Edgar Filing: ASTEC INDUSTRIES INC

f10k123108.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to________________________

Commission file number 001-11595

ASTEC INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Tennessee	62-0873631
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1725 Shepherd Road, Chattanooga, Tennessee	37421
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:

(423) 899-5898

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $.20 par value

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o

No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes o

No ý

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.

Yes ý

No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to be best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o

	Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o		No ý

(Form 10-K Cover Page - Continued)

As of June 30, 2008, the aggregate market value of the registrant's voting stock held by non-affiliates of the registrant was approximately $628,645,000 based upon the closing sales price as reported on the National Association of Securities Dealers Automated Quotation System National Market System.

(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 20, 2009, Common Stock, par value $0.20 - 22,509,252 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:

Document		Form 10-K
Proxy Statement relating to Annual Meeting of Shareholders to be held on April 23, 2009		Part III

ASTEC INDUSTRIES, INC.

2008 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I		Page
Item 1.	Business		2
Item 1A.	Risk Factors		16
Item 1B.	Unresolved Staff Comments		21
Item 2.	Properties		21
Item 3.	Legal Proceedings		24
Item 4.	Submission of Matters to a Vote of Security Holders		24
	Executive Officers of the Registrant		24

PART II
Item 5.	Market for Registrant's Common Equity; Related Shareholder Matters and Issuers Purchases of Equity Securities		27
Item 6.	Selected Financial Data		27
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations		27
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		28
Item 8.	Financial Statements and Supplementary Data		28
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		28
Item 9A.	Controls and Procedures		28
Item 9B.	Other Information		29

PART III
Item 10.	Directors, Executive Officers and Corporate Governance		29
Item 11.	Executive Compensation		29
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters		29
Item 13.	Certain Relationships and Related Transactions, and Director Independence		30
Item 14.	Principal Accounting Fees and Services		31

PART IV
Item 15.	Exhibits and Financial Statement Schedules		31

Appendix A	ITEMS 8 and 15(a)(1), (2) and (3),and 15(b) and 15(c)		A-1

Signatures

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K 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 on Form 10-K 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;

· plans for technological innovation;

· compliance with covenants in our credit facility;

· ability to secure adequate or timely replacement of financing to repay our 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;

· pricing and availability of steel;

· pricing of scrap metal;

· presence in the international marketplace;

· suitability of our current facilities;

· future payment of dividends;

· competition in our business segments;

· product liability and other claims;

· protection of proprietary technology;

· future filling of backlogs;

· employees;

· tax assets;

· the impact of account changes;

· the effect of increased international sales on our backlog;

· critical account policies;

· ability to satisfy contingencies;

· contributions to retirement plans;

· supply of raw materials; and

· inventory.

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 us 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 us on the date hereof, and we assume 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 us with the Securities and Exchange Commission, the risk factors described in this document under the caption "Risk Factors" should be carefully considered when evaluating our business and future prospects.

PART I

Item 1. Business

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, utility and related construction activities. The Company's products are used in each phase of road building, from quarrying and crushing the aggregate to application of the road surface. The Company also manufactures certain equipment and components unrelated to road construction, including trenching, auger boring, directional drilling, gas and oil drilling rigs, industrial heat transfer equipment, whole-tree pulpwood chippers, horizontal grinders and blower trucks. The Company has also designed and introduced a line of multiple use plants for cement treated base, roller compacted concrete and ready-mix concrete. The Company's subsidiaries hold 94 United States patents and 39 foreign patents, have 50 patent applications pending, and have 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 and replacement parts for some competitors' equipment. 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/Inc., 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 a complete line of bulk material handling and minerals processing plant and equipment used in the aggregate, mineral mining, metallic mining and recycling industries; (v) Astec Mobile Screens, Inc. which designs, manufactures and markets mobile screening plants, portable and stationary structures and vibrating screens for the material processing industries; (vi) Telsmith, Inc., which designs, manufactures and markets aggregate processing and mining equipment for the production and classification of sand, gravel, crushed stone and minerals used in road construction and other applications; (vii) Astec, Inc., which designs, manufactures and markets hot-mix asphalt plants, concrete mixing plants and related components of each; (viii) CEI Enterprises, Inc., which designs, manufactures and markets thermal fluid heaters, storage tanks, hot-mix asphalt plants, rubberized asphalt and polymer blending systems; (ix) Heatec, Inc., which designs, manufactures and markets thermal fluid heaters, process heaters, waste heat recovery equipment, liquid storage systems and polymer and rubber blending systems; (x) American Augers, Inc., which designs, manufactures and markets large horizontal, directional drills, oil and gas drilling rigs, auger boring machines and the down-hole tooling to support these units; (xi) Astec Underground, Inc., formerly Trencor, Inc., which designs, manufactures, and markets heavy-duty Trencor trenchers, and a comprehensive line of Astec utility trenchers, vibratory plows, and compact horizontal directional drills; (xii) Carlson Paving Products, Inc., which designs, manufactures and markets asphalt paver screeds, a commercial paver and a windrow pickup machine; (xiii) Roadtec, Inc., which designs, manufactures and markets asphalt pavers, material transfer vehicles, milling machines and a line of asphalt reclaiming and soil stabilizing machinery; and (xiv) Peterson Pacific Corp., which designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. The Company also has a subsidiary in Australia, Astec Australia Pty Ltd that distributes certain of the Company’s products in the region.

The Company's strategy is to be the industry's most 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 and utility infrastructure, and other areas in which it offers products and services, both in the United States and abroad.

Segment Reporting

The Company's business units have their own decentralized 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, the similarity of economic characteristics, the manner in which management reviews results and the nature of the production process among other considerations. 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, including the Company, Astec Insurance Company, Peterson Pacific Corp. and Astec Australia Pty Ltd, as well as federal income 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 and for geographic areas under Statement of Financial Accounting Standards (SFAS) No. 131 is included in Note 15 to "Notes to Consolidated Financial Statements - Operations by Industry Segment and Geographic Area," presented in Appendix A of this report.

Asphalt Group

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

Products

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. In January 2009, Astec, Inc. introduced a new line of concrete mixing plants. An asphalt mixing plant typically consists of heating and storage equipment for liquid asphalt (manufactured by CEI or Heatec); cold feed bins for blending aggregates; a counter-flow continuous type unit (Astec Double Barrel) 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. Astec introduced the concept of high plant portability in 1979. Its current generation of portable asphalt plants is marketed as the Six PackTM and consists of six or more 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 successfully marketed by Astec. Astec's enhanced version of the Six PackTM, known as the Turbo Six PackTM, 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.

Astec recently developed a Double Barrel Green System (patent pending), which allows the asphalt mix to be prepared and placed at lower temperatures than conventional systems and operates with a substantial reduction in smoke emissions during paving and load-out. Previous technologies for warm mix production rely on expensive additives, procedures and/or special asphalt cement delivery systems that add significant costs to the cost per ton of mix. The Company’s new Astec Multi-nozzle Device eliminates the need for the expensive additives by mixing a small amount of water and asphalt cement together to create microscopic bubbles that reduces the viscosity of the asphalt mix coating on the rock thereby allowing the mix to be handled and worked at lower temperatures.

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. Astec also builds batch type asphalt plants and has developed specialized asphalt recycling equipment for use with its hot-mix asphalt plants.

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 and water heaters for concrete plants. 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 the 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 designs, engineers, manufactures and markets thermal fluid heaters, storage tanks, hot-mix asphalt plants, rubberized asphalt and polymer blending systems under the CEI® trademark. CEI designs and builds heaters with outputs up to 6,300,000 BTU’s per hour and portable, vertical, and stationary storage tanks up to 40,000 gallons in capacity. CEI’s hot-mix plants are built for domestic and international use and employ parallel and counter flow designs with capacities up to 180 tons per hours. CEI is a leading supplier of crumb rubber blending plants in the U.S.

Marketing

Astec markets its hot-mix asphalt products both domestically and internationally. Dillman Equipment, Inc., a manufacturer of asphalt production equipment in Praire du Chien, WI was acquired by Astec, Inc. in October 2008 and now operates as a division of Astec, Inc. The Dillman line of equipment is offered to the market as an addition to the Astec product line. The principal purchasers of asphalt and related equipment are highway contractors. Asphalt equipment, including Dillman products, are sold directly to the customers through Astec'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 through both direct and dealer sales.

In total, the products of the Asphalt Group segment are marketed by approximately 48 direct sales employees, 19 domestic independent distributors and 32 international independent distributors.

Raw Materials

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 normally readily available. Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but some steel is bought and occasionally inventoried.

Competition

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 Terex Corporation, Gencor Industries, Inc., ADM and Almix. In the international market the hot-mix asphalt plant competitors include Ammann, Parker Citfali and SpecoIndicate. 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 Industries, Inc., American Heating, Pearson Heating Systems, F&C and Meeker. Competitors for the industrial product line of heating equipment include New Point Thermal, Fulton Thermal Corporation, Vapor Power International, NATCO, Broach and TFS, among others.

Employees

At December 31, 2008, the Asphalt Group segment employed 1,135 individuals, of which 855 were engaged in manufacturing, 125 in engineering and 155 in selling, general and administrative functions.

Backlog

The backlog for the hot-mix asphalt and heat transfer equipment at December 31, 2008 and 2007 was approximately $106,223,000 and $133,358,000, respectively. Management expects all current backlogs to be filled in 2009.

Aggregate and Mining Group

The Company's Aggregate and Mining Group is comprised of six business units focused on the aggregate, metallic mining and recycling markets. These business units 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 Telsmith, Inc. ("Telsmith"), Kolberg-Pioneer, Inc. ("KPI"), Astec Mobile Screens, Inc. ("AMS"), Johnson Crushers International, Inc. ("JCI"), Breaker Technology Ltd/Breaker Technology Inc. ("BTI") and Osborn Engineered Products, SA (Pty) Ltd ("Osborn").

Products

Founded in 1906, 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 jaw, cone and impact crushers as well as vibrating feeders, inclined and horizontal screens. Telsmith also provides consulting and engineering services to provide complete “turnkey” processing systems. Both portable and modular plant systems are available in production ranges from 300 tph up to 1500 tph.

Recent additions to the Telsmith product lines are the Quarry-Trax® track mobile primary crushing plants and several hydraulically controlled jaw crushers. These products incorporate features that enhance the operator’s ability to safely maintain the equipment and optimize productivity.

Telsmith maintains an ISO 9001:2000 certification, an internationally recognized standard of quality assurance. In addition, Telsmith has achieved CE designation (a standard for quality assurance and safety) on its jaw crusher, cone crusher and vibrating screen products marketed into European Union countries.

KPI designs, manufactures and supports a complete line of aggregate processing equipment for the sand and gravel, mining, quarrying, concrete and asphalt recycling markets under the Pioneer® and Kolberg® product brand names. This equipment, along with the full line of portable and stationary aggregate and ore processing products from JCI and the related screen products from AMS, are all jointly marketed through an extensive network of KPI-JCI dealers.

Pioneer® products include a complete line of primary, secondary, tertiary and quaternary crushers, including jaws, horizontal shaft impact, vertical shaft impact 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. 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 highly-portable Fast Pack® System, featuring quick setup and teardown, thereby maximizing production time and minimizing downtime. Also included in the portable Pioneer® line are the fully self-contained and self-propelled Fast Trax® Track-Mounted-Jaw and HSI Crushers in five different models, 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 Kolberg® 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.

Kolberg® conveying equipment, including telescopic conveyers, is designed to move or store aggregate and other bulk materials in radial cone-shaped or windrow stockpiles. The Wizard Touch™ automated controls are designed to add efficiency and accuracy to whatever the stockpile specifications require.

Founded in 1995, JCI is one of the youngest subsidiaries in the group. 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, track-mounted 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 remotely adjusted and manual models. Horizontal screens are low-profile machines for use primarily in portable applications. They are used to separate aggregate materials by sizes. The Combo® screen 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 portable plant is self-erecting with production capability in excess of 500 tons per hour and 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 systems. The Fast Pack® design reduces operating costs as much as 30%, compared to traditional plant designs, and the user-friendly controls provide a safer work environment for the user.

JCI mounts its screens and cone crushers on self-contained track mounted units marketed under the name Fast Trax®. JCI co-markets the Fast Trax® with KPI. These units are self-contained and easily transported to where the work is. This product fits nicely into JCI’s distribution channel as many sales start as short-term rentals. All products sold by KPI or JCI carry the main branding logo of KPI-JCI.

AMS, located in Sterling, Illinois, develops, manufactures and markets mobile screening plants, portable and stationary screen structures and vibrating screens designed for the recycle, crushed stone, sand and gravel, industrial and general construction industries. These screening plants include the AMS Vari-Vibe and Duo-Vibe high frequency screens. The AMS high frequency screens are used for chip sizing, sand removal and sizing recycled asphalt where conventional screens are not ideally suited.

During 2008, AMS expanded the mobile screening plant family with the introduction of the DirectFeed 2516T which is a heavy duty screening plant for processing larger materials. AMS also continued its development of high frequency screen boxes with the focus on increased production and performance in fine screening applications. These new products are primarily marketed to the crushed stone, recycle, sand & gravel and general construction industries.

BTI designs, manufactures and markets hydraulic rock breaker systems for the aggregate, mining and recycling industries. BTI also designs and manufactures a complete line of four-wheel drive articulated utility vehicles for underground mines and quarries. Complementing its DS Series of scaling vehicles is a BTI scaling vehicle. BTI's product line now includes an effective and innovative vibratory pick scaling attachment.

