OR

For the transition period from ____________________ to ____________________

Common Stock, $.20 par value
(Title of class)

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.)

(Form 10-K Cover Page - Continued)

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $225,379,842 based upon the closing sales price reported by the Nasdaq National Market on February 25, 2004, using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934 to exclude voting stock owned by all directors and executive officers of the registrant, some of whom may not be held to be affiliates upon judicial determination.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

As of February 25, 2004 Common Stock, par value $.20 - 19,743,894 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the following documents have been incorporated by reference into the Parts of this Annual Report on Form 10-K indicated:

TABLE OF CONTENTS

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General

Astec Industries, Inc. (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. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to testing the mix for application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including trenching, auger boring, directional drilling, environmental remediation and industrial heat transfer equipment. The Company holds 114 United States patents and 78 foreign patents, has 32 patent applications pending, and has been responsible for many technological and engineering innovations in the industry. The Company's products are marketed both domestically and internationally. In addition to equipment sales, the Company manufactures and sells replacement parts for equipment in each of its product lines. The distribution and sale of replacement parts is an integral part of the Company's business.

The Company's fourteen manufacturing subsidiaries are: (i) Breaker Technology Ltd., which designs, manufactures and markets rock breaking and processing equipment and utility vehicles for mining; (ii) Johnson Crushers International, Inc., which designs, manufactures and markets portable and stationary aggregate and ore processing equipment; (iii) Kolberg-Pioneer, Inc., which designs, manufactures and markets aggregate processing equipment for the crushed stone, manufactured sand, recycle, top soil and remediation markets; (iv) Osborn Engineered Products SA (Pty) Ltd., which designs, manufactures and markets crushers, vibratory screening equipment, conveyors and turnkey plants and mills; (v) Production Engineered Products, Inc., which designs, manufactures and markets high-frequency vibrating screens for sand and gravel and asphalt operations; (vi) Superior Industries of Morris, Inc., which designs, manufactures and markets conveyors, radial stackers and idlers; (vii) Telsmith, Inc., which designs, manufactures and markets aggregate processing equipment for the production and classification of sand, gravel, and crushed stone for road and other construction applications; (viii) Astec, Inc., which designs, manufactures and markets hot-mix asphalt plants and related components and manufactures testing and sampling equipment for the asphalt mix and aggregate processing industries; (ix) CEI Enterprises, Inc., which designs, manufactures and markets heat transfer equipment, small asphalt plants for the domestic and international markets and polymer and rubber blending systems for the hot-mix asphalt industry; (x) Heatec, Inc., which designs, manufactures and markets thermal fluid heaters, asphalt heaters, polymer and rubber blending systems and other heat transfer equipment used in the Company's asphalt mixing plants and in other industries; (xi) American Augers, Inc., which designs, manufactures and markets auger boring and directional drilling equipment; (xii) Trencor, Inc., which designs, manufac tures and markets chain and wheel trenching equipment and excavating equipment; (xiii) Carlson Paving Products, Inc., which designs, manufactures and markets asphalt paver screeds, a milling machine and trench compaction equipment; and (xiv) Roadtec, Inc., which designs, manufactures and markets a line of milling machines used to recycle asphalt and concrete, asphalt paving equipment and material transfer vehicles.

On December 31, 2002, as part of a plan to focus on the core equipment manufacturing business and to further reduce operating expenses, the Company exited the equipment financing business conducted through Astec Financial Services, Inc. ("AFS"), a wholly owned subsidiary of the Company. Since December 31, 2002, AFS has sold to other financing companies, or collected from customers, payment on substantially all contracts. AFS has sufficient reserve for potentially uncollectible amounts on remaining contracts.

The Company's strategy is to be the cost-efficient producer in each of its product lines, while continuing to develop innovative new products and provide first class service for its customers. Management believes that the Company is the technological innovator in the markets in which it operates and is well positioned to capitalize on the need to rebuild and enhance roadway infrastructure, both in the United States and abroad.

In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information.

The Company's business units have separate management teams and offer different products and services. The business units have been aggregated into four reportable business segments based upon the nature of the product or services produced, the type of customer for the products and the nature of the production process. The reportable business segments are (i) Asphalt Group, (ii) Aggregate and Mining Group, (iii) Mobile Asphalt Paving Group and (iv) Underground Group. All remaining companies and federal tax expenses for all business segments are included in the "Other Business Units" category for reporting.

Financial information in connection with the Company's financial reporting for segments of a business under SFAS 131 is included in Note 15 to "Notes to Consolidated Financial Statements - Operations by Industry Segment and Geographic Area," appearing in Appendix A of this report.

The Asphalt Group segment is made up of three business units: Astec, Inc., Heatec, Inc. and CEI Enterprises, Inc. These business units 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.

Astec, Inc. ("Astec") designs, engineers, manufactures and markets a complete line of portable, stationary and relocatable hot-mix asphalt plants and related components under the ASTEC® trademark. An asphalt mixing plant typically consists of heating and storage equipment for liquid asphalt (manufactured by CEI or Heatec); cold feed bins for storing aggregates; a drum mixer (batch or Double Barrel type unit) for drying, heating and mixing; a baghouse composed of air filters and other pollution control devices, hot storage bins or silos for temporary storage of hot-mix asphalt and a control house. The Company introduced the concept of high plant portability in 1979. Its current generation of portable asphalt plants is marketed as the Six Pack^TM and consists of six portable components, which can be disassembled, moved to the construction site and reassembled, thereby reducing relocation expenses. High plant portability represents an industry innovation developed and succes sfully marketed by the Company. The Company's enhanced version of the Six Pack^TM, known as the Turbo Six Pack^TM, is a highly portable plant which is especially useful in less populated areas where plants must be moved from job to job and can be disassembled and erected without the use of cranes.

The components in Astec's asphalt mixing plants are fully automated and use both microprocessor-based and programmable logic control systems for efficient operation. The plants are manufactured to meet or exceed federal and state clean air standards. The Company has also developed specialized asphalt recycling equipment for use with its hot-mix asphalt plants.

Heatec, Inc. ("Heatec") designs, engineers, manufactures and markets a variety of thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems under the HEATEC® trademark. For the construction industry, Heatec manufactures a complete line of asphalt heating and storage equipment to serve the hot-mix asphalt industry. In addition, Heatec builds a wide variety of industrial heaters to fit a broad range of applications, including heating equipment for marine vessels, roofing material plants, refineries, chemical processing, rubber plants and agribusiness. Heatec has the technical staff to custom design heating systems and has systems operating as large as 50,000,000 BTU's per hour.

CEI Enterprises, Inc. ("CEI"), designs, engineers, manufactures and markets heating equipment and storage tanks for the asphalt paving industry and rubber and polymer blending systems. CEI's heating equipment uses hot oil, direct fired or electric heating processes. CEI's equipment includes portable and stationary tank models with capacities up to 35,000 gallons each. In addition, CEI manufactures low cost asphalt plants for international and domestic markets.

The Company markets its hot-mix asphalt products both domestically and internationally. The principal purchasers of asphalt and related equipment include highway contractors. Asphalt equipment is sold directly to the customers through the Company's domestic and international sales departments, although independent agents are also used to market asphalt plants and their components in international markets.

Heatec equipment is marketed through both direct sales and dealer sales. Manufacturers' representatives sell heating products for applications in industries other than the asphalt industry. CEI equipment is marketed domestically and internationally through direct sales.

In total, the products of the Asphalt Group segment are marketed by approximately 31 direct sales employees, 20 domestic independent distributors and 27 international independent distributors.

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors. Raw materials for manufacturing are readily available. Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities.

This industry segment faces strong competition in price, service and product performance and competes with both large publicly-held companies with resources significantly greater than those of the Company and with various smaller manufacturers. Domestic hot-mix asphalt plant competitors include Gencor Industries, Inc. and Terex Roadbuilding. In the international market, the hot-mix asphalt plant competitors include Ammann, Marini and Ermont. The market for the Company's heat transfer equipment is diverse because of the multiple applications for such equipment. Competitors for the construction product line of heating equipment include, among others, Gencor/Hyway Heat Systems, American Heating, Burke Heating Systems and Pearson Heating Systems, Inc. Competitors for the industrial product line of heating equipment include GTS Energy Systems, Fulton Thermal Corporation and Vapor Power International, among others.

At December 31, 2003, the Asphalt Group segment employed 764 individuals, of which 586 were engaged in manufacturing, 67 in engineering and 111 in selling, general and administrative functions.

The Company's Aggregate and Mining Group is comprised of seven business units focused on the aggregate, metallic mining and recycle markets. Seven of the subsidiaries achieve their strength by distributing products into niche markets and drawing on the advantages of brand recognition in the global market. These business units are Breaker Technology Ltd., Johnson Crushers International, Inc., Kolberg-Pioneer, Inc., Osborn Engineered Products, SA (Pty) Ltd., Production Engineered Products, Inc., Superior Industries of Morris, Inc. and Telsmith, Inc.

Founded in 1906, Telsmith, Inc. ("Telsmith") is the oldest subsidiary of the group. The primary markets served under the TELSMITH® trade name are the aggregate and metallic mining industries. Telsmith's core products are cone (Gyrasphere®), jaw and impact crushers, which are recognized for their reliability and performance. Complementing the crusher lines are a wide range of heavy-duty feeders and scalping screens designed for performance in the most rigorous operating conditions. Large finishing screens specifically suited for sizing stone to meet stringent aggregate specifications complete the core product offering.

Recent additions to the Telsmith crushing lines are the Silver Bullet® Series or "SBS" cone crushers and Iron Giant® jaw crushers. These innovative crushers incorporate the latest technology available to enhance productivity, reliability, and safety. Specifically incorporated into these machines are features that enhance a plants ability to automate the production process.

Telsmith offers their products mounted as portable equipment, suitable for efficient relocation to multiple job sites or on new, patented, modular support structures. The innovative use of modular support structures significantly reduces plant design and construction costs by utilizing pre-designed and pre-assembled modular units. These modular units afford a shortened project timeline with the plant going into production ahead of traditional methods.

In 2003, Telsmith completed the certification and upgrade to the ISO 9001:2000 international standards. This ISO designation is recognition of the Telsmith commitment to quality and continuous improvement in a world marketplace.

Kolberg-Pioneer, Inc. ("KPI") designs, manufactures and supports a complete line of aggregate processing equipment for the sand and gravel, mining, quarrying and concrete recycling markets. KPI manufactures the well-known Pioneer® and Kolberg® product lines.

Pioneer® products include a complete line of primary, secondary, tertiary and quaternary crushers, including jaws, cones, horizontal shaft impactors, vertical shaft impactors and roll crushers. KPI rock crushers are used by mining, quarrying and sand and gravel producers to crush oversized aggregate to salable size, in addition to their use for recycled concrete and asphalt. Vibrating feeders are used to convey aggregate to the primary crusher operations. The incorporation of vibrating grizzly feeders and vibrating scalpers allows small material to bypass the primary crusher. Equipment furnished by Pioneer can be purchased as individual components, as portable plants for flexibility or as completely engineered systems for both portable and stationary applications. Included in the portable area is a newly released, highly-portable Fast Pack® System, featuring quick setup and teardown, thereby maximizing production time and minimizing down time. Also included with the portable Pioneer® line are the fully self-contained and self-propelled Rocky Trax Track-Mounted-Jaw and HSI Crushers, which are ideal for either recycle or hard rock applications, allowing the producer to move the equipment to the material.

