected net sales, projected EBITDA and terminal growth rates were determined to be significant assumptions because they are primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. For the guideline public company method, significant assumptions relate to the selection of appropriate guideline companies and related valuation multiples used in the market analysis. Based on the Company's quantitative impairment test, no impairment at any of its reporting units was identified.
Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. In addition, sustained declines in operating performance in certain reporting units or the Company's stock price and related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in non-cash impairment charges that could be material to the Company's Consolidated Balance Sheets or Statements of Operations. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge would be recorded to reduce the reporting unit to fair value.
Management performed a qualitative assessment for the annual tests of goodwill impairment performed on October 1, 2021 and October 31, 2020, the Company's prior annual goodwill impairment testing date, and concluded that there was no impairment of goodwill. These reviews included the Company's evaluation of relevant events and circumstances in totality that affect the fair value of the reporting units. These events and circumstances include, but were not limited to, macroeconomic conditions, industry and competitive environment conditions, overall financial performance, business specific events and market considerations.
The Company completed the acquisition of MINDS Automation Group, Inc. during the year ended December 31, 2022, which increased goodwill $9.3 million.
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 $1.6 million 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 impairment charge was reflected as a component of "Restructuring, impairment and other asset charges, net" for the year ended December 31, 2020.
The changes in the carrying amount of goodwill and accumulated impairment losses by reporting segment during the years ended December 31, 2022 and 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Balance, December 31, 2020: | | | | | | | | |
Goodwill | | $ | 39.4 | | | $ | 33.3 | | | $ | — | | | $ | 72.7 | |
Accumulated impairment losses | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
Net | | $ | 17.6 | | | $ | 21.1 | | | $ | — | | | $ | 38.7 | |
2021 Activity: | | | | | | | | |
Foreign currency translation | | $ | 0.1 | | | $ | (0.1) | | | $ | — | | | $ | — | |
Acquisitions | | (0.1) | | | — | | | — | | | (0.1) | |
| | | | | | | | |
Total 2021 activity | | $ | — | | | $ | (0.1) | | | $ | — | | | $ | (0.1) | |
Balance, December 31, 2021: | | | | | | | | |
Goodwill | | $ | 39.4 | | | $ | 33.2 | | | $ | — | | | $ | 72.6 | |
Accumulated impairment | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
Net | | $ | 17.6 | | | $ | 21.0 | | | $ | — | | | $ | 38.6 | |
2022 Activity: | | | | | | | | |
Foreign currency translation | | $ | (0.5) | | | $ | (1.6) | | | $ | (0.6) | | | $ | (2.7) | |
Acquisitions | | — | | | — | | | 9.3 | | | 9.3 | |
| | | | | | | | |
Total 2022 activity | | $ | (0.5) | | | $ | (1.6) | | | $ | 8.7 | | | $ | 6.6 | |
Balance, December 31, 2022: | | | | | | | | |
Goodwill | | $ | 38.9 | | | $ | 31.6 | | | $ | 8.7 | | | $ | 79.2 | |
Accumulated impairment | | (21.8) | | | (12.2) | | | — | | | (34.0) | |
Net | | $ | 17.1 | | | $ | 19.4 | | | $ | 8.7 | | | $ | 45.2 | |
8. Intangible Assets
Intangible assets consisted of the following at December 31, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
(in millions) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Dealer network and customer relationships | | $ | 41.7 | | | $ | 26.0 | | | $ | 15.7 | | | $ | 37.1 | | | $ | 22.9 | | | $ | 14.2 | |
Trade names | | 10.2 | | | 10.0 | | | 0.2 | | | 10.2 | | | 7.8 | | | 2.4 | |
Other | | 15.7 | | | 9.1 | | | 6.6 | | | 13.5 | | | 7.4 | | | 6.1 | |
Total | | $ | 67.6 | | | $ | 45.1 | | | $ | 22.5 | | | $ | 60.8 | | | $ | 38.1 | | | $ | 22.7 | |
Amortization expense on intangible assets was $8.5 million, $10.1 million and $6.1 million for 2022, 2021 and 2020, respectively.
Future annual expected amortization expense on intangible assets as of December 31, 2022 are as follows (in millions):
| | | | | | | | |
2023 | | $ | 5.4 | |
2024 | | 4.5 | |
2025 | | 3.0 | |
2026 | | 2.4 | |
2027 | | 2.1 | |
2028 and thereafter | | 5.1 | |
9. Property and Equipment
Property and equipment at cost, less accumulated depreciation, is as follows:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Land | | $ | 12.4 | | | $ | 13.9 | |
Building and land improvements | | 140.8 | | | 154.3 | |
Construction in progress | | 19.7 | | | 7.6 | |
Manufacturing and office equipment | | 230.0 | | | 239.2 | |
Aviation equipment | | 4.5 | | | 4.7 | |
Less accumulated depreciation | | (233.8) | | | (248.0) | |
Total | | $ | 173.6 | | | $ | 171.7 | |
Depreciation expense was $19.4 million, $20.1 million and $20.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
10. Leases
The Company records its operating lease ROU assets in "Other long-term assets" and its operating lease liabilities in "Other current liabilities" and "Other long-term liabilities". As of December 31, 2022 and 2021, the Company did not have any finance leases.
Additional information related to the Company’s operating leases is reflected in the tables below:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Operating lease expense | | $ | 2.8 | | | $ | 2.3 | | | $ | 2.6 | |
Short-term lease expense | | 2.9 | | | 1.5 | | | 1.0 | |
Cash paid for operating leases included in operating cash flows | | 2.5 | | | 2.5 | | | 2.7 | |
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
Operating lease right-of-use asset | | $ | 10.8 | | | $ | 5.8 | |
Operating lease short-term liability | | 2.7 | | | 1.6 | |
Operating lease long-term liability | | 8.3 | | | 4.2 | |
Weighted average remaining lease term (in years) | | 5.07 | | 6.15 |
Weighted average discount rate used in calculating right-of-use asset | | 4.61 | % | | 3.49 | % |
Future annual minimum lease payments as of December 31, 2022 are as follows (in millions):
| | | | | |
2023 | $ | 3.1 |
2024 | 2.3 |
2025 | 2.0 |
2026 | 1.9 |
2027 | 1.7 |
2028 and thereafter | 1.3 |
Total lease payments | $ | 12.3 |
Less: Interest | (1.3) |
Operating lease liabilities | $ | 11.0 |
11. Debt
In February 2019, the Company and certain of its subsidiaries amended the 2012 amended and restated credit agreement with Wells Fargo Bank, N.A. (the "Previous Credit Facility") whereby the lender increased the Company's unsecured line of credit to $150.0 million, including a sub-limit for letters of credit of up to $30.0 million, and extended the maturity date to December 29, 2023. Borrowings under the agreement were subject to an interest rate equal to the daily one-month LIBOR rate plus a 0.75%
margin. The unused facility fee was 0.125%. The Previous Credit Facility contained certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth.