In addition to the quarry and mining industries, BTI designs, manufactures and markets a complete line of hydraulic breakers, compactors and demolition attachments for the North American construction and demolition markets. These attachments are designed to fit a variety of equipment including excavators, backhoe loaders, wheel loaders and skid steer loaders.

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

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 recycling industries. Osborn has been a licensee of Telsmith's technology for over 50 years. In addition to Telsmith, Osborn also manufactures under license of American Pulverizer (USA), IFE (Austria) and Mogensen (UK) and has an in-house brand, Hadfields. Osborn also offers the following equipment: 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 systems, and a full range of idlers.

Marketing

Aggregate processing and mining equipment is marketed by approximately 75 direct sales employees, 122 independent domestic distributors and 71 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

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 normally readily available. BTI purchases hydraulic breakers under purchasing arrangements with a Japanese and a Korean supplier. The Japanese and Korean suppliers have sufficient capacity to meet the Company's anticipated demand; however, alternative suppliers exist for these components should any supply disruptions occur.

Competition

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 Industry AB), Extec, Fintec; Rammer, subsidiaries of Terex Corporation (Cedarapids, Powerscreen, Finlay, B-L and Pegson), Deister; Eagle Iron Works, McLanahan, McCloskey, Lippmann, Equipos Minera, Normet, Gia, Atlas Copco and other smaller manufacturers, both domestic and international.

Employees

At December 31, 2008, the Aggregate and Mining Group segment employed 1,619 individuals, of which 1,187 were engaged in manufacturing, 123 in engineering and engineering support functions, and 309 in selling, general and administrative functions.

Telsmith has a labor agreement covering approximately 195 manufacturing employees which expires on September 18, 2010. None of Telsmith's other employees are covered by a collective bargaining agreement.

Approximately 145 of Osborn's manufacturing employees are members of three national labor unions with agreements that expire on June 30, 2011.

Backlog

At December 31, 2008 and 2007, the backlog for the Aggregate and Mining Group was approximately $65,340,000 and $113,031,000, respectively. Management expects most current backlogs to be filled in 2009.

Mobile Asphalt Paving Group

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, milling machines and a line of asphalt reclaiming and soil stabilizing machinery. 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 Windrow pickup machines which transfer hot mix asphalt from the road bed into the paver's hopper and a new commercial class 8 ft. asphalt paver developed in 2008.

Products

Roadtec's 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, while reducing the time required to pave the road surface. As a result of the pavement smoothness achieved with this machine, certain states now require 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 is designed to carry and spray tack coat directly in front of the hot mix asphalt in a single process.

Roadtec manufactures 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. In addition to its larger half-lane and up highway class milling machines, Roadtec also manufactures a smaller, utility class machine for 2 ft. to 4ft. cutting widths. Additional upgrades and options are available from Roadtec to enhance its products and their capabilities.

Roadtec’s 700 hp soil stabilizer which also doubles as an asphalt reclaiming machine for road rehabilitation, stabilizes the sub-grade with additives to provide an improved base on which to pave. The existing road materials are pulverized and remixed with additives to prepare the surface so the new combined asphalt mix can be applied. Roadtec’s engineering staff is currently developing the second, lower horsepower machine in this class that is expected to be introduced in 2009 with a third machine to be introduced thereafter.

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. Carlson offers options which allow extended paving widths and the addition of a curb on the road edge. In 2008, Carlson introduced the CP 90 commercial class 8 ft. paver which fills the void between competitors commercial pavers, which tend to be lighter and less robust machines, and Roadtec’s highway class paver line.

Marketing

The 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 and factory authorized machine rebuild services are marketed both directly and through dealers. This segment employs 29 direct sales staff, 32 domestic independent distributors and 28 foreign independent distributors.

Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources. Raw materials for manufacturing are normally readily available. Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but some steel is bought and occasionally inventoried. Components used in the manufacturing process include engines, gearboxes, power transmissions and electronic systems.

Competition

The Mobile Asphalt Paving Group faces strong competition in price, service and performance. Paving equipment and screed competitors include Caterpillar Paving Products, Inc., a subsidiary of Caterpillar, Inc., Volvo Construction Equipment, CMI Corporation, a subsidiary of Terex Corporation, Vogele America, a subsidiary of Wirtgen America, and Dynapac. The segment's milling machine equipment competitors include Wirtgen America, Inc., CMI Corporation, a subsidiary of Terex Corporation, Caterpillar, Inc., and Bomag Americas.

Employees

At December 31, 2008, the Mobile Asphalt Paving Group segment employed 441 individuals, of which 292 were engaged in manufacturing, 31 in engineering and engineering support functions, and 118 in selling, general and administrative functions.

Backlog

The backlog for the Mobile Asphalt Paving Group segment at December 31, 2008 and 2007 was approximately $2,855,000 and $12,142,000, respectively. Management expects all current backlogs to be filled in 2009. This segment typically operates with a smaller backlog in relation to sales than the Company’s other segments as many customers expect immediate delivery due to the types of products being sold and the lead times typically available on competitors’ equipment sold through dealers.

Underground Group

The Underground Group consists of two manufacturing companies, Astec Underground, Inc. ("Astec Underground"), previously named Trencor, Inc., and American Augers, Inc. ("American Augers"). These two business units design, engineer and manufacture a complete line of underground construction equipment and related accessories. Astec Underground produces heavy-duty Trencor trenchers and the Astec line of utility trenchers, vibratory plows, and compact horizontal directional drills. American Augers manufactures maxi drills and auger boring machines, and the down-hole tooling to support these units for the underground construction market. American Augers also manufacturers large vertical drills for the oil and gas industry.

Products

Astec Underground produces 12 trencher models and 4 compact horizontal directional drills at its Loudon, Tennessee facility. American Augers manufactures 19 models of trenchless equipment at its West Salem, Ohio location. In addition to these product models, each factory produces numerous attachments and tools for the equipment.

Astec branded products include trenchers and vibratory plows from 13 to 250 horsepower, and horizontal directional drill (HDD) models with pullback ratings from 6,000 to 100,000 pounds. These are sold and serviced through a network of 56 dealers that operate 100 locations worldwide.

Trencor heavy-duty trenchers are among the most powerful in the world. They have the ability to cut a trench 35 feet deep and 8 feet wide through solid rock in a single pass. 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. Astec Underground also makes foundation trenchers that are used in areas where drilling and blasting are prohibited. Astec Underground manufactures a side-cutting rock saw, which permits trenching alongside vertical objects like fences, guardrails, and rock wall in mountainous terrain. The rock saw is used for laying water and gas lines, fiber optic cable, and constructing highway drainage systems, among other uses.

Four Road Miner® models are available with an attachment that allows them to cut a path up to 13½ feet wide and 5 feet deep on a single pass. The Road Miner® has applications in the road construction industry and in mining and aggregate processing operations.

American Augers engineers, designs, manufactures and markets a wide range of trenchless and vertical drilling 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, vertical rigs, directional drills and fluid/mud systems used in the underground construction or trenchless market. The company has one of the broadest product lines in the industry. It serves global customers in the sewer, power, fiber-optic telecommunication, electric, oil and gas, and water industries throughout the world.

American Augers introduced the new VR-500 vertical drilling rig for use in the oil and gas industry in 2008. The VR-500 utilizes a rack and pinion carriage design, which is a recently developed technology that was typically not found in previously existing methods of oil and gas exploration. For drillers, the VR-500 provides superior bit load from initial surface contact throughout the entire drilling operation and gives the operators the ability to immediately start a horizontal curve after surface penetration resulting in greater access to shallow product formations. These formations are typically off limits when using most current conventional vertical drilling techniques. The VR-500 also emphasizes safety, as it eliminates many traditional drilling components, and it requires less man power to operate than most rigs.

Marketing

Astec Underground and American Augers market their products domestically through direct sales representatives and a dealer network, as well as internationally through direct sales, independent dealers and sales agents. This segment employs 40 direct sales staff, 33 domestic independent distributors and 37 foreign independent distributors.

Raw Materials

Astec Underground 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, but some steel is bought and occasionally inventoried. Steel is the predominant raw material used to manufacture the products of the Underground Group, and is normally readily available. Components used in the manufacturing process include engines, hydraulic pumps and motors, gearboxes, power transmissions and electronics systems.

Competition

The Underground Group segment faces strong competition in price, service and product performance and competes with both large publically held companies with resources significantly greater than those of the Company and with various smaller manufacturers. Competition for trenching, excavating, auger boring, vertical and directional drilling and fluid/mud equipment includes Charles Machine Works (Ditch Witch), Tesmec, Vermeer, and other smaller custom manufacturers.

Employees

At December 31, 2008, the Underground Group segment employed 508 individuals, of which 358 were engaged in manufacturing, 52 in engineering and 98 in selling, general and administrative functions.

Backlog

The backlog for the Underground Group segment at December 31, 2008 and 2007 was approximately $12,118,000 and $13,347,000, respectively. Management expects all current backlogs to be filled in 2009.

Other Business Units

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, 2008, these other operating units included Peterson Pacific Corp. (“Peterson”), Astec Australia Pty Ltd, Astec Insurance Company and the Company. Peterson designs, engineers, manufactures and distributes whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia was formed to acquire certain of the assets of Q-Pave Pty Ltd (“Q-Pave”) in October 2008. Astec Australia sells, installs, services and provides parts support for certain of the products produced by the Company’s Asphalt, Mobile Asphalt Paving and Underground groups.

Products

The primary markets served by Peterson are the waste wood grinding, chipping and blower truck markets. Peterson produces two models of whole-tree pulpwood chippers ranging from 765 to 1200 horsepower, one flail debarker, eight models of horizontal grinders and two models of blower trucks and self contained blower trailers ranging from 45 to 90 cubic yards.

Peterson introduced two new products in 2008, a 1200 HP version of the 6700B grinder and a 2710C track grinder that is a 475 to 580 hp machine designed for lower volume grinder needs. The upgraded 500 hp mobile flail chipper released at the end of 2007 helped to more than double prior years sales for that product line. Peterson offers its horizontal grinders in four size ranges to fit any application: 475 to 580 hp, 765 hp, 950 to 1050 hp and 1050 to 1200 hp. Each size range is also available in a trailer mount and track version with diesel engine or electric power options. The electric power option is now frequently requested by stationary application users.

Astec Australia sells relocatable and portable asphalt plants and components produced by Astec, Heatec and CEI, asphalt paving equipment and components produced by Roadtec and Carlson as well as trenching equipment produced by Astec Underground. In addition to selling this equipment, Astec Australia will also install, service and provide spare parts support for the equipment. We expect Astec Australia to add products from the Company’s Aggregate & Mining group to its sales portfolio beginning in 2009.

Marketing

Peterson markets its machines and spare parts both domestically and internationally in the waste, wood grinding, chipping and blower truck industries. Its line of blower trucks serve the mulch compost and erosion control markets. Domestic sales are accomplished through a combination of 9 independent domestic distributors and 10 direct sales employees. International sales are through 8 independent distributors plus direct sales to customers. The principle purchasers of Peterson products are independent contractors in the waste wood grinding, chipping and blower truck businesses. Municipal governments are also customers for waste wood grinders.

The business now operated as Astec Australia, which began 12 years ago as Q-Pave, has built its success by partnering with large corporate customers. Astec Australia plans to focus on growing its existing business operations and developing new business opportunities which have direct exposure to infrastructure development. The addition of several new Astec product lines will allow Astec Australia to access market segments not previously serviced by Q-Pave. Management believes that Astec Australia has the organizational structure (construction, service and maintenance personnel) and systems in place to penetrate the Australia and New Zealand markets with this expanded product line.

Raw Materials

Raw materials used in the manufacture of products include carbon steel and various types of alloy steel, which are normally purchased from distributors and other sources. Raw materials for manufacturing are normally readily available. Most steel is delivered on a "just-in-time" arrangement from the supplier to reduce inventory requirements at the manufacturing facilities, but some steel is bought and occasionally inventoried. Purchased components used in the manufacturing process include engines, gearboxes, power transmissions and electronic control systems.

Competition

Peterson has strong competitors based on product performance, price and service. The principal competitors in North America for high speed grinders are Morbark, Vermeer, Bandit, Diamond Z and CBI with other smaller competitors. Internationally, Doppstadt, Jenz and other smaller companies compete in the grinder segment. Mobile chipper competitors include Morbark, Precision, Doppstadt and other smaller companies. The principal competitors in the blower truck business are Finn and Express Blower (a division of Finn).

Astec Australia’s competitors in each product line are typically the same companies that compete with the Company in other locations. Competitors for asphalt plant and mobile asphalt equipment are all overseas manufacturers and consequently they are subject to the same importing issues as Astec Australia.

Employees

At December 31, 2008, the Other Business Units segment employed 270 individuals of which 208 were employed by Peterson and 21 were employed by Astec Australia. Peterson has 128 employees engaged in manufacturing, 21 in engineering and 59 in selling and general and administrative functions. Astec Australia has 10 employees engaged in service and installation work and 11 in selling and general and administrative functions. The remaining 41 employees are engaged general and administrative functions at the parent company.

Backlog

The backlog for the Other Business Units segment, all of which is attributable to Peterson and Astec Australia, at December 31, 2008 and 2007 was approximately $6,780,000 and $9,045,000, respectively. Management expects all current backlogs to be filled in 2009.