Kolberg® sand classifying and washing equipment is relied upon to clean, separate and re-blend deposits to meet the size specifications for critical applications. The product line includes fine and coarse material washers, log washers, blade mills and sand classifying tanks. Screening plants are available in both stationary and highly portable models, and are complemented by a full line of radial stacking and overland belt conveyors.

KPI manufactures belt conveyors designed to move or store aggregate and other bulk materials, typically in radial cone-shaped stockpiles. Models offered include road portable, telescoping, stationary and overland styles.

In addition, KPI manufactures pugmills, which are highly efficient homogenous mixing chambers consisting of twin shafts with timed, overlapping paddles used for soil remediation, cement-treated base and cold-mix asphalt. Pugmills are typically combined with either a bulk storage silo for introducing dry additives or with a pump for liquids.

Production Engineered Products, Inc. ("PEP") designs, manufactures and markets high and mid-frequency vibrating screens for sand and gravel customers, as well as asphalt and recycle operations. In addition, PEP incorporates the high- and conventional-frequency screens into portable crushing and screening plants servicing the contractor, aggregate and industrial markets. High-frequency screens are adept in separating out small mesh particles where conventional screens are not ideally suited. Conventional-frequency screens are adept in separating out coarse materials, along with dirt and/or topsoil material.

During 2003, PEP manufactured the initial model of their track-mounted conventional-frequency "Fold 'n Go" mobile screening plant. The testing on this unit was finalized late in 2003 and PEP received their first order for this machine in early 2004. PEP also continues development of their dual-frequency line of mobile and stationary screening plants. They expect to offer a mobile screening plant incorporating the dual-frequency concept in 2004.

Johnson Crushers International, Inc. ("JCI") designs, manufactures and distributes portable and stationary aggregate and ore processing equipment. This equipment is used in the aggregate, mining and recycle industries. JCI's principal products are cone crushers, three-shaft horizontal screens, portable plants, and replacement parts for competitive equipment. JCI offers completely re-manufactured cone crushers and screens from its service repair facility.

JCI™ cone crushers are used primarily in secondary and tertiary crushing applications, and come in both manual and remotely adjusted models. Horizontal screens are low-profile machines for use primarily in portable applications. They are used to separate aggregate materials by sizes.

JCI recently introduced the Combo™ screen. It features an inclined feed section with flat discharge section and utilizes the oval stroke impulse mechanism, and offers increased capacity particularly in scalping application where removal of fines is desired. Portable plants combine various configurations of cone crushers, horizontal screens, Combo™ screens, and conveyors mounted on tow-away chassis. Because transportation costs are high, producers use portable equipment to operate nearer to their job sites. Portable plants allow the aggregate producers to quickly and efficiently move their equipment from one location to another. JCI and KPI market a portable rock crushing plant appropriately named the Fast Pack®. This complete, but portable plant, with production capability in excess of 500 tons per hour when relocated, can be reassembled and ready for production in under four hours, making it one of the industry's most mobile and cost-effective high-capacity crushing system . The Fast Pack® design reduces operating costs by as much as 30%, compared to traditional plant designs, and the user-friendly controls provide a safer work environment for the user.

Superior Industries of Morris, Inc. ("Superior") designs and manufactures a complete line of portable and stationary conveyors. Its portable line includes up to 150-foot telescoping stacking conveyors, for both portable and stationary applications, patented FD series axle assemblies and stationary conveyor systems for all types of bulk material handling, including stockpiling and overland transfer. Superior's conveyor product line allows for a multitude of uses such as precision bin loading, barge loading, and unique configurations of stockpiles. Superior's component division builds a complete line of CEMA conveyor idlers and pulleys and maintains ISO 9001 certification for quality assurance.

Breaker Technology Ltd./Breaker Technology, Inc. ("BTI") designs, manufactures and markets hydraulic rock breaker systems for the aggregate, mining and recycling industries. They also design and manufacture a complete line of four-wheel drive articulated utility vehicles for underground mines and quarries.

In addition to the quarry and mining industries, BTI designs, manufactures and markets a complete line of hydraulic attachments for the North American construction and demolition markets. These attachments are sold on a variety of equipment including excavators, backhoe loaders, wheel loaders, and skid steer loaders. BTI 's product line also includes hydraulic breakers and compactors for the construction market and includes crushers, pulverizers, shears and multi-processors for the demolition market.

BTI offers an extensive aftermarket sales and service program through a highly qualified and trained dealer network.

Osborn Engineered Products, SA (Pty) Ltd. ("Osborn") designs, manufactures and markets a complete line of bulk material handling and minerals processing plant and equipment. This equipment is used in the aggregate, mineral mining, metallic mining and recycle industries. Osborn has been a licensee of Telsmith's technology for over fifty years. In addition to Telsmith, Osborn also manufactures under license to American Pulverizer (USA), IFE (Austria) and Mogensen (UK) and has an in-house brand, Hadfields. Equipment offers also includes double-toggle jaw crushers; rotary breakers; roll crushers; rolling ring crushers; mills; out-of-balance or exciter-driven screens and feeders; portable, track-mounted or fixed crushing and screening plants; conveyor system; and a full range of idlers.

Aggregate processing and mining equipment is marketed by approximately 98 direct sales employees, 619 independent domestic distributors and 217 independent international distributors. The principal purchasers of aggregate processing equipment include highway and heavy equipment contractors, open mine operators, quarry operators and foreign and domestic governmental agencies.

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors. Raw materials for manufacturing are readily available. BTI purchases hydraulic breakers under a long-term purchasing contract from a Japanese supplier and also purchases demolition attachments from an Italian supplier. Both the Japanese and Italian suppliers have sufficient capacity to meet the Company's anticipated demand and have been reliable sources for 20 and 10 years, respectively; however, alternative suppliers exist for both of these components should any supply disruptions occur.

The Aggregate and Mining Group faces strong competition in price, service and product performance. Aggregate processing and mining equipment competitors include Metso (Nordberg); Sandvik (formerly Svedala Industri AB); Cedarapids, Inc., Powerscreen and Finley, subsidiaries of Terex Corporation; Extec; Pegson; Deister; Continental; Eagle Iron Works; Thor; and other smaller manufacturers, both domestic and international.

At December 31, 2003, the Aggregate and Mining Group segment employed 1,123 individuals, of which 744 were engaged in manufacturing, 102 in engineering and engineering support functions, and 277 in selling, general and administrative functions.

At December 31, 2003 and 2002, the backlog for the Aggregate and Mining Group was approximately $43,030,000 and $24,441,000, respectively.

The Mobile Asphalt Paving Group is comprised of Roadtec, Inc. ("Roadtec") and Carlson Paving Products, Inc. ("Carlson"). Roadtec designs, engineers, manufactures and markets asphalt pavers, material transfer vehicles and milling machines. Carlson designs and manufactures asphalt paver screeds that attach to the asphalt paver to control the width and depth of the asphalt as it is applied to the roadbed. Carlson also manufactures a line of utility milling and trench compaction machines, as well as Windrow pickup machines.

Roadtec's patented Shuttle Buggy® is a mobile, self-propelled material transfer vehicle which allows continuous paving by separating truck unloading from the paving process while remixing the asphalt. A typical asphalt paver must stop paving to permit truck unloading of asphalt mix. By permitting continuous paving, the Shuttle Buggy® allows the asphalt paver to produce a smoother road surface, as well as reduce the time required to pave the road surface. As a result of the pavement smoothness achieved with this machine, certain states are now requiring the use of the Shuttle Buggy®. Studies using infrared technology have revealed problems caused by differential cooling of the hot-mix during hauling. The Shuttle Buggy® remixes the material to a uniform temperature and gradation, thus eliminating these problems.

Asphalt pavers are used in the application of hot-mix asphalt to the road surface. Roadtec pavers have been designed to minimize maintenance costs while exceeding road surface smoothness requirements. Roadtec also manufactures a paver model designed for use with the material transfer vehicle described above, which, when used together, reduce machine operating and maintenance costs.

Both Roadtec and Carlson manufacture milling machines designed to remove old asphalt from the road surface before new asphalt mix is applied. Roadtec's milling machine lines, for larger jobs, are manufactured with a simplified control system, wide conveyors, direct drives and a wide range of horsepower and cutting capabilities to provide versatility in product application. Additional upgrades and options are available to enhance the products and their capabilities. Carlson's milling machines are designed to grind the edges of roads that have curbs and gutters, to grind off old asphalt from around manhole covers or similarly shaped areas that the larger milling machines are unable to negotiate.

Carlson's patented screeds are part of the asphalt paving machine that lays asphalt on the roadbed at a desired thickness and width, while smoothing and compacting the surface. Carlson screeds can be configured to fit many types of asphalt paving machines. A Carlson screed uses a hydraulic powered generator to electrify elements that heat a screed plate so that asphalt will not stick to it while paving. The generator is also available to power tools or lights for night paving. Available options allow extended paving widths and the addition of a curb on the road edge.

Mobile Asphalt Paving Group equipment is marketed both domestically and internationally to highway and heavy equipment contractors, utility contractors and foreign and domestic governmental agencies. Mobile construction equipment is marketed both directly and through dealers. This segment employs 17 direct sales staff, 1 domestic independent distributor and 14 foreign independent distributors.

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from steel mills and other sources. Raw materials for manufacturing are readily available. Components used in the manufacturing process include engines, gearboxes, power transmissions and electronics systems.

The Mobile Asphalt Paving Group segment faces strong competition in price, service and performance. Paving equipment and screed competitors include Caterpillar Paving Products, Inc., a subsidiary of Caterpillar, Inc.; Blaw-Knox Construction Equipment Company, a subsidiary of Ingersoll-Rand Company; CMI Corporation, a subsidiary of Terex Corporation; Vogele and Dynapac, a subsidiary of Metso. The segment's milling machine equipment competitors include CMI Corporation, owned by Terex Corporation; Caterpillar, Inc.; and Wirtgen America, Inc.

At December 31, 2003, the Mobile Asphalt Paving Group segment employed 323 individuals, of which 207 were engaged in manufacturing, 25 in engineering and engineering support functions, and 91 in selling, general and administrative functions.

The backlog for the Mobile Asphalt Paving Group segment at December 31, 2003 and 2002 was approximately $3,134,000 and $2,463,000, respectively.

The Astec Underground Group consists of two manufacturing companies, Trencor, Inc. (doing business as Astec Underground), with its primary manufacturing facility located in Loudon, Tennessee and American Augers, Inc., located in West Salem, Ohio. The Astec Underground companies design, engineer and manufacture a complete line of trenching equipment and directional drills for the underground construction market.

