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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-01 · 185 added, 197 removed, 168 unchanged (69% of the section changed)

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Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual R eport on Form 10-K for the year ended December 31, 201 9 .

Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2020 .

The financial condition and results of operations discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations are those of Astec Industries, Inc.

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Highlights of our financial results as of and for the year ended December 31, 2021 as compared to the same period of the prior year include the following:

• Net sales were $1,024.4 million, a decrease of 12.4%

• Net sales were $1,097.2 million, an increase of 7.1%

• Gross profit was $251.7 million, an increase of 4.8%

• Income from operations increased $17.9 million to $43.0 million

• Net income attributable to Astec increased to $46.9 million, or 110.3%

• Diluted earnings per share were $2.05, an increase of 109.2%

• Income from operations decreased $20.9 million to $22.1 million

• Net income attributable to Astec decreased to $17.8 million, or 62.0%

• Diluted earnings per share were $0.78, a decrease of 62.0%

Significant Items Impacting Operations in 2021

Segment Updates

The Company consists of a total of 33 compani es that are included in our consolidated financial statements, of which 25 represent our manufacturing sites and sites that operate as sales offices for our manufacturing locations.

During the first quarter of 2020, we completed an internal reorganization focused on transitioning from a decentralized management structure to a more centralized structure with major directives and decisions being made at the segment and/or parent company level.

As a result of this reorganization, we realigned our reportable segments moving from three to two reportable segments (plus Corporate) - Infrastructure Solutions and Materials Solutions.

Our two reportable business segments comprise sites based upon the nature of the products 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 Corporate category consists of our parent company and Astec Insurance Company ("Astec Insurance"), a captive insurance company, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments.

We evaluate performance and allocate resources to our operating segments based on profit or loss from operations before United States ("U.S.") federal income taxes, state deferred taxes and corporate overhead and, thus, these costs are included in the Corporate category.

Amounts previously reported under the previous segment structure have been restated to conform to the new segment structure.

Additionally, in both internal and external communications, we are transitioning references to each individual site by a name associated with its location, as compared to previous references to the individual subsidiary company name.

COVID-19 Pandemic

The COVID-19 pandemic has caused significant disruptions to national and global economies.

based businesses are designated as essential businesses for critical infrastructure companies by the U.S.

Department of Homeland Security and, as such, have remained open throughout the pandemic.

Two of our foreign operations in the Materials Solutions segment, located in Northern Ireland and South Africa, as dictated by their local governments, temporarily ceased manufacturing activities in late March 2020.

The South Africa site reopened on May 4, 2020, and the Northern Ireland facility reopened on May 11, 2020.

Our top priority is to protect our employees and their families, our customers and suppliers and our operations from any adverse impacts by taking precautionary measures as directed by health authorities and local governments.

In early March 2020, we formed a COVID-19 task force, which continually monitors information from government agencies, our sites, customers, suppliers and other sources.

We have enacted several policies to combat the spread of the virus and keep our employees and visitors safe, including work at home initiatives, limits on employee travel, visitors policies, cleaning and disinfecting procedures and mandated temperature checks for visitors and employees.

We are utilizing technology to hold meetings virtually as business permits.

During 2020, our sales and profits were negatively impacted by the COVID-19 pandemic, and it may continue to negatively disrupt our business and results of operations in the future.

The full extent of the COVID-19 pandemic on our operations and the markets we serve remains highly uncertain and will depend largely on future developments related to the COVID-19 pandemic, including infection rates increasing or returning in various geographic areas, the ultimate duration of the COVID-19 pandemic, actions by government authorities to contain the outbreak or treat its impact, such as re-imposing previously lifted measures or putting in place additional restrictions, and the widespread distribution and acceptance of an effective vaccine, among other things.

These developments are constantly evolving and cannot be accurately predicted.

The COVID-19 pandemic has caused significant disruptions to national and global economies and to our business.

While our businesses have generally remained operational throughout the pandemic, with temporary closures in the United Kingdom and South Africa early in the pandemic, our business has been significantly affected by the contributory effects of the pandemic such as decreased demand for our products in 2020, material price increases, increased lead times from production materials, supplies and parts and labor shortages.

These trends continue to impact our business today and may continue to impact our business in the near-term.

We have also taken precautions to protect our employees and their families and our customers and suppliers from COVID-19 and continually monitor the markets in which we operate for the effects of COVID-19 and the related actions of governments and other authorities to contain COVID-19.

The COVID-19 pandemic may continue to negatively disrupt our business and results of operations in the future.

The ongoing impact of the COVID-19 pandemic on our operations and the markets we serve remains uncertain due to constantly evolving developments including, but not limited to, government directives, treatment availability and acceptance, vaccine mandates and the spread of new variants, such as the Delta and Omicron variants, and cannot be accurately predicted.

See Part I, Item 1A.

Risk Factors in this Annual Report on Form 10-K.

Facility Closures

AMM - In 2018, management decided to close and cease operations at AMM, located in Germany.

Operations ceased in 2019, and its land and building were sold in January 2020.

Albuquerque - In late 2019, we announced the closing of our Albuquerque site due to market conditions and underutilization of the manufacturing facility.

Responsibilities for manufacturing and marketing of Albuquerque product lines were transferred to other facilities within the Infrastructure Solutions segment in late 2019 and early 2020.

The Albuquerque site was closed as of March 31, 2020, and its land and building were sold in the third quarter of 2020.

Enid - In late 2019, we impaired and discontinued Enid's oil and gas drilling product lines and sold the remaining assets in the third quarter of 2020.

In October 2020, we sold the assets related to Enid's remaining water well line of business.

Enid's land and building are currently being marketed for sale.

Mequon - In June 2020, we announced the closing of our Mequon facility in order to simplify and consolidate operations.

The Mequon facility ceased production operations in August 2020, and we entered into a real estate sales agreement for the sale of the land and building at the Mequon site.

The sale closed in December 2020, and we entered into a short-term lease of the facilities to complete the transfer of the manufacturing and marketing for the Mequon product lines to other facilities within the Materials Solutions segment in late 2020.

Tacoma - In January 2021, we announced plans to close our Tacoma facility in order to simplify and consolidate operations.

