Astec Industries, Inc. — FY 2011 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended December 31, 2011; quarterly figures below compare fourth-quarter 2011 with fourth-quarter 2010. Astec manufactures road-building, aggregate and mining, paving, underground construction, drilling and related equipment, as well as replacement parts. It reports four operating segments—Asphalt, Aggregate and Mining, Mobile Asphalt Paving, and Underground—plus Other. International sales represented 41.3% of FY 2011 sales.
Financial performance
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Net sales | $955.7 million | $771.3 million |
| Gross profit / margin | $218.8 million / 22.9% | $179.0 million / 23.2% |
| Operating income | $57.5 million | $47.4 million |
| Income before taxes | $59.3 million | $48.7 million |
| Net income attributable to controlling interest | $39.9 million | $32.4 million |
| Diluted EPS | $1.74 | $1.42 |
| Cash from operations | $32.3 million | $62.0 million |
| Capital expenditures | $36.1 million | $11.3 million |
| Cash and cash equivalents at year-end | $57.5 million | $94.6 million |
- Sales rose 23.9%; net income attributable to controlling interest increased 23.1%. Gross margin eased 0.3 percentage points.
- Operating cash flow fell $29.7 million, largely reflecting increased receivables and inventory. Inventory rose to $299.1 million from $253.0 million; management linked working-capital investment to higher production and backlog.
- Year-end working capital was $331.5 million, total assets $716.9 million and total equity $529.2 million. The current ratio was approximately 3.2.
- No borrowings were outstanding under the parent’s $100 million revolving facility; $12.36 million of letters of credit left $87.64 million available. The company reported no short- or long-term debt on its consolidated balance sheet.
- FY 2011 backlog was $279.6 million, up 19.9% from the comparable, acquisition-adjusted 2010 backlog of $233.1 million.
Fourth-quarter comparison
Q4 2011 sales were $263.2 million versus $190.8 million in Q4 2010. Net income attributable to controlling interest was $8.0 million versus $6.0 million, and diluted EPS was $0.35 versus $0.26. Q4 2011 gross profit was $55.7 million versus $44.3 million. The filing does not provide a clearly stated quarterly gross-margin percentage.
Segment results
| Segment | FY 2011 sales | Change from 2010 | FY 2011 segment profit (loss) |
|---|---|---|---|
| Asphalt | $260.4 million | +15.0% | $29.3 million |
| Aggregate and Mining | $333.3 million | +30.0% | $31.5 million |
| Mobile Asphalt Paving | $188.0 million | +12.9% | $26.5 million |
| Underground | $84.8 million | +41.0% | ($7.1) million |
| Other | $89.3 million | +44.1% | ($38.2) million |
Aggregate and Mining had the largest sales increase and its segment profit nearly doubled, supported by higher volume and improved plant utilization. Underground remained loss-making despite higher sales, including GEFCO’s fourth-quarter contribution. Other’s loss widened, in part because it includes parent-company federal income tax expense and a $2.3 million aviation-asset impairment.
Material changes, outlook and risks
- Sales mix and geography: Domestic sales increased 17.7% to $561.4 million; international sales rose 33.9% to $394.4 million. Parts sales increased 16.3% to $233.2 million, but declined as a share of sales from 26.0% to 24.4%.
- Costs and unusual items: Selling, general and administrative expense rose 21.6% to $138.8 million, including a $3.1 million Con-Expo cost, $2.2 million of legal and professional expense, and a $2.3 million write-down of aviation assets held for sale. Gross profit included $2.2 million of charges associated with disposal of the Underground utility-product-line assets; related inventory valuation charges were also recorded. No goodwill impairment was reported for 2011.
- Acquisitions and disposal: Astec acquired German businesses for $3.0 million in August and acquired GEFCO/STECO for $30.4 million in October. GEFCO added $10.9 million of 2011 sales. In February 2012, Astec sold its Underground utility trencher and vibratory-plow product line; 2011 sales of the line were $18.4 million.
- Management outlook: Management expected substantially all year-end backlog to be filled in 2012. It forecast $37.4 million of 2012 capital expenditures, excluding the Brazilian joint venture, and expected available cash, operating cash flow and credit capacity to fund needs through year-end. No numerical earnings or revenue guidance was provided.
- Expansion plans: The company planned to invest approximately $12 million in its 75%-owned Brazilian joint venture in 2012. The joint venture expected to build a manufacturing facility costing approximately $20 million, with plant and equipment financing expected from a local bank.
- Funding and input-cost risks: Federal transportation funding was authorized only through March 31, 2012, leaving future highway spending uncertain. Steel prices increased moderately in late 2011 and early 2012; the company used forward contracts and advance purchases to mitigate exposure. Oil-price volatility, economic cyclicality, customer credit availability and foreign exchange movements could affect demand and margins.
- Credit facility renewal: The parent facility was due to expire in May 2012. Management was negotiating a replacement five-year facility and expected terms not to differ significantly, but renewal and final terms were not assured in the filing.
- Contingencies: Customer-financing guarantees totaled $3.5 million, with a $0.3 million recorded liability. Letters of credit and related guarantees had a stated maximum potential exposure of $16.5 million. The company disclosed ordinary-course litigation and an unresolved potential EPA cleanup liability related to pre-1986 activity; the amount, if any, could not be estimated, and no liability was recorded.
- Reporting and shareholder matters: Management and the auditor reported effective internal control over financial reporting, but the assessment excluded the 2011-acquired operations, totaling $44.2 million of assets and $11.3 million of revenue; management planned to complete their assessment during 2012. Astec had never paid cash dividends and did not expect to do so in the foreseeable future.
Important facts for investors to verify
- Whether the company renewed its $100 million credit facility before the May 2012 expiration, and the final borrowing capacity, pricing and covenants.
- Whether backlog converted to sales and cash as management expected, particularly given the 2011 operating-cash-flow decline and higher inventories and receivables.
- Post-acquisition performance and integration of GEFCO/STECO and the German businesses, including any effects on margins, cash needs or internal controls.
- The realized proceeds and financial effects of the utility-product-line and aviation-asset disposals, and the extent of any remaining obligations or impairment exposure.
- Progress and funding for the Brazilian joint venture, together with the company’s 2012 capital spending and liquidity position.
- Developments in highway funding, steel and oil prices, customer demand, the EPA matter, guarantees and other legal contingencies.