In July of 2002, the Company formed a strategic alliance with Case Construction Equipment ("Case") for the manufacture, marketing and sale of trenchers, horizontal directional drills ("HDD") and related equipment for the utility construction market. In addition to the Trencor and American Augers product lines, under an original equipment manufacturer agreement ("OEM") with Case, the Astec Underground Group will manufacture eight Case trenchers, three HDD's, HDD fluid-mixing systems and downhole tools. As part of the same agreement, selected models of Trencor trenchers and American Augers HDD's are distributed through the Case dealer networks.

These products are manufactured in two separate locations. All trenchers are manufactured in Loudon, Tennessee and all trenchless equipment is manufactured in West Salem, Ohio. The Loudon facility produces eighteen models of trenchers and mining machines, while the West Salem facility produces twenty-eight models of trenchless equipment. In addition to these product models, each facility produces numerous attachments and tools for this equipment.

During the fourth quarter of 2002, the manufacturing operations of Trencor, Inc. relocated its primary manufacturing operations to Loudon, Tennessee. The Company currently maintains operations at the facility located in Grapevine, Texas.

Trencor's trenching equipment, with the ability to cut a trench through solid rock in a single pass, is among the toughest in the world. Utilizing a unique mechanical power train, Trencor machines are used to trench pipelines, lay fiber optic cable, cut irrigation ditches, insert highway drainage materials, and more. Trencor also makes foundation trenchers used in areas where drilling and blasting are prohibited. Trencor recently redesigned its line of hydrostatic side-shift trenchers to complement the heavy-duty hydrostatic rock saws used to install fiber optic cable. Trencor also manufactures a side-cutting rock saw, which permits trenching alongside vertical objects such as fences, guardrails, and rock wall in mountainous terrain.

Trencor canal excavators are used to make finished and trimmed trapezoidal canal excavations within close tolerances primarily for irrigation systems. The rock saw is used for laying water and gas lines, fiber optic cable, as well as constructing highway drainage systems, among other applications.

Four Road Miner® models are available with an attachment that allows them to cut a path up to twelve and a half feet wide and five feet deep on a single pass. The Road Miner® has applications in the road construction industry and in mining and aggregate processing operations.

During 2002, Trencor designed and developed the Surface Miner, a maneuverable, 1650-horsepower miner that can cut through rock 10 feet wide and up to 26 inches deep in a single pass. When equipped with a GPS unit and the automatic grade and slope system, the miner allows road construction contractors to match the exact specifications of a survey plan.

American Augers designs, manufactures, markets and sells a wide range of trenchless equipment. Today, American Augers is one of the largest manufacturers of auger boring machines in the world, designing and engineering state-of-the-art boring machines, directional drills and fluid/mud systems used in the underground construction or trenchless market. American Augers has one of the broadest product lines in the industry. American Augers has over 2,000 customers throughout the world that operate in the sewer, power, fiber-optic telecommunication, electric, oil and gas, and water industries.

Trencor and American Augers market their products domestically through direct sales representatives and the Case dealer network, as well as internationally through both direct sales, independent dealers and sales agents. The Underground Group has approximately 6 direct sales employees who focus on the large machines and 7 dealer representatives who focus on the smaller drills and trenchers that are sold exclusively through a dealer network.

Both Trencor and American Augers maintain excellent relationships with suppliers and have experienced minimal turnover. The purchasing group has developed partnering relationships with many of the Company's key vendors to improve just-in-time delivery and thus lower inventory. Steel is the predominant raw material used to manufacture the products of the Astec Underground Group. Components used in the manufacturing process include engines, hydraulic motors and pumps, gearboxes, power transmissions and electronics systems.

Competition for sales of trenching, excavating, auger boring, directional drilling, and fluid/mud equipment includes Charles Machine Works (Ditch Witch), Tesmec, Vermeer and other smaller custom manufacturers.

At December 31, 2003, the Underground Group segment employed 315 individuals, of which 237 were engaged in manufacturing, 29 in engineering and 49 in selling, general and administrative functions.

The backlog for the Underground Group segment at December 31, 2003 and 2002 was approximately $8,349,000 and $7,165,000, respectively, restated to reflect the acquisition of the Case product line.

This category consists of the Company's business units that do not meet the requirements for separate disclosure as an operating segment. At December 31, 2003, these other operating units included Astec Insurance Company and Astec Industries, Inc., the parent company. Previously, this category also included Astec Transportation, Inc. and Astec Financial Services, Inc. During 2003, the Company liquidated the assets of Astec Transportation, Inc. This former subsidiary both owned and leased over-the-road tractors and trailers for delivery of the Company's large equipment to its customers. Currently, equipment is delivered primarily using common carriers independent of the Company. During 2003, revenues in this category are derived predominantly from operating leases, installment loans and other financial products that were offered by Astec Financial Services, Inc. As discussed earlier, on December 31, 2002, the Company exited the equipment financing business conducted through Astec Fi nancial Services, Inc., a wholly owned subsidiary of the Company. The Company continues to receive payments and service certain notes receivable of Astec Financial Services, Inc.

At December 31, 2003, the Other Business Units segment employed 21 individuals, all of which were engaged in general and administrative functions.

Although the Company has four reportable business segments, the following information applies to all operating segments of the Company.

None of the Company's operating segments operate within highly regulated industries. However, air pollution control equipment manufactured by the Company, principally for hot-mix asphalt plants, must comply with certain performance standards promulgated by the federal Environmental Protection Agency under the Clean Air Act applicable to "new sources" or new plants. Management believes that the Company's products meet all material requirements of such regulations and of applicable state pollution standards and environmental protection laws.

In addition, due to the size and weight of certain equipment the Company manufactures, the Company and its customers sometimes confront conflicting state regulations on maximum weights transportable on highways. This problem occurs most frequently in the movement of portable asphalt mixing plants. Also, some states have regulations governing the operation of asphalt mixing plants and most states have regulations relating to the accuracy of weights and measures, which affect some of the control systems manufactured by the Company.

Compliance with these government regulations has no material effect on capital expenditures, earnings, or the Company's competitive position within the market.

At December 31, 2003, the Company and its subsidiaries employed 2,547 individuals, of which 1,774 were engaged in manufacturing, 223 in engineering, including support staff, and 550 in selling, administrative and management functions.

Telsmith has a labor agreement covering approximately 108 manufacturing employees, which expires on October 13, 2004. None of Telsmith's other employees are covered by a collective bargaining agreement.

On February 1, 2001, Trencor and the United States Steelworkers of America, AFL-CIO, and CLC entered into a collective bargaining agreement that covered approximately 90 of Trencor's employees. This agreement, with an original expiration date of January 31, 2004, was applicable to only the specific bargaining unit at the Grapevine, TX location. The bargaining agreement did not extend or transfer to the non-union facility after Trencor's primary manufacturing operations were relocated to Loudon, Tennessee. None of Trencor's current employees located at the Grapevine, Texas facility are covered by the agreement.

Other than Telsmith, there are no other collective bargaining agreements. The Company considers its employee relations to be good.

The Company manufactures many of the component parts and related equipment for its products, while several large components of their products are purchased "ready for use". Such items include engines, axles, tires and hydraulics. In many cases, the Company designs, engineers and manufactures custom component parts and equipment to meet the particular needs of individual customers. Manufacturing operations during 2003 took place at eighteen separate locations. The Company's manufacturing operations consist primarily of fabricating steel components and the assembly and testing of its products to ensure that the Company achieves quality control standards.

The Company periodically conducts technical and service seminars, which are primarily for contractors, employees and owners of asphalt mixing plants. In 2003, approximately 350 representatives of contractors and owners of hot-mix asphalt plants attended seminars held by the Company in Chattanooga, Tennessee. These seminars, which are taught by Company management and employees, cover a range of subjects including technological innovations in the hot-mix asphalt, aggregate processing, paving, milling, and recycle markets.

The Company also sponsors executive seminars for the management of the customers of Astec, Inc., Heatec, CEI and Roadtec. Primarily, members of the Company's management conduct the various seminars, but outside speakers and discussion leaders are also utilized.

During 2003, service training seminars were also held at the Roadtec facility for approximately 300 outside customer service representatives. Also during 2003, Telsmith had technical seminars for approximately 60 customer representatives at Telsmith's facility in Wisconsin.

Product training seminars for the directional drill and auger boring product lines were held at the Astec Underground facility in Loudon, Tennessee for approximately 150 dealers and customers.

In addition to seminars, the Company publishes a number of technical bulletins detailing various technological and business issues relating to the asphalt industry.

The Company seeks to obtain patents to protect the novel features of its products. The Company and its subsidiaries hold 114 United States patents and 78 foreign patents. There are 32 United States and foreign patent applications pending.

The Company and its subsidiaries have approximately 68 trademarks registered in the United States including logos for Astec, Telsmith, Roadtec and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC, TRENCOR, AMERICAN AUGERS, KOLBERG, JCI and PIONEER. Twenty-three trademarks are also registered in foreign countries, including Canada, Great Britain, Mexico, New Zealand, India and Italy. The Company has 7 United States and foreign trademark applications pending.

The Company dedicates substantial resources to engineering and product development. At December 31, 2003, the Company and its subsidiaries had 223 full-time individuals employed domestically in engineering and design capacities.

In the normal season trend, revenues are strongest during the first three quarters of the year with the fourth quarter consistently being the weakest of the quarters. Operations during the entire year in 2003 were significantly impacted by the various economic factors discussed in the following paragraphs.

As of December 31, 2003, the Company had a backlog for delivery of products at certain dates in the future of approximately $79,402,000. At December 31, 2002, the total backlog was approximately $60,698,000. The Company's contracts reflected in the backlog are not, by their terms, subject to termination. Management believes that the Company is in substantial compliance with all manufacturing and delivery timetables.

Each business segment operates in domestic markets that are highly competitive regarding price, service and product quality. While specific competitors are named within each business segment discussion, imports do not generally constitute significant competition for the Company in the United States. In international sales, however, the Company generally competes with foreign manufacturers that may have a local presence in the market the Company is attempting to penetrate.

In addition, asphalt and concrete are generally considered competitive products as a surface choice for new roads and highways. A portion of the interstate highway system is paved in concrete, but over 90% of all surfaced roads in the United States are paved with asphalt. Although concrete is used for some new road surfaces, asphalt is used for virtually all resurfacing, including the resurfacing of most concrete roads. Management does not believe that concrete, as a competitive surface choice, materially impacts the Company's business prospects.

