Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 Quarterly Report on
Form 10-Q 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 and are
sometimes identified by the words "will," "would," "should," "could," "may,"
"believe," "anticipate," "intend," "forecast" and "expect" and similar
expressions. Such forward-looking statements include, without limitation,
statements regarding the Company's expected sales and results of operations
during 2020, the Company's expected capital expenditures in 2020, the ability of
the Company to meet its working capital and capital expenditure requirements
through November 2021, the amount and impact of any current or future state or
federal funding for transportation construction programs, the need for road
improvements, the amount and impact of other public sector spending and funding
mechanisms, changes in the economic environment as it affects the Company, the
Company being called upon to fulfill certain contingencies, the granting of
restricted stock units and other incentive awards, changes in interest rates and
the impact of such changes on the financial results of the Company, changes in
the prices of steel and oil and the impact of such changes generally and on the
demand for the Company's products, customer's buying decisions, the Company's
business, the ability of the Company to offset future changes in prices in raw
materials, the change in the strength of the dollar and the level of the
Company's presence and sales in international markets, the impact that further
development of domestic oil and natural gas production capabilities would have
on the domestic economy and the Company's business, the percentage of the
Company's equipment sold directly to end users, the impact of IRS tax
regulations, payment of dividends by the Company, the impact of the Company's
efforts to impact its gross margins and inventory levels, the
restructuring/relocation of Albuquerque's operations and the ultimate sale of
the Albuquerque facilities, the exiting of Enid's oil and gas business and the
water well business, the disposal of the related oil and gas inventory and the
water well inventory, the marketing for sale of Enid's production facilities,
the closure of the Mequon location and associated efficiencies, the possibility
of future goodwill impairment charges, the ultimate outcome of the Company's
current claims and legal proceedings and the continued impact of the novel
coronavirus ("COVID-19") pandemic on the Company's business and global demand
for the Company's products.
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 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.
The risks and uncertainties identified herein under the caption "Item 1A. Risk
Factors" in Part II of this Report, elsewhere herein and in other documents
filed by the Company with the Securities and Exchange Commission, including the
Company's Annual Report on Form 10-K for the year ended December 31, 2019 and
the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, should
be carefully considered when evaluating the Company's business and future
prospects.
Overview
The Company is a leading manufacturer and seller of equipment for the road
building, aggregate processing, geothermal, water, oil and gas, and wood
processing industries. The Company's businesses:
•design, engineer, manufacture and market equipment used in each phase of road
building, including mining, quarrying and crushing the aggregate, mobile bulk
and material handling solutions, producing asphalt or concrete, recycling old
asphalt or concrete and applying the asphalt;
•design, engineer, manufacture and market additional equipment and components,
including equipment for geothermal drilling, industrial heat transfer, wood
chipping and grinding, commercial and industrial burners, combustion control
systems; and
•manufacture and sell replacement parts for equipment in each of its product
lines.
The Company, as we refer to it herein, consists of a total of 27 companies that
are consolidated in our consolidated financial statements. The companies include
manufacturing companies, companies that operate as dealers for the manufacturing
companies, a captive insurance company and the parent company. During the first
quarter of 2020, the Company completed an internal reorganization of its
reportable segments from three to two reportable segments (plus Corporate) and
such segments are organized, operated and managed based on the products and
services offered by the business units included in each segment.
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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, the Company is transitioning references to each
individual business unit by a name associated with its location, as compared to
previous references to the subsidiary company names. A brief description of each
segment is as follows:
Infrastructure Solutions - The Infrastructure Solutions segment is comprised of
15 business units. These business units include Astec, Inc. ("CHA-Jerome Ave"),
Roadtec, Inc. ("CHA-Manufacturers Rd"), BMH Systems ("St. Bruno"), CON-E-CO
("Blair"), Carlson Paving Products, Inc. ("Tacoma"), Heatec, Inc. ("CHA-Wilson
Rd"), CEI Enterprises, Inc. ("Albuquerque"), GEFCO, Inc. ("Enid"), Peterson
Pacific Corp. ("EUG-Airport Rd"), Power Flame Incorporated ("Parsons"), RexCon,
Inc. ("Burlington"), Astec Mobile Machinery GmbH ("AMM"), Astec Australia Pty
Ltd ("Australia"), Astec LatAm ("LatAm"), and Astec Thailand ("Thailand").
Products designed, engineered, manufactured and marketed by this segment include
a complete line of asphalt plants and their related components, asphalt pavers,
screeds, milling machines, material transfer vehicles, stabilizers and related
ancillary equipment, concrete plants, water well drilling rigs, wood chippers,
wood grinders, heaters, commercial burners and industrial burners. The principal
purchasers of the segment's products are asphalt producers, highway and heavy
equipment contractors, foreign and domestic governmental agencies, processors of
oil, gas and biomass for energy production, ready mix concrete producers and
contractors in the construction and demolition recycling markets.
In 2018, the Company decided to close and cease operations at AMM, located in
Germany, and its land and buildings were sold in January 2020. In late 2019, the
Company announced the closing of its 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 Company 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 buildings were sold in the third quarter of 2020. In late 2019, the
Company impaired and discontinued Enid's oil and gas product lines and sold the
remaining assets in the third quarter of 2020. Subsequent to September 30, 2020,
the Company sold the remaining assets related to Enid's remaining water well
line of business. The Company is also currently marketing its Enid production
facilities.
Materials Solutions - The Materials Solutions segment is comprised of 10
business units which are focused on designing and manufacturing heavy processing
equipment, as well as servicing and supplying parts for the aggregate, metallic
mining, recycling, ports and bulk handling markets. These business units are
Telsmith, Inc. ("Mequon"), Kolberg-Pioneer, Inc. ("Yankton"), Astec Mobile
Screens, Inc. ("Sterling"), Johnson Crushers International, Inc. ("EUG-Franklin
Blvd"), Breaker Technology Ltd/Breaker Technology, Inc. ("Thornbury"), Osborn
Engineered Products, SA (Pty) Ltd ("Johannesburg"), Astec do Brasil Fabricacao
de Equipamentos Ltda. ("Belo Horizonte"), Telestack Limited ("Omagh"), Astec
India ("India") and Astec AME ("AME"). The principal purchasers of products
produced by this segment are distributors, open mine operators, quarry
operators, port and inland terminal operators, highway and heavy equipment
contractors and foreign and domestic governmental agencies. The Company is
currently in the process of closing its Mequon site and relocating those
operations to other business units.
Corporate - This category consists of business units that do not meet the
requirements for separate disclosure as an operating segment or inclusion in one
of the other reporting segments and includes the Company's parent company and
Astec Insurance Company ("Astec Insurance"), a captive insurance
company. Certain start-up costs related to foreign sales offices are also
included in Corporate's operating results. The Company evaluates performance and
allocates resources to its operating segments based on profit or loss from
operations before U.S. federal income taxes, state deferred taxes and corporate
overhead and, thus, these costs are included in the Corporate category.
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 prices of liquid asphalt, oil and natural gas and steel.
