Issue link: http://read.dmtmag.com/i/115254
Letter to Shareholders 2012 was a year of continuing uncertainty and slow growth in the United States. After expiring in September, 2009, SAFETEA-LU, the multi-year U.S. federal highway bill, was extended in varying increments until a new, 27-month, $105 billion surface transportation authorization titled MAP-21 (Moving Ahead for Progress in the 21st Century) was signed into law on July 6, 2012. MAP-21 is in place until September 2014. Over the past three years we have lived from one uncertainty to another related to the size and timing of a new Highway Bill. This made planning difficult for state transportation departments, resulting in four years of flat revenues combined with uncertainty about the future. This was not a good prescription for people to buy equipment. Following passage of the 27-month highway bill, we entered into the presidential election season which continued the uncertainty in the market. All of this activity took place against a backdrop of the Eurozone crisis, climbing national debt and a looming fiscal cliff. As we entered this period of uncertainty, we were fortunate to have a strong balance sheet and good cash flow leaving us more options than we have had in prior recessionary periods. One option would have been to do nothing and wait for better economic times. Our management team, however, took a more assertive approach. We decided to continue to strategically grow our business through a twopronged effort. First, we are increasing our international presence by expanding the geographical footprint of where we manufacture and sell our equipment. Second, we are investing in new products that could be applied to other industries while at the same time being aggressive in creating products that will reduce costs for our existing customers. Astec Industries and its family of companies have the most creative and innovative engineering groups in the industry. We also have excellent, efficient manufacturing facilities. As can be seen over the last several years, we have invested heavily in modernizing these facilities to stay on the leading edge with our manufacturing equipment and in training our people as well as our customers' employees. We have grown our international sales forces substantially and now 40% of our revenues are from international sales. We have searched for industries that could use our existing products with slight modifications. We have searched for new products we could build using our existing equipment and facilities. We have engineered and developed additional products needed in other industries in an effort to be counter cyclical to the infrastructure equipment business. We chose to concentrate our efforts on the energy and mining businesses while maintaining focus on the infrastructure business. Over the past three years we have developed unique drilling rigs for oil and gas exploration, equipment for fracking and oil services, thermal oil heaters used in gas processing plants, hot water heaters used for fracking, pump trailers used for well servicing, feed bins and other processing equipment that can be used on fracking spreads. We have spent considerable effort on renewable energy related products by developing a state of the art wood pellet plant. The Astec plant will produce wood pellets with practically no emissions allowing large plants to be built without being size limited due to environmental restrictions. We have expanded our drill rig offering for geothermal water wells and also oil drilling. For the mining sector we offer a wide range of equipment, including size reduction crushers, hydraulic breakers, scalers, personnel carriers and surface miners. We further increased our presence in the mining industry by manufacturing equipment in South Africa and we are building a new facility in Brazil to better allow us to service the mining industry in South and Central America. As we have implemented the strategy of diversifying more into the energy and mining industries, we have maintained our position in infrastructure. We have begun to reposition our company to better penetrate these three markets. Earlier in the year we sold the utility trencher and drill line to Toro while continuing to manufacture this equipment under an OEM Agreement through the end of 2012. In late November we sold the Trencor line of large trenchers, the American Augers boring machine line, 2 Expanding Opportunities for Growth