Many of our customers depend substantially on government funding of highway construction and maintenance and other infrastructure projects. Any decrease or delay in government funding of highway construction and maintenance and other infrastructure projects could cause our revenues and profits to decrease. Federal government funding of infrastructure projects is usually accomplished through bills, which establish funding over a multi-year period. On September 30, 2003, the six-year federal-aid highway program, the Transportation Equity Act for the 21^st Century ("TEA-21"), expired. A six-year TEA-21 reauthorization bill is currently being negotiated by Congress. As part of the fiscal year 2004 budget resolution, the Surface Transportation Extension Act of 2003 provided for $14.1 billion for road resurfacing. In addition, on September 30, 2003, President Bush signed legislation that extended the authority to distribute federal highway and transit funds until February 29, 2004. Further legislation has been entered into to extend authorization of the funding through April 30, 2004. Short-term extensions are necessary to keep federal highway and transit funds flowing while Congress continues working to enact the six-year TEA-21 reauthorization measure. If the reauthorization measure is not enacted into law by the April 30, 2004 extension deadline and if further extensions are not entered into, highway funding may stop until such reauthorization bill or extensions are enacted. Even if entered into, the highway legislation may be revised in future congressional sessions and federal funding of infrastructure may be decreased in the future, especially in the event of an economic recession. In addition, Congress could pass legislation in future sessions, which would allow for the diversion of highway funds for other national purposes or could restrict funding of infrastructure projects unless states comply with certain federal policies.

A significant portion of our revenues relates to the sale of equipment that produces asphalt mix. A major component of asphalt is oil, and asphalt prices correlate with the price and availability of oil. A rise in the price of oil or a material decrease in the availability of oil would increase the cost of producing asphalt, which would likely decrease demand for asphalt, resulting in decreased demand for our products. This would likely cause our revenues and profits to decrease. In fact, rising gasoline, diesel fuel and liquid asphalt prices significantly increased the operating and raw material costs of our contractor and aggregate producer customers, reducing their profits and causing delays in some of their capital equipment purchases. These delays, along with the slowdown in the U.S. economy, decreased demand for several key categories of products in 2003.

The Company was notified of and incurred steel price increases and steel surcharges beginning in early 2004. Factors contributing to the increased steel costs are: 1) China's strong economy and its increased steel consumption and purchase of U.S. scrap steel; 2) the weakened U.S. dollar's dissuasion of foreign steel exports to the U.S.; 3) shortages of coke and iron ore; and 4) increased demand for steel in Korea and the U.S. Some types of steel are currently only available on an allocation basis determined by prior year purchases. Although the Company is passing along a portion of the increased steel costs to its customers by way of surcharges and temporary price increases, continued significant steel cost increases to the Company, in addition to potential limitation of the steel supply by mills, could negatively impact the Company's gross margins and financial results.

General economic downturns, including downturns in the commercial construction industry, could result in a material decrease in our revenues and operating results. In fact, we believe that the economic downturn and political uncertainty during 2003 has negatively affected our expected revenue growth which has increased the competitive pricing pressure in the market. Demand for many of our products, especially in the commercial construction industry, is cyclical. Sales of our products are sensitive to the states of the U.S., foreign and regional economies in general, and in particular, changes in commercial construction spending and government infrastructure spending. In addition, many of our costs are fixed and cannot be quickly reduced in response to decreased demand. We could face a downturn in the commercial construction industry based upon a number of factors, including:

• a decrease in the availability of funds for construction;
• labor disputes in the construction industry causing work stoppages;
• rising gas and fuel oil prices;
• rising steel prices and steel-up charges;
• rising interest rates;
• energy or building materials shortages; and
• inclement weather.

As of December 31, 2003, the Company was not in compliance with one financial covenant contained in the credit agreement dated as of May 14, 2003, as amended. On March 3, 2004, the Company's lending syndicate waived the covenant violation and amended the covenant requirement through 2004 with an amendment effective December 31, 2003. The Company may be unable to comply with the amended covenant or the other financial covenants in the credit facility. If such violations occur, the lenders could elect to pursue their contractual remedies under the credit facility, including requiring immediate repayment in full of all amounts outstanding. The Company may also be unable to secure adequate or timely replacement of financing to repay its lenders in the event of an unanticipated repayment demand.

We have completed ten acquisitions since 1994 and may acquire additional businesses in the future. We may be unable to achieve the benefits expected to be realized from our acquisitions. In addition, we may incur additional costs and our management's attention may be diverted because of unforeseen expenses, difficulties, complications, delays and other risks inherent in acquiring businesses, including the following:

• we may have difficulty integrating the financial and administrative functions of acquired businesses;
• acquisitions may divert management's attention from our existing operations;
• we may have difficulty in competing successfully for available acquisition candidates, completing future acquisitions or accurately estimating the financial effect of any businesses we acquire ;
• we may have delays in realizing the benefits of our strategies for an acquired business;
• we may not be able to retain key employees necessary to continue the operations of the acquired business;
• acquisition costs may deplete significant cash amounts or may decrease our operating income ;
• we may choose to acquire a company that is less profitable or has lower profit margins than our company; and
• future acquired companies may have unknown liabilities that could require us to spend significant amounts of additional capital.

We currently face strong competition in product performance, price and service. Some of our national competitors have greater financial, product development and marketing resources than we have. If competition in our industry intensifies or if our current competitors enhance their products or lower their prices for competing products, we may lose sales or be required to lower the prices we charge for our products. This may reduce revenue from our products and services, lower our gross margins or cause us to lose market share. In fact, some key competitors slashed prices in 2002 and 2003 in an effort to make sales as demand in our industry slowed. As a result, we experienced price erosion and lower gross margins.

In the past, the Company experienced negative margins on certain large, specialized aggregate systems projects. These large contracts included both existing and innovative equipment designs, on-site construction and minimum production levels. Since it can be difficult to achieve the expected production results during the project design phase, field testing and redesign may be required during project installation, resulting in added cost. In addition, due to any number of unforeseen circumstances, which can include adverse weather conditions, projects can incur extended construction and testing delays which can cause significant cost overruns. We may not be able to sufficiently predict the extent of such unforeseen cost overruns and may experience significant losses on specialized projects.

We manufacture heavy machinery, which is used by our customers at excavation and construction sites and on high-traffic roads. Any defect in, or improper operation of, our equipment can result in personal injury and death, and damage to or destruction of property, any of which could cause product liability claims to be filed against us. The amount and scope of our insurance coverage may not be adequate to cover all losses or liabilities we may incur in the event of a product liability claim. We may not be able to maintain insurance of the types or at the levels we deem necessary or adequate or at rates we consider reasonable. Any liabilities not covered by insurance could reduce our profitability or have an adverse effect on our financial condition.

The Company sells equipment primarily to contractors whose demand for equipment depends greatly upon the volume of road or utility construction projects underway or to be scheduled by both government and private entities. Much of the customized equipment manufactured requires significant manufacturing lead-time and specific delivery dates, that allow the expected revenue stream to be included in the manufacturing backlog total. As a result, we may not be able to accurately forecast our expected quarterly results.

Our hot-mix asphalt plants contain air pollution control equipment that must comply with performance standards promulgated by the Environmental Protection Agency. These performance standards may increase in the future. Changes in these requirements could cause us to undertake costly measures to redesign or modify our equipment or otherwise adversely affect the manufacturing processes of our products. Such changes could have a material adverse effect on our operating results.

Also, due to the size and weight of some of the equipment that we manufacture, we often are required to comply with conflicting state regulations on the maximum weight transportable on highways and roads. In addition, some states regulate the operation of our component equipment, including asphalt mixing plants and soil remediation equipment, and most states regulate the accuracy of weights and measures, which affect some of the control systems that we manufacture. We may incur material costs or liabilities in connection with the regulatory requirements applicable to our business.

We hold numerous patents covering technology and applications related to many of our products and systems, and numerous trademarks and trade names registered with the U.S. Patent and Trademark Office and in foreign countries. Our existing or future patents or trademarks may not adequately protect us against infringements, and pending patent or trademark applications may not result in issued patents or trademarks. Our patents, registered trademarks and patent applications, if any, may not be upheld if challenged, and competitors may develop similar or superior methods or products outside the protection of our patents. This could reduce demand for our products and materially decrease our revenues. If our products are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify the design of our products, change the name of our products or obtain a license for the use of some of the technologies used in our products. We may be unable to do any of the foregoing in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do so could cause us to incur additional costs or lose revenues.

Dr. J. Don Brock, our Chairman and President, is of significant importance to our business and operations. The loss of his services may adversely affect our business. In addition, our ability to attract and retain qualified engineers, skilled manufacturing personnel and other professionals, either through direct hiring or acquisition of other businesses employing such professionals, will also be an important factor in determining our future success.

In 2003, international sales represented approximately 22% of our total sales. We plan to continue to increase our presence in international markets. In connection with any increase in international sales efforts, we will need to hire, train and retain qualified personnel in countries where language, cultural or regulatory barriers may exist. Any difficulties in expanding our international sales may divert management's attention from our existing operations. In addition, international revenues are subject to the following risks:

• fluctuating currency exchange rates which can reduce the profitability of foreign sales;
• the burden of complying with a wide variety of foreign laws and regulations;
• dependence on foreign sales agents;
• political and economic instability of governments; and
• the imposition of protective legislation such as import or export barriers.

Our quarterly revenues, expenses and operating results have varied significantly in the past and are likely to vary significantly from quarter to quarter in the future. As a result, our operating results may fall below the expectations of securities analysts and investors in some quarters, which could result in a decrease in the market price of our common stock. The reasons our quarterly results may fluctuate include:

• general competitive and economic conditions;
• delays in, or uneven timing in the delivery of, customer orders;
• the introduction of new products by us or our competitors;
• product supply shortages; and
• reduced demand due to adverse weather conditions.

Period to period comparisons of such items should not be relied on as indications of future performance.

Our charter, bylaws and Tennessee law contain provisions that may delay, deter or inhibit a future acquisition or an attempt to obtain control of Astec. This could occur even if our shareholders are offered an attractive value for their shares or if a substantial number or even a majority of our shareholders believe the takeover is in their best interest. These provisions are intended to encourage any person interested in acquiring us or obtaining control of us to negotiate with and obtain the approval of our Board of Directors in connection with the transaction. Provisions that could delay, deter or inhibit a future acquisition or an attempt to obtain control of us include the following:

• having a staggered Board of Directors;
• requiring a two-thirds vote of the total number of shares issued and outstanding to remove directors other than for cause;
• requiring advanced notice of actions proposed by shareholders for consideration at shareholder meetings;
• limiting the right of shareholders to call a special meeting of shareholders;
• requiring that all shareholders entitled to vote on an action provide written consent in order for shareholders to act without holding a shareholders meeting; and
• being governed by the Tennessee Control Share Acquisition Act.

In addition, the rights of holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of our preferred stock that may be issued in the future and that may be senior to the rights of holders of our common stock. On December 22, 1995, our Board of Directors approved a Shareholder Protection Rights Agreement, which provides for one preferred stock purchase right in respect of each share of our common stock. These rights become exercisable upon a person or group of affiliated persons acquiring 15% or more of our then-outstanding common stock by all persons other than an existing 15% shareholder. This Rights Agreement also could discourage bids for the shares of common stock at a premium and could have a material adverse effect on the market price of our shares.