Federal funding provides a significant portion of all highway, street, roadway
and parking construction in the United States. The Company believes that federal
highway funding influences the purchasing decisions of the Company's customers,
who are typically more comfortable making capital equipment purchases with
long-term federal legislation in place.
Federal transportation funding operated on short-term appropriations until
December 4, 2015 when the Fixing America's Surface Transportation Act ("FAST
Act") was signed into law. The $305 billion FAST Act approved funding for
highways of approximately $205 billion and transit projects of approximately $48
billion for the five-year period ending September 30, 2020. Subsequent to
September 30, 2020, the FAST Act was extended for twelve months and added an
additional $13.6 billion to the Highway Trust Fund.
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The Company believes a multi-year highway program (such as the FAST Act) will
have the greatest positive impact on the road construction industry and allows
its 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. Since elected
in late 2016, the current executive branch of the federal government has
stressed that one of its priorities is a new infrastructure bill including
increased funding for roads, bridges, tunnels, airports, railroads, ports and
waterways, pipelines, clean water infrastructure, energy infrastructure and
telecommunication needs. Governmental funding that is committed or earmarked for
federal highway projects is always subject to repeal or reduction. Although
continued funding under the FAST Act or funding of a bill passed by the new
administration is expected, it may be at lower levels than originally approved
or anticipated. In addition, Congress could pass legislation in future sessions
that would allow for diversion of previously appropriated highway funds for
other purposes, or it could restrict funding of infrastructure projects unless
states comply with certain federal policies. The level of future federal highway
construction is uncertain and any future funding may be at levels lower than
those currently approved or that have been approved in the past.
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 is still at the 1993 level of
18.4 cents per gallon, 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 liquid asphalt, the price of oil and natural gas, 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 economic downturn
which began in 2009 with several rate adjustments (both up and down) in recent
years. The current Federal Funds Rate is considered in the historically low
range and future rate changes may occur.
Significant portions of the Company's revenues from the Infrastructure Solutions
segment relate to the sale of equipment involved in the production, handling,
recycling or application of asphalt mix. Liquid asphalt is a by-product of oil
refining. An increase or decrease in the price of oil impacts the cost of
asphalt, which is likely to alter demand for asphalt and, therefore, affects
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
partially 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. 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 current oil prices are at recent record lows, oil prices have
routinely fluctuated in recent years and are expected to continue to fluctuate
in the future. Minor fluctuations in oil prices should not have a significant
impact on customers' buying decisions. Other factors such as 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. The Company believes the continued funding of the FAST Act
federal highway bill passed in December 2015, together with the prospect of
potential replacement funding, have a greater potential to impact the buying
decisions of the Company's customers than does the fluctuation of oil prices in
2020 and 2021.
Contrary to the impact of oil prices on many of the asphalt related
Infrastructure Solutions segment products as discussed above, other products
manufactured by the Company, which are used in heaters for refineries and oil
sands, would benefit from higher oil and natural gas prices, to the extent that
such higher prices lead to increased development in the oil and natural gas
production industries. The Company believes further development of domestic oil
and natural gas production capabilities is needed and would positively impact
demand for the Company's oil and gas related products.
Steel is a major component in the Company's equipment. COVID-19, election
speculation and consumer confidence all impacted a lower demand for steel during
the third quarter of 2020. Mills responded by adjusting their production
capacity to meet lower demand. Steel outlook is expected to trend upward during
the fourth quarter of 2020 as market supply is limited to maintain higher price
levels. The Company will continue to utilize forward looking contracts when it
deems conditions are appropriate (with no minimum or specified quantity
guarantees) to minimize the impact of any price increases. We will continue to
monitor trends in steel prices throughout the remainder of the year and into
2021 and establish future contract pricing accordingly.
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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. The continued
strengthened U.S. dollar since mid-2012, including significant strengthening in
2020, has negatively impacted pricing in certain foreign markets the Company
serves. The Company expects the U.S. dollar to remain strong in the near term
relative to most foreign currencies. Domestic interest rates rising in the
future or weakening economic conditions abroad could cause the U.S. dollar to
further 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 2019, approximately
60% of the Company's sales were to the end user. The Company expects this ratio
to be between 60% and 70% for 2020.
As mentioned above, the Company has recently transitioned from a decentralized
management structure to a matrix organizational management structure with major
directives and decisions being made at the segment and/or parent company
level. Subsidiary president positions, with responsibility for the performance
of all aspects of their local company, have been eliminated. Performance is now
evaluated at the consolidated and separate segment levels. Performance of
individual subsidiaries/sites is the responsibility of segment senior managers
and segment functional team leaders under their direction. Senior finance,
insurance, legal, shareholder relations, corporate accounting and other
corporate matters are primarily managed at the Corporate level (i.e., Astec
Industries, Inc., the parent company). Standard accounting procedures are
prescribed and followed in all reporting.
The Company's current profit sharing plans allow corporate officers and other
key management participants the opportunity to earn profit sharing incentives
based upon the Company's and/or the individual segment's working capital
turnover, adjusted EBITDA margin and safety. Executive and senior leadership
team members, when calculated at targeted performance, can earn between 15% and
100% of their base salary, depending upon their responsibilities, and the plans
allow for awards of up to double the target incentive compensation for executive
team members. Other salaried employees have the ability to earn profit sharing
incentives of up to 5% of their annual salary and non-union hourly employees can
earn between $0 and $750 each.
The Company's current long-term incentive plans allow Corporate officers and
other key management participants to be awarded a 50/50 combination of service
awards, Restricted Stock Units ("RSUs"), and performance awards, Performance
Stock Units ("PSU"). Service awards are granted at target performance and vest
in three equal annual installments beginning on the first anniversary of the
grant date, subject to continued employment. Performance awards are granted at
target performance, and are earned based upon the achievement of two equally
rated performance metrics (return on invested capital ("ROIC") and total
shareholder return ("TSR")). Total awards range from 20% to 150% of
participants' annual salaries at target and participants may earn up to 200% of
their PSU award.
During 2018 through mid-2019, the Company retained the services of a specialized
consulting firm to assist with the accumulation of company-wide purchasing data
including a system for maintaining the data for management to utilize in
negotiations with suppliers or potential suppliers in order to obtain reduced
prices on raw materials and equipment components purchased. The Company expects
the results of these efforts to positively impact its gross margins for the
remainder of 2020 and thereafter.









