NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in thousands, except per share amounts unless otherwise specified)
1. Summary of Significant Accounting Policies
Basis of Presentation
- The consolidated financial statements include the accounts of Astec Industries, Inc. and its domestic and foreign subsidiaries (the "Company"). The Company's significant wholly-owned and consolidated subsidiaries at December 31, 2016 are as follows:
Astec Australia Pty Ltd
|
Astec do Brasil Fabricacao de Equipamentos Ltda. (92% owned)
|
Astec, Inc.
|
Astec Insurance Company
|
Astec Mobile Machinery GmbH
|
Astec Mobile Screens, Inc.
|
Breaker Technology, Inc.
|
Breaker Technology Ltd.
|
Carlson Paving Products, Inc.
|
CEI Enterprises, Inc.
|
GEFCO, Inc.
|
Heatec, Inc.
|
Johnson Crushers International, Inc.
|
Kolberg-Pioneer, Inc.
|
Osborn Engineered Products SA (Pty) Ltd
|
Peterson Pacific Corp.
|
(99% owned)
|
Power Flame Incorporated
|
Roadtec, Inc.
|
Telestack Limited
|
Telsmith, Inc.
|
|
All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
- The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from those estimates.
Foreign Currency Translation
- Subsidiaries located in Australia, Brazil, Canada, Germany, Northern Ireland, and South Africa operate primarily using local functional currencies. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of accumulated other comprehensive loss. Foreign currency transaction gains and losses, net are included in cost of sales and amounted to losses of $246, $1,377 and $1,971 in 2016, 2015 and 2014, respectively.
Fair Value of Financial Instruments
- For cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable, the carrying amount approximates the fair value because of the short-term nature of those instruments. Trading equity investments are valued at their estimated fair value based on their quoted market prices and debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service.
Financial assets and liabilities are categorized as of the end of each reporting period based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
Level 1 -
Unadjusted quoted prices in active markets for identical assets or liabilities.
|
Level 2 -
|
Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
|
|
Level 3 -
|
Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
|
All financial assets and liabilities held by the Company at December 31, 2016 and 2015 are classified as Level 1 or Level 2, as summarized in Note 3, Fair Value Measurements.
Cash and Cash Equivalents
- All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash and cash equivalents.
Investments
- Investments consist primarily of investment-grade marketable securities. Trading securities are carried at fair value, with unrealized holding gains and losses included in net income. Realized gains and losses are accounted for on the specific identification method. Purchases and sales are recorded on a trade date basis. Management determines the appropriate classification of its investments at the time of acquisition and reevaluates such determination at each balance sheet date.
Concentration of Credit Risk
- The Company sells products to a wide variety of customers. Accounts receivable are carried at their outstanding principal amounts, less an allowance for doubtful accounts. The Company extends credit to its customers based on an evaluation of the customers' financial condition generally without requiring collateral, although the Company normally requires advance payments or letters of credit on large equipment orders. Credit risk is driven by conditions within the economy and the industry and is principally dependent on each customer's financial condition. To minimize credit risk, the Company monitors credit levels and financial conditions of customers on a continuing basis. After considering historical trends for uncollectible accounts, current economic conditions and specific customer recent payment history and financial stability, the Company records an allowance for doubtful accounts at a level which management believes is sufficient to cover probable credit losses. Amounts are deemed past due when they exceed the payment terms agreed to by the customer in the sales contract. Past due amounts are charged off when reasonable collection efforts have been exhausted and the amounts are deemed uncollectible by management. As of December 31, 2016, concentrations of credit risk with respect to receivables are limited due to the wide variety of customers.
Allowance for Doubtful Accounts
- The following table represents a rollforward of the allowance for doubtful accounts for the years ended December 31, 2016, 2015 and 2014:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Allowance balance, beginning of year
|
|
$
|
1,837
|
|
|
$
|
2,248
|
|
|
$
|
1,708
|
|
Provision
|
|
|
280
|
|
|
|
18
|
|
|
|
1,011
|
|
Write offs
|
|
|
(560
|
)
|
|
|
(357
|
)
|
|
|
(465
|
)
|
Other
|
|
|
(46
|
)
|
|
|
(72
|
)
|
|
|
(6
|
)
|
Allowance balance, end of year
|
|
$
|
1,511
|
|
|
$
|
1,837
|
|
|
$
|
2,248
|
|
Inventories
- The Company's inventory is comprised of raw materials, work-in-process, finished goods and used equipment.
Raw material inventory is comprised of purchased steel and other purchased items for use in the manufacturing process or held for sale for the after-market parts business. The category also includes the manufacturing cost of completed equipment sub-assemblies produced for either integration into equipment manufactured at a later date or for sale in the Company's after-market parts business.
Work-in-process inventory consists of the value of materials, labor and overhead incurred to date in the manufacturing of incomplete equipment or incomplete equipment sub-assemblies being produced.
Finished goods inventory consists of completed equipment manufactured for sale to customers.
Used equipment inventory consists of equipment accepted in trade or purchased on the open market. The category also includes equipment rented to prospective customers on a short-term or month-to-month basis. Used equipment is valued at the lower of acquired or trade-in cost or net realizable value determined on each separate unit. Each unit of rental equipment is valued at its original manufacturing cost and is reduced by an appropriate reserve each month during the period of time the equipment is rented.
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, which requires the Company to make specific estimates, assumptions and judgments in determining the amount, if any, of reductions in the valuation of inventories to their net realizable values. The net realizable values of the Company's products are impacted by a number of factors, including changes in the price of steel, competitive sales pricing, quantities of inventories on hand, the age of the individual inventory items, market acceptance of the Company's products, the Company's normal gross margins, actions by our competitors, the condition of our used and rental inventory and general economic factors. Once an inventory item's value has been deemed to be less than cost, a net realizable value allowance is calculated and a new "cost basis" for that item is effectively established. This new cost is retained for that item until such time as the item is disposed of or the Company determines that an additional write-down is necessary. Additional write-downs may be required in the future based upon changes in assumptions due to general economic downturns in the markets in which the Company operates, changes in competitor pricing, new product design or other technological advances introduced by the Company or its competitors and other factors unique to individual inventory items.
The most significant component of the Company's inventory is steel. A significant decline in the market price of steel could result in a decline in the market value of the equipment or parts we sell. During periods of significant declining steel prices, the Company reviews the valuation of its inventories to determine if reductions are needed in the recorded value of inventory on hand to its net realizable value.
The Company reviews the individual items included in its finished goods, used equipment and rental equipment inventory on a model-by-model or unit-by-unit basis to determine if any item's net realizable value is below its carrying value. This analysis is expanded to include items in work-in-process and raw material inventory if factors indicate those items may also be impacted. In performing this review, judgments are made and, in addition to the factors discussed above, additional consideration is given to the age of the specific items of used or rental inventory, prior sales offers or lack thereof, the physical condition of the specific items and general market conditions for the specific items. Additionally, an analysis of raw material inventory is performed to calculate reserves needed for obsolete inventory based upon quantities of items on hand, the age of those items and their recent and expected future usage or sale.
When the Company determines that the value of inventory has become impaired through damage, deterioration, obsolescence, changes in price levels, excessive levels of inventory or other causes, the Company reduces the carrying value to the net realizable value based on estimates, assumptions and judgments made from the information available at that time. Abnormal amounts of idle facility expense, freight, handling cost and wasted materials are recognized as current period charges.
Property and Equipment
- Property and equipment is stated at cost. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: airplanes (20 years), buildings (40 years) and equipment (3 to 10 years). Both accelerated and straight-line methods are used for tax compliance purposes. Routine repair and maintenance costs and planned major maintenance are expensed when incurred.
Goodwill and Other Intangible Assets
- The Company classifies intangible assets as either intangible assets with definite lives subject to amortization or goodwill.
The Company tests intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the future undiscounted cash flows expected to be generated from the use of the asset.
The Company determines the useful lives of identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors considered when determining useful lives include the contractual terms of agreements, the history of the asset, the Company's long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized over their useful lives as follows: dealer network and customer relationships: 8-19 years; trade names: 15 years; other: 6-19 years.
Goodwill is not amortized. The Company tests goodwill for impairment annually or more frequently if events or circumstances indicate that goodwill might be impaired. The tests utilize a two-step method at the reporting unit level. The Company's reporting units are typically defined as either subsidiaries or a combination of subsidiaries.
The first step of the goodwill impairment test compares book value of a reporting unit, including goodwill, with the unit's fair value. In this first step, the Company estimates the fair values of each of its reporting units that have goodwill using the income approach.
The income approach uses a reporting unit's projection of estimated future operating results and cash flows which are then discounted using a weighted average cost of capital determined based on current market conditions for the individual reporting unit. The projection uses management's best estimates of cash flows over the projection period based on estimates of annual and terminal growth rates in sales and costs, changes in operating margins, selling, general and administrative expenses, working capital requirements and capital expenditures.
