OR

Commission File Number 0-14714

(Exact name of registrant as specified in its charter)

(Registrant's telephone number, including area code)

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

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

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

ASTEC INDUSTRIES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Receivables are net of allowance for doubtful accounts of $2,037,000 and $1,752,000 for March 31, 2004 and December 31, 2003, respectively.

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

Basic and diluted earnings per share are calculated in accordance with SFAS No. 128. Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities.

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

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

In addition, the Company is contingently liable under letters of credit of approximately $17,483,000, of which $9,338,000 is related to Industrial Revenue Bonds. Under the Company's credit facility, the terms of letters of credit are limited to one year. As of March 31, 2004, the maximum potential amount of future payments for which the Company would be liable is approximately $17,483,000, of which $9,338,000 is recorded as debt in the accompanying consolidated balance sheet.

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

There have been no material developments in legal proceedings previously reported. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contingencies" in Part I - Item 2 of this Report.

Approximately 20% to 25% of the Company's business volume typically occurs during the first three months of the year. During the usual seasonal trend, the first three quarters of the year are the Company's stronger quarters for business volume, with the fourth quarter normally being the weakest quarter.

At March 31, 2004 and December 31, 2003 the Company had unamortized goodwill in the amount of $20,827,000 and $20,887,084, respectively.

The changes in the carrying amount of goodwill by operating segment for the quarter ended March 31, 2004 are as follows:

The May 14, 2003 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. The revolving credit facility has a maturity date of May 14, 2007 and at inception, the interest rate on the revolving credit loan was one-percent (1%) above the Wall Street Journal prime rate or, at the election of the Company, three-percent (3%) above LIBOR. The credit facility contains certain restrictive financial covenants relative to operating ratios and capital expenditures.

The Company was in compliance with the financial covenants under its credit facility as of March 31, 2004.

The Company's Canadian subsidiary, Breaker Technology Ltd, has available a credit facility issued by GE Capital dated May 14, 2003 with a term of four years for $5,000,000 to finance short-term working capital needs, as well as to cover the short-term establishment of letter of credit guarantees. As of March 31, 2004, Breaker Technology Ltd had no outstanding cash balance due under the credit facility, but approximately $243,000 in letter of credit guarantees under the facility. The Company is the primary guarantor to GE Capital of payment and performance for this $5,000,000 credit facility. The term of the guarantee is equal to the related debt. The maximum potential amount of future payments the Company would be required to make under its guarantee at March 31, 2004 is $243,000.

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

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

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

The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warrant liability is primarily based on historical claim rates, nature of claims and the associated cost.

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

During the third quarter of 2003 the Company discontinued manufacturing operations at its Pavement Technology, Inc. facility located in Covington, Georgia. Certain office and manufacturing space of the facility are currently leased to the unrelated, but former president of this facility. The property is listed with a local realtor and the Company is actively pursuing a 2004 sale of this manufacturing facility. The Company expects to net an amount approximating the carrying value of equipment, land and building of $770,618, which is classified as "assets held for sale" in the balance sheet and is included in the assets of the Asphalt Group segment.

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1,400,000 to its pension plan and $62,000 in other benefits during 2004. As of March 31, 2004, approximately $405,000 of the contributions were made to the pension plan and $36,000 was paid for other benefits. The Company presently anticipates contributing an additional $1,200,000 for a total of $1,600,000 to fund its pension plan in 2004 and anticipates contributing an additional $26,000 for other benefits during 2004.

The components of net periodic pension cost for the quarter ended March 31, 2004 and 2003 are as follows:

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

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

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

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

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

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

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

For the three months ended March 31, 2004, net sales increased $20,966,000, or 17.2%, to $143,094,000 from $122,128,000 for the three months ended March 31, 2003. Sales are generated primarily from new equipment purchases made by customers for use in construction for privately funded infrastructure development and public sector spending on infrastructure development. Net sales for the Aggregate and Mining Group increased approximately $13,410,000, Underground Group net sales increased approximately $5,471,000 and Mobile Asphalt Group sales increased $3,675,000 for the first quarter of 2004 compared to the first quarter of 2003. Net sales for the Asphalt Group decreased approximately $1,059,000 for the first quarter of 2004 compared to the same period of 2003.

For the quarter ended March 31, 2004, compared to the same period of 2003, the Company believes that the increase in the sales for all business segments, other than the Asphalt Group, related to a general improvement in the economy and pent-up demand in the equipment markets the Company serves. For the first quarter of 2004 compared to the same period of 2003, the increase in Underground Group sales related also to increased sales of used equipment. The decrease in sales for the Asphalt Group related primarily to continued weak market conditions and product pricing pressure.