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Results of Operations
Impact of COVID-19
The COVID-19 outbreak has caused significant disruptions to national and global
economies. Our U.S. based businesses are designated as "Critical Manufacturing"
infrastructure companies by the U.S. Department of Homeland Security and, as
such, have remained open. 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. The Company's top priority is to
protect its employees and their families, its customers and suppliers and its
operations from any adverse impacts by taking precautionary measures as directed
by health authorities and local governments. In early March 2020, the Company
formed a COVID-19 task force, which continually monitors information from
government agencies, our sites, customers, suppliers and other sources. The
Company has 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 the third
quarter of 2020, the impact on our sales and financial results was largely
driven by COVID-19 uncertainties. No significant additional costs to our
business were identified in the third quarter of 2020. However, we expect an
increase in the impact from COVID-19 to our business in the fourth quarter and
possibly thereafter. While we expect this situation to be temporary, any
longer-term impact to our business is currently unknown due to the uncertainty
around the outbreak's duration and its broader impact. As part of our strategic
planning, management has prepared several fluid business models including
specific actions to take in the future, depending on the magnitude of the virus
on our business levels. The Company's strong September 30, 2020 consolidated
balance sheet, including $108.5 million of cash on hand, no borrowings under its
domestic $150.0 million bank line of credit, only $0.9 million of debt
outstanding on its foreign banking arrangements and $25.7 million of cash
received (included in cash on hand) from the U.S. tax refund request filed due
to changes in net operating loss ("NOL") carryback rules under the Coronavirus
Aid, Relief and Economic Security ("CARES") Act, will aid the Company in
withstanding possible future negative impacts of COVID-19. As discussed
elsewhere in this report, as part of the Company's management transition from a
decentralized management model to a matrix organizational management structure,
the Company has taken numerous steps to increase the efficiency in its
operations. While COVID-19 did not have a material impact on the Company's third
quarter 2020 operations, management has prepared several scenarios of possible
future impacts and related costs and cash savings action steps to take as the
circumstances dictate. See the Liquidity and Capital Resources section below for
additional information concerning the Company's liquidity.
Restructuring Charges
In late 2019, the Company began the process of restructuring and right-sizing in
conjunction with its overall strategic transformation. Restructuring and asset
impairment charges for the three and nine-month periods ended September 30, 2020
are presented below (in thousands):

