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, 2018 and 2017, and the related statement of changes in net assets available for benefits for the year ended December 31, 2018, 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, 2018 and 2017, and the changes in net assets available for benefits for the year ended December 31, 2018, 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 supplemental information in the accompanying schedule of assets (held at end of year) as of December 31, 2018 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 13, 2019
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 recordkeeper for the Plan. Great-West Trust Company, LLC is the
trustee of the Plan.
Contributions
Participants may elect to contribute up to 40% of their base salary through payroll deductions, as defined under the
provisions of the plan document, subject to Internal Revenue Code (“Code”) limitations. 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 the applicable lifecycle fund based on the participant’s age 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.
Participant Loans
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.
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 United States
generally accepted accounting principles.
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, 2018 or 2017. 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.
Uses of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles
requires plan management to make estimates that affect the amounts reported in the financial statements and accompanying notes and supplemental schedule. Actual results could differ from those estimates.
Events Occurring After Reporting Date
Plan management has evaluated events and transactions that occurred between December 31, 2018 and the issuance of the
report for possible recognition or disclosure in the financial statements.
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 (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the year.
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 that are accessible to the reporting entity at
the measurement date for identical assets and liabilities.
Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that
are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:
•
|
quoted prices for similar assets and liabilities in active markets
|
•
|
quoted prices for identical or similar assets or liabilities in markets that are not active
|
•
|
observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g.,
interest rate and yield curve quotes at commonly quoted intervals)
|
•
|
inputs that are derived principally from or corroborated by observable market data by correlation or other
means
|
Level 3 – Unobservable inputs for the asset or liability (i.e., supported by little or no market
activity). Level 3 inputs include management’s own assumption about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).
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: There have
been no changes in the methodologies used as of December 31, 2018 and 2017.
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.
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 table sets forth by level within the fair value hierarchy (all the Plan’s assets are identified as being
in Level 1), the Plan’s assets at fair value as of December 31, 2018:
|
|
Level 1
|
|
|
Total
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
206,867,935
|
|
|
$
|
206,867,935
|
|
Company common stock
|
|
|
3,367,497
|
|
|
|
3,367,497
|
|
Total investments in hierarchy
|
|
$
|
210,235,432
|
|
|
|
210,235,432
|
|
Stable value fund
(a)
|
|
|
|
|
|
|
33,417,812
|
|
Total Investments, at fair value
|
|
|
|
|
|
$
|
243,653,244
|
|
The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of
December 31, 2017:
|
|
Level 1
|
|
|
Total
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
$
|
230,205,365
|
|
|
$
|
230,205,365
|
|
Company common stock
|
|
|
7,100,983
|
|
|
|
7,100,983
|
|
Total investments in hierarchy
|
|
$
|
237,306,348
|
|
|
|
237,306,348
|
|
Stable value fund
(a)
|
|
|
|
|
|
|
34,001,465
|
|
Total Investments, at fair value
|
|
|
|
|
|
$
|
271,307,813
|
|
(a)
Valued at the NAV as a practical expedient to estimate fair value. This practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different from
the reported NAV. Participant transactions (purchases and sales) may occur daily. If the Plan initiates a full redemption of the fund, the issuer reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities
liquidations will be carried out in an orderly business manner.
The following table describes the investment measured at fair value based on NAV per share as of December 31, 2018 and
2017, respectively. There are no participant redemption restrictions for this investment; the redemption notice period is applicable only to Plan level transactions.
Description
|
|
Fair Value
12/31/2018
|
|
|
Fair Value
12/31/2017
|
|
|
Unfunded
Commitments
|
|
Redemption
Frequency
(if currently eligible)
|
|
Redemption
Notice
Period
|
Stable value fund
|
|
$
|
33,417,812
|
|
|
$
|
34,001,465
|
|
|
|
N/A
|
|
Daily
|
|
30 Days
|
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 prototype plan, which received a favorable opinion letter from the IRS on
March 31, 2014 which stated that the prototype 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 prototype 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.
Accounting principles generally accepted in the United States require 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, 2018, 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 $3,367,497
and $7,100,983 at December 31, 2018 and 2017, respectively. During the plan year ended December 31, 2018, the Plan had purchases of Company stock in the amount of $623,026 and sales in the amount of $1,118,894.
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
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net assets available for benefits per financial
|
|
|
|
|
|
|
statements
|
|
$
|
252,459,111
|
|
|
$
|
280,021,436
|
|
Deemed loans not reported on Form 5500
|
|
|
(464,798
|
)
|
|
|
(359,400
|
)
|
Net assets available for benefits per Form 5500
|
|
$
|
251,994,313
|
|
|
$
|
279,662,036
|
|
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, 2018
|
|
|
|
|
|
Net decrease in net assets available for benefits per financial
statement
|
|
$
|
(27,562,325
|
)
|
Less: deemed loans not reported on Form 5500 at December 31, 2018
|
|
|
(464,798
|
)
|
Plus: deemed loans not reported on Form 5500 at December 31, 2017
|
|
|
359,400
|
|
Net decrease in net assets available for benefit per Form 5500
|
|
$
|
(27,667,723
|
)
|
9. Subsequent Event
The Plan was amended as of January 1, 2019 to conform to the Bipartisan Budget Act of 2018.