On December 19, 2022, the Company and certain of its subsidiaries entered into a new credit agreement (the "Credit Agreement") with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto. The Credit Agreement provides for (i) a revolving credit facility (consisting of revolving credit loans and swingline loans) and a letter of credit facility, in an aggregate amount of up to $250.0 million, (ii) an incremental credit facility in an aggregate amount not to exceed $125.0 million (the “Credit Facilities”) and (iii) a maturity date of December 19, 2027. Loans under the incremental credit facility shall have a maturity date as specified in the relevant incremental credit facility documentation. In connection with the entry into the Credit Facilities, the Company repaid all outstanding borrowings under the Previous Credit Facility. The Company recorded total debt issuance costs for the Credit Facilities of $1.5 million of which $0.3 million are included in "Prepaid expenses and other assets" and $1.2 million are included in "Other long-term assets" in the Company's Consolidated Balance Sheets at December 31, 2022. Debt issuance costs are amortized on a straight-line basis to "Interest expense" over the term of the Credit Facilities.
At the Company’s election, revolving credit loans and incremental term loans advanced under the Credit Agreement shall bear interest at (i) adjusted term Secured Overnight Financing Rate ("SOFR") for one-, three- or six-month periods, as selected by the Company, plus an applicable margin ranging between 1.175% and 2.175% per annum, or (ii) the highest of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.50%, and an adjusted term SOFR for a one month tenor in effect on such day plus 1.00%, plus an applicable margin ranging between 0.175% and 1.175% per annum. Swingline loans shall bear interest at the highest of the Wells Fargo Bank, National Association prime rate, the Federal Funds rate plus 0.50%, and an adjusted term SOFR for a one-month tenor in effect on such day plus 1.00%, plus an applicable margin ranging between 0.175% and 1.175% per annum.
The Company also pays a commitment fee ranging from 0.150% to 0.250% per annum to the lenders under the revolving credit facility on the average amount by which the aggregate commitments of the lenders exceed utilization of the revolving credit facility. The applicable margins and the commitment fee are determined based on the Company's Consolidated Total Net Leverage Ratio, as defined by the Credit Agreement, at the relevant time.
The obligations of the Company in respect of the Credit Facilities are secured and guaranteed by the U.S. domestic subsidiaries of the Company, subject to customary exceptions.
The Credit Agreement includes certain affirmative and negative covenants that impose restrictions on the Company's financial and business operations, including limitations on liens, indebtedness, investments, dispositions of assets, dividends, distributions and other restricted payments, fundamental changes or changes in the nature of the Company's business. These limitations are subject to customary exceptions. The Company is also required to maintain a (i) Consolidated Total Net Leverage Ratio of not more than 3.50 to 1.00 as of the last day of any fiscal quarter which may be increased to 4.00 to 1.00 in connection with a permitted acquisition and subject to the terms of the Credit Agreement and (ii) Consolidated Interest Coverage Ratio of at least 2.50 to 1.00 as of the last day of any fiscal quarter. The Company was in compliance with all covenants as of December 31, 2022.
The Credit Agreement contains events of default customary for this type of financing, including a cross default and cross acceleration provision to certain other material indebtedness of the Company and its subsidiaries. Upon the occurrence of an event of default, the outstanding obligations under the Credit Agreement may be accelerated and become due and payable immediately. In addition, if certain change of control events occur with respect to the Company, the Company is required to repay the loans outstanding under the Credit Facilities.
The Company's Brazilian subsidiary maintains a separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility ("Term Loan").
Certain of the Company's international subsidiaries in Australia, Brazil, Canada, South Africa and the United Kingdom each have separate credit facilities with local financial institutions primarily to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees. In addition, the Brazilian subsidiary also enters into order anticipation agreements on a periodic basis. Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in the Company's Consolidated Balance Sheets. Each of the credit facilities are generally guaranteed by Astec Industries, Inc. and/or secured with certain assets of the local subsidiary.
Additional details for the Company's Credit Facilities, Previous Credit Facility, term loan and international credit facilities are summarized in total below:
| | | | | | | | | | | | | | |
(in millions, except maturity dates and interest rates) | | December 31, 2022 | | December 31, 2021 |
| | | | |
Credit Facilities and Previous Credit Facility, respectively | | | | |
Line of credit - maximum | | $ | 250.0 | | | $ | 150.0 | |
| | | | |
Letters of credit - maximum | | 30.0 | | | 30.0 | |
Borrowings outstanding | | 78.0 | | | — | |
Amount of letters of credit outstanding | | 2.8 | | | 2.5 | |
Line of credit, additional borrowing capacity | | 169.2 | | | 147.5 | |
| | | | |
Term Loan | | | | |
Current maturities | | $ | 0.2 | | | $ | 0.1 | |
Long-term maturities | | 0.1 | | | 0.2 | |
Interest rate | | 10.37 | % | | 10.37 | % |
Maturity date | | April 15, 2024 | | April 15, 2024 |
| | | | |
International Credit Facilities and Short-Term Debt | | | | |
Total credit line | | $ | 15.3 | | | $ | 12.3 | |
Available credit line | | 5.7 | | | 9.7 | |
Letters of credit - maximum | | 7.0 | | | 6.6 | |
Amount of letters of credit outstanding | | 0.7 | | | 1.6 | |
Short-term debt | | 9.4 | | | 2.6 | |
Weighted average interest rate | | 10.51% | | 5.33% |
Debt maturities for the Company's short-term and long-term debt are expected to be as follows (in millions):
| | | | | |
2023 | $ | 9.6 |
2024 | 0.1 |
2025 | — |
2026 | — |
2027 | 78.0 |
| |
12. 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 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
(in millions) | | 2022 | | 2021 | | 2020 |
Reserve balance, January 1 | | $ | 10.5 | | | $ | 10.3 | | | $ | 10.3 | |
Warranty liabilities accrued | | 12.6 | | | 10.9 | | | 9.8 | |
Warranty liabilities settled | | (11.1) | | | (10.7) | | | (10.2) | |
Other | | (0.1) | | | — | | | 0.4 | |
Reserve balance, December 31 | | $ | 11.9 | | | $ | 10.5 | | | $ | 10.3 | |
13. 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 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 $5.8 million, of which $3.9 million were included in "Other long-term liabilities" in the Consolidated Balance Sheets at both December 31, 2022 and 2021.
14. Employee Benefit Plans
Deferred Compensation Programs
The Company's deferred compensation programs include a non-qualified SERP and a separate non-qualified Deferred Compensation Plan.
Supplemental Executive Retirement Plan
The Company maintains a SERP for certain of its executive officers. The SERP has been closed to new entrants since December 2020. This 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 or termination, participants receive their apportioned share of the plan assets in the form of cash based on a pre-determined schedule of distributions.
Deferred Compensation Plan
The Company implemented a Deferred Compensation Plan for certain of its executive officers during 2021. This plan is a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which eligible employees can defer the receipt of base and bonus compensation to a future date. Investments are self-directed by participants and can include Company stock. Upon retirement or termination, participants receive their apportioned share of the plan assets in the form of cash based on a pre-determined schedule of distributions.
Assets of the Deferred Compensation Programs consist of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
(in millions) | | Cost | | Market | | Cost | | Market |
Money market fund | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | | | $ | 0.1 | |
Company stock | | 1.1 | | | 1.2 | | | 1.2 | | | 2.2 | |
Equity securities | | 5.0 | | | 4.4 | | | 4.5 | | | 4.9 | |
Total | | $ | 6.2 | | | $ | 5.7 | | | $ | 5.8 | | | $ | 7.2 | |
The Company periodically adjusts the deferred compensation liability related to the Deferred Compensation Programs such that the balance of the liability equals the total fair market value of all assets held by the trusts established under the programs. Such liabilities are included in "Other long-term liabilities" in the Consolidated Balance Sheets. The money market fund is included in "Cash, cash equivalents and restricted cash" in the Consolidated Balance Sheets. The equity securities are included in "Investments" in the Consolidated Balance Sheets and classified as trading equity securities. See Note 6, Investments, for additional information. The cost of the Company stock held by the plan is included in "Company stock held by deferred compensation programs, at cost" in the Consolidated Balance Sheets.