• execution of the Company's growth and operation strategy;
• plans for technological innovation;
• compliance with covenants in the Company's credit facility and note purchase agreement;
• ability to secure adequate or timely replacement of financing to repay its lenders;
• liquidity and capital expenditures;
• compliance with government regulations;
• compliance with manufacturing and delivery timetables;
• forecasting of results;
• general economic trends and political uncertainty;
• government funding and growth of highway construction;
• integration of acquisitions;
• financing plans;
• industry trends;
• pricing and availability of oil;
• competition in our business segments;
• product liability and other claims; and
• protection of proprietary technology.

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. You can identify these statements by forward-looking words such as "expect," "believe," "goal," "plan," "intend," "estimate," "may," "will" and similar expressions.

In addition to the risks and uncertainties identified elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, the risk factors described in the preceeding section under the caption "Risk Factors" should be carefully considered when evaluating the Company's business and future prospects.

Internet Website.

The Company's internet website can be found at www.astecindustries.com. The Company makes available free of charge on or through our internal website, access to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material is filed, or furnished, to the Securities and Exchange Commission.

The location, approximate square footage, acreage occupied and principal function of the properties owned or leased by the Company are set forth below:

Management believes that each of the Company's facilities provides office or manufacturing space suitable for its current needs and considers the terms under which it leases facilities to be reasonable.

We are involved in various lawsuits and claims arising in the normal course of business. Management has reviewed all claims and lawsuits and, upon the advice of counsel, has made provision for any estimable losses; however, the Company is unable to predict the ultimate outcome of the outstanding claims and lawsuits. Although the outcomes of these other lawsuits and claims are uncertain, we do not believe any of them will have a material adverse effect on our business, financial condition or results of operations.

No matter was submitted to a vote of security holders during the fiscal quarter ended December 31, 2003.

The name, title, ages and business experience of the executive officers of the Company are listed below.

J. Don Brock, Ph.D., P.E., has been President and a Director of the Company since its incorporation in 1972 and assumed the additional position of Chairman of the Board in 1975. He was the Treasurer of the Company from 1972 until 1994. From 1969 to 1994, Dr. Brock was President of the Asphalt Division of CMI Corporation. He earned his Ph.D. degree in mechanical engineering from the Georgia Institute of Technology. Dr. Brock and Thomas R. Campbell, Group Vice President - Mobile Asphalt Paving and Underground, are first cousins. He is 65.

F. McKamy Hall, a Certified Public Accountant, became Chief Financial Officer during 1998 and has served as Vice President and Treasurer since 1997. He has served as Corporate Controller of the Company since 1987. From 1985 to 1987, Mr. Hall was Vice President of Finance at Quadel Management Corporation, a company engaged in real estate management. Mr. Hall has an undergraduate degree in accounting and a Master of Business Administration degree from the University of Tennessee at Chattanooga. He is 61.

Albert E. Guth became Vice President - Administration and Secretary of Astec Industries, Inc. on January 1, 2003. He served as President of Astec Financial Services, Inc. from 1996 to December 31, 2002. He served as Chief Financial Officer of the Company from 1987 through 1996, as Senior Vice President from 1984 to 1997, Secretary of the Company from 1972 to 1997, and Treasurer from 1994 to 1997. Mr. Guth, who has been a director since 1972, was Vice President of the Company from 1972 until 1984. From 1969 to 1972, Mr. Guth was the Controller of the Asphalt Division of CMI Corporation. He is 64.

W. Norman Smith was appointed Group Vice President-Asphalt in 1998 and has served as the President of Astec, Inc. since 1994. He formerly served as President of Heatec, Inc. from 1977 to 1994. From 1972 to 1977, Mr. Smith was a Regional Sales Manager with the Company. From 1969 to 1972, Mr. Smith was an engineer with the Asphalt Division of CMI Corporation. Mr. Smith has also served as a director of the Company since 1982. He is 64.

Robert G. Stafford was appointed Group Vice President - Aggregate and Mining in 1998. From 1991 to 1998, he served as President of Telsmith, Inc., a subsidiary of the Company. Between 1987 and 1991, Mr. Stafford served as President of Telsmith, Inc., a subsidiary of Barber-Greene. From 1984 until the Company's acquisition of Barber-Greene in December 1986, Mr. Stafford was Vice President - Operations of Barber-Greene and General Manager of Telsmith. He became a director of the Company in March 1988. He is 65.

Thomas R. Campbell was appointed Group Vice President - Mobile Asphalt Paving & Underground in November 2001. He has served as President of Roadtec, Inc. since 1988. He has served as President of Trencor, Carlson Paving Products and American Augers since November 2001. From 1981 to 1988, he served as Operations Manager of Roadtec. Mr. Campbell and J. Don Brock, President of the Company, are first cousins. He is 54.

James G. May has served as President of Heatec, Inc. since 1994. From 1984 until 1994, he served as Vice President of Engineering of Astec, Inc. He is 59.

Richard A. Patek became President of Telsmith, Inc. in May of 2001. He served as President of Kolberg-Pioneer, Inc. from 1997 until that time. From 1995 to 1997, he served as Director of Materials of Telsmith, Inc. From 1992 to 1995, Mr. Patek was Director of Materials and Manufacturing of the former Milwaukee plant location. From 1978 to 1992, he held various manufacturing management positions at Telsmith. Mr. Patek is a graduate of Milwaukee School of Engineering. He is 47.

Frank D. Cargould became President of Breaker Technology Ltd. and Breaker Technology, Inc. on October 18, 1999. The Breaker Technology companies were formed on August 13, 1999 when the Company purchased substantially all of the assets of Teledyne Specialty Equipment's Construction and Mining business unit from Allegheny Teledyne Inc. From 1994 to 1999, he was Director of Sales - East for Teledyne CM Products, Inc. He is 61.

Jeffery J. Elliott became President of Johnson Crushers, Inc. in December, 2001. From 1999 to 2001, he served as Senior Vice President for Cedarapids, Inc., (a Terex company), and from 1996 to 1999, he served as Vice President of the Crushing and Screening Group. From 1978 to 1996, he held various domestic and international sales and marketing positions with Cedarapids, Inc. He is 50.

Neil E. Schmidgall has been President of Superior Industries of Morris, Inc., which was acquired by the Company on November 1, 1999, since 1972. Since 1992, Mr. Schmidgall has been a director and partner of First Federal Savings Bank of Morris. He is 58.

Timothy Gonigam was appointed President of Production Engineered Products, Inc. on October 1, 2000. From 1995 to 2000, Mr. Gonigam held the position of Sales Manager for Production Engineered Products, Inc. He is 41.

Alan L. Forsyth has been Managing Director of Osborn Engineered Products SA (Pty) Ltd. since 1999. The Company purchased the materials handling and processing products division of the Boart-Longyear Division of Anglo Operations Limited on September 29, 2000. From 1998 to 1999, Mr. Forsyth was Deputy Managing Director and served as Divisional Director from 1987 to 1998. He is 51.

Joseph P. Vig was appointed President of Kolberg-Pioneer, Inc. in May of 2001. From 1994 until May 2001, he served as Engineering Manager of Kolberg-Pioneer, Inc. He is 54.

The Company's Common Stock is traded in the Nasdaq Stock Market under the symbol "ASTE." The Company has never paid any cash dividends on its Common Stock.

The high and low sales prices of the Company's Common Stock as reported on the Nasdaq Stock Market for each quarter during the last two fiscal years are as follows:

As of February 25, 2004, there were approximately 3,600 holders of the Company's Common Stock.

During the year ended December 31, 2003, we had no sales of unregistered securities.

Selected financial data appear in Appendix "A" of this Report.

Management's discussion and analysis of financial condition and results of operations appears beginning in Appendix "A" of this Report.

Information appearing under the caption "Market Risk and Risk Management Policies" appears in Appendix "A" of this report.

Financial statements and supplementary financial information appear beginning in Appendix "A" of this Report.

None.

Disclosure Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. The Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company maintains disclosure controls and procedures that provide reasonable assurance that information required to be disclosed by the Company in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and its Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-a5(f) under the Securities Exchange Act of 1934, as amended) that occurred during the year ended December 31, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Information regarding the Company's directors, executive officers, audit committee, and audit committee financial expert are included under the caption "Election of Directors - Certain Information Concerning Nominees and Directors" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 27, 2004 is incorporated herein by reference. Information regarding compliance with Section 16(a) of the Exchange Act is also included under Section 16(a) "Filing Requirements" in the Company's definitive Proxy Statement, which is incorporated herein by reference.

The Company's Board of Directors has approved a Code of Conduct and Ethics that applies to the Company's employees, directors and officers (including the Company's principal executive officer, principal financial officer and principal accounting officer). The Code of Conduct and Ethics will be available on the Company's website at www.astecindustries.com/investors/default.htm prior to the date of the 2004 Annual Meeting of Shareholders.

Information included under the caption, "Executive Compensation" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 27, 2004 is incorporated herein by reference.

Information included under the captions "Election of Directors - Certain Information Concerning Nominees and Directors," "Common Stock Ownership of Management" and "Common Stock Ownership of Certain Beneficial Owners" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 27, 2004 is incorporated herein by reference.

________________

1. 1992 Stock Option Plan
2. 1998 Long-term Incentive Plan
3. Executive Officer Annual Bonus Equity Election Plan
4. 1998 Non-Employee Director Stock Incentive Plan

Non-Employee Directors Stock Incentive Plan - The Company compensates its Board of Directors members who are not full time employees of the company in the form of an annual retainer, plus meeting fees. In accordance with the company's Non-Employee Directors Stock Incentive Plan, the Company's non-employee directors can elect to be paid their annual retainer fee of $20,000 in Common Stock, deferred stock or stock options. A copy of this plan is incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1999.

The table above does not include the Supplemental Executive Retirement Plan ("SERP"), a non-qualified deferred compensation plan administered by the Board of Directors of the Company, pursuant to which the Company makes quarterly cash contributions of a certain percentage of named executive officers annual salaries. The Plan invests the cash contributions in Company Common Stock that it purchases on the open market. Upon retirement executives may receive their apportioned contributions of the plan assets as stock or cash.

Information included under the caption, "Certain Transactions" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 27, 2004 is incorporated herein by reference.

(a)(1) The following financial statements and other information appear in Appendix "A" to this Report and are filed as a part hereof:

. Selected Consolidated Financial Data.

. Management's Discussion and Analysis of Financial Condition and Results of Operations.

. Report of Independent Auditors.

. Consolidated Balance Sheets at December 31, 2003 and 2002.

. Notes to Consolidated Financial Statements.

(a)(2) Other than as described below, Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto. The following Schedules appear in Appendix "A" to this Report and are filed as a part hereof:

Schedule II - Valuation and Qualifying Accounts.

(a)(3) The following Exhibits* are incorporated by reference into or are filed with this Report:

The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market under the symbol ASTE. Prices shown are the high and low bid prices as announced by NASDAQ. The Company has never paid dividends on its common stock.

As determined by the proxy search on the record date by the Company's transfer agent, the number of common shareholders is approximately 3,600.

The following discussion contains forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding forward-looking statements, see "Forward-looking Statements" on page 36.

