f10k-123112.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR
o          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________________

Commission file number 001-11595

ASTEC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

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


Registrant's telephone number, including area code:
(423)  899-5898

Securities registered pursuant to Section 12(b) of the Act:
 
(Title of each class)
(Name of each exchange on which registered)
Common Stock, $0.20 par value
NASDAQ National Market

Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
                                 Yes  o
 No  ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
                                 Yes  o
 No  ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  ý
No  o


 
 

 


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

                                 Yes   ý
No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ý
Accelerated Filer o
 
Non-accelerated Filer o (Do not check if a smaller reporting company)
Smaller Reporting Company o


 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes           o
No ý
 

 
 
As of June 30, 2012, the aggregate market value of the registrant's voting and non-voting common stock held by non-affiliates of the registrant was approximately $615,588,000 based upon the closing sales price as reported on the NASDAQ National Market System.


(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:


As of February 15, 2013, Common Stock, par value $0.20 - 22,806,400 shares


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents have been incorporated by reference into the Parts of this Annual Report on Form 10-K indicated:


Document
Form 10-K
Proxy Statement relating to Annual Meeting of Shareholders to be held on April 25, 2013
Part III
   


 
 

 



ASTEC INDUSTRIES, INC.
2012 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS


PART I
   
Page
 
Item 1.
Business
    2  
Item 1A.
Risk Factors
    20  
Item 1B.
Unresolved Staff Comments
    25  
Item 2.
Properties
    26  
Item 3.
Legal Proceedings
    28  
Item 4. 
Mine Safety Disclosures
    29  
 
Executive Officers of the Registrant
    32  
           
PART II
         
Item 5.
Market for Registrant's Common Equity; Related Shareholder Matters and Issuers Purchases of Equity Securities
    32  
Item 6.
Selected Financial Data
    32  
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
    33  
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
    33  
Item 8.
Financial Statements and Supplementary Data
    33  
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    33  
Item 9A.
Controls and Procedures
    33  
Item 9B.
Other Information
    33  
           
PART III
         
Item 10.
Directors, Executive Officers and Corporate Governance
    34  
Item 11.
Executive Compensation
    34  
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
    34  
Item 13.
Certain Relationships and Related Transactions, and Director Independence
    35  
Item 14.
Principal Accounting Fees and Services
    35  
           
PART IV
         
Item 15.
Exhibits and Financial Statement Schedules
    36  
           
           
Appendix A
ITEMS 6, 7, 7A, 8, 9A and 15(a)(1), (2) and (3),and 15(b) and 15(c)
    A-1  
           
Signatures
         




 
 

 

FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements contained anywhere in this Annual Report on Form 10-K that are not limited to historical information are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding:

· execution of the Company’s growth and operation strategy;
· plans for technological innovation;
· compliance with covenants in our credit facility;
· liquidity and capital expenditures;
· sufficiency of working capital, cash flows and available capacity under the Company’s
       credit facilities;
· compliance with government regulations;
· compliance with manufacturing and delivery timetables;
· forecasting of results;
· general economic trends and political uncertainty;
· government funding and growth of highway construction and commercial projects;
· taxes or usage fees;
· interest rates;
· integration of acquisitions;
· industry trends;
· pricing, demand and availability of oil and liquid asphalt;
· pricing, demand and availability of steel;
· development of domestic oil and natural gas production;
· condition of the economy;
· strength of the dollar relative to foreign currencies;
· the success of new product lines;
· presence in the international marketplace;
· suitability of our current facilities;
· future payment of dividends;
· competition in our business segments;
· product liability and other claims;
· protection of proprietary technology;
· demand for products;
· future filling of backlogs;
· employees;
· the seasonality of our business;
· tax assets and reserves for uncertain tax positions;
· critical accounting policies and the impact of accounting changes;
· anticipated start-up dates for our Brazilian operations;
· our backlog;
· ability to satisfy contingencies;
· contributions to retirement plans and plan expenses;
· reserve levels for self-insured insurance plans and product warranties;
· construction of new manufacturing facilities;
· supply of raw materials; and
· inventory.
 
1

 


These forward-looking statements are based largely on management's expectations which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this report and in other documents filed by us with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements.  All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements to reflect future events or circumstances.  You can identify these statements by forward-looking words such as "expect", "believe", “anticipate”, "goal", "plan", "intend", "estimate", "may", "will", “should” and similar expressions.

In addition to the risks and uncertainties identified elsewhere herein and in other documents filed by us with the Securities and Exchange Commission, the risk factors described in this document under the caption "Risk Factors" should be carefully considered when evaluating our business and future prospects.

PART I

Item 1.  Business

General

Astec Industries, Inc. (the "Company") is a Tennessee corporation which was incorporated in 1972.  The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities as well as other products discussed below.  The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries; gas and oil drilling rigs; water well and geothermal drilling rigs; industrial heat transfer equipment; whole-tree pulpwood chippers; horizontal grinders; and blower trucks.  The Company also manufactures a line of multiple use plants for cement treated base, roller compacted concrete and ready-mix concrete.  The Company is developing and marketing pelletizing equipment used to compress wood and other products into dense pellets for the renewable energy market among other applications.  The Company's subsidiaries hold 83 United States patents and 40 foreign patents with 73 patent applications pending and have been responsible for many technological and engineering innovations in the industries in which they operate.  The Company's products are marketed both domestically and internationally.  In addition to equipment sales, the Company manufactures and sells replacement parts for equipment in each of its product lines and replacement parts for some competitors' equipment.  The distribution and sale of replacement parts is an integral part of the Company's business.

 
2

 


The Company's fifteen manufacturing subsidiaries are: (i) Breaker Technology Ltd/Inc., which designs, engineers, manufactures and markets rock breaking systems in addition to processing equipment and utility vehicles for the mining and quarrying industries; (ii) Johnson Crushers International, Inc., which designs, engineers, manufactures and markets portable and stationary aggregate and ore processing equipment; (iii) Kolberg-Pioneer, Inc., which designs, engineers, manufactures and markets aggregate processing equipment for the crushed stone, gravel, manufactured sand, recycle, top soil and remediation markets; (iv) Osborn Engineered Products SA (Pty) Ltd, which designs, engineers, manufactures and markets a complete line of bulk material handling and minerals processing plant and equipment used in the aggregate, mineral mining, metallic mining and recycling industries; (v) Astec Mobile Screens, Inc. which designs, engineers, manufactures and markets mobile screening plants, portable and stationary structures and vibrating screens for the aggregate, recycle and material processing industries; (vi) Telsmith, Inc., which designs, engineers, manufactures and markets aggregate processing and mining equipment for the production and classification of sand, gravel, crushed stone and minerals used in road construction and other applications; (vii) Astec, Inc., which designs, engineers, manufactures and markets hot-mix asphalt plants, concrete mixing plants and related components of each; (viii) CEI Enterprises, Inc., which designs, engineers, manufactures and markets thermal fluid heaters, storage tanks, hot-mix asphalt plants, rubberized asphalt and polymer blending systems; (ix) Heatec, Inc., which designs, engineers, manufactures and markets thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems; (x) Astec Underground, Inc., which designs, engineers, manufactures and markets high pressure diesel powered pump trailers used for fracking and cleaning oil and gas wells and the four track surface miner as well as functioning as a contract manufacturer for other companies, both inside and outside the Astec family of companies; (xi) Carlson Paving Products, Inc., which designs, engineers, manufactures and markets asphalt paver screeds, a commercial paver and a windrow pickup machine; (xii) Roadtec, Inc., which designs, engineers, manufactures and markets asphalt pavers, material transfer vehicles, milling machines and a line of asphalt reclaiming and soil stabilizing machinery; (xiii) Peterson Pacific Corp., which designs, engineers, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks; (xiv) GEFCO, Inc., which was acquired in October 2011 and which designs, engineers, manufactures and markets portable drilling rigs and related equipment for the water well, environmental, groundwater monitoring, construction, geothermal, mining and shallow oil and gas exploration and production industries; and (xv) Astec Mobile Machinery GmbH, which is located in Hameln, Germany, and which began operations in the third quarter of 2011 upon the Company’s acquisition of existing businesses.  The company designs, manufactures and markets asphalt rollers and screeds and a road widener attachment and distributes products produced by other Company subsidiaries, primarily Roadtec, Inc.  The Company also has a subsidiary in Australia, Astec Australia Pty Ltd, that markets and installs equipment and services and provides parts in the region for many of the products produced by the Company’s manufacturing companies.  In addition, the Company entered into an agreement with a Brazilian company in late 2011 to form a company in Brazil with 75% ownership retained by the Company.  The jointly owned company began constructing a manufacturing facility during 2012 and expects to begin producing equipment by early 2014 to supply the South American market with various Company products for the aggregate and mining industries.

The Company's strategy is to be the industry's most cost-efficient producer in each of its product lines while continuing to develop innovative new products and provide first class service for its customers.  Management believes that the Company is the technological innovator in the markets in which it operates and is well positioned to capitalize on the need to rebuild and enhance roadway and utility infrastructure as well as in other areas in which it offers products and services, both in the United States and abroad.

 
3

 


Segment Reporting

The Company's business units have their own decentralized management teams and offer different products and services.  The business units have been aggregated into four reportable business segments based upon the nature of the product or services produced, the type of customer for the products, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process, among other considerations.  The reportable business segments are (i) Asphalt Group, (ii) Aggregate and Mining Group, (iii) Mobile Asphalt Paving Group and (iv) Underground Group.  All remaining companies, including the Company, Astec Insurance Company, Peterson Pacific Corp. and Astec Australia Pty Ltd, as well as U.S. federal income tax expenses for all business segments, are included in the "Other Business Units" category for reporting.

Financial information in connection with the Company's financial reporting for segments of a business and for geographic areas under FASB Accounting Standards Codification (ASC) 280 is included in Note 17, Operations by Industry Segment and Geographic Area, to "Notes to Consolidated Financial Statements” presented in Appendix A of this report.

Asphalt Group

The Asphalt Group segment is made up of three business units: Astec, Inc. ("Astec"), Heatec, Inc. ("Heatec") and CEI Enterprises, Inc. ("CEI").  These business units design, engineer, manufacture and market a complete line of asphalt plants, concrete mixing plants, wood pellet plants, and related components of each, heating and heat transfer processing equipment and storage tanks for the asphalt paving and other non-related industries.

Products

Astec designs, engineers, manufactures and markets a complete line of portable, stationary and relocatable hot-mix asphalt plants and related components under the ASTEC® trademark as well as a line of concrete mixing plants introduced by Astec in 2009.  An asphalt mixing plant typically consists of heating and storage equipment for liquid asphalt (manufactured by CEI or Heatec); cold feed bins for blending aggregates; a counter-flow continuous type unit (Astec Double Barrel) for drying, heating and mixing; a baghouse composed of air filters and other pollution control devices; hot storage bins or silos for temporary storage of hot-mix asphalt; and a control house.  Astec introduced the concept of high plant portability in 1979.  Its current generation of portable asphalt plants is marketed as the Six PackTM and consists of six or more portable components, which can be disassembled, moved to the construction site and reassembled, thereby reducing relocation expenses.  High plant portability represents an industry innovation developed and successfully marketed by Astec.  Astec's enhanced version of the Six PackTM, known as the Turbo Six PackTM, is a highly portable plant which is especially useful in less populated areas where plants must be moved from job-to-job and can be disassembled and erected without the use of cranes.

Astec developed a Double Barrel Green System (patent pending), which allows the asphalt mix to be prepared and placed at lower temperatures than conventional systems and operates with a substantial reduction in smoke emissions during paving and load-out.  Previous technologies for warm mix production rely on expensive additives, procedures and/or special asphalt cement delivery systems that add significant costs to the cost per ton of mix.  The Company’s new Astec multi-nozzle device eliminates the need for the expensive additives by mixing a small amount of water and asphalt cement together to create microscopic bubbles that reduce the viscosity of the asphalt mix coating on the rock, thereby allowing the mix to be handled and worked at lower temperatures.

 
4

 


The components in Astec's asphalt mixing plants are fully automated and use both microprocessor-based and programmable logic control systems for efficient operation.  The plants are manufactured to meet or exceed federal and state clean air standards.  Astec also builds batch type asphalt plants and has developed specialized asphalt recycling equipment for use with its hot-mix asphalt plants.

Astec’s concrete production equipment is designed to be easy to operate and maintain.  Materials are managed with continuous blending using belt scales and variable frequency conveyor drives.  Shaft-driven mixers with high-torque folding action deliver a uniform concrete mix.  Astec’s tower plants, which are designed in modular configurations for either dry or wet arrangements, provide an exciting new alternative in vertical stationary concrete plants.

Astec has nearly completed the R&D phase for its pellet plants.  Once completed, Astec expects to be the world’s first and only provider of turnkey wood pellet production plants.

Certain of Astec’s products are also available through licensing agreements with TIL, Ltd. in India and CCCC Xi’an Road Construction Co. Ltd. in China.

Heatec designs, engineers, manufactures and markets a variety of thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems under the HEATEC® trademark.  For the construction industry, Heatec manufactures a complete line of asphalt heating and storage equipment to serve the hot-mix asphalt industry and water heaters for concrete plants.  In addition, Heatec builds a wide variety of industrial heaters to fit a broad range of applications, including heating equipment for marine vessels, roofing material plants, refineries, oil sands, energy related processing, chemical processing, rubber plants and the agribusiness.  Heatec has the technical staff to custom design heating systems and has systems operating as large as 50,000,000 BTU's per hour.

CEI designs, engineers, manufactures and markets thermal fluid heaters, storage tanks, hot-mix asphalt plants, rubberized asphalt and polymer blending systems under the CEI® trademark.  CEI designs and builds heaters with outputs up to 10,000,000 BTU’s per hour and portable, vertical and stationary storage tanks up to 40,000 gallons in capacity.  CEI’s hot-mix plants are built for domestic and international use and employ parallel and counter flow designs with capacities up to 180 tons per hour.  CEI is a leading supplier of crumb rubber blending plants in the U.S.

Marketing

Astec markets its hot-mix asphalt products both domestically and internationally. Dillman Equipment, Inc., a manufacturer of asphalt production equipment in Prairie du Chien, Wisconsin, was acquired by Astec in October 2008 and now operates as a division of Astec. The Dillman line of equipment is offered to the market as an addition to the Astec product line. The principal purchasers of asphalt and related equipment are highway contractors. Asphalt equipment, including Dillman products, is sold directly to the customers through Astec's domestic and international sales departments, although independent agents are also used to market asphalt plants and their components in international markets.

Heatec and CEI equipment is marketed through both direct sales and dealer sales.  Manufacturers' representatives sell heating products for applications in several industries other than the asphalt industry.

In total, the products of the Asphalt Group segment are marketed by approximately 51 direct sales employees, 18 domestic independent distributors and 53 international independent distributors.

 
5

 


Raw Materials

Raw materials used in the manufacture of products include carbon steel, pipe and various types of alloy steel, which are normally purchased from distributors.  Raw materials for manufacturing are normally readily available.  Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but some steel is bought and occasionally inventoried.

Competition

This industry segment faces strong competition in price, service and product performance and competes with both large publicly-held companies with resources significantly greater than those of the Company and with various smaller manufacturers. Domestic hot-mix asphalt plant competitors include Terex Corporation, Gencor Industries, Inc., ADM and Almix.  In the international market the hot-mix asphalt plant competitors include Ammann, Parker, Cifali, Speco and local manufacturers.  The market for the Company's heat transfer equipment is diverse because of the multiple applications for such equipment.  Competitors for the construction product line of heating equipment include Gencor Industries, Inc., American Heating, Pearson Heating Systems, Reliable Asphalt Products and Meeker. Competitors for the industrial product line of heating equipment include Sigma Thermal, Fulton Thermal Corporation and Vapor Power International.

Employees

At December 31, 2012, the Asphalt Group segment employed 1,116 individuals, of which 792 were engaged in manufacturing, 144 in engineering and 180 in selling, general and administrative functions.

Backlog

The backlog for the Asphalt Group at December 31, 2012 and 2011 was approximately $139,828,000 and $115,775,000, respectively. Management expects substantially all current backlogs to be filled in 2013.

Aggregate and Mining Group

The Company's Aggregate and Mining Group is comprised of seven business units focused on the aggregate, metallic mining, quarrying and recycling markets.  These business units achieve their strength by distributing products into niche markets and drawing on the advantages of brand recognition in the global market.  These business units are Telsmith, Inc. ("Telsmith"), Kolberg-Pioneer, Inc. ("KPI"), Astec Mobile Screens, Inc. ("AMS"), Johnson Crushers International, Inc. ("JCI"), Breaker Technology Ltd/Breaker Technology Inc. ("BTI"), Osborn Engineered Products, SA (Pty) Ltd ("Osborn") and Astec Agregados E Mineracao Do Brasil LTDA (“Astec Brazil”).

Products

Founded in 1906, Telsmith is the oldest subsidiary of the group.  The primary markets served under the TELSMITH® trade name are the aggregate, metallic mining and recycling industries.

Telsmith’s core products are jaw, cone and impact crushers, as well as vibrating feeders and inclined and horizontal screens. Telsmith also provides consulting and engineering services to provide complete “turnkey” processing systems. Both portable and modular plant systems are available in production ranges from 300 tph to 1500 tph.

 
6

 

Telsmith maintains an ISO 9001:2008 certification, an internationally recognized standard of quality assurance. In addition, Telsmith has achieved CE designation (a standard for quality assurance and safety) on its jaw crusher, cone crusher and vibrating screen products marketed into European Union countries.

Telsmith recently introduced new equipment models and enhancements to existing equipment offerings in several of its product lines.  Telsmith’s new track-mounted mobile screening plant was designed to provide improved serviceability and increased reliability by incorporating fewer hydraulic cylinders and also provides an improved anti-spin feature and a unique hybrid bearing feature.  Telsmith also recently developed a new portable crushing plant for the company’s licensee in India, and it modified other existing products to provide additional and improved features and to reduce manufacturing costs.
 
KPI designs, engineers, manufactures and supports a complete line of aggregate processing equipment for the sand and gravel, mining, quarrying, concrete and asphalt recycling markets under the KPI-JCI product brand name. This equipment, along with the full line of portable and stationary aggregate and ore processing products from JCI and the related screen products from AMS, are all jointly marketed through an extensive network of KPI-JCI and AMS dealers.

KPI products include a complete line of primary, secondary, tertiary and quaternary crushers, including jaw, horizontal shaft impactor, vertical shaft impactor and roll crushers.  KPI rock crushers are used by mining, quarrying and sand and gravel producers to crush oversized aggregate to salable size, in addition to their use for recycled concrete and asphalt. Equipment furnished by KPI can be purchased as individual components, as portable plants for flexibility or as completely engineered systems for both portable and stationary applications. Included in the portable area is the highly-portable Fast Pack ® System, featuring quick setup and teardown, thereby maximizing production time and minimizing downtime. Also included in the portable line is the fully self-contained and self-propelled Fast Trax ® track-mounted jaw and horizontal shaft crushers in six different models, which are ideal for either recycle or hard rock applications, allowing the producer to move the equipment to the material.  KPI is offering a newly expanded Global Trax line of these track-mounted crushers to focus more specifically on the global market and meet the needs for that type of equipment in more countries.