Common to All Operating Segments

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

Raw Materials

Government Regulations

The Company is subject to various laws and governmental regulations concerning environmental matters and employee safety and health in the United States and other countries. The Environmental Protection Agency, OSHA, other federal agencies and certain state agencies have the authority to promulgate regulations that have an effect on the Company’s operations. Many of these federal and state agencies may seek fines and penalties for violations of these laws and regulations. The Company has been able to operate under these laws and regulations without any materially adverse effect on its business.

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 may encounter conflicting state regulations on maximum weights transportable on highways. 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.

Employees

At December 31, 2008, the Company and its subsidiaries employed 3,973 individuals, of which 2,830 were engaged in manufacturing, 352 in engineering, including support staff, and 791 in selling, administrative and management functions.

Other than the Telsmith and Osborn labor agreements described under the Employee subsection of the Asphalt and Mining Group, there are no other collective bargaining agreements applicable to the Company. The Company considers its employee relations to be good.

Manufacturing

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 2008 took place at 17 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.

Seminars and Technical Bulletins

The Company periodically conducts technical and service seminars, which are primarily for contractors, employees and owners of asphalt mixing plants. In 2008, approximately 450 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, along with select outside speakers and discussion leaders, cover a range of subjects including, but not limited to, technological innovations in the hot-mix asphalt, aggregate processing, paving, milling, and recycling markets.

The Company also sponsors executive seminars for the management of the customers of Astec, 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 2008, service training seminars were also held at the Roadtec facility for approximately 300 customer representatives and an additional five remote seminars were conducted at other locations throughout the country. Telsmith conducted 4 technical seminars for approximately 90 customer and dealer representatives during 2008 at its facility in Mequon, Wisconsin. Telsmith also conducted two service training seminars at customer sites. Total attendance at these two seminars was approximately 95. KPI, JCI and AMS jointly conduct an annual dealer event called NDC (National Dealers Conference). The event offers the entire dealer network a preview of future product, marketing and promotional programs to help dealers operate successful businesses. Along with this event, both companies provide local, regional and national sales and service dealer training programs throughout the year.

During 2008, Astec Underground hosted 8 product training events for trenchers and horizontal drills at the Loudon, Tennessee facility. Over 50 people received technical and operational training at these product training events.

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

Patents and Trademarks

The Company seeks to obtain patents to protect the novel features of its products. The Company's subsidiaries hold 94 United States patents and 39 foreign patents. There are 50 United States and foreign patent applications pending.

The Company and its subsidiaries have approximately 76 trademarks registered in the United States including logos for Astec, CEI, Heatec, JCI, Peterson, Roadtec, Telsmith and Trencor, and the names ASTEC, TELSMITH, HEATEC, ROADTEC, TRENCOR, AMERICAN AUGERS, KOLBERG, JCI and PIONEER as well as a number of other product names. The Company also has 42 trademarks registered in foreign countries, including Australia, Brazil, Canada, China, France, Germany, Great Britain, India, Italy, Mexico, South Africa, Thailand, Vietnam and the European Union. The Company and its subsidiaries have 6 United States and foreign trademark applications pending.

Engineering and Product Development

The Company dedicates substantial resources to engineering and product development. At December 31, 2008, the Company and its subsidiaries had 352 full-time individuals employed in engineering and design capacities.

Seasonality and Backlog

Generally, 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 2008 were significantly impacted by the various economic factors discussed in the following paragraphs.

As of December 31, 2008, the Company had a backlog for delivery of products at certain dates in the future of approximately $193,316,000. At December 31, 2007, the total backlog was approximately $280,923,000. 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.

Competition

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 above, imports do not generally constitute significant competition for the Company in the United States, except for milling machines. 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 most resurfacing. Management does not believe that concrete, as a competitive surface choice, materially impacts the Company's business prospects.

Available Information

Our internet website can be found at www.astecindustries.com. We make available free of charge on or through our internet 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.

Item 1A. Risk Factors

Downturns in the general economy or the commercial construction industry may adversely affect our revenues and operating results.

General economic downturns, including downturns in the commercial construction industry, could result in a material decrease in our revenues and operating results. 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. The following factors could cause a downturn in the commercial construction industry:

·	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;

·	inclement weather; and

·	availability of credit for customers.

Downturns in the general economy and restrictions in the credit markets may negatively impact our earnings, cash flows and/or financial position and access to financing sources by the Company and our customers.

Worldwide economic conditions and the international credit markets have recently significantly deteriorated and will likely remain depressed for the foreseeable future. Continued deterioration of economic conditions and credit markets could adversely impact our earnings as sales of our products are sensitive to general declines in U.S. and foreign economies and the ability of our customers to obtain credit. In addition, we rely on the capital markets and the banking markets to meet our financial commitments and short-term liquidity needs if internal funds are not available from our operations. Further disruptions in the capital and credit markets, or further deterioration of our creditors' financial condition could adversely affect the Company's ability to draw on its revolving credit facility. The restrictions in the credit markets could make it more difficult or expensive for us to replace our current credit facility or obtain additional financing.

A decrease or delay in government funding of highway construction and maintenance may cause our revenues and profits to decrease.

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. In August 2005, the President signed into law, the Safe Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users ("SAFETEA-LU"), which authorizes the appropriation of $286.5 billion in guaranteed funding for federal highway, transit and safety programs. President Bush signed into law on September 30, 2008 a funding bill under SAFETEA-LU for the 2009 fiscal year, which fully funds the highway program at $41.2 billion. On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (‘ARRA”). The measure includes approximately $27.5 billion for highway and bridge construction which is in addition to amounts approved under SAFETEA-LU. Although SAFETEA-LU and ARRA guarantee federal funding at certain minimum levels, these and other legislation may be revised in future congressional sessions and federal funding of infrastructure may be decreased in the future. 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.

The cyclical nature of our industry and the customization of the equipment we sell may cause adverse fluctuations to our revenues and operating results.

We sell 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. The volume and frequency of road and utility construction projects is cyclical; therefore, demand for many of our products is cyclical. The equipment we sell is durable and typically lasts for several years, which also contributes to the cyclical nature of the demand for our products. As a result, we may experience cyclical fluctuations to our revenues and operating results.

An increase in the price of oil or decrease in the availability of oil could reduce demand for our products. Significant increases in the purchase price of certain raw materials used to manufacture our equipment could have a negative impact on the cost of production and related gross margins.

A significant portion of our revenues relates to the sale of equipment involved in the production, handling or installation of asphalt mix. A major component of asphalt is oil, and asphalt prices correlate with the price and availability of oil. An increase in the price of oil or a 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 during the last several years significantly impacted the operating and raw material costs of our contractor and aggregate producer customers, and if they did not properly adjust their pricing could have reduced their profits and caused delays in some of their capital equipment purchases.

Steel prices increased significantly during the first eight months of 2008 and the Company increased its sales prices to offset these cost increases where possible. Late in the third quarter of 2008, steel prices began to retreat from their 2008 highs. Steel pricing declined sharply in the fourth quarter of 2008. We expect fourth quarter pricing to continue through the first quarter of 2009 and pricing levels throughout 2009 to remain well below the peak levels reached in the third quarter of 2008. However, moderate increases are possible during 2009 due to reduced mill output and reductions in automotive and appliance output which reduce the amount of high quality scrap, a prime input factor for steel pricing.

Acquisitions that we have made in the past and future acquisitions involve risks that could adversely affect our future financial results.

We have completed several acquisitions in the recent past, including the acquisition of Peterson in 2007, the acquisition of Dillman in 2008 and the acquisition of certain of the assets of Q-Pave in 2008. We 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.

Competition could reduce revenue from our products and services and cause us to lose market share.

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.

Our success depends on key members of our management and other employees.

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.

Difficulties in managing and expanding in international markets could divert management's attention from our existing operations.

In 2008, international sales represented approximately 36.2% of our total sales. We plan to continue our growth efforts 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.

We may be unsuccessful in complying with the financial ratio covenants or other provisions of our amended credit agreement.

As of December 31, 2008, we were in compliance with the financial covenants contained in our Credit Agreement, as amended, with Wachovia Bank, National Association. However, in the future we may be unable to comply with the financial covenants in our credit facility or to obtain waivers with respect to such financial covenants. If such violations occur, the Company’s creditors could elect to pursue their contractual remedies under the credit facility, including requiring immediate repayment in full of all amounts then outstanding. As of December 31, 2008, the Company had $3,129,000 outstanding borrowings and $10,734,000 of letters of credit outstanding under the credit agreement. Additional amounts may be borrowed in the future. The Company’s Osborn subsidiary has its own independent loan agreement in place. A separate loan agreement for Astec Australia is in process.

Our quarterly operating results are likely to fluctuate, which may decrease our stock price.

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 seasonal trend in our industry;

·	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.

We may face product liability claims or other liabilities due to the nature of our business. If we are unable to obtain or maintain insurance or if our insurance does not cover liabilities, we may incur significant costs which could reduce our profitability.

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.

If we are unable to protect our proprietary technology from infringement or if our technology infringes technology owned by others, then the demand for our products may decrease or we may be forced to modify our products which could increase our costs.

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.

If we become subject to increased governmental regulation, we may incur significant costs.

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 we manufacture. We may incur material costs or liabilities in connection with the regulatory requirements applicable to our business.

As an innovative leader in the asphalt and aggregate industries, we occasionally undertake the engineering, design, manufacturing and construction of equipment systems that are new to the market. Estimating the cost of such innovative equipment can be difficult and could result in our realization of significantly reduced or negative margins on such projects.

In the past, we have 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.

Our Articles of Incorporation, Bylaws, Rights Agreement and Tennessee law may inhibit a takeover, which could delay or prevent a transaction in which shareholders might receive a premium over market price for their shares.

Our charter, bylaws and Tennessee law contain provisions that may delay, deter or inhibit a future acquisition or an attempt to obtain control of us. 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 advance 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. In December 2005, our Board of Directors approved an Amended and Restated Shareholder Protection Rights Agreement, which provides for one preferred stock purchase right in respect of each share of our common stock ("Rights Agreement"). These rights become exercisable upon the acquisition by a person or group of affiliated persons, other than an existing 15% shareholder, of 15% or more of our then-outstanding common stock by all persons. 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.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

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

Location	Approximate Square Footage		Approximate Acreage		Principal Function
Chattanooga, Tennessee		457,600		59	Offices and manufacturing – Astec (Asphalt Group)
Chattanooga, Tennessee		-		63	Storage yard – Astec (Asphalt Group)
Rossville, Georgia		40,500		3	Manufacturing – Astec (Asphalt Group)
Prairie du Chien, WI		91,500		39	Manufacturing – Dillman division of Astec (Asphalt Group)
Chattanooga, Tennessee		84,200		5	Offices and manufacturing - Heatec (Asphalt Group)
Chattanooga, Tennessee		196,000		15	Offices and manufacturing - Roadtec (Mobile Asphalt Paving Group)
Chattanooga, Tennessee		51,200		7	Manufacturing and parts warehouse - Roadtec (Mobile Asphalt Paving Group)
Chattanooga, Tennessee		14,100		-	Leased Hanger and Offices - Astec Industries, Inc.
Chattanooga, Tennessee		10,000		2	Corporate offices - Astec Industries, Inc.
Mequon, Wisconsin		203,000		30	Offices and manufacturing - Telsmith (Aggregate and Mining Group)
Sterling, Illinois		60,000		8	Offices and manufacturing - AMS (Aggregate and Mining Group)
Orlando, Florida		9,000		-	Leased machine repair and service facility - Roadtec (Mobile Asphalt Paving Group) and warehouse - Astec Underground (Underground Group)
Columbus, Ohio		20,000		5	Leased Dealership - Buckeye Underground, LLC (Underground Group)
Loudon, Tennessee		327,000		112	Offices and manufacturing – Astec Underground (Underground Group)
Eugene, Oregon		130,000		8	Offices and manufacturing – JCI (Aggregate and Mining Group)
Albuquerque, New Mexico		115,000		14	Offices and manufacturing – CEI (Asphalt Group) (partially leased to a third party)

Location	Approximate Square Footage		Approximate Acreage		Principal Function
Yankton, South Dakota		312,000		50	Offices and manufacturing – KPI (Aggregate and Mining Group)
West Salem, Ohio	102,000 plus 103,000 under construction			33	Offices and manufacturing – American Augers (Underground Group)
Thornbury, Ontario, Canada		60,500		12	Offices and manufacturing – BTI (Aggregate and Mining Group)
Thornbury, Ontario Canada		7,000		-	Leased warehouse/parts sales office – BTI (Aggregate and Mining Group)
Riverside, California		12,500		-	Leased offices and warehouse – BTI (Aggregate and Mining Group)
Solon, Ohio		8,900		-	Leased offices and assembly – BTI (Aggregate and Mining Group)
Tacoma, Washington		41,000		5	Offices and manufacturing – Carlson (Mobile Asphalt Paving Group)
Cape Town, South Africa		4,600		-	Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
Durban, South Africa		3,800		-	Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
Witbank, South Africa		1,400		-	Leased sales office and warehouse – Osborn (Aggregate and Mining Group)
Johannesburg, South Africa		177,000		18	Offices and manufacturing – Osborn (Aggregate and Mining Group)
Eugene, Oregon		130,000		7	Offices and manufacturing - Peterson Pacific Corp. (Other Business Units)
Summer Park, Australia		13,500		1	Leased- Offices, warehousing and storage yard - Astec Australia Pty Ltd (Other Business Units)

The properties above are owned by the Company unless they are indicated as being leased.