The fair value of reporting units that do not have goodwill are estimated using either the income or market approaches, depending on which approach is to be the most appropriate for each reporting unit. The fair value of the reporting units that serve operating units in supporting roles, such as the captive insurance company and the corporate reporting unit are estimated using the cost approach. The sum of the fair values of all reporting units is compared to the fair value of the consolidated Company, calculated using the market approach, which is inferred from the market capitalization of the Company at the date of the valuation, to confirm that the Company's estimation of the fair value of its reporting units is reasonable.
If the book value of a reporting unit exceeds its fair value, an indication of possible goodwill impairment, the second step of the impairment test must be performed to determine the amount, if any, of goodwill impairment. In this second step, the total implied fair value of the reporting unit's goodwill is estimated by allocating the fair value of the reporting unit to all its assets, including any unrecognized intangible assets and liabilities other than goodwill. The difference between the total fair value of the reporting unit and the fair value of its assets and liabilities other than goodwill is the implied fair value of its goodwill. The amount of any impairment loss is equal to the excess, if any, of the book value of the goodwill over the implied fair value of its goodwill.
Determining the "step one" fair values of the Company's reporting units involves the use of significant estimates and assumptions. Due to the inherent uncertainty involved in making these estimates and assumptions, actual results could differ materially from those estimates.
Impairment of Long-lived Assets
- In the event that facts and circumstances indicate the carrying amounts of long-lived assets may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the carrying amount for each asset (or group of assets) to determine if a write-down is required. If this review indicates that the assets will not be recoverable, the carrying values of the impaired assets are reduced to their estimated fair value. Fair value is estimated using discounted cash flows, prices for similar assets or other valuation techniques.
Self-Insurance Reserves
- The Company retains the risk for a portion of its workers' compensation claims and general liability claims by way of a captive insurance company, Astec Insurance Company ("Astec Insurance" or "the captive"). Astec Insurance is incorporated under the laws of the state of Vermont. The objectives of Astec Insurance are to improve control over and reduce the cost of claims; to improve focus on risk reduction with the development of a program structure which rewards proactive loss control; and to ensure management participation in the defense and settlement process for claims.
For general liability claims, the captive is liable for the first $1,000 per occurrence and $3,000 per year in the aggregate. The Company carries general liability, excess liability and umbrella policies for claims in excess of amounts covered by the captive.
For workers' compensation claims, the captive is liable for the first $350 per occurrence and $3,250 per year in the aggregate. The Company utilizes a large national insurance company as third party administrator for workers' compensation claims and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.
The financial statements of the captive are consolidated into the financial statements of the Company. The short-term and long-term reserves for claims and potential claims related to general liability and workers' compensation under the captive are included in accrued loss reserves or other long-term liabilities, respectively, in the consolidated balance sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined to cover the ultimate cost of each claim based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the foreseeable future.
The Company is self-insured for health and prescription claims under its Group Health Insurance Plan at all but one of the Company's domestic manufacturing subsidiaries. The Company carries reinsurance coverage to limit its exposure for individual health claims above certain limits. Third parties administer health claims and prescription medication claims. The Company maintains a reserve for the self-insured health plan which is included in accrued loss reserves on the Company's consolidated balance sheets. This reserve includes both unpaid claims and an estimate of claims incurred but not reported, based on historical claims and payment experience. Historically the reserves have been sufficient to provide for claims payments. Changes in actual claims experience or payment patterns could cause the reserve to change, but the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.
The remaining U.S. subsidiary is covered under a fully insured group health plan. Employees of the Company's foreign subsidiaries are insured under separate health plans. No reserves are necessary for these fully insured health plans.
Revenue Recognition
- Revenue is generally recognized on sales at the point in time when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product has been delivered or services have been rendered and there is a reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of products at a specified price with specified delivery terms. A significant portion of the Company's equipment sales represents equipment produced in the Company's plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements. Most of the equipment sold by the Company is based on standard configurations, some of which are modified to meet customer needs or specifications. The Company provides customers with technical design and performance specifications and performs pre-shipment testing to ensure the equipment performs according to design specifications, regardless of whether the Company provides installation services in addition to selling the equipment.
Certain contracts include terms and conditions pursuant to which the Company recognizes revenues upon completion of equipment production, which is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and risk of ownership and when collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company's inventory prior to revenue recognition.
The Company has certain sales accounted for as multiple-element arrangements, whereby revenue attributable to the sale of a product is recognized when the product is shipped, and the revenue attributable to services provided with respect to the product (such as installation services) is recognized when the service is performed. Consideration is allocated to deliverables using the relative selling price method using vendor specific objective evidence, if it exists. Otherwise, the Company uses third-party evidence of selling price or the Company's best estimate of the selling price for the deliverables. The Company evaluates sales with multiple deliverable elements (such as an agreement to deliver equipment and related installation services) to determine whether revenue related to individual elements should be recognized separately, or as a combined unit. In addition to the previously mentioned general revenue recognition criteria, the Company only recognizes revenue on individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the customer on a standalone basis and there is no right of return.
The Company has certain sales accounted for under the percentage of completion method using the ratio of costs incurred to estimated total costs. Revenue, in an amount equal to cost incurred, is recognized until there is sufficient information to determine the estimated profit on the project with a reasonable level of certainty. The factors considered in this evaluation include the stage of design completion, the stage of equipment manufacturing completion, the state of construction completion, the status of outstanding subcontracts, certainty of quantities of labor and materials, certainty of schedule and the relationship with the customer.
The Company presents in the consolidated statements of income any taxes assessed by a governmental authority that are directly imposed on revenue-producing transactions between the Company and its customers, such as sales, use, value-added and some excise taxes, on a net (excluded from revenue) basis.
Advertising Expense
- The cost of advertising is expensed as incurred. The Company incurred $4,045, $4,231, and $3,657 in advertising costs during 2016, 2015 and 2014, respectively, which is included in selling, general and administrative expenses.
Income Taxes
- Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish valuation allowances against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized.
The Company evaluates a tax position to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit to recognize and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, no benefit is recognized. The Company is periodically audited by U.S. federal and state as well as foreign tax authorities. While it is often difficult to predict final outcome or timing of resolution of any particular tax matter, the Company believes its reserve for uncertain tax positions is adequate to reduce the uncertain positions to the greatest amount of benefit that is more likely than not realizable.
Product Warranty Reserve
- The Company accrues for the estimated cost of product warranties at the time revenue is recognized. Warranty obligations by product line or model are evaluated based on historical warranty claims experience. For equipment, the Company's standard product warranty terms generally include post-sales support and repairs of products at no additional charge for periods ranging from three months to two years or up to a specified number of hours of operation. For parts from component suppliers, the Company relies on the original manufacturer's warranty that accompanies those parts. Generally, Company fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, the Company's policy is to replace fabricated parts at no additional charge.
The Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers. Estimated warranty obligations are based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from our estimates, revisions to the estimated warranty liability may be required.
Pension and Retirement Plans
- The determination of obligations and expenses under the Company's pension plan is dependent on the Company's selection of certain assumptions used by independent actuaries in calculating such amounts. Those assumptions are described in Note 12, Pension and Retirement Plans and include among others, the discount rate, expected return on plan assets and the expected mortality rates. In accordance with U.S. generally accepted accounting principles, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense in such periods. Significant differences in actual experience or significant changes in the assumptions used may materially affect the pension obligations and future expenses.
The Company recognizes the overfunded or underfunded status of its pension plan as an asset or liability. Actuarial gains and losses, amortization of prior service cost (credit) and amortization of transition obligations are recognized through other comprehensive income in the year in which the changes occur. The Company measures the funded status of its pension plan as of the date of the Company's fiscal year-end.
Stock-based Compensation
-
The Company recognizes the cost of employee services received in exchange for equity awards in the financial statements based on the grant date calculated fair value of the awards. The Company recognizes stock-based compensation expense over the period during which an employee is required to provide service in exchange for the award (the vesting period). The Company's equity awards are further described in Note 16, Shareholders' Equity.
Earnings Per Share
-
Basic earnings per share is based on the weighted average number of common shares outstanding and diluted earnings per share includes potential dilutive effects of restricted stock units and shares held in the Company's supplemental executive retirement plan.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted earnings per share:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
22,992
|
|
|
|
22,934
|
|
|
|
22,819
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options and restricted stock units
|
|
|
85
|
|
|
|
123
|
|
|
|
176
|
|
Supplemental executive retirement plan
|
|
|
65
|
|
|
|
63
|
|
|
|
110
|
|
Denominator for diluted earnings per share
|
|
|
23,142
|
|
|
|
23,120
|
|
|
|
23,105
|
|
Antidilutive options were not included in the diluted earnings per share computation for the years presented. The number of antidilutive options in each of the three years ended December 31, 2016 was not material.
Derivatives and Hedging Activities
- The Company recognizes all derivatives in the consolidated balance sheets at their fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through income or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a derivative's change in fair value is immediately recognized in income. From time to time the Company's foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuation in currency exchange rates. See Note 13, Derivative Financial Instruments, regarding foreign exchange contracts outstanding at December 31, 2016 and 2015.