We expect the Tacoma facility to cease operations in the second quarter of 2021.

Manufacturing and marketing of Tacoma product lines are expected be transferred to other facilities within the Infrastructure Solutions segment in mid-2021.

Blair - We entered into a Stock Purchase Agreement, dated as of July 20, 2020, by and between Oshkosh Corporation for the purchase of the CON-E-CO ("Blair") concrete equipment company in Nebraska.

The purchase price was $13.8 million, after adjustments, and was paid in cash.

Bruno - We entered into a Share Purchase Agreement, dated as of August 3, 2020, by and between BMH Systems Corporation ("St.

Bruno") for the purchase of the concrete equipment company in Quebec, Canada.

The purchase price was $15.7 million, after adjustments, and was paid in cash.

Grathwol - On November 2, 2020, we closed a transaction pursuant to which we purchased certain assets of Grathwol Automation, LLC ("Grathwol").

Grathwol is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services.

The acquisitions of Blair and St.

Bruno broaden our line of concrete batch plant manufacturing, which is expected to strengthen the Infrastructure Solutions segment.

The Grathwol asset purchase is intended to support the enhancement of our products and services through controls and automation.

Corporate Strategic Objectives

In 2020, new business strategies, as well as a new operating structure, were implemented across the Company.

The three pillars that frame our business strategy are "Simplify, Focus and Grow".

We will "Simplify" by leveraging our global footprint and scale while maintaining strong customer relationships, reducing the complexity of the organizational structure, consolidating and rationalizing our product portfolio and optimizing the supply chain by leveraging our size and scale.

Our "Focus" will be to strengthen the customer-centric approach by providing a holistic set of solutions while driving commercial and operational excellence as well as enhanced accountability through a performance-based culture with key performance indicators and incentives.

We will "Grow" by capitalizing on global growth opportunities, reinvigorating innovation with a new product development approach and leveraging technology and digital connectivity to enhance our customer experience and effectively allocate capital to drive increased shareholder value.

Closure of Tacoma Facility

In January 2021, management announced plans to close the Tacoma facility.

The Tacoma facility ceased manufacturing operations at the end of 2021.

The transfer of the manufacturing and marketing of the Tacoma product lines to other facilities within the Infrastructure Solutions segment is expected to be completed during early 2022.

Simplify, Focus and Grow Strategic Transformation ("SFG")

Beginning in late 2019, we initiated a strategic transformation initiative focused on implementing new business strategies and a new operating structure.

This transformation is concentrated on aligning our operations under the OneASTEC business model with the strategic pillars of Simplify, Focus and Grow.

SFG is an ongoing, multi-year program with the primary goals of optimizing our manufacturing footprint and centralizing our business into common platforms and operating models to reduce complexity and cost, improve productivity and embed continuous improvement in our processes.

These efforts are considered critical to enabling us to operate competitively and supporting future growth, which are expected to broadly benefit our customers, partners, employees and shareholders.

Since initiating SFG, we have consolidated certain of our sites as a key part of these initiatives.

Site consolidation costs including headcount reductions, inventory movement and facility shut-down costs are included in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations.

In addition, in late 2020 we launched a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across our global organization, which will replace much of our existing disparate core financial systems.

The upgraded ERP will initially convert our internal operations, manufacturing, finance, human capital resources management and customer relationship systems to cloud-based platforms.

This new ERP system will provide for standardized processes and integrated technology solutions that enable us to better leverage automation and process efficiency.

An implementation of this scale is a major financial undertaking and will require substantial time and attention of management and key employees.

Costs incurred during 2021 were $13.4 million, which represent costs directly associated with the SFG initiative and which cannot be capitalized in accordance with U.S.

These costs are included in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.

Industry and Business Condition

Our financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets we serve.

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 and changes in the prices of liquid asphalt, oil and natural gas and steel.

In addition, many of our markets are highly competitive, and our products compete worldwide with a number of other manufacturers and dealers that produce and sell similar products.

We ended 2020 with a strong backlog of orders, which has grown throughout 2021 across our global organization as well as in both the Infrastructure Solutions and Materials Solutions segments.

The backlog of orders as of December 31, 2021 was $762.6 million compared to $360.5 million as of December 31, 2020, an increase of $402.1 million or 111.5%.

Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of COVID-19 as well as in anticipation of future infrastructure investment by the United States' government under the Infrastructure Investment and Jobs Act ("IIJA") enacted in November 2021.

Additionally, we are continuing to experience constrained production cycles due to increased lead times for certain production materials, parts and supplies and manufacturing labor shortages which have and may continue to impact our ability to satisfy the orders in our backlog in a manner that meets the timelines of our customers.

Federal funding provides a significant portion of all highway, street, roadway and parking construction in the United States.

We believe that federal highway funding influences the purchasing decisions of our customers, who are typically more amenable to making capital equipment purchases with long-term federal legislation in place.

Federal transportation funding under the Fixing America's Surface Transportation Act ("FAST Act"), which was set to expire on September 30, 2020, was temporarily extended for one year through September 30, 2021.

We believe a multi-year highway program (such as the FAST Act) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects.

Given the inherent uncertainty in the political process, the level of governmental funding for federal highway projects will similarly continue to be uncertain.

Although continued funding under the FAST Act or funding of a bill passed by the current administration is expected, it may be at lower levels than originally approved or anticipated.

Federal transportation funding under the Fixing America's Surface Transportation Act expired December 3, 2021.

As noted above, the U.S.

government enacted the IIJA in November 2021.

The IIJA allocates $548 billion in government spending to new infrastructure over the five-year period concluding in 2026, with certain amounts specifically allocated to fund highway and bridge projects.

We believe that multi-year highway programs (such as the IIJA) will have the greatest positive impact on the road construction industry and allow our customers to plan and execute longer-term projects.

Significant portions of our revenues from the Infrastructure Solutions segment relate to the sale of equipment involved in the production, handling, recycling or application of asphalt mix.

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An increase or decrease in the price of oil impacts the cost of asphalt, which is likely to alter demand for asphalt and therefore affect demand for certain of our products.

While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of recycled asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer.

While increasing oil prices may have a negative financial impact on many of our customers, our equipment can use a significant amount of reclaimed asphalt pavement, thereby partially mitigating the effect of increased oil prices on the final cost of asphalt for the customer.