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

Item 3. Legal Proceedings

The Company is currently a party to various claims and legal proceedings that have arisen in the ordinary course of business. If management believes that a loss arising from such claims and legal proceedings is probable and can reasonably be estimated, the Company records the amount of the loss (excluding estimated legal costs), or the minimum estimated liability when the loss is estimated using a range, and no point within the range is more probable than another. As management becomes aware of additional information concerning such contingencies, any potential liability related to these matters is assessed and the estimates are revised, if necessary. If management believes that a loss arising from such claims and legal proceedings is either (i) probable but cannot be reasonably estimated or (ii) reasonably possible but not probable, the Company does not record the amount of the loss, but does make specific disclosure of such matter. Based upon currently available information and with the advice of counsel, management believes that the ultimate outcome of its current claims and legal proceedings, individually and in the aggregate, will not have a material adverse effect on the Company's financial position, cash flows or results of operations. However, claims and legal proceedings are subject to inherent uncertainties and rulings unfavorable to the Company could occur. If an unfavorable ruling were to occur, there exists the possibility of a material adverse effect on the Company's financial position, cash flows or results of operations.

The Company has received notice that Johnson Crushers International, Inc. is subject to an enforcement action brought by the U.S. Environmental Protection Agency and the Oregon Department of Environmental Quality related to an alleged failure to comply with federal and state air permitting regulations. Each agency is expected to seek sanctions that will include monetary penalties. No penalty has yet been proposed. The Company believes that it has cured the alleged violations and is cooperating fully with the regulatory agencies. At this stage of the investigations, the Company is unable to predict the outcome and the amount of any such sanctions.

The Company has also received notice from the Environmental Protection Agency that it may be responsible for a portion of the costs incurred in connection with an environmental cleanup in Illinois. The discharge of hazardous materials and associated cleanup relate to activities occurring prior to the Company’s acquisition of Barber Greene in 1986. The Company believes that over 300 other parties have received similar notice. At this time, the Company cannot predict whether the EPA will seek to hold the Company liable for a portion of the cleanup costs or the amount of any such liability.

Item 4. Submission of Matters to a Vote of Security Holders

No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fiscal quarter ended December 31, 2008.

Executive Officers of the Registrant

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 1972, 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 is the father of Benjamin G. Brock, President of Astec, Inc., and Dr. Brock and Thomas R. Campbell, Group Vice President - Mobile Asphalt Paving and Underground, are first cousins. He is 70.

F. McKamy Hall, a Certified Public Accountant, became Chief Financial Officer during 1998 and has served as Vice President and Treasurer since 1997. He previously served as Corporate Controller of the Company since 1987. Mr. Hall has an undergraduate degree in accounting and a Master of Business Administration degree from the University of Tennessee at Chattanooga. He is 66.

W. Norman Smith was appointed Group Vice President-Asphalt in 1998 and additionally served as President of Astec, Inc. from 1994 until October 2006. 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 69.

Thomas R. Campbell was appointed Group Vice President - Mobile Asphalt Paving & Underground in November 2001. He served as President of Roadtec, Inc. from 1988 to 2004. He has served as President of Carlson Paving Products and American Augers since November 2001 until December 2006. He served as President of Astec Underground, Inc. from 2001 to May 2005. 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 59.

Richard J. Dorris was appointed President of Heatec, Inc. in April of 2004. From 1999 to 2004 he held the positions of National Accounts Manager, Project Manager and Director of Projects for Astec, Inc. Prior to joining Astec, Inc. he was President of Esstee Manufacturing Company from 1990 to 1999 and was Sales Engineer from 1984 to 1990. Mr. Dorris has a B.S. degree in mechanical engineering from the University of Tennessee. He is 48.

Richard A. Patek was appointed Group Vice President-Aggregate & Mining Group in March of 2008. He has also served as President of Telsmith, Inc. since May of 2001. He served as President of Kolberg-Pioneer, Inc. from 1997 until May 2001. 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 the Milwaukee School of Engineering. He is 52.

Frank D. Cargould was appointed 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 66.

Jeffery J. Elliott was appointed 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 55.

Timothy Gonigam was appointed President of Astec Mobile Screens, Inc., in October 2000. From 1995 to 2000, Mr. Gonigam held the position of Sales Manager of Astec Mobile Screens, Inc. He is 46.

Tom Kruger was appointed Managing Director of Osborn Engineered Products SA (Pty) Ltd on February 1, 2005. For the previous five years, Mr. Kruger was employed as Operations Director of Macsteel Tube and Pipe (Pty) Ltd, a manufacturer of carbon steel tubing in Johannesburg, South Africa. He served as Sales and Marketing Director of Macsteel prior to becoming Operations Director. From 1993 to 1998, Mr. Kruger was employed by Barloworld Ltd as Operations Director and Regional Managing Director responsible for a trading organization in steel, tube and water conveyance systems. Prior to that, he held the position of Works Director. He is 51.

Joseph P. Vig was appointed Group Vice President of the AggRecon Group in March 2008. He has also served as President of Kolberg-Pioneer, Inc., since May 2001. From 1994 until May 2001, he served as Engineering Manager of Kolberg-Pioneer, Inc. From 1978 to 1993 he was Director of Engineering with Morgen Mfg. Co., and then Engineering Manager of Essick-Mayco in 1993-94. Mr. Vig has a B.S. degree in civil engineering from the South Dakota School of Mines and Technology and is registered as a Professional Engineer. He is 59.

Jeffrey L. Richmond, Sr. was appointed President of Roadtec, Inc. in April 2004. From 1996 until April 2004, he held the positions of Sales Manager, Vice President of Sales and Marketing and Vice President/General Manager of Roadtec, Inc. He is 53.

Joe K. Cline was appointed President of Astec Underground, Inc. in February 2008. Previously he held numerous manufacturing positions with the Company since 1982 including the Company’s Corporate Manufacturing Manager/Safety Champion beginning in July 2007 and Manufacturing Manager for Mobile Asphalt & Underground Groups from 2003 to mid 2007. He is 52.

Michael A. Bremmer was appointed President of CEI Enterprises, Inc. in January 2006. From January 2003 until January 2006, he held the position of Vice President and General Manager of CEI Enterprises, Inc. From January 2001 until January 2003, he held the position of Director of Engineering of CEI Enterprises, Inc. He is 53.

Benjamin G. Brock was appointed President of Astec, Inc. in November 2006. From January 2003 until October 2006 he held the position of Vice President - Sales of Astec, Inc. and Vice President/General Manager of CEI Enterprises, Inc. from 1997 until December 2002. Mr. Brock's career with Astec began as a salesman in 1993. Mr. Brock has a B.S. in Economics with a minor in Marketing from Clemson University. Mr. Brock is the son of J. Don Brock, President of the Company. He is 38.

David L. Winters was appointed President of Carlson Paving Products in January 2007 after previously serving as its Vice President and General Manager from March 2002 until December 2006. Mr. Winters also served as Quality Assurance Manager, Manufacturing Manager and Service Manager for Roadtec from August 1997 to February 2002. From 1977 to 1997 he held various positions in maintenance management with the Tennessee Valley Authority. Mr. Winters is 59.

James F. Pfeiffer was appointed President of American Augers, Inc. in January 2007 after previously serving as its Vice President and General Manager from March 2005 until December 2006. Prior to joining Astec, Mr. Pfeiffer was Vice President and General Manager of Daedong USA from April 2004 to October 2004 and Vice President of Marketing for Blount, Inc. from April 2002 to April 2004. Previously he held numerous positions with Charles Machine Works over a nineteen year period. Mr. Pfeiffer holds a bachelors degree in Agriculture from Oklahoma State University. Mr. Pfeiffer is 51.

Stephen C. Anderson was appointed Secretary of the Company in January 2007 and assumed the role of Director of Investor Relations in January 2003. Mr. Anderson also serves as the Company’s compliance officer and manages the corporate information technology and aviation departments. He has also been President of Astec Insurance Company since January 2007. He was Vice President of Astec Financial Services, Inc. from November 1999 to December 2002. Prior to this Mr. Anderson spent a combined fourteen years in Commercial Banking with AmSouth and SunTrust Banks. He has a B.S. degree in Business Management from the University of Tennessee at Chattanooga and is a graduate of the Stonier Graduate School of Banking. He is 45.

David C. Silvious, a Certified Public Accountant, was appointed Corporate Controller in 2005. He previously served as Corporate Financial Analyst since 1999. Mr. Silvious earned his undergraduate degree in accounting from Tennessee Technological University and his Masters of Business Administration from the University of Tennessee at Chattanooga. He is 41.

Larry Cumming was appointed President of Peterson Pacific Corp. in August 2007. He joined the company in 2003 and held the earlier positions of General Manager and Chief Executive Officer of Peterson, Inc. Prior to joining Peterson, he held senior management positions in North America and Europe with Timberjack and John Deere (Deere acquired Timberjack in 2000). Mr. Cumming also held prior positions with Timberjack as Vice President Engineering and Senior Vice President Sales and Marketing, Chief Operating Officer and Executive Vice President Product Supply. Mr. Cumming is a graduate mechanical engineer from Cornell University with additional senior management courses from INSEAD in France. He is a registered professional engineer in the Province of Ontario. Mr. Cumming is 60.

PART II

Item 5. Market for Registrant's Common Equity; Related Shareholder Matters and Issuer's Purchases

of Equity Securities

The Company's Common Stock is traded in the Nasdaq National Market under the symbol "ASTE." The Company has never paid any cash dividends on its Common Stock and the Company does not intend to pay dividends on its Common Stock in the foreseeable future.

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

	Price Per Share
2008	High		Low
1st Quarter	$	39.76	$	25.51
2nd Quarter	$	42.38	$	31.16
3rd Quarter	$	37.55	$	19.40
4th Quarter	$	33.99	$	17.00


	Price Per Share
2007	High		Low
1st Quarter	$	40.90	$	32.94
2nd Quarter	$	45.24	$	39.43
3rd Quarter	$	59.36	$	42.53
4th Quarter	$	60.40	$	33.75

As of February 20, 2009, there were approximately 14,000 holders of the Company's Common Stock.

We maintain the following option plans: (i) 1998 Long-term Incentive Plan and (ii) 1998 Non-Employee Director Stock Incentive Plan. No additional options can be granted under either plan; however previously granted options are still available for exercising under each plan. We also maintain the 2006 Incentive Plan for the awarding of stock to key management based upon achieving profitability goals. Information regarding these plans may be found in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” of this Report.

Item 6. Selected Financial Data

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

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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

Item 8. Financial Statements and Supplementary Data

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

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

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 defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective in timely making known to them material information relating to the Company and the Company's subsidiaries required to be disclosed in the Company's reports filed or submitted under the Exchange Act.

Internal Control over Financial Reporting

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required financial disclosures. Because of inherent limitations, our disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of such disclosure controls and procedures are met.

As of the end of the period covered by this Report we conducted an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(b) and 15d-15(b). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.

Management’s assessment report and the Company’s independent registered public accounting firm’s audit report on the effectiveness of the Company’s internal controls over financial reporting appear in Appendix “A” of this Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended December 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Information regarding the Company's directors, executive officers, director nominating process, audit committee, and audit committee financial expert is included under the captions "Election of Directors - Certain Information Concerning Nominees and Directors" and “Corporate Governance” 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 23, 2009, which is incorporated herein by reference. Information regarding compliance with Section 16(a) of the Exchange Act is also included under "Section 16(a) Beneficial Ownership Reporting Compliance" 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 is available on the Company's website at www.astecindustries.com/investors/.

Item 11. Executive Compensation

Information included under the captions "Executive Compensation", “Compensation Committee Interlocks and Insider Participation” and “Report of the Compensation Committee” 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 23, 2009 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

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 23, 2009 is incorporated herein by reference.

Equity Compensation Plan Information

The following table provides information about the Common Stock that may be issued under all of the Company's existing equity compensation plans as of December 31, 2008.

Plan Category	(a) Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants, Rights and RSU’s		(b) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights		(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
Equity Compensation Plans Approved by Shareholders:
		396,324(1)	$	22.55		--
		136,966(2)		--		561,834(5)

Equity Compensation Plans Not Approved by Shareholders:
		16,665(3)	$	17.37		--
		13,777(4)		--		131,367(5)
Total		563,732				693,201

________________

(1)	Stock Options granted under our 1998 Long-term Incentive Plan

(2)	Restricted Stock Units granted under our 2006 Incentive Plan

(3)	Stock Options granted under our 1998 Non-Employee Director Stock Incentive Plan

(4)	Deferred Stock Units granted under our 1998 Non-Employee Director Stock Incentive Plan

(5)	All of these shares are available for issuance pursuant to grants of full-value awards.

