OR

Commission File Number 0-14714

(Exact name of registrant as specified in its charter)

(423) 899-5898
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

ASTEC INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ended December 31, 2004.

The balance sheet at December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

Certain reclassifications were made to the prior year presentation to conform to the current year presentation. For further information, refer to the consolidated financial statements and footnotes thereto included in the Astec Industries, Inc. and subsidiaries annual report on Form 10-K for the year ended December 31, 2003.

Receivables are net of allowance for doubtful accounts of $2,206,000 and $1,752,000 for June 30, 2004 and December 31, 2003, respectively.

Inventories are stated at the lower of first-in, first-out cost or market and consist of the following:

The following table sets forth the computation of basic and diluted earnings (loss) per share from continuing operations:

Total comprehensive income for the three and six-month periods ended June 30, 2004 was $12,922,000 and $17,944,000, respectively. Comprehensive income for the three and six-month periods ended June 30, 2003 was a loss of $873,000 and $1,544,000 respectively.

The components of comprehensive income or loss for the periods indicated are set forth below:

Certain customers have financed purchases of Astec products through arrangements in which the Company is contingently liable for customer debt of approximately $17,518,000 and for residual value guarantees aggregating approximately $1,305,000 at June 30, 2004 and contingently liable for customer debt of approximately $19,820,000 and for residual value guarantees aggregating approximately $1,305,000 at December 31, 2003. The General Electric Capital Corporation credit facility dated May 14, 2003 limits contingent liabilities or guaranteed indebtedness created after May 14, 2003 to an aggregate total of $5,000,000 at any time, or to $2,000,000 for any one customer. As of June 30, 2004, guaranteed indebtedness created under the current loan agreement dated May 14, 2003 was $353,000. At June 30, 2004, the maximum potential amount of future payments for which the Company would be liable is equal to the amounts above. Because the Company does not believe it will be called on to fulfill a ny of these contingencies, the carrying amounts on the consolidated balance sheets of the Company for these contingent liabilities are zero.

In addition, the Company is contingently liable under letters of credit of approximately $16,674,000, of which $9,338,000 is related to Industrial Revenue Bonds. Under the Company's credit facility, the terms of letters of credit are limited to one year. As of June 30, 2004, the maximum potential amount of future payments for which the Company would be liable is approximately $16,674,000, of which $9,338,000 is recorded as debt in the accompanying consolidated balance sheet.

Management has reviewed all claims and lawsuits and, upon the advice of counsel, has made adequate provision for any estimable losses. However, the Company is unable to predict the ultimate outcome of the outstanding claims and lawsuits.

The carrying amounts of the major classes of assets and liabilities disposed on June 30, 2004 were as follows:

Approximately 50% to 55% of the Company's business volume typically occurs during the first six months of the year. During the usual seasonal trend, the first three quarters of the year are the Company's stronger quarters for business volume, with the fourth quarter normally being the weakest quarter.

At June 30, 2004 and December 31, 2003 the Company had unamortized goodwill in the amount of $18,232,601 and $20,887,084, respectively.

The changes in the carrying amount of goodwill by operating segment for the quarter ended June 30, 2004 are as follows:

The May 14, 2003 credit agreement also included a revolving credit facility of up to $107,500,000, of which available credit under the facility is based on a percentage of the Company's eligible accounts receivable and inventories. Availability under the revolving facility is adjusted monthly and interest is due in arrears. The revolving credit facility has a maturity date of May 14, 2007 and at inception, the interest rate on the revolving credit loan was one-percent (1%) above the higher of the Wall Street Journal prime rate and the Federal Funds Rate plus one-half of one percent (1/2%) or, at the election of the Company, three-percent (3%) above LIBOR. The credit facility contains certain restrictive financial covenants relative to operating ratios and capital expenditures.

On September 30, 2003, related to the syndication of the loan by GE Capital, the Company entered into an amendment to the Credit Agreement that reduced the availability under the credit facility from $107,500,000 to $82,500,000. In addition, the amendment increased the interest rate on the term loan and the revolving facility to one and one-half (1.5%) percent above the higher of Wall Street Journal prime rate and the Federal Funds Rate plus one-half of one percent (1/2%) or, at the election of the Company, to three and one-half (3.5%) percent above LIBOR. The Company requested the reduction in the revolving credit facility to reduce the fees paid for the daily available, but unused portion of the revolving facility.

The Company was in compliance with the financial covenants under its credit facility as of June 30, 2004.

The Company's Canadian subsidiary, Breaker Technology Ltd, has available a credit facility issued by General Electric Capital Canada, Inc. dated May 14, 2003 with a term of four years for $5,000,000 to finance short-term working capital needs, as well as to cover the short-term establishment of letter of credit guarantees. As of June 30, 2004, Breaker Technology Ltd had no outstanding cash balance due under the credit facility, but approximately $189,000 in letter of credit guarantees under the facility. The Company is the primary guarantor to GE Capital of payment and performance for this $5,000,000 credit facility. The term of the guarantee is equal to the related debt. The maximum potential amount of future payments the Company would be required to make under its guarantee at June 30, 2004 is $189,000.