Shipping and Handling Fees and Cost
- The Company records revenues earned for shipping and handling as revenue, while the cost of shipping and handling is classified as cost of goods sold.
Business Combinations
- The Company accounts for business combinations using the acquisition method. Accordingly, intangible assets are recorded apart from goodwill if they arise from contractual or legal rights or if they are separable from goodwill. Related third party acquisition costs are expensed as incurred and contingent consideration is booked at its fair value as part of the purchase price.
Subsequent Events Review
- Management has evaluated events occurring between December 31, 2016 and the date these consolidated financial statements were filed with the Securities and Exchange Commission for proper recording or disclosure therein.
Recent Accounting Pronouncements
- In May 2014, the Financial Accounting Standards Board ('FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers", which supersedes existing revenue guidance under U.S. GAAP. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The implementation of this new standard will require companies to use more judgment and to make more estimates than under current guidance. The standard, as amended, is effective for public companies for annual periods beginning after December 15, 2017. The Company plans to adopt the new standard effective January 1, 2018. Due to the decentralized structure of the Company, Corporate management requested documented revenue streams from its' 16 manufacturing subsidiaries to assist in its effort to determine the effect the new standard will have on its financial reporting. A meeting was also held in September 2016 with corporate management, controllers of the manufacturing subsidiaries, and an outside revenue expert to further review the Company's various revenue streams and the change in timing of when revenue may be recognized under the new guidance. The Company is still in the process of finalizing this review. Therefore, the Company has not yet determined the extent of the impact adoption of this new standard will have on the Company's financial position or results of operations.
In July 2015, the FASB issued ASU No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory", which changes the measurement basis for inventory from the lower of cost or market to lower of cost and net realizable value and also eliminates the requirement for companies to consider replacement cost or net realizable value less an approximate normal profit margin when determining the recorded value of inventory. The standard is effective for public companies in fiscal years beginning after December 15, 2016. The Company early adopted the standard effective October 1, 2016.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10)", which requires, among other things, equity investments with readily determinable fair values, except those accounted for under the equity method of accounting or those that result in consolidation of the investee, to be measured at fair value with changes in fair value recognized in net income. The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company expects to adopt the standard effective January 1, 2018. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position or results of operations.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which significantly changes the accounting for operating leases by lessees. The accounting applied by lessors is largely unchanged from that applied under previous guidance. The new guidance requires lessees to recognize lease assets and lease liabilities in the balance sheet, initially measured at the present value of the lease payments, for leases which were classified as operating leases under previous guidance. Lease cost included in the statement of income will be calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Lessees may make an accounting policy election to exclude leases with a term of 12 months or less from the requirement to record related assets and liabilities. The new standard is effective for public companies for fiscal years beginning after December 15, 2018. The Company plans to adopt the new standard effective January 1, 2019. The Company does not expect the adoption of this standard to have a material impact on its results of operations; however, the Company has not determined the impact the adoption of this new standard will have on its financial position.
In March 2016, the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606)", which does not change the core principles of ASU No. 2014-09 discussed above, but rather clarifies the implementation guidance in order to eliminate the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance. Under the new guidance, when an entity determines it is a principal in a transaction, the entity recognizes revenue in the gross amount of consideration; however in transactions where an entity determines it in an agent, the entity recognizes revenue in the amount of any fee or commission to which it expects to be entitled. The standard is effective for public companies for annual periods beginning after December 15, 2017. The Company plans to adopt the new standard effective January 1, 2018. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position or results of operations.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718)", as part of its Simplification Initiative. The standard's provisions impact several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification in the statement of cash flows. The standard is effective for public companies for annual periods beginning after December 15, 2016, with early adoption permitted. The Company adopted the new standard effective January 1, 2016 and has recorded a cumulative effect adjustment in retained earnings as of January 1, 2016 of $95, net of tax, related to the adoption of the new provisions allowing for restricted stock unit forfeitures to be accounted for at the time they occur as opposed to being estimated during the vesting period. Additionally, income tax benefits of $220, which would have been recorded in additional paid-in capital under prior guidance, have been recorded in 2016 consolidated income related to excess tax benefits resulting from the vesting of restricted stock units in 2016. As allowed under the provision's guidelines, amounts for 2015 have not been restated in the accompanying financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments". The standard changes how credit losses are measured for most financial assets and certain other instruments that currently are not measured through net income. The standard will require an expected loss model for instruments measured at amortized cost as opposed to the current incurred loss approach. In valuing available for sale debt securities, allowances will be required to be recorded, rather than the current approach of reducing the carrying amount, for other than temporary impairments. A cumulative adjustment to retained earnings is to be recorded as of the beginning of the period of adoption to reflect the impact of applying the provisions of the standard. The standard is effective for public companies for periods beginning after December 15, 2019 and the Company expects to adopt the new standard as of January 1, 2020. The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position or results of operations.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)" which clarifies how certain cash receipts and cash payments should be presented on the statement of cash flows. The statement also addresses how the predominance principle should be applied when cash payments have aspects of more than one class of cash flows.
The standard is effective for public companies in fiscal years beginning after December 15, 2017, and the Company expects to adopt the standard effective January 1, 2018. The Company has not determined the impact, if any, the adoption of this new standard will have on the Company's statement of cash flows.
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets Other Than Inventory" which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory, such as intangible assets, when the transfer occurs. This is a change from current guidance, which requires companies to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized by being depreciated, amortized, or impaired. The new guidance will require companies to defer the income tax effects of only intercompany transfers of inventory. The standard is effective for public companies in fiscal years beginning after December 15, 2018. Early adoption is permitted as of the beginning of an annual period and requires companies to apply a modified retrospective approach.
The Company plans to adopt the new standard effective January 1, 2019. The Company has not yet determined what impact the adoption of this new standard will have on the Company's financial position or results of operations.
2. Inventories
Inventories consist of the following:
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Raw materials and parts
|
|
$
|
137,763
|
|
|
$
|
141,967
|
|
Work-in-process
|
|
|
115,613
|
|
|
|
113,859
|
|
Finished goods
|
|
|
84,898
|
|
|
|
104,879
|
|
Used equipment
|
|
|
22,130
|
|
|
|
24,071
|
|
Total
|
|
$
|
360,404
|
|
|
$
|
384,776
|
|
3. Fair Value Measurements
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance, and marketable equity securities held in an unqualified Supplemental Executive Retirement Plan ("SERP"). The financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes. The Company's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.
For cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable, the carrying amount approximates the fair value because of the short-term nature of these instruments. Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market based inputs.
As indicated in the tables below, the Company has determined that its financial assets and liabilities at December 31, 2016 and 2015 are level 1 and level 2 in the fair value hierarchy:
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP money market fund
|
|
$
|
92
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
92
|
|
SERP mutual funds
|
|
|
3,335
|
|
|
|
--
|
|
|
|
--
|
|
|
|
3,335
|
|
Preferred stocks
|
|
|
475
|
|
|
|
--
|
|
|
|
--
|
|
|
|
475
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
5,413
|
|
|
|
--
|
|
|
|
--
|
|
|
|
5,413
|
|
Municipal bonds
|
|
|
--
|
|
|
|
2,248
|
|
|
|
--
|
|
|
|
2,248
|
|
Floating rate notes
|
|
|
118
|
|
|
|
--
|
|
|
|
--
|
|
|
|
118
|
|
U.S. Treasury bills
|
|
|
388
|
|
|
|
--
|
|
|
|
--
|
|
|
|
388
|
|
Asset backed securities
|
|
|
--
|
|
|
|
637
|
|
|
|
--
|
|
|
|
637
|
|
Other
|
|
|
--
|
|
|
|
2,283
|
|
|
|
--
|
|
|
|
2,283
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
144
|
|
|
|
--
|
|
|
|
144
|
|
Total financial assets
|
|
$
|
9,821
|
|
|
$
|
5,312
|
|
|
$
|
--
|
|
|
$
|
15,133
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities
|
|
$
|
--
|
|
|
$
|
7,882
|
|
|
$
|
--
|
|
|
$
|
7,882
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
89
|
|
|
|
--
|
|
|
|
89
|
|
Total financial liabilities
|
|
$
|
--
|
|
|
$
|
7,971
|
|
|
$
|
--
|
|
|
$
|
7,971
|
|
|
|
December 31, 2015
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP money market fund
|
|
$
|
445
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
445
|
|
SERP mutual funds
|
|
|
2,864
|
|
|
|
--
|
|
|
|
--
|
|
|
|
2,864
|
|
Preferred stocks
|
|
|
742
|
|
|
|
--
|
|
|
|
--
|
|
|
|
742
|
|
Trading debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
3,756
|
|
|
|
141
|
|
|
|
--
|
|
|
|
3,897
|
|
Municipal bonds
|
|
|
--
|
|
|
|
1,811
|
|
|
|
--
|
|
|
|
1,811
|
|
Floating rate notes
|
|
|
84
|
|
|
|
--
|
|
|
|
--
|
|
|
|
84
|
|
U.S. Treasury bills
|
|
|
404
|
|
|
|
--
|
|
|
|
--
|
|
|
|
404
|
|
Savings bonds
|
|
|
77
|
|
|
|
--
|
|
|
|
--
|
|
|
|
77
|
|
Other
|
|
|
--
|
|
|
|
2,755
|
|
|
|
--
|
|
|
|
2,755
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
1,265
|
|
|
|
--
|
|
|
|
1,265
|
|
Total financial assets
|
|
$
|
8,372
|
|
|
$
|
5,972
|
|
|
$
|
--
|
|
|
$
|
14,344
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SERP liabilities
|
|
$
|
--
|
|
|
$
|
5,869
|
|
|
$
|
--
|
|
|
$
|
5,869
|
|
Derivative financial instruments
|
|
|
--
|
|
|
|
22
|
|
|
|
--
|
|
|
|
22
|
|
Total financial liabilities
|
|
$
|
--
|
|
|
$
|
5,891
|
|
|
$
|
--
|
|
|
$
|
5,891
|
|
The Company reevaluates the volume of trading activity for each of its investments at the end of each reporting period and adjusts the level within the fair value hierarchy as needed.