Equity Compensation Plans Not Approved by Shareholders

Our 1998 Non-Employee Directors Stock Incentive Plan provides that annual retainers payable to our non-employee directors will be paid in the form of cash, unless the director elects to receive the annual retainer in the form of common stock, deferred stock or stock options. If the director elects to receive Common Stock, whether on a current or deferred basis, the number of shares to be received is determined by dividing the dollar value of the annual retainer by the fair market value of the Common Stock on the date the retainer is payable. If the director elects to receive stock options, the number of options to be received is determined by dividing the dollar value of the annual retainer by the Black-Scholes value of an option on the date the retainer is payable.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Information included under the captions “Corporate Governance: Independent Directors” and ”Transactions with Related Persons” 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 23, 2009 is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

Information included under the caption “Audit Matters” 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 23, 2009 is incorporated herein by reference.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(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.
·	Management’s Assessment Report.
·	Reports of Independent Registered Public Accounting Firm.
·	Consolidated Balance Sheets at December 31, 2008 and 2007.
·	Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006.
·	Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006.
·	Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2008, 2007 and 2006.
·	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 Schedule appears in Appendix “A” to this Report and is 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:
	3.1	Restated Charter of the Company (incorporated by reference from the Company’s Registration Statement on Form S-1, effective June 18, 1986, File No. 33-5348).
	3.2	Articles of Amendment to the Restated Charter of the Company, effective September 12, 1988 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1988, File No. 0-14714).
	3.3	Articles of Amendment to the Restated Charter of the Company, effective June 8, 1989 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14714).
	3.4	Articles of Amendment to the Restated Charter of the Company, effective January 15, 1999 (incorporated by reference from the Company Quarterly Report on Form 10-Q for the period ended June 30, 1999, File No. 0-14714).
	3.5	Amended and Restated Bylaws of the Company, adopted March 14, 1990 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14714).
	3.6	Amended and Restated Bylaws of the Company, adopted July 26, 2007 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2007, File No. 001-11595)
	3.7	Amended and Restated Bylaws of the Company, adopted on March 14, 1990 and as amended on July 29, 1993, July 27, 2007 and July 23, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, File No. 001-11595)

	4.1		Amended and Restated Shareholder Protection Rights Agreement, dated as of December 22, 2005, by and between the Company and Mellon Investor Services LLC, as Rights Agent. (incorporated by reference from the Company’s Current Report on Form 8-K dated December 22, 2005, File No. 0-14714).
	10.1		Supplemental Executive Retirement Plan, dated February 1, 1996 to be effective as of January 1, 1995 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). *
	10.2		Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated January 1, 1996 (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). *
	10.3		Astec Industries, Inc. 1998 Long-Term Incentive Plan (incorporated by reference from Appendix A of the Company’s Proxy Statement for the Annual Meeting of Shareholders held on April 23, 1998). *
	10.4		Astec Industries, Inc. Executive Officer Annual Bonus Equity Election Plan (incorporated by reference from Appendix B of the Company’s Proxy Statement for the Annual Meeting of Shareholders held on April 23, 1998). *
	10.5		Astec Industries, Inc. Non-Employee Directors’ Stock Incentive Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 0-14714). *
	10.6		Amendment to Astec Industries, Inc. Non-Employee Directors’ Stock Incentive Plan, dated March 15, 2005 (incorporated by reference from the Company’s Current Report on Form 8-K dated March 15, 2005, File No. 0-14714). *
	10.7		Revolving Line of Credit Note, dated December 2, 1997, between Kolberg-Pioneer, Inc. and Astec Holdings, Inc. (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1997, File No. 0-14714).
	10.8		Purchase Agreement, dated October 30, 1998, effective October 31, 1998, between Astec Industries, Inc. and Johnson Crushers International, Inc. (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, File No. 0-14714).
	10.9		Asset Purchase and Sale Agreement, dated August 13, 1999, by and among Teledyne Industries Canada Limited, Teledyne CM Products Inc. and Astec Industries, Inc. (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 1999, File No. 0-14714).
	10.10		Stock Purchase Agreement, dated October 31, 1999, by and among American Augers, Inc. and Its Shareholders and Astec Industries, Inc. (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 0-14714).
	10.11		Sale of Business Agreement, dated September 29, 2000, between Anglo Operations Limited and High Mast Properties 18 Limited and Astec Industries, Inc. for the purchase of the materials handling and processing products division of the Boart-Longyear Division of Anglo Operations Limited (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 0-14714).
	10.12		Acquisition Agreement, dated October 2, 2000, by and among Larry Raymond, Carlson Paving Products, Inc. and Astec Industries, Inc. (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, File No. 0-14714).
	10.13		Amended Supplemental Executive Retirement Plan, dated September 29, 2004, originally effective as of January 1, 1995. (incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2004, File No. 0-14714) *
	10.14		Amendment to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan (incorporated by reference to the Company’s Current Report on Form 8-K dated March 15, 2005, File No. 0-14714). *
	10.15		Amendment Number 2 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan dated February 21, 2006 (incorporated by reference to the Company’s Current Report on Form 8-K dated February 7, 2006, File No. 0-14714). *

	10.16		Astec Industries, Inc. 2006 Incentive Plan (incorporated by reference to Appendix A for the Registrant’s Definitive Proxy Statement on Schedule 14A, File No. 0-14714, file with the Securities and Exchange Commission on March 16, 2006) *
	10.17		Amendment Number 2 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan (incorporated by reference from the Company’s Current Report on Form 8-K dated February 27, 2006, File No. 001-11595) *
	10.18		Credit Agreement dated as of April 13, 2007 between Astec Industries, Inc. and Certain of Its Subsidiaries and Wachovia Bank, National Association (incorporated by reference from the Company’s Quarterly Report on form 10-Q for the quarter ended March 31, 2007, File No. 001-11595)
	10.19		Stock Purchase Agreement by and among Astec Industries, Inc., Peterson, Inc., A. Neil Peterson, and the Other Shareholders of Peterson, Inc. dated as of May 31, 2007 (incorporated by reference from the Company’s Quarterly Form 10-Q for the quarter ended June 30, 2007, File No. 001-11595)
	10.20		First Amendment to the Credit Agreement between Astec Industries, Inc. and Certain of Its Subsidiaries and Wachovia Bank, National Association (incorporated by reference from the Company’s Quarterly Report on form 10-Q for the quarter ended September 30, 2007, File No. 001-11595)
	10.21		Amendment to the Supplemental Executive Retirement Plan dated March 8, 2007 originally effective January 1, 1995 (incorporated by reference from the Conmpany's Annual Report on form 10-k for the year ended December 31, 2007, File No. 001-11595) *
	10.22		Supplemental Executive Retirement Plan Amendment and Restatement Effective January 1, 2008, originally effective January 1, 1995 (incorporated by reference from the Conmpany's Annual Report on form 10-k for the year ended December 31, 2007, File No. 001-11595) *
	10.23		Stock Purchase Agreement by and among Astec Industries, Inc., Dillman Equipment, Inc. and the “Sellers” Referred to Herein dated August 5, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, File No. 001-11595)
	10.24		Stock Purchase Agreement by and among Astec Industries, Inc., Double L Investments, Inc. and the “Sellers” Referred to Herein dated August 5, 2008 (incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, File No. 001-11595)
	10.25		Amendment Number 1 to Astec Industries, Inc. 2006 Incentive Plan *
	10.26		Amendment Number 3 to the Astec Industries, Inc. 1998 Non-Employee Directors Stock Incentive Plan *
	10.27		Amendment Number 1 to Amended and Restated Supplemental Executive Retirement Plan Effective January 1, 2009, originally effective January 1, 1995 *
	21		Subsidiaries of the Registrant
	23		Consent of Independent Registered Public Accounting Firm
	31.1		Certification of Chief Executive Officer of Astec Industries, Inc. pursuant Rule 13a-14/15d/14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
	31.2		Certification of Chief Financial Officer of Astec Industries, Inc. pursuant Rule 13a-14/15d/14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
	32		Certification of Chief Executive Officer and Chief Financial Officer of Astec Industries, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	*		Management contract or compensatory plan or arrangement.

	(b)		The Exhibits to this Report are listed under Item 15(a)(3) above.
	(c)		The Financial Statement Schedules to this Report are listed under Item 15(a)(2) above.

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

APPENDIX "A"

ANNUAL REPORT ON FORM 10-K

ITEMS 8 and 15(a)(1), (2)and (3),and 15(b) and 15(c)

INDEX TO FINANCIAL STATEMENTS AND

FINANCIAL STATEMENT SCHEDULES

ASTEC INDUSTRIES, INC.

Contents			Page
Selected Consolidated Financial Data			A-3

Management's Discussion and Analysis of Financial Condition and Results of Operations			A-5

Management Assessment Report			A-19

Reports of Independent Registered Public Accounting Firm			A-20

Consolidated Balance Sheets at December 31, 2008 and 2007			A-22

Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006			A-23

Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006			A-24

Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2008, 2007 and 2006			A-26

Notes to Consolidated Financial Statements			A-27

Schedule II - Valuation and Qualifying Accounts			A-55

A - 1

FINANCIAL

INFORMATION

A - 2

SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands, except as noted*)

	2008		2007			2006		2005		2004
Consolidated Income Statement Data
Net sales	$	973,700	$	869,025		$	710,607	$	616,068	$	504,554
Selling, general and administrative expenses		122,621		107,600			94,383		82,126		70,043
Gain on sale of real estate, net of real estate impairment charge1		--		--			--		6,531		--
Research and development		18,921		15,449			13,561		11,319		8,580
Income from operations		92,316		86,728			60,343		46,303		24,382
Interest expense		851		853			1,672		4,209	5,033
Other income (expense), net2		5,709		(202	)		167		252		(19	)
Income from continuing operations		63,128		56,797			39,588		28,094		12,483
Income from discontinued operations, net of tax3		--		--			--		--		1,164
Gain on disposal of discontinued operations, net of tax of $5,0713		--		--			--		--		5,406
Net income		63,128		56,797			39,588		28,094		19,053
Earnings per common share*
Income from continuing operations:
Basic		2.83		2.59			1.85		1.38		0.63
Diluted		2.80		2.53			1.81		1.34		0.62
Income from discontinued operations:
Basic		--		--			--		--		0.33
Diluted		--		--			--		--		0.33
Net income:
Basic		2.83		2.59			1.85		1.38		0.96
Diluted		2.80		2.53			1.81		1.34		0.95


Consolidated Balance Sheet Data
Working capital	$	251,263	$	204,839		$	178,148	$	137,981	$	106,489
Total assets		612,812		542,570			421,863		346,583		324,818
Total short-term debt		3,427		--			--		--		11,827
Long-term debt, less current maturities		--		--			--		--		25,857
Shareholders’ equity		439,226		376,589			296,166		242,742		191,256
Book value per diluted common share at year-end*		19.45		16.78			13.51		11.57		9.52

1 During 2005, the Company recognized a gain on the sale of its vacated Grapevine, Texas facility. In addition, the Company

recognized an impairment charge on certain other real estate.

2 During the fourth quarter of 2008, the Company sold certain equity securities for a pre-tax gain of $6,195,000.

3 The Company sold substantially all of the assets and liabilities of Superior Industries of Morris, Inc. on June 30, 2004.

A - 3

SUPPLEMENTARY FINANCIAL DATA

(in thousands, except as noted*)

Quarterly Financial Highlights (Unaudited)	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
2008 Net sales	$	263,072	$	277,703	$	237,443	$	195,482
Gross profit		66,220		66,289		58,803		42,546
Net income		17,519		21,072		15,962		8,575
Earnings per common share*
Net income:
Basic		0.79		0.95		0.72		0.38
Diluted		0.78		0.93		0.71		0.38

2007 Net sales	$	215,563	$	226,414	$	206,239	$	220,810
Gross profit		54,373		58,943		48,561		47,901
Net income		15,334		18,505		11,574		11,384
Earnings per common share*
Net income:
Basic		0.71		0.85		0.52		0.51
Diluted		0.69		0.83		0.51		0.50



Common Stock Price *

2008 High	$	39.76	$	42.38	$	37.55	$	33.99
2008 Low		25.51		31.16		19.40		17.00

2007 High	$	40.90	$	45.24	$	59.36	$	60.40
2007 Low		32.94		39.43		42.53		33.75

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 and does not intend to pay dividends on its common stock in the foreseeable future. As determined by the proxy search on the record date, the number of common shareholders is approximately 14,000.

A - 4

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

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 A-17.

Overview

Astec Industries, Inc., (“The Company”) is a leading manufacturer and marketer of road building equipment. The Company’s businesses:

·	design, engineer, manufacture and market equipment that is used in each phase of road building, from quarrying and crushing the aggregate to applying the asphalt;

·	design, engineer, manufacture and market equipment and components unrelated to road construction, including trenching, auger boring, directional drilling, industrial heat transfer, wood chipping and grinding; and

·	manufacture and sell replacement parts for equipment in each of its product lines.

The Company has 14 manufacturing companies, 13 of which fall within 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 unrelated industries. In early 2009, the Company introduced a new line of concrete mixing plants. 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, stabilizers and screeds. The business units in the Underground Group design, manufacture and market a complete line of trenching equipment, directional drills and auger boring machines for the underground construction market as well as vertical drills for gas and oil field development. The Company also has one other category 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 Peterson Pacific Corp. (“Peterson”), Astec Australia Pty Ltd., 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, privately funded infrastructure development, changes in the price of crude oil (fuel costs and liquid asphalt) and changes in the price of steel.

In August 2005, President Bush signed into law the Safe, Accountable, Flexible and Efficient Transportation Equity Act - A Legacy for Users (“SAFETEA-LU”), which authorizes appropriation of $286.5 billion in guaranteed federal funding for road, highway and bridge construction, repair and improvement of the federal highways and other transit projects for federal fiscal years October 1, 2004 through September 30, 2009. The Company believes that the federal highway funding significantly influences the purchasing decisions of the Company’s customers who are more comfortable making purchasing decisions with the legislation in place. The federal funding provides for approximately 25% of highway, street, roadway and parking construction funding in the United States. President Bush signed into law on September 30, 2008 a funding bill for the 2009 fiscal year, which fully funds the highway program at $41.2 billion.

