Notes To Unaudited Consolidated Financial Statements
Note 1. Basis of Presentation and Significant Accounting Policies
Description of Business
Astec Industries, Inc. ("Astec" or the "Company") is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building and related construction activities, as well as other products discussed below. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including equipment for the mining, quarrying, construction and demolition industries and port and rail yard operators; industrial heat transfer equipment; commercial whole-tree pulpwood chippers; horizontal grinders; blower trucks; concrete plants; commercial and industrial burners; and combustion control systems.
The Company operates in two reportable segments (plus Corporate and Other) - Infrastructure Solutions and Materials Solutions. The Company's 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 and Other category consists primarily of the parent company, Astec Insurance Company ("Astec Insurance" or the "captive"), a captive insurance company, and the controls and automation business, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments.
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Astec and its subsidiaries and have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). The Company prepares its financial statements in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP"). Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the SEC rules and regulations governing interim financial statements. However, the Company believes that the disclosures made in the unaudited consolidated financial statements and related notes are adequate to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. All intercompany balances and transactions between the Company and its affiliates have been eliminated in consolidation.
Noncontrolling interest in the Company's consolidated financial statements represents the 7% interest in a consolidated subsidiary which is not owned by the Company. Since the Company controls this subsidiary, the subsidiary's financial statements are consolidated with those of the Company, and the noncontrolling owner's 7% share of the subsidiary's net assets and results of operations is deducted and reported as "Noncontrolling interest" in the Consolidated Balance Sheets and as "Net income attributable to noncontrolling interest" in the Consolidated Statements of Operations. The Company executed an agreement in February 2022 with the noncontrolling interest holder, which is undergoing a judicial reorganization in Brazil, to acquire their outstanding interest in full for R$10.0M (approximately $2.0 million, subject to the effect of exchange rates). Completion of the transaction is subject to obtaining certain judicial approval in Brazil.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include inventory obsolescence costs, warranty costs, inventory net realizable value, self-insurance loss reserves, share-based compensation and the measurement of income tax assets and liabilities. The Company bases its estimates on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances. The COVID-19 pandemic and its contributory impacts on the economy have resulted in uncertainties in the Company's business, which may result in actual results differing from those estimates. As a result, the Company's accounting estimates and assumptions may change over time in response to COVID-19 and its contributory impacts. Such changes could result in future impairments of goodwill, intangibles, long-lived assets and investment securities and incremental credit losses on receivables, among other issues. On an ongoing basis, the Company evaluates these assumptions, judgments and estimates. Actual results may differ from these estimates.
As discussed in Note 2. Immaterial Error Correction, the Company identified certain immaterial errors during the first quarter of 2022 for which the prior period and all relevant footnotes to the consolidated financial statements in this Form 10-Q have been revised to reflect the corrected balances.
In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021, the financial
position as of June 30, 2022 and December 31, 2021 and the cash flows for the six months ended June 30, 2022 and 2021, and except as otherwise discussed herein, such adjustments consist only of those of a normal recurring nature. The interim results are not necessarily indicative of results that may be achieved in a full reporting year.
All dollar amounts, except share and per share amounts, are in millions of dollars unless otherwise indicated.
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-10, "Government Assistance (Topic 832)", which aims to increase the transparency of government assistance including the disclosure of the types of assistance, an entity’s accounting for the assistance and the effect of the assistance on an entity’s financial statements. The new guidance requires expanded disclosure about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This new standard was effective for the Company on January 1, 2022. Availability of government assistance has typically been limited. The Company did not receive government assistance in 2022.
In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers", which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606). The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company elected to early adopt this guidance on April 1, 2022. The adoption of this new standard did not have a material impact on its financial position, results of operations, cash flows or disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)", which provides optional guidance for a limited period of time to ease the potential burden in accounting (or recognizing the effects of) reference rate reform on financial reporting. This was in response to stakeholders raising certain operational challenges likely to arise in accounting for contract modifications and hedge accounting because of reference rate reform. Some of those challenges relate to the significant volume of contracts and other arrangements, such as debt agreements, lease agreements and derivative instruments, which will be modified to replace references to discontinued rates with references to replacement rates. For accounting purposes, such contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. Stakeholders indicated that due to the significant volume of affected contracts and other arrangements, together with a compressed time frame for making contract modifications, the application of existing accounting standards on assessing modifications versus extinguishments could be costly and burdensome. In addition, stakeholders indicated that financial reporting results should reflect the intended continuation of such contracts and arrangements during the period of the market-wide transition to alternative reference rates. The amendments are elective and are effective upon issuance through December 31, 2022. The Company intends to apply this guidance if modifications of its contracts that include LIBOR occur, which is not expected to have a material impact on the Company's consolidated financial statements.
Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact on the Company.
Note 2. Immaterial Error Correction
During the first quarter of 2022, the Company identified errors in its previously issued financial statements related to an overstatement of work-in-process inventory that mainly accumulated over the periods from 2018 through 2021 thereby understating "Cost of sales" in those periods and an overstatement of "Net sales" and "Cost of sales" as well as impacts to certain consolidated balance sheet financial statement line items as a result of over-time revenue recognition calculation errors at one of the Company's sites which impacted the second, third and fourth quarters of 2021.
The Company assessed the materiality of these misstatements both quantitatively and qualitatively and determined the correction of these errors to be immaterial to the prior period consolidated financial statements taken as a whole. To reflect the correction of the above errors, the Company is revising the previously issued consolidated financial statements for the three and six months ended June 30, 2021 in this Form 10-Q. The Company is also disclosing the impact of the revisions on the previously filed audited Consolidated Balance Sheet as of December 31, 2021 and the opening balance sheet equity impact for December 31, 2020. As a result, the Company has corrected the misstatements as disclosed in the following tables for all impacted financial statement line items in prior periods.
