Summary of ASTEC INDUSTRIES INC

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 and are sometimes identified by the words "will," "would," "should," "could," "believes," "anticipates," "intends," and "expects" and similar expressions. Such forward-looking statements include, without limitation, statements regarding the Company's expected sales and results of operations during 2009, the Company's expected effective tax rates for 2009, the Company's expected capital expenditures in 2009, the expected benefit and impact of financing arrangements, the ability of the Company to meet its working capital and capital expenditure requirements through March 31, 2010, the impact of the enactment of Safe, Accountable, Flexible and Efficient Transportation Equity Act
- A Legacy for Users (SAFETEA-LU), the American Recovery and Reinvestment Act of 2009, or any future state or federal funding for transportation construction programs, the need for road improvements, the impact of other public sector spending and funding mechanisms, the Company's backlog levels, changes in the economic environment as it affects the Company, the timing and impact of changes in the economy, the market confidence of customers and dealers, the Company's general liability insurance coverage for product liability and other similar tort claims, the Company being called upon to fulfill certain contingencies, the expected contributions by the Company to its pension plan, its post-retirement plan and other benefits, the expected dates of granting of restricted stock units, changes in interest rates and the impact of such changes on the financial results of the Company, changes in the prices of steel and oil, the ability of the Company to offset future changes in prices in raw materials, the change in the level of the Company's presence and sales in international markets, the seasonality of the Company's business, the outcome of audits by taxing authorities, the amount or value of unrecognized tax benefits, the Company's discussion of its critical accounting policies and the ultimate outcome of the Company's current claims and legal proceedings.

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

In addition to the risks and uncertainties identified herein under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, most recently in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2008, the risk factors described in the section under the caption "Risk Factors" should be carefully considered when evaluating the Company's business and future prospects.

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 Australia), Astec Insurance Company and Astec Industries, Inc., the parent company. Peterson designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia is the Australian and New Zealand distributor of equipment manufactured by Astec Industries, Inc. Astec Insurance Company is a captive insurance provider.

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, which affects the cost of fuel 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 $41.2 billion apportioned 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 provides for favorable tax policies regarding the deduction of certain expenses relating to the purchase of business equipment.

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.

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 greater than amounts approved to date, 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. The Federal Reserve has maintained historically low interest rates in response to the current economic downturn and 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 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 and the first quarter of 2009. We expect favorable pricing to continue through the first half 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. During the first quarter of 2009, the dollar stabilized somewhat but at a stronger position than in the first nine months of 2008. This had a negative impact on the Company's international sales during the first quarter of 2009 and, if the dollar remains strong, will have an impact on the Company's international sales during the remainder of 2009.

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. The Company expects this ratio to remain relatively consistent throughout 2009.

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 bonuses 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 bonuses for subsidiary presidents are paid from a separate corporate pool.

Results of Operations
For the three months ended March 31, 2009, net sales decreased $57,768,000, or 22.0%, to $205,304,000 from $263,072,000 for the three months ended March 31, 2008. Sales are generated primarily from new equipment purchases made by customers for use in construction for privately funded infrastructure development and public sector spending on infrastructure development. The overall decline in sales for the three months ended March 31, 2009 compared to the three months ended March 31, 2008 is reflective of the weak overall economic conditions, both domestic and international. A stronger dollar also negatively impacted international sales. For the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008, (1) net sales for the Asphalt Group increased approximately $11,667,000, or 16.3%; (2) net sales for the Aggregate and Mining Group decreased approximately $39,513,000, or 43.4%; (3) net sales for the Underground Group decreased approximately $12,397,000, or 38.0%; and (4) net sales for the Mobile Asphalt Paving Group decreased approximately $15,727,000, or 33.4%. Parts sales for the quarter ended March 31, 2009 were $45,624,000, compared to $52,590,000 for the quarter ended March 31, 2008, for a decrease of $6,966,000, or 13.2%.

For the quarter ended March 31, 2009 compared to the same quarter in 2008, domestic sales decreased 22.7% from $170,586,000 to $131,931,000. Domestic sales for the first quarter increased in the Asphalt Group by 27.4%, while the Aggregate and Mining, Underground and Mobile Asphalt Paving segments experienced declines of 51.9%, 52.1% and 24.3%, respectively. Domestic sales accounted for 64.3% of sales and international sales accounted for 35.7% of sales for the three months ended March 31, 2009, compared to 64.8% for domestic sales and 35.2% for international sales for three months ended March 31, 2008. Domestic sales were impacted by weakened economic conditions in the U.S. during the first quarter.