KPI sand classifying and washing equipment is designed to clean, separate and re-blend deposits to meet the size specifications for critical applications. KPI products include fine and coarse material washers, log washers, blade mills and sand classifying tanks. KPI also offers additional portable and stationary plants to handle the growing needs in specialty sands and fines recovery.  Screening plants are available in both stationary and highly portable models and are complemented by a full line of radial stacking and overland belt conveyors.

KPI conveying equipment is designed to move or store aggregate and other bulk materials in radial cone-shaped or windrow stockpiles. The SuperStacker telescoping conveyor and its Wizard Touch® automated controls are designed to add efficiency and accuracy to whatever the stockpile specifications require. High capacity rail and barge loading/unloading material handling systems are an important part of the product segment.

The KPI-JCI product line was recently expanded to include a new fine recovery plant which was designed for aggregate producers requiring a mobile fines recovery plant to support their existing operations by reducing the volume of fine material in their settling ponds without the use of flocculants.  The new model can be configured to be completely self-contained, eliminating the need for external equipment during plant set-up and tear-down.

 
7

 


JCI designs, engineers, manufactures and distributes portable and stationary aggregate and ore processing equipment. This equipment is used in the aggregate, mining and recycling industries. JCI's principal products are cone crushers, three-shaft horizontal screens, portable plants, track-mounted plants and replacement parts for competitive equipment. JCI offers completely re-manufactured cone crushers and screens from its service repair facility.

JCI cone crushers are used primarily in secondary and tertiary crushing applications, and come in both remotely adjusted and manually adjusted models.  Horizontal screens are low-profile machines for use in both portable and stationary applications.  JCI incline screens are available for both standard duty and heavy duty applications, primarily in stationary applications.  JCI also manufactures the Combo Screen, a combination of an incline feed section and a horizontal discharge section.  The Combo Screen utilizes an oval stroke impulse mechanism, and offers increased throughput capacity in scalping applications where the removal of fines is desired. 
 
Portable plants combine various configurations of cone crushers, horizontal screens, combo screens and conveyors, mounted on tow away chassis.  Due to high transportation costs of construction materials, many producers use portable equipment to produce the materials they need close to their job sites.  Portable plants allow aggregate producers the ability to quickly and efficiently move their equipment from one location to another as their jobs necessitate. 
 
Track plants combine various configurations of cone crushers, horizontal screens, incline screens and conveyors, mounted on track chassis.  These units are fully self-contained and allow operators be producing materials within minutes of driving the equipment off of their transport trucks.  The introduction of track mounted crushing and screening plants has enabled contractors to perform jobs that in the past were not economically feasible.  JCI's track product line is also a valuable tool for our dealers, allowing them to compete in the large track mounted rental market, which had previously not been available to our dealers. 

JCI introduced several new portable and stationary plant models in 2012, which helped JCI’s portable plant business grow substantially in 2012.  Additionally, a number of new screen models have been introduced in 2012, including bare units and units for portable or stationary plants.  Design and manufacturing was completed on a new larger cone crusher during 2012, and the first customer unit was installed and prepared for start-up in early 2013.  This new model incorporates many of the proven features found on other JCI cones, but it was designed to enable JCI to compete in higher tonnage applications in both the portable and stationary plant markets, as well as the global mining markets.

AMS designs, engineers, manufactures and markets mobile screening plants, portable and stationary screen structures and vibrating screens designed for the recycle, crushed stone, sand and gravel, industrial and general construction industries. These screening plants include the AMS Vari-Vibe and Duo-Vibe high frequency screens and a new multi-frequency screen. The AMS high frequency screens are used for chip sizing, sand removal and sizing recycled asphalt where conventional screens are not ideally suited. Certain of AMS products are also available through licensing agreements with TIL, Ltd. in India.

During 2012, AMS bolstered its mobile screening line with the addition of a new competitively priced 5' x 20' mobile screen with the primary target markets being sand and gravel, crushed stone, recycle, and organic screening applications.  AMS also added to its recycle line with the addition of new model originally designed primarily for use in the RAP market, specifically fractionating; however, this new model will also allow us to expand into concrete, crushed stone and sand and gravel applications.


 
8

 


BTl designs, engineers, manufactures and markets a complete line of stationary rockbreaker systems for the mining, quarry and recycling industries, and it provides large-scale stationary rockbreakers for open pit mining, as well as mid-sized stationary rock breakers for underground applications.  BTl also designs, engineers, manufactures and markets a complete line of four wheel drive articulated production and utility vehicles for underground mining.

In addition to supplying equipment for the mining and quarry industries, BTl also designs, manufactures and markets a complete line of hydraulic breakers, compactors and demolition attachments for the North American construction and demolition markets.

BTl maintains ISO9001:2008 and 14001:2004 certifications, internationally recognized standards of quality and environmental assurance. BTl offers an extensive aftermarket sales and service program through a highly qualified and trained dealer network.

Recent or planned additions to the BTI product line include a new stationary rockbreaking system, as well as new models in other product lines including a new hammer scaler, a new multi-purpose mine utility vehicle and a new turntable boom.  The new stationary rockbreaker system is believed to be the largest in the world and was designed to work on vibratory crusher installations in strip mining applications.  Four models of this series are planned with 48 foot, 54 foot, 58 foot and 64 foot reach and the series is capable of handling 8,500 to 20,000 FT LB class breakers.  A new hammer scaler was introduced in 2011 and is a cost-effective mobile underground scaling machine, which complements the existing BTI scaler product line and competes better with less expensive units for smaller heading and less demanding applications.  BTI's new multi-purpose mine utility vehicle is a four wheel drive, hydraulic power train, 4 ton capacity supervisor vehicle/utility vehicle and is slated for manufacturing in the first quarter of 2013. A new turntable boom was developed with a new light duty swing post for the aggregate market. The design will include a turntable bearing allowing for more compact mounting, a greater range of motion and increased swing torque.  BTI is also modifying its series of turntable booms for use in the waste transfer industry.

Osborn maintains ISO:9000; 14000 and 18000 certifications for quality assurance and designs, engineers, manufactures and markets a complete line of bulk material handling and minerals processing equipment. This equipment is used in the aggregate, mining, metallurgical and recycling industries. Osborn has been a licensee of Telsmith's technology for over 60 years. In addition to Telsmith, Osborn also manufactures products pursuant to licenses from American Pulverizer (USA) and Mogensen (UK) and has an in-house brand, Hadfields. Osborn also offers the following equipment: mineral sizers, single and double-toggle jaw crushers; core crushers; rotary breakers; roll crushers; rolling ring crushers; mills; apron feeders; out-of-balance or exciter-driven screens and feeders; modular crushing and screening plants; and a full range of idlers.

Osborn has recently added a number of new products to its product offerings, including a 300 HP gyratory crusher for secondary applications, horizontal shaft impactors, a new out-of-balance exciter gearbox, a new range of double roll crushers, and numerous modernizations and updates to its existing product lines.

 
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Astec Brazil is in the process of constructing a manufacturing facility in Brazil.  To date, limited site preparation has been performed; however the 15,000 square-meter facility is scheduled to open in late 2013.  Manufacturing operations are expected to commence in January 2014.  The facility is being built on a 59,140 square-meter property located in Vespasiano, Minas Gerais, Brazil located in the southeastern part of the country.  Manufacturing operations, sales, distribution and product support will be located within the new facility which is expected to employee approximately 120 employees at full capacity.  The new facility will initially manufacture stationary jaw and cone crushers, vibrating feeders, screens and track-mounted crushing units, representing the brands of AMS, KPI-JCI, and Telsmith.  The Company also plans to manufacture other product lines at the facility in the future, such as BTI products for underground mining.  Once fully funded, Astec Brazil is expected to be 75% owned by the Company, with the other 25% being owned by MDE, a recognized leader in providing material handling solutions to the Brazilian market.

 Prior to completion of the facility, Astec Brazil is operating as a distributor for other Astec Aggregate and Mining companies in the South American market.

Marketing

Aggregate processing and mining equipment is marketed by approximately 105 direct sales employees, 126 domestic independent distributors and 143 international independent distributors.  The principal purchasers of aggregate processing equipment include highway and heavy equipment contractors, open mine operators, quarry operators and foreign and domestic governmental agencies.

Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors.  Raw materials for manufacturing are normally readily available.  BTI purchases hydraulic breakers under a purchasing arrangement with a South Korean supplier.  The Company believes the South Korean supplier has sufficient capacity to meet the Company's anticipated demand; however, alternative suppliers exist for these components should any supply disruptions occur.

Competition

The Aggregate and Mining Group faces strong competition in price, service and product performance.  Aggregate and Mining equipment competitors include Metso, Cedarapids, Powerscreen and Finlay, Pegson, Jacques, subsidiaries of Terex Corporation, Deister, F. L. Smith, McLanahan, Sandvik, and other smaller manufacturers, both domestic and international.

Employees

At December 31, 2012, the Aggregate and Mining Group segment employed 1,599 individuals, of which 1,125 were engaged in manufacturing, 135 in engineering and engineering support functions and 341 in selling, general and administrative functions.

Telsmith has a labor agreement covering approximately 192 manufacturing employees which expires on September 17, 2013.  None of Telsmith's other employees are covered by a collective bargaining agreement. Approximately 125 of Osborn's manufacturing employees are members of two national labor unions with labor agreements that expire on June 30, 2014.

 
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Backlog

At December 31, 2012 and 2011, the backlog for the Aggregate and Mining Group was approximately $88,123,000 and $98,262,000, respectively.  Management expects all current backlogs to be filled in 2013.

Mobile Asphalt Paving Group

The Mobile Asphalt Paving Group is comprised of Roadtec, Inc. ("Roadtec"), Carlson Paving Products, Inc. ("Carlson") and Astec Mobile Machinery GmbH (“Astec Mobile Machinery”), which began operations in the third quarter of 2011 in Hameln, Germany.  Roadtec designs, engineers, manufactures and markets asphalt pavers, material transfer vehicles, milling machines and a line of asphalt reclaiming and soil stabilizing machinery.  Carlson designs, engineers and manufactures asphalt paver screeds that attach to the asphalt paver to control the width and depth of the asphalt as it is applied to the roadbed.  Carlson also manufactures windrow pickup machines which transfer hot mix asphalt from the road bed into the paver's hopper and a heavy duty commercial class 8 ft. asphalt paver designed for parking lots, residential and other secondary roads. Astec Mobile Machinery serves as a distributor for Roadtec’s products in Europe and also designs, manufactures and markets screeds primarily for road construction markets outside the United States as well as a small road widener attachment.

Products

Roadtec's Shuttle Buggy® is a mobile, self-propelled material transfer vehicle which allows continuous paving by separating truck unloading from the paving process while remixing the asphalt.  A typical asphalt paver must stop paving to permit truck unloading of asphalt mix.  By permitting continuous paving, the Shuttle Buggy® allows the asphalt paver to produce a smoother road surface, while reducing the time required to pave the road surface and reducing the number of haul trucks required.  As a result of the pavement smoothness achieved with this machine, certain states now require the use of the Shuttle Buggy®.  Studies using infrared technology have revealed problems caused by differential cooling of the hot-mix during hauling.  The Shuttle Buggy® remixes the material to a uniform temperature and gradation, thus eliminating these problems.

Asphalt pavers are used in the application of hot-mix asphalt to the road surface.  Roadtec pavers have been designed to minimize maintenance costs while exceeding road surface smoothness requirements.  Roadtec also manufactures a paver model designed for use with the material transfer vehicle described above. This paver model is designed to carry and spray tack coat directly in front of the hot mix asphalt in a single process.

Roadtec manufactures milling machines designed to remove old asphalt from the road surface before new asphalt mix is applied.  Roadtec's milling machine lines, for larger jobs, are manufactured with a simplified control system, wide conveyors, direct drives and a wide range of horsepower and cutting capabilities to provide versatility in product application.  In addition to its larger half-lane and up highway class milling machines, Roadtec also manufactures a smaller, utility class machine for 2 ft. to 4ft. cutting widths. In addition, two new models of cold planers will be introduced in 2013: a dedicated one meter (40”) cutting width machine and a smaller 12” to 24” utility class cold plane, both mounted on wheels.

Roadtec will produce 3 soil stabilizers in 2013 at configurations of 440HP, 625HP and 755HP.  These machines double as asphalt reclaiming machines for road rehabilitations in addition to their primary purpose of stabilizing soil sub-grades with additives to provide an improved base on which to pave.  One additional model is being developed for production beginning in late 2013.

 
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Carlson's patented screeds are part of the asphalt paving machine that places asphalt on the roadbed at a desired thickness and width while smoothing and compacting the surface.  Carlson screeds can be configured to fit many types of asphalt paving machines.  A Carlson screed uses a hydraulic powered generator to electrify elements that heat a screed plate so that asphalt will not stick to it while paving.  A generator is also available to power tools or lights for night paving.  Carlson offers options which allow extended paving widths and the addition of a curb on the road edge.  Carlson’s commercial class 8 ft. paver fills the void between competitors commercial pavers, which tend to be lighter and less robust machines and Roadtec’s highway class paver line.

Astec Mobile Machinery is functioning primarily as a distributor for Roadtec products in Europe.  Additionally, it designs and manufactures screeds and a small road widener attachment designed to meet the unique needs of the European market. An additional tamper bar screed is being developed for introduction into the European market in 2013.

Marketing

The Mobile Asphalt Paving Group equipment is marketed both domestically and internationally to highway and heavy equipment contractors, utility contractors and foreign and domestic governmental agencies. Mobile construction equipment and factory authorized machine rebuild services are marketed both directly and through dealers.  This segment employs 39 direct sales staff, 74 domestic independent distributors and 17 international independent distributors including Astec-owned distributors in Australia and Germany.

Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources.  Raw materials for manufacturing are normally readily available.  Most steel is delivered on a "just-in-time" arrangement from suppliers to reduce inventory requirements at the manufacturing facilities, but some steel is occasionally inventoried after purchase.  Components used in the manufacturing process include engines, gearboxes, power transmissions and electronic systems.

Competition

The Mobile Asphalt Paving Group faces strong competition in price, service and performance.  Paving equipment and screed competitors include Weiler, Caterpillar Paving Products, Inc., a subsidiary of Caterpillar, Inc., Volvo Construction Equipment, CMI Corporation, a subsidiary of Terex Corporation, Vogele America, a subsidiary of Wirtgen America, Dynapac, a subsidiary of Atlas-Copco and Lee Boy.  The segment's milling machine equipment competitors include Wirtgen, CMI, Caterpillar, Bomag, Dynapac and Volvo.

Employees

At December 31, 2012, the Mobile Asphalt Paving Group segment employed 509 individuals, of which 331 were engaged in manufacturing, 40 in engineering and engineering support functions and 128 in selling, general and administrative functions.

 
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Backlog

The backlog for the Mobile Asphalt Paving Group segment at December 31, 2012 and 2011 was approximately $4,265,000 and $6,149,000, respectively. Management expects all current backlogs to be filled in 2012. This segment typically operates with a smaller backlog in relation to sales than the Company’s other segments as many customers expect immediate delivery due to the types of products being sold and the lead times typically available on competitors’ equipment sold through dealers.

Underground Group

During most of 2012 the Underground Group consisted of three manufacturing companies, Astec Underground, Inc. ("Astec Underground"), American Augers, Inc. ("American Augers") and GEFCO, Inc. (“GEFCO”) which was acquired by the Company in October 2011.  During late 2012, the Company sold American Augers and the large trencher product line of Astec Underground.  GEFCO designs, engineers and manufactures a complete line of drilling rigs for the oil and gas, geothermal and water well industries as well as its line of King Oil tools.  Astec Underground continues to produce high pressure diesel powered pump trailers used for fracking and cleaning oil and gas wells, in addition to the four track surface miner.  Astec Underground also serves as a contract manufacturer for other companies, both inside and outside the Astec family of companies.

Products

Astec Underground’s four track surface miner is a maneuverable 1,650-horsepower miner that can cut through rock ten feet wide and up to twenty-six inches deep in a single pass.  When equipped with a GPS unit and an automatic grade and slope system, the surface miner allows road construction contractors to match the exact specifications of a survey plan.

In 2012, Astec Underground began manufacturing and selling a trailer mounted double fluid pumper for use in the hydraulic fracturing and the oil and gas extraction industries.  The unit comes complete with engines, transmissions, gearboxes, application specific cooling packages, displacement tank, plumbing and all related controls.

GEFCO, which began operations in 1931, manufactures portable drilling rigs and related equipment for the water well, environmental, groundwater monitoring, construction, mining and shallow oil and gas exploration and production industries. GEFCO’s EarthPro® Geothermal Drill, introduced in 2009, features a heavy-duty mast with a dual rack and pinion drive system.  Other features distinguishing this drill from its competitors are an automated rod loading system, a tethered two speed ground drive system and dual multi-function joystick controls.  The Earth Pro® offers increased productivity in a drill/trip out application due to its pull up / pull down capacity, three speed drive motors, and the ability to be operated by one person versus the usual three person operation.

During 2012, GEFCO’s manufacturing facilities were extensively upgraded and modernized to prepare GEFCO for its expected growth and to improve manufacturing efficiencies.

Marketing

Astec Underground typically distributes its pump trailers and surface miner products directly to the end users.  GEFCO primarily markets its products domestically and internationally directly to the end users utilizing a combination of employee and independent sales agents.  This segment employs a total of 22 direct sales staff.
 
 

 
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Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources.  Raw materials for manufacturing are normally readily available.  Most steel is delivered on a "just-in-time" arrangement from suppliers to reduce inventory requirements at the manufacturing facilities, but some steel is occasionally inventoried after purchase.  Components used in the manufacturing process include engines, hydraulic pumps and motors, gearboxes, power transmissions and electronic systems.

Competition

The Underground Group segment faces strong competition in price, service and product performance and competes with both large companies with resources significantly greater than those of the Company and with various smaller manufacturers.  Major competitors include Versa Drill, Schramm, Atlas Copco, National Oil Well, Blohm & Vos, Oil Country, BVM, NOV/Rolligon, Stewart & Stevenson and Dragon.

Employees

At December 31, 2012, the Underground Group segment employed 351 individuals, of which 277 were engaged in manufacturing, 23 in engineering and 51 in selling, general and administrative functions.  Included in the totals are 190 employees of GEFCO.  GEFCO has a collective bargaining agreement in place for approximately 80 manufacturing employees.  The current agreement expires on April 20, 2013.