The Company experienced a net loss for 2003 of $28,964,000, or $1.47 per diluted share, an increase of $24,258,000, compared to a net loss of $4,706,000, or $.24 per diluted share in 2002. The weighted average number of common shares outstanding at December 31, 2003 was 19,671,697 compared to 19,638,103 at December 31, 2002.

Net sales for 2003 were $426,613,000, a decrease of $53,977,000, or 11.2%, compared to net sales of $480,590,000 in 2002.

Domestic sales decreased from $401,284,000 in 2002 to $331,004,000 in 2003, a decrease of $70,280,000, or 17.5%. Domestic sales are primarily generated from equipment purchases made by customers for use in construction for privately funded infrastructure development and public sector spending on infrastructure development. Public sector spending at the federal, state and local levels is 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 April 30, 2004. The Company believes the primary factor that caused its domestic sales to be negatively impacted in 2003 continued to be the general slowdown in the economy. Offsetting the decrease in domestic sales in 2003 were sales of $20,984,000 in small trenchers, a new product line in 2003. Excluding the sales of small trenchers, domestic sales in 2003 would have decreased $91,264,000 compared to 2002.

In 2003 international sales increased $16,303,000, or 20.6%, to $95,609,000 compared to 2002 international sales of $79,306,000. International sales increased the most in Europe, followed by Africa, Australia and China. Sales declined by $4,083,000 in Central America, followed by South America with a decline of $1,499,000. The weaker dollar contributes to the increase, and the local economy of each country has a major impact.

Parts sales were $99,980,000 in 2003 compared to $99,791,000 in 2002. The Company believes that parts sales did not change significantly in 2003 compared to 2002 as a result of the continued sluggish economy, which causes customers to repair rather than purchase new equipment.

Gross profit decreased to $70,864,000, or 16.6% of net sales in 2003, compared to $83,931,000, or 17.5% of net sales in 2002. The primary factors that caused gross profit in 2003 to decrease from the gross profit in 2002 include: an under utilization of capacity of $10.1 million, decreased sales volumes in the Asphalt and Aggregate Groups as described below, decreased prices as a result of competitive price pressure, continued start-up losses at the Loudon, Tennessee facility of $8.1 million and writedown of used and rental equipment of $4.2 million. These factors were offset by the manufacturing expenses, including labor and manufacturing overhead, being reduced $10.1 million in 2003 versus 2002.

In 2003 selling, general and administrative ("SG&A") expenses decreased by $2,944,000 to $69,463,000, or 16.3% of 2003 net sales, from $72,407,000, or 15.1% of net sales in 2002. The decrease in SG&A in 2003 compared to 2002 was primarily due to lower payroll and related taxes, health insurance, legal, professional, advertising and marketing expenses. The decrease in SG&A was partially offset by additional SG&A expenses of $2,926,000 related to the small trencher product line that was added in 2003 at the Loudon, Tennessee facility. An additional offset of $2,470,000 in refinancing expense was included in SG&A.

Goodwill impairment charges of $16,261,000 were booked in 2003 as a result of evaluations completed under Statement of Financial Accounting Standards No. 142 for each reporting unit. By operating segment, the charges are $11,734,000 for the Underground Group, $1,287,000 for the Aggregate Group, $2,310,000 for the Mobile Asphalt Paving Group, and $930,000 for the Asphalt Group.

Relocation and start-up expenses in 2002 related to the move from Grapevine, Texas to Loudon, Tennessee and the move of the small trencher product line from Wichita, Kansas to Loudon, Tennessee.

Research and development expenses increased by $677,000, or 8.9%, from $7,631,000 in 2002 to $8,308,000 in 2003. The increase is related to the increased expenses of the expanded operations at Loudon, Tennessee. Research and development expenditures resulted in new products and product enhancements introduced in 2003.

Interest expense for 2003 decreased by $3,185,000, or 30.4%, to $7,289,000 from $10,474,000. This equates to 1.7% of net sales in 2003 compared to 2.2% of net sales for 2002. The decrease in dollars related to reduced debt levels and more favorable interest rates after a new credit arrangement was entered into in May of 2003.

Senior note termination expense of $3,837,000 was incurred in 2003 as part of the refinancing of debt in May 2003. This amount is in addition to the $2,470,000 of refinancing expenses included in SG&A.

For 2003, the Company had a net income tax benefit of $4,486,000, or 13.4% of the pre-tax loss, compared to the 2002 benefit of $2,511,000, or 35.2% of the 2002 pre-tax loss. The largest contributor to the reduction in the effective tax benefit rate was non-deductible goodwill impairment charges of $15,851,000. Additionally, the establishment of a $1,049,000 valuation allowance for certain state tax loss carryforwards reduced the effective tax rate. The Company expects to utilize the remaining deferred tax asset in connection with future profitability, expected gain on the eventual sale of the Grapevine, Texas facility, increased backlog and the improving economy. There can be no assurances that these events will occur and there are no assurances that the remaining net deferred tax asset will be fully realized.

The backlog at December 31, 2003 was $79,402,000 compared to $60,698,000 at December 31, 2002, which represents a 30.8% increase. The backlog for the Asphalt Group decreased slightly, while backlogs for Aggregate, Mobile, and Underground Groups increased. The Company is unable to determine whether this backlog effect was experienced by the industry as a whole. We are unable to assess the amount of the impact attributable to the TEA-21 legislation, which became effective in October 1998 and ended September 30, 2003. New long-term legislation is under consideration and the funding for October 1, 2003 through April 30, 2004 has been authorized. The Company believes that customers are looking forward to a six-year renewal of federal highway funding. The Company believes the increased backlog reflects an improvement in customer confidence that the economic conditions in the United States are improving, which should result in increased state fuel tax revenue and increased commercial projects.

Even though the funding has only been authorized through April 2004, extension of TEA-21 funding through September 2004 has been set at $33.6 billion compared to $31.6 billion in 2003. Unquestionably, the Company believes that increased funding is needed to restore the nation's highways to a quality level required for safety, fuel efficiency and mitigation of congestion. In the Company's opinion, amounts needed are significantly above amounts proposed and funding mechanisms such as the federal usage fee per gallon, which has not been increased in eleven years, would need to be increased along with other measures to generate the funds needed.

Asphalt Group: For 2003, this segment had sales of $119,302,000 compared to $165,951,000 for 2002, a decrease of $46,649,000, or 28.1%. The segment loss for 2003 was $2,712,000 compared to a profit of $3,127,000 for 2002, for a decrease of $5,839,000. The primary reason for the decrease in sales is the decrease in domestic equipment sales. Continuing competitive price pressure, under utilization of capacity, and writedowns and loss on used equipment significantly impacted gross profits and segment income. The goodwill impairment impact to this segment was $930,000.

Aggregate and Mining Group: For 2003, sales for this segment decreased $21,652,000, or 10.9%, to $177,708,000 compared to $199,360,000 for 2002. The decrease in domestic sales was primarily due to reduced aggregate equipment sold as a complete system. Segment profit for 2003 decreased $2,784,000, or 35.2%, to $5,124,000 from $7,908,000 for 2002. Competitive price pressure, under utilization of capacity, cost overruns on systems jobs, sale of used equipment, unfavorable exchange rates and warranty costs impacted gross profit and segment income. Goodwill impairment for this segment was $1,287,000.

Mobile Asphalt Paving Group: For 2003, sales in this segment increased $3,247,000, or 4.5%, to $75,153,000 from $71,906,000 in 2002. Both domestic and international sales increased from 2002. Segment profit for 2003 decreased $3,592,000, or 86.5%, to $560,000 from $4,152,000 for 2002. Writedown of and loss on sales of used equipment were the primary factors that negatively impacted the 2003 profit. Goodwill impairment charges of $2,310,000 were booked in 2003 for this segment.

Underground Group: For 2003, sales in this segment increased $12,955,000, or 32.8%, to $52,410,000 from $39,455,000 for 2002, primarily due to the addition of the Case small trencher product line. Segment losses for 2003 increased $13,544,000, or 160.1%, to a loss of $22,004,000 from a loss of $8,460,000 during 2002, primarily from goodwill impairment charges of $11,734,000 and under utilization of capacity and continued start-up expenses of the Case and Trencor product lines in Loudon, Tennessee of $8.1 million, excluding goodwill. In 2002, relocating the Case New Holland product line from Kansas to Tennessee and the associated start-up expenses in Loudon totaled approximately $3,277,000 in 2002.

The Company experienced a net loss for 2002 of $4,706,000, or $.24 per diluted share, a decrease of $6,698,000 compared to net income of $1,992,000, or $.10 per diluted share in 2001. The weighted average number of common shares outstanding at December 31, 2002 was 19,638,103 compared to 19,753,226 at December 31, 2001.

Net sales for 2002 were $480,590,000, an increase of $24,751,000, or 5.4%, compared to net sales of $455,839,000 in 2001.

Domestic sales increased from $364,428,000 in 2001 to $401,284,000 in 2002, an increase of $36,856,000, or 10.1%. During 2002, domestic sales continued to be impacted by a general economic slowdown throughout the year. Sales increased in the Asphalt and Aggregate Groups. In the Asphalt Group, parts sales, international sales, used equipment and systems jobs sales increased. Systems sales were the primary reason for the sales increase.

International sales decreased $12,105,000, or 13.2%, in 2002, to $79,306,000, compared to 2001 international sales of $91,411,000. Sales declined by $10,740,000 in Central America. This decrease affected all segments except Asphalt. The second largest decrease was in Europe, with a decline in all segments totaling $6,830,000. In Central America, this change was primarily the result of one large systems job for approximately $8,769,000 in 2001. In Europe, the primary declines were in systems, mobile paving equipment and underground drilling equipment.

Parts sales increased from $93,493,000 in 2001 to $99,791,000 in 2002, an increase of $6,298,000, or 6.7%. All segments focused heavily on parts sales and achieved an increase. Due to the sluggish economy, customer equipment was being repaired instead of replaced.

Gross profit decreased to $83,931,000, or 17.5% of net sales in 2002 compared to $90,924,000, or 20.0% of net sales in 2001. Under utilization of capacity, decreased sales volumes (except in the Aggregate Group and Asphalt Group), competitive price pressure, cost overruns on systems jobs that were completed in 2002 and writedown of used equipment resulted in a reduction in gross profits in 2002 compared to 2001 for all segments except the Aggregate Group.

In 2002 selling, general and administrative expenses increased to $72,407,000, or 15.1% of net sales, from $71,691,000, or 15.7% of net sales in 2001. Increased bank fees related to the Company's credit facility totaled $750,000, while approximately $963,000 of the increase in 2002 was due to the Con-Expo exhibition, a trade show that is held every three years. Reduced legal and other expenses in selling, general and administrative expenses partially offset these items.

Research and development expenses increased by $183,000, or 2.5%, from $7,448,000 in 2001 to $7,631,000 in 2002. In spite of the slow economic conditions, the Company continued to enhance its current products with innovative features that benefit the customer. Product improvement and development continued in an efficient manner.