Balance Sheet
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| December 31, 2021 |
(in millions) | As Previously Reported | | Adjustment | | As Revised |
Trade receivables and contract assets, net | $ | 144.1 | | | $ | (2.4) | | | $ | 141.7 | |
Inventories | 303.0 | | | (4.3) | | | 298.7 | |
Prepaid and refundable income taxes | 19.5 | | | 1.0 | | | 20.5 | |
Total current assets | 641.7 | | | (5.7) | | | 636.0 | |
Deferred income tax assets | 16.0 | | | 0.2 | | | 16.2 | |
Total assets | 911.3 | | | (5.5) | | | 905.8 | |
Accounts payable | 83.5 | | | (1.3) | | | 82.2 | |
Other current liabilities | 42.9 | | | (0.7) | | | 42.2 | |
Total current liabilities | 225.3 | | | (2.0) | | | 223.3 | |
Total liabilities | 256.5 | | | (2.0) | | | 254.5 | |
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Retained earnings | 552.8 | | | (3.5) | | | 549.3 | |
Shareholders' equity | 654.3 | | | (3.5) | | | 650.8 | |
Total equity | 654.8 | | | (3.5) | | | 651.3 | |
Total liabilities and equity | 911.3 | | | (5.5) | | | 905.8 | |
Statement of Operations
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| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
(in millions) | As Previously Reported | | Adjustment | | As Revised | | As Previously Reported | | Adjustment | | As Revised |
Net sales | $ | 278.0 | | | $ | (0.4) | | | $ | 277.6 | | | $ | 562.4 | | | $ | (0.4) | | | $ | 562.0 | |
Cost of sales | 211.0 | | | 0.5 | | | 211.5 | | | 426.9 | | | 0.8 | | | 427.7 | |
Gross profit | 67.0 | | | (0.9) | | | 66.1 | | | 135.5 | | | (1.2) | | | 134.3 | |
(Loss) income from operations | 11.2 | | | (0.9) | | | 10.3 | | | 21.0 | | | (1.2) | | | 19.8 | |
(Loss) income from operations before income taxes | 11.3 | | | (0.9) | | | 10.4 | | | 20.9 | | | (1.2) | | | 19.7 | |
Income tax (benefit) provision | 2.3 | | | (0.2) | | | 2.1 | | | 3.2 | | | (0.3) | | | 2.9 | |
Net (loss) income | 9.0 | | | (0.7) | | | 8.3 | | | 17.7 | | | (0.9) | | | 16.8 | |
Net (loss) income attributable to controlling interest | 9.0 | | | (0.7) | | | 8.3 | | | 17.7 | | | (0.9) | | | 16.8 | |
Per share data: | | | | | | | | | | | |
(Loss) earnings per common share - Basic | 0.40 | | | (0.04) | | | 0.36 | | | 0.78 | | | (0.04) | | | 0.74 | |
(Loss) earnings per common share - Diluted | 0.39 | | | (0.03) | | | 0.36 | | | 0.77 | | | (0.04) | | | 0.73 | |
Statements of Comprehensive Income
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| Three Months Ended June 30, 2021 | | Six Months Ended June 30, 2021 |
(in millions) | As Previously Reported | | Adjustment | | As Revised | | As Previously Reported | | Adjustment | | As Revised |
Net (loss) income | $ | 9.0 | | | $ | (0.7) | | | $ | 8.3 | | | $ | 17.7 | | | $ | (0.9) | | | $ | 16.8 | |
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Comprehensive (loss) income | 13.1 | | | (0.7) | | | 12.4 | | | 21.0 | | | (0.9) | | | 20.1 | |
Comprehensive (loss) income attributable to controlling interest | 13.2 | | | (0.7) | | | 12.5 | | | 21.0 | | | (0.9) | | | 20.1 | |
Statement of Cash Flow
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| Six Months Ended June 30, 2021 |
(in millions) | As Previously Reported | | Adjustment | | As Revised |
Net income | $ | 17.7 | | | $ | (0.9) | | | $ | 16.8 | |
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Receivables and other contract assets | (32.9) | | | 0.4 | | | (32.5) | |
Inventories | (7.4) | | | 0.8 | | | (6.6) | |
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Income taxes payable/prepaid | (7.0) | | | (0.3) | | | (7.3) | |
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Statement of Equity
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| As Previously Reported | | Adjustment | | As Revised |
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Balance, December 31, 2020 | | | | | |
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Retained Earnings | 545.2 | | | (1.5) | | | 543.7 | |
Total Equity | 643.0 | | | (1.5) | | | 641.5 | |
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Balance, March 31, 2021 | | | | | |
| | | | | |
Retained Earnings | 551.4 | | | (1.7) | | | 549.7 | |
Total Equity | 647.0 | | | (1.7) | | | 645.3 | |
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Balance, June 30, 2021 | | | | | |
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Retained Earnings | 557.9 | | | (2.4) | | | 555.5 | |
Total Equity | 659.3 | | | (2.4) | | | 656.9 | |
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Balance, December 31, 2021 | | | | | |
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Retained Earnings | 552.8 | | | (3.5) | | | 549.3 | |
Total Equity | 654.8 | | | (3.5) | | | 651.3 | |
Note 3. Acquisitions
MINDS Acquisition - The Company entered into a Share Purchase Agreement, dated as of March 22, 2022, by and between MINDS Automation Group, Inc., a leader in plant automation control systems and cloud-based data management in the asphalt industry in Canada. The purchase price of $19.3 million was paid in cash. The Company's preliminary allocation of the purchase price resulted in the recognition of $9.3 million of goodwill and $9.3 million of intangible assets primarily consisting of customer relationships (9 year life) and developed technology (7 year life). Significant inputs and assumptions used in determining the fair values of these intangible assets include management's forecasts of future revenues, earnings and cash flows, a discount rate based on the median weighted average cost of capital of the Company and select market competitors, and proportion of intangible assets acquired in relation to tangible assets. Goodwill acquired is attributable to future growth opportunities provided by the acquired intellectual capital and the ability to generate cross-selling synergies. The acquisition provides the Company with a broader line of controls and automation products designed to deliver enhanced productivity through improved equipment performance. Results of operations have been consolidated from the date of acquisition. The goodwill is not expected to be deductible for income tax purposes.
