Astec Industries, Inc. — FY 2013 Form 10-K
Business context and reporting period. Astec designs and manufactures equipment and replacement parts for road construction, aggregate and mining, paving, underground drilling, and related industries. This annual report covers the fiscal year ended December 31, 2013; fourth-quarter figures are unaudited. The company reported four operating segments: Asphalt, Aggregate and Mining, Mobile Asphalt Paving, and Underground, plus Other.
Financial performance and position
| Metric | FY 2013 | FY 2012 |
|---|---|---|
| Net sales | $933.0 million | $936.3 million |
| Gross profit / margin | $207.1 million / 22.2% | $208.0 million / 22.2% |
| Operating income / margin | $55.7 million / 6.0% | $51.1 million / 5.5% |
| Net income from continuing operations | $39.2 million | $34.2 million |
| Net income attributable to controlling interest | $39.0 million; diluted EPS $1.69 | $40.8 million; diluted EPS $1.77 |
| Cash from operating activities | $5.9 million | $28.6 million |
| Capital expenditures | $27.7 million | $26.0 million |
- Fourth-quarter 2013 sales were $223.9 million and net income was $8.3 million, with diluted EPS of $0.36. Fourth-quarter 2012 net income of $10.9 million included discontinued-operation income and a disposal gain; continuing-operations income was $5.5 million.
- Domestic sales rose 4.6% to $599.1 million; international sales fell 8.2% to $333.9 million. Parts were 26.5% of sales, up from 26.3%.
- Segment sales/profit (loss): Asphalt $238.0 million / $27.0 million; Aggregate and Mining $350.5 million / $33.0 million; Mobile Asphalt Paving $168.4 million / $11.8 million; Underground $73.1 million / $(4.9) million; Other $103.0 million / $(27.4) million. Underground’s loss widened; Other’s loss narrowed. Other includes corporate costs and U.S. federal income tax expense.
- At year-end, cash and cash equivalents were $35.6 million, current investments $17.2 million, working capital $388.9 million, and total assets $749.3 million. Current liabilities were $133.5 million; the current ratio was approximately 3.9.
- No borrowings were outstanding under the $100 million revolving facility; $6.9 million of letters of credit left $93.1 million available. The company reported no short- or long-term debt on its balance sheet and was in compliance with credit covenants.
Material changes and notable items
- Sales were nearly flat year over year, while continuing-operations income increased. Reported controlling-interest net income declined 4.4%, in part because 2012 included $6.8 million from discontinued operations.
- Backlog increased 10.0% to $290.2 million, driven by domestic orders; management expected substantially all year-end backlog to be filled during 2014.
- Operating cash flow fell by $22.8 million to $5.9 million. Management attributed the decrease primarily to receivables and customer deposits; inventory also rose $29.6 million year over year. Cash declined $45.4 million during 2013.
- The company restated 2012 and 2011 financial statements for errors in eliminating interdivisional profits in the Asphalt Group. The errors understated inventory, margins, taxes, and earnings in prior periods; the restatement increased 2012 and 2011 net income from continuing operations by $0.6 million each. The company stated the errors were not material to each prior period individually, but their cumulative correction would have been material to 2013 results if recorded all at once. The errors did not affect previously reported operating cash flows.
- International sales declined amid economic uncertainty and a stronger U.S. dollar. Foreign-currency translation contributed to a $5.4 million other comprehensive loss in 2013.
- The board paid quarterly dividends of $0.10 per share in the second, third, and fourth quarters of 2013, or $0.30 for the year.
Outlook, risks, and contingencies
- Management forecast 2014 capital expenditures of $39.2 million, expected to be funded through cash, investments, operating cash flow, credit availability, and local financing for the Brazil facility. The Brazilian manufacturing plant was under construction and expected to begin production in the second half of 2014; estimated facility cost was approximately $23 million.
- Management expected near-term steel prices to remain around early-2014 levels but noted uncertainty for the remainder of the year. It expected the U.S. dollar to remain strong and oil prices to fluctuate.
- Federal transportation funding under MAP-21 extended through September 30, 2014; management said longer-term funding remained uncertain. Demand is exposed to economic and construction cycles, infrastructure spending, interest rates, oil and asphalt costs, steel prices, weather, and customer credit availability.
- Other risks include competition, international currency and market exposure, product liability and warranty costs, execution and cost overruns on customized projects, and compliance with credit covenants. Management also noted that research and development tax credits may not continue in future years.
- Letters of credit and guarantees represented potential obligations of up to $8.4 million. Customer financing guarantees were $0.7 million, with a recorded liability of $0.1 million. Management said ordinary-course litigation was not expected to materially affect results, but outcomes are uncertain.
- An unresolved EPA matter relates to a possible share of Illinois cleanup costs for activity predating the 1986 acquisition of Barber-Greene. The company recorded no liability because the amount, if any, could not be estimated.
- Management identified a prior-period accounting error during 2013; management and the independent auditor nevertheless concluded internal control over financial reporting was effective as of year-end. The financial statement audit opinion was unqualified.
Important facts for investors to verify
- Review the restatement disclosures and confirm the corrected comparative figures, especially inventory and earnings.
- Track whether the higher backlog converts into 2014 shipments and cash, and whether working-capital demands—particularly inventory, receivables, and customer deposits—normalize.
- Assess the Underground Group’s continued losses and the drivers of the Other category’s substantial reported loss.
- Monitor execution, funding, ownership arrangements, and production timing for the Brazil facility, alongside the planned capital-spending increase.
- Check developments in federal highway funding after September 30, 2014, and changes in international demand, exchange rates, steel, and oil prices.