Backlog

The backlog for the Underground Group segment at December 31, 2012 and 2011 was approximately $13,904,000 and $21,342,000, respectively.  The amount for 2011 has been adjusted to exclude the American Augers backlog for presentation purposes as the company was sold during 2012.  Management expects all current backlogs to be filled in 2013.

Other Business Units

This category consists of the Company's business units that do not meet the requirements for separate disclosure as an operating segment.  At December 31, 2012, these other operating units included  Peterson Pacific Corp. (“Peterson”), Astec Australia Pty Ltd (“Astec Australia”), Astec Insurance Company and Astec Industries, Inc., the parent company.  Peterson designs, engineers, manufactures and distributes whole-tree pulpwood chippers, biomass chippers, horizontal grinders and blower trucks.  Astec Australia was formed in October 2008 and is the sole distributor of many of the company’s product lines in Australia and New Zealand.  As a distributor, Astec Australia sells, installs, services and provides parts support for many of the products produced by the Company’s manufacturing companies. Astec Insurance Company is a captive insurance company.

Products

The primary markets served by Peterson are the wood grinding, chipping and blower truck markets. Peterson produces 3 models of whole-tree pulpwood chippers ranging from 765 to 1200 horsepower, 2 flail delimbers, 2 drum chipper models, 9 horizontal grinder models, 2 blower truck models and 2 self-contained blower trailers.  A deck screen model is produced for Peterson by JCI.  The horizontal grinders range from 475 to 1200 HP.  Peterson has granted rights under a licensing agreement to Morbark, USA, whereby Morbark may produce and sell certain grinder equipment covered by a Peterson patent.  Peterson introduced a new track chipper model in 2012.


 
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Since its inception, Astec Australia has marketed relocatable and portable asphalt plants and components produced by Astec, Heatec and CEI, asphalt paving equipment and components produced by Roadtec and Carlson, and trenching equipment produced by Astec Underground.  In 2009, Astec Australia added equipment manufactured by the Company’s Aggregate & Mining Group to its product offerings.  In addition to selling equipment, Astec Australia also installs, services and provides spare parts support for the equipment it sells and for other equipment its customers carry in their fleets.

Marketing

Peterson markets its machines and spare parts both domestically and internationally in the wood grinding, chipping and blower truck industries.  The disc chippers and debarkers primarily serve the pulp and paper industry.  The drum chippers primarily serve the biomass energy market.  The grinders serve the compost, mulch, biomass energy and construction and demolition recycling markets.  Blower trucks and trailers are used primarily in landscape and erosion control markets.  Domestic sales are accomplished through a combination of 16 independent distributors and 9 direct sales and support personnel.  The international market is served with 10 independent distributors plus direct sales to customers in some countries.  The principal customers of Peterson products are independent contractors who supply the markets listed above.  Municipal governments also purchase waste grinders.

Astec Australia continues to enjoy strong partnerships with key large corporate customers, but it has expanded its customer base by actively marketing products and services to a broader range of customers.  Astec Australia plans to focus on growing its existing business operations by identifying areas of competitive advantage.  Management believes that these opportunities will provide additional exposure to infrastructure development as well as in the aggregate and mining sectors.  The continuing gradual addition of other Company product lines will allow Astec Australia to access market segments not previously serviced.  Management believes that Astec Australia has the organizational structure (sales professionals, construction personnel, service technicians and administrative personnel) and operating systems, which are well established, that will allow the business to continue to grow and expand the number of business locations, sales volume, product offerings and geographical dispersion of equipment sold.  Australia and New Zealand are expected to remain the company’s key markets; however, the company also plans to pursue opportunities in other areas of the Pacific Rim and in Southeast Asia.  Astec Australia opened a new office in Tullamarine, Australia in 2012, which gives the company representation on both the east and west coasts of Australia.

Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources.  Raw materials for manufacturing are normally readily available.  Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but some steel is occasionally inventoried after purchase.  Purchased components used in the manufacturing process include engines, gearboxes, power transmissions and electronic control systems.

Competition

Peterson has strong competitors based on product performance, price and service. The principal competitors in North America for high speed grinders are Morbark, Vermeer, Bandit, Diamond Z and CBI, along with other smaller competitors. Internationally, Doppstadt, Jenz and other smaller companies compete in the grinder segment. Mobile chipper competitors include Morbark, Precision, Doppstadt and other smaller companies. The principal competitors in the blower truck business are Finn and Express Blower (a division of Finn).

 
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Astec Australia’s competitors in each product line are typically the same companies that compete with the Company in other locations.  Competitors for asphalt plants, mobile asphalt equipment, underground equipment and aggregate and mining equipment are primarily overseas manufacturers who are therefore subject to the same importation issues as Astec Australia.  The price impact of competition between European, American and Asian products is dependent primarily on the relationship between the US dollar and the Euro exchange rate as compared to the Australian dollar.

Employees

At December 31, 2012, the Other Business Units segment employed 285 individuals, of which 200 were employed by Peterson and 46 were employed by Astec Australia.  Peterson has 111 employees engaged in manufacturing, 31 in engineering and 58 in selling and general and administrative functions.  Astec Australia has 22 employees engaged in service and installation work and 24 in selling and general and administrative functions.  The remaining 39 employees are engaged in selling and general and administrative functions at the parent company.

Backlog

The backlog for the Other Business Units segment, all of which is attributable to Peterson and Astec Australia, at December 31, 2012 and 2011 was approximately $17,671,000 and $27,090,000, respectively.  Management expects all current backlogs to be filled in 2013.
 
 
Common to All Operating Segments

Although the Company has four reportable business segments, the following information applies to all operating segments of the Company.

Raw Materials

Steel is a major component in the Company’s equipment.  Moderate steel price increases occurred during the fourth quarter of 2012.  Steel demand appears relatively weak for the first quarter of 2013 with short mill lead times for most products. Management expects demand to strengthen ahead of the second quarter, and in balance with this trend, expects steel prices to increase moderately as mill lead times return to more seasonably normal levels. It is uncertain, however, if these trends will continue throughout the remainder of 2013. The Company continues to utilize forward-looking contracts coupled with advanced steel purchases to minimize the impact of the price increases.  The Company will review the trends in steel prices as we progress toward the second half of 2013 and establish future contract pricing accordingly. 

Government Regulations

The Company is subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and other countries.  The Environmental Protection Agency, the Occupational Safety & Health Administration, other federal agencies and certain state agencies have the authority to promulgate regulations that have an effect on the Company’s operations.  Many of these federal and state agencies may seek fines and penalties for violations of these laws and regulations.  The Company has been able to operate under these laws and regulations without any materially adverse effect on its business.

 
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None of the Company's operating segments operate within highly regulated industries.  However, air pollution control equipment manufactured by the Company, principally for hot-mix asphalt plants, must comply with certain performance standards promulgated by the federal Environmental Protection Agency under the Clean Air Act applicable to "new sources" or new plants.  Management believes the Company's products meet all material requirements of such regulations and of applicable state pollution standards and environmental protection laws.

In addition, due to the size and weight of certain equipment the Company manufactures, the Company and its customers may encounter conflicting state regulations on maximum weights transportable on highways.  Also, some states have regulations governing the operation of asphalt mixing plants, and most states have regulations relating to the accuracy of weights and measures, which affect some of the control systems manufactured by the Company.

Compliance with these government regulations has no material effect on capital expenditures, earnings, or the Company's competitive position within the market.

Employees

At December 31, 2012, the Company and its subsidiaries employed 3,860 individuals, of which 2,658 were engaged in manufacturing, 373 in engineering, including support staff, and 829 in selling, administrative and management functions.

Other than the Telsmith and Osborn labor agreements described under the Employee subsection of the Aggregate and Mining Group and the GEFCO labor agreement described under the Employee subsection of the Underground Group, there are no other collective bargaining agreements applicable to the Company.  The Company considers its employee relations to be good.

Manufacturing

The Company manufactures many of the component parts and related equipment for its products, while several large components of its products are purchased "ready-for-use".  Such items include engines, axles, tires and hydraulics.  In many cases, the Company designs, engineers and manufactures custom component parts and equipment to meet the particular needs of individual customers.  Manufacturing operations during 2012 took place at 20 separate locations.  The Company's manufacturing operations consist primarily of fabricating steel components and the assembly and testing of its products to ensure that the Company achieves quality control standards.

Seminars and Technical Bulletins

The Company periodically conducts technical and service seminars, which are primarily for dealer representatives, contractors, owners, employees and other users of equipment manufactured by the Company.  In 2012, approximately 455 representatives of contractors and owners of hot-mix asphalt plants attended seminars held by the Company in Chattanooga, Tennessee.  These seminars, which are taught by Company management and employees, along with select outside speakers and discussion leaders, cover a range of subjects including, but not limited to, technological innovations in the hot-mix asphalt, aggregate processing, paving, milling and recycling markets.

The Company also sponsors executive seminars for the management of the customers of Astec, Heatec, CEI and Roadtec.  Primarily, members of the Company's management conduct the various seminars, but outside speakers and discussion leaders are also utilized.

 
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During 2012, seven service training seminars were held at the Roadtec facility for approximately 710 customer representatives, and four remote seminars were conducted at other locations for approximately 200 additional customer personnel.  Telsmith conducted three technical seminars for approximately 116 customer and dealer representatives during 2012 at its facility in Mequon, Wisconsin.  KPI, JCI and AMS jointly conduct NDC (National Dealers Conference), an annual dealer event. The event offers the entire dealer network a preview of future products, marketing and promotional programs to help dealers operate successful businesses. In addition to this event, the companies also provide factory customer and dealer training and on-site local, regional and national sales training programs throughout the year.

In addition to seminars, the Company publishes a number of technical bulletins and information bulletins detailing various technological and business issues relating to the asphalt industry.

Patents and Trademarks

The Company seeks to obtain patents to protect the novel features of its products and processes.  The Company's subsidiaries hold 83 United States patents and 40 foreign patents.  There are 73 United States and foreign patent applications pending.  

The Company and its subsidiaries have 82 trademarks registered in the United States, including logos for Astec, Astec Dillman, Astec Underground, Carlson Paving, CEI, Gefco, Heatec, JCI, Peterson Pacific, Roadtec, and Telsmith, and the names ASTEC, CARLSON, HEATEC, JCI, KOLBERG PIONEER, PETERSON, ROADTEC and TELSMITH, as well as a number of other product names.  The Company also has 53 trademarks registered in foreign jurisdictions, including Australia, Brazil, Canada, China, France, Germany, Great Britain, India, Italy, Mexico, South Africa, South Korea, Thailand, Vietnam and the European Union.  The Company and its subsidiaries have 47 United States and foreign trademark registration applications pending.
 
Engineering and Product Development

The Company dedicates substantial resources to engineering and product development. At December 31, 2012, the Company and its subsidiaries had 373 full-time individuals employed in engineering and design capacities.

Seasonality and Backlog

Revenues for recent years, adjusted for acquisitions, have been strongest during the first half of the year, with the second half of the year consistently being weaker. We expect future operations in the near term to be typical of this historical trend.
 
 
As of December 31, 2012, the Company had a backlog for delivery of products at certain dates in the future of approximately $263,791,000.  At December 31, 2011, the total backlog was approximately $268,618,000, as adjusted to exclude the American Augers backlog.  The Company's contracts reflected in the backlog are not, by their terms, subject to termination.  Management believes the Company is in substantial compliance with all manufacturing and delivery timetables.

 
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Competition

Each business segment operates in domestic markets that are highly competitive regarding price, service and product quality.  While specific competitors are named within each business segment discussion above, imports do not generally constitute significant competition for the Company in the United States, except for milling machines and track mounted crushers.  In international sales efforts, however, the Company many times competes with foreign manufacturers that may have a local presence in the market the Company is attempting to penetrate.

In addition, asphalt and concrete are generally considered competitive products as a surface choice for new roads and highways.  A portion of the interstate highway system is paved in concrete, but over 90% of all surfaced roads in the United States are paved with asphalt.  Although concrete is used for some new road surfaces, asphalt is used for most resurfacing.

Available Information

The Company’s internet website can be found at www.astecindustries.com.  We make available, free of charge on or through our internet website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission. Information contained in our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

 
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Item 1A. Risk Factors

Downturns in the general economy or the commercial and residential construction industries may adversely affect our revenues and operating results.

General economic downturns, including downturns in the commercial and residential construction industries, could result in a material decrease in our revenues and operating results.  Demand for many of our products, especially in the commercial construction industry, is cyclical.  Sales of our products are sensitive to the states of the U.S., foreign and regional economies in general, and in particular, changes in commercial construction spending and government infrastructure spending.  In addition, many of our costs are fixed and cannot be quickly reduced in response to decreased demand.  The following factors could cause a downturn in the commercial and residential construction industries:

·  
a decrease in the availability of funds for construction;
·  
declining economy domestically and internationally;
·  
labor disputes in the construction industry causing work stoppages;
·  
rising gas and fuel oil prices;
·  
rising steel prices and steel surcharges;
·  
rising interest rates;
·  
energy or building materials shortages;
·  
inclement weather; and
·  
availability of credit for customers.

Downturns in the general economy and restrictions in the credit markets may negatively impact our earnings, cash flows and/or financial position and access to financing sources by the Company and our customers.
 
Worldwide economic conditions and the international credit markets have significantly deteriorated in recent years and will possibly remain depressed for the foreseeable future. Continued deterioration of economic conditions and credit markets could adversely impact our earnings as sales of our products are sensitive to general declines in U.S. and foreign economies and the ability of our customers to obtain credit.  In addition, we rely on the capital markets and the banking markets to meet our financial commitments and short-term liquidity needs if internal funds are not available from our operations. Further disruptions in the capital and credit markets, or deterioration of our creditors' financial condition, could adversely affect the Company's ability to draw on its revolving credit facility.  The Company’s current credit facility expires in April 2017, and the restrictions in the credit markets could make it more difficult or expensive for us to replace our current credit facility, enter into a new credit facility or obtain additional financing.

A decrease or delay in government funding of highway construction and maintenance may cause our revenues and profits to decrease.

Many of our customers depend on government funding of highway construction and maintenance and other infrastructure projects.  Any decrease or delay in government funding of highway construction and maintenance and other infrastructure projects could cause our net sales and profits to decrease.  Historically, federal government funding of infrastructure projects has typically been accomplished through bills that establish funding over a multi-year period, such as the Safe, Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users (“SAFETEA-LU”), which provided $286.5 billion to fund federal transit projects from 2004 to 2009.  SAFETEA-LU funding expired on September 30, 2009, and federal transportation funding has operated on a number of shorter term appropriations since that date. The most recent funding legislation, commonly referred to as Map-21, was passed in July 2012 and funds federal transportation expenditures through September 30, 2014.

 
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With the current political environment in Washington, the level of funding for federal highway projects is uncertain.  Although continued funding is expected, it may be at lower levels than in the past, and Congress may not enact long-term funding acts in the near future.  In addition, Congress could pass legislation in future sessions that would allow for the diversion of previously appropriated highway funds for other national purposes, or it could restrict funding of infrastructure projects unless states comply with certain federal policies.

The cyclical nature of our industry and the customization of the equipment we sell may cause adverse fluctuations to our revenues and operating results.

We sell equipment primarily to contractors whose demand for equipment depends greatly upon the volume of road or utility construction projects underway or to be scheduled by both government and private entities.  The volume and frequency of road and utility construction projects is cyclical; therefore, demand for many of our products is cyclical.  The equipment we sell is durable and typically lasts for several years, which also contributes to the cyclical nature of the demand for our products.  As a result, we may experience cyclical fluctuations to our revenues and operating results.

An increase in the price of oil or decrease in the availability of oil could reduce demand for our products.  Significant increases in the purchase price of certain raw materials used to manufacture our equipment could have a negative impact on the cost of production and related gross margins.

A significant portion of our revenues relates to the sale of equipment involved in the production, handling, recycling or installation of asphalt mix.  Liquid asphalt is a byproduct of the refining of oil, and asphalt prices correlate with the price and availability of oil.  An increase in the price of oil or a decrease in the availability of oil would increase the cost of producing asphalt, which would likely decrease demand for asphalt, resulting in decreased demand for many of our products.  This would likely cause our revenues and profits to decrease.  Rising gasoline, diesel fuel and liquid asphalt prices will also adversely impact the operating and raw material costs of our contractor and aggregate producer customers, and if such customers do not properly adjust their pricing, they could experience reduced profits resulting in possible delays in purchasing capital equipment.

Steel is a major component in the Company’s equipment. Steel prices fluctuate routinely and are expected to increase during 2013. Our reliance on third-party suppliers for steel and other raw materials exposes us to volatility in the prices and availability of these materials. Price increases or a decrease in the availability of these raw materials could increase our operating costs and adversely affect our financial results. 


 
21

 


Acquisitions that we have made in the past and future acquisitions involve risks that could adversely affect our future financial results.

We have completed several acquisitions in the past, including the acquisition of the GEFCO division of Blue Tee Corp. and the businesses now operating as Astec Mobile Machinery GmbH in 2011.  We may acquire additional businesses in the future.  We may be unable to achieve the benefits expected to be realized from our acquisitions.  In addition, we may incur additional costs and our management's attention may be diverted because of unforeseen expenses, difficulties, complications, delays and other risks inherent in acquiring businesses, including the following:

·  
we may have difficulty integrating the financial and administrative functions of acquired businesses;
·  
acquisitions may divert management's attention from our existing operations;
·  
fluctuations in exchange rates and a weakening of the dollar may impact the competitiveness of acquired businesses;
·  
we may have difficulty in competing successfully for available acquisition candidates, completing future acquisitions or accurately estimating the financial effect of any businesses we acquire;
·  
we may have delays in realizing the benefits of our strategies for an acquired business;
·  
we may not be able to retain key employees necessary to continue the operations of the acquired business;
·  
acquisition costs may deplete significant cash amounts or may decrease our operating income;
·  
we may choose to acquire a company that is less profitable or has lower profit margins than our company;
·  
future acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital; and
·  
we may incur domestic or international economic declines that impact our acquired companies.

Competition could reduce revenue from our products and services and cause us to lose market share.

We currently face strong competition in product performance, price and service.  Some of our domestic and international competitors have greater financial, product development and marketing resources than the Company has.  If competition in our industry intensifies or if our current competitors enhance their products or lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products.  This may reduce revenue from our products and services, lower our gross margins or cause us to lose market share.

Our success depends on key members of our management and other employees.

Dr. J. Don Brock, our Chairman and Chief Executive Officer, is of significant importance to our business and operations.  The loss of his services may adversely affect our business.  In addition, our ability to attract and retain qualified engineers, skilled manufacturing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, will also be an important factor in determining our future success.

 
22

 


Difficulties in managing and expanding in international markets could divert management's attention from our existing operations.