We continue to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt.

Oil price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline.

While oil prices have increased throughout 2021, its price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline.

Oil prices have routinely fluctuated in recent years and are expected to continue to fluctuate in the future.

In 2021, we expect that with increasing demand from the rebound of industrial activity after the slowdown experienced in 2020 with the COVID-19 pandemic that prices will increase in 2021.

Based on the current macroeconomic environment, we expect prices will continue to increase into 2022.

Steel is a major component of our equipment.

With a drop in demand, similar to oil, steel prices declined during the first half of 2020 with increased pricing starting in the later part of the year.

We expect steel pricing to significantly strengthen entering 2021 amidst demand improvement and continued supply constraints.

We continue to utilize strategies that include forward-looking contracts and advanced steel purchases to ensure supply and minimize the impact of price volatility.

With a drop in supply, similar to oil, steel prices began increasing in the latter part of 2020 and have continued to increase throughout the year.

As a result, we have experienced a rising cost of steel throughout 2021.

We anticipate that steel demand will remain strong into 2022, bolstered by the IIJA.

However, we expect new steelmaking capacity to enter the market in 2022 moving us towards a more historical balance of supply and demand, thus slowing the pace of price inflation we experienced in 2021.

In response to these factors, we continue to employ flexible strategies to ensure supply and minimize the impact of price volatility.

Ongoing constraints in the supply of certain steel products will continue pressuring the availability of other components used in our manufacturing process.

Furthermore, given the recent volatility of steel prices and the nature of our customers' orders, we are often not able to pass through all of the increases in steel costs to our customers, which negatively impacts our gross profit.

We actively manage our global supply chain for any identified constraints and volatility.

Challenges related to our supply chain, including potential labor shortages at our vendors and logistics partners and the availability of shipping containers, cargo ships and unloading space, have continued to drive increased lead times for certain components used in our manufacturing processes.

We cannot estimate the full impact that any future disruptions might have on our operations.

We will continue to monitor potential future supply costs and availability.

In addition, we have experienced a shortage of necessary production personnel and increasing labor costs to attract staff in our manufacturing operations.

This has resulted in a variety of challenges in running our operations efficiently to meet strong customer demand.

We continue to adjust our production schedules and manufacturing workload distribution, outsource components, implement efficiency improvements and actively modify our recruitment process and compensation and benefits to attract and retain production personnel in our manufacturing facilities.

Whenever possible, we attempt to cover increased costs of production by adjusting the prices of our products.

Backlog fulfillment times from the initial order to completing the contracted sale vary and can extend past twelve months.

For this reason, we have limitations on our ability to pass on cost increases to our customers on a short-term basis.

In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases.

Through our operational excellence initiatives, we also strive to minimize the effect of inflation through cost reductions and improved manufacturing efficiencies.

Results of Operations:

Net sales decreased $145.2 million or 12.4% to $1,024.4 million in 2020 from $1,169.6 million in 2019.

Sales are generated primarily from new equipment purchases made by customers for use in construction of privately funded infrastructure, public sector spending on infrastructure and sales of equipment for the aggregate, mining, quarrying and recycling markets.

Excluding the $20.0 million wood pellet plant sale recorded in the second quarter of 2019, total net sales decreased $125.2 million or 10.9%.

Domestic sales for 2020 were $817.0 million or 79.8% of net sales compared to $908.5 million or 77.7% of net sales for 2019, a decrease of $91.5 million or 10.1%.

Excluding the 2019 sale of a wood pellet plant, domestic sales for 2020 were $817.0 million or 79.8% of net sales compared to $888.5 million or 77.3% of net sales for 2019, a decrease of $71.5 million or 8.0%.

We experienced decreased domestic sales for both our Infrastructure Solutions and Materials Solutions segments during 2020, including for the discontinuation of oil and gas drilling product lines and exit of our Enid site.

International sales for 2020 were $207.4 million or 20.2% of net sales compared to $261.1 million or 22.3% of net sales for 2019, a decrease of $53.7 million or 20.6%.

Sales of Infrastructure Solutions related equipment between periods increased while equipment sold by the Materials Solutions segment decreased between 2019 and 2020.

Reported sales for 2020 were lower by $19.7 million for our Omagh site, which experienced a government mandated temporary closure.

The remaining sales decreases came from various other government mandated shutdowns in the countries in which we operate.

Parts sales for 2020 were $300.5 million or 29.3% of net sales compared to $319.1 million or 27.3% of net sales for 2019, a decrease of $18.6 million or 5.8%.

The Infrastructure Solutions segment experienced increased parts sales in 2020 as compared to 2019 while parts sales by the Materials Solutions segment decreased.

Gross profit for 2020 was $240.1 million or 23.4% of net sales as compared to $239.4 million or 20.5% of net sales in 2019, an increase of $0.7 million or 0.3%.

Excluding the 2019 sale of a wood pellet plant, the 2020 gross profit was $240.1 million or 23.4% of net sales compared to $219.4 million or 19.1% of net sales for 2019, an increase of $20.7 million or 9.4%.

Overall gross margins were positively impacted by a change in sales mix that resulted in increased sales of higher margin products as a percentage of total sales in 2020.

Selling, General and Administrative Expense

Selling, general and administrative expense for 2020 was $166.9 million or 16.3% of net sales compared to $183.9 million or 15.7% of net sales for 2019, a decrease of $17.0 million or 9.2%, primarily due to decreased consulting fees, travel and employee-related expenses and the closure of our Mequon site during 2020, which reduced costs by $5.6 million.

These decreases were partially offset by increased costs from the acquisitions of Blair and St.

Research and Development

Research and development expenses decreased $5.1 million or 18.8% to $22.1 million in 2020 from $27.2 million in 2019.

During 2020, we presented various new and/or improved equipment models from the 2019 research and development spending while continuing our 2020 effort on research and development of new products and improvements to existing product lines as well as adaptation of those products to other markets.

Due to COVID-19 constraints and the ongoing restructuring, these expenses were reduced during 2020.

Net sales increased $72.8 million or 7.1% to $1,097.2 million in 2021 from $1,024.4 million in 2020.