Acquisition and integration costs of $0.4 million and $0.9 million were expensed as incurred during the three and six months ended June 30, 2022, respectively, for this acquisition. These costs are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations.
The following table summarizes the preliminary allocations of the total purchase price:
| | | | | | | | |
(in millions) | | Amount |
Cash | | $ | 1.5 | |
Trade receivables | | 2.7 | |
Inventories | | 0.7 | |
Prepaid expenses and other assets | | 0.4 | |
Property and equipment | | 0.2 | |
Goodwill | | 9.3 | |
Intangible assets | | 9.3 | |
| | |
Other long-term assets | | 0.5 | |
Total assets acquired | | $ | 24.6 | |
Accounts payable | | (0.7) | |
Accrued payroll and related liabilities | | (0.8) | |
Other current liabilities | | (1.1) | |
Deferred income tax liabilities | | (2.4) | |
Other long-term liabilities | | (0.3) | |
Total liabilities assumed | | (5.3) | |
Total purchase price | | $ | 19.3 | |
Note 4. Inventories
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, which requires the Company to make specific estimates, assumptions and judgments in determining the amount, if any, of reductions in the valuation of inventories to their net realizable values.
Inventories consist of the following:
| | | | | | | | | | | |
(in millions) | June 30, 2022 | | December 31, 2021 |
Raw materials and parts | $ | 268.9 | | | $ | 216.1 | |
Work-in-process | 72.8 | | | 50.4 | |
Finished goods | 26.4 | | | 28.9 | |
Used equipment | 3.0 | | | 3.3 | |
Total | $ | 371.1 | | | $ | 298.7 | |
Note 5. Fair Value Measurements
The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance and marketable equity securities held in the Company's deferred compensation programs. The Company's deferred compensation programs include a non-qualified Supplemental Executive Retirement Plan ("SERP") and a separate non-qualified Deferred Compensation Plan. Although the deferred compensation programs' investments are allocated to individual participants and investment decisions are made solely by those participants, they are non-qualified plans. Consequently, the Company owns the assets and the related offsetting liability for disbursement until such time as a participant makes a qualifying withdrawal. The SERP assets and related offsetting liability are recorded in non-current "Investments" and "Other long-term liabilities", respectively, in the Consolidated Balance Sheets. The Company's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.
The carrying amount of cash and cash equivalents, trade receivables and contract assets, other receivables, accounts payable, short-term debt and long-term debt approximates their fair value because of their short-term nature and/or interest rates associated with the instruments. Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market-based inputs.
Financial assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The inputs used to measure the fair value are identified in the following hierarchy:
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Level 1 - | | Unadjusted quoted prices in active markets for identical assets or liabilities. |
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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. |
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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. |
As indicated in the tables below, the Company has determined that all of its financial assets and liabilities as of June 30, 2022 and December 31, 2021 are Level 1 and Level 2 in the fair value hierarchy as defined above:
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| June 30, 2022 |
(in millions) | Level 1 | | Level 2 | | Total |
Financial assets: | | | | | |
Trading equity securities: | | | | | |
Deferred compensation programs' mutual funds | $ | 4.4 | | | $ | — | | | $ | 4.4 | |
Preferred stocks | 0.3 | | | — | | | 0.3 | |
Equity funds | 0.6 | | | — | | | 0.6 | |
Trading debt securities: | | | | | |
Corporate bonds | 6.4 | | | — | | | 6.4 | |
Municipal bonds | — | | | 0.1 | | | 0.1 | |
Floating rate notes | 0.4 | | | — | | | 0.4 | |
U.S. government securities | 0.9 | | | — | | | 0.9 | |
Asset-backed securities | — | | | 4.4 | | | 4.4 | |
Other | 2.1 | | | 0.7 | | | 2.8 | |
Derivative financial instruments | — | | | 0.3 | | | 0.3 | |
Total financial assets | $ | 15.1 | | | $ | 5.5 | | | $ | 20.6 | |
Financial liabilities: | | | | | |
| | | | | |
Deferred compensation programs' liabilities | $ | — | | | $ | 5.6 | | | $ | 5.6 | |
Total financial liabilities | $ | — | | | $ | 5.6 | | | $ | 5.6 | |
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| December 31, 2021 |
(in millions) | Level 1 | | Level 2 | | Total |
Financial assets: | | | | | |
Trading equity securities: | | | | | |
Deferred compensation programs' mutual funds | $ | 4.9 | | | $ | — | | | $ | 4.9 | |
Preferred stocks | 0.3 | | | — | | | 0.3 | |
Equity funds | 3.0 | | | — | | | 3.0 | |
Trading debt securities: | | | | | |
Corporate bonds | 3.3 | | | — | | | 3.3 | |
Municipal bonds | — | | | 0.2 | | | 0.2 | |
Floating rate notes | 0.4 | | | — | | | 0.4 | |
U.S. government securities | 1.1 | | | — | | | 1.1 | |
Asset-backed securities | — | | | 3.5 | | | 3.5 | |
Other | 3.1 | | | 1.0 | | | 4.1 | |
Derivative financial instruments | — | | | 0.1 | | | 0.1 | |
Total financial assets | $ | 16.1 | | | $ | 4.8 | | | $ | 20.9 | |
Financial liabilities: | | | | | |
| | | | | |
Deferred compensation programs' liabilities | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
Total financial liabilities | $ | — | | | $ | 7.2 | | | $ | 7.2 | |
Note 6. Product Warranty Reserves
The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products, but generally range from three months to two years or up to a specified number of hours of operation. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The product warranty liability is primarily based on historical claim rates, nature of claims and the associated cost.