The change in the fair market value of Company stock held in the programs 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 programs is recorded in "Company stock held by deferred compensation programs, at cost" 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 $0.9 million in 2022 and expense of $0.5 million and $0.6 million in 2021 and 2020, respectively, related to the change in the fair value of the Company stock held in the Deferred Compensation Programs.
Other Employee Benefit Plan
401(k) Plan
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 $7.7 million, $7.2 million and $6.9 million in 2022, 2021 and 2020, respectively.
Pension Plan
Prior to December 31, 2003, all employees of the Company's Kolberg-Pioneer, Inc. subsidiary, which is included in the Company's Materials Solutions reportable segment, were covered by a defined pension plan (the "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 were based on years of service multiplied by a monthly amount. The Company's funding policy for the plan was to make at least the minimum annual contributions required by applicable regulations.
The Company's investment strategy for the plan was to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The investment policy stated that the Plan Committee in its sole discretion determined the allocation of plan assets among the following four asset classes: cash equivalents, fixed-income securities, domestic equities and international equities. The Plan Committee attempted 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.
In October 2021, the Company settled its obligations under the Pension Plan by providing $5.5 million in lump sum payments to eligible participants who elected to receive them and through the purchase of annuity contracts from a highly rated insurance company for $12.2 million. The settlement of the plan resulted in excess plan assets of approximately $1.5 million, which was subject to a 50% excise tax. A charge of $5.2 million, including excise tax, was recognized in the fourth quarter of 2021 in "Other (expenses) income, net" in the Consolidated Statements of Operations. Details related to the Pension Plan through its termination date are presented herein.
Historically, the determination of obligations and expenses under the Company's pension plan was dependent on the Company's selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions included, among others, the discount rate, expected return on plan assets and the expected mortality rates. Actual results that differ from assumptions were accumulated and amortized over future periods and therefore, generally affected the recognized expense in such periods.
The Company recognized the overfunded or underfunded status of its pension plan as an asset or liability. Actuarial gains and losses were recognized through "Other comprehensive (loss) income" in the year in which the changes occurred. The Company measured the funded status of its pension plan as of the date of the Company's fiscal year-end.
The following provides information regarding benefit obligations, plan assets and the funded status of the plan as of December 31, 2021:
| | | | | | | | | | |
| | | | Pension Benefits |
(in millions) | | | | 2021 |
Change in benefit obligation: | | | | |
Benefit obligation, beginning of year | | | | $ | 18.4 | |
Interest cost | | | | 0.4 | |
Actuarial (gain) loss | | | | (0.3) | |
Benefits paid | | | | (0.8) | |
Pension settlement | | | | (17.7) | |
Benefit obligation, end of year | | | | — | |
Accumulated benefit obligation | | | | — | |
| | | | |
Change in plan assets: | | | | |
Fair value of plan assets, beginning of year | | | | 19.4 | |
Actual gain on plan assets | | | | 0.6 | |
Excess plan assets returned | | | | (1.5) | |
Benefits paid | | | | (0.8) | |
Pension settlement | | | | (17.7) | |
Fair value of plan assets, end of year | | | | — | |
Funded status, end of year | | | | $ | — | |
| | | | |
Amounts recognized in the consolidated balance sheets: | | | | |
Long-term asset | | | | $ | — | |
Net amount recognized | | | | $ | — | |
| | | | |
Amounts recognized in accumulated other comprehensive loss consist of: | | | | |
Net loss | | | | $ | — | |
Net amount recognized | | | | $ | — | |
| | | | |
Weighted average assumptions used to determine the benefit obligation: | | | | |
Discount rate | | | | N/A |
Rate of compensation increase | | | | N/A |
Net periodic benefit cost for 2021 and 2020 included the following components:
| | | | | | | | | | | | | | | | |
| | | | Pension Benefits |
(in millions) | | | | 2021 | | 2020 |
Components of net periodic benefit cost (income): | | | | | | |
Interest cost | | | | $ | 0.4 | | | $ | 0.5 | |
Expected return on plan assets | | | | (1.0) | | | (1.0) | |
Amortization of actuarial loss | | | | 0.4 | | | 0.4 | |
Pension settlement | | | | 4.5 | | | — | |
Net periodic benefit cost (income) | | | | $ | 4.3 | | | $ | (0.1) | |
Other changes in plan assets and benefit obligations recognized in other comprehensive (loss) income: | | | | | | |
Net actuarial loss (gain) for the year | | | | $ | — | | | $ | 0.4 | |
Amortization of net loss | | | | (0.4) | | | (0.4) | |
Pension settlement | | | | (4.5) | | | — | |
Total recognized in other comprehensive (loss) income | | | | (4.9) | | | — | |
Total recognized in net periodic benefit cost and other comprehensive (loss) income | | | | $ | (0.6) | | | $ | (0.1) | |
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | |
Discount rate | | | | N/A | | 3.10 | % |
Expected return on plan assets | | | | N/A | | 6.00 | % |
Rate of compensation increase | | | | N/A | | N/A |
To develop the expected long-term rate of return on assets assumptions, the Company considered the historical returns and future expectations for returns in each asset class, as well as targeted asset allocation percentages within the asset portfolios.
15. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
United States | | $ | 8.5 | | | $ | 12.8 | | | $ | 40.9 | |
Foreign | | (4.1) | | | 1.0 | | | 3.6 | |
Income before income taxes | | $ | 4.4 | | | $ | 13.8 | | | $ | 44.5 | |
The provision (benefit) for income taxes consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Current provision (benefit): | | | | | | |
Federal | | $ | 17.4 | | | $ | (0.4) | | | $ | (14.2) | |
State | | 2.4 | | | (0.7) | | | 2.3 | |
Foreign | | 2.3 | | | 0.3 | | | 1.8 | |
Total current provision (benefit) | | 22.1 | | | (0.8) | | | (10.1) | |
Deferred (benefit) provision: | | | | | | |
Federal | | (18.3) | | | (0.1) | | | 12.3 | |
State | | (1.0) | | | 1.1 | | | (1.4) | |
Foreign | | 2.2 | | | (2.3) | | | (2.3) | |
Total deferred (benefit) provision | | (17.1) | | | (1.3) | | | 8.6 | |
Total provision (benefit): | | | | | | |
Federal | | (0.9) | | | (0.5) | | | (1.9) | |
State | | 1.4 | | | 0.4 | | | 0.9 | |
Foreign | | 4.5 | | | (2.0) | | | (0.5) | |
Total income tax provision (benefit) | | $ | 5.0 | | | $ | (2.1) | | | $ | (1.5) | |
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 before income taxes. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security ("CARES") Act was passed which modified the net operating loss ("NOL") carryback provisions allowing the Company to carryback its 2018 NOL to prior years. The tax provision for the year ended December 31, 2020 includes a $9.5 million tax benefit related to the NOL carryback which occurred due to a change in rates from 35% to 21%. A reconciliation of the provision (benefit) for income taxes at the statutory federal income tax rate to the amount provided is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Tax expense at the statutory federal income tax rate | | $ | 0.9 | | | $ | 2.9 | | | $ | 9.3 | |
State income tax, net of federal income tax | | 0.6 | | | 1.3 | | | 0.3 | |
Research and development tax credits | | (3.3) | | | (4.1) | | | (4.3) | |
FIN 48 impact | | 1.2 | | | 1.8 | | | 4.0 | |
FIN 48 impact - liquidation of subsidiary | | — | | | (0.7) | | | — | |
Change in foreign subsidiary net operating loss carryforward | | — | | | 4.4 | | | (0.3) | |
Valuation allowance impact | | 6.0 | | | (8.1) | | | (1.0) | |
Changes in tax rates | | 0.2 | | | 0.7 | | | 0.3 | |
Effects of Cares Act - 2018 NOL carryback | | — | | | — | | | (9.5) | |
Share-based compensation | | 0.4 | | | 0.4 | | | 0.3 | |
Foreign-derived intangible income deduction | | (0.9) | | | — | | | — | |
Other items | | (0.1) | | | (0.7) | | | (0.6) | |
Total income tax provision (benefit) | | $ | 5.0 | | | $ | (2.1) | | | $ | (1.5) | |
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, |
(in millions) | | 2022 | | 2021 |
Deferred tax assets: | | | | |
Amortization of research and experimental expenditures | | $ | 18.4 | | | $ | — | |
Inventory reserves | | 4.7 | | | 3.7 | |
Warranty reserves | | 2.2 | | | 2.0 | |
Credit loss reserves | | 0.6 | | | 0.5 | |
State tax loss carryforwards | | 11.6 | | | 11.9 | |
Accrued vacation | | 1.6 | | | 1.4 | |
Deferred compensation | | 1.1 | | | 1.4 | |
Share-based compensation | | 4.4 | | | 2.0 | |
Goodwill | | 1.8 | | | 2.0 | |
| | | | |
| | | | |
Foreign net operating loss | | 7.2 | | | 4.4 | |
Lease obligation | | 1.8 | | | 0.4 | |
Employee & insurance accruals | | 1.0 | | | 0.8 | |
Domestic credit carryforwards | | 1.5 | | | 1.5 | |
Deferred revenue | | 1.7 | | | 1.3 | |
Deferred payroll tax - CARES Act | | — | | | 1.1 | |
| | | | |
Valuation allowances | | (11.9) | | | (5.9) | |
Other | | 0.9 | | | 1.5 | |
Total deferred tax assets | | 48.6 | | | 30.0 | |
Deferred tax liabilities: | | | | |
Property and equipment | | 13.6 | | | 13.0 | |
Intangibles | | 2.7 | | | 1.1 | |
Right-of-use assets | | 1.8 | | | 0.5 | |
Post-retirement benefits | | 0.5 | | | 0.6 | |
Total deferred tax liabilities | | 18.6 | | | 15.2 | |
Total net deferred assets | | $ | 30.0 | | | $ | 14.8 | |
Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminated the option to deduct research and experimental ("R&E") expenditures immediately in the year incurred and requires taxpayers to instead capitalize and amortize such expenditures over a period of five years for U.S. activity and 15 years for foreign activity. Taxpayers cannot recover R&E costs before the end of the amortization period even if sold or abandoned. The Company has a deferred tax asset of $18.4 million for R&E expenditures as of December 31, 2022.
As of December 31, 2022, the Company had gross state NOL carryforwards of $227.8 million and gross foreign NOL carryforwards of approximately $23.8 million, which are available to offset future taxable income. If not used, these carryforwards will expire between 2023 and 2034. The Company does not have a federal net operating loss carryforward.
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 2022, the valuation allowance on these carryforwards increased by $6.0 million, of which $5.5 million relates to a valuation allowance on the deferred tax assets of the Company's Brazilian subsidiary as the NOLs are not expected to be fully utilized. The remaining change in valuation allowances is due to the unrealizable portion of certain entities’ state and foreign net operating loss carryforwards and certain other deferred tax assets in foreign jurisdictions.
The following table represents a rollforward of the deferred tax asset valuation allowance for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Allowance balance, beginning of year | | $ | 5.9 | | | $ | 14.0 | | | $ | 14.6 | |
Provision | | 6.0 | | | 0.6 | | | 1.5 | |
Reversals | | — | | | (8.1) | | | (1.5) | |
Other | | — | | | (0.6) | | | (0.6) | |
Allowance balance, end of year | | $ | 11.9 | | | $ | 5.9 | | | $ | 14.0 | |
Undistributed foreign earnings are considered to be indefinitely reinvested outside the U.S. as of December 31, 2022. Because those earnings are considered to be indefinitely reinvested, no deferred income taxes have been provided thereon. If the Company were to make a distribution of any portion of those earnings in the form of dividends or otherwise, any such amounts would be subject to withholding taxes payable to various foreign jurisdictions; however, the amounts would not be subject to any additional U.S. income tax. As of December 31, 2022, the cumulative amount of undistributed U.S. GAAP earnings for the Company's foreign subsidiaries was $57.7 million.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is currently under examination for 2018 with taxing authorities in the United States. 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 2018.
The Company has a liability for unrecognized tax benefits of $12.0 million and $10.8 million (excluding accrued interest and penalties) as of December 31, 2022 and 2021, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company did not recognize any tax benefits for interest and penalties related to amounts that were settled for less than previously accrued in 2022 or 2021. The net total amount of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate is $13.7 million and $11.9 million at December 31, 2022 and 2021, 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:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Balance, beginning of year | | $ | 10.8 | | | $ | 9.7 | | | $ | 5.7 | |
Additions for tax positions taken in current year | | 1.2 | | | 1.0 | | | 0.5 | |
Additions for tax positions taken in prior period | | — | | | 0.8 | | | 3.5 | |
| | | | | | |
Decreases related to sustained tax positions | | — | | | (0.7) | | | — | |
Balance, end of year | | $ | 12.0 | | | $ | 10.8 | | | $ | 9.7 | |
The tax positions in the December 31, 2022 balance of unrecognized tax benefits are expected to reverse through income in future years.
16. Commitments and Contingencies
Certain customers have financed purchases of Company products through arrangements with third-party financing institutions in which the Company is contingently liable for customer debt of $2.4 million at both December 31, 2022 and 2021, respectively. These arrangements expire at various dates through September 2025. 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 $0.2 million for 2022), on certain past customer equipment purchases that were financed by an outside finance company. The agreements provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $1.0 million and $1.1 million related to these guarantees, which were included in "Other current liabilities" in the Consolidated Balance Sheets as of December 31, 2022 and 2021, 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 Credit Facilities totaling $2.8 million as of December 31, 2022. The outstanding letters of credit expire at various dates through November 2023. The maximum potential
amount of future payments under letters of credit issued under the Credit Facilities for which the Company could be liable is $30.0 million as of December 31, 2022. As of December 31, 2022, the Company's foreign subsidiaries are contingently liable for a total of $3.2 million in performance letters of credit, advance payments and retention guarantees, of which $0.7 million is secured by separate credit facilities with local financial institutions. The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $9.5 million as of December 31, 2022.
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.
The Company's GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018 with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a 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. GEFCO disputes the plaintiff's allegations and intends to defend this lawsuit vigorously. 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 disputes the plaintiffs' allegations and is 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 to various other claims and legal proceedings that have arisen 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 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 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.