4. Investments
The Company's trading securities consist of the following:
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
(Net Carrying
Amount)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities
|
|
$
|
3,980
|
|
|
$
|
40
|
|
|
$
|
118
|
|
|
$
|
3,902
|
|
Trading debt securities
|
|
|
11,312
|
|
|
|
23
|
|
|
|
248
|
|
|
|
11,087
|
|
Total
|
|
$
|
15,292
|
|
|
$
|
63
|
|
|
$
|
366
|
|
|
$
|
14,989
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading equity securities
|
|
$
|
4,160
|
|
|
$
|
79
|
|
|
$
|
188
|
|
|
$
|
4,051
|
|
Trading debt securities
|
|
|
9,263
|
|
|
|
37
|
|
|
|
272
|
|
|
|
9,028
|
|
Total
|
|
$
|
13,423
|
|
|
$
|
116
|
|
|
$
|
460
|
|
|
$
|
13,079
|
|
Trading equity investments are valued at their estimated fair value based on their quoted market prices and trading debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service. Additionally, a significant portion of the trading equity securities are in equity money market and mutual funds and also comprise a portion of the Company's liability under its SERP. See Note 12, Pension and Retirement Plans, for additional information on these investments and the SERP.
Trading debt securities are comprised mainly of marketable debt securities held by Astec Insurance. Astec Insurance has an investment strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities.
Net unrealized gains or losses incurred on investments still held as of the end of each reporting period amounted to losses of $107, $429 and $17 in 2016, 2015 and 2014, respectively.
5. Goodwill
Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations. Current U.S. accounting guidance provides that goodwill and indefinite-lived intangible assets be tested for impairment at least annually. The Company performs the required valuation procedures each year as of December 31 after the following year's forecasts are submitted and reviewed. The valuations performed in 2016, 2015 and 2014 indicated no impairment of goodwill.
The changes in the carrying amount of goodwill by reporting segment during the years ended December 31, 2016 and 2015 are as follows:
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Balance, December 31, 2014
|
|
$
|
8,584
|
|
|
$
|
23,411
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
31,995
|
|
Purchase price adjustment
|
|
|
--
|
|
|
|
(178
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(178
|
)
|
Foreign currency translation
|
|
|
(103
|
)
|
|
|
(879
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(982
|
)
|
Balance, December 31, 2015
|
|
|
8,481
|
|
|
|
22,354
|
|
|
|
--
|
|
|
|
--
|
|
|
|
30,835
|
|
Acquisition
|
|
|
--
|
|
|
|
--
|
|
|
|
12,632
|
|
|
|
--
|
|
|
|
12,632
|
|
Foreign currency translation
|
|
|
(33
|
)
|
|
|
(2,630
|
)
|
|
|
--
|
|
|
|
--
|
|
|
|
(2,663
|
)
|
Balance, December 31, 2016
|
|
$
|
8,448
|
|
|
$
|
19,724
|
|
|
$
|
12,632
|
|
|
$
|
--
|
|
|
$
|
40,804
|
|
6. Intangible Assets
Intangible assets consisted of the following at December 31, 2016 and 2015:
|
|
2016
|
|
|
2015
|
|
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
|
Gross Carrying
Value
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Value
|
|
Dealer network and customer
relationships
|
|
$
|
26,035
|
|
|
$
|
7,584
|
|
|
$
|
18,451
|
|
|
$
|
13,111
|
|
|
$
|
5,552
|
|
|
$
|
7,559
|
|
Trade names
|
|
|
7,021
|
|
|
|
1,362
|
|
|
|
5,659
|
|
|
|
4,857
|
|
|
|
956
|
|
|
|
3,901
|
|
Other
|
|
|
5,764
|
|
|
|
3,231
|
|
|
|
2,533
|
|
|
|
4,966
|
|
|
|
2,849
|
|
|
|
2,117
|
|
Total
|
|
$
|
38,820
|
|
|
$
|
12,177
|
|
|
$
|
26,643
|
|
|
$
|
22,934
|
|
|
$
|
9,357
|
|
|
$
|
13,577
|
|
Amortization expense on intangible assets was $3,562, $2,953 and $2,735 for 2016, 2015 and 2014, respectively. Intangible asset amortization expense is expected to be $3,514, $3,246, $2,717, $2,531 and $2,329 in the years ending December 31, 2017, 2018, 2019, 2020 and 2021 respectively, and $12,306 thereafter.
7. Property and Equipment
Property and equipment consist of the following:
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Land
|
|
$
|
14,768
|
|
|
$
|
12,628
|
|
Building and land improvements
|
|
|
140,229
|
|
|
|
132,353
|
|
Manufacturing and office equipment
|
|
|
231,816
|
|
|
|
214,545
|
|
Aviation equipment
|
|
|
14,169
|
|
|
|
14,151
|
|
Less accumulated depreciation
|
|
|
(220,444
|
)
|
|
|
(203,471
|
)
|
Total
|
|
$
|
180,538
|
|
|
$
|
170,206
|
|
Depreciation expense was $20,818, $20,744 and $21,343 for the years ended December 31, 2016, 2015 and 2014, respectively.
In October 2015, the Company recorded the sale of its Astec Underground facility for a net sales price of $9,599. The cost of closing the facility totaled $1,500, with $999 recorded in cost of sales and $501 in selling, general and administrative expenses in the year ended December 31, 2015.
8. Leases
The Company leases certain land, buildings and equipment for use in its operations under various operating leases. Total rental expense charged to operations under operating leases was approximately $2,792, $2,786 and $2,544 for the years ended December 31, 2016, 2015 and 2014, respectively.
Minimum rental commitments for all noncancelable operating leases at December 31, 2016 are as follows:
2017
|
|
$
|
1,337
|
|
2018
|
|
|
978
|
|
2019
|
|
|
669
|
|
2020
|
|
|
465
|
|
2021
|
|
|
177
|
|
Thereafter
|
|
|
21
|
|
|
|
$
|
3,647
|
|
9. Debt
On April 12, 2012, the Company and certain of its subsidiaries entered into an amended and restated credit agreement with Wells Fargo whereby Wells Fargo extended to the Company an unsecured line of credit of up to $100,000, including a sub-limit for letters of credit of up to $25,000. There were no outstanding revolving or term loan borrowings under the credit facility at December 31, 2016 or 2015. Letters of credit totaling $8,876 were outstanding under the credit facility as of December 31, 2016, resulting in additional borrowing ability of $91,124 on the credit facility as of December 31, 2016. The amended and restated agreement has a five-year term expiring in April 2017. Borrowings under the agreement are subject to an interest rate equal to the daily one-month LIBOR rate plus a 0.75% margin, resulting in a rate of 1.53% at December 31, 2016. The unused facility fee is 0.175%. Interest only payments are due monthly. The credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income, minimum tangible net worth and maximum allowed capital expenditures.
The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd ("Osborn"), has a bank overdraft facility of $6,913 to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of December 31, 2016, Osborn had $4,632 in short-term borrowings and $904 in performance, advance payment and retention guarantees outstanding under the facility. The facility is guaranteed by Astec Industries, Inc. The overdraft's 0.75% unused facility fee is waived if 50% or more of the facility is utilized. As of December 31, 2016, Osborn had available credit under the facility of $1,377. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.50% as of December 31, 2016.
The Company's Brazilian subsidiary, Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), has outstanding working capital loans totaling $5,485 from a Brazilian bank with interest rates ranging from 10.4% to 11.0%. The loans have maturity dates ranging from November 2018 to April 2024 and are secured by letters of credit totaling $6,200 issued by Astec Industries, Inc. Additionally, Astec Brazil has various five-year equipment financing loans outstanding with other Brazilian banks in the aggregate of $1,169 as of December 31, 2016 that have interest rates ranging from 3.5% to 16.3%. These equipment loans have maturity dates ranging from September 2018 to April 2020. Astec Brazil's loans are included in the accompanying balance sheets as current maturities of long-term debt of $2,538 and long-term debt of $4,116 as of December 31, 2016.