International sales for the first quarter of 2004 increased $5,673,000, or 24%, to $29,309,000, compared to $23,636,000 for the first quarter of 2003. For the three months ended March 31, 2004 and 2003, international sales accounted for approximately 20.5% and 19.4% of net sales, respectively. International sales increased for the first quarter of 2004 compared to the same period of 2003 primarily in Canada and Asia, but were offset somewhat by decreased sales in the West Indies and Europe. The Company believes the increase in international sales relates to pent-up demand for its equipment, and to benefits from the weakened dollar in the international markets.

Gross profit for the three months ended March 31, 2004 increased $10,347,000, or 50.2%, to $30,954,000 from $20,607,000 for the three months ended March 31, 2003. Gross profit as a percentage of sales for the three months ended March 31, 2004 and 2003 was 21.6% and 16.9%, respectively. The gross profit percentage increased during the first quarter of 2004 compared to the same quarter of 2003, as a result of increased volume through the manufacturing facilities and greater utilization of manufacturing capacity and because the first quarter of 2003 included a large turnkey project with a low gross margin. Offsetting the increase was lower gross profit percentage at the Loudon, Tennessee facility. The Company continued to benefit during the first quarter of 2004 from manufacturing expense reductions made in 2003.

Selling, general, administrative and engineering expenses for the three months ended March 31, 2004 were $20,945,000 or 14.6% of net sales, compared to $21,410,000 or 17.5% of net sales for the three months ended March 31, 2003, a decrease of $465,000 or 2.2%. Together with the first quarter 2004 increase in sales, the Company continued to benefit from various cost reduction efforts taken during 2003, which included headcount reductions. During the first quarter of 2003, the Company incurred one-time real estate title and recording fees and legal and consulting fees required by the former lenders. The absence of these fees during the first quarter of 2004 was offset primarily by increased selling, general, administrative and engineering expense at the Loudon, Tennessee facility.

For the quarter ended March 31, 2004 compared to the quarter ended March 31, 2003, interest expense decreased $1,262,000, or 53.9%, to $1,079,000 from $2,341,000. Interest expense as a percentage of net sales was 0.8% and 1.9% for the quarters ended March 31, 2004 and 2003, respectively. The decrease in interest expense for the three months ended March 31, 2004 compared to the same period of 2003 related primarily to the decrease in outstanding debt and the lower interest rate on such debt under the current lending arrangement.

Other income, net of other expense, was a loss of $62,000 for the quarter ended March 31, 2004, compared to income net of expense of $182,000 for the quarter ended March 31, 2003, a decrease of $244,000. The primary reason for the decrease related to foreign currency exchange losses incurred by the Aggregate and Mining Group.

For the three months ended March 31, 2004, the Company recorded income tax expense of $3,406,000, compared to an income tax benefit of $1,153,000 for the three months ended March 31, 2003. The Company expects the effective tax rate for 2004 to be comparable to historical effective rates.

For the three months ended March 31, 2004 the Company had net income of $5,452,000 compared to a net loss of $1,830,000 for the three months ended March 31, 2003. Earnings per diluted share for the three months ended March 31, 2004 were $0.27 and net loss per share for the quarter ended March 31, 2003 was $0.09. Diluted shares outstanding at March 31, 2004 were 19,936,070. Shares outstanding at March 31, 2003 were 19,677,734.

Backlog of orders at March 31, 2004 was $108,747,000, compared to $53,289,000 at March 31, 2003, an increase of $55,458,000 or 104.1%. The increase in the backlog of orders at March 31, 2004 compared to March 31, 2003 related primarily to increased domestic orders totaling approximately $37,062,000, of which $19,787,000 were for the Company's Aggregate and Mining Group and approximately $11,792,000 for the Asphalt Group. As of March 31, 2004, with the exception of the Underground Group, domestic backlog of orders increased from the same prior year period in all business segments. As of March 31, 2004, the international backlog of orders increased from the same prior year period for all business segments. The Company is unable to determine whether the increase in backlog was experienced by the industry as a whole.