                                                                  Three Months           Nine Months
                                                                     Ended                  Ended
                                                                 September 30,          September 30,
                                                                      2020                   2020

Impairment (recovery) of Company planes and costs associated with repairs

                                                    $

(272) $ 2,340 Goodwill impairment related to mobile asphalt equipment operations

                                                                  -                  1,646

Closing operations at the Mequon site and moving operations - principally severance

                                                     418                  1,807
Exiting the oil and gas business at the Enid site                         232                    483

Severance pay associated with workforce reductions at multiple sites

                                                                   2,115                  3,327

Closing operations at the Albuquerque site, moving operations and sale of land and building

                                            (296)                   797
Final stages of closing AMM operations in Germany                           7                    292
Abandoned projects and other restructuring charges                        213                    430
Restructuring and asset impairment charges                      $       2,417          $      11,122







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Net Sales
Net sales for the third quarter of 2020 were $231.4 million compared to $255.8
million for the third quarter of 2019, a decrease of $24.4 million or 9.5%.
Sales are generated primarily from new equipment and parts sales to domestic and
international customers. Sales decreased in both the Infrastructure Solutions
and Materials Solutions segments. The decrease of sales in the Infrastructure
Solutions segment was driven by COVID-19 delays. The decrease of sales in the
Materials Solutions segment was driven by uncertainties surrounding COVID-19, as
well as lower sales related to its crushing and screening projects. Domestic
sales for the third quarter of 2020 as compared to the third quarter of 2019
declined by 4.5%. International sales in the third quarter of 2020 decreased
24.1% as compared to the third quarter of 2019, driven by COVID-19 related
business disruptions, as well as the impact from the strong U.S. dollar causing
the Company's products that are produced in the United States to be more
expensive abroad. Sales reported by the Company's foreign subsidiaries in U.S.
dollars for the third quarter of 2020 would have been $2.6 million higher had
third quarter 2020 foreign exchange rates been the same as third quarter 2019
rates.

Net sales for the first nine months of 2020 were $785.6 million compared to
$886.4 million for the first nine months of 2019, a decrease of $100.8 million
or 11.4%. Sales are generated primarily from new equipment and parts sales to
domestic and international customers. Sales decreased in both the Infrastructure
Solutions and Materials Solutions segments. The decrease in sales for the
Infrastructure Solutions segment was mostly driven by the non-recurring Georgia
Pellet Plant sale in the second quarter of 2019 for $20.0 million, as well as a
market decline driven by COVID-19. The decrease in sales for the Materials
Solutions segment was driven by COVID-19 plant shutdowns, as well as lower sales
related to its crushing and screening projects. Domestic sales for the first
nine months of 2020 as compared to the first nine months of 2019 declined by
8.9%. International sales in the first nine months of 2020 decreased 20.6% as
compared to the first nine months of 2019, driven by COVID-19 related business
disruptions, as well as the impact from the strong U.S. dollar causing Company
products produced in the United States to be more expensive. Sales reported by
the Company's foreign subsidiaries in U.S. dollars for the first nine months of
2020 would have been $8.1 million higher had first nine months of 2020 foreign
exchange rates been the same as first nine months of 2019 rates.
Domestic sales for the third quarter of 2020 were $181.3 million or 78.3% of
consolidated net sales compared to $189.8 million or 74.2% of consolidated net
sales for the third quarter of 2019, a decrease of $8.5 million or 4.5%.
Domestic sales for the third quarter of 2020 as compared to the third quarter of
2019 decreased by $5.5 million in the Infrastructure Solutions segment and $3.0
million in the Materials Solutions segment.
Domestic sales for the first nine months of 2020 were $636.7 million or 81.1% of
consolidated net sales compared to $698.8 million or 78.8% of consolidated net
sales for the first nine months of 2019, a decrease of $62.1 million or 8.9%.
Domestic sales for the first nine months of 2020 as compared to the first nine
months of 2019 decreased by $38.2 million in the Infrastructure Solutions
segment and $23.9 million in the Materials Solutions segment.
International sales for the third quarter of 2020 were $50.1 million or 21.7% of
consolidated net sales compared to $66.0 million or 25.8% of consolidated net
sales for the third quarter of 2019, a decrease of $15.9 million or 24.1%.
International sales for the third quarter of 2020 as compared to the third
quarter of 2019 increased $0.4 million in the Infrastructure Solutions segment
and decreased $16.4 million in the Materials Solutions segment. Decreases in
international sales in Canada, Australia, Africa, Europe, Central America, Asia
and the West Indies were partially offset by increases in sales in South
America, Brazil, Japan & Korea, India and the Middle East.
International sales for the first nine months of 2020 were $148.9 million or
18.9% of consolidated net sales compared to $187.6 million or 21.2% of
consolidated net sales for the first nine months of 2019, a decrease of $38.7
million or 20.6%. International sales for the first nine months of 2020 as
compared to the first nine months of 2019 increased $0.4 million in the
Infrastructure Solutions segment and decreased $39.1 million in the Materials
Solutions segment. Decreases in international sales in Canada, Australia,
Africa, Europe, China, Mexico, Russia, India, Central America and Asia were
partially offset by increases in sales in South America, Japan & Korea, the West
Indies and the Middle East.
Parts sales for the third quarter of 2020 were $74.1 million compared to $73.0
million for the third quarter of 2019, an increase of $1.1 million or
1.5%. Parts sales as a percentage of net sales increased 340 basis points to
32.0% in the third quarter of 2020 compared to 28.6% in the third quarter of
2019. Parts sales for the third quarter of 2020 as compared to the third quarter
of 2019 increased $6.1 million in the Infrastructure Solutions segment and
decreased $5.0 million in the Materials Solutions segment.
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Parts sales for the first nine months of 2020 were $229.2 million compared to
$239.7 million for the first nine months of 2019, a decrease of $10.5 million or
4.4%. Parts sales as a percentage of net sales increased 220 basis points to
29.2% in the first nine months of 2020 compared to 27.0% in the first nine
months of 2019. Parts sales for the first nine months of 2020 as compared to the
first nine months of 2019 increased $1.9 million in the Infrastructure Solutions
segment and $12.4 million in the Materials Solutions segment.
Gross Profit
Consolidated gross profit decreased $1.4 million or 2.7% to $50.4 million for
the third quarter of 2020 compared to $51.9 million for the third quarter of
2019. Gross profit as a percentage of sales increased 150 basis points to 21.8%
for the third quarter of 2020 compared to 20.3% for the third quarter of 2019.