17. Share-Based Compensation
Prior to its expiration on February 25, 2021, the Company's 2011 Incentive Plan ("2011 Plan") provided for the grant of share-based awards to employees, officers, directors and consultants. The 2011 Plan authorized the grant of options, share appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend equivalents and other share-based and cash awards. Under the 2011 Plan, the Company has outstanding restricted stock units, performance stock units and deferred stock units none of which participate in Company-paid dividends.
On April 27, 2021 ("Plan Effective Date"), the Company's shareholders approved the 2021 Equity Incentive Plan ("2021 Plan"), which is administered by the Company's Compensation Committee of the Board of Directors (the "Compensation Committee"). The 2021 Plan provides for a total of 1,280,000 shares to be reserved and available for issuance pursuant to the grant of new awards under the 2021 Plan. To the extent that all or a portion of an award (or, after December 31, 2020, an award granted under the 2011 Plan) is canceled, terminates, expires, is forfeited or lapses for any reason (including by reason of failure to meet time-based and/or performance-based vesting requirements), any unissued or forfeited shares originally subject to the award will be added back to the 2021 Plan share reserve and again be available for issuance pursuant to awards granted under the 2021
Plan. The 2021 Plan authorizes the grant of options, share appreciation rights, restricted stock, restricted stock units, deferred stock units, performance awards, dividend equivalents and other share-based and cash awards. Awards granted under the 2021 Plan may provide for dividend equivalents, which are subject to the same forfeiture, transfer restrictions and deferral terms as apply to the award to which they relate.
Share-based compensation expense of $6.8 million, $6.0 million and $5.1 million was recorded in the years ended December 31, 2022, 2021 and 2020, respectively, and recognized in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
Restricted Stock Units ("RSUs")
Prior to 2020, key members of management were awarded with restricted stock units ("RSUs") each year based upon the financial performance of the Company and its subsidiaries. Beginning in 2020, awards were determined based on a predetermined award value of the base salary of eligible employees aligned to a total compensation program.
Restricted stock unit awards generally vest ratably, at the end of each 12-month period, over a three-year service period. A participant generally must be employed by the Company on the vesting date of each award, however, awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at age 65. Additional RSUs are granted on an annual basis to the Company's outside directors under the Company's Non-Employee Directors Compensation Plan generally with a one-year vesting period.
Changes in restricted stock units during the year ended December 31, 2022 are as follows:
| | | | | | | | | | | | | | |
(in thousands, except weighted average grant date fair value) | | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
Unvested as of January 1, 2022 | | 187 | | | $ | 48.88 | |
Granted | | 147 | | | $ | 47.11 | |
Vested | | (108) | | | $ | 45.87 | |
Forfeited | | (11) | | | $ | 52.06 | |
Unvested as of December 31, 2022 | | 215 | | | $ | 48.89 | |
The following additional activity occurred for the Company's restricted stock units:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions, except weighted average grant date fair value per award granted) | | 2022 | | 2021 | | 2020 |
Weighted average grant date fair value per award | | $ | 47.11 | | | $ | 77.38 | | | $ | 34.99 | |
Fair value of awards vested and issued | | $ | 4.7 | | | $ | 9.3 | | | $ | 3.8 | |
Tax (expense) benefit for restricted stock compensation expense | | $ | (0.1) | | | $ | 3.8 | | | $ | (0.4) | |
As of December 31, 2022, the Company had $6.3 million of unrecognized compensation expense before tax related to restricted stock units, which is expected to be recognized over a weighted average period of 1.8 years.
Performance Stock Units ("PSUs")
Beginning in 2020, PSUs were granted to officers and other key employees. Vesting is subject to both the continued employment of the participant with the Company and the achievement of certain performance metrics established by the Compensation Committee. A participant generally must be employed by the Company on the vesting date of each award, however, a portion of a participant's awards will vest if employment terminates earlier on account of a qualifying employment termination event such as death, disability and retirement at age 65.
PSUs granted in 2020 were divided into three equal tranches with cliff vesting periods of one year, two years and three years. Awards granted beginning in 2021 generally cliff vest three years from the date of grant. The number of PSUs that vest may range from zero to 200% of the target shares granted and is determined for each tranche based on the achievement of two equally weighted performance criteria: ROIC and TSR. The PSUs are settled in common stock of the Company, with holders receiving one common share for each PSU that vests.
Changes in PSUs during the year ended December 31, 2022 are as follows:
| | | | | | | | | | | | | | |
(in thousands, except weighted average grant date fair value) | | Performance Stock Units | | Weighted Average Grant Date Fair Value |
Unvested as of January 1, 2022 | | 99 | | | $ | 63.16 | |
Granted | | 87 | | | $ | 51.56 | |
Vested* | | (25) | | | $ | 34.78 | |
Forfeited | | (10) | | | $ | 63.13 | |
Unvested as of December 31, 2022 | | 151 | | | $ | 61.24 | |
* The vested PSUs presented are based on the target amount of the award for the second tranche of the 2020 awards. In accordance with the terms of the underlying award agreements, the actual shares earned and distributed for the two-year performance period ended during 2022 was 121% of the target shares granted, rounded up the nearest whole share.
The following additional activity occurred for the Company's performance stock units:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions, except weighted average grant date fair value per award granted) | | 2022 | | 2021 | | 2020 |
Weighted average grant date fair value per award | | $ | 51.56 | | | $ | 92.98 | | | $ | 34.66 | |
Fair value of awards vested and issued | | $ | 1.7 | | | $ | 4.5 | | | $ | — | |
Tax benefit for performance stock compensation expense | | $ | 0.2 | | | $ | 2.3 | | | $ | — | |
As of December 31, 2022, the Company had $4.1 million of unrecognized compensation expense before tax related to PSUs, which is expected to be recognized over a weighted average period of 1.9 years.
Deferred Stock Units ("DSUs")
The Non-Employee Directors Compensation Plan allows for deferred delivery of shares granted as payment of directors' annual retainer. As of December 31, 2022, there were 28,427 fully vested deferred stock units, which were excluded from the tables above. The aggregate fair value of these units at December 31, 2022 was $1.2 million.
The 2021 Plan and the 2011 Equity Incentive Plan allow for certain participants to elect to receive vested units on a deferred basis. As of December 31, 2022, there were 10,383 fully vested deferred stock units, which are excluded from the unvested balances as of December 31, 2022 in the tables above. The aggregate fair value of these units at December 31, 2022 was $0.4 million.