The increase was primarily driven by changes in the volume, pricing and mix of sales that generated increases in equipment and parts and component sales of $45.2 million and $29.8 million, respectively, partially offset by decreases in used equipment and service and equipment installation sales of $7.3 million and $3.4 million, respectively.

Additionally, we recognized $33.1 million of net incremental sales from acquired businesses partially offset by reduced sales from the exit of our Enid oil and gas drilling product lines of $25.0 million.

Sales reported by our foreign subsidiaries in U.S.

dollars for 2021 would have been $11.6 million lower had exchange foreign exchange rates been the same as 2020 rates.

Domestic sales for 2021 were $842.1 million or 76.7% of net sales compared to $817.0 million or 79.8% of net sales for 2020, an increase of $25.1 million or 3.1%.

Domestic sales increased primarily due to:

(i) net incremental sales of $26.0 million from acquired businesses, (ii) $19.1 million higher equipment sales, and (iii) $14.6 million of higher parts and components sales.

These increases were partially offset by:

(i) reduced sales from the exit of our Enid oil and gas drilling product lines of $24.0 million, (ii) lower used equipment sales of $6.2 million and (iii) reduced service and equipment installation sales of $4.2 million.

International sales for 2021 were $255.1 million or 23.3% of net sales compared to $207.4 million or 20.2% of net sales for 2020, an increase of $47.7 million or 23.0%.

International sales increased primarily due to:

(i) $26.1 million higher equipment sales mainly from COVID-19 related temporary site closures in the prior year, (ii) $15.2 million of higher parts and components sales and (iii) net incremental sales of $7.1 million from acquired businesses.

Consolidated gross profit for 2021 was $251.7 million or 22.9% of net sales as compared to $240.1 million or 23.4% of net sales in 2020, an increase of $11.6 million or 4.8%.

The increase was primarily driven by:

(i) the impact of net favorable volume, pricing and mix that generated $39.8 million higher gross profit, (ii) $16.8 million in manufacturing efficiencies, (iii) net incremental gross profit of $5.6 million from acquired businesses and (iv) reduced costs from the exit of our Enid oil and gas drilling product lines of $2.9 million.

These increases were partially offset by the impact of inflation on materials, labor and overhead of $53.5 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for 2021 were $200.6 million or 18.3% of net sales compared to $166.9 million or 16.3% of net sales for 2020, an increase of $33.7 million or 20.2%, primarily due to:

(i) increased costs for centralization and infrastructure efforts associated with our transformation initiatives, (ii) $12.9 million of higher technology and software licensing costs, (iii) $5.4 million of incremental expenses for acquired businesses and (iv) $2.1 million of higher amortization expense.

These increases were partially offset by decreases of $7.1 million for reduced expenses associated with closed locations and $4.9 million of lower trade show and promotional expenses.

Research and Development Expenses

Research and development expenses increased $4.4 million or 19.9% to $26.5 million in 2021 from $22.1 million in 2020.

During 2021, we increased efforts related to research and development of new products and improvements to existing product lines as well as adaptation of those products to other markets as compared to prior year that experienced COVID-19 constraints and restructuring.

Restructuring, Impairment and Other Asset Charges, Net

In late 2019, we began the process of restructuring and right-sizing in conjunction with our overall strategic transformation.

Restructuring, impairment and other asset charges for the year ended December 31, 2020 and 2019 are presented below:

We are in the process of a strategic transformation under which we have completed various restructuring and right-sizing actions.

Restructuring, asset impairment charges and the net gain on the sale of property and equipment for the year ended December 31, 2021 and 2020 are presented below:

Years Ended December 31,

(in millions) 2021 2020

Restructuring related charges:

Costs associated with exiting the wood pellet business $ — $ 0.5

Costs associated with closing AMM 0.3 1.3

Costs associated with closing Albuquerque 1.3 —

Costs associated with closing Mequon 3.3 —

Costs associated with closing Enid 2.5 —

Restructuring charges:

Costs associated with closing Tacoma $ 1.6 $ 0.9

Costs associated with closing Enid 0.7 2.5

Costs associated with closing Mequon 0.6 3.3

Costs associated with closing Albuquerque — 1.3

Costs associated with closing AMM — 0.3

Workforce reductions at multiple sites — 1.3

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Asset impairment charges:

Goodwill impairment charges 1.6 —

Airplane impairment charges — 2.3

Goodwill impairment charges — 1.6

Other impairment charges 0.2 0.5

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Restructuring, impairment and other asset charges, net $ 2.5 $ 8.1

In the first quarter of 2020, as part of our ongoing assessment to consider whether events or circumstances had occurred that could more likely than not reduce the fair value of a reporting unit below its carrying value, we performed an interim goodwill impairment test as of March 31, 2020 over the mobile asphalt equipment reporting unit.

Based on the results of this testing, we recorded a $1.6 million pre-tax non-cash impairment charge in the Infrastructure Solutions segment to fully impair the mobile asphalt equipment reporting unit's goodwill.

During 2020, we impaired one of our Company's airplanes in advance of preparation for sale.

The airplane is recorded as held for sale as of December 31, 2020.

Gain on sale of property and equipment primarily reflects a gain on the sale of land and building from the Mequon site for $4.7 million recorded in December 2020.

Other income increased $2.3 million or 766.7% to $2.6 million in 2020 from $0.3 million in 2019 due primarily to the recognition of a gain on the sale of a business of $1.6 million from the disposal of Enid's oil, gas and water well product lines.

In addition, we recorded a curtailment gain on the postretirement benefit plan for our Mequon site in conjunction with the closure.

Income tax benefit for the year ended December 31, 2020 was $1.2 million compared to income tax expense of $3.0 million for 2019.

See Note 22, "Strategic Transformation and Restructuring, Impairment and Other Asset Charges", of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of the individual restructuring actions taken and the impairment charges recorded.

Income Tax Provision

Income tax benefit for the year ended December 31, 2021 was $1.4 million compared to income tax benefit of $1.2 million for 2020.

The effective tax rates for 2021 and 2020 were (8.5)% and (2.6)%, respectively.

Our tax rates are affected by recurring items which are generally consistent from period to period, as well as discrete items that may occur in any given period but are not consistent from period to period.