Changes in the Company's product warranty liability for the three and six month periods ended June 30, 2022 and 2021 are as follows:
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| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Reserve balance, beginning of the period | $ | 11.3 | | | $ | 10.9 | | | $ | 10.5 | | | $ | 10.3 | |
Warranty liabilities accrued | 3.2 | | | 2.2 | | | 6.4 | | | 4.9 | |
Warranty liabilities settled | (2.8) | | | (2.6) | | | (5.2) | | | (4.7) | |
Other | (0.1) | | | — | | | (0.1) | | | — | |
Reserve balance, end of the period | $ | 11.6 | | | $ | 10.5 | | | $ | 11.6 | | | $ | 10.5 | |
Note 7. Accrued Loss Reserves
The Company records reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. Total accrued loss reserves were $6.4 million and $5.8 million at June 30, 2022 and December 31, 2021 respectively, of which $4.2 million and $3.9 million were included in "Other long-term liabilities" in the Consolidated Balance Sheets at June 30, 2022 and December 31, 2021, respectively.
Note 8. Income Taxes
For the three months ended June 30, 2022, the Company recorded an income tax benefit of $0.8 million, reflecting a 17.0% effective tax rate, compared to a $2.1 million income tax provision for the three months ended June 30, 2021, reflecting a 20.2% effective tax rate. The income tax benefit for the three months ended June 30, 2022 as compared to expense in the same period in 2021 was primarily driven by lower income from operations and changes in the relative weighting of jurisdictional income and
loss reduced by the effect of a net discrete tax benefit in the prior year that did not recur in the current year related to the release of reserves for uncertain tax positions associated with Astec Mobile Machinery GmbH ("AMM") whose dissolution was completed during the second quarter of 2021.
For the six months ended June 30, 2022, the Company recorded an income tax provision of $0.1 million, reflecting a 33.3% effective tax rate, compared to $2.9 million for the six months ended June 30, 2021, reflecting a 14.7% effective tax rate. The income tax expense for the six months ended June 30, 2022 was lower compared to the same period of 2021 primarily driven by lower earnings from operations and changes in the relative weighting of jurisdictional income and loss reduced by the effect of a release of reserves for uncertain tax positions associated with AMM in 2021 that did not recur in the current year and lower net discrete benefits from the vesting of employee shared-based compensation awards.
The Company's recorded liability for uncertain tax positions was $11.1 million and $10.8 million as of June 30, 2022 and December 31, 2021, respectively. The increase is the result of $0.3 million of incremental reserves associated with the 2022 research and development credit. The Company does not anticipate a significant change in unrecognized tax benefits due to the expiration of relevant statutes of limitations and federal, state, and foreign tax audit resolutions over the next twelve months.
The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. The Company is currently under audit by the U.S. Internal Revenue Service for the federal income tax return from the 2018 tax year as well as various other state income tax and jurisdictional audits. As of June 30, 2022, the Company believes that it is more-likely-than-not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position, results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company's estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties and/or interest assessments.
Note 9. Commitments and Contingencies
Certain customers have financed purchases of Company products through arrangements with third-party financing institutions in which the Company is contingently liable for customer debt of $2.3 million and $2.4 million at June 30, 2022 and December 31, 2021, respectively. These arrangements expire at various dates through June 2025. Additionally, the Company is also contingently liable for 1.75% of the unpaid balance, determined as of December 31 of the prior year (or approximately $0.2 million for 2022), on certain past customer equipment purchases that were financed by an outside finance company. The agreements provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $1.0 million and $1.1 million related to these guarantees which were included in "Other current liabilities" in the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, respectively.
The Company reviews off-balance sheet guarantees individually and at the loss pool level based on one agreement. Prior history is considered in regard to the Company having to perform on any off-balance sheet guarantees, as well as future projections of individual customer credit worthiness including consideration of the implications of COVID-19 in regard to assessing credit losses related to off-balance sheet guarantees.
In addition, the Company is contingently liable under letters of credit issued under its $150.0 million revolving credit facility (the "Credit Facility") totaling $2.6 million as of June 30, 2022. The outstanding letters of credit expire at various dates through June 2023. The maximum potential amount of future payments under letters of credit issued under the Credit Facility for which the Company could be liable is $30.0 million as of June 30, 2022. As of June 30, 2022, the Company's foreign subsidiaries are contingently liable for a total of $1.5 million in letters of credit and bank guarantees securing performance and advance payments. The maximum potential amount of future payments under these letters of credit and bank guarantees for which the Company could be liable is $7.2 million as of June 30, 2022.
The Company and certain of its former executive officers were named as defendants in a putative shareholder class action lawsuit filed on February 1, 2019, as amended on August 26, 2019, in the United States District Court for the Eastern District of Tennessee. The action is styled City of Taylor General Employees Retirement System v. Astec Industries, Inc., et al., Case No. 1:19-cv-24-CEA-CHS. The complaint generally alleges that the defendants violated the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and that the individual defendants were control persons under Section 20(a) of the Exchange Act. The complaint is filed on behalf of shareholders who purchased stock of the Company between July 26, 2016 and October 22, 2018 and seeks monetary damages on behalf of the purported class. On October 25, 2019, the defendants filed a Motion to Dismiss. On February 19, 2021, the Motion to Dismiss was granted with prejudice and judgment was entered for the defendants. On March 19, 2021, plaintiff filed a Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint, which was denied on May 5, 2021. Plaintiff appealed the Motion to Dismiss and denial of its Motion to Alter or Amend the Judgment and For Leave to File the Proposed Amended Complaint to the United States Court of Appeals for the Sixth Circuit. On March 31, 2022, the United States Court of Appeals for the Sixth Circuit issued an opinion reversing the dismissal of the Company and one former executive officer, affirming the dismissal of certain other former executive officers and remanding the action to the United States
District Court for the Eastern District of Tennessee for proceedings consistent with the opinion.