Long-term debt maturities are expected to be $2,538, $2,513, $492, $259 and $256 in the years ending December 31, 2017, 2018, 2019, 2020 and 2021, respectively, and $596 thereafter.
10. Product Warranty Reserves
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by product, but generally range from three months to two years or up to a specified number of hours of operation. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warranty liability is primarily based on historical claim rates, nature of claims and the associated costs.
Changes in the Company's product warranty liability during 2016, 2015 and 2014 are as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Reserve balance, beginning of year
|
|
$
|
9,100
|
|
|
$
|
10,032
|
|
|
$
|
12,716
|
|
Warranty liabilities accrued
|
|
|
18,912
|
|
|
|
13,743
|
|
|
|
12,796
|
|
Warranty liabilities settled
|
|
|
(15,125
|
)
|
|
|
(14,177
|
)
|
|
|
(15,563
|
)
|
Other
|
|
|
269
|
|
|
|
(498
|
)
|
|
|
83
|
|
Reserve balance, end of year
|
|
$
|
13,156
|
|
|
$
|
9,100
|
|
|
$
|
10,032
|
|
11. Accrued Loss Reserves
The Company accrues reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claim experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. Total accrued loss reserves at December 31, 2016 were $7,892 and $7,663 at December 31, 2015, of which $5,04
0
and $4,825 was included in other long-term liabilities at December 31, 2016 and 2015, respectively.
12. Pension and Retirement Plans
Prior to December 31, 2003, all employees of the Company's Kolberg-Pioneer, Inc. subsidiary were covered by a defined benefit pension plan. After December 31, 2003, all benefit accruals under the plan ceased and no new employees could become participants in the plan. Benefits paid under this plan are based on years of service multiplied by a monthly amount. The Company's funding policy for the plan is to make at least the minimum annual contributions required by applicable regulations.
The Company's investment strategy for the plan is to earn a rate of return sufficient to match or exceed the long-term growth of pension liabilities. The investment policy states that the Plan Committee in its sole discretion shall determine the allocation of plan assets among the following four asset classes: cash equivalents, fixed-income securities, domestic equities and international equities. The Plan Committee attempts to ensure adequate diversification of the invested assets through investment in an exchange traded mutual fund that invests in a diversified portfolio of stocks, bonds and money market securities.
The following provides information regarding benefit obligations, plan assets and the funded status of the plan:
|
|
Pension Benefits
|
|
|
|
2016
|
|
|
2015
|
|
Change in benefit obligation
|
|
|
|
|
|
|
Benefit obligation, beginning of year
|
|
$
|
15,565
|
|
|
$
|
15,986
|
|
Interest cost
|
|
|
650
|
|
|
|
596
|
|
Actuarial (gain)/loss
|
|
|
514
|
|
|
|
(417
|
)
|
Benefits paid
|
|
|
(625
|
)
|
|
|
(600
|
)
|
Benefit obligation, end of year
|
|
|
16,104
|
|
|
|
15,565
|
|
Accumulated benefit obligation
|
|
|
16,104
|
|
|
|
15,565
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
12,688
|
|
|
|
13,283
|
|
Actual gain/(loss) on plan assets
|
|
|
763
|
|
|
|
(279
|
)
|
Employer contribution
|
|
|
415
|
|
|
|
284
|
|
Benefits paid
|
|
|
(625
|
)
|
|
|
(600
|
)
|
Fair value of plan assets, end of year
|
|
|
13,241
|
|
|
|
12,688
|
|
Funded status, end of year
|
|
$
|
(2,863
|
)
|
|
$
|
(2,877
|
)
|
Amounts recognized in the consolidated balance sheets
|
|
|
|
|
|
|
|
|
Noncurrent liabilities
|
|
$
|
(2,863
|
)
|
|
$
|
(2,877
|
)
|
Net amount recognized
|
|
$
|
(2,863
|
)
|
|
$
|
(2,877
|
)
|
Amounts recognized in accumulated other comprehensive loss
consist of
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
6,152
|
|
|
$
|
6,098
|
|
Net amount recognized
|
|
$
|
6,152
|
|
|
$
|
6,098
|
|
Weighted average assumptions used to determine benefit obligations as of December 31
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.00
|
%
|
|
|
4.28
|
%
|
Expected return on plan assets
|
|
|
6.25
|
%
|
|
|
7.00
|
%
|
Rate of compensation increase
|
|
|
N/A
|
|
|
|
N/A
|
|
The measurement date used for the plan was December 31. In determining the expected return on plan assets, the historical experience of the plan assets, the current and expected allocation of the plan assets and the expected long-term rates of return were considered.
All assets in the plan are invested in an exchange traded mutual fund (level 1 in the fair value hierarchy). The allocation of assets within the mutual fund as of December 31 and the target asset allocation ranges by asset category are as follows:
|
|
Actual Allocation
|
|
|
2016 & 2015 Target
|
|
Asset Category
|
|
2016
|
|
|
2015
|
|
|
Allocation Ranges
|
|
Equity securities
|
|
|
63.6
|
%
|
|
|
66.0
|
%
|
|
|
53 - 73
|
%
|
Debt securities
|
|
|
33.5
|
%
|
|
|
30.7
|
%
|
|
|
21 - 41
|
%
|
Money market funds
|
|
|
2.9
|
%
|
|
|
3.3
|
%
|
|
|
0 - 15
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
Net periodic benefit cost for 2016, 2015 and 2014 included the following components:
|
|
Pension Benefits
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Components of net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
650
|
|
|
$
|
596
|
|
|
$
|
620
|
|
Expected return on plan assets
|
|
|
(782
|
)
|
|
|
(840
|
)
|
|
|
(816
|
)
|
Amortization of actuarial loss
|
|
|
480
|
|
|
|
500
|
|
|
|
295
|
|
Net periodic benefit cost
|
|
|
348
|
|
|
|
256
|
|
|
|
99
|
|
Other changes in plan assets and benefit obligations recognized in
other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss for the year
|
|
|
533
|
|
|
|
702
|
|
|
|
2,115
|
|
Amortization of net loss
|
|
|
(480
|
)
|
|
|
(500
|
)
|
|
|
(295
|
)
|
Total recognized in other comprehensive income
|
|
|
53
|
|
|
|
202
|
|
|
|
1,820
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
401
|
|
|
$
|
458
|
|
|
$
|
1,919
|
|
Weighted average assumptions used to determine net periodic benefit cost for years ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.28
|
%
|
|
|
3.81
|
%
|
|
|
4.60
|
%
|
Expected return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
No contributions are expected to be funded by the Company during 2017.
Amounts in accumulated other comprehensive loss expected to be recognized in net periodic benefit cost in 2017 for the amortization of a net loss is $530.
The following estimated future benefit payments are expected in the years indicated:
|
|
Pension Benefits
|
|
2017
|
|
$
|
730
|
|
2018
|
|
|
780
|
|
2019
|
|
|
840
|
|
2020
|
|
|
870
|
|
2021
|
|
|
900
|
|
2022 - 2025
|
|
|
4,780
|
|
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 $5,943, $5,292 and $5,134 in 2016, 2015 and 2014, respectively.
The Company maintains a SERP for certain of its executive officers. The plan is a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which the Company makes quarterly cash contributions of a certain percentage of executive officers' compensation. Investments are self-directed by participants and can include Company stock. Upon retirement, participants receive their apportioned share of the plan assets in the form of cash.
Assets of the SERP consist of the following:
|
December 31, 2016
|
|
December 31, 2015
|
|
|
Cost
|
|
Market
|
|
Cost
|
|
Market
|
|
Company stock
|
|
$
|
1,958
|
|
|
$
|
3,428
|
|
|
$
|
1,778
|
|
|
$
|
2,560
|
|
Equity securities
|
|
|
3,474
|
|
|
|
4,454
|
|
|
|
3,402
|
|
|
|
3,309
|
|
Total
|
|
$
|
5,432
|
|
|
$
|
7,882
|
|
|
$
|
5,180
|
|
|
$
|
5,869
|
|
The Company periodically adjusts the deferred compensation liability such that the balance of the liability equals the total fair market value of all assets held by the trust established under the SERP. Such liabilities are included in other long-term liabilities on the consolidated balance sheets. The equity securities are included in investments in the consolidated balance sheets and classified as trading equity securities. See Note 4, Investments, for additional information. The cost of the Company stock held by the plan is included as a reduction in shareholders' equity in the consolidated balance sheets.
The change in the fair market value of Company stock held in the SERP results in a charge or credit to selling, general and administrative expenses in the consolidated statements of income because the acquisition cost of the Company stock in the SERP is recorded as a reduction of shareholders' equity and is not adjusted to fair market value; however, the related liability is adjusted to the fair market value of the stock as of each period end. The Company recognized expense of $1,742, $241 and $74 in 2016, 2015 and 2014, respectively, related to the change in the fair value of the Company stock held in the SERP.