18. Revenue Recognition
The following tables disaggregates the Company's revenue by major source for the periods ended December 31, 2022, 2021 and 2020 (excluding intercompany sales):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2022 |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Net Sales-Domestic: | | | | | | | | |
Equipment sales | | $ | 454.9 | | | $ | 219.7 | | | $ | 2.1 | | | $ | 676.7 | |
| | | | | | | | |
Parts and component sales | | 198.3 | | | 85.1 | | | 0.1 | | | 283.5 | |
Service and equipment installation revenue | | 21.5 | | | 0.7 | | | — | | | 22.2 | |
Used equipment sales | | 6.7 | | | — | | | — | | | 6.7 | |
Freight revenue | | 23.5 | | | 8.0 | | | — | | | 31.5 | |
Other | | 0.2 | | | (6.6) | | | 0.1 | | | (6.3) | |
Total domestic revenue | | 705.1 | | | 306.9 | | | 2.3 | | | 1,014.3 | |
| | | | | | | | |
Net Sales-International: | | | | | | | | |
Equipment sales | | 92.8 | | | 69.0 | | | 1.5 | | | 163.3 | |
| | | | | | | | |
Parts and component sales | | 42.7 | | | 39.9 | | | 0.1 | | | 82.7 | |
Service and equipment installation revenue | | 3.9 | | | 3.1 | | | 0.4 | | | 7.4 | |
Used equipment sales | | 0.5 | | | 2.2 | | | — | | | 2.7 | |
Freight revenue | | 2.4 | | | 1.3 | | | — | | | 3.7 | |
Other | | — | | | 0.3 | | | 0.1 | | | 0.4 | |
Total international revenue | | 142.3 | | | 115.8 | | | 2.1 | | | 260.2 | |
Total net sales | | $ | 847.4 | | | $ | 422.7 | | | $ | 4.4 | | | $ | 1,274.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2021 |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Net Sales-Domestic: | | | | | | | | |
Equipment sales | | $ | 374.8 | | | $ | 157.6 | | | $ | — | | | $ | 532.4 | |
| | | | | | | | |
Parts and component sales | | 180.2 | | | 77.7 | | | — | | | 257.9 | |
Service and equipment installation revenue | | 17.0 | | | 0.5 | | | — | | | 17.5 | |
Used equipment sales | | 9.4 | | | 0.8 | | | — | | | 10.2 | |
Freight revenue | | 20.9 | | | 5.9 | | | — | | | 26.8 | |
Other | | (0.6) | | | (2.1) | | | — | | | (2.7) | |
Total domestic revenue | | 601.7 | | | 240.4 | | | — | | | 842.1 | |
| | | | | | | | |
Net Sales-International: | | | | | | | | |
Equipment sales | | 94.5 | | | 72.0 | | | — | | | 166.5 | |
| | | | | | | | |
Parts and component sales | | 40.5 | | | 33.2 | | | — | | | 73.7 | |
Service and equipment installation revenue | | 3.1 | | | 1.9 | | | — | | | 5.0 | |
Used equipment sales | | 0.9 | | | 2.5 | | | — | | | 3.4 | |
Freight revenue | | 2.4 | | | 1.8 | | | — | | | 4.2 | |
Other | | 0.3 | | | 0.3 | | | — | | | 0.6 | |
Total international revenue | | 141.7 | | | 111.7 | | | — | | | 253.4 | |
Total net sales | | $ | 743.4 | | | $ | 352.1 | | | $ | — | | | $ | 1,095.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2020 |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Net Sales-Domestic: | | | | | | | | |
Equipment sales | | $ | 354.1 | | | $ | 152.0 | | | $ | — | | | $ | 506.1 | |
| | | | | | | | |
Parts and component sales | | 172.8 | | | 69.2 | | | — | | | 242.0 | |
Service and equipment installation revenue | | 21.0 | | | 1.2 | | | — | | | 22.2 | |
Used equipment sales | | 19.3 | | | 2.1 | | | — | | | 21.4 | |
Freight revenue | | 19.7 | | | 5.1 | | | — | | | 24.8 | |
Other | | 1.8 | | | (1.3) | | | — | | | 0.5 | |
Total domestic revenue | | 588.7 | | | 228.3 | | | — | | | 817.0 | |
| | | | | | | | |
Net Sales-International: | | | | | | | | |
Equipment sales | | 78.3 | | | 57.8 | | | — | | | 136.1 | |
| | | | | | | | |
Parts and component sales | | 29.1 | | | 29.4 | | | — | | | 58.5 | |
Service and equipment installation revenue | | 2.4 | | | 1.7 | | | — | | | 4.1 | |
Used equipment sales | | 2.4 | | | 2.2 | | | — | | | 4.6 | |
Freight revenue | | 2.0 | | | 1.6 | | | — | | | 3.6 | |
Other | | 0.2 | | | 0.3 | | | — | | | 0.5 | |
Total international revenue | | 114.4 | | | 93.0 | | | — | | | 207.4 | |
Total net sales | | $ | 703.1 | | | $ | 321.3 | | | $ | — | | | $ | 1,024.4 | |
As of December 31, 2022, the Company had contract assets of $3.8 million and contract liabilities, excluding customer deposits, of $5.5 million, of which $2.9 million was deferred revenue related to extended warranties. As of December 31, 2021, the Company had contract assets of $3.2 million and contract liabilities, excluding customer deposits, of $5.6 million, of which $2.7 million was deferred revenue related to extended warranties. Total extended warranty sales were $1.1 million, $1.5 million and $1.7 million in 2022, 2021 and 2020, respectively.
19. Operations by Industry Segment and Geographic Area
The Company has two reportable segments, each of which comprise sites based upon the nature of the products produced or services provided, 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. Based on a review of these factors, the Company's India and Thailand sites changed reportable segments beginning January 1, 2022. The India site was previously incorporated into the Materials Solutions segment and has moved to the Infrastructure Solutions segment while the Thailand site, which was previously included in the Infrastructure Solutions segment, has moved to the Materials Solutions segment.
Beginning January 1, 2022, the measure of segment profit or loss used by the Company's Chief Executive Officer, whom is determined to be the chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments changed to Segment Operating Adjusted EBITDA. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance. The Company's presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and is not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented.
Prior periods have been revised to reflect both the segment composition change and the segment profit or loss metric noted above for comparability.
During the first quarter of 2022, the Company revised the allocation of certain of its functional expenses between the Corporate and Other category and the reportable segments primarily related to the Company's annual incentive compensation. Prior periods have not been revised for this change.
A brief description of each segment is as follows:
Infrastructure Solutions – Sites within the Infrastructure Solutions segment design, engineer, manufacture and market a complete line of asphalt plants, concrete plants and their related components and ancillary equipment as well as supplying asphalt road construction equipment, industrial thermal systems and other heavy equipment. The sites based in North America within the Infrastructure Solutions segment are primarily manufacturing operations while those located outside of North America, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of the Company's manufacturing sites. The primary purchasers of the products produced by this segment are asphalt and concrete producers, highway and heavy equipment contractors, utility contractors, forestry and environmental recycling contractors and domestic and foreign governmental agencies.
Materials Solutions – Sites within the Materials Solutions segment design and manufacture heavy processing equipment, in addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. The sites within the Materials Solutions segment are primarily manufacturing operations with the AME site functioning to market, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of the Company's manufacturing sites. Additionally, the Materials Solutions segment offers consulting and engineering services to provide complete "turnkey" processing systems. The principal purchasers of aggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, demolition, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal authorities, power stations and foreign and domestic governmental agencies.
Corporate and Other – The Corporate and Other category consists primarily of the parent company, the Company's captive insurance company, Astec Insurance, 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. The parent company and the captive insurance company provide support and corporate oversight for other sites. The controls and automation business manufactures hardware and software products that are marketed independently as well as included in certain products of the Company's other segments.
The accounting policies of the reportable segments are the same as those described in Note 2, Basis of Presentation and Significant Accounting Policies. Intersegment sales and transfers between foreign subsidiaries are valued at prices comparable to those for unrelated parties.