The Company's GEFCO subsidiary has been named a defendant in a lawsuit originally filed on August 16, 2018 with an amended complaint filed on January 25, 2019, in the United States District Court for the Western District of Oklahoma. The action is styled VenVer S.A. and Americas Coil Tubing LLP v. GEFCO, Inc., Case No. CIV-18-790-SLP. The complaint alleges breaches of warranty and other similar claims regarding equipment sold by GEFCO in 2013. In addition to seeking a rescission of the purchase contract, the plaintiff is seeking special and consequential damages. The original purchase price of the equipment was approximately $8.5 million. GEFCO disputes the plaintiff's allegations and intends to defend this lawsuit vigorously. On July 7, 2020, the plaintiffs filed a separate lawsuit directly against Astec Industries, Inc. Besides a new claim based on fraudulent transfer, the allegations essentially mirror the GEFCO suit. Astec Industries, Inc. is vigorously defending this suit as well. The Company is unable to determine whether or not a future loss will be incurred due to this litigation or estimate the possible loss or range of loss, if any, at this time.
The Company is subject to various claims and legal proceedings in the ordinary course of its business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal fees) or the minimum estimated liability when the loss is estimated using a range and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is either: (i) probable but cannot be reasonably estimated or (ii) reasonably estimable but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter.
Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company's financial position, cash flows or results of operations.
Note 10. Revenue Recognition
The following tables disaggregate the Company's revenue by major source for the three and six month periods ended June 30, 2022 and 2021 (excluding intercompany sales):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
(in millions) | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Net Sales-Domestic: | | | | | | | | | | | | | | | |
Equipment sales | $ | 114.1 | | | $ | 55.8 | | | $ | 0.1 | | | $ | 170.0 | | | $ | 82.4 | | | $ | 43.6 | | | $ | — | | | $ | 126.0 | |
| | | | | | | | | | | | | | | |
Parts and component sales | 43.7 | | | 21.1 | | | — | | | 64.8 | | | 40.6 | | | 21.3 | | | — | | | 61.9 | |
Service and equipment installation revenue | 5.9 | | | 0.1 | | | — | | | 6.0 | | | 3.9 | | | 0.1 | | | — | | | 4.0 | |
Used equipment sales | 0.3 | | | — | | | — | | | 0.3 | | | 2.8 | | | 0.7 | | | — | | | 3.5 | |
Freight revenue | 6.2 | | | 2.2 | | | — | | | 8.4 | | | 4.6 | | | 1.8 | | | — | | | 6.4 | |
Other | 0.1 | | | (1.2) | | | — | | | (1.1) | | | — | | | (0.4) | | | — | | | (0.4) | |
Total domestic revenue | 170.3 | | | 78.0 | | | 0.1 | | | 248.4 | | | 134.3 | | | 67.1 | | | — | | | 201.4 | |
| | | | | | | | | | | | | | | |
Net Sales-International: | | | | | | | | | | | | | | | |
Equipment sales | 27.0 | | | 18.1 | | | 0.8 | | | 45.9 | | | 35.2 | | | 21.0 | | | — | | | 56.2 | |
| | | | | | | | | | | | | | | |
Parts and component sales | 11.0 | | | 10.1 | | | 0.1 | | | 21.2 | | | 8.7 | | | 8.2 | | | — | | | 16.9 | |
Service and equipment installation revenue | 0.6 | | | 0.5 | | | 0.2 | | | 1.3 | | | 0.8 | | | 0.3 | | | — | | | 1.1 | |
Used equipment sales | — | | | 0.1 | | | — | | | 0.1 | | | — | | | 0.4 | | | — | | | 0.4 | |
Freight revenue | 0.7 | | | 0.4 | | | — | | | 1.1 | | | 0.7 | | | 0.8 | | | — | | | 1.5 | |
Other | — | | | 0.2 | | | — | | | 0.2 | | | 0.1 | | | — | | | — | | | 0.1 | |
Total international revenue | 39.3 | | | 29.4 | | | 1.1 | | | 69.8 | | | 45.5 | | | 30.7 | | | — | | | 76.2 | |
Total net sales | $ | 209.6 | | | $ | 107.4 | | | $ | 1.2 | | | $ | 318.2 | | | $ | 179.8 | | | $ | 97.8 | | | $ | — | | | $ | 277.6 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
(in millions) | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Net Sales-Domestic: | | | | | | | | | | | | | | | |
Equipment sales | $ | 209.3 | | | $ | 101.4 | | | $ | 0.1 | | | $ | 310.8 | | | $ | 181.6 | | | $ | 85.4 | | | $ | — | | | $ | 267.0 | |
| | | | | | | | | | | | | | | |
Parts and component sales | 100.1 | | | 41.9 | | | — | | | 142.0 | | | 92.5 | | | 39.0 | | | — | | | 131.5 | |
Service and equipment installation revenue | 12.6 | | | 0.3 | | | — | | | 12.9 | | | 9.7 | | | 0.2 | | | — | | | 9.9 | |
Used equipment sales | 2.0 | | | — | | | — | | | 2.0 | | | 5.7 | | | 0.7 | | | — | | | 6.4 | |
Freight revenue | 12.8 | | | 3.8 | | | — | | | 16.6 | | | 10.2 | | | 3.3 | | | — | | | 13.5 | |
Other | 0.2 | | | (1.6) | | | — | | | (1.4) | | | (0.4) | | | (0.9) | | | — | | | (1.3) | |
Total domestic revenue | 337.0 | | | 145.8 | | | 0.1 | | | 482.9 | | | 299.3 | | | 127.7 | | | — | | | 427.0 | |
| | | | | | | | | | | | | | | |
Net Sales-International: | | | | | | | | | | | | | | | |