13. Derivative Financial Instruments
The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency risk. From time to time the Company's foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates. The fair value of the derivative financial instrument is recorded on the Company's balance sheet and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the consolidated statements of income in the current period. The Company does not engage in speculative transactions nor does it hold or issue derivative financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $11,784 during 2016. At December 31, 2016, the Company reported $144 of derivative assets in other current assets and $89 of derivative liabilities in other current liabilities. The Company reported $935 of derivative assets in other current assets
,
$330 of derivative assets in other long-term assets and $22 of derivative liabilities in other current liabilities at December 31, 2015. The Company recognized, as a component of cost of sales, a net loss on the change in fair value of derivative instruments of $336 for the year ended December 31, 2016 and net gains on the change in fair value of derivative instruments of $606 and $438 for the years ended December 31, 2015 and 2014, respectively. There were no derivatives that were designated as hedges at December 31, 2016 or 2015.
14. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
|
Year Ended December 31
|
|
|
2016
|
|
2015
|
|
2014
|
|
United States
|
|
$
|
87,326
|
|
|
$
|
57,846
|
|
|
$
|
57,651
|
|
Foreign
|
|
|
(231
|
)
|
|
|
(5,873
|
)
|
|
|
(4,045
|
)
|
Income before income taxes
|
|
$
|
87,095
|
|
|
$
|
51,973
|
|
|
$
|
53,606
|
|
The provision for income taxes consists of the following:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
30,623
|
|
|
$
|
19,758
|
|
|
$
|
18,713
|
|
State
|
|
|
4,098
|
|
|
|
2,553
|
|
|
|
2,992
|
|
Foreign
|
|
|
907
|
|
|
|
255
|
|
|
|
243
|
|
Total current provision
|
|
|
35,628
|
|
|
|
22,566
|
|
|
|
21,948
|
|
Deferred provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,653
|
)
|
|
|
(1,183
|
)
|
|
|
(1,627
|
)
|
State
|
|
|
(1,213
|
)
|
|
|
(275
|
)
|
|
|
(222
|
)
|
Foreign
|
|
|
345
|
|
|
|
(1,101
|
)
|
|
|
(699
|
)
|
Total deferred benefit
|
|
|
(3,521
|
)
|
|
|
(2,559
|
)
|
|
|
(2,548
|
)
|
Total provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
27,970
|
|
|
|
18,575
|
|
|
|
17,086
|
|
State
|
|
|
2,885
|
|
|
|
2,278
|
|
|
|
2,770
|
|
Foreign
|
|
|
1,252
|
|
|
|
(846
|
)
|
|
|
(456
|
)
|
Total tax provision
|
|
$
|
32,107
|
|
|
$
|
20,007
|
|
|
$
|
19,400
|
|
The Company's income tax provision is computed based on the domestic and foreign federal statutory rates and the average state statutory rates, net of related federal benefit.
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to income before income taxes. A reconciliation of the provision for income taxes at the statutory federal income tax rate to the amount provided is as follows:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Tax at the statutory federal income tax rate
|
|
$
|
30,483
|
|
|
$
|
18,191
|
|
|
$
|
18,762
|
|
Qualified production activity deduction
|
|
|
(1,641
|
)
|
|
|
(1,174
|
)
|
|
|
(1,360
|
)
|
State income tax, net of federal income tax
|
|
|
1,876
|
|
|
|
1,386
|
|
|
|
1,727
|
|
Other permanent differences
|
|
|
673
|
|
|
|
393
|
|
|
|
840
|
|
Research and development tax credits
|
|
|
(785
|
)
|
|
|
(291
|
)
|
|
|
(1,323
|
)
|
Change in valuation allowance
|
|
|
1,638
|
|
|
|
2,036
|
|
|
|
1,675
|
|
Other items
|
|
|
(137
|
)
|
|
|
(534
|
)
|
|
|
(921
|
)
|
Total tax provision
|
|
$
|
32,107
|
|
|
$
|
20,007
|
|
|
$
|
19,400
|
|
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 (certain amounts for 2015 have been reclassified from amounts previously reported to conform to 2016 presentation):
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory reserves
|
|
$
|
8,507
|
|
|
$
|
7,828
|
|
Warranty reserves
|
|
|
4,527
|
|
|
|
2,852
|
|
Bad debt reserves
|
|
|
456
|
|
|
|
436
|
|
State tax loss carryforwards
|
|
|
3,403
|
|
|
|
3,006
|
|
Accrued vacation
|
|
|
2,351
|
|
|
|
2,174
|
|
SERP
|
|
|
299
|
|
|
|
275
|
|
Deferred compensation
|
|
|
2,124
|
|
|
|
1,328
|
|
Restricted stock units
|
|
|
1,845
|
|
|
|
1,893
|
|
Pension and post-employment benefits
|
|
|
2,530
|
|
|
|
2,571
|
|
Foreign net operating losses
|
|
|
5,461
|
|
|
|
5,134
|
|
Other
|
|
|
2,516
|
|
|
|
9,315
|
|
Valuation allowances
|
|
|
(8,280
|
)
|
|
|
(8,065
|
)
|
Total deferred tax assets
|
|
|
25,739
|
|
|
|
28,747
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
20,167
|
|
|
|
19,799
|
|
Intangibles
|
|
|
1,244
|
|
|
|
1,961
|
|
Goodwill
|
|
|
1,605
|
|
|
|
1,835
|
|
Pension
|
|
|
1,205
|
|
|
|
1,305
|
|
Outside basis differences
|
|
|
511
|
|
|
|
--
|
|
Total deferred tax liabilities
|
|
|
24,732
|
|
|
|
24,900
|
|
Total net deferred assets
|
|
$
|
1,007
|
|
|
$
|
3,847
|
|
As of December 31, 2016, the Company has state net operating loss carryforwards of $79,856, foreign net operating loss carryforwards of approximately $17,339, and state tax credit carryforwards of $65 for tax purposes, which will be available to offset future taxable income. If not used, these carryforwards will expire between 2017 and 2029. 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 2016, the valuation allowance on these carryforwards was increased by $183 due to uncertainty about whether certain entities will realize their state and foreign net operating loss carryforwards. The Company has also determined that the recovery of certain other deferred tax assets is uncertain. The valuation allowance for these deferred tax assets was increased by $32 during 2016.
Undistributed earnings of the Company's Canadian subsidiary, Breaker Technology Ltd., and Northern Ireland subsidiary, Telestack Limited, are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon any future repatriation of their earnings, in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes due to the foreign jurisdictions may have to be paid. The cumulative amount of Breaker Technology, Ltd.'s unrecovered basis difference is $10,500 as of December 31, 2016. The cumulative amount of Telestack Limited's unrecovered basis difference is $2,100 as of December 31, 2016. The determination of the unrecognized deferred tax liability on the basis difference is not practical at this time.
The Company files income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. The Company is no longer subject to U.S. federal income tax examinations by authorities for years prior to 2014. With few exceptions, the Company is no longer subject to state and local or non-U.S. income tax examinations by authorities for years prior to 2012.
The Company has a liability for unrecognized tax benefits of $238 and $603 (excluding accrued interest and penalties) as of December 31, 2016 and 2015, respectively. The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. The Company recognized tax benefits of $16 and $123 in 2016 and 2015, respectively, for penalties and interest related to amounts that were settled for less than previously accrued. The net total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate is $238 and $618 at December 31, 2016 and 2015, respectively. The Company does not expect a significant increase or decrease to the total amount of unrecognized tax benefits within the next twelve months.
A reconciliation of the beginning and ending unrecognized tax benefits excluding interest and penalties is as follows:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Balance, beginning of year
|
|
$
|
603
|
|
|
$
|
2,585
|
|
|
$
|
1,933
|
|
Additions for tax positions related to the current year
|
|
|
73
|
|
|
|
206
|
|
|
|
127
|
|
Additions for tax positions related to prior years
|
|
|
162
|
|
|
|
549
|
|
|
|
525
|
|
Reductions due to lapse of statutes of limitations
|
|
|
(16
|
)
|
|
|
(162
|
)
|
|
|
--
|
|
Decreases related to settlements with tax authorities
|
|
|
(584
|
)
|
|
|
(2,575
|
)
|
|
|
--
|
|
Balance, end of year
|
|
$
|
238
|
|
|
$
|
603
|
|
|
$
|
2,585
|
|
The December 31, 2016 balance of unrecognized tax benefits includes no tax positions for which the ultimate deductibility is highly certain but the timing of such deductibility is uncertain. Accordingly, there is no impact to the deferred tax accounting for certain tax benefits.
15. Contingent Matters
Certain customers have financed purchases of Company products through arrangements in which the Company is contingently liable for customer debt of $6,516 at December 31, 2016. These arrangements expire at various dates through December 2020 and provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $332 related to these guarantees as of December 31, 2016.