Interest expense for 2002 increased to $10,474,000 from $9,367,000, or 2.2% of net sales, from 2.1% of net sales for 2001. The increase related primarily to interest rate increases required by lenders as a result of covenant violations during the year.

For 2002, the Company had a net income tax benefit of $2,511,000, or 35.2% of the pre-tax loss, compared to an income tax expense of $1,481,000, or 41.2% of the 2001 pre-tax income. The permanent non-tax deductible items decreased the taxable loss in 2002 and increased the taxable loss in 2001.

The backlog at December 31, 2002 was $60,698,000 compared to $70,061,000 at December 31, 2001 (restated to reflect the addition of the Case New Holland trencher line). The backlog for Asphalt Group orders, Aggregate Group orders and Underground Group orders decreased while the backlog for the Mobile Group increased. While the backlog reflected a decline in sales, management believed that the decline was reflective of the then-current economic conditions in the United States and the then-current hesitancy of the Company's customers to commit to capital equipment purchases. The hesitancy was a result of uncertainty of our customers regarding economic conditions, concern relating to highway funding by the states, lack of sufficient TEA-21 federal funding, concern over possible war impacts and concern over the increase in the price of oil.

Asphalt Group: For 2002, this segment had sales of $165,951,000 compared to $142,674,000 for 2001, an increase of $23,277,000, or 16.3%. Segment profit decreased $1,895,000, or 37.7%, to $3,127,000 for 2002 compared to a segment profit of $5,022,000 for 2001. The primary reason for the increase in sales was the increase in domestic equipment sales, parts sales, used equipment and international sales of $6,059,000. Competitive price pressure and under utilization of capacity significantly impacted gross profits and segment income. Negative gross margins on highly specialized and customized jobs, especially in the construction and installation phase of the jobs, impacted gross margins substantially.

Aggregate and Mining Group: For 2002, sales for this segment increased $16,492,000, or 9.0%, to $199,360,000 compared to $182,868,000 for 2001. The increase in domestic sales of $29,995,000 was primarily due to increased systems sales. Segment profit for 2002 increased $447,000, or 6.0%, to $7,908,000 from $7,461,000 for 2001. Construction and manufacturing cost overruns on systems jobs, competitive price pressure, under utilization of capacity and product mix impacted gross profit and segment income. International sales declined $13,503,000.

Mobile Asphalt Paving Group: For 2002, sales in this segment decreased $6,582,000, or 8.4%, to $71,906,000 from $78,488,000 in 2001. Both domestic and international sales decreased from 2001. International sales during 2002 declined $1,771,000 from 2001. Segment profit for 2002 decreased $4,869,000, or 54.0%, to $4,152,000 from $9,021,000 for 2001. Product mix, under utilization of capacity and increased SG&A expenses impacted the 2002 profit. SG&A included increased selling, legal and exhibition expenses.

Underground Group: For 2002, sales in this segment decreased by $9,200,000, or 18.9%, to $39,455,000 from $48,655,000 for 2001, primarily due to fewer small machine sales to the communications industry. International sales declined $2,889,000. Segment losses for 2002 increased $3,623,000, or 74.9%, to a loss of $8,460,000 from a loss of $4,837,000 during 2001, primarily from under utilization of capacity and expenses of approximately $3,277,000 for moving the Trencor, Inc. operation from Texas to Tennessee, relocating the Case New Holland product line from Kansas to Tennessee and the associated start-up costs in a new location.

Total short-term borrowings, including current maturities of long-term debt, were $36,685,000 at
December 31, 2003 compared to $3,220,000 at December 31, 2002. As described below, $28.0 million related to the revolver portion of the credit facility is required to be classified as short-term borrowings. In addition, quarterly payments due on the General Electric Capital Corporation ("GE Capital") term loan for 2004 are $5,358,000, additional payments on the term loan for the Grapevine facility will start effective July 1, 2004 at the rate of $500,000 per quarter and outstanding Industrial Development Revenue Bonds accounted for $500,000 of the current maturities of long-term debt at December 31, 2003.

Net cash provided by operating activities for the twelve months ended December 31, 2003 was $8,179,000 compared to $33,622,000 for the twelve months ended December 31, 2002. The decrease in net cash provided by operating activities in 2003 is primarily due to net operating losses of $29.0 million, along with a reduction of accounts payable reflecting lower purchasing activity and a reduction of other accrued liabilities due to the elimination of interest due to the payoff of the senior notes and payment for the initial receipt of purchased parts in connection with the start-up in Loudon, Tennessee. Offsetting the decreases were a $6.9 million tax refund, a decrease in accounts receivables reflecting decreased sales and a reduction in inventory demonstrating the focus to sell used equipment and minimize inventory.

Net cash provided by operating activities for the twelve months ended December 31, 2001 was $1,452,000. The increase in net cash provided by operating activities for 2002 compared to 2001 was primarily due to decreases in inventory and trade receivables, along with increases in trade accounts payable and other accrued liabilities during 2002.

Cash flows from investing activities reflect the collection of finance receivables as a result of the Astec Financial Services, Inc. portfolio sale and the sale of leased equipment in connection with the wind down of Astec Financial Services, Inc.. Investing activities, primarily because of the disposition of Astec Financial Services, Inc. assets, provided cash of $30,421,000 in 2003, but used cash of $14,327,000 in 2002, resulting in a positive improvement of $44,748,000. The Company does not expect any cash provided by investing activities during 2004 unless the Company is successful in selling the Grapevine facility or other unused assets.

Long-term debt, less current maturities, decreased to $38,696,000 at December 31, 2003 from $130,645,000 at December 31, 2002. At December 31, 2003, $28,464,000 was long-term under the GE Capital term loan, $10,200,000 was outstanding under the long-term principal portion of Industrial Revenue Bonds, and $32,000 was outstanding under other notes.

On September 10, 2001 the Company entered into an unsecured $125,000,000 revolving loan agreement with a syndicate of banks. At December 31, 2002 the Company was utilizing $31,902,000 of the $58,200,000 amount then available under the credit facility for borrowing and an additional $21,300,000 to support outstanding letters of credit (primarily for industrial revenue bonds). At December 31, 2002 the Company also had $80,000,000 of senior notes held by private institutions.

On May 14, 2003 the Company refinanced its revolving credit facility and senior note agreement with new credit facilities of up to $150,000,000 through GE Capital secured by the Company's assets. As part of the refinancing agreement, the Company entered into a term loan in the amount of $37,500,000 with an interest rate of one percent (1%) above the Wall Street Journal prime rate. At a later date, the Company may elect an interest rate at a percentage above the LIBOR. The term loan requires quarterly principal payments of $1,339,286 on the first day of each quarter beginning July 1, 2003, with the final installment of the principal balance due on May 14, 2007.

The credit agreement also included a revolving credit facility of up to $112,500,000, 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. Principal covenants under the loan agreement include a fixed charge coverage ratio covenant and a limitation on capital expenditures.

On September 30, 2003, related to the syndication of the loan by GE Capital, the Company entered into the First Amendment to the Credit Agreement that reduced the availability under the credit facility from $112,500,000 to $87,500,000, which has a $5,000,000 limit for contingent liabilities and guaranteed indebtedness of the Company. 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. In addition, the amendment increased the interest rate to one and one-half percent (1.5%) above prime or, at the election of the Company, to three and one-half percent (3.5%) above LIBOR. This debt modification resulted in a write-off of debt issuance costs of $545,000.

On October 29, 2003, related to the syndication of the loan by GE Capital, the Company amended its credit agreement to: 1) raise the threshold of required lender approval to at least eighty-one percent (81%) for certain material amendments to the credit agreement; and 2) require any overadvances (over the borrowing base formula contained therein) be repaid within sixty (60) days.

At December 31, 2003 the Company was not in compliance with the fixed charge coverage ratio covenant of its credit facility. The violation was waived as part of an amendment to the credit agreement dated
March 3, 2004, which amended the fixed charge coverage ratio for the next three quarters of 2004. At December 31, 2003 the Company was utilizing $27,997,000 of the amount available under the revolving credit facilities, $34,821,000 as term loans under the credit facilities and an additional $16,297,000 to support outstanding letters of credit (primarily for industrial revenue bonds).

As discussed in Note 19 to the consolidated financial statements, the Company has restated the revolving portion of its credit facility for the second quarter ended June 30, 2003 and for the third quarter ended September 30, 2003 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 effect is to restate debt previously reported as long-term debt amounting to $27.8 million and $39.6 million in the second and third quarters of fiscal 2003, respectively, to current liabilities. In accordance with EITF 95-22, the Company has also classified the revolving credit facility as a current liability in its financial statements as of December 31, 2003. The restatement will not have an impact on the Company's total assets, shareholder's equity, liquidity or the results of operations for the impacted quarters or for the year ended December 31, 2003 and will not affect the financial covenants in the Company's credit facilities.

On August 26, 2003 the Company repaid to the Grapevine Industrial Development Corporation the outstanding bond liability dated April 1, 1994 in the amount of $8,000,000 related to the Trencor, Inc. facility in Grapevine, Texas.

The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd., has available a credit facility of approximately $2,985,000 (ZAR 20,000,000) to finance short-term working capital needs, as well as to cover the short-term establishment of credit performance guarantees. As of December 2003 Osborn Engineered Products SA (Pty) Ltd. had no outstanding cash balance due under the credit facility but had approximately $1,293,000 in performance and retention bonds guaranteed under the facility. The facility is secured by the Company's accounts receivable and retention balances. The available facility fluctuates monthly based upon fifty percent (50%) of the Company's accounts receivable, retention and cash balances at the end of the prior month.

On September 10, 2001 the Company and Astec Financial Services, Inc. entered into a note purchase agreement for $80,000,000 of senior secured notes, placed with private institutions, due September 10, 2011 at a fixed rate of interest of 7.56%. As mentioned above, the Company refinanced its senior secured notes and credit facility in May 2003. In addition, as reported on Form 8-K on May 19, 2003, the Company issued to the former senior note holders subordinated convertible notes in the aggregate principal amount of $10,000,000 to satisfy "make-whole" obligations under the senior notes by reason of the prepayment. On July 15, 2003, the Company exercised its right to redeem the subordinated convertible notes for $4,154,000, which included accrued interest through that date. As a result of this redemption, the Company satisfied all of its obligations related to the early payoff and the "make-whole" provision of the senior note agreement.

Capital expenditures in 2004, budgeted at a maintenance level, are expected with some other items, such as machinery and equipment currently used at a leased facility and buyout of a machinery and equipment lease, to be approximately $7,416,000. The Company expects to finance these expenditures using the available capacity under the Company's revolving credit facility and internally generated funds. Capital expenditures for 2003 were $3,588,000 compared to $19,274,000 in 2002. Capital expenditures for 2002 included the purchase of the Loudon, Tennessee facility, machinery and equipment for approximately $12,800,000.