Segment information for 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Revenues from external customers | | $ | 847.4 | | | $ | 422.7 | | | $ | 4.4 | | | $ | 1,274.5 | |
Intersegment revenues | | 8.9 | | | 47.2 | | | — | | | 56.1 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Segment Operating Adjusted EBITDA | | 73.0 | | | 44.5 | | | (46.5) | | | 71.0 | |
| | | | | | | | |
Assets | | 1,016.3 | | | 719.5 | | | 676.8 | | | 2,412.6 | |
Capital expenditures | | 28.9 | | | 11.1 | | | 0.7 | | | 40.7 | |
Segment information for 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Revenues from external customers | | $ | 743.4 | | | $ | 352.1 | | | $ | — | | | $ | 1,095.5 | |
Intersegment revenues | | 4.2 | | | 30.4 | | | — | | | 34.6 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Segment Operating Adjusted EBITDA | | 73.9 | | | 39.1 | | | (48.2) | | | 64.8 | |
| | | | | | | | |
Assets | | 989.6 | | | 668.8 | | | 649.7 | | | 2,308.1 | |
Capital expenditures | | 12.2 | | | 5.6 | | | 2.3 | | | 20.1 | |
Segment information for 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Revenues from external customers | | $ | 703.1 | | | $ | 321.3 | | | $ | — | | | $ | 1,024.4 | |
Intersegment revenues | | 33.5 | | | 40.7 | | | — | | | 74.2 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Segment Operating Adjusted EBITDA | | 79.9 | | | 39.6 | | | (38.9) | | | 80.6 | |
| | | | | | | | |
Assets | | 937.4 | | | 638.7 | | | 535.8 | | | 2,111.9 | |
Capital expenditures | | 7.9 | | | 4.8 | | | 2.7 | | | 15.4 | |
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Net (loss) income attributable to controlling interest | | | | | | |
Segment Operating Adjusted EBITDA | | $ | 71.0 | | | $ | 64.8 | | | $ | 80.6 | |
Adjustments | | | | | | |
Transformation program | | (25.5) | | | (13.4) | | | — | |
Curtailment and settlement (loss) gain on pension and postretirement benefits, net | | — | | | (4.7) | | | 0.5 | |
Restructuring and other related charges | | (6.2) | | | (2.9) | | | (14.3) | |
Asset impairment | | (3.5) | | | (0.2) | | | (4.4) | |
Gain on sale of property, equipment and business, net | | 0.7 | | | 0.6 | | | 7.8 | |
Transaction costs | | (2.0) | | | — | | | — | |
Interest expense, net | | (1.5) | | | (0.6) | | | 0.1 | |
Depreciation and amortization | | (27.9) | | | (30.2) | | | (26.9) | |
Income tax provision (benefit) | | (5.0) | | | 2.1 | | | 1.5 | |
Net loss (income) attributable to noncontrolling interest | | 0.5 | | | (0.1) | | | — | |
(Elimination) recapture of intersegment profit | | (0.7) | | | 0.4 | | | 1.1 | |
Net (loss) income attributable to controlling interest | | $ | (0.1) | | | $ | 15.8 | | | $ | 46.0 | |
| | | | | | |
Assets | | | | | | |
Total segment assets | | $ | 2,412.6 | | | $ | 2,308.1 | | | $ | 2,111.9 | |
Elimination of intercompany profit in inventory | | (3.0) | | | (2.4) | | | (2.8) | |
Elimination of intercompany receivables | | (883.5) | | | (921.0) | | | (906.2) | |
Elimination of investment in subsidiaries | | (481.2) | | | (456.8) | | | (329.6) | |
Other | | (30.5) | | | (22.1) | | | (26.6) | |
Total consolidated assets | | $ | 1,014.4 | | | $ | 905.8 | | | $ | 846.7 | |
Sales into major geographic regions were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
United States | | $ | 1,014.3 | | | $ | 842.1 | | | $ | 817.0 | |
Canada | | 63.0 | | | 68.1 | | | 57.9 | |
Australia and Oceania | | 46.7 | | | 43.4 | | | 28.5 | |
Africa | | 36.1 | | | 33.9 | | | 22.4 | |
Other European Countries | | 28.0 | | | 32.7 | | | 23.2 | |
Brazil | | 24.8 | | | 21.5 | | | 20.4 | |
South America (excluding Brazil) | | 20.0 | | | 15.2 | | | 21.9 | |
Mexico | | 10.7 | | | 13.5 | | | 2.9 | |
Central America (excluding Mexico) | | 10.7 | | | 3.9 | | | 1.3 | |
Other Asian Countries | | 10.2 | | | 5.0 | | | 2.7 | |
Middle East | | 3.1 | | | 2.9 | | | 3.2 | |
India | | 2.9 | | | 2.7 | | | 0.5 | |
Post-Soviet States (excluding Russia) | | 2.7 | | | 3.6 | | | 3.1 | |
Japan and Korea | | 0.4 | | | 2.7 | | | 8.1 | |
West Indies | | 0.4 | | | 1.3 | | | 6.1 | |
Russia | | 0.3 | | | 2.6 | | | 4.0 | |
China | | 0.1 | | | 0.4 | | | 1.2 | |
Other | | 0.1 | | | — | | | — | |
Total foreign | | 260.2 | | | 253.4 | | | 207.4 | |
Total consolidated sales | | $ | 1,274.5 | | | $ | 1,095.5 | | | $ | 1,024.4 | |
"Property and equipment, net" by major geographic region is as follows:
| | | | | | | | | | | | | | |
| | December 31, |
(in millions) | | 2022 | | 2021 |
United States | | $ | 142.4 | | | $ | 140.3 | |
United Kingdom | | 10.3 | | | 11.7 | |
Brazil | | 6.9 | | | 5.6 | |
Canada | | 5.2 | | | 5.3 | |
Australia | | 4.4 | | | 4.6 | |
South Africa | | 4.1 | | | 3.9 | |
Chile | | 0.2 | | | 0.3 | |
Other | | 0.1 | | | — | |
Total foreign | | 31.2 | | | 31.4 | |
Total property and equipment, net | | $ | 173.6 | | | $ | 171.7 | |
20. Accumulated Other Comprehensive Loss
"Accumulated other comprehensive loss" is comprised of foreign currency translation adjustments of $40.1 million and $32.4 million as of December 31, 2022 and 2021, respectively.
21. Other Expenses and Income
Other (expenses) income, net, consists of the following:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Foreign exchange (losses) gains, net | | $ | (0.9) | | | $ | (0.5) | | | $ | 1.3 | |
Investment loss, net | | (0.9) | | | (0.3) | | | — | |
| | | | | | |
Curtailment and settlement (loss) gain on pension and postretirement benefits, net | | — | | | (4.7) | | | 0.5 | |
Gain on disposal of subsidiary | | — | | | — | | | 1.6 | |
Other, net | | 0.2 | | | — | | | 0.5 | |
Total | | $ | (1.6) | | | $ | (5.5) | | | $ | 3.9 | |
22. Strategic Transformation and Restructuring, Impairment and Other Asset Charges
The Company's Simplify, Focus and Grow Strategic Transformation ("SFG") initiative, which began in 2019, generally includes facility rationalization, asset impairment, workforce reduction, the associated costs of organizational integration activities and strategic transformational initiatives. As part of the SFG initiative several strategic decisions have been made to divest of underperforming manufacturing sites or product lines, including to close certain subsidiaries, close and sell manufacturing sites and relocate the product lines manufactured at each of these sites to other Company locations; exit the oil, gas and water well product lines; and sell certain assets, which are included in "Restructuring, impairment and other asset charges, net" on the Company's Consolidated Statements of Operations.