Consolidated gross profit decreased $28.0 million or 13.2% to $184.1 million for
the first nine months of 2020 compared to $212.0 million for the first nine
months of 2019. Gross profit as a percentage of sales decreased 50 basis points
to 23.4% for the first nine months of 2020 compared to 23.9% for the first nine
months of 2019 due to the non-recurring Georgia Pellet Plant sale, which
resulted in $20.0 million of gross profit in the second quarter of 2019 as the
related inventory values had been written off in 2018. This was offset by
improved overhead absorption variances driven by restructuring and right-sizing
activities which began in late 2019.
Selling, General, Administrative and Engineering Expenses
Selling, general, administrative and engineering expenses increased $1.2
million, or 2.5%, to $48.8 million or 21.1% of net sales for the third quarter
of 2020, compared to $47.6 million or 18.6% of net sales for the third quarter
of 2019 primarily due to the acquisitions of St. Bruno and Blair.

Selling, general, administrative and engineering expenses decreased $10.8
million, or 6.8%, to $147.8 million or 18.8% of net sales for the first nine
months of 2020, compared to $158.6 million or 17.9% of net sales for the first
nine months of 2019 primarily due to reductions in consulting fees, travel and
employee expenses.
Interest Expense
Interest expense for the third quarter of 2020 decreased $0.1 million to $0.1
million from $0.2 million for the third quarter of 2019 due primarily to the
Company not having any loans outstanding on the Company's domestic line of
credit in the third quarter of 2020.

Interest expense for the first nine months of 2020 decreased $1.0 million to
$0.3 million from $1.3 million for the first nine months of 2019 due primarily
to the Company not having any loans outstanding on the Company's domestic line
of credit in 2020.
Other Income, Net of Expenses
Other income, net of expenses was $1.3 million for the third quarter of 2020
compared to $0.4 million for the third quarter of 2019 due to the $1.1 million
gain on sale of Enid's oil and gas assets in the third quarter of 2020.

Other income, net of expenses was $2.0 million for the first nine months of 2020
compared to $1.3 million for the first nine months of 2019, an increase of $0.7
million due primarily to the $1.1 million gain on sale of Enid's oil and gas
assets in the third quarter of 2020.
Income Tax Expense
The Company's income tax benefit for the third quarter of 2020 was $1.2 million
compared to income tax expense of $0.6 million for the third quarter of 2019.
The Company's combined effective income tax rate was (279.1)% for the third
quarter of 2020 compared to 17.6% for the third quarter of 2019. The tax rate
for 2020 was lower compared to 2019 due to an increased research and development
credit benefit for 2020 in combination with a lower comparative pre-tax book
income to 2019.

The Company's income tax benefit for the first nine months of 2020 was $4.5
million compared to income tax expense of $11.4 million for the first nine
months of 2019. The Company's combined effective income tax rate was (16.8)% for
the first nine months of 2020 compared to 22.0% for the first nine months of
2019. The tax provision for the nine months ended September 30, 2020 includes a
$9.5 million tax benefit resulting from provisions of the CARES Act enacted on
March 27, 2020. Among other provisions, the CARES Act modified the NOL carryback
provisions, which allowed the Company 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%).