The items having the most significant impact on the effective tax rate for 2020 include a benefit of $9.5 million from a carryback of its 2018 net operating loss ("NOL") to prior years.

The Coronavirus Aid, Relief and Economic Security ("CARES") Act, enacted and signed into law on March 27, 2020, contained modifications to NOL carryback provisions and allowed us to carryback our 2018 NOL recorded at a 21% statutory tax rate to prior tax years.

This carryback to tax years with a higher statutory rate of 35% resulted in the tax benefit.

Also impacting the effective tax rate was a benefit of $4.3 million for research and development tax credits and expense of $4.0 million related to unrecognized tax benefits for tax positions taken in 2020.

The items having the most significant impact on the effective tax rate for 2021 include a benefit from net releases of valuation allowances of $8.1 million primarily related to net operating losses ("NOLs"), where deductions exceed taxable income, at our Brazilian subsidiary, the dissolution of Astec Mobile Machinery GmbH ("AMM") during the year and a benefit of $4.1 million for research and development tax credits.

These benefits were partially offset by a $4.4 million change in the NOLs of our foreign entities.

Significantly impacting the 2020 income tax benefit was a net discrete tax benefit of $9.5 million resulting from provisions of the Coronavirus Aid, Relief and Economic Security Act ("CARES Act").

Among other provisions, the CARES Act modified the NOL carryback provisions, which allowed us to carryback its 2018 NOL to prior tax years.

This change not only favorably impacted the timing of the NOL benefit, but also increased the tax benefit amount as the federal tax rates in the prior years (35%) were higher than the current federal tax rate (21%).

The backlog of orders at December 31, 2021 was $762.6 million compared to $360.5 million at December 31, 2020, an increase of $402.1 million or 111.5%.

The increase in the backlog of orders was due to an increase in domestic backlog of $86.2 million or 44.3% and an increase in international backlog of $10.6 million or 15.4%.

The Infrastructure Solutions segment's backlogs increased $28.6 million or 15.1% from 2019;

and the Materials Solutions segment's backlog increased $68.2 million or 92.0% from 2019 levels.

Domestic and international backlogs increased $346.4 million or 123.4% and $55.7 million or 69.7%, respectively.

The backlog increased $231.1 million to $449.3 million in the Infrastructure Solutions segment and increased $171.0 million to $313.3 million in the Materials Solutions segment.

Increased orders were driven by pent-up demand, both customer retail and dealer inventory replenishment, following economic uncertainty in 2020 as a result of COVID-19 as well as in anticipation of future infrastructure investment by the United States' government combined with slower production cycles due to increased lead times for certain production materials, parts and supplies and manufacturing labor shortages.

Net Sales by Segment

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Infrastructure Solutions

Sales in this segment decreased $61.8 million or 8.1%.

Domestic sales for the Infrastructure Solutions segment decreased $65.8 million or 10.1% for 2020 compared to the same period in 2019.

The decrease was primarily driven by the lost sales impact from the closure and exit of Enid of $21.1 million and the non-recurring sale of the Georgia Pellet Plant in the second quarter of 2019 of $20.0 million.

The remaining decrease in domestic sales for the Infrastructure Solutions segment was due to general economic uncertainties.

International sales for the Infrastructure Solutions segment increased $4.0 million or 3.6% for 2020 compared to the same period in 2019.

Parts sales for the Infrastructure Solutions segment increased 2.2% for 2020 compared to the same period in 2019.

Infrastructure Solutions also increased for the incremental sales associated with the Blair and St.

Bruno acquisitions.

Sales in this segment were $748.0 million for 2021 compared to $702.8 million for 2020, an increase of $45.2 million or 6.4%.

The increase was primarily driven by a positive impact of changes in the volume, pricing and mix of sales that generated increases in equipment and parts and components sales of $28.8 million and $18.0 million respectively, partially offset by decreases in used equipment and service and equipment installation sales of $6.3 million and $2.8 million, respectively.

Domestic sales for the Infrastructure Solutions segment increased by $13.0 million or 2.2% for 2021 compared to 2020 primarily due to (i) $26.0 million of net incremental sales from acquired businesses, (ii) increased equipment sales of $14.2 million and (iii) increased parts and component sales of $6.1 million.

These increases were partially offset by:

(i) reduced sales from the exit of our Enid oil and gas drilling product lines of $24.0 million, (ii) $4.8 million of lower used equipment sales and (iii) $3.5 million of lower service and equipment installation sales.

International sales for the Infrastructure Solutions segment increased $32.2 million or 28.2% for 2021 compared to 2020 driven by:

(i) increased equipment sales of $14.6 million, (ii) increased parts and component sales of $11.9 million and (iii) $7.1 million of net incremental sales from acquired businesses.

Materials Solutions

Sales in this segment decreased $83.4 million or 20.6%.

The decrease was driven by the temporary site closures of Omagh and Johannesburg during 2020 for COVID-19 combined with general economic uncertainties.

Domestic sales for the Materials Solutions segment decreased by $25.7 million or 10.1% for 2020 compared to the same period in 2019, which was driven by the lower sales of our crushing and screening projects.

International sales for the Materials Solutions segment decreased $57.7 million or 38.2% for 2020 compared to the same period in 2019 due to COVID-19 plant related temporary shutdowns, as well as the impact from the strong U.S.

dollar causing our products produced in the United States to be more expensive.

Parts sales for this segment decreased 18.8% for 2020 compared to the same period in 2019.

Sales in this segment were $349.2 million for 2021 compared to $321.6 million for 2020, an increase of $27.6 million or 8.6% driven by the favorable impact of changes in volume, pricing and mix of sales that generated increases in equipment and parts and components sales of $16.4 million and $11.8 million, respectively.

Domestic sales for the Materials Solutions segment increased $12.1 million or 5.3% for 2021 compared to 2020 primarily due to increased parts and component sales of $8.5 million and increased equipment sales of $5.0 million partially offset by lower used equipment sales.

International sales for the Materials Solutions segment increased $15.5 million or 16.6% for 2021 compared to 2020 primarily due to increased equipment sales of $11.4 million and increased parts and component sales of $3.3 million related to the recovery from COVID-19 related temporary site closures in the prior year.