On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. The measure includes approximately $27.5 billion for highway and bridge construction activities. These funds are in addition to the expected $41.2 billion investment related to the federal highway program for fiscal year 2009. The measure requires the funding to be apportioned to the states within 21 days of the bill’s enactment. Half of the funds must be obligated by the states within 120 days with the remaining portion required to be under contract one year after the bill’s enactment. The bill also proposes a continuation of the 50% bonus tax depreciation for 2009 and an increase of the Section 179 deduction to $250,000.

The Canadian government has approved spending $9.5 billion on road, bridge, public transit, water and other infrastructure over the next two years. The list of approximately 2,200 “shovel-ready” projects, derived from a survey of federation members, range from simple rehabilitation to major new construction.

A - 5

The Company believes the spending programs will have a positive impact on its financial performance, however, the magnitude of that impact cannot be determined.

The public sector spending described above is needed to fund road, bridge and mass transit improvements. The Company believes that increased funding is unquestionably 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 for such improvements are significantly above amounts approved, and funding mechanisms such as the federal usage fee per gallon of gasoline, which has not been increased in 15 years, would need to be increased along with other measures to generate the funds needed.

In addition to public sector funding, the economies in the markets the Company serves, the price of oil and its impact on customers’ purchase decisions and the price of steel may each affect the Company’s financial performance. Economic downturns, like the one experienced from 2001 through 2003, generally result in decreased purchasing by the Company’s customers, which, in turn, causes reductions in sales and increased pricing pressure on the Company’s products. Rising interest rates typically have the effect of negatively impacting customers’ attitudes toward purchasing equipment. Although the Federal Reserve has recently made significant reductions to interest rates in response to the current economic downturn, the Company expects only slight changes, if any, in interest rates in 2009 and does not expect such changes to have a material impact on the financial results of the Company.

Significant portions of the Company’s revenues relate to the sale of equipment involved in the production, handling and installation of asphalt mix. A major component of asphalt is oil. An increase in the price of oil increases the cost of providing asphalt, which could likely decrease demand for asphalt, and therefore, decrease demand for certain Company products. While increasing oil prices may have an impact on the Company’s customers, the Company’s equipment can use a significant amount of recycled asphalt pavement, thereby mitigating the cost of asphalt for the customer. The Company continues to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt mix. Oil price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. The Company’s customers appear to be adapting their prices in response to the fluctuating oil prices and the fluctuations did not appear to significantly impair equipment purchases in 2008. The Company expects oil prices to continue to fluctuate in 2009 but does not foresee the fluctuation to have a significant impact on customers’ buying decisions.

Steel is a major component in the Company’s equipment. Steel prices retracted somewhat during 2005 and 2006 from record highs during 2004 but returned to historically high levels during 2008. Steel prices increased significantly during the first eight months of 2008, and the Company increased sales prices during the first half of 2008 to offset these rising steel costs. Late in the third quarter of 2008, steel prices began to retreat from their 2008 highs. Steel pricing declined sharply in the fourth quarter of 2008. We expect fourth quarter pricing to continue through the first quarter of 2009 and pricing levels throughout 2009 to remain well below the peak levels reached in the third quarter of 2008. However, moderate increases are possible during 2009 due to reduced mill output and reductions in automotive and appliance output which reduce the amount of high-quality scrap, a prime input factor for steel pricing. In addition, spending under the American Recovery and Reinvestment Act of 2009 may impact steel prices by slowing the price retraction or even causing steel prices to rise. Although the Company would institute price increases in response to rising steel and component prices, if the Company is not able to raise the prices of its products enough to cover increased costs, the Company’s financial results will be negatively affected. If the Company sees increases in upcoming steel prices, it will take advantage of buying opportunities to offset such future pricing where possible.

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. During most of 2008, the reduced value of the dollar relative to many foreign currencies and the positive economic conditions in certain foreign economies had a positive impact on the Company’s international sales. During the latter months of 2008, the dollar began to strengthen as the current economic recession began to have an impact around the world.

In the United States and internationally, the Company’s equipment is marketed directly to customers as well as through dealers. During 2008, approximately 75% to 80% of equipment sold by the Company was sold directly to the end user.

A - 6

The Company is operated on a decentralized basis and there is a complete management team for each operating subsidiary. Finance, insurance, legal, shareholder relations, corporate accounting and other corporate matters are primarily handled at the corporate level (i.e. Astec Industries, Inc., the parent company). The engineering, design, sales, manufacturing and basic accounting functions are all handled at each individual subsidiary. Standard accounting procedures are prescribed and followed in all reporting.

The non-union employees of each subsidiary have the opportunity to earn profit sharing distributions in the aggregate up to 10% of the subsidiary’s after-tax profit if such subsidiary meets established goals. These goals are based on the subsidiary’s return on capital employed, cash flow on capital employed and safety. The profit sharing distributions for subsidiary presidents are paid from a separate corporate pool.

Results of Operations; 2008 vs. 2007

The Company generated net income for 2008 of $63,128,000, or $2.80 per diluted share, compared to net income of $56,797,000, or $2.53 per diluted share, in 2007. The weighted average number of diluted common shares outstanding at December 31, 2008 was 22,585,775 compared to 22,444,866 at December 31, 2007.

Net sales for 2008 were $973,700,000, an increase of $104,675,000, or 12.0%, compared to net sales of $869,025,000 in 2007. The increase in net sales in 2008 occurred in both domestic and international sales and was primarily due to the continued weakness of the dollar against foreign currencies and strong economic conditions internationally during most of 2008.

In 2008, international sales increased $74,377,000, or 26.7%, to $352,713,000 compared to international sales of $278,336,000 in 2007. International sales increased the most in Asia, followed by Canada, Africa, South America and Central America. These increases are due primarily to continued weakness of the dollar against these currencies and strong local economic conditions in these geographic areas during most of 2008.

In 2008, domestic sales increased $30,297,000 or 5.1%, to $620,987,000 compared to domestic sales of $590,690,000 in 2007. 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.

Parts sales were $204,912,000 in 2008 compared to $186,146,000 in 2007 for an increase of 10.1%. The increase of $18,766,000 was generated mainly by the Underground Group and the Asphalt Group. The increase was primarily due to strong economic conditions both domestically and abroad, increased parts marketing efforts and growth in the active machine population.

Gross profit increased from $209,778,000 in 2007 to $233,858,000 in 2008. The gross profit as a percentage of net sales decreased 10 basis points from 24.1% in 2007 to 24.0% in 2008. The primary factor that caused this decrease in gross profit as a percentage of net sales was an increase in overhead of $5,520,000 in 2008 as compared to 2007. The increase in overhead is due primarily to manufacturing process improvement projects, as well as the impact of slowing economic activity during the second half of the year resulting in lower absorption of overhead. As these improvement projects occurred, the flow of production was disrupted and certain production resources were used to complete the projects, thus creating inefficiencies which resulted in excess production costs. Steel and component cost increases were offset by sales price increases, redesign of the product, and improvements in the manufacturing process.

In 2008, selling, general and administrative (“SG&A”) expenses increased $15,021,000 or 14.0% to $122,621,000, or 12.6% of 2008 net sales from $107,600,000 or 12.4% of net sales in 2007. The increase in SG&A in 2008 compared to 2007 was primarily due to increases in personnel related expenses of $7,790,000, sales commissions of $1,424,000, and health insurance of $2,911,000. In addition, ConExpo costs of $3,594,000 were expensed in 2008.

Research and development expenses increased by $3,472,000, or 22.5%, from $15,449,000 in 2007 to $18,921,000 in 2008. The increase is related to the development of new products and improvement of current products.

Interest expense for 2008 remained flat at $851,000 from $853,000 in 2007. This equates to 0.1% of net sales in both 2008 and 2007.

A - 7

Interest income decreased $1,845,000, or 67.5%, to $888,000 in 2008 from $2,733,000 in 2007. The decrease is primarily due to a reduction in cash available for investment due to business acquisitions in 2008.

Other income (expense), net was income of $5,709,000 in 2008 compared to expense of $202,000 in 2007. The net change in other income from 2007 to 2008 was due primarily to gains on the sale of investments.

For 2008, the Company had an overall income tax expense of $34,767,000, or 35.5% of pre-tax income compared to the 2007 tax expense of $31,398,000, or 35.5% of pre-tax income.

Earnings per share for 2008 were $2.80 per diluted share compared to $2.53 per diluted share for 2007, a 10.7% increase.

The backlog at December 31, 2008 was $193,316,000 compared to $280,923,000, including the backlogs of Dillman and Astec Australia, at December 31, 2007, a 31.2% decrease. The international backlog at December 31, 2008 was $87,693,000 compared to $88,842,000 at December 31, 2007, a decrease of $1,149,000 or 1.3%. The domestic backlog at December 31, 2008 was $105,623,000 compared to $192,081,000 at December 31, 2007, a decrease of $86,458,000 or 45.0%. The backlog decreased $47,691,000 in the Aggregate and Mining Group, followed by a decrease of $27,135,000 in the Asphalt Group. The Company is unable to determine whether this backlog effect was experienced by the industry as a whole, however, the Company believes the decreased backlog reflects the current economic conditions the industry is experiencing.

Asphalt Group: During 2008, this segment had sales of $257,336,000 compared to $240,229,000 for 2007, an increase of $17,107,000, or 7.1%. Asphalt Group sales increased both domestically and internationally. International sales increased primarily in Canada and Central America. Segment profits for 2008 were $40,765,000 compared to $37,707,000 for 2007, an increase of $3,058,000, or 8.1%. The focus on product improvement and cost reduction through the Company’s focus group initiative as well as price increases and increased international sales impacted gross profits and segment income during 2008.

Aggregate and Mining Group: During 2008, sales for this segment increased $12,167,000, or 3.6%, to $350,350,000 compared to $338,183,000 for 2007. The primary increase in sales was attributable to increased international sales in Asia, Africa and South America. Domestic sales for the Aggregate and Mining Group were down 12.3% compared to 2007. Segment profits for 2008 decreased $1,860,000, or 4.8%, to $37,032,000 from $38,892,000 for 2007. The primary reasons for the decrease in segment profits was ConExpo expenses of $1,578,000 in 2008 and weakening sales volume and gross profit in the fourth quarter of 2008.

Mobile Asphalt Paving Group: During 2008, sales for this segment increased $4,203,000, or 2.9%, to $150,692,000 from $146,489,000 in 2007. The increase in sales in 2008 compared to 2007 was attributable to international sales. International sales increased in Europe, Canada and South America. Domestic sales decreased slightly year over year. Segment profits for 2008 decreased $2,798,000, or 15.6%, to $15,087,000 from $17,885,000 for 2007. The decrease in segment profits was primarily due to increased research and development costs, ConExpo expenses of $665,000 in 2008 and weakening sales volume and gross profit in the fourth quarter of 2008.

Underground Group: During 2008, sales for this segment increased $20,774,000, or 18.2%, to $135,152,000 from $114,378,000 for 2007. International sales for this group increased in South America, Africa, China, Japan and Korea. Segment profits for 2008 increased $5,163,000 from $7,348,000 in 2007 to $12,511,000 in 2008. The sales and profit increase is primarily due to market acceptance of new products.

Other: During 2008, sales for this segment increased $50,424,000, or 169.5%, to $80,170,000 from $29,746,000 in 2007. $42,337,000 of this increase is due to the acquisitions of Peterson and Astec Australia.

Results of Operations; 2007 vs. 2006

The Company generated net income for 2007 of $56,797,000, or $2.53 per diluted share, compared to net income of $39,588,000, or $1.81 per diluted share, in 2006. The weighted average number of diluted common shares outstanding at December 31, 2007 was 22,444,866 compared to 21,917,123 at December 31, 2006.

Net sales for 2007 were $869,025,000, an increase of $158,418,000, or 22.3%, compared to net sales of $710,607,000 in 2006. The increase in net sales in 2007 occurred in both domestic and international sales and was primarily due to the continued weakness of the dollar against foreign currencies and strong economic conditions internationally and domestically.

A - 8

In 2007, international sales increased $86,185,000, or 44.9%, to $278,336,000 compared to international sales of $192,151,000 in 2006. International sales increased the most in Australia, followed by Canada and South America. These increases are due primarily to continued weakness of the dollar against these currencies and improving local economic conditions in these geographic areas.

In 2007, domestic sales increased $72,234,000 or 13.9%, to $590,690,000 compared to domestic sales of $518,456,000 in 2006. 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.

Parts sales were $186,146,000 in 2007 compared to $165,487,000 in 2006 for an increase of 12.5%. The increase of $20,659,000 was generated mainly by the Underground Group and the Aggregate and Mining Group. The increase was primarily due to improving economic conditions both domestically and abroad and increased parts marketing efforts.

Gross profit increased from $168,287,000 in 2006 to $209,778,000 in 2007. As a result, the gross profit as a percentage of net sales increased 40 basis points from 23.7% in 2006 to 24.1% in 2007. The primary factors that caused this increase in gross profit were increased international sales, increased parts sales, price increases and the impact of the Company’s cost and design initiative programs. These improvements in gross profit were offset by an increase in overhead of $3,214,000 in 2007 as compared to 2006. The increase in overhead is due primarily to the facility expansion projects at certain subsidiaries. As these improvement projects occurred, the flow of production was disrupted and certain production resources were used to complete the projects, thus creating inefficiencies which resulted in excess production costs.