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Net Income
The Company's net income attributable to controlling interest was $1.6 million
for the third quarter of 2020 compared to $3.0 million for the third quarter of
2019, a decrease of $1.4 million or 45.2%, with the main drivers being a $2.5
million write down of the inventories at the Company's Enid site; offset by the
$1.1 million sale of the Company's Albuquerque facility. Net income attributable
to controlling interest per diluted share was $0.07 for the third quarter of
2020 compared to $0.13 for the third quarter of 2019, a decrease of
$0.06. Diluted shares outstanding for the quarters ended September 30, 2020 and
2019 were 22,946,000 and 22,684,000, respectively.

The Company's net income attributable to controlling interest was $31.6 million
for the first nine months of 2020 compared to $40.7 million for the first nine
months of 2019, a decrease of $9.1 million or 22.4%, with the main driver being
a $9.7 million increase in restructuring and asset impairment charges. Net
income attributable to controlling interest per diluted share was $1.38 for the
first nine months of 2020 compared to $1.79 for the first nine months of 2019, a
decrease of $0.41. Diluted shares outstanding for the nine months ended
September 30, 2020 and 2019 were 22,837,725 and 22,666,000, respectively.
Dividends
In February 2013, the Company's Board of Directors approved a dividend policy
pursuant to which the Company began paying a quarterly $0.10 per share dividend
on its common stock beginning in the third quarter of 2013. In July 2018, the
Company's Board of Directors approved a revised quarterly dividend of $0.11 per
share, a 10% increase. The actual amount of future quarterly dividends, if any,
will be based upon the Company's financial position, results of operations, cash
flows, capital requirements and restrictions under the Company's existing credit
agreement, among other factors. The Board retained the power to modify, suspend
or cancel the Company's dividend policy in any manner and at any time it deems
necessary or appropriate in the future. The Company paid quarterly dividends of
$0.11 per common share to shareholders in the first, second and third quarter of
2020 and 2019.
Backlog
The backlog of orders as of September 30, 2020 was $218.5 million compared to
$243.9 million as of September 30, 2019, a decrease of $25.4 million or 10.4%.
Both domestic and international backlogs decreased $6.8 million or 4.3% and
$18.7 million or 21.8%, respectively. The backlog decreased $19.0 million in the
Infrastructure Solutions segment and decreased $6.5 million in the Materials
Solutions segment. Lower orders were driven by COVID-19 uncertainty.
Employees
Due to restructuring plans implemented by the Company in the last quarter of
2019 and the first, second and third quarters of 2020, including its efforts to
increase the efficiencies of its workforce considering current production
requirements, the Company reduced its employee headcount 11.9% compared to
September 30, 2019 (from 4,068 employees at September 30, 2019 to 3,753
employees at December 31, 2019 to 3,582 at September 30, 2020) and will continue
to evaluate future staffing needs as sales and production levels dictate.
Segment Net Sales-Quarter:
                                Three Months Ended
                                   September 30,
(in millions)                    2020            2019        $ Change       % Change
Infrastructure Solutions   $    151.1          $ 156.2      $    (5.1)        (3.3) %
Materials Solutions              80.3             99.6          (19.3)       (19.4) %


Infrastructure Solutions segment: Sales in this segment were $151.1 million for
the third quarter of 2020 compared to $156.2 million for the same period in
2019, a decrease of $5.1 million or 3.3%. The segment's backlog at the end of
the third quarter of 2020 as compared to the end of the third quarter of 2019
decreased $19.0 million or 11.3%. Domestic sales for the Infrastructure
Solutions segment decreased $5.5 million or 4.1% for the third quarter of 2020
compared to the same period in 2019. The decrease in sales in the Infrastructure
Solutions segment was driven by uncertainties related to COVID-19. International
sales for the Infrastructure Solutions segment increased $0.4 million or 2.0%
for the third quarter of 2020 compared to the same period in 2019. Parts sales
for the Infrastructure Solutions segment increased 15.0% for the third quarter
of 2020 compared to the same period in 2019.
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Materials Solutions segment: Sales in this segment were $80.3 million for the
third quarter of 2020 compared to $99.6 million for the same period in 2019, a
decrease of $19.3 million or 19.4%. The segment's backlog at the end of the
third quarter of 2020 as compared to the end of the third quarter of 2019
decreased $6.5 million or 8.5%. Domestic sales for the Materials Solutions
segment decreased by $3.0 million or 5.3% for the third quarter of 2020 compared
to the same period in 2019 due to lower sales of its crushing and screening
projects. International sales for the Materials Solutions segment decreased
$16.4 million or 37.4% for the third quarter of 2020 compared to the same period
in 2019 due to uncertainties related to COVID-19, as well as the impact from the
strong U.S. dollar causing the Company's products produced in the United States
to be more expensive. Parts sales for this segment decreased 15.6% for the third
quarter of 2020 compared to the same period in 2019.
Segment Net Sales-Nine Months:
                               Nine Months Ended
                                 September 30,
(in millions)                  2020          2019        $ Change      % Change
Infrastructure Solutions   $    535.6      $ 573.4      $  (37.8)        (6.6) %
Materials Solutions             250.0        313.0         (63.0)       (20.1) %