In 2012, international sales represented approximately 39.3% of our total sales as compared to 41.3% in 2011.  We plan to continue our growth efforts in international markets.  In connection with any increase in international sales efforts, we will need to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist.  Any difficulties in expanding our international sales may divert management's attention from our existing operations.  In addition, international revenues are subject to the following risks:

·  
fluctuating currency exchange rates, which can reduce the profitability of foreign sales;
·  
the burden of complying with a wide variety of foreign laws and regulations;
·  
dependence on foreign sales agents;
·  
political and economic instability of governments;
·  
the imposition of protective legislation such as import or export barriers; and
·  
fluctuating strengths or weakness of the dollar, which can impact net sales or the cost of purchased products.

We may be unsuccessful in complying with the financial ratio covenants or other provisions of our credit agreement.

As of December 31, 2012, we were in compliance with the financial covenants contained in our credit agreement with Wells Fargo Bank, N.A..  However, in the future we may be unable to comply with the financial covenants in our credit facility or to obtain waivers with respect to such financial covenants.  If such violations occur, the Company’s creditors could elect to pursue their contractual remedies under the credit facility, including requiring immediate repayment in full of all amounts then outstanding.  As of December 31, 2012, the Company had no outstanding borrowings but did have $13,113,000 of letters of credit outstanding under the credit agreement.  Additional amounts may be borrowed in the future.  The Company’s Osborn and Astec Australia subsidiaries have their own independent loan agreements in place.

Our quarterly operating results are likely to fluctuate, which may decrease our stock price.

Our quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future.  As a result, our operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of our common stock.  The reasons our quarterly results may fluctuate include:

·  
general competitive and economic conditions, domestically and internationally;
·  
delays in, or uneven timing in, the delivery of customer orders;
·  
the seasonal trend in our industry;
·  
the introduction of new products by us or our competitors;
·  
product supply shortages; and
·  
reduced demand due to adverse weather conditions.

Period-to-period comparisons of such items should not be relied on as indications of future performance.

 
23

 


We may face product liability claims or other liabilities due to the nature of our business.  If we are unable to obtain or maintain insurance or if our insurance does not cover liabilities, we may incur significant costs which could reduce our profitability.

We manufacture heavy machinery, which is used by our customers at excavation and construction sites and on high-traffic roads.  Any defect in or improper operation of our equipment can result in personal injury and death, and damage to or destruction of property, any of which could cause product liability claims to be filed against us.  The amount and scope of our insurance coverage may not be adequate to cover all losses or liabilities we may incur in the event of a product liability claim.  We may not be able to maintain insurance of the types or at the levels we deem necessary or adequate or at rates we consider reasonable.  Any liabilities not covered by insurance could reduce our profitability or have an adverse effect on our financial condition.

If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our products may decrease or we may be forced to modify our products, which could increase our costs.

We hold numerous patents covering technology and applications related to many of our products and systems as well as numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in foreign countries.  Our existing or future patents or trademarks may not adequately protect us against infringements, and pending patent or trademark applications may not result in issued patents or trademarks.  Our patents, registered trademarks and patent applications, if any, may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents.  This could reduce demand for our products and materially decrease our revenues.  If our products are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products.  We may be unable to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose revenues.

If we become subject to increased governmental regulation, we may incur significant costs.

Our hot-mix asphalt plants contain air pollution control equipment and several of our other products contain engines that must comply with performance standards promulgated by the Environmental Protection Agency.  These performance standards may increase in the future.  Changes in these requirements could cause us to undertake costly measures to redesign or modify our equipment or otherwise adversely affect the manufacturing processes of our products.  Such changes could have a material adverse effect on our operating results.

Also, due to the size and weight of some of the equipment that we manufacture, we often are required to comply with conflicting state regulations on the maximum weight transportable on highways and roads.  In addition, some states regulate the operation of our component equipment, including asphalt mixing plants and soil remediation equipment, and most states regulate the accuracy of weights and measures, which affect some of the control systems we manufacture.  We may incur material costs or liabilities in connection with the regulatory requirements applicable to our business.

 
24

 


As an innovative leader in the industries in which we operate, we occasionally undertake the engineering, design, manufacturing and construction of equipment systems that are new to the market.  Estimating the cost of such innovative equipment can be difficult and could result in our realization of significantly reduced or negative margins on such projects.

In the past, we have experienced negative margins on certain large, specialized aggregate systems projects.  These large contracts included both existing and innovative equipment designs, on-site construction and minimum production levels.  Since it can be difficult to achieve the expected production results during the project design phase, field testing and redesign may be required during project installation, resulting in added cost. In addition, due to any number of unforeseen circumstances, which can include adverse weather conditions, projects can incur extended construction and testing delays which can cause significant cost overruns.  We may not be able to sufficiently predict the extent of such unforeseen cost overruns and may experience significant losses on specialized projects.  Additionally, the Company typically incurs substantial research and development costs each year and has historically received significant research and development tax credits due to these expenditures.  While these tax credits have been approved through 2013, they may not be approved for future years.

Our Articles of Incorporation, Bylaws and Rights Agreement and Tennessee law may inhibit a takeover, which could delay or prevent a transaction in which shareholders might receive a premium over market price for their shares.

Our charter and bylaws and Tennessee law contain provisions that may delay, deter or inhibit a future acquisition or an attempt to obtain control of us.  This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest.  These provisions are intended to encourage any person interested in acquiring us or obtaining control of us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction.  Provisions that could delay, deter or inhibit a future acquisition or an attempt to obtain control of us include the following:

·  
having a staggered Board of Directors;
·  
requiring a two-thirds vote of the total number of shares issued and outstanding to remove directors other than for cause;
·  
requiring advance notice of actions proposed by shareholders for consideration at shareholder meetings;
·  
limiting the right of shareholders to call a special meeting of shareholders;
·  
requiring that all shareholders entitled to vote on an action provide written consent in order for shareholders to act without holding a shareholders’ meeting; and
·  
being governed by the Tennessee Control Share Acquisition Act.

In addition, the rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future and that may be senior to the rights of holders of our common stock.  In December 2005, our Board of Directors approved an Amended and Restated Shareholder Protection Rights Agreement, which provides for one preferred stock purchase right in respect of each share of our common stock ("Rights Agreement").  These rights become exercisable upon the acquisition by a person or group of affiliated persons, other than an existing 15% shareholder, of 15% or more of our then-outstanding common stock by all persons.  This Rights Agreement also could discourage bids for the shares of common stock at a premium and could have a material adverse effect on the market price of our shares.

Item 1B. Unresolved Staff Comments

None.

 
25

 


Item 2. Properties

The location, approximate square footage, acreage occupied and principal function and use by the Company’s reporting segments of the properties owned or leased by the Company are set forth below:

Location
 
Approximate
Square Footage
   
Approximate
Acreage
 
Principal Function (Use by Segment)
Chattanooga, Tennessee
    457,600       59  
Offices, manufacturing and training center – Astec (Asphalt Group)
 
Chattanooga, Tennessee
    -       53  
Storage yard – Astec (Asphalt Group)
 
Rossville, Georgia
    40,500       3  
Manufacturing – Astec (Asphalt Group)
 
Prairie du Chien, WI
    91,500       39  
Manufacturing – Dillman division of Astec (Asphalt Group)
 
Chattanooga, Tennessee
    109,700       15  
Offices and manufacturing – Heatec (Asphalt Group)
 
Chattanooga, Tennessee
    207,000       15  
Offices, manufacturing and training center – Roadtec (Mobile Asphalt Paving Group)
 
Chattanooga, Tennessee
    51,200       7  
Manufacturing – Roadtec (Mobile Asphalt Paving Group)
 
Chattanooga, Tennessee
    14,100       --  
Leased Hanger and Offices – Astec Industries, Inc. (Other Business Units)
 
Chattanooga, Tennessee
    10,000       2  
Corporate offices – Astec Industries, Inc. (Other Business Units)
 
Mequon, Wisconsin
    203,000       30  
Offices and manufacturing – Telsmith (Aggregate and Mining Group)
 
Sterling, Illinois
    60,000       8  
Offices and manufacturing – AMS (Aggregate and Mining Group)
 
Orlando, Florida
    9,000       --  
Leased machine repair and service facility – Roadtec (Mobile Asphalt Paving Group)
 
Loudon, Tennessee
    327,000       112  
Offices and manufacturing – Astec Underground (Underground Group)
 


 
26

 


Location
 
Approximate
Square Footage
   
Approximate
Acreage
 
Principal Function (Use by Segment)
Eugene, Oregon
    130,000       8  
Offices and manufacturing – JCI (Aggregate and Mining Group)
 
Albuquerque, New Mexico
    115,000       14  
Offices and manufacturing – CEI (Asphalt Group) (partially leased to a third party)
 
Yankton, South Dakota
    312,000       50  
Offices and manufacturing – KPI (Aggregate and Mining Group)
 
Thornbury, Ontario, Canada
    60,500       12  
Offices and manufacturing – BTI (Aggregate and Mining Group)
 
Thornbury,  Ontario Canada
    7,000       --  
Leased warehouse/parts sales office – BTI (Aggregate and Mining Group)
 
Walkerton, Ontario Canada
    1,900       --  
Engineering and sales office – BTI (Aggregate and Mining Group)
 
Riverside, California
    12,500       --  
Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group)
 
Solon, Ohio
    8,900       --  
Leased offices, sales, assembly and warehouse – BTI (Aggregate and Mining Group)
 
Tacoma, Washington
    41,000       8  
Offices and manufacturing – Carlson (Mobile Asphalt Paving Group)
 
Tacoma, Washington
    4,400       1  
R&D/Services Offices-Carlson (Mobile Asphalt Paving Group)
 
Cape Town, South Africa
    4,600       --  
Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
 
Durban, South Africa
    3,800       --  
Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
 
Witbank, South Africa
    1,400       --  
Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
 
Tullamarine, Australia
    6,000       --  
Leased office, warehouse and storage yard-Astec Australia Pty Ltd (Other Business Unit)
 


 
27

 


Location
 
Approximate
Square Footage
   
Approximate
Acreage
 
Principal Function (Use by Segment)
Johannesburg, South Africa
    229,000       18  
Offices and manufacturing – Osborn (Aggregate and Mining Group)
 
Eugene, Oregon
    130,000       7  
Offices and manufacturing – Peterson Pacific Corp. (Other Business Units)
 
Enid, Oklahoma
    350,000       42  
Offices and manufacturing – GEFCO, Inc. (Underground Group)
 
West Columbia, South Carolina
    4,000       --  
Leased distribution center – Peterson Pacific Corp. (Other Business Units)
 
Acacia Ridge, Australia
    31,000       5  
Offices, warehousing, service, light fabrication and storage yard – Astec Australia Pty Ltd (Other Business Units)
 
Welshpool, Australia
    7,000       --  
Leased office, warehouse and storage yard -  Astec Australia Pty Ltd (Other Business Unit)
 
Hameln, Germany
    140,652       3  
Offices and manufacturing – Asphalt Mobile Machinery GmbH (Mobile Asphalt paving Group)
 
Vespasiano-MG Brazil
    2,253       --  
Leased sales/administrative offices-Astec Brazil (Aggregate and Mining Group)
 

The properties above are owned by the Company unless they are indicated as being leased.

Management believes each of the Company's facilities provides office or manufacturing space suitable for its current needs.  Additionally, management considers the terms under which it leases facilities to be reasonable.

Item 3. Legal Proceedings

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 costs), 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 material 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.

 
28

 


During 2004 the Company received notice from the Environmental Protection Agency 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 notice.  At this time, the Company is unable to 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.

Item 4. Mine Safety Disclosures

None.


Executive Officers

The name, title, ages and business experience of the executive officers of the Company are listed below.

J. Don Brock, Ph.D., served as President of the Company since its incorporation in 1972 until August 2012 and assumed the additional position of Chairman of the Board in 1975.  Coincident with the promotion of W. Norman Smith to President in August 2012, Dr. Brock resigned from his position as President; however he continues to serve as the Company’s Chief Executive Officer.  He was the Treasurer of the Company from 1972 until 1994.  From 1969 to 1972, Dr. Brock was President of the Asphalt Division of CMI Corporation.  He earned his Ph.D. degree in mechanical engineering from the Georgia Institute of Technology.  Dr. Brock is the father of Benjamin G. Brock, Group VP-Asphalt and President of Astec, Inc., and Dr. Brock and Thomas R. Campbell, Group Vice President - Mobile Asphalt Paving and Underground, are first cousins.  He is 74.

David C. Silvious, a Certified Public Accountant, was appointed Vice President, Chief Financial Officer and Treasurer of the Company in August 2011.  He previously served as Corporate Controller of the Company since 2005 and as Corporate Financial Analyst from 1999 to 2005.  Mr. Silvious also serves as Treasurer of each of the Company’s U.S. operating subsidiaries and Vice President of Astec Insurance Company.  Mr. Silvious earned his undergraduate degree in accounting from Tennessee Technological University and his Masters of Business Administration from the University of Tennessee at Chattanooga.  He is 45.

W. Norman Smith was appointed President and Chief Operating Officer of the Company in August 2012 after having served as Group Vice President-Asphalt since 1998.  Previously, he served as President of Astec, Inc. from 1994 until October 2006.  He formerly served as President of Heatec, Inc. from 1977 to 1994.  From 1972 to 1977, Mr. Smith was a Regional Sales Manager with the Company.  From 1969 to 1972, Mr. Smith was an engineer with the Asphalt Division of CMI Corporation.  Mr. Smith has also served as a director of the Company since 1982.  He is 73.

Thomas R. Campbell has served as Group Vice President-Mobile Asphalt Paving & Underground since 2001 and also assumed the role of Managing Director of Astec Mobile Machinery GmbH upon its inception in 2011.  He also currently serves as President of Astec Underground.  He served as President of Roadtec, Inc. from 1988 to 2004.  He has served as President of Carlson Paving Products and American Augers since 2001 to 2006.  He served as President of Astec Underground, Inc. from 2001 to 2005.  From 1981 to 1988, he served as Operations Manager of Roadtec.  Mr. Campbell and J. Don Brock, Chief Executive Officer of the Company, are first cousins.  He is 63.

 
29

 


Richard A. Patek has served as Group Vice President-Aggregate & Mining Group since 2008 and as President of Telsmith, Inc. from May 2001 until February 13, 2013.  He served as President of Kolberg-Pioneer, Inc. from 1997 until 2001.  From 1995 to 1997, he served as Director of Materials of Telsmith, Inc.  From 1992 to 1995, Mr. Patek was Director of Materials and Manufacturing of the former Milwaukee plant location.  From 1978 to 1992, he held various manufacturing management positions at Telsmith.  Mr. Patek also serves as a Corporate Board Member for the Milwaukee School of Engineering.  He was elected 1st Chair to Associated Equipment Manufacturers (AEM) for calendar year 2013.  Mr. Patek is a graduate of the Milwaukee School of Engineering.  He is 56.

Joseph P. Vig has served as Group Vice President of the AggRecon Group since 2008 and as President of Kolberg-Pioneer, Inc., since 2001.  From 1994 until 2001, he served as Engineering Manager of Kolberg-Pioneer, Inc.  From 1978 to 1993 he was Director of Engineering with Morgen Mfg. Co., and then Engineering Manager of Essick-Mayco in 1993-94.  Mr. Vig has a B.S. degree in civil engineering from the South Dakota School of Mines and Technology and is registered as a Professional Engineer.  He is 63.

Stephen C. Anderson was appointed Vice President of Administration in August 2011, Secretary of the Company in January 2007 and Director of Investor Relations in January 2003. Mr. Anderson also serves as the Company’s compliance officer and manages the corporate information technology and aviation departments.  He has also been President of Astec Insurance Company since January 2007.  He was Vice President of Astec Financial Services, Inc. from 1999 to 2002.  Prior to this Mr. Anderson spent a combined fourteen years in Commercial Banking with AmSouth and SunTrust Banks. He has a B.S. degree in Business Management and a MBA from the University of Tennessee at Chattanooga and is a graduate of the Stonier Graduate School of Banking. He is 49.

Robin A. Leffew was appointed Corporate Controller in August 2011 and also serves as Secretary of Astec Insurance Company.  She previously served as the Company’s Director of Internal Audit since 2005 and Controller of Astec, Inc. from 1990 to 2005.  Prior to 1990, she served as Corporate Financial Analyst for the Company since 1987.  Mrs. Leffew earned her degree in Finance from Tennessee Technological University.  She is 51.

Richard J. Dorris has served as Group Vice President-Energy since August 2012 and as President of Heatec, Inc. since 2004.  From 1999 to 2004 he held the positions of National Accounts Manager, Project Manager and Director of Projects for Astec, Inc.  Prior to joining Astec, Inc. he was President of Esstee Manufacturing Company from 1990 to 1999 and was Sales Engineer from 1984 to 1990.  Mr. Dorris has a B.S. degree in mechanical engineering from the University of Tennessee.  He is 52.

Frank D. Cargould was appointed President of Breaker Technology Ltd and Breaker Technology, Inc. in 1999.  The Breaker Technology companies were formed in 1999 when the Company purchased substantially all of the assets of Teledyne Specialty Equipment's Construction and Mining business unit from Allegheny Teledyne Inc.  From 1994 to 1999, he was Director of Sales - East for Teledyne CM Products, Inc.  He is 70.

Jeffery J. Elliott was appointed President of Johnson Crushers, Inc. in 2001.  From 1999 to 2001, he served as Senior Vice President for Cedarapids, Inc., (a Terex company), and from 1996 to 1999, he served as Vice President of the Crushing and Screening Group.  From 1978 to 1996, he held various domestic and international sales and marketing positions with Cedarapids, Inc.  He is 59.

 
30

 


Timothy Gonigam was appointed President of Astec Mobile Screens, Inc., in 2000.  From 1995 to 2000, Mr. Gonigam held the position of Sales Manager of Astec Mobile Screens, Inc.  He is 50.

Tom Kruger was appointed Managing Director of Osborn Engineered Products SA (Pty) Ltd in 2005.  For the previous five years, Mr. Kruger was employed as Operations Director of Macsteel Tube and Pipe (Pty) Ltd, a manufacturer of carbon steel tubing in Johannesburg, South Africa.  He served as Sales and Marketing Director of Macsteel prior to becoming Operations Director. From 1993 to 1998, Mr. Kruger was employed by Barloworld Ltd as Operations Director and Regional Managing Director responsible for a trading organization in steel, tube and water conveyance systems. Prior to that, he held the position of Works Director.  He is 55.

Jeffrey L. Richmond, Sr. was appointed President of Roadtec, Inc. in 2004.  From 1996 until 2004, he held the positions of Sales Manager, Vice President of Sales and Marketing and Vice President/General Manager of Roadtec, Inc.  He is 57.

Michael A. Bremmer was appointed President of CEI Enterprises, Inc. in 2006.  From 2003 until 2006, he held the position of Vice President and General Manager of CEI Enterprises, Inc.  From 2001 until 2003, he held the position of Director of Engineering of CEI Enterprises, Inc.  He is 57.