In addition, the Company is contingently liable under letters of credit issued by Wells Fargo totaling $8,876 as of December 31, 2016, including $6,200 of letters of credit guaranteeing certain Astec Brazil bank debt. The outstanding letters of credit expire at various dates through October 2020. As of December 31, 2016, Osborn is contingently liable for a total of $904 in retention guarantees. As of December 31, 2016, Telestack is contingently liable for a total of $197 in performance bond, advance payment and performance guarantees. The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $9,977 as of December 31, 2016.
The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal fees) or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is either (i) probable but cannot be reasonably estimated or (ii) reasonably possible but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company's financial position, cash flows or results of operations.
During 2004, the Company received notice from the Environmental Protection Agency ("EPA") that it may be responsible for a portion of the costs incurred in connection with an environmental cleanup in Illinois. The discharge of hazardous materials and associated cleanup relate to activities occurring prior to the Company's acquisition of Barber-Greene in 1986. The Company believes that over 300 other parties have received similar notices. At this time, the Company cannot predict whether the EPA will seek to hold the Company liable for a portion of the cleanup costs or the amount of any such liability. The Company has not recorded a liability with respect to this matter because no estimate of the amount of any such liability can be made at this time.
16. Shareholders' Equity
The Company rewards key members of management with restricted stock units ("RSUs") each year based upon the financial performance of the Company and its subsidiaries. Under the terms of the Company's shareholder approved 2011 Incentive Plan, up to 700 shares of newly issued common stock is available for awards. Awards granted in 2016 and prior vest at the end of five years from the date of grant, or at the time a recipient retires after reaching age 65, if earlier
,
while awards to be granted after 2016 are scheduled to have a three-year vesting period. The fair value of the RSUs vesting during 2016, 2015 and 2014 was $3,289, $2,785 and $3,045, respectively. The grant date tax benefit was increased by $220
,
$336 and $470, respectively, upon the vesting of RSUs in 2016, 2015 and 2014.
Compensation expense of $2,426, $1,019 and $961 was recorded in the years ended December 31, 2016, 2015 and 2014, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2016 performance) amortized over the portion of the vesting period occurring during the period. Related income tax benefits of $934, $362 and $348 were recorded in 2016, 2015 and 2014, respectively. Based upon the grant date fair value of RSUs, it is anticipated that $4,712 of additional compensation costs will be recognized in future periods through 2021 for RSUs earned through December 31, 2016. The weighted average period over which this additional compensation cost will be expensed is 3.2 years. RSUs do not participate in Company
-
paid dividends.
Changes in restricted stock units during the year ended December 31, 2016 are as follows:
|
|
2016
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
Unvested restricted stock units, beginning of year
|
|
|
147
|
|
|
$
|
36.83
|
|
Units granted
|
|
|
44
|
|
|
|
44.52
|
|
Units forfeited
|
|
|
(1
|
)
|
|
|
39.10
|
|
Units vested
|
|
|
(78
|
)
|
|
|
34.42
|
|
Unvested restricted stock units, end of year
|
|
|
112
|
|
|
|
41.48
|
|
The grant date fair value of the restricted stock units granted during 2016, 2015 and 2014 was $1,946, $937 and $561, respectively.
17. Operations by Industry Segment and Geographic Area
The Company has three reportable segments, each of which is comprised of multiple business units that offer similar products and services and meet the requirements for aggregation. A brief description of each segment is as follows:
Infrastructure Group
- This segment consists of five business units, three of which design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants, wood pellet plants, asphalt pavers, material transfer vehicles, stabilizers, milling machines, paver screeds and related ancillary equipment. The other two business units in this segment primarily operate as Company-owned dealers in the foreign countries in which they are domiciled. These two business units sell, service and install products produced by the manufacturing subsidiaries of the Company, and a majority of their sales are to customers in the infrastructure industry. The principal purchasers of the products produced by this group are asphalt producers, highway and heavy equipment contractors, wood pellet processors and foreign and domestic governmental agencies. During 2016, the Infrastructure Group had sales to one pellet plant customer totaling $135,187, or 11.8% of total Company sales. Portions of the equipment sold to this customer were manufactured by each of the Company's segments.
Aggregate and Mining Group
- This segment consists of eight business units that design, engineer, manufacture and market a complete line of jaw crushers, cone crushers, horizontal shaft impactors, vertical shaft impactors, material handling, roll rock crushers and stationary rockbreaker systems, vibrating feeders and high frequency vibrating screens, conveyors, inclined, vertical and horizontal screens and sand classifying and washing equipment. The principal purchasers of products produced by this group are distributors, open mine operators, quarry operators, port and inland terminal operators, highway and heavy equipment contractors and foreign and domestic governmental agencies. This group includes the operations of Telestack Limited, which was acquired in April 2014.
Energy Group
- This segment consists of five business units that design, engineer, manufacture and market a complete line of drilling rigs for the oil and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells, commercial and industrial burners, combustion control systems, a variety of industrial heaters to fit a broad range of applications including heating equipment for refineries, roofing material plants, chemical processing, rubber plants, oil sands and energy related processing, heat transfer processing equipment, thermal fluid storage tanks, waste heat recovery equipment, whole-tree pulpwood and biomass chippers and horizontal grinders. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production and contractors in the construction and demolition recycling markets. This group includes the operations of Power Flame Incorporated, which was acquired in August 2016.
Corporate
- This category consists of business units that do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes the Company's parent company, Astec Industries, Inc., and Astec Insurance. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes and corporate overhead and thus these costs are included in the Corporate category.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are valued at prices comparable to those for unrelated parties.
Segment information for 2016
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
608,908
|
|
|
$
|
359,760
|
|
|
$
|
178,763
|
|
|
$
|
--
|
|
|
$
|
1,147,431
|
|
Intersegment revenues
|
|
|
16,957
|
|
|
|
35,031
|
|
|
|
24,946
|
|
|
|
--
|
|
|
|
76,934
|
|
Interest expense
|
|
|
31
|
|
|
|
948
|
|
|
|
4
|
|
|
|
412
|
|
|
|
1,395
|
|
Depreciation and amortization
|
|
|
7,205
|
|
|
|
10,033
|
|
|
|
6,655
|
|
|
|
920
|
|
|
|
24,813
|
|
Income taxes
|
|
|
3,033
|
|
|
|
664
|
|
|
|
437
|
|
|
|
27,973
|
|
|
|
32,107
|
|
Profit (loss)
|
|
|
71,482
|
|
|
|
34,877
|
|
|
|
4,145
|
|
|
|
(55,992
|
)
|
|
|
54,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
657,225
|
|
|
|
518,351
|
|
|
|
271,121
|
|
|
|
417,351
|
|
|
|
1,864,048
|
|
Capital expenditures
|
|
|
14,451
|
|
|
|
7,437
|
|
|
|
5,018
|
|
|
|
178
|
|
|
|
27,084
|
|
Segment information for 2015
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
428,737
|
|
|
$
|
370,813
|
|
|
$
|
183,607
|
|
|
$
|
--
|
|
|
$
|
983,157
|
|
Intersegment revenues
|
|
|
22,947
|
|
|
|
28,701
|
|
|
|
16,010
|
|
|
|
--
|
|
|
|
67,658
|
|
Interest expense
|
|
|
258
|
|
|
|
1,005
|
|
|
|
10
|
|
|
|