Infrastructure Solutions segment: Sales in this segment were $535.6 million for
the first nine months of 2020 compared to $573.4 million for the same period in
2019, a decrease of $37.8 million or 6.6%. Domestic sales for the Infrastructure
Solutions segment decreased $38.2 million or 7.7% for the first nine months of
2020 compared to the same period in 2019 due to the non-recurring sale of the
Georgia Pellet Plant in the second quarter of 2019 for $20.0 million, as well as
uncertainties related to COVID-19. International sales for the Infrastructure
Solutions segment increased $0.4 million or 0.5% for the first nine months of
2020 compared to the same period in 2019. Parts sales for the Infrastructure
Solutions segment increased 1.3% for the first nine months of 2020 compared to
the same period in 2019.
Materials Solutions segment: Sales in this segment were $250.0 million for the
first nine months of 2020 compared to $313.0 million for the same period in
2019, a decrease of $63.0 million or 20.1%. Domestic sales for the Materials
Solutions segment decreased by $23.9 million or 11.9% for the first nine months
of 2020 compared to the same period in 2019, which was driven by the lower sales
of its crushing and screening projects. International sales for the Materials
Solutions segment decreased $39.1 million or 34.9% for the first nine months of
2020 compared to the same period in 2019 due to COVID-19 plant related
shutdowns, as well as the impact from the strong U.S. dollar causing the
Company's products produced in the United States to be more expensive. Parts
sales for this segment decreased 13.4% for the first nine months of 2020
compared to the same period in 2019.
Segment Profit (Loss)-Quarter:
                                 Three Months Ended
                                    September 30,
(in millions)                      2020             2019       $ Change       % Change
Infrastructure Solutions   $      6.3              $ 3.9      $     2.4         61.1  %
Materials Solutions               7.2                5.8            1.4         24.2  %
Corporate                       (11.7)              (6.9)          (4.8)        68.6  %


Infrastructure Solutions segment: Segment profit for the Infrastructure
Solutions segment was $6.3 million for the third quarter of 2020 compared to
$3.9 million for the same period in 2019, an increase of $2.4 million or 61.1%.
The increase in segment profits resulted from a decrease of $3.8 million in
selling expense; offset by an increase in general and administrative expenses of
$1.9 million.
Materials Solutions segment: Segment profit for the Materials Solutions segment
was $7.2 million for the third quarter of 2020 compared to $5.8 million for the
same period in 2019, an increase of $1.4 million or 24.2%. The increase in
segment profits between periods resulted from a decrease of $4.2 million in
selling expense; offset by an increase in restructuring charges of $2.2 million.
Corporate: Corporate operations had a loss of $11.7 million for the third
quarter of 2020 compared to a loss of $6.9 million for the third quarter of
2019, an increase of $4.8 million or 68.6%. The increase in expenses were driven
by $1.5 million of health insurance and $3.8 million of SERP compensation
expense and other payroll related expense in the current year period.
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Segment Profit (Loss)-Nine Months:


                                 Nine Months Ended
                                   September 30,
(in millions)                    2020             2019       $ Change      % Change
Infrastructure Solutions   $     37.7           $ 48.9      $  (11.2)       (22.9) %
Materials Solutions              21.7             23.0          (1.3)        (5.5) %
Corporate                       (28.2)           (32.4)          4.2        (12.9) %