Benjamin G. Brock has served as Group Vice President-Asphalt since August 2012 and as President of Astec, Inc. since 2006.  From 2003 until 2006 he held the position of Vice President - Sales of Astec, Inc. and Vice President/General Manager of CEI Enterprises, Inc. from 1997 until 2002.  Mr. Brock's career with Astec began as a salesman in 1993.  Mr. Brock has a B.S. in Economics with a minor in Marketing from Clemson University.  Mr. Brock is the son of J. Don Brock, Chief Executive Officer of the Company.  He is 42.

Chris Colwell was appointed President of Carlson Paving Products in May 2011.  Prior to joining Astec, Mr. Colwell held the position of Regional Operations Manager for Alta Equipment Company from 2010 to 2011.  From 2008 to 2010 he served as Vice President-Asphalt Division for Wolverine Tractor and Equipment Company.  From 1999 to 2008 Mr. Colwell served as President of Colwell Equipment Company Incorporated where he previously served in various positions since 1985 including General Manager, Director of Management Information Systems, Assistant Controller and Product Support Manager.  Mr. Colwell is 47.

Aaron Harmon was appointed President of GEFCO, Inc. upon its acquisition by the Company in October 2011.  He previously served as President of the GEFCO Division of Blue Tee Corp. since 2005.  Mr. Harmon joined GEFCO in 1995 and has served in several capacities within the organization including V. P. of North American Sales and Operations Manager.  Mr. Harmon holds a Bachelors of Science degree in Business Administration from Phillips University.  Mr. Harmon is 40.
 
Matthew B. Haven was promoted to President of Telsmith, Inc. on February 13, 2013 and served as Executive Vice President and General Manager of Telsmith from January 2012 to February 2013 and as its Vice President from 2008 to 2011.  Mr. Haven joined Telsmith in 1997 and served as Chief Engineer, Research and Development and Director of Engineering prior to his appointment as Vice President.  Prior to joining Telsmith, Mr. Haven served as Chief Engineer, Product Design and Development of Cedarapids, Inc.  Mr. Haven is a 1984 graduate of the University of Northern Iowa.  He is 51.
 

 
31

 


Larry R. Cumming was appointed President of Peterson Pacific Corp. in 2007. He joined the company in 2003 and served as General Manager and Chief Executive Officer of Peterson, Inc. Prior to joining Peterson, he held senior management positions in North America and Europe with Timberjack and John Deere (Deere acquired Timberjack in 2000). Mr. Cumming also held prior positions with Timberjack as Vice President Engineering and Senior Vice President Sales and Marketing, Chief Operating Officer and Executive Vice President Product Supply. Mr. Cumming is a graduate mechanical engineer from Cornell University with additional senior management courses from INSEAD in France. He is a registered professional engineer in the Province of Ontario. Mr. Cumming is 64.

David H. Smale was appointed General Manager of Astec Australia Pty Ltd in 2008 upon the inception of the company’s operations.  He served as the General Manager of Allen’s Asphalt from 2006 to 2008 and as their Operations Manager from 2004 to 2006.  Mr. Smale has completed various business management courses including the Macquire University Graduate School of Management and Bond University Senior Executive Development Program.  Mr. Smale is 57.

PART II

Item 5. Market for Registrant's Common Equity; Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company's Common Stock is traded in the Nasdaq National Market under the symbol "ASTE."  The Company paid a special, one-time cash dividend of $1.00 per share on its Common Stock in the fourth quarter of 2012.  The Company has never paid any other cash dividends.

The high and low sales prices of the Company's Common Stock as reported on the Nasdaq National Market for each quarter during the last two fiscal years are as follows:

   
Price Per Share
 
2012
 
High
 
Low
 
1st Quarter
  $ 40.68   $ 32.60  
2nd Quarter
  $ 37.12   $ 26.48  
3rd Quarter
  $ 34.10   $ 27.01  
4th Quarter
  $ 33.47   $ 26.09  
               
               
   
Price Per Share
 
2011
 
High
 
Low
 
1st Quarter
  $ 37.41   $ 29.78  
2nd Quarter
  $ 39.97   $ 33.74  
3rd Quarter
  $ 39.54   $ 28.20  
4th Quarter
  $ 35.68   $ 26.53  

As of February 15, 2013 there were approximately 300 record holders of the Company's Common Stock.


Item 6. Selected Financial Data

Selected financial data appears in Appendix "A" of this Report.

 
32

 


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of operations appears in Appendix "A" of this Report.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Information regarding the Company’s market risk appears in Appendix "A" of this Report under the heading "Market Risk and Risk Management Policies."

Item 8. Financial Statements and Supplementary Data

Financial statements and supplementary financial information appear in Appendix "A" of this Report.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding required disclosure.

Based on their evaluation as of December 31, 2012, the principal executive officer and principal financial officer of the Company have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective.

Management’s Report on Internal Control Over Financial Reporting
Management’s report appears in Appendix A of this Report.

Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the fourth quarter of the year ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B. Other Information

None

 
33

 


PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding the Company's directors, director nominating process, audit committee and audit committee financial expert is included under the captions "Certain Information Concerning Nominees and Directors" and “Corporate Governance” in the Company's Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 25, 2013, which is incorporated herein by reference.  Information regarding compliance with Section 16(a) of the Exchange Act is also included under "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's 2013 Proxy Statement, which is incorporated herein by reference.  Information with respect to our executive officers is set forth in Part I of this Report under the caption “Executive Officers.”

The Company's Board of Directors has approved a Code of Conduct and Ethics that applies to the Company's employees, directors and officers (including the Company's principal executive officer, principal financial officer and principal accounting officer).  The Code of Conduct and Ethics is available on the Company's website at www.astecindustries.com/investors/.

Item 11. Executive Compensation

Information included under the captions "Compensation Discussion and Analysis", "Executive Compensation", “Director Compensation”, “Corporate Governance—Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in the Company's 2013 Proxy Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

Equity Compensation Plan Information

The following table provides information as of December 31, 2012 regarding compensation plans under which the Company’s equity securities are authorized for issuance.

Plan Category
 
(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, Rights and RSU’s
   
(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
   
(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in
 Column (a))
 
Equity Compensation Plans Approved by Shareholders (1)
    330,358 (2)   $ 19.33 (3)     667,267 (4)
                         
Equity Compensation Plans Not Approved by Shareholders (5)
    25,265 (6)   $ 15.40 (7)     104,339 (8)
                         
Total
    355,623               771,606  


 
34

 
 
 (1)   These plans consist of our 1998 Long-Term Incentive Plan, our 2006 Incentive Plan and our 2011 Incentive Plan.
 (2)   Includes 17,862 Stock Options granted under our 1998 Long-Term Incentive Plan and 280,065 Restricted Stock Units granted under our 2006 Incentive Plan and 32,431 Restricted Stock Units granted under our 2011 Incentive Plan.
 (3)   Weighted average exercise price of outstanding Stock Options; excludes Restricted Stock Units.
 (4)   Represents shares available for issuance under our 2011 Incentive Plan.
 (5)   This plan consists of our 1998 Non-Employee Director Stock Incentive Plan.
 (6)   Includes 7,853 Stock Options and 17,412 Deferred Stock Units granted under our 1998 Non-Employee Director Stock Incentive Plan.
 (7)   Weighted average exercise price of outstanding Stock Options; excludes Deferred Stock Units.
 (8)   Represents shares available for issuance under our 1998 Non-Employee Director Stock Incentive Plan.
 
Equity Compensation Plans Not Approved by Shareholders

Our 1998 Non-Employee Directors Stock Incentive Plan provides that annual retainers payable to our non-employee directors will be paid in the form of cash, unless the director elects to receive the annual retainer in the form of common stock, deferred stock or stock options. If the director elects to receive Common Stock, whether on a current or deferred basis, the number of shares to be received is determined by dividing the dollar value of the annual retainer by the fair market value of the Common Stock on the date the retainer is payable. If the director elects to receive stock options, the number of options to be received is determined by dividing the dollar value of the annual retainer by the Black-Scholes value of an option on the date the retainer is payable.

Information included under the caption "Stock Ownership of Certain Beneficial Owners” in the Company's 2013 Proxy Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions and Director Independence

Information included under the captions “Corporate Governance—Independent Directors” and “Transactions with Related Persons” in the Company’s 2013 Proxy Statement is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information included under the caption “Audit Matters” in the Company’s 2013 Proxy Statement is incorporated herein by reference.

 
35

 


PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)(1)  The following financial statements and other information appear in Appendix “A” to this Report and are filed as a part hereof:

·
Selected Consolidated Financial Data.
·
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
·
Management’s Report on Internal Control over Financial Reporting.
·
Reports of Independent Registered Public Accounting Firm.
·
Consolidated Balance Sheets at December 31, 2012 and 2011.
 ·
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010.
 ·
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012,
      2011 and 2010
·
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010.
·
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010.
·
 Notes to Consolidated Financial Statements.
 
    (a)(2) Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto.
 
    (a)(3) The following Exhibits* are incorporated by reference into or are filed with this Report:

 3.1
 
Amended and Restated Charter of the Company, adopted on April 28, 1986 and amended on September 7, 1988, May 31, 1989 and January 15, 1999 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011).
 3.2
 
Amended and Restated Bylaws of the Company, adopted on March 14, 1990 and amended on July 29, 1993, July 26, 2007 and July 23, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2011).
 4.1
 
Amended and Restated Shareholder Protection Rights Agreement, dated as of December 22, 2005, by and between the Company and Mellon Investor Services LLC, as Rights Agent (incorporated by reference from the Company’s Current Report on Form 8-K dated December 22, 2005).
 10.1
 
Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated January 1, 1996 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1995). *
 10.2
 
Astec Industries, Inc. 1998 Long-Term Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the 1998 Annual Meeting of Shareholders). *
 10.3    Astec Industries, Inc. Executive Officer Annual Bonus Equity Election Plan (incorporated by reference from Appendix B of the Company’s Proxy Statement for the 1998 Annual Meeting of Shareholders). *
 10.4    Astec Industries, Inc. 1998 Non-Employee Directors’ Stock Incentive Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1999). *
 10.5    Amendment Number 1 to Astec Industries, Inc. 1998 Non-Employee Directors’ Stock Incentive Plan, dated March 15, 2005 (incorporated by reference from the Company’s Current Report on Form 8-K dated March 15, 2005). *
 

 
36

 


     
  10.6
 
Amendment Number 2 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan, dated February 21, 2006 (incorporated by reference from the Company’s Current Report on Form 8-K dated February 27, 2006).*
  10.7
 
Amendment Number 3 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan (incorporated by reference from the Company’s Annual Report on form 10-K for the year ended December 31, 2008).*
  10.8
 
Astec Industries, Inc. 2006 Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the 2006 Annual Meeting of Shareholders). *
  10.9
 
Amendment Number 1 to Astec Industries, Inc. 2006 Incentive Plan (incorporated by reference from the Company’s Annual Report on form 10-K for the year ended December 31, 2008).*
  10.10
 
Stock Purchase Agreement by and among Astec Industries, Inc., Dillman Equipment, Inc. and the sellers named therein dated August 5, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).
  10.11
 
Stock Purchase Agreement by and among Astec Industries, Inc., Double L Investments, Inc. and the sellers named therein dated August 5, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).
  10.12
 
Astec Industries, Inc. Supplemental Executive Retirement Plan, as amended and restated through January 1, 2009 (incorporated by reference from the Company’s Annual Report on form 10-K for the year ended December 31, 2008).*
  10.13
 
Amendment One to the Amended and Restated Astec Industries, Inc. Supplemental Executive Retirement Plan effective October 21, 2010 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).*
  10.14
 
Astec Industries, Inc. 2011 Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the 2011 Annual Meeting of Shareholders). *
  10.15
 
Amendment to Appendix A of the Astec Industries Supplemental Executive Plan effective August 1, 2011 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011).*
 10.16   Asset Purchase Agreement, dated August 4, 2011, between Astec Industries, Inc. and Blue Tee Corp. (incorporated by reference from the company’s Quarterly Report on 10-Q for the period ended September 30, 2011).
 10.17   Amendment to Appendix A of the Astec Industries Supplemental Executive Plan effective November 1, 2011 (incorporate by reference from the company’s Annual Report on form 10-K for the year ended December 31, 2011).*
 10.18   Amended and Restated Credit Agreement, dated as of April 12, 2012, between Astec Industries, Inc. and Certain of its Subsidiaries and Wells Fargo Bank, National Association (incorporated by reference from the company’s Quarterly Report on Form 10-Q for the period ending March 31, 2012).
 10.19   Stock Purchase Agreement, dated as of October 31, 2012, among Astec Industries, Inc., American Augers, Inc. and The Charles Machine Works, Inc.
 10.20   Asset Purchase Agreement, dated as of October 31, 2012, among Astec Industries, Inc. and The Charles Machine Works, Inc.
 21   Subsidiaries of the Registrant.
 23   Consent of Independent Registered Public Accounting Firm.
 

 
37

 


     
  31.1
 
Certification of Chief Executive Officer of Astec Industries, Inc. pursuant Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.
  31.2
 
Certification of Chief Financial Officer of Astec Industries, Inc. pursuant Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.
  32
 
Certification of Chief Executive Officer and Chief Financial Officer of Astec Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.
101.INS
 
XBRL Instance Document
 101.SCH
 
XBRL Taxonomy Extension Schema
 101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
 101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
 101.LAB
 
XBRL Taxonomy Extension Label Linkbase
 101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
     
  *
 
Management contract or compensatory plan or arrangement.
     

(b)
 
The Exhibits to this Report are listed under Item 15(a)(3) above.
(c)
 
The Financial Statement Schedules to this Report are listed under Item 15(a)(2) above.

The Exhibits are numbered in accordance with Item 601 of Regulation S-K.  Inapplicable Exhibits are not included in the list.


 
38

 


APPENDIX "A"
to
ANNUAL REPORT ON FORM 10-K

ITEMS 6, 7, 7a, 8, 9a and 15(a)(1), (2)and (3),and 15(b) and 15(c)

INDEX TO FINANCIAL STATEMENTS AND
 FINANCIAL STATEMENT SCHEDULES


ASTEC INDUSTRIES, INC.



Contents
Page
   
Selected Consolidated Financial Data
A-3
   
Supplementary Financial Data   A-4
   
Management's Discussion and Analysis of Financial Condition and Results of Operations
A-5
   
Management’s Report on Internal Control over Financial Reporting
A-23
   
Reports of Independent Registered Public Accounting Firm
A-24
   
Consolidated Balance Sheets at December 31, 2012 and 2011
A-26
   
Consolidated Statements of Income for the Years Ended December 31, 2012, 2011 and 2010
A-27
   
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2012, 2011 and 2010
A-28
   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010
A-29
   
Consolidated Statements of Equity for the Years Ended December 31, 2012, 2011 and 2010
A-31
   
Notes to Consolidated Financial Statements
A-32
   
Comparison of 5 Year Cumulative Total Return   A-58


 
A-1

 
 
 

 
 
 
FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
A-2

 
 
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except as noted*)
   
 
   
 
   
 
   
 
 
 
 
Consolidated Statement of Income Data
   2012      2011      2010      2009    2008  
Net sales
  $ 936,273     $ 908,641     $ 737,084     $ 698,056   $ 891,328  
Gross profit1
    206,939       210,492       174,585       146,877     211,397  
Gross profit %
    22.1 %     23.2 %     23.7 %     21.0 %   23.7 %
Selling, general and administrative expenses2
    136,323       132,371       109,354       100,651     115,626  
Goodwill and other intangible asset impairment charge3
    --       --       --       17,036     --  
Research and development
    20,520       20,764       15,987       16,257     16,908  
Income from operations
    50,096       57,357       49,244       12,933     78,863  
Interest expense
    339       190       339       532     850  
Other income (expense), net4
    1,783       1,082       632       1,118     6,240  
Net income from continuing operations
    33,589       39,795       33,841       5,186     54,933  
Income (loss) from discontinued operations, net of tax
    3,401       225       (1,269 )     (2,080 )   8,363  
Gain on sale of subsidiary, net of tax
    3,378       --       --       --     --  
Net income
    40,368       40,020       32,572       3,106     63,296  
Net income attributable to controlling interest
    40,207       39,918       32,430       3,068     63,128  
Earnings (loss) per common share*
                                     
Net income attributable to controlling interest from continuing operations
                                     
Basic
    1.47       1.76       1.50       .23     2.46  
Diluted
    1.45       1.73       1.48       .23     2.43  
Income (loss) from discontinued operations
                                     
Basic
    .30       .01       (.06 )     (.09 )   .38  
Diluted
    .29       .01       (.06 )     (.09 )   .37  
Net income attributable to controlling interest
                                     
Basic
    1.77       1.77       1.44       0.14     2.83  
Diluted
    1.74       1.74       1.42       0.14     2.80  
                                       
Consolidated Balance Sheet Data
                                     
Working capital
  $ 355,497     $ 331,532     $ 317,395     $ 278,058   $ 251,263  
Total assets
    724,565       716,883       649,639       590,901     612,812  
Total short-term debt
    --       --       --       --     3,427  
Long-term debt, less current maturities
    --       --       --       --     --  
Total equity
    547,998       529,183       492,806       452,260     440,033  
Cash dividends declared per common share*
    1.00       --       --       --     --  
Book value per diluted common share at year-end*
    23.70       23.00       21.56       19.89     19.45  
 
1
2011 Gross profit includes charges of $2,162,000 related to sale of utility product line assets in the Underground Group.
2
2011 Selling, general and administrative expenses include an impairment charge of $2,304,000 related to aviation equipment classified as held for sale during 2011.
3
2009 includes impairment charges, primarily goodwill, of $17,036,000, or $15,022,000 after tax.
4
During 2008, the Company sold certain equity securities for a pre-tax gain of $6,195,000.