In 2007 selling, general and administrative (“SG&A”) expenses increased $13,217,000 or 14.0% to $107,600,000, or 12.4% of 2007 net sales from $94,383,000 or 13.3% of net sales in 2006. The increase in SG&A in 2007 compared to 2006 was primarily due to increases in personnel related expenses of $4,462,000, profit sharing expense of $1,842,000, sales commissions of $1,745,000, travel, lodging and meals expense of $1,780,000 and depreciation of $814,000. Each of these expenses increased in anticipation of or as a result of increased sales volumes.

Research and development expenses increased by $1,888,000, or 13.9%, from $13,561,000 in 2006 to $15,449,000 in 2007. The increase is related to the development of new products and improvement of current products.

Interest expense for 2007 decreased by $819,000, or 49.0%, to $853,000 from $1,672,000 in 2006. This equates to 0.1% of net sales in 2007 compared to 0.2% of net sales for 2006. During April, 2007 the Company entered into a new credit agreement which reduced the interest charged related to the revolving credit line and letters of credit.

Interest income increased $1,264,000, or 86.0%, to $2,733,000 in 2007 from $1,469,000 in 2006. The increase is primarily due to a higher investment of excess cash in 2007 compared to 2006.

Other income (expense), net was an expense of $202,000 in 2007 compared to income of $167,000 in 2006. The net change in other income from 2006 to 2007 was due primarily to an increase in losses on foreign currency transactions.

For 2007, the Company had an overall income tax expense of $31,398,000, or 35.5% of pre-tax income compared to the 2006 tax expense of $20,638,000, or 34.2% of pre-tax income. The primary reason for the increase in the effective tax rate in 2007 compared to 2006 is the repeal of the Extra-Territorial Income Exclusion for 2007.

Earnings per share for 2007 were $2.53 per diluted share compared to $1.81 per diluted share for 2006, resulting in a 39.8% increase.

The backlog at December 31, 2007 was $272,422,000 compared to $246,240,000, including Peterson, at December 31, 2006, a 10.6% increase. The backlog increased $13,804,000 in the Asphalt Group, followed by increases of $3,661,000 in the Aggregate and Mining Group, and $3,638,000 in the Underground Group. The Company is unable to determine whether this backlog effect was experienced by the industry as a whole. The Company believes the increased backlog reflects increased international sales demand relating to the weak dollar and strong foreign economies along with the impact of federal funding under SAFETEA-LU.

A - 9

Asphalt Group: During 2007, this segment had sales of $240,229,000 compared to $186,657,000 for 2006, an increase of $53,572,000, or 28.7%. Asphalt Group sales increased both domestically and internationally. The international sales increased primarily in Australia and South America. Segment profits for 2007 were $37,707,000 compared to $24,387,000 for 2006, an increase of $13,320,000, or 54.6%. The focus on product improvement and cost reduction through the Company’s focus group initiative as well as price increases and increased international sales impacted gross profits and segment income during 2007.

Aggregate and Mining Group: During 2007, sales for this segment increased $48,712,000, or 16.8%, to $338,183,000 compared to $289,471,000 for 2006. The primary increase in sales was attributable to increased international sales. Domestic sales for the Aggregate and Mining Group were flat compared to 2006. International sales increased primarily in Canada, South America and the Middle East. Segment profits for 2007 increased $5,629,000, or 16.9%, to $38,892,000 from $33,263,000 for 2006. Profits improved due to increased international sales and increased parts sales.

Mobile Asphalt Paving Group: During 2007, sales for this segment increased $17,104,000, or 13.2%, to $146,489,000 from $129,385,000 in 2006. The increase in sales in 2007 compared to 2006 was almost evenly split between international and domestic sales. International sales improved in Australia, Southeast Asia, Europe and South America. Segment profits for 2007 increased $3,517,000, or 24.5%, to $17,885,000 from $14,368,000 for 2006. Segment profits were positively impacted by both improved machine sales volume and parts sales volume.

Underground Group: During 2007, sales for this segment increased $9,284,000, or 8.8%, to $114,378,000 from $105,094,000 for 2006. This increase is due primarily to increased sales of large trenchers, directional drills and auger boring machines. International sales for this group increased slightly compared to 2006. Segment profits for 2007 increased $2,482,000 from $4,866,000 in 2006 to $7,348,000 in 2007.

Other: The sales of $29,746,000 in this segment in 2007 were generated by Peterson Pacific Corp. which was acquired on July 1, 2007. There were no sales in this segment in 2006.

Liquidity and Capital Resources

The Company’s primary sources of liquidity and capital resources are its cash on hand, investments, borrowing capacity under a $100 million revolving credit facility and cash flows from operations. Cash available for operating purposes was $9,674,000 at December 31, 2008. The Company had $3,129,000 of borrowings under its credit facility with Wachovia Bank, National Association (“Wachovia”) at December 31, 2008. Net of letters of credit of $10,734,000, the Company had borrowing availability of $86,137,000 on its credit facility at December 31, 2008.

During April 2007, the Company entered into an unsecured credit agreement with Wachovia whereby Wachovia has extended to the Company an unsecured line of credit of up to $100,000,000 including a sub-limit for letters of credit of up to $15,000,000. The Wachovia credit agreement replaced the previous $87,500,000 secured credit facility the Company had in place with General Electric Capital Corporation and General Electric Capital-Canada.

The Wachovia credit facility has an original term of three years (which is subject to further extensions as provided therein). Early in 2009, the Company exercised its right to extend the credit facility’s term one additional year. An additional one year extension is available. The interest rate for borrowings is a function of the Adjusted LIBOR Rate or Adjusted LIBOR Market Index Rate, as defined, as elected by the Company, plus a margin based upon a leverage ratio pricing grid ranging between 0.5% and 1.5%. As of December 31, 2008, the applicable margin based upon the leverage ratio pricing grid was equal to 0.5%. The unused facility fee is 0.125%. The interest rate at December 31, 2008 was 0.94%. The Wachovia credit facility requires no principal amortization and interest only payments are due, in the case of loans bearing interest at the Adjusted LIBOR Market Index Rate, monthly in arrears and, in the case of loans bearing interest at the Adjusted LIBOR Rate, at the end of the applicable interest period. The Wachovia credit agreement contains certain financial covenants including a minimum fixed charge coverage ratio, minimum tangible net worth and maximum allowed capital expenditures. The borrowings are classified as current liabilities as the Company plans to repay the debt within the next 12 months.

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The Company was in compliance with the covenants under its credit facility as of December 31, 2008.

The Company’s South African subsidiary, Osborn Engineered Products SA (Pty) Ltd., (Osborn) has available a credit facility of approximately $5,978,000 (ZAR 50,000,000) to finance short-term working capital needs, as well as to cover the short-term establishment of letter of credit performance guarantees. As of December 31, 2008, Osborn had $298,000 outstanding borrowings under the credit facility at 15% interest, and approximately $1,854,000 in performance bonds which were guaranteed under the facility. The facility is secured by Osborn’s buildings and improvements, accounts receivable and cash balances and a $2,000,000 letter of credit issued by the parent Company. The portion of the available facility not secured by the $2,000,000 letter of credit fluctuates monthly based upon seventy-five percent (75%) of Osborn’s accounts receivable and total cash balances at the end of the prior month as well as buildings and improvements of $1,983,000. As of December 31, 2008, Osborn had available credit under the facility of approximately $3,826,000. The facility expires on July 30, 2009 and the Company plans to renew the facility prior to expiration. There is no unused facility fee.

Net cash provided by operating activities for the year ended December 31, 2008 was $10,038,000 compared to $45,744,000 for the year ended December 31, 2007. The decrease in cash provided by operating activities is primarily due to an increase in cash used for inventory of $28,195,000, an increase in cash used to reduce other accrued liabilities of $10,588,000, a decrease in customer deposits of $14,511,000, increases in cash used for income taxes payable of $8,175,000 and cash used to pay down accounts payable of $10,733,000. These uses of cash were offset by increased earnings of $6,331,000, cash provided by accounts receivable of $21,771,000 and increases in the provision for warranty of $5,820,000.

Cash flows used by investing activities for the year ended December 31, 2008 were $41,438,000 compared to $68,261,000 for the year ended December 31, 2007. During 2008, the Company purchased Dillman Equipment, Inc. and Double L Investments, Inc. using net cash of $16,493,000. In addition, the Company purchased Q-Pave Pty Ltd assets using $1,797,000 of cash and increased expenditures for property and equipment of $1,481,000 in 2008 over 2007. These current year uses of cash were offset by cash proceeds of $16,500,000 from the sale of investments compared to $10,305,000 used to purchase investments in 2007. Investing cash flows were impacted in 2007 by the purchase of Peterson Pacific Corp. for net cash of $19,656,000.

Cash provided by financing activities was $7,624,000 in 2008 compared to $11,935,000 in 2007. Financing cash flows were primarily impacted by a reduction of $12,175,000 in cash provided by stock options exercised and the related tax benefits in 2008 compared to 2007, partially offset by a reduction in the cash used to pay off debt assumed in business acquisitions of $6,588,000. In addition, net borrowings increased $3,427,000 in 2008.

Capital expenditures in 2009 are budgeted to be approximately $30,473,000. The Company expects to finance these expenditures using cash currently available, the available capacity under the Company’s revolving credit facility and internally generated funds. Capital expenditures for 2008 were $39,932,000 compared to $38,451,000 in 2007.

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, 2009.

Financial Condition

The Company’s current assets increased from $348,732,000 at December 31, 2007 to $395,099,000 at December 31, 2008, an increase of $46,367,000, or 13.3%. The increase is primarily attributable to a $74,999,000 increase in inventory. This increase was offset by decreases in cash of $24,963,000 and trade receivables of $12,568,000. The increase in inventory is due primarily to increased levels of finished goods and raw materials acquired in the acquisitions of Dillman Equipment, Inc. and Astec Australia Pty Ltd. as well as inventory purchased to meet the Company’s increased demand during 2008 and weakened sales in the fourth quarter of 2008. The increase in inventory resulted in the Company’s inventory turn ratio decreasing from 3.45 at December 31, 2007 to 2.91 at December 31, 2008. The decrease in cash is primarily due to the acquisitions mentioned above. The decrease in receivables is primarily due to the decrease in the Company’s sales volume during the fourth quarter of 2008.

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Property and Equipment, net, increased $27,602,000 from $141,528,000 at December 31, 2007 to $169,130,000 at December 31, 2008. The increase is primarily a result of capital expenditures for fixed assets of $39,932,000 and additions due to business acquisitions of $6,621,000, offset by current year depreciation of $16,657,000.

The long-term portion of the Company’s investments decreased by $8,617,000 from $18,529,000 at December 31, 2007 to $9,912,000 at December 31, 2008. This decrease is primarily attributed to the sale of certain investments during the fourth quarter of 2008 for a pre-tax gain of $6,195,000, which is included in other income.

Market Risk and Risk Management Policies

The Company is exposed to changes in interest rates, primarily from its revolving credit agreements. At December 31, 2008 and 2007, the Company did not have interest rate derivatives in place. A hypothetical 100 basis point adverse move (increase) in interest rates would not have materially affected interest expense for the year ended December 31, 2008, since there were only minimal amounts outstanding on the revolving credit agreements during most of the year.

The Company is subject to foreign exchange risk at its foreign operations. Foreign operations represent 9.9% of total assets at December 31, 2008 and 2007 and 7.6% and 7.4% of total revenue for the years ended December 31, 2008 and 2007, respectively. Each period the balance sheets and related results of operations are translated from their functional foreign currency into U.S. dollars for reporting purposes. As the dollar strengthens against those foreign currencies, the foreign denominated net assets and operating results become less valuable in the Company’s reporting currency. When the dollar weakens against those currencies the foreign denominated net assets and operating results become more valuable in the Company’s reporting currency. At each reporting date, the fluctuation in the value of the net assets and operating results due to foreign exchange rate changes is recorded as an adjustment to other comprehensive income in shareholders’ equity.

From time to time the Company’s foreign subsidiaries enter into transactions not denominated in their functional currency. In these situations, the Company evaluates the need to hedge those transactions against foreign currency rate fluctuations. Where the Company determines a need to hedge a transaction, the subsidiary enters into a foreign currency hedge. The Company does not apply hedge accounting to these contracts and, therefore, recognizes the fair value of these contracts in the consolidated balance sheet and the change in the fair value of the contracts in current earnings.

Due to the limited exposure to foreign exchange rate risk, a 10% fluctuation in the foreign exchange rates at December 31, 2008 or 2007 would not have a material impact on the Company’s consolidated financial statements.

Aggregate Contractual Obligations

The following table discloses aggregate information about the Company’s contractual obligations and the period in which payments are due as of December 31, 2008:

	Payments Due by Period
Contractual Obligations	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		More Than 5 Years
Operating lease obligations	$	3,079,000	$	1,460,000	$	1,559,000	$	44,000	$	16,000
Inventory purchase obligations		1,957,000		1,901,000		56,000		--		--
Debt obligations		3,427,000		298,000		3,129,000		--		--
Total	$	8,463,000	$	3,659,000	$	4,744,000	$	44,000	$	16,000

The table excludes our liability for unrecognized tax benefits, which totaled $939,000 at December 31, 2008 since we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.

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Although the Company’s borrowings under its Wachovia credit line are classified as current at December 31, 2008 because the Company intends to repay the amounts within twelve months, the amounts are not contractually due until the expiration of the credit agreement in May 2011 and, therefore, are shown in the above schedule as due in 1 to 3 years.