Infrastructure Solutions segment: Segment profit for the Infrastructure
Solutions segment was $37.7 million for the first nine months of 2020 compared
to $48.9 million for the same period in 2019, a decrease of $11.2 million or
(22.9)%. Segment profits were unfavorably impacted by a decrease in gross profit
of $19.1 million due to a 180 basis point decrease in gross margins between
periods (22.6% and 24.4% for the first nine months of 2020 and 2019,
respectively). The reduction in gross margin percentage is due to the
non-recurring sale of the Georgia Pellet Plant in the second quarter of 2019 for
$20.0 million. This was partially offset by a decrease in selling expense of
$6.1 million driven by increasing efficiencies.
Materials Solutions segment: Segment profit for the Materials Solutions segment
was $21.7 million for the first nine months of 2020 compared to $23.0 million
for the same period in 2019, a decrease of $1.3 million or (5.5)%. The decrease
in segment profits between periods resulted from a decrease in gross profit of
$9.0 million due primarily to decreased sales of $63.0 million between periods.
The decrease is segment profits was partially offset by decreases in general and
administrative expense of $1.3 million and selling expenses of $4.2 million due
to right-sizing activities.
Corporate: Corporate operations had a loss of $28.2 million for the first nine
months of 2020 compared to a loss of $32.4 million for the first nine months of
2019, a favorable change of $4.2 million or (12.9)%, due primarily to reductions
in income taxes of $14.4 million; offset by selling, general, administrative and
engineering expense increases due to asset impairment of $2.5 million,
consulting of $2.2 million and $5.2 million of SERP compensation and other
payroll related expense.
Liquidity and Capital Resources
The Company's primary sources of liquidity and capital resources are its (1)
cash on hand, (2) borrowing capacity under a $150.0 million revolving credit
facility and (3) cash flows from operations, which may be negatively affected in
the future as a result of COVID-19. The Company had $108.5 million of cash
available for operating purposes as of September 30, 2020, of which $20.9
million was held by the Company's foreign subsidiaries. The transition of U.S.
international taxation from a worldwide tax system to a territorial system, as
provided under the Tax Act passed in December 2017, greatly reduced any
additional taxes on these funds should the Company decide to repatriate these
funds to the United States. At September 30, 2020, or at any time during the
first nine months of 2020, the Company had no borrowings outstanding under its
$150.0 million domestic revolving credit facility. Net of letters of credit
totaling $8.6 million, the Company had borrowing availability of $141.4 million
under the revolving credit facility as of September 30, 2020. The revolving
credit facility agreement contains certain financial covenants, including
provisions concerning required levels of annual net income and minimum tangible
net worth. The Company was in compliance with the financial covenants of the
agreement at September 30, 2020.
The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd
("Johannesburg"), has a credit facility of $5.6 million with a South African
bank to finance short-term working capital needs, as well as to cover
performance letters of credit, advance payment and retention guarantees. As of
September 30, 2020, Johannesburg had no outstanding borrowings but had $0.8
million in performance, advance payment and retention guarantees outstanding
under the facility. The facility has been guaranteed by Astec Industries, Inc.,
but is otherwise unsecured. A 0.75% unused facility fee is charged if less than
50% of the facility is utilized. As of September 30, 2020, Johannesburg had
available credit under the facility of $4.8 million. The interest rate is 0.25%
less than the South Africa prime rate.
The Company's Brazilian subsidiary, Astec do Brasil Fabricacao de Equipamentos
Ltda. ("Belo Horizonte"), had a $0.5 million and $0.9 million working capital
loan outstanding as of September 30, 2020 and December 31, 2019, respectively,
from a Brazilian bank with an interest rate of 10.4%. The loan's final monthly
payment is due in April 2024 and the debt is secured by Belo Horizonte's
manufacturing facility. Belo Horizonte's debt is included in the accompanying
unaudited condensed consolidated balance sheets as current maturities of
long-term debt ($0.1 million and $0.2 million) and long-term debt ($0.4 million
and $0.7 million) as of September 30, 2020 and December 31, 2019, respectively.
Additionally, as of September 30, 2020 and December 31, 2019, respectively, Belo
Horizonte had $0.4 million and $1.1 million outstanding under order anticipation
agreements with a local bank with maturity dates through September 2020, which
are included as short-term debt in the accompanying unaudited condensed
consolidated balance sheets. These loans are drawn under credit facilities with
local Brazilian banks secured by letters of credit totaling $3.2 million issued
by Astec Industries, Inc.
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The Company's U.K. subsidiary, Telestack Limited ("Omagh"), has a credit
facility from a U.K. bank but had no working capital loans outstanding as of
September 30, 2020 and December 31, 2019. The $3.1 million credit facility size
is scheduled to decrease to $0.3 million on December 31, 2020 and Omagh is
currently working with the bank on an extension of the current facility size.
This credit facility is guaranteed by the parent, Astec Industries, Inc., and
secured by certain Omagh assets. When cash drawings against this credit facility
occur they are included in the accompanying unaudited condensed consolidated
balance sheets as short-term debt. Additionally, as of September 30, 2020 and
December 31, 2019, respectively, Omagh had $1.3 million and $1.2 million
outstanding under performance bonds and advance payment guarantees with the same
U.K. bank with maturity dates through March 2021, which are contingent
liabilities.
The Company's Australian subsidiary, Astec Australia Pty Ltd ("Australia"), has
credit facilities of $2.5 million with an Australian bank to finance short-term
working capital needs, as well as to cover performance letters of credit,
advance payment and retention guarantees. As of September 30, 2020, Australia
had no outstanding cash borrowings but had $0.3 million in performance, advance
payment and retention guarantees outstanding under the facilities which are
contingent liabilities. The facilities are secured by certain Australia assets.
A 1.35% unused facility fee is charged on the entire $1.6 million portion which
is a short-term working capital facility. As of September 30, 2020, Australia
had available credit under the short-term working capital facility of $1.6
million. The interest rate is the Westpac Business One Loan Rate without a
margin.
The Company's Canadian subsidiary, St. Bruno, has credit facilities in the total
amount of $1.1 million from a Canadian Bank and had a working capital loan of
$0.3 million outstanding as of September 30, 2020. This credit facility is
guaranteed by the parent, Astec Industries, Inc., and secured by certain St.
Bruno assets. When cash drawings against this credit facility occur, they incur
interest expense charged at the banks prime rate plus 0.80% and are included in
the accompanying unaudited condensed consolidated balance sheets as short-term
debt. Additionally, St. Bruno had no performance bonds and advance payment
guarantees with the same Canadian bank as of September 30, 2020.

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