 
A-3

 
SUPPLEMENTARY FINANCIAL DATA
(in thousands, except as noted*)
 
Quarterly Financial Highlights
(Unaudited)
 
First
Quarter
   
Second
Quarter
   
Third
Quarter
   
Fourth
Quarter
 
                         
2012 Net sales
  $ 251,967     $ 238,275     $ 218,391     $ 227,640  
Gross profit
    58,597       53,061       47,215       48,066  
Net income from continuing operations
    12,024       9,581       6,582       5,402  
Income from discontinued operations
    234       848       318       5,379  
Net income
    12,258       10,429       6,900       10,781  
Net income attributable to controlling interest
    12,245       10,366       6,852       10,744  
Earnings per common share*
                               
Net income attributable to controlling interest
from continuing operations:
                               
Basic
    0.53       0.41       0.29       0.24  
Diluted
    0.52       0.41       0.29       0.23  
Income from discontinued operations:
                               
Basic
    0.01       0.04       0.01       0.24  
Diluted
    0.01       0.04       0.01       0.23  
Net income attributable to controlling interest:
                               
Basic
    0.54       0.46       0.30       0.47  
Diluted
    0.53       0.45       0.30       0.47  
                                 
20111                      Net sales
  $ 224,389     $ 231,052     $ 199,907     $ 253,293  
Gross profit
    54,641       58,476       43,326       54,049  3
Net income from continuing operations
    11,409       13,187       6,849       8,349  
Income (loss) from discontinued operations
    (1,251 )     918       915       (357 )
Net income
    10,158       14,105 2     7,764       7,992 2
Net income attributable to controlling interest
    10,144       14,086 2     7,723       7,964  
Earnings (loss) per common share*
                               
Net income attributable to controlling interest
from continuing operations:
                               
Basic
    0.51       0.58       0.30       0.37  
Diluted
    0.50       0.57       0.30       0.36  
Income (loss) from discontinued operations:
                               
Basic
    (0.06 )     0.04       0.04       (0.02 )
Diluted
    (0.05 )     0.04       0.04       (0.02 )
Net income attributable to controlling interest:
                               
Basic
    0.45       0.62       0.34       0.35  
Diluted
    0.44       0.61       0.34       0.35  
   
                                 
Common Stock Price*
                               
                                 
2012 High
  $ 40.68     $ 37.12     $ 34.10     $ 33.47  
2012 Low
    32.60       26.48       27.01       26.09  
                                 
2011 High
  $ 37.41     $ 39.97     $ 39.54     $ 35.68  
2010 Low
    29.78       33.74       28.20       26.53  
 
1
The Company sold American Augers, Inc. on November 30, 2012. The results of operations and the gain on the sale of American Augers are presented as discontinued operations for all periods presented. As a result, the quarterly financial data varies from the amounts previously reported on the Form 10-Qs filed for such quarters. See Note 21, Discontinued Operations, for additional information regarding the sale of American Augers.
 
2
Impairment charges of $2,170,000 in the second quarter of 2011 and $134,000 in the fourth quarter of 2011 were included in selling and general administrative expense related to aviation equipment classified as available for sale.
 
3
 
Gross profit in the fourth quarter of 2011 includes charges of $2,162,000 related to sale of the utility product line in the Underground Group.
 
The Company’s common stock is traded in the Nasdaq National Market under the symbol ASTE. Prices shown are the high and low bid prices as announced by the Nasdaq National Market. The Company paid a special one-time dividend of $1.00 per share on its common stock in 2012.  As determined by the proxy search on the record date, the number of holders of record is approximately 300.
 
A-4

 
 

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding forward-looking statements, see “Forward-looking Statements” on page A-21.

Overview
 
Astec Industries, Inc. (the “Company”) is a leading manufacturer and seller of equipment for road building, aggregate processing, geothermal, water and oil and gas drilling and wood processing. The Company’s businesses:
 
    • design, engineer, manufacture and market equipment that is used in each phase of road building, including quarrying and crushing the aggregate to producing asphalt or concrete, recycling old asphalt or concrete and applying the asphalt;
            
 
    • design, engineer, manufacture and market additional equipment and components, including geothermal drilling, oil and natural gas drilling, industrial heat transfer, wood chipping and grinding, wood pellet processing; and
 
 manufacture and sell replacement parts for equipment in each of its product lines.
 
The Company has 15 manufacturing companies, 14 of which fall within four reportable operating segments, which include the Asphalt Group, the Aggregate and Mining Group, the Mobile Asphalt Paving Group and the Underground Group. The business units in the Asphalt Group design, manufacture and market a complete line of asphalt plants and related components, heating and heat transfer processing equipment and storage tanks for the asphalt paving and other unrelated industries including energy production, concrete mixing plants and wood pellet processing equipment. The business units in the Aggregate and Mining Group design, manufacture and market equipment for the aggregate, metallic mining and recycling industries. The business units in the Mobile Asphalt Paving Group design, manufacture and market asphalt pavers, material transfer vehicles, milling machines, stabilizers and screeds. The business units in the Underground Group design, manufacture and market portable drilling rigs and related equipment for the water well, environmental, groundwater monitoring, construction, geothermal, mining and shallow oil and gas exploration and production industries. The Company also has one other category that contains the business units that do not meet the requirements for separate disclosure as an operating segment. The business units in the Other category include Peterson Pacific Corp. (“Peterson”), Astec Australia Pty Ltd (“Astec Australia”), Astec Insurance Company (“Astec Insurance” or “the captive”) and Astec Industries, Inc., the parent company. Peterson designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia markets and installs equipment, services and provides parts for many of the products produced by the Company’s manufacturing companies. Astec Insurance is a captive insurance company.

The Company’s financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets it serves. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, privately funded infrastructure development, changes in the price of crude oil, which affects the cost of fuel and liquid asphalt, and changes in the price of steel.

In August 2005, President Bush signed into law the Safe, Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users (“SAFETEA-LU”), which authorized appropriation of $286.5 billion in guaranteed federal funding for road, highway and bridge construction, repair and improvement of the federal highways and other transit projects for federal fiscal years October 1, 2004 through September 30, 2009. The Company believes that federal highway funding such as SAFETEA-LU influences the purchasing decisions of the Company’s customers who are more comfortable making purchasing decisions with such legislation in place. Federal funding provides for approximately 25% of all highway, street, roadway and parking construction in the United States.

SAFETEA-LU funding expired on September 30, 2009 and federal transportation funding operated on short-term appropriations through March 17, 2010. On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. This law extended authorization of the surface transportation programs previously funded under SAFETEA-LU through December 31, 2010 at 2009 levels. In addition, the HIRE Act authorized a one-time transfer of $19.5 billion from the general fund to the highway trust fund related to previously foregone interest payments. It also shifted the cost of fuel tax exemptions for state and local governments from the highway trust fund to the general fund, which is estimated to generate an anticipated $1.5 billion annually, and allows the highway trust fund to retain interest earned on future unexpended balances. The U.S. Congress funded federal transportation expenditures for the fiscal year ending September 30, 2011 at the 2010 level of $41.1 billion, and it approved short-term funding of federal transportation expenditures for the six-month period ending on March 31, 2012 at the same levels.

 
A-5

 
 

 

In July 2012, President Obama signed into law the “Moving Ahead for Progress in the 21st Century Act” (“Map-21”), which authorizes $105 billion of federal spending on highway and public transportation programs through fiscal year 2014. Map-21 is the first long-term highway legislation enacted since 2005 and continues federal highway and transit funding at 2012 levels with modest increases for inflation. Although the Company believes Map-21 will help stabilize the federal highway program in the near term, the Company believes a longer multi-year highway program would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer-term projects. The level of future federal highway construction is uncertain and any future funding may be at lower levels than in the past.

Several other countries have implemented infrastructure spending programs to stimulate their economies. The Company believes these spending programs have had a positive impact on its financial performance; however, the magnitude of that impact cannot be determined.

The public sector spending described above is needed to fund road, bridge and mass transit improvements. The Company believes that increased funding is unquestionably needed to restore the nation’s highways to a quality level required for safety, fuel efficiency and mitigation of congestion. In the Company’s opinion, amounts needed for such improvements are significantly greater than amounts approved to date, and funding mechanisms such as the federal usage fee per gallon of gasoline, which has not been increased in 20 years, would likely need to be increased along with other measures to generate the funds needed.

In addition to public sector funding, the economies in the markets the Company serves, the price of oil and its impact on customers’ purchasing decisions and the price of steel may each affect the Company’s financial performance. Economic downturns generally result in decreased purchasing by the Company’s customers, which, in turn, causes reductions in sales and increased pricing pressure on the Company’s products. Rising interest rates also typically negatively impact customers’ attitudes toward purchasing equipment. The Federal Reserve has maintained historically low interest rates in response to the current economic downturn; however interest rates may increase in 2013.

Significant portions of the Company’s revenues relate to the sale of equipment involved in the production, handling, recycling or installation of asphalt mix. Liquid asphalt is a by-product of oil production. An increase in the price of oil increases the cost of asphalt, which is likely to decrease demand for asphalt and therefore decrease demand for certain Company products. While increasing oil prices may have a negative financial impact on many of the Company’s customers, the Company’s equipment can use a significant amount of recycled asphalt pavement, thereby mitigating the effect of increased oil prices on the final cost of asphalt for the customer. The Company continues to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt mix. Oil price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. The Company’s customers appear to be adapting their prices in response to the fluctuating oil prices, and the fluctuations did not appear to significantly impair equipment purchases in 2012. The Company expects oil prices to continue to fluctuate in 2013. Minor fluctuations in oil prices should not have a significant impact on customers’ buying decisions. However, political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other economic factors could significantly impact oil prices which could negatively impact demand for the Company’s products.

Contrary to the negative impact of higher oil prices on many of the Company’s products as discussed above, sales of several of the Company’s products, including products manufactured by the Underground Group, which are used to drill for oil and natural gas, would benefit from higher oil and natural gas prices, to the extent that such higher prices lead to further development of oil and natural gas production. The Company believes further development of domestic oil and natural gas production capabilities is needed and would positively impact the domestic economy and the Company’s business.

Steel is a major component in the Company’s equipment. Moderate steel price increases occurred during the fourth quarter of 2012. Steel demand appears relatively weak for the first quarter of 2013 with short mill lead times for most products. Management expects demand to strengthen ahead of the second quarter, and as a result of this trend, expects steel prices to increase moderately as mill lead times return to more seasonably normal levels. It is uncertain, however, if these trends will continue throughout the remainder of 2013. The Company continues to utilize forward-looking contracts coupled with advanced steel purchases to minimize the impact of increased steel prices. The Company will continue to review the trends in steel prices in future months and establish future contract pricing accordingly.

 
A-6

 
 


 
In addition to the factors stated above, many of the Company’s markets are highly competitive, and its products compete worldwide with a number of other manufacturers and dealers that produce and sell similar products. During 2010, 2011 and a portion of 2012 a weak dollar, combined with improving economic conditions in certain foreign economies, had a positive impact on the Company’s international sales. The Company expects the dollar to remain weak in the near-term relative to most foreign currencies; however, increasing domestic interest rates or weakening economic conditions abroad could cause the dollar to strengthen, which could negatively impact the Company’s international sales.

In the United States and internationally, the Company’s equipment is marketed directly to customers as well as through dealers. During 2012, approximately 75% to 80% of equipment sold by the Company was sold directly to the end user. The Company expects this ratio to remain relatively consistent through 2013.

The Company is operated on a decentralized basis and there is a complete management team for each operating subsidiary. Finance, insurance, legal, shareholder relations, corporate accounting and other corporate matters are primarily handled at the corporate level (i.e., Astec Industries, Inc., the parent company). The engineering, design, sales, manufacturing and basic accounting functions are all handled at each individual subsidiary. Standard accounting procedures are prescribed and followed in all reporting.

The non-union employees of each subsidiary have the opportunity to earn profit-sharing incentives in the aggregate of up to 10% of each subsidiary’s after-tax profit if such subsidiary meets established goals. These goals are based on the subsidiary’s return on capital employed, cash flow on capital employed and safety. The profit-sharing incentives for subsidiary presidents are normally paid from a separate corporate pool.

Results of Operations: 2012 vs. 2011
 
The following discussion and analysis refers to amounts as presented in the accompanying consolidated statements of income. The Company sold substantially all the assets and liabilities of American Augers, Inc. on November 30, 2012. The results of operations attributable to American Augers and the related gain on its sale (net of tax) are presented as discontinued operations and are excluded from all other categories on the consolidated statements of income. In our comparison between 2012 and 2011, statement of income amounts for 2011 have been restated to exclude the operating results of American Augers.
 
Net Sales
Net sales increased $27,632,000 or 3.0%, from $908,641,000 in 2011 to $936,273,000 in 2012. Sales are generated primarily from new equipment purchases made by customers for use in construction for privately funded infrastructure and public sector spending on infrastructure as well as equipment for the aggregate, mining, quarrying and recycle markets and the oil and gas and geothermal industries. The overall increase in sales for 2012 compared to 2011 reflects the strengthening economic conditions in domestic markets.

Domestic sales for 2012 were $572,522,000 or 61.1% of consolidated net sales compared to $543,527,000 or 59.8% of consolidated net sales for 2011, an increase of $28,995,000 or 5.3%. The overall increase in domestic sales for 2012 compared to 2011 reflects the strengthening economic conditions for the Company’s products in the domestic market.
 
International sales for 2012 were $363,751,000 or 38.9% of consolidated net sales compared to $365,114,000 or 40.2% of consolidated net sales for 2011, a decrease of $1,363,000 or 0.4%. International sales remained relatively flat but still strong as a percentage of 2012 total sales due to strong economic conditions in the international markets the Company serves as well as the continued efforts of the Company to grow its international business.
 
Parts sales as a percentage of consolidated net sales increased 210 basis points to 26.3% in 2012 from 24.2% in 2011. In dollars, parts sales increased 11.8% to $245,851,000 in 2012 from $219,963,000 in 2011.

 
A-7

 
 

 
Gross Profit
Consolidated gross profit as a percentage of sales decreased 110 basis points to 22.1% in 2012 from 23.2% in 2011. The decrease in gross margin is partially due to the costs associated with the redesign of certain of our products as a result of the switch to Tier 4 engines mandated by the federal government as well as increased production costs associated with new products recently introduced to the market along with underutilization of plant capacity at certain of our facilities. Sales price increases lagging behind raw material price increases on the aged backlog of equipment orders and competitive pricing pressures also contributed to the decrease in gross profit as a percent of sales.
 
Selling, General and Administrative Expense
Selling, general and administrative expenses for 2012 were $136,323,000 or 14.6% of net sales, compared to $132,371,000 or 14.6% of net sales for 2011, an increase of $3,952,000 or 3.0%. The increase was primarily due to an increase in payroll and related expenses of $6,638,000, an increase in travel expenses of $1,501,000, and an increase in health insurance of $4,125,000. These expenses were offset by a decrease in expenses related to the triennial Con-Expo Show which took place in 2011 of $3,159,000, profit sharing expense of $1,911,000, the write down of aviation assets held for sale of $2,304,000 (2011 only) and stock based compensation expense of $1,548,000.
 
Research and Development
Research and development expenses decreased $244,000 or 1.2% to $20,520,000 in 2012 from $20,764,000 in 2011. During 2012 and 2011 the Company invested heavily in research and development across all segments for numerous new equipment offerings, including the continued development of a wood pellet processing plant.
 
Interest Expense
Interest expense in 2012 increased $149,000, or 78.4%, to $339,000 from $190,000 in 2011. The increase in interest expense in 2012 compared to 2011 related primarily to the increase in bank fees related to the Company’s new line of credit agreement with Wells Fargo.
 
Interest Income
Interest income increased $262,000 or 29.7% to $1,145,000 in 2012 from $883,000 in 2011. The increase in interest income resulted from an increase in amounts invested in 2012 compared to 2011 and interest earned on notes receivable from customers.
 
Other Income (Expense), Net
Other income (expense), net was $1,783,000 in 2012 compared to $1,082,000 in 2011, an increase of $701,000 or 64.8% due to increased licensing fee income.
 
Income Tax
Income tax expense for 2012 was $22,892,000, compared to income tax expense of $19,281,000 for 2011. The effective tax rates for 2012 and 2011 were 36.2% and 32.5%, respectively. The primary reason for the increase in the effective tax rate from 2011 to 2012 is the unavailability of the research and development tax credit for 2012. Tax legislation passed in early 2013 will allow the Company to obtain a tax credit in 2013 based upon amounts expensed for research and development in 2012 in addition to the research and development costs expensed in 2013.
 
Net Income Attributable To Controlling Interest
The Company had net income attributable to controlling interest of $40,207,000 in 2012 compared to $39,918,000 in 2011 for an increase of $289,000, or 0.7%. Earnings per diluted share remained constant in 2012 and 2011 at $1.74. Weighted average diluted shares outstanding for the years ended December 31, 2012 and 2011 were 23,051,000 and 22,984,000, respectively. The increase in shares outstanding is primarily due to the vesting of restricted stock units and the exercise of stock options by employees of the Company.
 
Backlog
The backlog of orders at December 31, 2012 was $263,791,000 compared to $268,618,000 (adjusted for discontinued operations) at December 31, 2011, a decrease of $4,827,000, or 1.8%. The decrease in the backlog of orders was due to an increase in domestic backlog of $11,578,000 or 8.0% offset by a decrease in international backlog of $16,405,000 or 13.3%. The Asphalt Group backlog increased $24,053,000 or 20.8% from 2011. The Asphalt Group increase was domestic order related and is due to an order for a wood pellet processing plant. The Aggregate and Mining Group backlog decreased $10,139,000 or 10.3%. The decrease in backlog for the Aggregate and Mining Group occurred in both domestic and international orders. The Underground Group backlog decreased $7,438,000 or 34.8% from 2011 due to the decreased demand for units for the oil and gas industry in the latter part of 2012. The Mobile Asphalt Paving Group backlog decreased $1,884,000 or 30.6%. The Mobile Asphalt Paving Group typically operates with a smaller backlog than the other segments due to the nature of their products. The Company is unable to determine whether the decrease in backlogs was experienced by the industry as a whole.

 
A-8

 
 

 
 
Net Sales by Segment (in thousands)
 
   
2012
   
2011
   
$ Change
   
% Change
 
Asphalt Group
  $ 234,562     $ 260,404     $ (25,842 )     (9.9 %)
Aggregate and Mining Group
    355,428       333,278       22,150       6.6 %
Mobile Asphalt Paving Group
    158,115       187,988       (29,873 )     (15.9 %)
Underground Group
    82,802       37,683       45,119       119.7 %
Other Group
    105,366       89,288       16,078       18.0 %
 
Asphalt Group: Sales in this group decreased to $234,562,000 in 2012 compared to $260,404,000 in 2011, a decrease of $25,842,000 or 9.9%. Domestic sales for the Asphalt Group decreased 8.9% in 2012 compared to 2011 due primarily to delayed approval of a federal long-term highway funding bill, which impacted orders that typically require a long production lead time, in addition to state budgetary concerns. The federal highway funding was passed in July 2012 but was well after most states let their jobs for construction in 2012. International sales for the Asphalt Group decreased 12.4% in 2012 compared to 2011. The decrease in international sales occurred primarily in Europe, the Middle East, post-Soviet States and South America. Parts sales for the Asphalt Group remained flat in 2012 compared to 2011.

Aggregate and Mining Group: Sales in this group were $355,428,000 in 2012 compared to $333,278,000 in 2011, an increase of $22,150,000 or 6.6%. Domestic sales for the Aggregate and Mining Group increased 16.2% in 2012 compared to 2011 primarily due to improving economic conditions and improved demand related to infrastructure, particularly in the oil and gas producing regions of the country. International sales for the Aggregate and Mining Group decreased 1.3% in 2012 compared to 2011. The decrease in international sales occurred primarily in South America, Africa, and the Middle East. Parts sales for the Aggregate and Mining Group increased 7.6% in 2012 compared to 2011.

Mobile Asphalt Paving Group: Sales in this group were $158,115,000 in 2012 compared to $187,988,000 in 2011, a decrease of $29,873,000 or 15.9%. Domestic sales for the Mobile Asphalt Paving Group decreased 15.3% in 2012 over 2011. Domestic sales of equipment for this Group were negatively affected by the federal government mandated switch to Tier IV engines as well as increased competition from international manufacturers that had a longer transition time to implement the Tier IV engines on their imports to the U.S. market. The decrease in domestic sales for the Mobile Asphalt Paving Group is also due in part to the increase of available rental units in the market. International sales for the Mobile Asphalt Paving Group decreased 18.7% in 2012 compared to 2011. The decrease internationally occurred primarily in Canada, South America and Mexico. Parts sales for this group increased 4.5% in 2012.

Underground Group: Sales in this group were $82,802,000 in 2012 compared to $37,683,000 in 2011, an increase of $45,119,000 or 119.7%. Domestic sales for the Underground Group increased 177.4% in 2012 compared to 2011. International sales for the Underground Group increased 33.1% in 2012 compared to 2011. The increase in international sales occurred in Asia, South America, and Australia. Parts sales for the Underground Group increased 148.5% in 2012. GEFCO, which was acquired by the Company in the fourth quarter of 2011, accounted for $34,643,000 of the increase in the Underground Group’s sales and positively impacted both domestic and international sales, including parts sales, of this Group.

Other Group: Sales for the Other Group were $105,366,000 in 2012 compared to $89,288,000 in 2011, an increase of $16,078,000 or 18.0%. Domestic sales for the Other Group, which are generated by Peterson Pacific Corp., increased 13.3% in 2012 compared to 2011. International sales for the Other Group, which are generated primarily by Astec Australia, increased 20.6% in 2012 compared to 2011. Astec Australia functions as a dealer for the Company’s other subsidiaries and has increased its focus to sell, install and service equipment for the asphalt, aggregate and mining, mobile asphalt and underground construction markets of Australia. Parts sales for the Other Group increased 4.2% in 2012.

 
A-9

 
 

 
Segment Profit (Loss) (in thousands)

   
2012
   
2011
   
$ Change
   
% Change
 
Asphalt Group
  $ 21,018     $ 29,310     $ (8,292 )     (28.3 %)
Aggregate and Mining Group
    34,687       31,493       3,194       10.1 %
Mobile Asphalt Paving Group
    10,721       26,485       (15,764 )     (59.5 %)
Underground Group
    (2,238 )     (7,318 )     5,080       69.4 %
Other Group
    (30,080 )     (38,229 )     8,149       21.3 %
 
Asphalt Group: Profit for this group was $21,018,000 for 2012 compared to $29,310,000 for 2011, a decrease of $8,292,000 or 28.3%. This group had a decrease of $7,683,000 in gross profit compared to 2011 as a result of the $25,842,000 decrease in sales.

Aggregate and Mining Group: Profit for this group was $34,687,000 in 2012 compared to $31,493,000 in 2011, an increase of $3,194,000 or 10.1%. This group had an increase of $7,165,000 in gross profit during 2012 as a result of the $22,150,000 increase in sales. This gross profit increase was offset by increases of $3,761,000 in selling, general and administrative expenses, including payroll related expenses, travel expense, sales commission expense, and research and development expenses.

Mobile Asphalt Paving Group: Profit for this group was $10,721,000 in 2012 compared to profit of $26,485,000 in 2011, a decrease of $15,764,000 or 59.5%. This group had a decrease of $15,235,000 in gross profit during 2012 as a result of the $29,873,000 decrease in sales and also due to the costs associated with the redesign of certain products as a result of the switch to Tier 4 engines mandated by the federal government. This group had an increase in selling, general and administrative expenses of $747,000, which was primarily attributed to payroll related expense, travel expense, sales commission expense and research and development expenses.

Underground Group: This group had a loss of $2,238,000 in 2012 compared to a loss of $7,318,000 in 2011 for an improvement of $5,080,000 or 69.4%. This group had an increase of $9,386,000 in gross profit during 2012 driven by the $45,119,000 increase in sales. Selling, general and administrative expenses increased $4,391,000 due primarily to increases in payroll related expenses, bad debt expense, exhibit expense and research and development expenses. These results included GEFCO, Inc. results for the entire year of 2012 compared to three months of 2011.

Other Group: The Other Group had a loss of $30,080,000 in 2012 compared to a loss of $38,229,000 in 2011, an improvement of $8,149,000 or 21.3%. Gross profit for this group increased $2,814,000 or 18.1% year over year due in part to $16,078,000 in increased sales for this group. The results for this group were positively impacted by the decrease in selling, general and administrative expense of $3,500,000 that resulted from decreases in profit sharing and stock based compensation expenses. In addition, the write down of aviation assets held for sale of $2,304,000 only occurred in 2011. The profit in this group was also significantly impacted by U.S. federal income tax expense, which is recorded at the parent company. Income tax expense in this group increased $1,639,000 in 2012 compared to 2011.

Results of Operations: 2011 vs. 2010
 
The Company sold substantially all the assets and liabilities of American Augers, Inc. on November 30, 2012. Amounts shown in the Consolidated Statement of Income for 2011 and 2010 have been restated to exclude the results of American Augers. The amounts discussed in this comparison of 2011 vs. 2010 have also been restated to exclude American Augers’ results.
 
Net Sales
Net sales increased $171,557,000 or 23.3%, from $737,084,000 in 2010 to $908,641,000 in 2011. Sales are generated primarily from new equipment purchases made by customers for use in construction for privately funded infrastructure and public sector spending on infrastructure. In February 2012, the Company sold the Underground Group’s utility product line. Sales of equipment and parts in this product line totaled $18,389,000 and $16,148,000 in 2011 and 2010, respectively. The overall increase in sales for 2011 compared to 2010 reflects the strengthening economic conditions, in both foreign and domestic markets.
 
 
 
A-10

 
 
Domestic sales for 2011 were $543,527,000 or 59.8% of consolidated net sales compared to $462,167,000 or 62.7% of consolidated net sales for 2010, an increase of $81,360,000 or 17.6%. The overall increase in domestic sales for 2011 compared to 2010 reflects the strengthening economic conditions for the Company’s products in the domestic market.
 
International sales for 2011 were $365,114,000 or 40.2% of consolidated net sales compared to $274,917,000 or 37.3% of consolidated net sales for 2010, an increase of $90,197,000 or 32.8%. The overall increase in international sales for 2011 compared to 2010 is due to strong economic conditions in the international markets the Company serves as well as the increased efforts of the Company to grow its international business.
 
Parts sales as a percentage of consolidated net sales decreased 100 basis points to 24.2% in 2011 from 25.2% in 2010. In dollars, parts sales increased 18.4% to $219,963,000 in 2011 from $185,848,000 in 2010.
 
Gross Profit
Consolidated gross profit as a percentage of sales decreased 50 basis points to 23.2% in 2011 from 23.7% in 2010. The decrease in gross margin is partially due to certain sales price increases lagging behind raw material price increases on the aged backlog of equipment orders and parts sales, which typically yield a higher gross margin, decreased as a percentage of total sales year over year, as described above. Gross profit was also negatively impacted by charges of $2,162,000 related to the sale of the Underground Group’s utility product line assets.
 
Selling, General and Administrative Expense
Selling, general and administrative expenses for 2011 were $132,371,000 or 14.6% of net sales, compared to $109,354,000 or 14.8% of net sales, for 2010, an increase of $23,017,000 or 21.0%. The increase was primarily due to an increase in payroll and related expenses of $8,412,000, an increase in travel expenses of $1,099,000, an increase in sales commissions of $2,723,000, expenses related to the triennial Con-Expo show of $2,925,000, an increase in legal and professional expense of $2,111,000 and the write down of aviation assets held for sale of $2,304,000.
 
Research and Development
Research and development expenses increased $4,777,000 or 29.9% to $20,764,000 in 2011 from $15,987,000 in 2010. During 2011 the Company invested heavily in research and development across all segments for numerous new equipment offerings including the development of a wood pellet processing plant.
 
Interest Expense
Interest expense in 2011 decreased $149,000, or 44.0%, to $190,000 from $339,000 in 2010. The decrease in interest expense in 2011 compared to 2010 related primarily to the decrease in interest paid on state tax settlements incurred in 2011 over 2010 levels.
 
Interest Income
Interest income decreased $73,000 or 7.6% to $883,000 in 2011 from $956,000 in 2010. The decrease in interest income resulted from a decrease in amounts invested in 2011 compared to 2010.
 
Other Income (Expense), Net
Other income (expense), net was $1,082,000 in 2011 compared to $632,000 in 2010, an increase of $450,000 or 71.2% due to an increase in licensing fee income of $219,000 in 2011 compared to 2010.
 
Income Tax
Income tax expense for 2011 was $19,281,000, compared to income tax expense of $16,131,000 for 2010. The effective tax rates for 2011 and 2010 were 32.5% and 33.1%, respectively. The primary reason for the decrease in the effective tax rate from 2010 to 2011 is the increased research and development tax credits and the qualified production activity deductions in 2011 compared to 2010.
 
Net Income Attributable To Controlling Interest
The Company had net income attributable to controlling interest of $39,918,000 in 2011 compared to $32,430,000 in 2010 for an increase of $7,488,000, or 23.1%. Earnings per diluted share were $1.74 in 2011 compared to $1.42 in 2010, an increase of $0.32 or 22.5%. Weighted average diluted shares outstanding for the years ended December 31, 2011 and 2010 were 22,984,000 and 22,830,000, respectively. The increase in shares outstanding is primarily due to the exercise of stock options by employees of the Company.
 
 
 
 
A-11

 
 
Backlog
The backlog of orders at December 31, 2011 was $268,618,000 compared to $231,268,000, adjusted for acquisitions, at December 31, 2010, an increase of $37,350,000, or 16.2%. The increase in the backlog of orders was due to an increase in domestic backlog of $34,535,000 or 31.3% and an increase in international backlog of $2,815,000 or 2.3%. The increase in backlog occurred in each of the Company’s segments except for the Mobile Asphalt Paving Group, which typically operates with a smaller backlog than the other segments due to the nature of their products. The Mobile Asphalt Paving Group’s backlog returned to a more normal level at December 31, 2011, a decrease of $8,960,000 or 59.3%, after an unusual increase in December 2010 due to temporary delays in fulfilling customer orders. The Asphalt Group backlog increased $6,984,000 or 6% from 2010. The Asphalt Group increase was domestic order related and is due to an increase in component sales for retro-fit asphalt plant equipment and the receipt of a contract to supply asphalt plants to the US Army. The Aggregate and Mining Group increased $16,304,000 or 20% with $13,322,000 or 81.7% of the increase in domestic orders. The Company attributes the increase in the Aggregate and Mining Group’s domestic backlog to customers replacing older equipment and stronger dealer stock orders due to strengthening economic conditions. The Underground Group backlog increased $1,857,000 or 9.5% from 2010 and is attributed to domestic orders for equipment to service the oil and gas industry. The Company is unable to determine whether the increase in backlogs was experienced by the industry as a whole; however, the Company believes the increased backlog reflects the current economic conditions the industry is experiencing.
 
Net Sales by Segment (in thousands)

   
2011
   
2010
   
$ Change
   
% Change
 
Asphalt Group
  $ 260,404     $ 226,419     $ 33,985       15.0 %
Aggregate and Mining Group
    333,278       256,400       76,878       30.0 %
Mobile Asphalt Paving Group
    187,988       166,436       21,552       12.9 %
Underground Group
    37,683       25,854       11,829       45.8 %
Other Group
    89,288       61,975       27,313       44.1 %
 
Asphalt Group: Sales in this group increased to $260,404,000 in 2011 compared to $226,419,000 in 2010, an increase of $33,985,000 or 15.0%. Domestic sales for the Asphalt Group increased 9.8% in 2011 compared to 2010 primarily due to improving economic conditions. International sales for the Asphalt Group increased 30.2% in 2011 compared to 2010 resulting from increased efforts by the Company to grow its international business. The increase in international sales occurred primarily in Europe, Canada, India and South America. Parts sales for the Asphalt Group increased 13.2% in 2011.

Aggregate and Mining Group: Sales in this group were $333,278,000 in 2011 compared to $256,400,000 in 2010, an increase of $76,878,000 or 30.0%. Domestic sales for the Aggregate and Mining Group increased 32.6% in 2011 compared to 2010 primarily due to improving economic conditions. International sales for the Aggregate and Mining Group increased 27.9% in 2011 compared to 2010. This increase in international sales reflect the increased efforts by the Company to grow its international business, improved economic conditions and significant weakness in the dollar compared to many of the markets the Company serves. The increase in international sales occurred primarily in South America, Africa, Asia, Europe and China. Parts sales for the Aggregate and Mining Group increased 18.2% in 2011 compared to 2010.

Mobile Asphalt Paving Group: Sales in this group were $187,988,000 in 2011 compared to $166,436,000 in 2010, an increase of $21,552,000 or 12.9%. Domestic sales for the Mobile Asphalt Paving Group increased 14.5% in 2011 over 2010. The Company believes this increase was due to improved economic conditions and the impact of short term federal funding bills passed by Congress. International sales for the Mobile Asphalt Paving Group increased 6.6% in 2011 compared to 2010. International sales for this group increased due to increased efforts to market products internationally as well as a weak dollar. The increase internationally occurred primarily in Russia, the Middle East and South America. Parts sales for this group increased 17.3% in 2011.

Underground Group: Sales in this group were $37,683,000 in 2011 compared to $25,854,000 in 2010, an increase of $11,829,000 or 45.8%. Domestic sales for the Underground Group increased 60.0% in 2011 compared to 2010. The primary reason for this increase is the acquisition of GEFCO which occurred in the fourth quarter of 2011 and accounted for $10,886,000 of sales. International sales for the Underground Group increased 28.5% in 2011 compared to 2010. The increase in international sales occurred in Mexico, Canada, Australia and Africa. Parts sales for the Underground Group increased 45.5% in 2011.

 
 
A-12

 
 
Other Group: Sales for the Other Group were $89,288,000 in 2011 compared to $61,975,000 in 2010, an increase of $27,313,000 or 44.1%. Domestic sales for the Other Group, which are generated by Peterson Pacific Corp., remained flat in 2011 compared to 2010 due to continuing weak domestic construction activities in the markets they serve. International sales for the Other Group, which are generated primarily by Astec Australia increased 91.0% in 2011 over 2010 and was primarily in the Australian market. Astec Australia functions as a dealer for the Company’s other subsidiaries and has increased its focus to sell, install and service equipment for the asphalt, aggregate and mining, mobile asphalt and underground construction markets of Australia. Parts sales for the Other Group increased 23.4% in 2011.

Segment Profit (Loss) (in thousands)

   
2011
   
2010
   
$ Change
   
% Change
 
Asphalt Group
  $ 29,310     $ 28,672     $ 638       2.2 %
Aggregate and Mining Group
    31,493       16,578       14,915       90.0 %
Mobile Asphalt Paving Group
    26,485       23,234       3,251       14.0 %
Underground Group
    (7,318 )     (6,382 )     (936 )     (14.7 %)
Other Group
    (38,229 )     (27,579 )     (10,650 )     (38.6 %)
 
Asphalt Group: Profit for this group was $29,310,000 for 2011 compared to $28,672,000 for 2010, an increase of $638,000 or 2.2%. This group had an increase of $5,088,000 in gross profit over 2010 which was driven by the $33,985,000 increase in sales. Segment profits were negatively impacted by an increase in research and development expense $2,467,000 for 2011 over 2010 as well as certain sales price increases lagging behind raw material price increases on the aged backlog of equipment orders.

Aggregate and Mining Group: Profit for this group was $31,493,000 in 2011 compared to $16,578,000 in 2010, an increase of $14,915,000 or 90.0%. This group had an increase of $22,673,000 in gross profit during 2011 which was driven by the $76,878,000 increase in sales and increased efficiency in plant utilization in 2011, which improved operating margins by $7,197,000. This gross profit increase was offset by increases in selling, general and administrative expenses and research and development expenses of $9,413,000 including payroll related expenses, travel expense and sales commission expense.

Mobile Asphalt Paving Group: Profit for this group was $26,485,000 in 2011 compared to profit of $23,234,000 in 2010, an increase of $3,251,000 or 14.0%. This group had an increase of $5,382,000 in gross profit during 2011 driven by the $21,552,000 increase in sales. Also positively affecting gross profit was increased plant utilization of $2,040,000 during 2011 compared to 2010. This group had an increase in selling, general and administrative expenses of $3,906,000 primarily driven by payroll related expenses, travel expense and sales commission expense.

Underground Group: This group had a loss of $7,318,000 in 2011 compared to a loss of $6,382,000 in 2010, a decrease of $936,000 or 14.7%. This group had an increase of $476,000 in gross profit during 2011 driven by the $11,829,000 increase in sales. The gross profit for the Underground Group was negatively impacted by charges of $2,162,000 related to the sale of the utility product line assets. Selling, general and administrative expenses increased $426,000 due primarily to increases in payroll related expenses, exhibit expense and the acquisition of GEFCO in the fourth quarter of 2011.

Other Group: The Other Group had a loss of $38,229,000 in 2011 compared to a loss of $27,579,000 in 2010, a decrease of $10,650,000 or 38.6%. Gross profit for this group increased $2,288,000 or 17.3% year over year due in part to $27,313,000 in increased sales for this group. The increased sales were offset by an increase in payroll and related expenses of $1,937,000 and the write down of aviation assets held for sale of $2,304,000. The profit in this group is also significantly impacted by U.S. federal income tax expense which is recorded at the parent company. Income tax expense in this group increased $3,859,000 in 2011 compared to 2010.

 
A-13

 
 

 
Liquidity and Capital Resources
 
The Company’s primary sources of liquidity and capital resources are its cash on hand, investments, borrowing capacity under a $100,000,000 revolving credit facility and cash flows from operations. The Company had $80,929,000 of cash available for operating purposes at December 31, 2012. In addition, the Company had no borrowings outstanding under its credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”) at any time during the year ended December 31, 2012. The Company had outstanding letters of credit of $13,113,000 and borrowing availability of $86,887,000 under the credit facility as of December 31, 2012.

During April 2007, the Company entered into an unsecured credit agreement with Wachovia Bank, National Association (“Wachovia”) whereby Wachovia extended to the Company an unsecured line of credit of up to $100,000,000 including a sub-limit for letters of credit of up to $15,000,000. Wachovia has subsequently been acquired by Wells Fargo Bank, N.A. (“Wells Fargo”) and therefore the credit agreement was transferred to Wells Fargo. The credit facility had an original term of three years with two one-year extensions available. The Company exercised the final extension in 2010 which extended the loan maturity date to May 2012. On April 12, 2012, the Company and certain of its subsidiaries entered into a new amended and restated credit agreement with Wells Fargo whereby Wells Fargo extended to the Company an unsecured line of credit of up to $100,000,000, including a sub-limit for letters of credit of up to $25,000,000. The new amended and restated credit agreement replaced the expiring $100,000,000 credit facility between the Company and Wells Fargo.  The new 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, which was equal to 0.96% at December 31, 2012. The unused facility fee is 0.175%. Interest only payments are due monthly.  The new amended and restated 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 was in compliance with these covenants as of December 31, 2012.