International sales for the three months ended March 31, 2009, compared to the same period of 2008, decreased $19,113,000, or 20.7%, from $92,486,000 to $73,373,000. Although international sales for the first quarter of 2009 increased in the Middle East, West Indies, and Australia in comparison with the first quarter of 2008, international sales for the first quarter of 2009 decreased in Central America, South America, Canada, China, Asia, Africa, and Europe in comparison with the first quarter of 2008. There were only nominal changes in all other geographic markets. The Company believes the decrease in the overall level of international sales is the result of the weakening of economic conditions in certain foreign markets and the strengthening of the U.S. dollar compared to most foreign currencies. Compared to the same quarter in 2008, international sales decreased 64.6% in the Mobile Asphalt Paving segment, 30.0% in the Aggregate and Mining segment, 24.0% in the Underground segment and 15.1% in the Asphalt Group segment.

Gross profit for the three months ended March 31, 2009 decreased $22,758,000, or 34.4%, to $43,462,000 from $66,220,000 for the three months ended March 31, 2008. Gross profit as a percentage of sales decreased 400 basis points to 21.2% from 25.2%. The primary reasons for the decrease in gross margin as a percent of sales are reduced plant utilization due to lower production volumes and increased pricing pressure as a result of the weakened global economic conditions.

For the quarter ended March 31, 2009 compared to the same period in 2008, gross profit for the Asphalt Group increased to $20,623,000 compared to $19,606,000, and gross profit as a percentage of sales decreased from 27.4% to 24.8%, or 260 basis points. For the quarter ended March 31, 2009 compared to the same period in 2008, gross profit for the Aggregate and Mining Group decreased to $10,904,000 from $23,157,000, a decrease of $12,253,000, or 52.9% and gross profit as a percentage of sales decreased from 25.4% to 21.1%, or 430 basis points. For the quarter ended March 31, 2009 compared to the same period in 2008, gross profit for the Mobile Asphalt Paving Group decreased from $12,592,000 to $6,620,000, a decrease of $5,972,000, or 47.4%, resulting in a decrease in gross profit as a percentage of sales from 26.7% to 21.1%, or 560 basis points. For the quarter ended March 31, 2009 compared to the same period in 2008, gross profit for the Underground Group decreased from $7,103,000 to $2,760,000, a decrease of $4,343,000, or 61.1%, resulting in a decrease in gross profit as a percentage of sales from 21.8% to 13.6%, or 820 basis points.

Selling, general, administrative and engineering expenses for the quarter ended March 31, 2009 were $31,426,000, or 15.3% of net sales, compared to $38,779,000, or 14.7% of net sales, for the quarter ended March 31, 2008, a decrease of $7,353,000, or 19.0%. The decrease in selling, general, administrative and engineering expenses for the three months ended March 31, 2009, compared to the same period of 2008, was primarily due to the absence in 2009 of exhibit expenses of $3,670,000 related to ConExpo, a triennial trade show, which occurred in early 2008. In addition, profit sharing expense decreased $1,166,000, commissions decreased $926,000 and payroll related expenses decreased $647,000 in the first quarter of 2009 compared to the same quarter in 2008.

For the quarter ended March 31, 2009 compared to the quarter ended March 31, 2008, interest expense increased $52,000, or 39.7%, to $183,000 from $131,000. Interest expense as a percentage of net sales was 0.09% and 0.05% for the quarters ended March 31, 2009 and 2008, respectively. The increase in interest expense for the three months ended March 31, 2009 over the same period in 2008 related primarily to increased borrowings under the Company's credit facility.

Other income, net was $214,000 for the quarter ended March 31, 2009 compared to other income, net of $426,000 for the quarter ended March 31, 2008, a decrease of $212,000. Other income, net for the quarter ended March 31, 2009 was primarily due to gains on foreign currency transactions while other income, net in 2008 consisted primarily of interest income earned on the Company's cash balances and investments. The decrease in other income, net is primarily a result of a decrease in cash invested in interest bearing investments.

For the three months ended March 31, 2009, the Company recorded income tax expense of $4,671,000, compared to income tax expense of $10,160,000 for the three months ended March 31, 2008. This resulted in effective tax rates for the three months ended March 31, 2009 and 2008 of 38.7% and 36.6%, respectively. The reasons for the 210 basis point difference in effective tax rates include an increase in the number of states requiring unitary filings as well as an increase in the number of states in which the Company files returns.