In 2008, the Company made contributions of approximately $562,000 to its pension plan and $313,000 to its post-retirement benefit plans, for a total of $875,000, compared to $1,060,000 in 2007. The Company estimates that it will contribute a total of approximately $248,000 to the pension and post-retirement plans during 2009. The Company’s funding policy for all plans is to make the minimum annual contributions required by applicable regulations.

Contingencies

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

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 $241,000 and $776,000 at December 31, 2008 and 2007, respectively. These obligations have average remaining terms of two years. There are no recorded liabilities related to these guarantees.

The Company is contingently liable under letters of credit of approximately $10,734,000, primarily for performance guarantees to customers or insurance carriers.

Off-balance Sheet Arrangements

As of December 31, 2008 the Company does not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

Environmental Matters

The Company has also received notice from the Environmental Protection Agency that it may be responsible for a portion of the costs incurred in connection with an environmental cleanup in Illinois. The discharge of hazardous materials and associated cleanup relate to activities occurring prior to the Company’s acquisition of Barber-Greene in 1986. The Company believes that over 300 other parties have received similar notice. At this time, the Company cannot predict whether the EPA will seek to hold the Company liable for a portion of the cleanup costs or the amount of any such liability.

Critical Accounting Policies

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 become obsolete over time, and the Company establishes 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 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 inventory allowances will materially change in the near future.

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Self-Insurance Reserves: The Company is insuring the retention portion of workers compensation claims and general liability claims by way of a captive insurance company, Astec Insurance Company (“Astec Insurance” or “the captive”). The objectives of Astec Insurance are to improve control over and reduce retained loss costs; to improve focus on risk reduction with development of a program structure which rewards proactive loss control; and to ensure active management participation in the defense and settlement process for claims.

For general liability claims, the captive is liable for the first $1 million per occurrence and $2.5 million per year in the aggregate. The Company carries general liability, excess liability and umbrella policies for claims in excess of those covered by the captive.

For workers compensation claims, the captive is liable for the first $350,000 per occurrence and $4.0 million per year in the aggregate. The Company utilizes a third-party administrator for workers compensation claims administration and carries insurance coverage for claims liabilities in excess of amounts covered by the captive.

The financial statements of the captive are consolidated into the financial statements of the Company. The short-term and long-term reserves for claims and potential claims related to general liability and workers compensation under the captive are included in Accrued Loss Reserves and Other Long-Term Liabilities, respectively, in the consolidated balance sheets depending on the expected timing of future payments. The undiscounted reserves are actuarially determined based on the Company’s evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future. However, the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.

At all but one of the Company’s domestic manufacturing subsidiaries, the Company is self-insured for health and prescription claims under its Group Health Insurance Plan. The Company carries reinsurance coverage to limit its exposure for individual health claims above certain limits. Third parties administer health claims and prescription medication claims. The Company maintains a reserve for the self-insured health and prescription plans which is included in accrued loss reserves on the Company’s consolidated balance sheets. This reserve includes both unpaid claims and an estimate of claims incurred but not reported, based on historical claims and payment experience. Historically the reserves have been sufficient to provide for claims payments. Changes in actual claims experience, or payment patterns, could cause the reserve to change, but the Company does not believe it is reasonably likely that the reserve level will materially change in the near future.

The remaining U.S. subsidiary is covered under a fully insured group health plan. Employees of the Company’s foreign subsidiaries are insured under health plans in accordance with their local governmental requirements. No reserves are necessary for these fully insured health plans.

Product Warranty Reserve: The Company accrues for the estimated cost of product warranties at the time revenue is recognized. We evaluate our warranty obligations by product line or model based on historical warranty claims experience. For machines, our standard product warranty terms generally include post-sales support and repairs of products at no additional charge for periods ranging from three months to one year or up to a specified number of hours of operation. For parts from our component suppliers, we rely on the original manufacturer’s warranty that accompanies those parts and make no additional provision for warranty claims. Generally, our fabricated parts are not covered by specific warranty terms. Although failure of fabricated parts due to material or workmanship is rare, if it occurs, our policy is to replace fabricated parts at no additional charge.

We engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers. Our estimated warranty obligation is based upon warranty terms, product failure rates, repair costs and current period machine shipments. If actual product failure rates, repair costs, service delivery costs or post-sales support costs differ from our estimates, revisions to the estimated warranty liability would be required. The Company does not believe it is reasonably likely that the warranty reserve will materially change in the near future.

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Pension and Post-retirement Benefits: The determination of obligations and expenses under the Company’s pension and post-retirement benefit plans is dependent on the selection of certain assumptions used by the Company’s independent actuaries in calculating such amounts. Those assumptions are described in Note 11 to the consolidated financial statements and include among others, the discount rate, expected return on plan assets and the expected rates of increase in health care costs. In accordance with accounting principles generally accepted in the United States, actual results that differ from assumptions are accumulated and amortized over future periods and, therefore, generally affect the recognized expense in such periods. The Company has determined that a 1% change in either the discount rate or the rate of return on plan assets would not have a material effect on the financial condition or operating performance of the Company.

Revenue Recognition: Revenue is generally recognized on sales at the point in time when persuasive evidence of an arrangement exists, the price is fixed or determinable, the product has been shipped and there is reasonable assurance of collection of the sales proceeds. The Company generally obtains purchase authorizations from its customers for a specified amount of product at a specified price with specified delivery terms. A significant 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. 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. In accordance with Staff Accounting Bulletin 104, revenue is recorded on such contracts upon the customer’s assumption of title and risk of ownership and when collectability is reasonably assured. In addition, there must be a fixed schedule of delivery of the goods consistent with the customer’s business practices, the Company must not have retained any specific performance obligations such that the earnings process is not complete and the goods must have been segregated from the Company’s inventory.

The Company has certain 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. The Company evaluates sales with multiple deliverable elements (such as an agreement to deliver equipment and related installation services) to determine whether revenue related to individual elements should be recognized separately, or as a combined unit. In addition to the previously mentioned general revenue recognition criteria, the Company only recognizes revenue on individual delivered elements when there is objective and reliable evidence that the delivered element has a determinable value to the customer on a standalone basis and there is no right of return.

Goodwill and Other Intangible Assets: In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS 142”), we classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization, and (3) goodwill. We test intangible assets with definite lives for impairment if conditions exist that indicate the carrying value may not be recoverable. Such conditions may include an economic downturn in a geographic market or a change in the assessment of future operations. We record an impairment charge when the carrying value of the definite lived intangible asset is not recoverable by the cash flows generated from the use of the asset.

Intangible assets with indefinite lives and goodwill are not amortized. We test these intangible assets and goodwill for impairment at least annually or more frequently if events or circumstances indicate that such intangible assets or goodwill might be impaired. We perform our impairment tests of goodwill at our reporting unit level. The Company’s reporting units are defined as its subsidiaries because each is a legal entity that is managed separately and manufactures and distributes distinct product lines. Such impairment tests for goodwill include comparing the fair value of the respective reporting unit with its carrying value, including goodwill. We use a variety of methodologies in conducting these impairment tests, including discounted cash flow analyses and market analyses. When the fair value is less than the carrying value of the intangible assets or the reporting unit, we record an impairment charge to reduce the carrying value of the assets to fair value.

We determine the useful lives of our identifiable intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement, the history of the asset, the Company’s long-term strategy for the use of the asset, any laws or other local regulations which could impact the useful life of the asset, and other economic factors, including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, generally on a straight-line basis, over their useful lives, ranging from 3 to 15 years.

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Income Taxes: Income taxes are based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts. The Company periodically assesses the need to establish a valuation allowance against its deferred tax assets to the extent the Company no longer believes it is more likely than not that the tax assets will be fully utilized. The major circumstance that affects the Company’s valuation allowance is each subsidiary’s ability to utilize any available state net operating loss carryforwards. If the subsidiaries that generated the loss carryforwards generate higher than expected future income, the valuation allowance will decrease. If these subsidiaries generate future losses, the valuation allowance may increase.

In accordance with FASB Interpretation 48, “Accounting for Uncertainty in Income Taxes: an interpretation of FASB Statement 109, Accounting for Income Taxes”, (“FIN 48”), the Company evaluates each of its tax positions to determine whether it is more likely than not that the tax position will be sustained upon examination, based upon the technical merits of the position. A tax position that meets the more-likely-than-not recognition threshold is subject to a measurement assessment to determine the amount of benefit recognized in the consolidated statements of operations and the appropriate reserve to establish, if any. If a tax position does not meet the more-likely-than-not recognition threshold, a tax reserve is established and no benefit is recognized. While it is often difficult to predict final outcome or timing of resolution of any particular tax matter, the Company believes its reserve for uncertain tax positions is properly recorded pursuant to the recognition and measurement provisions of FIN 48.

Stock-based Compensation: The Company currently has two types of stock-based compensation plans in effect for its employees and directors. The Company’s stock option plans have been in effect for a number of years and its stock incentive plan was put in place during 2006. These plans are more fully described in Note 14 to the consolidated financial statements. Restricted stock units (“RSU’s”) awarded under the Company’s stock incentive plan are granted shortly after the end of each year and are based upon the performance of the Company and its individual subsidiaries. RSU’s can be earned for performance in each of the years from 2006 through 2010 with additional RSU’s available based upon cumulative five-year performance. The Company estimates the number of shares that will be granted for the most recent fiscal year and the five-year cumulative performance based on actual and expected future operating results. The compensation expense for RSU’s expected to be granted for the most recent fiscal year and the cumulative five-year based awards is calculated using the fair value of the Company stock at each period end and is adjusted to the fair value as of each future period end until granted. Generally, each award will vest at the end of five years from the date of grant, or at a time the recipient retires after reaching age 65, if earlier. Estimated forfeitures are based upon the expected turnover rates of the employees receiving awards under the plan. The fair value of stock options is estimated using the Black-Scholes method.

Fair Value: For cash and cash equivalents, trade receivables, other receivables, revolving credit loans, accounts payable, customer deposits and accrued liabilities, the carrying amount approximates the fair value because of the short-term nature of those instruments. Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset. All of the investments held by the Company at December 31, 2008 and 2007 are classified as Level 1 or Level 2 under the SFAS 157 hierarchy.

Recent Accounting Pronouncements

See Recent Accounting Pronouncements in Note 1 to the Consolidated Financial Statements.

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Forward-Looking Statements

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;

·	pricing and availability of steel;

·	pricing of scrap metal;

·	condition of the economy;

·	the success of new product lines;

·	plans for technological innovation;

·	ability to secure adequate or timely replacement of financing to repay our lenders;

·	compliance with government regulations;

·	compliance with manufacturing or delivery timetables;

·	forecasting of results;

·	general economic trends and political uncertainty;

·	integration of acquisitions;

·	presence in the international marketplace;

·	suitability of our current facilities;

·	future payment of dividends;

·	competition in our business segments;

·	product liability and other claims;

·	protection of proprietary technology;

·	future fillings of backlogs;

·	employees;

·	tax assets;

·	the impact of account changes;

·	the effect of increased international sales on our backlog;

·	critical account policies;

·	ability to satisfy contingencies;

·	contributions to retirement plans;

·	supply of raw materials; and

·	inventory.

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.

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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: changes or delays in highway funding; rising interest rates; changes in oil prices; changes in steel prices; changes 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 December 31, 2008.

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ASTEC INDUSTRIES, INC.

MANAGEMENT ASSESSMENT REPORT

The management of Astec Industries, Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of all internal control systems no matter how well designed. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to the preparation and presentation of financial statements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of a change in circumstances or conditions.

In order to ensure that the Company’s internal control over financial reporting is effective, management regularly assesses such controls and did so most recently as of December 31, 2008. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes the Company maintained effective internal control over financial reporting as of December 31, 2008. Ernst & Young LLP, the Company’s independent registered public accounting firm, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2008.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Astec Industries, Inc.

We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. as of December 31, 2008 and 2007 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Astec Industries, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans, in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Astec Industries, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chattanooga, Tennessee

February 25, 2009

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Astec Industries, Inc.

We have audited Astec Industries, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Astec Industries, Inc.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Assessment Report. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Astec Industries, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Astec Industries, Inc. as of December 31, 2008 and 2007 and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2008 and our report dated February 25, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chattanooga, Tennessee

February 25, 2009

A - 21

CONSOLIDATED BALANCE SHEETS

	December 31
	2008		2007
Assets
Current assets:
Cash and cash equivalents	$	9,673,542	$	34,636,472
Trade receivables, less allowance for doubtful accounts of $1,496,000 in 2008 and $1,713,000 in 2007		71,629,778		84,197,596
Other receivables		3,530,975		3,289,200
Inventories		285,817,262		210,818,628
Prepaid expenses		12,079,943		6,420,092
Deferred income tax assets		10,700,767		8,864,181
Other current assets		1,666,821		505,471
Total current assets		395,099,088		348,731,640

Property and equipment, net		169,129,628		141,527,620
Investments		9,911,504		18,528,745
Goodwill		29,658,550		26,415,979
Other long-term assets		9,013,686		7,365,533
Total other assets		48,583,740		52,310,257
Total assets	$	612,812,456	$	542,569,517

Liabilities and Shareholders’ Equity
Current liabilities:
Revolving credit loans	$	3,426,978	$	--
Accounts payable		51,052,764		54,840,478
Customer deposits		41,385,512		37,751,174
Accrued product warranty