In accordance with Emerging Issues Task Force (EITF) Issue 95-22 Balance Sheet Classification of Borrowings Outstanding Under Revolving Credit Agreements That Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement, the Company classifies the revolving credit facility as a current liability in its financial statements.

The following summary presents the Company's net income (loss) and per share earnings (loss) that would have been reported had the Company determined stock compensation cost using the fair value method of accounting set forth under SFAS 123. There is no stock-based employee compensation cost in net income (loss) as reported.

The pro forma impact on net income (loss) shown below may not be representative of future effects.

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. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warrant liability is primarily based on historical claim rates, nature of claims and the associated cost.

In 2002 the Company acquired a 300,000 square-feet manufacturing facility located on 108 acres in Loudon, Tennessee. Related to this transaction, the Trencor, Inc. manufacturing operations formerly located in Grapevine, Texas were relocated to the Loudon, Tennessee facility during the fourth quarter of 2002. A portion of the office space of the Grapevine, Texas facility is currently leased to an unrelated party. The Company continues to actively pursue a buyer for the Grapevine, Texas facility and believes it will be sold in 2004 for a gain. The carrying value of equipment, land and building totaling $4,980,757 is classified as "assets held for sale" in the balance sheet and is included in the assets of the Underground Group segment.

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1,400,000 to its pension plan and $62,000 in other benefits during 2004. As of June 30, 2004, approximately $600,000 of the contributions had been made to the pension plan and approximately $69,000 was paid for other benefits. The Company presently anticipates contributing an additional $1,000,000 for a total of $1,600,000 to fund its pension plan in 2004 and anticipates contributing an additional $65,000 for other benefits during 2004.

The components of net periodic pension cost for the six months ended June 30, 2004 and 2003 are as follows:

The Company's two post-retirement medical and life insurance plans provide prescription drug benefits that may be affected by the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"), signed into law in December 2003. In accordance with FASB Staff Position FAS 106-1, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the effects of the Act on the Company's medical plans have not been included in the measurement of the accumulated post-retirement benefit obligation or net periodic post-retirement benefit cost for 2003. Specific authoritative guidance from the FASB on the accounting for the federal subsidy is pending and that guidance, when issued, may require the Company to restate previously reported information and may require the Company to amend its plans to benefit from the Act.

These forward-looking statements are based largely on management's expectations which are subject to a number of known and unknown risks, uncertainties and other factors discussed in this report and in other documents filed by the Company with the Securities and Exchange Commission, which may cause actual results, financial or otherwise, to be materially different from those anticipated, expressed or implied by the forward-looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward-looking statements to reflect future events or circumstances.

The Company has four reportable operating segments, which include the Asphalt Group, the Aggregate and Mining Group, the Mobile Asphalt Paving Group and the Underground Group. The business units in the Asphalt Group design, manufacture and market a complete line of asphalt plants and related components, heating and heat transfer processing equipment and storage tanks for the asphalt paving and other non-related industries. The business units in the Aggregate and Mining Group design, manufacture and market equipment for the aggregate, metallic mining and recycling industries. The business units in the Mobile Asphalt Paving Group design, manufacture and market asphalt pavers, material transfer vehicles, milling machines, screeds, and trench compaction machines. The business units in the Underground Group design, manufacture and market a complete line of trenching equipment and directional drills for the underground construction market. The Company also has one other categor y that contains the business units that do not meet the requirements for separate disclosure as an operating segment. The business units in the other category include Astec Insurance Company and Astec Industries, Inc., the parent company.

On June 30, 2004, the Company sold substantially all of the assets and liabilities of Superior Industries of Morris, Inc. (Superior) to Superior Industries, LLC. Superior was part of the Company's Aggregate and Mining Group. Superior's financial results are included in the income from discontinued operations line and are excluded from all other lines on the statement of operations.

The Company's financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets it serves. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development and privately funded infrastructure development and changes in the price of crude oil (fuel costs).

Public sector spending at the federal, state and local levels has been driven in large part by federal spending under the six-year federal-aid highway program, the Transportation Equity Act for the 21st Century ("TEA-21"), enacted in June 1998. TEA-21 authorized the appropriation of $217 billion in federal aid for road, highway and bridge construction, repair and improvement and other federal highway and transit projects for federal fiscal years October 1, 1998 through September 30, 2003. A new appropriation was enacted setting funding at a level of $33.6 billion for October 1, 2003 through September 30, 2004, but authorizing payment of such funds only through February 29, 2004. The date has been extended until September 30, 2004. A new six-year bill is under consideration. The amounts proposed by the U.S. Senate and the U.S. House of Representatives for funding under such long-term bill each exceed the amount of funding currently in place. However, President Bush has st ated that he prefers that the amount of funding under the long-term legislation remain at its current level equal to $256 billion for the next six years. The Company does not know when the new highway funding bill will be enacted or the amount of funding that will be provided under such bill. The House and Senate members of the "conference committee" were instructed to present "compromise" proposals in an effort to reach an agreement on the overall funding level of a multi-year bill. Congress is in recess until September 7, but conference leaders agreed to direct their staffs to review achievable funding under House and Senate proposals.