Equipment sales | 43.6 | | | 32.8 | | | 0.8 | | | 77.2 | | | 56.5 | | | 33.8 | | | — | | | 90.3 | |
| | | | | | | | | | | | | | | |
Parts and component sales | 23.3 | | | 19.8 | | | 0.1 | | | 43.2 | | | 21.8 | | | 15.9 | | | — | | | 37.7 | |
Service and equipment installation revenue | 1.8 | | | 1.2 | | | 0.2 | | | 3.2 | | | 1.8 | | | 0.8 | | | — | | | 2.6 | |
Used equipment sales | 0.2 | | | 0.6 | | | — | | | 0.8 | | | 0.1 | | | 1.2 | | | — | | | 1.3 | |
Freight revenue | 1.2 | | | 0.7 | | | — | | | 1.9 | | | 1.5 | | | 1.1 | | | — | | | 2.6 | |
Other | — | | | 0.2 | | | — | | | 0.2 | | | 0.3 | | | 0.2 | | | — | | | 0.5 | |
Total international revenue | 70.1 | | | 55.3 | | | 1.1 | | | 126.5 | | | 82.0 | | | 53.0 | | | — | | | 135.0 | |
Total net sales | $ | 407.1 | | | $ | 201.1 | | | $ | 1.2 | | | $ | 609.4 | | | $ | 381.3 | | | $ | 180.7 | | | $ | — | | | $ | 562.0 | |
Sales into major geographic regions were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
United States | $ | 248.4 | | | $ | 201.4 | | | $ | 482.9 | | | $ | 427.0 | |
Canada | 22.1 | | | 20.2 | | | 36.3 | | | 37.5 | |
Australia | 10.3 | | | 12.4 | | | 20.5 | | | 21.2 | |
Africa | 5.9 | | | 7.8 | | | 15.0 | | | 16.1 | |
Europe | 7.9 | | | 13.9 | | | 13.3 | | | 24.4 | |
South America | 7.4 | | | 4.5 | | | 12.6 | | | 9.0 | |
Brazil | 7.0 | | | 4.9 | | | 10.8 | | | 9.1 | |
Asia | 3.1 | | | 2.4 | | | 7.1 | | | 3.7 | |
Mexico | 4.2 | | | 8.0 | | | 4.9 | | | 10.4 | |
Central America | 1.0 | | | 0.6 | | | 3.6 | | | 1.8 | |
Other | 0.9 | | | 1.5 | | | 2.4 | | | 1.8 | |
Total foreign | 69.8 | | | 76.2 | | | 126.5 | | | 135.0 | |
Total net sales | $ | 318.2 | | | $ | 277.6 | | | $ | 609.4 | | | $ | 562.0 | |
As of June 30, 2022, the Company had contract assets of $5.3 million and contract liabilities, excluding customer deposits, of $4.7 million, including $3.2 million of deferred revenue related to extended warranties. As of December 31, 2021, the Company
had contract assets of $3.2 million and contract liabilities, excluding customer deposits, of $5.6 million, including $2.7 million of deferred revenue related to extended warranties.
Note 11. Segment Information
The Company has two reportable segments, each of which 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. Based on a review of these factors, the Company's India and Thailand sites have changed reportable segments beginning January 1, 2022. The India site was previously incorporated into the Materials Solutions segment and has moved to the Infrastructure Solutions segment while the Thailand site, which was previously included in the Infrastructure Solutions segment, has moved to the Materials Solutions segment.
Beginning January 1, 2022, the measure of segment profit or loss used by the Company's Chief Executive Officer, whom is determined to be the chief operating decision maker ("CODM"), to evaluate performance and allocate resources to the operating segments changed to Segment Operating Adjusted EBITDA. Segment Operating Adjusted EBITDA, a non-GAAP financial measure, is defined as net income or loss before the impact of interest income or expense, income taxes, depreciation and amortization and certain other adjustments that are not considered by the CODM in the evaluation of ongoing operating performance. The Company's presentation of Segment Operating Adjusted EBITDA may not be comparable to similar measures used by other companies and are not necessarily indicative of the results of operations that would have occurred had each reportable segment been an independent, stand-alone entity during the periods presented.
Prior periods have been revised to reflect both the segment composition change and the segment profit or loss metric noted above for comparability.
During the first quarter of 2022, the Company revised the allocation of certain of its functional expenses between the Corporate category and the reportable segments primarily related to the Company's annual incentive compensation. Prior periods have not been revised for this change.
A brief description of each segment is as follows:
Infrastructure Solutions – The Infrastructure Solutions segment comprises 11 active sites and designs, engineers, manufactures and markets a complete line of asphalt plants, concrete plants and their related components and ancillary equipment as well as supplying other heavy equipment. The sites based in North America within the Infrastructure Solutions segment are primarily manufacturing operations while those located outside of North America service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of the Company's manufacturing sites. The primary purchasers of the products produced by this segment are asphalt producers, highway and heavy equipment contractors, ready mix concrete producers, contractors in the construction and demolition recycling markets and domestic and foreign governmental agencies.