For the three months ended March 31, 2009, the Company had net income attributable to controlling interest of $7,431,000, compared to net income attributable to controlling interest of $17,519,000 for the three months ended March 31, 2008, a decrease of $10,088,000, or 57.6%. Earnings per diluted share for the three months ended March 31, 2009 were $0.33, compared to $0.78 for the three months ended March 31, 2008, a decrease of $0.45, or 57.7%. Diluted shares outstanding for the three months ended March 31, 2009 and 2008 were 22,663,415 and 22,550,536, respectively. The increase in shares outstanding is primarily due to the exercise of stock options by employees of the Company.

The backlog of orders at March 31, 2009 was $140,100,000 compared to $275,024,000 at March 31, 2008, a decrease of $134,924,000, or 49.1%. The decrease in the backlog of orders at March 31, 2009 compared to March 31, 2008 related primarily to a decrease in domestic backlog of $98,971,000. The decrease in domestic backlog at March 31, 2009 occurred primarily in the Asphalt and Aggregate and Mining segments. International backlog at March 31, 2009 was $61,123,000 compared to $97,076,000 at March 31, 2008, a decrease of $35,953,000, or 37.0%. The Company is unable to determine whether the decline in backlogs was experienced by the industry as a whole.

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. The Company had $10,563,000 of cash available for operating purposes as of March 31, 2009. In addition, the Company had borrowings outstanding under its credit facility with Wachovia Bank, National Association ("Wachovia") of $16,988,000 as of March 31, 2009, resulting in additional borrowing availability under the credit facility of $74,409,000, which amount is net of letters of credits of $8,603,000. The borrowings are classified as current liabilities as the Company plans to repay the debt within the next twelve months.

During April 2007, the Company entered into an unsecured credit agreement with Wachovia, whereby Wachovia extended to the Company an unsecured line of credit of up to $100 million including a sub-limit for letters of credit of up to $15 million. The Wachovia credit facility is unsecured and has an original term of three years (which is subject to further extensions as provided therein). In February 2009, the Company exercised its right to extend the credit facility's term for a one period to May 15, 2011. 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 elected by the Company, plus a margin based upon a leverage ratio pricing grid ranging between 0.5% and 1.5%. As of March 31, 2009 the applicable margin based upon the leverage ratio pricing grid was equal to 0.5%. 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 therefore. The Wachovia credit agreement contains certain financial covenants related to minimum fixed charge coverage ratios, minimum tangible net worth and maximum allowed capital expenditures. The Company was in compliance with the financial covenants under its credit facility as of March 31, 2009.

The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd. ("Osborn"), has an available credit facility of approximately $5,904,000 (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 March 31, 2009, Osborn had $1,391,000 in outstanding borrowings under the credit facility at 13% interest and approximately $1,615,000 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 75% of Osborn's accounts receivable plus total cash balances at the end of the prior month and $1,505,000 allocated for buildings and improvements. As of March 31, 2009, Osborn had available credit under the facility of approximately $2,897,000. The facility expires on July 30, 2009 and the Company plans to renew the facility prior to expiration. There is no charge for the unused portion of the facility.

During the first quarter of 2009 the Company's Australian subsidiary, Astec Australia, entered into a banking agreement which provides Astec Australia with an available credit facility to finance short-term working capital needs of approximately $1,955,000 (AUD 2,800,000), to finance foreign exchange dealer limit orders of approximately $1,746,000 (AUD 2,500,000) and to provide bank guarantees to others of approximately $140,000 (AUD 200,000). The facility is secured by a $2,500,000 letter of credit issued by the parent Company. No amounts were outstanding under the facilities at March 31, 2009.

Net cash used by operating activities for the three months ended March 31, 2009 was $9,769,000, compared to cash provided by operating activities of $622,000 for the three months ended March 31, 2008, a decrease in cash provided of $10,391,000. The primary reasons for the decrease in operating cash flows are a decrease in earnings of $10,088,000 and decreases in cash from accounts payable of $17,066,000, cash from customer deposits of $17,000,000 and cash from income taxes payable of $9,104,000. These decreases are offset by increases in cash from trade and other receivables of $22,122,000, cash from inventories of $16,109,000 and cash from prepaid expenses and other current assets of $4,715,000.

Net cash used by investing activities for the three months ended March 31, 2009 was $3,907,000, compared to $6,090,000 for the three months ended March 31, . . .