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 GECC secured by the Company's assets. As part of refinancing agreement, the Company entered into a term loan in the amount of $37,500,000, with an interest rate of one percent above the Wall Street Journal prime rate. At the option of the Company, the Company may elect an interest rate at a certain 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 the maintenance of minimum levels of fixed charge coverage ratios and a 2004 limitation on capital expenditures of $9,500,000. The Company was in compliance with the financial covenants of the agreement as of March 31, 2004.

On September 30, 2003, related to the syndication of the loan by GECC, 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 includes $5,000,000 reserved 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 above prime, or at the election of the Company to three and one-half percent above LIBOR.

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 over-advances (over the borrowing base formula contained therein) be repaid within sixty (60) days. On March 3, 2004, the Company amended its credit facility to revise the fixed charge coverage ratio for the second, third and fourth quarters of 2004.

Total short-term borrowings, including current maturities of long-term debt, were $34,529,000 at March 31, 2004, compared to $36,686,000 at December 31, 2003. As of March 31, 2004, short-term borrowings included the GECC revolving line of credit totaling $26,659,000, the current portion of the GECC term loan totaling $6,357,000, the current portion of Industrial Revenue Bonds totaling $500,000 and a short term note payable for financed insurance premiums that totaled $1,013,000. At December 31, 2003, short-term borrowings consisted primarily of the GECC revolving line of credit totaling $27,997,000, the current portion of the GECC term loan totaling $6,357,000, financed insurance premiums totaling $1,820,000 and the current portion of Industrial Development Revenue Bonds totaling $500,000.

Net cash provided by operating activities for the three months ended March 31, 2004 was $7,798,000 compared to net cash provided by operating activities of $917,000 for the three months ended March 31, 2003. The increase in cash from operating activities for the first quarter of 2004 compared to the first quarter of 2003 related primarily to net income and an increase in accounts payable and accrued product warranty, offset by an increase in trade receivables.

Long-term debt, less current maturities, decreased to $36,857,000 at March 31, 2004 from $38,696,000 at December 31, 2003. At March 31, 2004, $27,125,000 was outstanding under the long-term principal portion of the GECC term loan and $9,700,000 was outstanding under the long-term principal portion of Industrial Revenue Bonds.

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 March 31, 2005.

Capital expenditures in 2004 are expected to total approximately $7,400,000. The Company expects to finance these expenditures using internally generated funds and amounts available from its credit facilities. Net cash used by investing activities for the three months ended March 31, 2004 was approximately $600,000, compared to net cash provided by investing activities of $15,243,000 for the three months ended March 31, 2003. Capital expenditures for the three months ended March 31, 2004 were $683,000, compared to $1,740,000 for the three months ended March 31, 2003. Proceeds from the repayment of loans was approximately $17,000 for the three months ended March 31, 2004, compared to proceeds from the sale and repayment of lease portfolios and finance receivables of $16,938,000 for the three months ended March 31, 2003. Since the closing of the Company's captive finance company effective December 31, 2002, the Company has not entered into new leasing arrangement s.

The Company is engaged in certain pending litigation involving claims or other matters arising in the ordinary course of business. Most of these claims involve product liability or other tort claims for property damage or personal injury against which the Company is insured. As a part of its litigation management program, the Company maintains adequate general liability insurance coverage for product liability and other similar tort claims. The coverage is subject to a substantial self-insured retention under the terms of which the Company has the right to coordinate and control the management of its claims and the defense of these actions.

Certain customers have financed purchases of the Company's products through arrangements in which the Company is contingently liable for customer debt and for residual value guarantees. These obligations range from 7 to 84 months in duration. If our customers default on this debt, the Company will have to pay the agreed contingency to the lender on behalf of the customer. The financed equipment collateralizes the underlying debt and under contract terms can reduce the amount of the Company's contingent liability in the case of customer default. In the event of customer default, recovery from the lender from the sale of collateral may not be sufficient to repay amounts paid by the Company related to contingent liabilities. Significant cash payments for which the company is contingently liable could adversely affect the Company's available operating funds.

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.

The Company was in compliance with financial covenants at March 31, 2004. For the quarter ended 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 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 in an effort to make sales as demand in our industry slowed. As a result, we experienced price erosion and lower gross margins.

We have completed numerous 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:

During 2002 and 2003, 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.

We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2003.

(a) Exhibits:

Exhibit No. Description

(b) Reports on Form 8-K:

______________________

The Exhibits are numbered in accordance with Item 601 of Regulation S-K. Inapplicable Exhibits are not included in the list.

* In accordance with Release No. 34-47551, this exhibit is hereby furnished to the SEC as an accompanying document and is not to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.