Materials Solutions – The Materials Solutions segment comprises nine active sites and designs and manufactures heavy processing equipment, in addition to servicing and supplying parts for the aggregate, metallic mining, recycling, ports and bulk handling markets. The sites within the Materials Solutions segment are primarily manufacturing operations with the AME and Thailand sites functioning to market, service and install equipment and provide parts in the regions in which they operate for many of the products produced by all of the Company's manufacturing sites. Additionally, the Materials Solutions segment offers consulting and engineering services to provide complete "turnkey" processing systems. The principal purchasers of aggregate processing equipment include distributors, highway and heavy equipment contractors, sand and gravel producers, recycle and crushing contractors, open mine operators, quarry operators, port and inland terminal authorities, power stations and foreign and domestic governmental agencies.
Corporate and Other – The Corporate and Other category consists primarily of the parent company, the Company's captive insurance company, Astec Insurance, and the controls and automation business, which do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments. The parent company and the captive insurance company provide support and corporate oversight for all of the sites. The controls and automation business manufactures hardware and software products that are marketed independently as well as included in certain products of the Company's other segments.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers between foreign subsidiaries are valued at prices comparable to those for unrelated parties.
Segment Information:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 | | Three Months Ended June 30, 2021 |
(in millions) | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Revenues from external customers | $ | 209.6 | | | $ | 107.4 | | | $ | 1.2 | | | $ | 318.2 | | | $ | 179.8 | | | $ | 97.8 | | | $ | — | | | $ | 277.6 | |
Intersegment sales | 4.0 | | | 12.0 | | | — | | | 16.0 | | | 2.2 | | | 5.1 | | | — | | | 7.3 | |
Segment Operating Adjusted EBITDA | 15.9 | | | 9.5 | | | (12.3) | | | 13.1 | | | 16.5 | | | 15.9 | | | (11.9) | | | 20.5 | |
| | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 | | Six Months Ended June 30, 2021 |
(in millions) | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total | | Infrastructure Solutions | | Materials Solutions | | Corporate and Other | | Total |
Revenues from external customers | $ | 407.1 | | | $ | 201.1 | | | $ | 1.2 | | | $ | 609.4 | | | $ | 381.3 | | | $ | 180.7 | | | $ | — | | | $ | 562.0 | |
Intersegment sales | 5.1 | | | 21.7 | | | — | | | 26.8 | | | 2.9 | | | 10.8 | | | — | | | 13.7 | |
Segment Operating Adjusted EBITDA | 32.3 | | | 21.7 | | | (22.1) | | | 31.9 | | | 42.7 | | | 25.6 | | | (26.9) | | | 41.4 | |
A reconciliation of total segment profit to the Company's consolidated totals is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Reconciliation to total consolidated net (loss) income attributable to controlling interest | | | | | | | |
Segment Operating Adjusted EBITDA | $ | 13.1 | | | $ | 20.5 | | | $ | 31.9 | | | $ | 41.4 | |
Adjustments: | | | | | | | |
Transformation program | (6.4) | | | (2.1) | | | (11.7) | | | (5.3) | |
| | | | | | | |
Facility closures and reduction in force | (0.4) | | | (0.8) | | | (1.4) | | | (1.6) | |
Asset impairment | (3.0) | | | (0.2) | | | (3.0) | | | (0.2) | |
Gain on sale of property, equipment and business, net | — | | | 0.2 | | | — | | | 0.3 | |
Transaction costs | (0.8) | | | — | | | (1.4) | | | — | |
Interest expense, net | (0.4) | | | — | | | (0.6) | | | (0.1) | |
Depreciation and amortization | (6.9) | | | (7.5) | | | (13.6) | | | (15.1) | |
Income tax benefit (provision) | 0.8 | | | (2.1) | | | (0.1) | | | (2.9) | |
| | | | | | | |
Recapture of intercompany profit | 0.1 | | | 0.3 | | | 0.1 | | | 0.3 | |
Total consolidated net (loss) income attributable to controlling interest | $ | (3.9) | | | $ | 8.3 | | | $ | 0.2 | | | $ | 16.8 | |
Note 12. Strategic Transformation and Restructuring, Impairment and Other Asset Charges
The Company's Simplify, Focus and Grow Strategic Transformation ("SFG") initiative, which began in 2019, generally includes facility rationalization, asset impairment, workforce reduction, the associated costs of organizational integration activities and strategic transformational initiatives. As part of the SFG initiative several strategic decisions have been made to divest of underperforming manufacturing sites or product lines, including to close certain subsidiaries, close and sell manufacturing sites and relocate the product lines manufactured at each of these sites to other Company locations; exit the oil, gas and water well product lines; and sell certain assets, which are included in "Restructuring, impairment and other asset charges, net" on the Company's Consolidated Statements of Operations.
The Company also has a multi-year phased implementation of a standardized enterprise resource planning ("ERP") system across the global organization underway, which will replace much of the existing disparate core financial systems. The upgraded ERP will initially convert 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.
In addition, beginning in the first quarter of 2022, a lean manufacturing initiative at one of the Company's largest sites was initiated and is expected to drive improvement in gross margin at that site. This improvement is intended to serve as the optimal blueprint for the Company's other manufacturing facilities.
Costs incurred of $6.4 million and $11.7 million related to these strategic transformational initiatives in the three and six months ended June 30, 2022, respectively, are recorded in "Selling, general and administrative expenses" in the Consolidated Statements of Operations. Costs totaling $2.1 million and $5.3 million were incurred in the three and six months ended June 30, 2021, respectively.
In addition, the Company periodically sells or disposes of its assets in the normal course of its business operations as they are no longer needed or used and may incur gains or losses on these disposals. Certain of the costs associated with these decisions are separately identified as restructuring. The Company reports asset impairment charges and gains or losses on the sales of property and equipment collectively, with restructuring charges in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations to the extent they are experienced.