Segment Profit (Loss)

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(in millions) 2021 2020 $ Change % Change

Infrastructure Solutions Group $ 53.8 $ 33.8 $ 20.0 59.2 %

Materials Solutions Group $ 32.1 $ 22.8 $ 9.3 40.8 %

Infrastructure Solutions $ 53.0 $ 53.8 $ (0.8) (1.5) %

Materials Solutions $ 29.3 $ 32.1 $ (2.8) (8.7) %

Corporate $ (64.8) $ (40.1) $ (24.7) (61.6) %

In frastructure Solutions:

Segment profit for the Infrastructure Solutions segment was $53.8 million for 2020 compared to $33.8 million for the same period in 2019, an increase of $20.0 million or 59.2%.

Segment profit was impacted by an increase in gross profit of $6.9 million due to a 270 basis point increase in gross margins between periods (22.7% and 20.0% for 2020 and 2019, respectively).

Segment gross margins increased over the prior year due to $32.6 million of net realizable inventory write-offs that did not recur partially offset by the one-time pellet plant recovery sale, as well as, the closure and exit of Enid.

The increase in segment profit is also attributable to a decrease in selling, general and administrative expenses of $10.1 million driven by lower consulting fees and travel related costs and a decrease of $4.8 million in engineering expenses due to COVID-19 related constraints.

The segment profit increases were partially offset by net increases in restructuring, impairment and other property and equipment charges of $3.7 million in 2020 compared to 2019.

Infrastructure Solutions

Segment profit for the Infrastructure Solutions segment was $53.0 million for 2021 compared to $53.8 million for 2020, a decrease of $0.8 million or 1.5%.

The decrease in segment profit resulted primarily from the impact of higher inflation on materials, labor and overhead costs of $33.1 million and increased general and administrative costs of $6.6 million.

These increased costs were partially offset by:

(i) the impact of favorable volume, pricing and mix that generated $25.1 million higher gross profit, (ii) reduced losses from divested businesses of $7.0 million, (iii) $4.0 million of increased manufacturing efficiencies and (iv) $3.1 million in decreased restructuring costs.

Materials Solutions

Segment profit for Materials Solutions was $32.1 million for 2020 compared to $22.8 million for the same period in 2019, an increase of $9.3 million or 40.8%.

The increase in segment profit between periods was due primarily to an increase in the gross margin of 4.0% between periods.

Additionally, the increase in segment profit was partially improved by decreased general and administrative expenses of $5.7 million, decreased selling expenses of $6.8 million due to right-sizing activities and benefit from net credits in restructuring, impairment and other property and equipment charges of $1.6 million primarily due to the gain on sale of land and building at our Mequon facility in the fourth quarter of 2020.

Corporate operations incurred expenses of $40.1 million for 2020 compared to expenses of $35.6 million for 2019, an unfavorable change of $4.5 million or 12.6%, due primarily to an increase in consulting expenses of $3.1 million associated with information technology projects and other support projects and net restructuring, impairment and other property and equipment charges of $2.8 million offset by a reduction in income taxes of $4.4 million.

Segment profit for the Materials Solutions segment was $29.3 million for 2021 compared to $32.1 million for 2020, a decrease of $2.8 million or 8.7%.

The decrease in segment profits resulted primarily from:

(i) the impact of higher inflation on materials, labor and overhead costs of $20.5 million, (ii) increased general and administrative costs of $7.3 million, (iii) a settlement loss on pension termination of $5.2 million and (iv) increased research and development expenses of $3.0 million.

These increased costs were partially offset by:

(i) the impact of favorable volume, pricing and mix that generated $14.7 million higher gross profit, (ii) $11.5 million in manufacturing efficiencies, (iii) $5.5 million reduced income tax expense and (iv) reduced expenses associated with closed locations of $4.1 million.

Corporate operations incurred expenses of $64.8 million for 2021 compared to expenses of $40.1 million for 2020, an unfavorable change of $24.7 million or 61.6%.

The increase in expenses resulted primarily from:

(i) increased costs related to centralization and infrastructure efforts associated with our transformation initiatives, (ii) the net change in income tax benefit and expense of $4.3 million and (iii) increased research and development expenses of $2.7 million.

These increased costs were partially offset by non-recurring impairment charges incurred in the prior year of $2.7 million primarily related to a Company airplane that was subsequently sold in the first quarter of 2021.

Liquidity and Capital Resources

Our primary sources of liquidity and capital resources are cash on hand, borrowing capacity under a $150.0 million revolving credit facility (the "Credit Facility") and cash flows from operations.

We had $158.6 million of cash available for operating purposes as of December 31, 2020, of which $22.8 million was held by our foreign subsidiaries.

Our primary sources of liquidity and capital resources are cash and cash equivalents on hand, borrowing capacity under a $150.0 million revolving credit facility (the "Credit Facility") and cash flows from operations.

We had $134.1 million of cash and cash equivalents available for operating purposes as of December 31, 2021, of which $21.7 million was held by our foreign subsidiaries.

We did not have any outstanding borrowings on the Credit Facility at December 31, 2021 or 2020.

In addition, no borrowings were made under the Credit Facility during 2020.

In addition, no borrowings were made under the Credit Facility during 2021 or 2020.

Our outstanding letters of credit totaling $2.5 million decreased borrowing availability to $147.5 million under the revolving credit facility as of December 31, 2021.

The revolving credit facility agreement contains certain financial covenants, including provisions concerning required levels of annual net income and minimum tangible net worth.

We were in compliance with the financial covenants of the agreement at December 31, 2020.

Our Brazilian subsidiary maintains a separate term loan for working capital purposes with a bank in Brazil, which is secured by its manufacturing facility.

Prior to 2020, equipment financing loans were also outstanding.

Certain of our international subsidiaries in Africa, Australia, Brazil, Canada and Northern Ireland each have separate credit facilities with local financial institutions to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees.

In addition, the Brazilian subsidiary also enters into order anticipation agreements with a local bank on a periodic basis.

Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" on our Consolidated Balance Sheets.

We were in compliance with the financial covenants of the Credit Facility at December 31, 2021.

Certain of our international subsidiaries in South Africa, Australia, Brazil and the United Kingdom each have separate credit facilities with local financial institutions to finance short-term working capital needs, as well as to cover foreign exchange contracts, performance letters of credit, advance payment and retention guarantees.