In addition to public sector funding, the economies in the markets the Company serves, the price of oil and the price of steel affect the Company's financial performance. Economic downturns, like the one experienced over the past three years, generally result in decreased purchasing by the Company's customers, which in turn, causes reductions in sales and pricing pressure on the Company's products. Rising interest rates also typically has the effect of negatively impacting customers' attitude toward purchasing equipment. In addition, a significant portion of the Company's revenues relate to the sale of equipment that produces asphalt mix. A major component of asphalt is oil. A rise in the price of oil increases the cost of providing asphalt, which would likely decrease demand for asphalt, and therefore decrease demand for the Company's products. Steel is a major component in the Company's equipment. As steel prices have increased during 2004, the cost of goods of the Com pany's products and the costs of purchased parts and components also have increased. If the Company is not able to raise the prices of its products enough to cover the increased in costs of goods, the Company's financial results will be negatively affected. In addition to the factors stated above, many of the Company's markets are highly competitive, and its products compete worldwide with a number of other manufacturers and distributors that produce and sell similar products.

The Company believes that, based on its backlog and customer activity, the economic environment as it impacts the Company will continue to improve. The Company believes that the highway bill, when enacted, will result in sustained or increased federal availability of highway funds and such funding should have a positive impact on customers' attitudes toward purchasing new equipment. In addition, the Company believes that an improving economy should increase state highway funding revenues and private commercial projects.

For the three months ended June 30, 2004, net sales increased $42,500,000, or 41.1%, to $145,937,000 from $103,437,000 for the three months ended June 30, 2003. Sales are generated primarily from new equipment purchases made by customers for use in construction for privately funded infrastructure development and public sector spending on infrastructure development. For the second quarter of 2004 compared to the second quarter of 2003, net sales for the Aggregate and Mining Group increased approximately $17,245,000, Asphalt Group net sales increased approximately $13,592,000, Underground Group net sales increased approximately $6,140,000 and Mobile Asphalt Group sales increased $5,716,000. For the second quarter of 2004 compared to the same period of 2003, net sales reported under the All Others category decreased $193,000.

For the six months ended June 30, 2004, net sales increased $63,142,000, or 28.9%, to $281,665,000 from $218,523,000 for the six months ended June 30, 2003. For the six months ended June 30, 2004 compared to the same period of 2003, net sales for the Aggregate and Mining Group increased $30,331,000, Asphalt Group net sales increased $12,533,000, Underground Group sales increased approximately $11,611,000 and Mobile Asphalt Paving Group sales increased $9,391,000. For the six months ended June 30, 2004 compared to the same period of 2003, net sales reported under the All Others category decreased $724,000. For the quarter and the six months ended June 30, 2004, compared to the same periods of 2003, the Company believes that the increase in the sales for all business segments related to a general improvement in the economy and pent-up demand in the equipment markets the Company serves. The decrease in sales in the All Others category for the three and six months ended June 30, 2004 compared to the same period of 2003 related primarily to the decreased lease portfolio income from the Company's former captive finance subsidiary. Net sales for the three and six months ended June 30, 2003 were restated to exclude discontinued operations of Superior Industries of Morris, Inc.

International sales for the second quarter of 2004 increased $16,202,000, or 73.8%, to $38,145,000, compared to $21,943,000 for the second quarter of 2003. For the three months ended June 30, 2004 and 2003, international sales accounted for approximately 26.1% and 21.2% of net sales, respectively. International sales increased for the second quarter of 2004 compared to the same period of 2003 primarily in Europe and the Middle East, followed by Asia, China, and Central America. The Company believes the increase in international sales relates to pent-up demand for its equipment, and to benefits from the weakened dollar.

International sales for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 increased $21,709,000, or 48% to $66,914,000. For the six months ended June 30, 2004 and 2003, international sales accounted for approximately 23.8% and 20.7% of net sales, respectively. The increase in international sales for the first half of 2004 compared to sales for the same period of 2003 is due primarily to increased sales in Europe, Canada and Africa. The Company is unable to determine whether or not the increase in international sales volume for the three and six months ended June 30, 2004 compared to the same periods of 2003 will be a trend or if the market as a whole experienced it. International sales for the three and six months ended June 30, 2003 were restated for discontinued operations of Superior Industries of Morris, Inc.

Gross profit for the three months ended June 30, 2004 increased $12,620,000, or 70.0%, to $30,641,000 from $18,021,000 for the three months ended June 30, 2003. Gross profit as a percentage of sales for the thr