The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd (“Osborn”), has a credit facility of $8,837,000 (ZAR 75,000,000) 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, 2012, Osborn had no outstanding borrowings under the credit facility, but $3,388,000 in performance, advance payment and retention guarantees were issued under the facility. The facility is unsecured. As of December 31, 2012, Osborn had available credit under the facility of $5,449,000. The facility has an ongoing, indefinite term subject to periodic reviews by the bank. The interest rate is 0.25% below the South Africa prime rate, which was 8.5% at December 31, 2012.

The Company’s Australian subsidiary, Astec Australia Pty Ltd (“Astec Australia”), has a credit facility to finance short-term working capital needs of $104,000 (AUD 100,000) as well as a bank guarantee facility of $1,350,000 (AUD 1,300,000) to cover letters of credit. Additional banking arrangements are in place to finance foreign exchange dealer limit orders of up to $3,894,000 (AUD 3,750,000), secured by cash balances in the amount of $779,000 (AUD 750,000) and a $1,600,000 letter of credit issued by the parent Company. As of December 31, 2012, no amounts were outstanding under the credit facility, but $1,209,000 of letters of credit were outstanding under the bank guarantee facility. The interest rate is the Australian adjusted Bank Business Rate plus a margin of 1.05%. The interest rate was 11.17% at December 31, 2012.

 
A-14

 
 

 
Cash Flows from Operating Activities (in thousands)
 
   
2012
   
2011
   
Increase /
Decrease
 
Net income
  $ 40,368     $ 40,020     $ 348  
Adjustments:
                       
Depreciation and amortization
    23,048       19,259       3,789  
Provision for warranty
    11,152       13,029       (1,877 )
Asset impairment charges
    --       2,724       (2,724 )
Sale / purchase of trading securities, net
    (146 )     1,733       (1,879 )
Gain on sale of subsidiary
    (5,358 )     --       (5,358 )
Stock based compensation
    1,285       2,800       (1,515 )
Deferred income tax provision (benefits)
    6,150       (1,982 )     8,132  
Other, net
    511       1,101       (590 )
Changes in working capital:
                       
(Increase) decrease in receivables
    7,555       (24,554 )     32,109  
(Increase) decrease in inventories
    (40,133 )     (32,017 )     (8,116 )
(Increase) decrease in prepaid expenses
    (1,728 )     177       (1,905 )
Increase (decrease) in accounts payable
    (6,425 )     9,002       (15,427 )
Increase (decrease) in customer deposits
    4,918       6,235       (1,317 )
Increase (decrease) in accrued product warranties
    (11,021 )     (10,524 )     (497 )
Increase (decrease) in other accrued liabilities
    298       4,983       (4,685 )
Other, net
    (1,841 )     321       (2,162 )
Net cash provided by operating activities
  $ 28,633     $ 32,307     $ (3,674 )
 
Net cash provided by operating activities decreased $3,674,000 in 2012 compared to 2011. The primary reasons for the decrease in operating cash flows are increases in cash used to fund increases in inventory of $8,116,000 and prepaid expenses of $1,905,000, the gain on the sale of subsidiary of $5,358,000 and a use of cash relating to accounts payable of $15,427,000. These negative cash changes were offset by increases in cash from accounts receivable of $32,109,000 and deferred taxes of $8,132,000. These changes in operating cash flows reflect increased sales and production activity during 2012 compared to 2011 as well as planned inventory purchases made to fulfill the Company’s backlog.

Cash Flows from Investing Activities (in thousands)

   
2012
   
2011
   
Increase /
Decrease
 
Expenditures for property and equipment
  $ (26,018 )   $ (36,130 )   $ 10,112  
Business acquisitions
    --       (33,407 )     33,407  
Proceeds from sale of subsidiary
    42,940       --       42,940  
Other
    375       760       (385 )
Net cash provided (used) by investing activities
  $ 17,297     $ (68,777 )   $ 86,074  
 
Net cash used by investing activities in 2012 increased $86,074,000 compared to 2011 due primarily to a decrease in cash used for capital expenditures of $10,112,000, the use of cash in 2011 for business acquisitions of $33,407,000 and proceeds from the sale of subsidiary of $42,940,000 in 2012.

Cash Flows from Financing Activities (in thousands)
 
   
2012
   
2011
   
Increase /
Decrease
 
Payment of dividends
  $ (22,789 )   $ --     $ (22,789 )
Other, net
    317       885       (568 )
Net cash provided (used) by financing activities
  $ (22,472 )   $ 885     $ (23,357 )

 
A-15

 
 

 
Financing activities used cash of $22,472,000 in 2012 while in 2011 financing activities provided cash of $885,000 for a net change of $23,357,000 due primarily to the payment of a special one-time $1.00 per common share dividend in December 2012.

Capital expenditures for 2013, excluding those by the Company’s Brazilian operations, are forecasted to total $31,455,000. The Company expects to finance these expenditures using currently available cash balances, internally generated funds and available credit under the Company’s new credit facility. Capital expenditures are generally for machinery, equipment and facilities used by the Company in the production of its various products. The Company plans to construct a manufacturing facility in Brazil in 2013 with an expected cost of $20,000,000 and plans to fund the costs of the plant and equipment with borrowings from a local Brazilian bank. The Company believes that its current working capital, cash flows generated from future operations and available capacity under its credit facility will be sufficient to meet the Company’s working capital and capital expenditure requirements through December 31, 2013.

The Company sold American Augers, Inc. on November 30, 2012. Cash flows from the operations of American Augers are reflected in the statements of cash flows through the date of sale. Cash flows from the operations of American Augers were not material during the periods presented, and the absence of cash flows related to American Augers is not expected to impact the Company’s future liquidity or capital resources. See Note 21, Discontinued Operations, for additional information regarding the sale of American Augers.

Financial Condition

The Company’s current assets increased to $499,866,000 at December 31, 2012 from $485,554,000 at December 31, 2011, an increase of $14,312,000, or 2.9%. The increase is primarily attributable to increases in inventory of $9,557,000 and cash of $23,424,000, offset by a decrease in trade receivables of $12,346,000 and deferred income tax asset of $6,871,000.

The Company’s current liabilities decreased to $144,369,000 at December 31, 2012 from $154,022,000 at December 31, 2011, a decrease of $9,653,000.  The decrease is primarily attributable to decreases in accounts payable of $8,960,000, accrued payroll and related liabilities of $2,307,000 and accrued product warranty of $1,611,000.

Market Risk and Risk Management Policies

The Company is exposed to changes in interest rates, primarily from its revolving credit agreements. A hypothetical 100 basis point adverse move (increase) in interest rates would not have materially affected interest expense for the year ended December 31, 2012, since there were no amounts outstanding on the revolving credit agreements during the year. The Company does not hedge variable interest.

The Company is subject to foreign exchange risk at its foreign operations. Foreign operations represent 16.3% and 14.6% of total assets at December 31, 2012 and 2011, respectively, and 14.4% and 12.7% of total revenue for the years ended December 31, 2012 and 2011, respectively. Each period the balance sheets and related results of operations of the Company’s foreign subsidiaries are translated from their functional foreign currency into U.S. dollars for reporting purposes. As the dollar strengthens against those foreign currencies, the foreign denominated net assets and operating results become less valuable in the Company’s reporting currency. When the dollar weakens against those currencies, the foreign denominated net assets and operating results become more valuable in the Company’s reporting currency. At each reporting date, the fluctuation in the value of the net assets and operating results due to foreign exchange rate changes is recorded as an adjustment to other comprehensive income in equity. The Company views its investments in foreign subsidiaries as long-term and does not hedge the net investments in foreign subsidiaries.

From time to time the Company’s foreign subsidiaries enter into transactions not denominated in their functional currency. In these situations, the Company evaluates the need to hedge those transactions against foreign currency rate fluctuations. When the Company determines a need to hedge a transaction, the subsidiary enters into a foreign currency exchange contract. The Company does not apply hedge accounting to these contracts and, therefore, recognizes the fair value of these contracts in the consolidated balance sheets and the change in the fair value of the contracts in current earnings.

Due to the limited exposure to foreign exchange rate risk, a 10% fluctuation in the foreign exchange rates at December 31, 2012 or 2011 would not have a material impact on the Company’s consolidated financial statements.

 
A-16

 
 

 
Contractual Obligations

Contractual obligations and the period in which payments are due as of December 31, 2012 are as follows (in thousands):

   
Payments Due by Period
 
 
Contractual Obligations
 
Total
   
Less Than
1 Year
   
1 to 3 Years
   
3 to 5 Years
   
More Than
5 Years
 
Operating lease obligations
  $ 2,488     $ 1,302     $ 1,000     $ 185     $ 1  
Inventory purchase obligations
    3,283       2,220       1,063       --       --  
Total
  $ 5,771     $ 3,522     $ 2,063     $ 185     $ 1  
 
The above table excludes our liability for unrecognized tax benefits, which totaled $771,000 at December 31, 2012, since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.
 
In 2012, the Company made contributions of approximately $755,000 to its pension plan, compared to $483,000 in 2011. The Company estimates that it will contribute a total of $544,000 to the pension plan during 2013. The Company’s funding policy is to make the minimum annual contributions required by applicable regulations.

Contingencies

Management has reviewed all claims and lawsuits and has made adequate provision for any losses that can be reasonably estimated. 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.

Certain customers have financed purchases of the Company’s products through arrangements in which the Company is contingently liable for customer debt aggregating $2,091,000 and $3,537,000 at December 31, 2012 and 2011, respectively. These obligations have average remaining terms of 1.6 years. The Company has recorded a liability of $112,000 related to these guarantees at December 31, 2012.

The Company is contingently liable under letters of credit of approximately $17,710,000, primarily for performance guarantees to customers, banks or insurance carriers.

Off-balance Sheet Arrangements

As of December 31, 2012 the Company does not have off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
 
Environmental Matters

During 2004, the Company received notice from the Environmental Protection Agency 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 notice. 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.

 
A-17

 
 

 
Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Application of these principles requires the Company to make estimates and judgments that affect the amounts as reported in the consolidated financial statements. Accounting policies that are critical to aid in understanding and evaluating the results of operations and financial position of the Company include the following:

Inventory Valuation: Inventories are valued at the lower of cost or market. The most significant component of the Company’s inventories is steel. Open market prices, which are subject to volatility, determine the cost of steel for the Company. During periods when open market prices decline, the Company may need to reduce the carrying value of the inventory. In addition, certain items in inventory become obsolete over time, and the Company reduces the carrying value of these items to their net realizable value. These reductions are determined by the Company based on estimates, assumptions and judgments made from the information available at that time. The Company does not believe it is reasonably likely that the inventory values will materially change in the near future.

Self-Insurance Reserves: The Company insures the retention portion of workers’ compensation claims and general liability claims by way of a captive insurance company, Astec Insurance Company. The objectives of Astec Insurance are to improve control over and reduce retained loss costs; to improve focus on risk reduction with development of a program structure which rewards proactive loss control; and to ensure active management participation in the defense and settlement process for claims.

For general liability claims, the captive is liable for the first $1,000,000 per occurrence and $2,500,000 per year in the aggregate. The Company carries general liability, excess liability and umbrella policies for claims in excess of those covered by the captive.

For workers’ compensation claims, the captive is liable for the first $350,000 per occurrence and $3,000,000 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 probable claims related to general liability and workers’ compensation under the captive are included in accrued loss reserves and other long-term liabilities, respectively, in the consolidated balance sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined based on the Company’s evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.

At all but one of the Company’s domestic manufacturing subsidiaries, the Company is self-insured for health and prescription claims under its Group Health Insurance Plan. 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 health plans in accordance with their local governmental requirements. No reserves are necessary for these fully insured health plans.

 
A-18

 
 

 
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 machines, 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, 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 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 estimates, revisions to the estimated warranty liability would be required. The Company does not believe it is reasonably likely that the warranty reserve will materially change in the near future.

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 reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of product 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 through 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 it 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 determined using the fair value method and approximates the sales price of the product shipped or services performed. 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.

Goodwill and Other Intangible Assets: Intangible assets are classified into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization, and (3) goodwill. Intangible assets with definite lives are tested for impairment if conditions exist that indicate the carrying value may not be recoverable. Risk factors that may be considered include an economic downturn in the general economy, a geographic market or the commercial and residential construction industries, a change in the assessment of future operations as well as the cyclical nature of our industry and the customization of the equipment we sell, each of which may cause adverse fluctuations in operating results. Other risk factors considered would be an increase in the price or a decrease in the availability of oil that could reduce the demand for our products in addition to the significant fluctuations in the purchase price of raw materials that could have a negative impact on the cost of production and gross margins as well as others more fully described in the Risk Factors section of our Form 10-K. An impairment charge is recorded when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset. Some of the inputs used in the impairment testing are highly subjective and are affected by changes in business factors and other conditions. Changes in any of the inputs could have an effect on future tests and result in impairment charges.

 
A-19

 
 

 

Intangible assets with indefinite lives and goodwill are not amortized. Intangible assets and goodwill are tested for impairment annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. See Note 1, Summary of Significant Accounting Policies, for a detailed description of testing performed by the Company to determine if the recorded value of intangible assets or goodwill has been impaired.

The useful lives of identifiable intangible assets are determined after considering the specific facts and circumstances related to each intangible asset. Factors considered when determining useful lives include the contractual term of any agreement, 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, generally on a straight-line basis, over their useful lives, ranging from 5 to 15 years.
 
Stock-based Compensation: The Company currently has two types of stock-based compensation plans in effect for its employees and directors. The Company’s stock option plans have been in effect for a number of years; however, no options have been granted under the plans since 2006. The Company’s original five year stock incentive plan was put in place during 2006 for the years ended 2006 through 2011. The Company’s 2011 Incentive Plan was approved by the shareholders in their annual meeting held in April 2011. This plan operates in similar fashion to the Company’s 2006 Incentive Plan for each of the five years ending December 31, 2015. These plans are more fully described in Note 16, Shareholders’ Equity, to the consolidated financial statements. Restricted stock units (“RSU’s”) awarded under the Company’s stock incentive plans are granted shortly after the end of each year and are based upon the performance of the Company and its individual subsidiaries. Under the 2011 Incentive Plan, RSU’s can be earned for performance in each of the years from 2011 through 2015 with additional RSU’s available based upon cumulative five-year performance. The Company estimates the number of shares that will be granted for the most recent fiscal year and the five-year cumulative performance based on actual and expected future operating results. The compensation expense for RSU’s expected to be granted for the most recent fiscal year and the cumulative five-year based awards is calculated using the fair value of the Company stock at each period end and is adjusted to the fair value as of each future period end until granted. Generally, each award will vest on the earlier of the end of five years from the date of grant or at such time as the recipient retires after reaching age 65. Estimated forfeitures are based upon the expected turnover rates of the employees receiving awards under the plan.

Recent Accounting Pronouncements

There are no recently promulgated accounting pronouncements (either recently adopted or yet to be adopted) that are likely to have a material impact on the Company’s financial reporting in the foreseeable future. See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements.

 
A-20

 
 

 
Forward-Looking Statements

This annual report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements contained anywhere in this Annual Report that are not limited to historical information are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding:
 
execution of the Company’s growth and operation strategy;
plans for technological innovation;
compliance with covenants in our credit facility;
liquidity and capital expenditures;
 sufficiency of working capital, cash flows and available capacity under the Company’s credit facilities;
compliance with government regulations;
compliance with manufacturing and delivery timetables;
forecasting of results;
general economic trends and political uncertainty;
government funding and growth of highway construction and commercial projects;
taxes or usage fees;
interest rates;
integration of acquisitions;
industry trends;
pricing, demand and availability of oil and liquid asphalt;
pricing, demand and availability of steel;
development of domestic oil and natural gas production;
condition of the economy;
strength of the dollar relative to foreign currencies;
the success of new product lines;
presence in the international marketplace;
suitability of our current facilities;
future payment of dividends;
competition in our business segments;
product liability and other claims;
protection of proprietary technology;
demand for products;
future fillings of backlogs;
employees;
the seasonality of our business;
tax assets and reserves for uncertain tax positions;
critical accounting policies and the impact of accounting changes;
anticipated start-up dates for our Brazilian operations;
our backlog;
ability to satisfy contingencies;
contributions to retirement plans and plan expenses;
reserve levels for self-insured insurance plans and product warranties;
construction of new manufacturing facilities;
supply of raw materials; and
inventory.

These forward-looking statements are based largely on management’s expectations, which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this report and in documents filed by the Company with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements to reflect future events or circumstances. You can identify these statements by forward-looking words such as “expect”, “believe”, “anticipate”, “goal”, “plan”, “intend”, “estimate”, “may”, “will”, “should” and similar expressions.

 
A-21

 
 


In addition to the risks and uncertainties identified elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission, the following factors should be carefully considered when evaluating the Company’s business and future prospects: changes or delays in highway funding; rising interest rates; changes in oil prices; changes in steel prices; changes in the general economy; unexpected capital expenditures and decreases in liquidity; the timing of large contracts; production capacity; general business conditions in the industry; non-compliance with covenants in the Company’s credit facilities; demand for the Company’s products; and those other factors listed from time to time in the Company’s reports filed with the Securities and Exchange Commission. Certain of the risks, uncertainties and other factors discussed or noted above are more fully described in the section entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
A-22

 
ASTEC INDUSTRIES, INC.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of Astec Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on its assessment, management concluded that, as of December 31, 2012, the Company’s internal control over financial reporting was effective.

Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2012.
 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Astec Industries, Inc.
 
We have audited Astec Industries, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Astec Industries, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Astec Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Astec Industries, Inc. and the related consolidated statements of income, comprehensive income, equity and cash flows for the year ended December 31, 2012 and our report dated March 1, 2013 expressed an unqualified opinion thereon.
Chattanooga, Tennessee
March 1, 2013
 
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Astec Industries, Inc.
 
We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. as of December 31, 2012 and 2011 and the related consolidated statements of income, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Astec Industries, Inc. at December 31, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Astec Industries, Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2013 expressed an unqualified opinion thereon.
Chattanooga, Tennessee
March 1, 2013
 
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CONSOLIDATED BALANCE SHEETS
(in thousands)

   
December 31
 
Assets
 
2012
   
2011
 
             
Current assets:
           
Cash and cash equivalents
  $ 80,929     $ 57,505  
Trade receivables, less allowance for doubtful accounts of $2,143 in 2012 and $2,398 in 2011
    85,595       97,941  
Other receivables
    3,453       4,119  
Inventories
    308,622       299,065  
Prepaid expenses
    8,593       7,032  
Deferred income tax assets
    9,985       16,856  
Other current assets
    2,689       3,036  
Total current assets