In addition, the Brazilian subsidiary maintains an independent credit facility at a separate financial institution and also enters into order anticipation agreements on a periodic basis.

Both the outstanding borrowings under the credit facilities of the international subsidiaries and the order anticipation agreements are recorded in "Short-term debt" in our Consolidated Balance Sheets.

Each of the credit facilities are generally guaranteed by Astec Industries, Inc.

and/or secured with certain assets of the local subsidiary except in Brazil where the credit facilities are supported by letters of credit issued under the Credit Facility.

and/or secured with certain assets of the local subsidiary.

Material cash requirements as of December 31, 2021 include working capital needs, capital expenditures, vendor hosted software arrangements including the related implementation costs, unrecognized tax benefits and operating lease payments.

We regularly enter into agreements primarily to purchase inventory in the ordinary course of business.

As of December 31, 2021, open purchase obligations totaled $243.0 million, of which $231.3 million are expected to be fulfilled within one year.

We estimate that our capital expenditures will be between $30 and $40 million for the year ending December 31, 2022, which may be impacted by general economic, financial or operational changes, including the impact of COVID-19 on our operating results, and competitive, legislative and regulatory factors, among other considerations.

In late 2020 and early 2021, we entered into certain vendor hosted software arrangements in conjunction with our transformation initiatives to convert our internal operations, manufacturing and finance systems to cloud-based platforms globally.

These agreements include software-related payments of $45.9 million to be paid through September 2027.

Payments of $5.8 million will be made during 2022, $16.9 million during the years 2023 to 2024, $16.7 million during the years 2025 to 2026 and $6.5 million after 2026.

These cash payments are exclusive of the separately contracted implementation costs that are project-based and are committed at each phase of the implementation.

Our liability for unrecognized tax benefits totaled $10.8 million at December 31, 2021 for which the timing of cash settlements to the respective taxing authorities, if any, cannot be reliably predicted.

As of December 31, 2021, our short and long-term operating lease liabilities are $1.8 million and $4.7 million, respectively.

These balances represent our contractual obligation to make future payments on our leases, discounted to reflect our cost of borrowing.

See Note 10, Leases, for information regarding our leases, including obligations by fiscal year.

Beginning in 2022, the Tax Cuts and Jobs Act of 2017 eliminates the option to deduct research and development expenditures in the year incurred and requires taxpayers to amortize domestic expenditures over five years and foreign expenditures over 15 years.

If this component of the legislation is not deferred, repealed or modified, operating cash flows will be materially decreased beginning in 2022.

Cash Flows from Operating Activities

Years Ended December 31,

(in millions) 2020 2019 Increase /

(in millions) 2021 2020 Increase / Decrease

Net income $ 17.9 $ 46.9 $ (29.0)

Depreciation and amortization 26.9 26.2 0.7

Provision for warranties 9.8 9.8 —

Deferred tax provision 8.6 1.7 6.9

Asset impairment charge 4.4 0.3 4.1

Decrease in receivables and other contract assets 12.2 7.5 4.7

Decrease in inventories 44.7 61.3 (16.6)

Deferred tax (benefit) provision (1.3) 8.6 (9.9)

Gain on disposition of property and equipment (0.6) (6.2) 5.6

Non-cash curtailment and settlement loss (gain) on pension and postretirement benefits, net 3.2 (0.5) 3.7

Asset impairment charges, net 0.2 4.4 (4.2)

(Purchase) sale of trading securities, net (3.1) 0.2 (3.3)

(Increase) decrease in receivables and other contract assets (30.8) 12.2 (43.0)

(Increase) decrease in inventories (53.8) 44.7 (98.5)

Increase in prepaid expenses (6.2) — (6.2)

Decrease accounts payable (8.6) (13.0) 4.4

Decrease in accrued product warranty (10.2) (10.5) 0.3

Decrease in customer deposits (11.2) (5.3) (5.9)

Increase (decrease) in accounts payable 30.8 (8.6) 39.4

Increase (decrease) in accrued payroll and related expenses 3.0 (5.1) 8.1

Increase (decrease) in customer deposits 26.5 (11.2) 37.7

Income taxes payable/prepaid (13.6) 16.0 (29.6)

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Net cash provided by operating activities $ 7.4 $ 141.5 $ (134.1)

Net cash provided by operating activities increased $28.9 million in 2020 compared to 2019.

Net income was the primary driver of the increase in operating cash flows and when combined with changes in large non-cash charges resulted in a total increase of $36.4 million.

These increases were partially offset primarily by a lower decrease in inventory than prior year 2019 and reductions in customer deposits.

Net cash provided by operating activities decreased $134.1 million in 2021 compared to 2020.

The primary drivers of the decrease in operating cash flows were the increase of inventories on hand due to higher backlog and supply chain logistics challenges of $98.5 million, the timing of receivables and other contract assets of $43.0 million and payable/prepaid income taxes of $29.6 million and lower net income of $29.0 million.

These decreases were partially offset by increases related to the timing of accounts payable payments of $39.4 million and higher customer deposits of $37.7 million associated with higher backlog amounts in the current year.

Cash Flows from Investing Activities

Years Ended December 31,

(in millions) 2020 2019 Increase /

(in millions) 2021 2020 Increase / Decrease

Acquisitions, net of cash acquired $ 0.1 $ (32.5) $ 32.6

Proceeds from the sale of subsidiary 9.1 — 9.1

(Price adjustment on prior) proceeds from sale of subsidiary (1.1) 9.1 (10.2)

Expenditures for property and equipment (20.1) (15.4) (4.7)

Proceeds from sale of property and equipment 1.9 17.7 (15.8)

Purchase of investments (1.0) (1.1) 0.1

Sale of investments 1.8 1.3 0.5

Net cash used by investing activities $ (20.9) $ (21.6) $ 0.7

Net cash used by investing activities in 2020 were primarily due to acquisitions and expenditures for property and equipment.

These cash uses were partially offset by proceeds from the sale of property and equipment and the sale of our Enid subsidiary.

Net cash used by investing activities in 2019 were primarily due to property and equipment expenditures.