The Company believes that its current working capital, cash flows generated from future operations and available capacity remaining under its credit facility will be sufficient to meet the Company's working capital and capital expenditure requirements through December 31, 2004. The Company is attempting to sell its Grapevine, Texas facility. The future sale of the Grapevine facility should generate additional funds, the first $6,250,000 of which will be used to reduce the term loan and the remainder will be used to provide working capital or reduce the revolver. There can be no assurances on when, or if, the Company will be successful in selling the Grapevine facility. During 2003 the Company did not depreciate the Grapevine, Texas facility held for sale. For the year ended December 31, 2003 the Company had depreciation expense savings of approximately $283,000 related to assets held for sale.

The Company is exposed to changes in interest rates, primarily from its revolving credit agreements and industrial revenue bonds. Until May 2003, the Company used interest rate derivative instruments to manage exposure to interest rate changes for a portion of its debt arrangements. At December 31, 2003 the Company did not have interest rate derivatives in place. The current fluctuations in interest are subject to normal market fluctuations of interest. A hypothetical 100 basis point adverse move (increase) in interest rates would have adversely affected interest expense by approximately $735,000 for the year ended December 31, 2003. The Company's earnings and cash flows are also subject to fluctuations due to changes in foreign currency exchange rates; however, these fluctuations would not be significant to the Company's consolidated operations.

The Company is subject to foreign exchange risks arising from its foreign operations in its local currency. Foreign operations represented 7.6% and 5.5% of total assets at December 31, 2003 and 2002, respectively, and 9.0% and 7.0% of total revenue for 2003 and 2002, respectively. Assuming foreign exchange rates decreased ten percent (10%) from the December 31, 2003 and 2002 levels, the December 31, 2003 and 2002 shareholders' equity would not be materially affected.

The following table discloses aggregate information about the Company's contractual obligations and the period in which payments are due as of December 31, 2003:

Certain customers have financed purchases of the Company's products through arrangements in which the Company is contingently liable for customer debt and residual value guarantees aggregating $21,125,000 and $14,749,000 at December 31, 2003 and 2002, respectively. These obligations average three years in duration and have minimal risk. Astec Financial Services, Inc. sold installment loans, finance and operating leases with recourse.

The Company is contingently liable under letters of credit of approximately $16,297,000 primarily related to Industrial Revenue Bonds.

As of December 31, 2003 the Company does not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

Based on information available, management is not aware of the need for environmental reserves.

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. Application of these principles requires the Company to make estimates and judgments that affect the amounts as reported in the consolidated financial statements. Accounting policies that are critical to aid in understanding and evaluating the results of operations and financial position of the Company include the following:

Inventory Valuation: Inventories are valued at the lower of cost or market. The most significant component of the Company's inventories is steel. Open market prices, which are subject to volatility, determine the cost of steel for the Company. During periods when open market prices decline, the Company may need to provide an allowance to reduce the carrying value of the inventory. In addition, certain items in inventory may be considered obsolete, and as such, the Company may establish an allowance to reduce the carrying value of these items to their net realizable value. The amounts in these inventory allowances are determined by the Company based on certain estimates, assumptions and judgments made from the information available at that time. Historically, inventory reserves have been sufficient to provide for proper valuation of the Company's inventory. The Company does not believe it is reasonably likely that the allowance level will materially change in the future.

Allowance for Doubtful Accounts: The Company evaluates its ability to collect accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer's inability to meet its financial obligations, a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. Additionally, a general percentage of past due receivables is reserved, based on the Company's past experience of collectibility. If circumstances change (i.e., higher than expected defaults or an unexpected materially adverse change in a major customer's ability to meet its financial obligations), estimates of the recoverability of amounts due could be reduced by a material amount. The Company's level of reserves for its customer accounts receivable fluctuates depending upon the factors discussed. Historically, the allowance for doubtful accounts has been sufficient to provide for write-offs of uncollectible amounts. The allowance for doubtful accounts decreased to $1,752,000 at December 31, 2003 from $2,775,000 at December 31, 2002, due primarily to the decreased total of finance receivables held by the former finance subsidiary at December 31, 2003 compared to December 31, 2002. The Company does not believe it is reasonably likely that the allowance level will materially change in the future.

Litigation Contingencies: As a normal course of business in the industry, the Company is named as a defendant in a number of legal proceedings associated with product liability matters. The Company does not believe it is party to any legal proceedings that will have a materially adverse effect on the consolidated financial position. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by changes in assumptions related to these proceedings.

As discussed in Note 12 of the consolidated financial statements, as of December 31, 2003 the Company has accrued its best estimate of the probable cost for the resolution of these claims. This estimate has been developed in consultation with outside counsel that is handling the defense in these matters and is based upon a combination of litigation and settlement strategies. Certain litigation is being addressed before juries in states where past jury awards have been significant. To the extent additional information arises or strategies change, it is possible that the Company's best estimate of the probable liability in these matters may change.

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.

This annual report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements contained anywhere in this Annual Report that are not limited to historical information are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding:

• execution of the Company's growth and operation strategy;
• compliance with covenants in the Company's credit facilities;
• liquidity and capital expenditures;
• sufficiency of working capital, cash flows and available capacity under the Company's credit facilities;
• government funding and growth of highway construction and commercial projects;
• taxes or usage fees;
• financing plans;
• industry trends;
• pricing and availability of oil; and
• condition of the economy.

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 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. You can identify these statements by forward-looking words such as "expect," "believe," "goal," "plan," "intend," "estimate," "may," "will" and similar expressions.

In addition to the risks and uncertainties identified elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission, the following factors should be carefully considered when evaluating the Company's business and future prospects: decreases or delays in highway funding; rising interest rates; changes in oil prices; changes in steel prices; downturns in the general economy; unexpected capital expenditures and decreases in liquidity; the timing of large contracts; production capacity; general business conditions in the industry; non-compliance with covenants in the Company's credit facilities; demand for the Company's products; and those other factors listed from time to time in the Company's reports filed with the Securities and Exchange Commission. Certain of the risks, uncertainties and other factors discussed or noted above are more fully described in the section entitled "Business - Risk Factors" in the Company's Annual Report on Form 10-K for the year ended Decembe r 31, 2003.

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

See Notes to Consolidated Financial Statements

Basis of Presentation - The consolidated financial statements include the accounts of Astec Industries, Inc. and its domestic and foreign subsidiaries. The Company's significant wholly-owned and consolidated subsidiaries at December 31, 2003 are as follows:

All significant intercompany accounts and transactions have been eliminated in consolidation.

Until December 31, 2001 the Company's investment in a fifty percent (50%) owned joint venture, Pavement Technology, Inc., was accounted for on an equity basis. On December 31, 2001 the Company acquired the remaining fifty-percent (50%) interest in Pavement Technology, Inc. and merged it into Astec, Inc.

Use of Estimates - The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents - The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents.

Concentration of Credit Risk - The Company sells products to a wide variety of customers. Accounts receivable and finance receivables are carried at their outstanding principal amounts, less an allowance for doubtful accounts. The Company extends credit to its customers based on an evaluation of the customer's financial condition generally without requiring collateral. Credit risk is driven by conditions within the economy and the industry and is principally dependent on each customer's financial condition. To minimize credit risk, the Company monitors credit levels and financial conditions of customers on a continuing basis. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. As of December 31, 2003, concentrations of credit risk with respect to receivables are limited due to the wide variety of customers.

Foreign Currency Translation - Subsidiaries located in Canada and South Africa operate primarily using local functional currency. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting adjustments are presented as a separate component of accumulated other comprehensive income.

Inventories - Inventories (excluding used equipment) are stated at the lower of first-in, first-out cost or market. Used equipment inventories are stated at the lower of specific unit cost or market.

Property and Equipment - Property and equipment is stated at cost. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings (40 years) and equipment (3 to 10 years). Both accelerated and straight-line methods are used for tax reporting purposes.

Goodwill - Goodwill represents the excess of cost over the fair value of net identifiable assets acquired. Goodwill amounts were amortized using the straight-line method over 20 years through 2001. Effective January 1, 2002, goodwill is no longer being amortized in accordance with Statement of Financial Accounting Standards No. 142 (SFAS 142) Goodwill and Other Intangible Assets, but will be tested for impairment at least annually. Accumulated goodwill amortization was approximately $2,464,000 at December 31, 2003 and approximately $7,258,000 at December 31, 2002.

Impairment of Long-lived Assets - In the event that facts and circumstances indicate that the carrying amounts of long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the carrying amount for each asset to determine if a writedown is required. If this review indicates that the assets will not be recoverable, the carrying value of the Company's assets would be reduced to their estimated market value.

Revenue Recognition - A portion of the Company's equipment sales represents equipment produced in the Company's plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements. Equipment revenues are recognized in compliance with the terms and conditions of each contract, which is ordinarily at the time the equipment is shipped. Certain contracts include terms and conditions through which the Company recognizes revenues upon completion of equipment production, which is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and all risks of ownership. The Company has a limited number of sales accounted for as multiple-element arrangements, whereby related revenue on each product is recognized when it is shipped, and the related service revenue is recognized when the service is performed.

Advertising Expense - The cost of advertising, other than direct response advertising, is expensed as incurred. The Company incurred approximately $2,088,000, $2,700,000 and $4,447,000 in advertising costs during 2003, 2002 and 2001, respectively.

Direct response advertising is capitalized and amortized over its expected period of future benefits. The Company participates in a week-long industry trade show that takes place once every three years. The Company maintains customer and potential customer attendance records that are used to track the future sales revenues as a result of their advertising and customer relation efforts at the show. The costs related to the trade exhibits and show attendance are capitalized, then amortized over the period in which revenue related to the trade show is generated, which is twenty-four months. Sixty percent (60%) of costs are expensed during the first twelve months following the show and the remaining forty percent (40%) is expensed over the succeeding twelve-month period based on historical revenue patterns. The amortization method is supported by the attendance and revenue related records maintained by the Company. Prepaid trade show expenses totaled $293,000 and $1,472,000 as of December 31, 2003 and 2002. A mortized advertising expenses related to presentation and attendance at trade shows were $1,418,000, $963,000 and $257,000 for the years ended December 31, 2003, 2002 and 2001.

Stock-based Compensation - As permitted under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and accordingly, recognizes no compensation expense for the stock option grants as long as the exercise price is equal to or more than the fair value of the shares at the date of the grant. Because all option grants for 2003, 2002 and 2001 were at or above the fair value of the shares, no stock-based employee compensation cost is reflected in net income (loss) for those years.

During 2002 the Financial Accounting Standards Board issued SFAS No. 148 Accounting for Stock-based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that statement to require prominent disclosure about the effects on the reporting of net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Finally, SFAS No. 148 amends APB Opinion No. 28, Interim Financial Reporting, to require disclosure about these effects in interim financial information. Although Statement 148 does not amend Statement 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of Statement 148 are applicable to all companies with stock-based compensation, regardless of whether they account for that compensation using the fair value method of Statement 123 or the intrinsic value method of APB No. 25.

The following pro forma summary presents the Company's net income (loss) and per share earnings (loss) which would have been reported had the Company determined stock compensation cost using the fair value method of accounting set forth under SFAS No. 123. The pro forma impact on net income (loss) shown below may not be representative of future effects.