The Company also has a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across the global organization underway, which will replace much of the existing disparate core financial systems. The upgraded ERP will initially convert internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms. This new ERP system will provide for standardized processes and integrated technology solutions that enable the Company to better leverage automation and process efficiency. An implementation of this scale is a major financial undertaking and requires substantial time and attention of management and key employees.
In addition, in the first quarter of 2022, a lean manufacturing initiative at one of the Company's largest sites was initiated and is expected to drive improvement in gross margin at that site. This improvement is intended to serve as the optimal blueprint for the Company's other manufacturing facilities.
Costs incurred related to these strategic transformational initiatives were $25.5 million and $13.4 million in 2022 and 2021, respectively, and are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Deferred implementation costs associated with the ERP implementation total $17.8 million, of which $1.2 million and $16.6 million were included in "Prepaid expenses and other assets" and "Other long-term assets" in the Consolidated Balance Sheets as of December 31, 2022, respectively. Deferred implementation costs totaled $1.3 million and were included in "Other long-term assets" in the Consolidated Balance Sheets as of December 31, 2021. These deferred implementation costs will be amortized ratably over the remaining contract term once the ERP is ready for use.
In addition, the Company periodically sells or disposes of its assets in the normal course of its business operations as they are no longer needed or used and may incur gains or losses on these disposals. Certain of the costs associated with these decisions are separately identified as restructuring. The Company reports asset impairment charges and gains or losses on the sales of property and equipment collectively, with restructuring charges in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations to the extent they are experienced.
The restructuring, asset impairment charges and net gain on sale of property and equipment incurred in 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Restructuring related charges: | | | | | | |
Costs associated with leadership change | | $ | 4.4 | | | $ | — | | | $ | — | |
Costs associated with closing Enid | | 1.0 | | | 0.7 | | | 2.5 | |
Costs associated with closing Tacoma | | 0.8 | | | 1.6 | | | 0.9 | |
Costs associated with closing Mequon | | — | | | 0.6 | | | 3.3 | |
Costs associated with closing Albuquerque | | — | | | — | | | 1.3 | |
Costs associated with closing AMM | | — | | | — | | | 0.3 | |
| | | | | | |
Workforce reductions at multiple sites | | — | | | — | | | 1.3 | |
Other restructuring charges | | — | | | — | | | 0.3 | |
Total restructuring related charges | | 6.2 | | | 2.9 | | | 9.9 | |
| | | | | | |
Asset impairment charges: | | | | | | |
Airplane impairment charges | | — | | | — | | | 2.3 | |
Goodwill impairment charges | | — | | | — | | | 1.6 | |
Other impairment charges | | 3.5 | | | 0.2 | | | 0.5 | |
Total asset impairment charges | | 3.5 | | | 0.2 | | | 4.4 | |
| | | | | | |
Gain on sale of property and equipment, net: | | | | | | |
Gain on sale of property and equipment, net | | (0.7) | | | (0.6) | | | (6.2) | |
Total gain on sale of property and equipment, net | | (0.7) | | | (0.6) | | | (6.2) | |
| | | | | | |
Restructuring, impairment and other asset charges, net | | $ | 9.0 | | | $ | 2.5 | | | $ | 8.1 | |
Restructuring charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Infrastructure Solutions | | $ | 1.8 | | | $ | 2.4 | | | $ | 6.2 | |
Materials Solutions | | — | | | 0.5 | | | 3.6 | |
Corporate and Other | | 4.4 | | | — | | | 0.1 | |
Total restructuring related charges | | $ | 6.2 | | | $ | 2.9 | | | $ | 9.9 | |
Impairment charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Infrastructure Solutions | | $ | 2.5 | | | $ | — | | | $ | 1.9 | |
Materials Solutions | | — | | | 0.2 | | | (0.2) | |
Corporate and Other | | 1.0 | | | — | | | 2.7 | |
Total impairment charges | | $ | 3.5 | | | $ | 0.2 | | | $ | 4.4 | |
The net gain on sale of property and equipment by segment are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
(in millions) | | 2022 | | 2021 | | 2020 |
Infrastructure Solutions | | $ | (0.7) | | | $ | (0.5) | | | $ | (1.5) | |
Materials Solutions | | — | | | (0.1) | | | (4.7) | |
| | | | | | |
Total gain on sale of property and equipment, net | | $ | (0.7) | | | $ | (0.6) | | | $ | (6.2) | |
Restructuring charges accrued, but not paid, were $4.7 million and $1.2 million as of December 31, 2022 and December 31, 2021, respectively.
In late 2019, the oil and gas drilling product lines produced at the Enid, Oklahoma location ("Enid") were impaired and discontinued. Additional restructuring costs of $1.0 million, $0.7 million and $2.5 million were incurred during 2022, 2021 and 2020, respectively. Enid's land and building assets totaling $5.1 million were included in "Assets held for sale" in the Consolidated Balance Sheets as of December 31, 2021. An impairment charge of $0.4 million was incurred during 2022 to record these assets at fair value less costs to sell. The property sold in the fourth quarter of 2022 for approximately $4.7 million.
In October 2020, the Company closed a transaction for the sale of Enid's water well assets, which included equipment, inventories and intangible assets. The purchase price for this transaction was approximately $6.9 million, net of purchase price adjustments completed in January 2021 whereby the Company had an obligation to pay the buyer $1.1 million. This obligation was settled in the first quarter of 2021.
In June 2020, the Company announced the closing of the Mequon site in order to simplify and consolidate operations. The Mequon facility ceased production operations in August 2020, and the sale of the land and building for $8.5 million was completed in December 2020. The Company recorded a gain on the sale of $4.7 million, which was recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the fourth quarter of 2020. Charges primarily related to production facility transition activities of $0.6 million were incurred during 2021.
In January 2021, the Company announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. In conjunction with this action, the Company recorded $0.8 million, $1.6 million and $0.9 million of restructuring related charges during 2022, 2021 and 2020, respectively, in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The Tacoma facility's land, building and certain equipment assets of $15.4 million, which are currently being actively marketed for sale, are recorded as held for sale in its Consolidated Balance Sheets at December 31, 2022.
During the second quarter of 2022, the Company determined that certain manufacturing equipment contracted to be constructed by a third-party vendor, which had been prepaid, would not be recovered. Impairment charges of $2.1 million were recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the three months ended June 30, 2022. An additional $0.9 million of impairment charges were incurred related to abandoned in-process internally developed software that was determined to be impaired during the second quarter of 2022.
Effective as of January 6, 2023, Mr. Barry A. Ruffalo's employment as President and Chief Executive Officer was terminated. In connection with his separation, the Company entered into an agreement with Mr. Ruffalo (the "Separation Agreement") pursuant to which, Mr. Ruffalo is entitled to certain severance payments and benefits. For the year ended December 31, 2022, there were $4.4 million of restructuring costs incurred related to Mr. Ruffalo's separation in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. The Separation Agreement also includes a release and waiver by Mr. Ruffalo and other customary provisions. Additional costs are anticipated to be incurred in the first quarter of 2023 for this separation related to the modification of Mr. Ruffalo's equity awards as well as third-party transition support costs.
Management continually reviews the Company's organizational structure and operations to ensure they are optimized and aligned with achieving near-term and long-term operational and profitability targets. In connection with this review, in February 2023, the Company implemented a limited restructuring plan to right-size and reduce the fixed cost structure of certain overhead departments. Charges of $3.0 million to $4.0 million for employee termination costs, excluding equity award modifications, are anticipated to be incurred primarily in the first quarter of 2023.