338
|
|
|
|
1,611
|
|
Depreciation and amortization
|
|
|
6,907
|
|
|
|
10,719
|
|
|
|
5,553
|
|
|
|
899
|
|
|
|
24,078
|
|
Income taxes
|
|
|
1,224
|
|
|
|
764
|
|
|
|
(129
|
)
|
|
|
18,148
|
|
|
|
20,007
|
|
Profit (loss)
|
|
|
33,890
|
|
|
|
30,690
|
|
|
|
3,609
|
|
|
|
(36,623
|
)
|
|
|
31,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
567,936
|
|
|
|
496,089
|
|
|
|
256,978
|
|
|
|
306,511
|
|
|
|
1,627,514
|
|
Capital expenditures
|
|
|
8,043
|
|
|
|
8,807
|
|
|
|
4,049
|
|
|
|
389
|
|
|
|
21,288
|
|
Segment information for 2014
|
|
Infrastructure
Group
|
|
|
Aggregate
and Mining
Group
|
|
|
Energy
Group
|
|
|
Corporate
|
|
|
Total
|
|
Revenues from external customers
|
|
$
|
386,356
|
|
|
$
|
384,883
|
|
|
$
|
204,356
|
|
|
$
|
--
|
|
|
$
|
975,595
|
|
Intersegment revenues
|
|
|
26,661
|
|
|
|
33,009
|
|
|
|
17,548
|
|
|
|
--
|
|
|
|
77,218
|
|
Interest expense
|
|
|
31
|
|
|
|
463
|
|
|
|
11
|
|
|
|
215
|
|
|
|
720
|
|
Depreciation and amortization
|
|
|
7,045
|
|
|
|
10,120
|
|
|
|
6,358
|
|
|
|
853
|
|
|
|
24,376
|
|
Income taxes
|
|
|
1,365
|
|
|
|
1,235
|
|
|
|
348
|
|
|
|
16,452
|
|
|
|
19,400
|
|
Profit (loss)
|
|
|
29,477
|
|
|
|
32,900
|
|
|
|
10,316
|
|
|
|
(35,270
|
)
|
|
|
37,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
539,794
|
|
|
|
494,428
|
|
|
|
244,003
|
|
|
|
302,082
|
|
|
|
1,580,307
|
|
Capital expenditures
|
|
|
5,375
|
|
|
|
16,169
|
|
|
|
2,875
|
|
|
|
413
|
|
|
|
24,832
|
|
The totals of segment information for all reportable segments reconciles to consolidated totals as follows:
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Net income attributable to controlling interest
|
|
|
|
|
|
|
|
|
|
Total profit for reportable segments
|
|
$
|
110,504
|
|
|
$
|
68,189
|
|
|
$
|
72,693
|
|
Corporate expenses, net
|
|
|
(55,992
|
)
|
|
|
(36,623
|
)
|
|
|
(35,270
|
)
|
Net loss attributable to non-controlling interest
|
|
|
171
|
|
|
|
831
|
|
|
|
252
|
|
Recapture (elimination) of intersegment profit
|
|
|
476
|
|
|
|
400
|
|
|
|
(3,217
|
)
|
Total consolidated net income attributable to controlling interest
|
|
$
|
55,159
|
|
|
$
|
32,797
|
|
|
$
|
34,458
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets for reportable segments
|
|
$
|
1,446,697
|
|
|
$
|
1,321,003
|
|
|
$
|
1,278,225
|
|
Corporate assets
|
|
|
417,351
|
|
|
|
306,511
|
|
|
|
302,082
|
|
Elimination of intercompany profit in inventory
|
|
|
(7,020
|
)
|
|
|
(7,496
|
)
|
|
|
(7,896
|
)
|
Elimination of intercompany receivables
|
|
|
(688,369
|
)
|
|
|
(583,834
|
)
|
|
|
(515,625
|
)
|
Elimination of investment in subsidiaries
|
|
|
(272,766
|
)
|
|
|
(223,500
|
)
|
|
|
(227,051
|
)
|
Other eliminations
|
|
|
(52,292
|
)
|
|
|
(35,331
|
)
|
|
|
(27,470
|
)
|
Total consolidated assets
|
|
$
|
843,601
|
|
|
$
|
777,353
|
|
|
$
|
802,265
|
|
Sales into major geographic regions were as follows:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
United States
|
|
$
|
941,273
|
|
|
$
|
722,287
|
|
|
$
|
654,230
|
|
Canada
|
|
|
37,539
|
|
|
|
54,321
|
|
|
|
61,898
|
|
Africa
|
|
|
31,557
|
|
|
|
45,671
|
|
|
|
47,940
|
|
Australia and Oceania
|
|
|
29,948
|
|
|
|
29,995
|
|
|
|
34,772
|
|
South America (excluding Brazil)
|
|
|
28,204
|
|
|
|
32,454
|
|
|
|
49,797
|
|
Other European Countries
|
|
|
19,198
|
|
|
|
23,867
|
|
|
|
12,365
|
|
Mexico
|
|
|
13,489
|
|
|
|
6,990
|
|
|
|
9,993
|
|
Japan and Korea
|
|
|
10,825
|
|
|
|
3,574
|
|
|
|
4,377
|
|
Other Asian Countries
|
|
|
6,926
|
|
|
|
9,513
|
|
|
|
17,018
|
|
Central America (excluding Mexico)
|
|
|
5,904
|
|
|
|
4,404
|
|
|
|
9,275
|
|
China
|
|
|
4,595
|
|
|
|
1,330
|
|
|
|
7,451
|
|
Brazil
|
|
|
4,300
|
|
|
|
8,376
|
|
|
|
12,869
|
|
Middle East
|
|
|
3,403
|
|
|
|
18,995
|
|
|
|
13,327
|
|
Post-Soviet States (excluding Russia)
|
|
|
3,293
|
|
|
|
8,345
|
|
|
|
8,245
|
|
Russia
|
|
|
3,185
|
|
|
|
8,466
|
|
|
|
25,589
|
|
West Indies
|
|
|
2,994
|
|
|
|
1,532
|
|
|
|
4,478
|
|
India
|
|
|
318
|
|
|
|
2,706
|
|
|
|
1,743
|
|
Other
|
|
|
480
|
|
|
|
331
|
|
|
|
228
|
|
Total foreign
|
|
|
206,158
|
|
|
|
260,870
|
|
|
|
321,365
|
|
Total consolidated sales
|
|
$
|
1,147,431
|
|
|
$
|
983,157
|
|
|
$
|
975,595
|
|
Long-lived assets by major geographic region are as follows:
|
|
December 31
|
|
|
|
2016
|
|
|
2015
|
|
United States
|
|
$
|
151,470
|
|
|
$
|
141,727
|
|
Brazil
|
|
|
11,288
|
|
|
|
9,780
|
|
South Africa
|
|
|
5,372
|
|
|
|
5,116
|
|
Northern Ireland
|
|
|
4,279
|
|
|
|
5,116
|
|
Australia
|
|
|
4,234
|
|
|
|
4,351
|
|
Canada
|
|
|
2,860
|
|
|
|
2,987
|
|
Germany
|
|
|
1,035
|
|
|
|
1,129
|
|
Total foreign
|
|
|
29,068
|
|
|
|
28,479
|
|
Total
|
|
$
|
180,538
|
|
|
$
|
170,206
|
|
18. Accumulated Other Comprehensive Loss
The balance of related after-tax components comprising accumulated other comprehensive loss is summarized below:
|
December 31
|
|
|
2016
|
|
2015
|
|
Foreign currency translation adjustment
|
|
$
|
(27,839
|
)
|
|
$
|
(19,891
|
)
|
Unrecognized pension and post-retirement benefit cost, net of tax of
$2,261 and $2,232, respectively
|
|
|
(3,723
|
)
|
|
|
(3,673
|
)
|
Accumulated other comprehensive loss
|
|
$
|
(31,562
|
)
|
|
$
|
(23,564
|
)
|
See Note 12, Pension and Retirement Plans, for discussion of the amounts recognized in accumulated other comprehensive income related to the Company's Kolberg-Pioneer, Inc. defined pension plan.
19. Other Income (Expense) - Net
Other income (expense), net consists of the following:
|
|
Year Ended December 31
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Investment income (loss)
|
|
$
|
(276
|
)
|
|
$
|
(381
|
)
|
|
$
|
64
|
|
Licensing fees
|
|
|
546
|
|
|
|
641
|
|
|
|
831
|
|
Income from life insurance policies
|
|
|
--
|
|
|
|
1,204
|
|
|
|
--
|
|
Other
|
|
|
259
|
|
|
|
1,591
|
|
|
|
312
|
|
Total
|
|
$
|
529
|
|
|
$
|
3,055
|
|
|
$
|
1,207
|
|
20. Business Combinations
In August 2016, the Company acquired substantially all of the assets and certain liabilities of Power Flame Incorporated ("PFI") for a total purchase price of $39,765. The purchase price was paid in cash with $4,000 deposited into escrow for a period of time not to exceed two years pending final resolution of certain post-closing adjustments and any indemnification claims. The Company's allocation of the purchase price resulted in the recognition of $12,632 of goodwill and $17,990 of other intangible assets consisting of technology (19 year useful life), trade names (15 year useful life) and customer relationships (18 year useful life). The revenues and results of operations of PFI were not significant in relation to the Company's financial statements for the period ended December 31, 2016 and would not have been material on a proforma basis to any earlier period. PFI's operating results are included in the Energy Group beginning in the third quarter of 2016.
PFI, located in Parsons, Kansas, began operations in 1948 and manufactures and sells gas, oil and combination gas/oil and low NOx burners with outputs ranging from 400 thousand BTU's per hour to 120 million BTU's per hour as well as combustion control systems designed for commercial, industrial and process heating applications.
On April 1, 2014, the Company purchased 100% of the stock of Telestack Limited ("Telestack") for a total purchase price of $36,183. The purchase price was paid in cash with $2,500 deposited into escrow for a period of time not to exceed one year and was subject to certain post-closing adjustments. The post-closing adjustments were finalized during the first quarter of 2015 resulting in a decrease in the purchase price of $178. The adjusted purchase price allocation includes the recognition of $18,078 of goodwill and $14,445 of other intangible assets based on the exchange rate as of the acquisition date, consisting of trade names (15 year useful life), patents (5 to 10 year useful lives), non-compete agreements (3 year useful life) and customer relationships (11 year useful life). Telestack's operating results are included in the Aggregate and Mining Group beginning in the second quarter of 2014.
Telestack, located in Omagh, Northern Ireland, began operations in 1999 and specializes in the complete in-house design, manufacture, installation and commissioning of a complete line of material handling systems used extensively in the port, aggregate and mining industries. Telestack markets its products throughout the world by a combination of direct sales and distribution through dealers.