Report of Independent Registered Public Accounting Firm
To Plan Administrator and Plan Participants of the
Astec Industries Inc. 401(k) Retirement Plan:
Opinion on the Financial Statements
We have audited the accompanying statements of net assets available for benefits of the Astec Industries Inc. 401(k) Retirement Plan (the “Plan”) as of December 31, 2021 and 2020, and the related statement of changes in net assets available for benefits for the year ended December 31, 2021, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2021 and 2020, and the changes in net assets available for benefits for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on the Plan’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Plan in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Supplemental Information
The schedule of assets (held at end of year) as of December 31, 2021 has been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental information is the responsibility of the Plan’s management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ LBMC, PC
We have served as the Plan’s auditor since 2013.
Brentwood, Tennessee
June 15, 2022
Notes to Financial Statements
1. Description of Plan
The following description of the Astec Industries, Inc. 401(k) Retirement Plan (the “Plan”) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General
The Plan is a defined contribution plan covering all eligible full-time employees of Astec Industries, Inc. and its U.S. domiciled subsidiaries (the "Company") who have reached age eighteen. Eligible Participants are automatically enrolled in the Plan with a 4% salary deferral unless they elect otherwise. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan is administered by a committee appointed by the Company. Great-West Financial Retirement Plan Services is the record-keeper for the Plan. Great-West Trust Company, LLC is the trustee of the Plan.
Contributions
Participants may elect to contribute up to 90% of their base salary through payroll deductions, as defined under the provisions of the Plan document, subject to Internal Revenue Code ("Code") limitations. Annually, participants whose deferral election was 0% at the immediately preceding year end are auto-enrolled in the Plan with a 4% deferral rate (unless they elect otherwise). In addition, for participants deferring between 1% and 9%, an automatic 1% deferral rate increase is applied each year on January 1. The Company matches 75% of each participant’s contribution up to 4% of the participant’s compensation. Participants who will attain age 50 before the close of the Plan year are eligible to make additional catch-up contributions, subject to Code limitations. Catch-up contributions are not eligible for the Company’s matching contribution.
Participants direct their elective contributions into various investment options offered by the Plan and can change their investment options on a daily basis. If a participant is automatically enrolled, their contributions are invested in accordance with the default investment alternatives established under the Plan until the participant changes their election. The Company’s contributions are allocated in the same manner as that of the participant’s elective contributions.
Participant Accounts
Each participant’s account is credited with the participant’s contributions, the Company’s matching contributions, and Plan investment earnings. Additionally, a participant’s account is charged with quarterly recordkeeping fees, administrative fees for certain participant elected services and Plan investment losses. Allocations of investment earnings (losses) are based on participant account balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Vesting
Participants are immediately vested in their entire account balance.
Notes Receivable from Participants
Participants may borrow from their accounts a minimum of $1,000 up to a maximum of $50,000, reduced by certain items identified in the Plan document, or 50% of their vested account balance, whichever is lower. Loan terms range from one to five years or up to twenty years for the purchase of a primary residence. The loans are secured by the balances in the respective participants’ accounts and bear interest at a rate of prime plus two percent. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
Subsequent to termination of service, a participant may receive a lump-sum amount equal to the value of his or her account on the date of distribution. Annual required minimum distributions are paid as prescribed by the Code on certain participant accounts.
In-service withdrawals are available in certain limited circumstances, as defined by the Plan document. Hardship withdrawals are allowed for participants incurring an immediate and heavy financial need, as defined by the Plan document. Hardship withdrawals are strictly regulated by the Internal Revenue Service ("IRS").
Administrative Expenses
Certain expenses of maintaining the Plan, such as audit, legal services and discrimination testing, are paid directly by the Company and are excluded from these financial statements. Recordkeeping fees (Note 7) and fees for investment advisory
services requested by individual participants are charged directly to those participants’ accounts and are included in administrative expenses.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERlSA. If the Plan is terminated or contributions are permanently discontinued, benefits will remain 100% vested and be distributed in accordance with the provisions of the Plan.
Plan Changes
The Plan implemented certain requirements by the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act), which change the Plan to, among other features, delay the commencement date for required minimum distributions. The features within the SECURE Act were operationally implemented to the Plan in April 2020. Written amendments to the Plan to reflect these operational changes will be adopted at a later date in accordance with applicable law and IRS guidance.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements of the Plan are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States ("GAAP").
Uses of Estimates
The preparation of financial statements in accordance with GAAP requires Plan management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.
Notes Receivable from Participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balances plus any accrued but unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related loan processing fees are deducted from loan proceeds at the inception of the loan. No allowance for credit losses has been recorded as of December 31, 2021 or 2020. If a participant ceases to make loan repayments and the Plan administrator determines the participant loan to be a deemed distribution, the record keeper provides the participant with the IRS required 1099R.
Excess Participant Contributions Payable
Amounts payable to participants for contributions in excess of amounts allowed by the IRS are recorded as a liability with a corresponding reduction to contributions. The Plan distributes the excess contributions to the applicable participants prior to March 15 of the following year.
Investments
The Plan’s investments are stated at fair value as described in Note 3.
Purchases and sales of securities are recorded on a trade date basis. Dividends are recorded on the ex-dividend date. Interest is recognized when earned. Net appreciation includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
Subsequent Events
Plan management has evaluated events and transactions that occurred between December 31, 2021 and the report date for possible recognition or disclosure in the financial statements.
3. Fair Value Measurements
Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| | | | | | | | |
| Level 1 - | | Unadjusted quoted prices in active markets for identical assets or liabilities. |
| | |
| Level 2 - | | Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability. |
| | |
| Level 3 - | | Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. |
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Following is a description of the valuation methodologies used for assets within the fair value hierarchy:
Mutual funds: Valued at the net asset value (“NAV”) of shares held by the Plan at year end which is based on the closing price reported in the active market.
Common stock: Valued at the closing price reported on the active market on which the individual securities are traded.
There have been no changes in the methodologies used as of December 31, 2021 and 2020.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan’s management believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following tables set forth, by level within the fair value hierarchy (all the Plan’s assets are identified as being in Level 1, other than those using NAV as a practical expedient), the Plan’s assets at fair value as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| Fair Value as of December 31, 2021 |
| Level 1 | | Total |
| Mutual funds | $ | 275,419,192 | | | $ | 275,419,192 | |
| Company common stock | 5,570,617 | | | 5,570,617 | |
| Total investments in hierarchy | $ | 280,989,809 | | | 280,989,809 | |
Stable value fund (a) | | | 38,218,424 | |
| Total Investments, at fair value | | | $ | 319,208,233 | |
| | | | | | | | | | | |
| Fair Value as of December 31, 2020 |
| Level 1 | | Total |
| Mutual funds | $ | 245,358,054 | | | $ | 245,358,054 | |
| Company common stock | 5,544,422 | | | 5,544,422 | |
| Total investments in hierarchy | $ | 250,902,476 | | | 250,902,476 | |
Stable value fund (a) | | | 36,228,103 | |
| Total Investments, at fair value | | | $ | 287,130,579 | |
(a) Certain investments that were measured at NAV per share (or equivalent) as a practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the line items presented in the Statements of Net Assets Available for Benefits.
The following table describes the investment measured at fair value based on NAV per share as a practical expedient as of December 31, 2021 and 2020, respectively. There are no participant redemption restrictions for this investment; the redemption notice period is applicable only to Plan level transactions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Fair Value 12/31/2021 | | Fair Value 12/31/2020 | | Unfunded Commitments | | Redemption Frequency (if currently eligible) | | Redemption Notice Period |
| Stable value fund | | $38,218,424 | | $36,228,103 | | N/A | | Daily | | 30 Days |
4. Interest in Stable Value Fund
The Plan has a separately managed account, the Stable Value Fund (the "Fund"), which is 100% invested in a collective investment trust fund sponsored by Prudential. Participants ordinarily may direct either the withdrawal or transfer of all or a portion of their investment at book value. The book value is generally equal to the principal amounts invested in the underlying investments, plus interest accrued at a crediting rate established under the contract, less any adjustments for withdrawals (as specified in the wrapper agreement).
The Fund invests in the Prudential Trust Company Collective Trust and has entered into a "wrapper" contract with The Prudential Insurance Company of America. A wrapper contract is an agreement by another party, such as a bank or insurance company, to make payments to the Fund in certain circumstances. Wrapper contracts are designed to allow a stable value portfolio to maintain a constant NAV and protect a portfolio in extreme circumstances. Under the terms of the wrapper contract, the realized and unrealized gains and losses on the underlying investments are, in effect, amortized over the duration of the underlying investments through adjustments to the future contract interest crediting rate (which is the rate earned by participants in the trust for the underlying investments). To protect the participants’ principal and accrued interest, the wrapper contract provides that the adjustments to the crediting rate will not result in a future interest crediting rate that is less than zero.
Because changes in market interest rates affect the yield to maturity and the market value of the underlying investments, they can have a material impact on the wrapper contract’s interest crediting rate. In addition, participant withdrawals and transfers from the trust are paid at book value but funded through the market value liquidation of the underlying investments, which also impacts the interest crediting rate. Book value represents contributions made under the contract, plus interest at the contract rate, less withdrawals and contract administrative expenses.
The Fund imposes certain restrictions on the Plan, and the Fund itself may be subject to circumstances that affect its ability to transact at fair value. These events include termination of the Plan, a material adverse change to the provisions of the Plan or an employer election to withdraw from a wrapper contract in order to switch to a different investment provider. Plan management believes that the events described above that could result in the payment of benefits at fair value below book value are not probable of occurring in the foreseeable future.
5. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market volatility and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
6. Income Tax Status
The Company adopted a pre-approved plan, which received a favorable opinion letter from the IRS on June 30, 2020 which stated that the pre-approved plan was designed in accordance with the applicable sections of the Code. The Plan itself has not received a determination letter from the IRS stating that the Plan is qualified under Section 401(a) of the Code. However, the Plan administrator believes that the adopted pre-approved plan is designed and is currently being operated in compliance with the applicable requirements of the Code and is therefore, qualified and exempt from taxation.
GAAP requires Plan management to evaluate uncertain tax positions taken by the Plan. The financial statement effects for a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination by the IRS. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2021, there are no uncertain positions taken or expected to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
7. Parties-In-Interest and Related Party Transactions
Transactions with parties-in-interest include investments in the Company’s common stock and participant loans. These transactions are exempt from the prohibited transactions rules under ERISA.
Transactions in Company stock qualify as related party transactions. The Plan held Company stock valued at $5,570,617 and $5,544,422 at December 31, 2021 and 2020, respectively. During the Plan year ended December 31, 2021, the Plan had purchases of Company stock in the amount of $489,601 and sales in the amount of $1,501,661.
Great-West Financial Retirement Plan Services ("Great-West") provides certain administrative services to the Plan pursuant to a Master Services Agreement ("Agreement"). Great-West receives revenue for recordkeeping fees charged to participants’ accounts as specified in the Agreement. This revenue is used to offset certain amounts owed to Great-West for its administrative services to the Plan, and therefore, qualify as party-in-interest transactions.
8. Reconciliation between Financial Statements and Form 5500
The following is a reconciliation of net assets available for benefits per the financial statements to Form 5500:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| Net assets available for benefits per financial statements | $ | 325,676,558 | | | $ | 294,380,096 | |
| Deemed loans not reported on Form 5500 | (1,072,525) | | | (950,669) | |
| Net assets available for benefits per Form 5500 | $ | 324,604,033 | | | $ | 293,429,427 | |
The following is a reconciliation of the net increase in net assets available for benefits per the financial statements to net income per Form 5500:
| | | | | |
| Year Ended December 31, 2021 |
| Net increase in net assets available for benefits per financial statements | $ | 31,296,462 | |
| Less: deemed loans not reported on Form 5500 at December 31, 2021 | (1,072,525) | |
| Plus: deemed loans not reported on Form 5500 at December 31, 2020 | 950,669 | |
| Net increase in net assets available for benefits per Form 5500 | $ | 31,174,606 | |