Restructuring, asset impairment charges and the net gain on sale of property and equipment are presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Restructuring charges: | | | | | | | |
Costs associated with closing Tacoma | $ | — | | | $ | 0.6 | | | $ | 0.8 | | | $ | 1.0 | |
Costs associated with closing Enid | 0.4 | | | — | | | 0.6 | | | — | |
Costs associated with closing Mequon | — | | | 0.2 | | | — | | | 0.6 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total restructuring related charges | 0.4 | | | 0.8 | | | 1.4 | | | 1.6 | |
| | | | | | | |
Asset impairment charges: | | | | | | | |
| | | | | | | |
| | | | | | | |
Other impairment charges | 3.0 | | | 0.2 | | | 3.0 | | | 0.2 | |
Total asset impairment charges | 3.0 | | | 0.2 | | | 3.0 | | | 0.2 | |
| | | | | | | |
Gain on sale of property and equipment, net: | | | | | | | |
Gain on sale of property and equipment, net | — | | | (0.2) | | | — | | | (0.3) | |
Total gain on sale of property and equipment, net | — | | | (0.2) | | | — | | | (0.3) | |
| | | | | | | |
Restructuring, impairment and other asset charges, net | $ | 3.4 | | | $ | 0.8 | | | $ | 4.4 | | | $ | 1.5 | |
Restructuring charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Infrastructure Solutions | $ | 0.4 | | | $ | 0.6 | | | $ | 1.4 | | | $ | 1.0 | |
Materials Solutions | — | | | 0.2 | | | — | | | 0.6 | |
| | | | | | | |
Total restructuring related charges | $ | 0.4 | | | $ | 0.8 | | | $ | 1.4 | | | $ | 1.6 | |
Impairment charges by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Infrastructure Solutions | $ | 2.1 | | | $ | — | | | $ | 2.1 | | | $ | — | |
Corporate | 0.9 | | | — | | | 0.9 | | | — | |
Materials Solutions | — | | | 0.2 | | | — | | | 0.2 | |
Total impairment charges | $ | 3.0 | | | $ | 0.2 | | | $ | 3.0 | | | $ | 0.2 | |
The net gain on sale of property and equipment by segment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(in millions) | 2022 | | 2021 | | 2022 | | 2021 |
Infrastructure Solutions | $ | — | | | $ | (0.1) | | | $ | — | | | $ | (0.2) | |
Materials Solutions | — | | | (0.1) | | | — | | | (0.1) | |
| | | | | | | |
Total gain on sale of property and equipment, net | $ | — | | | $ | (0.2) | | | $ | — | | | $ | (0.3) | |
Restructuring charges accrued, but not paid, were $0.6 million and $1.2 million as of June 30, 2022 and December 31, 2021, respectively.
In January 2021, the Company announced plans to close the Tacoma facility in order to simplify and consolidate operations. The Tacoma facility ceased manufacturing operations at the end of 2021. The transfer of the manufacturing and marketing of Tacoma product lines to other facilities within the Infrastructure Solutions segment was completed during the first quarter of 2022. In conjunction with this action, the Company recorded $0.6 million and $1.0 million of restructuring related charges during the three and six months ended June 30, 2021, respectively, in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations. Additional restructuring costs of $0.8 million were incurred during the three months ended March 31, 2022. The Company recorded the Tacoma facility's land, building and certain equipment assets of $15.4 million, which are currently being marketed for sale, as held for sale in its Consolidated Balance Sheets at June 30, 2022.
In late 2019, the oil and gas drilling product lines produced at the Enid, Oklahoma location ("Enid") were impaired and discontinued. Additional restructuring costs of $0.4 million and $0.6 million were incurred during the three and six months ended June 30, 2022, respectively. Enid's land and building assets totaling $5.1 million are included in "Assets held for sale" in the Consolidated Balance Sheets at June 30, 2022 and December 31, 2021.
In October 2020, the Company closed a transaction for the sale of Enid's water well assets, which included equipment, inventories and intangible assets. The purchase price for this transaction was approximately $6.9 million, net of purchase price adjustments completed in January 2021 whereby the Company had an obligation to pay the buyer $1.1 million. This obligation was settled in the first quarter of 2021.
In June 2020, the Company announced the closing of the Mequon site in order to simplify and consolidate operations. The Mequon facility ceased production operations in August 2020. Charges totaling $0.2 million and $0.6 million were incurred during the three and six months ended June 30, 2021, respectively.
During the three months ended June 30, 2022, the Company determined that certain manufacturing equipment contracted to be constructed by a third-party vendor, which had been prepaid, would not be recovered. Impairment charges of $2.1 million were recorded in "Restructuring, impairment and other asset charges, net" in the Consolidated Statements of Operations during the three months ended June 30, 2022. An additional $0.9 million of impairment charges were incurred related to abandoned in-process internally developed software that was determined to be impaired during the quarter.
Note 13. (Loss) Earnings Per Common Share
Basic (loss) earnings per common share is determined by dividing "Net (loss) income attributable to controlling interest" by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) earnings per common share includes the dilutive effect of common stock equivalents consisting of restricted stock units, performance stock units and stock held in the Company's supplemental executive retirement plan, using the treasury stock method. Performance stock units, which are considered contingently issuable, are considered dilutive when the related performance criterion has been met.
The following table sets forth a reconciliation of the number of shares used in the computation of basic and diluted (loss) earnings per common share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Denominator: | | | | | | | |
Denominator for basic earnings per common share | 22,850,515 | | | 22,742,162 | | | 22,816,684 | | | 22,688,339 | |
Effect of dilutive securities | — | | | 175,795 | | | 107,184 | | | 216,931 | |
Denominator for diluted earnings per common share | 22,850,515 | | | 22,917,957 | | | 22,923,868 | | | 22,905,270 | |