Net cash used in investing activities $ (18.4) $ (20.9) $ 2.5

Net cash used in investing activities decreased by $2.5 million in 2021 as compared to 2020 primarily due to acquisitions occurring in the prior year that did not recur in 2021 partially offset by higher proceeds from the sale of property and equipment and divestiture activity in 2020 that did not recur in 2021 combined with increased property and equipment expenditures in 2021.

Cash Flows from Financing Activities

Years Ended December 31,

(in millions) 2020 2019 Increase /

(in millions) 2021 2020 Increase / Decrease

Payment of dividends $ (10.2) $ (10.0) $ (0.2)

Borrowings (repayments), net under bank loans 0.1 (58.0) 58.1

Borrowings, net under bank loans 1.0 0.1 0.9

Withholding tax paid upon vesting of share-based compensation awards (3.5) (0.8) (2.7)

Other, net 0.6 0.3 0.3

Net cash used by financing activities $ (10.4) $ (68.1) $ 57.7

Financing activities in 2020 were primarily a use of cash for the payment of dividends while the use of cash in 2019 was primarily due to net repayments of our Credit Facility borrowings and the payment of dividends.

Net cash used in financing activities $ (12.1) $ (10.4) $ (1.7)

Net cash used in financing activities increased by $1.7 million in 2021 as compared to 2020 primarily due to higher withholding tax payments on the vesting of share-based compensation awards.

Financial Condition

Our current assets increased to $565.8 million at December 31, 2020 from $506.3 million at December 31, 2019, an increase of $59.5 million.

The increase is due primarily to increases in cash and cash equivalents of $109.7 million offset by decreases in inventories of $44.8 million and trade receivables and contract assets, net of $4.4 million.

Our current assets increased to $641.7 million at December 31, 2021 from $565.8 million at December 31, 2020, an increase of $75.9 million or 13.4%.

The increase is due primarily to increases in inventories of $53.3 million, increases in trade receivables and contract assets, net of $28.2 million, increases in prepaid and refundable income taxes of $10.7 million and increases in prepaid expenses and other assets of $6.0 million partially offset by decreases in cash, cash equivalents and restricted cash of $24.2 million.

Accounts receivable days outstanding increased from 45.3 in 2020 to 50.3 in 2021.

Our current liabilities decreased to $170.3 million at December 31, 2020 from $172.8 million at December 31, 2019, a decrease of $2.5 million.

The decrease is primarily due to decreases in accounts payable of $4.5 million, decreases in customer deposits of $8.7 million and decreases in accrued payroll and related liabilities of $3.9 million offset by increases in other accrued liabilities of $13.6 million.

Contractual Obligations

Contractual obligations and the period in which payments are due as of December 31, 2020 are as follows:

(in millions) Payments Due by Period

Contractual Obligations Total Less Than

4 to 5 More Than

Operating lease obligations $ 7.4 $ 2.0 $ 2.1 $ 1.1 $ 2.2

Inventory purchase obligations 5.5 5.5 — — —

Debt obligations 2.0 1.6 0.3 0.1 —

Total $ 14.9 $ 9.1 $ 2.4 $ 1.2 $ 2.2

The above table excludes our liability for unrecognized tax benefits, which totaled $9.7 million at December 31, 2020, since the timing of cash settlements to the respective taxing authorities, if any, cannot be reliably predicted.

We did not make any contributions to our pension plan for the year ended December 31, 2020.

During the year ended December 31, 2019, we made contributions of approximately $1.6 million to our pension plan.

Currently, we have not planned any contributions to the pension plan in 2021.

Our funding policy is to make at least the minimum annual contributions required by applicable regulations.

Our current liabilities increased to $225.3 million at December 31, 2021 from $170.3 million at December 31, 2020, an increase of $55.0 million or 32.3%.

The increase is primarily due to increases in accounts payable of $30.8 million, increases in customer deposits of $26.0 million and increases in accrued payroll and related liabilities of $2.8 million partially offset by decreases in other accrued liabilities of $4.8 million.

Contingencies

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See Note 16, Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of contingent liabilities for customer purchases, various guarantees including letters of credit, advance payments and retention guarantees as well as contingencies related to legal proceedings in which we are involved.

Off-Balance Sheet Arrangements

See Note 16, Commitments and Contingencies of the Notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for discussion of contingent liabilities for customer purchases and various guarantees including letters of credit, advance payments and retention guarantees.

Critical Accounting Policies and Estimates

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Costs of obtaining sales contracts with an expected duration of one year or less are expensed as incurred.

As contracts are typically fulfilled within one year from the date of the contract, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.

Other contract assets and liabilities are typically not material.

As contracts are typically paid within one year from the date of the contract fulfillment, revenue adjustments for a potential financing component or the costs to obtain the contract are not made.

Other contract assets and liabilities are typically not material as a percentage of total assets or total liabilities, respectively.

Depending on the terms of the arrangement with the customer, recognition of a portion of the consideration received may be deferred and recorded as a contract liability if we have to satisfy a future obligation, such as to provide installation assistance, service work to be performed in the future without charge, floor plan interest to be reimbursed to our dealer customers, payments for extended warranties, for annual rebates given to certain high volume customers or for obligations for future estimated returns to be allowed based upon historical trends.

Certain contracts include terms and conditions through which we recognize revenues upon completion of equipment production, which is subsequently stored at one of our plants at the customer's request.

Revenue is recorded on such contracts upon the customer's assumption of title and transfer of control and when collectability is probable that we will collect substantially all of the amount due.

Revenue is recorded on such contracts upon the customer's assumption of title and transfer of control and when collectibility is probable.

In addition, there must be a fixed schedule of delivery of the goods consistent with the customer's business practices, we must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from our inventory prior to revenue recognition.

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In addition to the previously mentioned general revenue recognition criteria, we only recognize 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.

We have certain sales orders on which we record revenue over time based upon the ratio of costs incurred to estimated total costs.

Goodwill and Other Intangible Assets:

3 unchanged sentences

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 profit as well as others more fully described in the Part I, Item 1A.

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 not recoverable through selling price increases that could have a negative impact on the cost of production and gross profit as well as others more fully described in the Part I, Item 1A.

Risk Factors section of this Annual Report on Form 10-K.

20 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis