f10q-063011.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2011
OR
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			(I.R.S. Employer Identification No.)
incorporation or organization)

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

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ý		NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES ý		NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer ý				Accelerated Filer o
Non-accelerated filer o (Do not check if a smaller reporting company)				Smaller Reporting Company 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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class	Outstanding at August 1, 2011
Common Stock, par value $0.20	22,685,435

Astec Industries, Inc. Condensed Consolidated Balance Sheets (in thousands)
	June 30, 2011 (unaudited)		December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	73,490	$	94,597
Trade receivables, net		101,592		77,978
Other receivables		2,250		2,885
Inventories		281,152		252,981
Prepaid expenses and other		9,541		9,041
Deferred income tax assets		14,720		10,339
Total current assets		482,745		447,821
Property and equipment, net		174,582		168,242
Investments		11,125		11,672
Goodwill		13,907		13,907
Other long-term assets		8,848		7,997
Total assets	$	691,207	$	649,639
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	49,499	$	44,493
Income tax payable		560		406
Accrued product warranty		10,247		9,891
Customer deposits		39,611		35,602
Accrued payroll and related liabilities		16,994		16,121
Accrued loss reserves		4,163		3,796
Other accrued liabilities		20,678		20,117
Total current liabilities		141,752		130,426
Deferred income tax liabilities		16,409		12,653
Other long-term liabilities		14,551		13,754
Total liabilities		172,712		156,833
Shareholders’ equity		517,885		492,208
Non-controlling interest		610		598
Total equity		518,495		492,806
Total liabilities and equity	$	691,207	$	649,639

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Net sales	$	247,756	$	209,249	$	477,945	$	402,704
Cost of sales		185,785		162,571		361,271		309,884
Gross profit		61,971		46,678		116,674		92,820
Selling, general, administrative and engineering expenses		38,789		30,824		78,278		63,542
Asset impairment charge		2,170		-		2,170		-
Income from operations		21,012		15,854		36,226		29,278
Interest expense		58		135		94		259
Other income, net of expenses		366		122		773		610
Income before income taxes		21,320		15,841		36,905		29,629
Income taxes		7,215		5,511		12,642		10,467
Net income		14,105		10,330		24,263		19,162
Net income attributable to non-controlling interest		19		22		33		60
Net income attributable to controlling interest	$	14,086	$	10,308	$	24,230	$	19,102

Earnings per common share
Net income attributable to controlling interest:
Basic	$	0.62	$	0.46	$	1.07	$	0.85
Diluted	$	0.61	$	0.45	$	1.06	$	0.84
Weighted average number of common shares outstanding:
Basic		22,576,222		22,507,078		22,571,192		22,490,431
Diluted		22,991,917		22,832,785		22,955,707		22,800,223

Astec Industries, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net income	$	24,263		$	19,162
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,449			9,570
Provision for (recoveries of) doubtful accounts		965			(11	)
Provision for inventory reserve		2,078			2,465
Provision for warranty		5,836			6,954
Deferred compensation provision		446			67
Sale of trading securities, net		1,025			654
Stock-based compensation		1,623			815
Tax benefit from stock incentive plans		(175	)		(329	)
Deferred income tax benefit		(1,573	)		(1,171	)
Asset impairment charge		2,170			-
Loss on disposition of fixed assets		24			55
(Increase) decrease in:
Trade and other receivables		(24,301	)		(16,517	)
Inventories		(30,249	)		20,115
Prepaid expenses		1,021			8,335
Other assets		(1,763	)		(241	)
Increase (decrease) in:
Accounts payable		5,006			1,081
Accrued product warranty		(5,475	)		(6,986	)
Customer deposits		4,009			1,516
Income taxes payable		328			1,430
Other accrued liabilities		2,178			(1,875	)
Net cash provided (used) by operating activities		(3,115	)		45,089
Cash flows from investing activities:
Expenditures for property and equipment		(18,668	)		(3,759	)
Proceeds from sale of property and equipment		139			71
Net cash used by investing activities		(18,529	)		(3,688	)
Cash flows from financing activities:
Tax benefit from stock option exercise		175			329
Supplemental Executive Retirement Plan transactions, net		(137	)		(136	)
Proceeds from exercise of stock options		510			763
Net cash provided by financing activities		548			956
Effect of exchange rates on cash		(11	)		(797	)
Net increase (decrease) in cash and cash equivalents		(21,107	)		41,560
Cash and cash equivalents, beginning of period		94,597			40,429
Cash and cash equivalents, end of period	$	73,490		$	81,989

Astec Industries, Inc.
Condensed Consolidated Statement of Equity
For the Six Months Ended June 30, 2011
(in thousands, except shares)
(unaudited)


	Common Stock Shares		Common Stock Amount		Additional Paid-in- Capital		Accum-ulated Other Compre- hensive Income			Company Shares Held by SERP			Retained Earnings		Non- controlling Interest			Total Equity
Balance, December 31, 2010		22,646,822	$	4,529	$	128,831	$	8,046		$	(2,217	)	$	353,019	$	598		$	492,806
Net income														24,230		33			24,263
Other comprehensive income:
Foreign currency translation adjustments, net of tax								(676	)							(21	)		(697	)
Change in unrecognized pension and post retirement costs, net of tax								(48	)										(48	)
Comprehensive income																12			23,518
Stock-based compensation		9,447		2		1,621													1,623
Stock issued under incentive plans		27,652		6		679													685
SERP transactions, net						5					(142	)							(137	)
Balance, June 30, 2011		22,683,921	$	4,537	$	131,136	$	7,322		$	(2,359	)	$	377,249	$	610		$	518,495

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Astec Industries, Inc. Annual Report on Form 10-K for the year ended December 31, 2010.

In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13, “Multiple-Deliverable Revenue Arrangements” containing guidance that supersedes certain previous rules relating to how a company allocates consideration to all of its deliverables in a multiple-deliverable revenue arrangement. The revised guidance eliminates the use of the residual method of allocation in which the undelivered element is measured at its estimated selling price and the delivered element is measured as the residual of the arrangement consideration and alternatively requires that the relative-selling-price method be used in all circumstances in which an entity recognizes revenue for an arrangement with multiple-deliverables. The revised guidance requires both ongoing disclosures regarding an entity’s multiple-element revenue arrangements as well as certain transitional disclosures during periods after adoption. All entities must adopt the revised guidance no later than the beginning of their first fiscal year beginning on or after June 15, 2010 with earlier adoption allowed. Entities may elect to adopt the guidance through either prospective application or through retrospective application to all revenue arrangements for all periods presented. The Company adopted the revised guidance using the prospective application method effective January 1, 2011. The adoption of this guidance has not had a significant impact on the Company’s financial statements.

In May 2011, the FASB issued Account Standards Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” which results in common fair value measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards (”IFRS”). Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. While the FASB stated that for many of the requirements it did not intend for the amendments in the update to result in a change in the application of the requirements of Topic 820, some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. Additionally, other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The update is effective for interim and annual periods beginning after December 15, 2011 and its amendments must be applied prospectively. The Company plans to adopt its provisions effective January 1, 2012. The Company has not yet determined the impact, if any the application of this update will have on its financial statements.

In June 2011, the FASB issued Account Standards Update No. 2011-05, “Comprehensive Income (Topic 220)” which will change the way companies present other comprehensive income and its components in financial statements. The new standards, which are effective for fiscal years and interim periods beginning after December 15, 2011, require that companies present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company plans on adopting the provisions of this update in its first quarter 2012 financials. As the revised rules deal only with presentation, adopting this update is not expected to have an impact on the Company’s financial position or results of operations.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2011		2010		2011		2010
Numerator:
Net income attributable to controlling interest	$	14,086,000	$	10,308,000	$	24,230,000	$	19,102,000
Denominator:
Denominator for basic earnings per share		22,576,222		22,507,078		22,571,192		22,490,431
Effect of dilutive securities:
Employee stock options and restricted stock units		315,172		225,736		285,060		211,234
Supplemental Executive Retirement Plan		100,523		99,971		99,455		98,558
Denominator for diluted earnings per share		22,991,917		22,832,785		22,955,707		22,800,223

Net income attributable to controlling interest per share:
Basic	$	0.62	$	0.46	$	1.07	$	0.85
Diluted	$	0.61	$	0.45	$	1.06	$	0.84

The Company has various financial instruments that must be measured at fair value on a recurring basis including marketable debt and equity securities held by Astec Insurance Company (“Astec Insurance”), the Company’s captive insurance company, and marketable equity securities held in an unqualified Supplemental Executive Retirement Plan (“SERP”). The financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes. The Company’s subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.

For cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable, the carrying amount approximates the fair value because of the short-term nature of these 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. The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market based inputs.

	Level 1 -	Unadjusted quoted prices in active markets for identical assets or liabilities.
	Level 2 -	Unadjusted quoted prices in active markets for similar assets or liabilities; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable for the asset or liability.
	Level 3 -	Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

	Level 1		Level 2		Level 3		Total
Financial Assets:
Trading equity securities:
SERP money market fund	$	988	$	-	$	-	$	988
SERP mutual funds		1,877		-		-		1,877
Preferred stocks		468		-		-		468
Trading debt securities:
Corporate bonds		-		4,814		-		4,814
Municipal bonds		-		3,315		-		3,315
Floating rate notes		-		233		-		233
U.S. Treasury bill		250		-		-		250
Other government bonds		-		73		-		73
Total financial assets	$	3,583	$	8,435	$	-	$	12,018

Financial Liabilities:
SERP liabilities	$	6,583	$	-	$	-	$	6,583
Derivative financial instruments		-		1,050		-		1,050
Total financial liabilities	$	6,583	$	1,050	$	-	$	7,633

The trading equity investments noted above are valued at their estimated fair value based on their quoted market prices and the debt securities are valued based upon a mix of observable market prices and model driven prices derived from a matrix of observable market prices for assets with similar characteristics obtained from a nationally recognized third party pricing service. Additionally, a significant portion of the trading equity securities are in equity money market and mutual funds and also comprise a portion of the Company’s liability under its SERP.

Trading debt securities are comprised of marketable debt securities held by Astec Insurance. Astec Insurance has an investment strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities. At June 30, 2011 and December 31, 2010, $644,000 and $1,156,000, respectively, of trading debt securities were due to mature within twelve months and, accordingly, are included in other current assets. The financial liabilities related to the SERP shown above are included in other long-term liabilities and the derivative financial liabilities are included in other accrued liabilities in the accompanying balance sheets.

The Wells Fargo credit facility had an original term of three years with two one-year extensions available. Early in 2010, the Company exercised the final extension bringing the new loan maturity date to May 2012. 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 June 30, 2011 the applicable margin based upon the leverage ratio pricing grid was equal to 0.5%. The unused facility fee is 0.125%. The Wells Fargo 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 Wells Fargo credit agreement contains certain financial covenants related to minimum fixed charge coverage ratios, minimum tangible net worth and maximum allowed capital expenditures. At June 30, 2011, the Company had no borrowings outstanding under the credit facility but did have letters of credit totaling $10,041,000 outstanding, resulting in borrowing availability of $89,959,000 on the Wells Fargo credit facility. The Company was in compliance with the financial covenants under its credit facility as of June 30, 2011.

The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd. (“Osborn”), has available a credit facility of $8,798,000 (ZAR 60,000,000) to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of June 30, 2011, Osborn had no outstanding borrowings under the credit facility, but $4,564,000 in performance letters of credit, advance payment and retention guarantees were issued under the facility. The facility is secured by Osborn's buildings and improvements, accounts receivable, cash balances and a $2,000,000 letter of credit issued by the parent Company. As of June 30, 2011, Osborn had available credit under the facility of $4,234,000. The facility has an ongoing, indefinite term subject to annual reviews by the bank. The interest rate is the South African prime rate. The agreement has an unused facility fee of 0.793%.

The Company’s Australian subsidiary, Astec Australia Pty Ltd (“Astec Australia”) has an available credit facility to finance short-term working capital needs of $859,000 (AUD 800,000), and banking arrangements to finance foreign exchange dealer limit orders of up to $1,772,000 (AUD 1,650,000) secured by cash balances in the amount of $1,074,000 (AUD 1,000,000) and a $1,000,000 letter of credit issued by the parent Company. No amounts were outstanding under the credit facility at June 30, 2011. The interest rate is the Australian adjusted Bank Business Rate plus a margin of 1.05%.

The Company warrants its products against manufacturing defects and performance to specified standards. The warranty period and performance standards vary by market and uses of its products, but generally range from three months to one year or up to a specified number of hours of operations. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The product warranty liability is primarily based on historical claim rates, nature of claims and the associated cost.

The Company accrues reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company. 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. Total accrued loss reserves were $8,625,000 at June 30, 2011 compared to $8,044,000 at December 31, 2010, of which $4,462,000 and $4,248,000 were included in other long-term liabilities at June 30, 2011 and December 31, 2010, respectively.

The Company’s combined effective income tax rate was 33.8% and 34.8% for the three-month periods ended June 30, 2011 and 2010, respectively. The Company’s combined effective income tax rate was 34.3% and 35.3% for the six-month periods ended June 30, 2011 and 2010, respectively. The Company’s effective tax rate for the six months ended June 30, 2011 includes the effect of state income taxes and other discrete benefits consisting primarily of tax credits for research and development activities and the domestic production activities deduction. The Company’s effective tax rate for the six months ended June 30, 2010 did not contain a benefit for research and development tax credits as the legislation providing the credits was not enacted by Congress until later in 2010.

Asphalt Group - This segment consists of three business units that design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants and related components as well as a variety of heaters, heat transfer processing equipment, thermal fluid storage tanks and concrete plants. The principal purchasers of these products are asphalt producers, highway and heavy equipment contractors and foreign and domestic governmental agencies.

All Others - This category consists of the Company’s other business units, including Peterson Pacific Corp. (“Peterson”), Astec Australia Pty Ltd (“Astec Australia”), Astec Insurance Company and the parent company, Astec Industries, Inc., that do not meet the requirements for separate disclosure as an operating segment. Peterson designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia markets equipment and installs, services and provides parts support for many of the products produced by the Company’s manufacturing companies.

	(in thousands)
	Three Months Ended
	June 30, 2011
	Asphalt Group			Aggregate and Mining Group			Mobile Asphalt Paving Group			Underground Group			All Others			Total
Net sales to external customers	$	68,183		$	86,562		$	53,466		$	23,088		$	16,457		$	247,756
Intersegment sales		5,897			4,980			2,788			261			-			13,926
Gross profit		16,750			22,406			15,627			3,934			3,254			61,971
Gross profit percent		24.6	%		25.9	%		29.2	%		17.0	%		19.8	%		25.0	%
Segment profit (loss)	$	9,102		$	9,727		$	8,532		$	172		$	(13,565	)	$	13,968

	(in thousands)
	Six Months Ended
	June 30, 2011
	Asphalt Group			Aggregate and Mining Group			Mobile Asphalt Paving Group			Underground Group			All Others			Total
Net sales to external customers	$	141,937		$	165,415		$	103,421		$	34,755		$	32,417		$	477,945
Intersegment sales		10,355			12,144			6,565			1,680			-			30,744
Gross profit		35,978			41,155			29,067			4,057			6,417			116,674
Gross profit percent		25.3	%		24.9	%		28.1	%		11.7	%		19.8	%		24.4	%
Segment profit (loss)	$	19,921		$	15,349		$	15,843		$	(3,677	)	$	(22,063	)	$	25,373

	(in thousands)
	Three Months Ended
	June 30, 2010
	Asphalt Group			Aggregate and Mining Group			Mobile Asphalt Paving Group			Underground Group			All Others			Total
Net sales to external customers	$	65,362		$	67,000		$	47,231		$	13,636		$	16,020		$	209,249
Intersegment sales		3,558			4,555			3,057			951			-			12,121
Gross profit		14,961			15,199			12,233			868			3,417			46,678
Gross profit percent		22.9	%		22.7	%		25.9	%		6.4	%		21.3	%		22.3	%
Segment profit (loss)	$	7,574		$	4,973		$	6,264		$	(1,901	)	$	(6,069	)	$	10,841

	(in thousands)
	Six Months Ended
	June 30, 2010
	Asphalt Group			Aggregate and Mining Group			Mobile Asphalt Paving Group			Underground Group			All Others			Total
Net sales to external customers	$	135,423		$	125,919		$	89,314		$	22,563		$	29,485		$	402,704
Intersegment sales		10,111			12,149			7,198			1,883			-			31,341
Gross profit		35,168			28,386			22,743			511			6,012			92,820
Gross profit percent		26.0	%		22.5	%		25.5	%		2.3	%		20.4	%		23.0	%
Segment profit (loss)	$	20,369		$	7,795		$	11,475		$	(5,443	)	$	(13,579	)	$	20,617

Certain customers have financed purchases of Company products through arrangements in which the Company is contingently liable for customer debt of $3,196,000 and $3,037,000 at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011, the maximum potential amount of future payments for which the Company would be liable is equal to $3,196,000. These arrangements also provide that the Company will receive the lender’s full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements. The Company has recorded a liability of $324,000 related to these guarantees at June 30, 2011.

In addition, the Company is contingently liable under letters of credit issued by Wells Fargo totaling $10,041,000 as of June 30, 2011, including a $1,000,000 and a $2,000,000 letter of credit issued on behalf of Astec Australia and Osborn, respectively, two of the Company’s foreign subsidiaries. The outstanding letters of credit expire at various dates through October 2013. As of June 30, 2011, Osborn is contingently liable for a total of $4,564,000 in performance letters of credit, advance payments and retention guarantees. As of June 30, 2011, the maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $14,605,000.

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 fees), 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.

During 2009, the Company received notice that Johnson Crushers International, Inc. is subject to an enforcement action brought by the U.S. Environmental Protection Agency (“EPA”) and the Oregon Department of Environmental Quality (“Oregon DOEQ”) related to an alleged failure to comply with federal and state air permitting regulations. Based on correspondence received from the EPA, the total expense related to the EPA enforcement action is expected to be less than $225,000 and an appropriate accrual has been made on the Company’s books as of June 30, 2011. No penalty has yet been proposed by the Oregon DOEQ. 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 of the Oregon DOEQ enforcement action or the amount of any such sanction. The Company has not recorded a liability with respect to the Oregon DOEQ action because no estimate of the amount of any such liability can be made at this time.

During 2004, the Company received notice from the EPA 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 notices. 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. The Company has not recorded a liability with respect to this matter because no estimate of the amount of any such liability can be made at this time.

Under terms of the Company’s stock option plans, officers and certain other employees were granted options to purchase the Company’s common stock at no less than 100% of the market price on the date the option was granted. No additional options can be granted under these plans; however the Company has reserved unissued shares of common stock for the exercise of the 64,971 unexercised and outstanding options as of June 30, 2011 under these employee plans. All options granted under these plans vested prior to 2007.

In addition, a Non-employee Directors Stock Incentive Plan has been established to allow non-employee directors to have a personal financial stake in the Company through an ownership interest. Directors may elect to receive their compensation in cash, common stock, deferred stock or stock options. Options granted under the Non-employee Directors Stock Incentive Plan vest and become fully exercisable immediately. All stock options have a 10-year term. The shares reserved under the 1998 Non-Employee Directors Stock Incentive Plan total 138,544 as of June 30, 2011, of which 115,318 shares are available for future grants of stock or deferred stock to directors. No additional options can be granted under this plan. The fair value of stock awards granted to non-employee directors totaled $66,000 and $49,000 during the three-month periods ended June 30, 2011 and 2010, respectively. The fair value of stock awards granted to non-employee directors totaled $123,000 and $91,000 during the six-month periods ended June 30, 2011 and 2010, respectively.

In 2006, the Company adopted a five-year plan to award key members of management restricted stock units (“RSU’s”) each year under the Company’s 2006 Incentive Plan. The plan allowed the Company to grant up to 700,000 RSU’s to employees based upon the annual performance of individual subsidiaries and the Company as a whole during each of the five years ended December 31, 2010. Additional RSU’s were granted in 2011 based upon cumulative five-year performance. Generally, each award will vest at the end of five years from its date of grant, or at the time a recipient retires after reaching age 65, if earlier. In early 2011, a subsequent plan was formulated under the Company’s 2011 Incentive Plan which was approved by the Company’s shareholders in their annual meeting held in April 2011. This plan also allows the Company to grant up to 700,000 RSU’s to employees and will operate in a similar fashion to the 2006 Incentive Plan for each of the five years ending December 31, 2015. Compensation expense of $634,000 and $133,000 has been recorded in the three-month periods ended June 30, 2011 and 2010, respectively, to reflect the fair value of the total shares granted or expected to be granted under both plans, amortized over the portion of the vesting period occurring during the periods. Compensation expense of $1,500,000 and $724,000 has been recorded in the six-month periods ended June 30, 2011 and 2010, respectively, to reflect the fair value of the total shares granted or expected to be granted under both plans, amortized over the portion of the vesting period occurring during the periods. The fair value of the RSU’s that vested in the three and six-month periods ending June 30, 2011 was $113,000 and $228,000, respectively.

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income	$	14,105		$	10,330		$	24,263		$	19,162
Change in unrecognized pension and post retirement benefit costs, net of tax		(2	)		3			(48	)		(58	)
Foreign currency translation adjustments, net of tax		1,092			(1,808	)		(697	)		(1,036	)
Comprehensive income		15,195			8,525			23,518			18,068
Comprehensive income attributable to non- controlling interest		(17	)		(5	)		(12	)		(49	)
Comprehensive income attributable to controlling interest	$	15,178		$	8,520		$	23,506		$	18,019

The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency risk. From time to time the Company’s foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates. The fair value of the derivative financial instrument is recorded on the Company’s balance sheet and is adjusted to fair value at each measurement date. The changes in fair value are recognized in the consolidated statements of income in the current period. The Company does not engage in speculative transactions nor does it hold or issue financial instruments for trading purposes. The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $13,850,000 during the six months ended June 30, 2011 and $8,686,000 for the year ended December 31, 2010. The Company reported $1,050,000 of derivative liabilities in other accrued liabilities at June 30, 2011. At December 31, 2010, the Company reported $1,221,000 of derivative liabilities in other accrued liabilities and $30,000 in other long-term liabilities. The Company recognized, as a component of cost of sales, a net loss of $361,000 and a net gain of $210,000 on derivative financial instruments in the three-month periods ended June 30, 2011 and 2010, respectively. For the six-month periods ended June 30, 2011 and 2010, the Company recognized, as a component of cost of sales, a net loss of $891,000 and a net gain of $169,000 on derivative financial instruments. There were no derivatives that were designated as hedges at June 30, 2011 or December 31, 2010.

Note 18. Asset Impairment Charge

Assets held for sale as of June 30, 2011 consists of aviation equipment being replaced. As a result of this equipment being classified as held for sale, an impairment charge of $2,170,000 was recorded in the three-month period ending June 30, 2011 in the “Other” segment to reduce the carrying value of the asset to its fair value as determined based upon industry blue book valuations of used aircrafts (level 3 in the fair value hierarchy). The $934,000 carrying value of these assets held for sale is included in other current assets in the Company’s June 30, 2011 balance sheet.

Note 19. Subsequent Event

In August 2011 the Company entered into an asset purchase agreement with Blue Tee Corp. (“Blue Tee”), a Delaware corporation to acquire substantially all the assets and assume certain of the liabilities of Blue Tee’s GEFCO and STECO divisions located in Enid, Oklahoma. The transaction is expected to close in the fourth quarter of 2011. The final purchase price is subject to adjustments due to changes in the book value of the assets being acquired and liabilities being assumed through September 30, 2011 but is expected to be approximately $26,000,000, which the Company anticipates paying from available cash balances. GEFCO, which began operations in 1931, manufactures portable drilling rigs and related equipment for the water well, environmental, groundwater monitoring, construction, mining and shallow oil and gas exploration and production industries. STECO, which began operations in the late 1950’s, is a manufacturer of transfer and dump trailers for the solid waste, scrap processing, construction and demolition industries. STECO was a pioneer in the development and production of hydraulic dump trailers. The revenues and income of GEFCO and STEFCO are not expected to be material to the Company’s 2011 operating results.

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,” “may,” “believes,” “anticipates,” “intends,” “forecasts” and “expects” and similar expressions. Such forward-looking statements include, without limitation, statements regarding the Company's expected sales and results of operations during 2011, the Company's expected capital expenditures in 2011, the expected benefit and impact of financing arrangements, the ability of the Company to meet its working capital and capital expenditure requirements through June 30, 2012, the impact of the enactment of the Hiring Incentives to Restore Employment (HIRE) Act of 2010 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, 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 being called upon to fulfill certain contingencies, 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 strength of the dollar and the level of the Company's presence and sales in international markets, the impact that further development of domestic oil and natural gas production capabilities would have on the domestic economy and the Company’s business, the seasonality of the Company’s business, the percentage of the Company’s equipment sold directly to end users, 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.

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 including energy production and 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, geothermal 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 (“Astec Insurance” or “the captive”) and Astec Industries, Inc., the parent company. Peterson designs, manufactures and markets whole-tree pulpwood chippers, horizontal grinders and blower trucks. Astec Australia markets and installs equipment and services and provides parts for many of the products produced by the Company’s manufacturing companies. Astec Insurance is a captive insurance 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, 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 authorized 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 federal highway funding such as SAFETEA-LU influences the purchasing decisions of the Company’s customers who are more comfortable making purchasing decisions with such legislation in place. Federal funding provides for approximately 25% of all highway, street, roadway and parking construction in the United States.

SAFETEA-LU funding expired on September 30, 2009, and federal transportation funding operated on short-term appropriations through March 17, 2010. On March 18, 2010, President Obama signed into law the Hiring Incentives to Restore Employment (HIRE) Act. This law extended authorization of the surface transportation programs previously funded under SAFETEA-LU through December 31, 2010 at 2009 levels. In addition, the HIRE Act authorized a one-time transfer of $19.5 billion from the general fund to the highway trust fund related to previously foregone interest payments. It also shifted the cost of fuel tax exemptions for state and local governments from the highway trust fund to the general fund, which is estimated to generate an anticipated $1.5 billion annually, and allows the highway trust fund to retain interest earned on future unexpended balances. Although the HIRE Act helped stabilize the federal highway program, the Company believes a new multi-year highway program at increased funding levels would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer-term projects. The current resolution funding federal transportation expenditures expires on September 30, 2011 and funds federal highway spending for fiscal year 2011 at the 2010 level of $41.1 billion. The level of future federal highway construction is uncertain, and any future funding may be at lower levels than in the past.

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 nearly 20 years, would likely 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’ purchasing decisions and the price of steel may each affect the Company’s financial performance. Economic downturns 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 also typically negatively impact customers’ attitudes toward purchasing equipment. The Federal Reserve has maintained historically low interest rates in response to the recent economic downturn; however, the Company believes upward pressure on interest rates is building and interest rates may increase during the second half of 2011.

Significant portions of the Company’s revenues relate to the sale of equipment involved in the production, handling and installation of asphalt mix. Liquid asphalt is a by-product of oil production. An increase in the price of oil increases the cost of asphalt, which is likely to decrease demand for asphalt and therefore decrease demand for certain Company products. While increasing oil prices may have a negative financial impact on many of the Company’s customers, the Company’s equipment can use a significant amount of recycled asphalt pavement, thereby mitigating the final 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 2010 or the first half of 2011. The Company expects oil prices to continue to fluctuate during the remainder of 2011. Minor fluctuations in oil prices should not have a significant impact on customers’ buying decisions. However, political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other economic factors could significantly impact oil prices, which in turn could negatively impact demand for the Company’s products.

Contrary to the negative impact of higher oil prices on many of the Company’s products as discussed above, sales of several of the Company’s products, including products manufactured by the Underground Group, which are used to drill for oil and natural gas and install oil and natural gas pipelines, would benefit from higher oil and natural gas prices, to the extent that such higher prices lead to further development of oil and natural gas production. The Company believes further development of domestic oil and natural gas production capabilities is needed and would positively impact the domestic economy and the Company’s business.

Steel is a major component in the Company’s equipment. Steel pricing increased steadily during the first half of 2011 due to increased worldwide demand and inflationary pressure on raw materials such as scrap metal iron ore and coke. Steel pricing stabilized at the end of the second quarter as supply outpaced service center inventories, which began to reduce stocking levels during the summer, which is typically a weaker season for steel requirements. The Company anticipates steel pricing to remain stable during the third quarter and plans to take advantage of any price weaknesses that may materialize. Seasonal strengthening may occur later in the fourth quarter and the Company will plan its contractual buying arrangements and advanced purchases accordingly. Steel is a worldwide commodity and its price can be affected by unanticipated events that impact the balance of supply and demand. Although the Company normally institutes price increases in response to any increase in steel and component prices, the Company may not be able to raise the prices of its products enough to cover increased costs, which may have a negative effect on the Company’s financial results. The Company will continue to closely monitor steel pricing and 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 dealers that produce and sell similar products. During 2010 and through the first half of 2011, a weakening dollar, combined with improving economic conditions in certain foreign economies, had a positive impact on the Company’s international sales. The Company expects the dollar to remain weak in the near-term relative to most foreign currencies; however, increasing domestic interest rates or weakening economic conditions abroad could cause the dollar to strengthen, which may negatively impact the Company’s international sales.

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.

Net sales increased $38,507,000 or 18.4%, from $209,249,000 for the second quarter of 2010 to $247,756,000 in the second quarter of 2011. Sales are generated primarily from new equipment and related parts purchases made by customers for use in construction of infrastructure funded by both the private and public sectors. The overall increase in sales for the second quarter of 2011 compared to the second quarter of 2010 reflects strengthening economic conditions in both international and domestic markets and the Company’s increased efforts to grow its international business.

Domestic sales for the second quarter of 2011 were $139,430,000 or 56.3% of consolidated net sales compared to $129,289,000 or 61.8% of consolidated net sales for the second quarter of 2010, an increase of $10,141,000, or 7.8% due primarily to increases in sales in the Asphalt and Aggregate and Mining groups. International sales for the second quarter of 2011 were $108,326,000 or 43.7% of consolidated net sales compared to $79,960,000 or 38.2% of consolidated net sales for the second quarter of 2010, an increase of $28,366,000 or 35.5%. The overall increase in international sales for the second quarter of 2011 compared to the second quarter of 2010 reflects the increased efforts by the Company to grow its international business, improved economic conditions in international markets and significant weakness in the U.S. dollar compared to currencies in many of the markets the Company serves. The increases in international sales occurred primarily in South America, Canada, Australia and Africa, offset by a decline in international sales in the West Indies.

Domestic sales for the first six months of 2011 were $286,953,000 or 60.0% of consolidated net sales compared to $258,740,000 or 64.3% of consolidated net sales for the first six months of 2010, an increase of $28,213,000, or 10.9% due primarily to increases in sales in the Aggregate and Mining and Mobile Asphalt Paving groups. International sales for the first six months of 2011 were $190,992,000 or 40.0% of consolidated net sales compared to $143,964,000 or 35.7% of consolidated net sales for the first six months of 2010, an increase of $47,028,000 or 32.7%. The overall increase in international sales for the first six months of 2011 compared to the first six months of 2010 reflects the increased efforts by the Company to grow its international business, improved economic conditions in international markets and significant weakness in the dollar compared to currencies in many of the markets the Company serves. The increases in international sales occurred primarily in South America, Canada, Australia, Russia and Europe, offset by a decline in international sales in Mexico.

Selling, general, administrative and engineering expenses for the second quarter of 2011 were $38,789,000, or 15.7% of net sales, compared to $30,824,000, or 14.7% of net sales, for the second quarter of 2010, an increase of $7,965,000, or 25.8%. The overall increase was composed of increases in a number of areas, including: payroll and related expenses of $1,848,000, research and development costs of $1,038,000, legal and professional expenses of $873,000, general insurance costs of $838,000, commission expenses of $593,000, bad debt expenses of $692,000, profit sharing and employee bonus expenses of $541,000, employee stock incentive expenses of $502,000, travel expenses of $434,000 and outside services including acquisition work of $347,000. These increases in expenses were offset by a decrease in health insurance expense of $850,000.

Selling, general, administrative and engineering expenses for the first six months of 2011 were $78,278,000, or 16.4% of net sales, compared to $63,542,000, or 15.8% of net sales, for the first six months of 2010, an increase of $14,736,000, or 23.2%. The overall increase was composed of increases in a number of areas, including: payroll and related expenses of $5,320,000, commissions of $1,759,000, research and development expenses of $1,515,000, legal and professional expenses of $1,342,000, bad debt expenses of $976,000, general insurance costs of $747,000, employee stock incentive expenses of $775,000, travel expenses of $724,000 and expenses of $3,410,000 related to ConExpo, the triennial equipment show held in March of 2011. These increases in expenses were offset by a decrease in health insurance expense of $2,437,000.

During the second quarter of 2011, the Company designated an airplane that it intends to replace as an “asset held for sale” and performed a market analysis to determine its fair value. Due to the recent deterioration of aircraft values in the used aviation equipment market, the fair value of the airplane was determined to be significantly below its carrying value, and as a result the Company recorded an impairment charge of $2,170,000. The $934,000 fair value of the airplane is included in other current assets in the Company’s June 30, 2011 balance sheet.

Income tax expense for the second quarter of 2011 was $7,215,000, compared to income tax expense of $5,511,000 for the second quarter of 2010. The effective tax rates for the second quarters of 2011 and 2010 were 33.8% and 34.8%, respectively. The difference in effective tax rates between the second quarter of 2011 and 2010 is related to research and development tax credits which were recognized in the second quarter of 2011 but not in the second quarter of 2010 due to the timing of Congressional approval of the credits.

Income tax expense for the first six months of 2011 was $12,642,000, compared to income tax expense of $10,467,000 for the first six months of 2010. The effective tax rates for the first six months of 2011 and 2010 were 34.3% and 35.3%, respectively. The difference in effective tax rates between the first six months of 2011 and 2010 is related to research and development tax credits which were recognized in the first six months of 2011 but not in the first six months of 2010 due to the timing of Congressional approval of the credits.

The Company had net income attributable to controlling interest of $14,086,000 for the second quarter of 2011 compared to $10,308,000 in the second quarter of 2010, an increase of $3,778,000, or 36.7%. Earnings per diluted share were $0.61 in the second quarter of 2011 compared to $0.45 in the second quarter of 2010, an increase of $0.16 or 35.6%. Diluted shares outstanding for the quarters ended June 30, 2011 and 2010 were 22,991,917 and 22,832,785, respectively. The increase in shares outstanding is primarily due to the exercise of stock options by employees of the Company.

The Company had net income attributable to controlling interest of $24,230,000 for the first six months of 2011 compared to $19,102,000 in the first six months of 2010, an increase of $5,128,000, or 26.7%. Earnings per diluted share were $1.06 in the first six months of 2011 compared to $0.84 in the first six months of 2010, an increase of $0.22 or 26.2%. Diluted shares outstanding for the quarters ended June 30, 2011 and 2010 were 22,955,707 and 22,800,223, 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 June 30, 2011 was $217,088,000 compared to $139,692,000 at June 30, 2010, an increase of $77,396,000, or 55.4%. The increase in backlog is due to an increase in domestic backlogs of $37,224,000 or 64.2% and an increase in international backlogs of $40,172,000 or 49.2%. The increase in total backlog was primarily due to increases in the Aggregate and Mining Group of $46,986,000 or 96.7% and the Asphalt Group of $18,593,000 or 28.1%. The June 30, 2011 backlog was comprised of 43.9% domestic orders and 56.1% international orders as compared to 41.5% domestic orders and 58.5% international orders at June 30, 2010. The Company is unable to determine whether the changes in backlogs were experienced by the industry as a whole; however, the Company believes the changes in backlogs reflect the current economic conditions the industry is experiencing.

Asphalt Group: Sales in this group were $68,183,000 for the second quarter of 2011 compared to $65,362,000 for the same period in 2010, an increase of $2,821,000 or 4.3%. Domestic sales for the Asphalt Group increased $6,044,000 or 13.5% in the second quarter of 2011 compared to the same period in 2010. International sales for the Asphalt Group decreased $3,223,000 or 15.6% in the second quarter of 2011 compared to the same period in 2010. In the second quarter international sales decreased primarily in the West Indies, Africa and South America while increasing in Canada and Mexico. Parts sales for the Asphalt Group increased 3.7% in the second quarter of 2011 compared to the same period in 2010.

Aggregate and Mining Group: Sales in this group were $86,562,000 for the second quarter of 2011 compared to $67,000,000 for the same period in 2010, an increase of $19,562,000 or 29.2%. Domestic sales for the Aggregate and Mining Group increased $1,010,000 or 3.0% in the second quarter of 2011 compared to the same period in 2010. International sales for the Aggregate and Mining Group increased $18,552,000 or 56.0% in the second quarter of 2011 compared to the same period in 2010. The improvement in international sales reflects the increased efforts by the Company to grow its international business, improved economic conditions and significant weakness in the dollar compared to currencies in many of the markets the Company serves. The increase in international sales occurred primarily in South America, Africa and Canada. Parts sales for this group increased 24.5% in the second quarter of 2011 compared to the same period in 2010.

Mobile Asphalt Paving Group: Sales in this group were $53,466,000 for the second quarter of 2011 compared to $47,231,000 for the same period in 2010, an increase of $6,235,000 or 13.2%. Domestic sales for the Mobile Asphalt Paving Group increased $6,079,000 or 17.7% in the second quarter of 2011 compared to the same period in 2010. The lack of a long-term highway bill has caused many customers to focus on short-term contracts for road overlay, which positively impacted domestic sales for this group. International sales for the Mobile Asphalt Paving Group increased $156,000 or 1.2% in the second quarter of 2011 compared to the same period in 2010. The increase internationally occurred primarily in the Middle East and was offset by decreased sales in Canada. Parts sales for this group increased 41.7% in the second quarter of 2011 compared to the same period in 2010.

Underground Group: Sales in this group were $23,088,000 for the second quarter of 2011 compared to $13,636,000 for the same period in 2010, an increase of $9,452,000 or 69.3%. Domestic sales for the Underground Group decreased $1,744,000 or 20.3% in the second quarter of 2011 compared to the same period in 2010 due primarily to continuing weak domestic demand. International sales for the Underground Group increased $11,196,000 or 222.8% in the second quarter of 2011 compared to the same period in 2010, which reflects the increased efforts by the Company to grow its international business, increased oil and gas drilling activities in certain foreign markets, positive market acceptance of new oil and gas drilling equipment offerings and significant weakness in the dollar compared to currencies in many of the markets the Company serves. The increase in international sales occurred in South America, Australia and Canada. Parts sales for the Underground Group decreased 14.1% in the second quarter of 2011 compared to the same period in 2010.

Other Group: Sales for the Other Group were $16,457,000 for the second quarter of 2011 compared to $16,020,000 for the same period in 2010, an increase of $437,000 or 2.7%. Domestic sales for the Other Group, which are primarily generated by Peterson Pacific Corp., decreased $1,248,000 or 16.3% in the second quarter of 2011 compared to the same period in 2010, due primarily to continuing weak domestic economic conditions. International sales for the Other Group increased $1,685,000 or 20.2% in the second quarter of 2011 compared to the same period in 2010. The increase occurred primarily in Australia. Parts sales for the Other Group increased 16.7% in the second quarter of 2011 compared to the same period in 2010.

Asphalt Group: Sales in this group were $141,937,000 for the first six months of 2011 compared to $135,423,000 for the same period in 2010, an increase of $6,514,000 or 4.8%. Domestic sales for the Asphalt Group increased $821,000 or 0.8% in the first six months of 2011 compared to the same period in 2010. Domestic sales continued to be impacted by Congress’s failure to renew the long-term federal highway funding legislation that expired in September 2009. International sales for the Asphalt Group increased $5,693,000 or 18.1% in the first six months of 2011 compared to the same period in 2010. The improvement in international sales is due to improved economic conditions in certain foreign economies and significant weakness in the dollar compared to currencies in many of the markets the Company serves. In the first six months, international sales increased primarily in Canada and Europe while decreasing in the West Indies, South America, Africa and Mexico. Parts sales for the Asphalt Group increased 9.5% in the first six months of 2011 compared to the same period in 2010.

Aggregate and Mining Group: Sales in this group were $165,415,000 for the first six months of 2011 compared to $125,919,000 for the same period in 2010, an increase of $39,496,000 or 31.4%. Domestic sales for the Aggregate and Mining Group increased $14,494,000 or 25.7% in the first six months of 2011 compared to the same period in 2010. Domestic sales were positively impacted by improving economic conditions and increasing activity in the mining industries. International sales for the Aggregate and Mining Group increased $25,002,000 or 35.9% in the first six months of 2011 compared to the same period in 2010. The improvement in international sales reflects the increased efforts by the Company to grow its international business, improved economic conditions in certain foreign economies and significant weakness in the dollar compared to currencies in many of the markets the Company serves. The increase in international sales occurred primarily in South America and Africa. These increases were offset by decreases in the Mexico and the Middle East. Parts sales for this group increased 20.7% in the first six months of 2011 compared to the same period in 2010.

Mobile Asphalt Paving Group: Sales in this group were $103,421,000 for the first six months of 2011 compared to $89,314,000 for the same period in 2010, an increase of $14,107,000 or 15.8%. Domestic sales for the Mobile Asphalt Paving Group increased $11,456,000 or 16.3% in the first six months of 2011 compared to the same period in 2010. The lack of a long-term highway bill has caused many customers to focus on short-term contracts for road overlay, which positively impacted domestic sales for this group. International sales for the Mobile Asphalt Paving Group increased $2,651,000 or 13.8% in the first six months of 2011 compared to the same period in 2010, due primarily to weakness in the dollar relative to currencies in many foreign countries, as well as stimulus plans in certain foreign countries that focused on road building. The increase internationally occurred primarily in Russia and the Middle East and was offset by decreased sales in Canada. Parts sales for this group increased 28.4% in the first six months of 2011 compared to the same period in 2010.

Underground Group: Sales in this group were $34,755,000 for the first six months of 2011 compared to $22,563,000 for the same period in 2010, an increase of $12,192,000 or 54.0%. Domestic sales for the Underground Group increased $884,000 or 6.7% in the first six months of 2011. International sales for the Underground Group increased $11,308,000 or 119.5% in the first six months of 2011 compared to the same period in 2010, which reflects the increased efforts by the Company to grow its international business, increased oil and gas drilling activities in certain foreign markets, positive market acceptance of new oil and gas drilling equipment offerings and significant weakness in the dollar compared to currencies in many of the markets the Company serves. The increase in international sales occurred in South America, Canada, Australia and Russia. Parts sales for the Underground Group decreased 12.6% in the first six months of 2011 compared to the same period in 2010.

Other Group: Sales for the Other Group were $32,417,000 for the first six months of 2011 compared to $29,485,000 for the same period in 2010, an increase of $2,932,000 or 9.9%. Domestic sales for the Other Group, which are primarily generated by Peterson Pacific Corp., increased $557,000 or 3.7% in the first six months of 2011 compared to the same period in 2010. International sales for the Other Group increased $2,375,000 or 16.6% in the first six months of 2011 compared to the same period in 2010. The increase occurred in Australia and was offset by declines in South America and Canada. Parts sales for the Other Group increased 20.9% in the first six months of 2011 compared to the same period in 2010.

Asphalt Group: Segment profit for this group was $9,102,000 for the second quarter of 2011 compared to $7,574,000 for the same period in 2010, an increase of $1,528,000 or 20.2%. This increase is due primarily to $2,821,000 of increased sales for the Asphalt Group as well as an increase in gross profit percentage from 22.9% in the second quarter of 2010 to 24.6% in the second quarter of 2011 due to improved plant utilization during 2011 and sales price discounting during in the second quarter of 2010.

Aggregate and Mining Group: Segment profit for this group was $9,727,000 for the second quarter of 2011 compared to $4,973,000 for the same period in 2010, an increase of $4,754,000 or 95.6%. This group’s profits were positively impacted by a $19,562,000 increase in sales and a 320 basis point increase in gross margin. Gross margin was impacted by a 24.5% increase in parts sales for the quarter and improved plant utilization due to increased production volumes. These increases in profit were offset by increased selling, general and administrative costs of $1,832,000.

Other Group: The Other Group had a segment loss of $13,565,000 in the second quarter of 2011 compared to a loss of $6,069,000 in the second quarter of 2010 for an increase of $7,496,000 or 123.5%. This group includes the parent company, Astec Industries, Inc., which records all of the domestic federal tax expense for the Company as well as other non-allocable administrative costs. Included in the Other Group is an asset impairment charge of $2,170,000. Other factors contributing to the increased loss include additional selling, general and administrative costs of $3,320,000 and an increase in income taxes of $1,995,000.

Asphalt Group: Segment profit for this group was $19,921,000 for the first six months of 2011 compared to $20,369,000 for the same period in 2010, a decrease of $448,000 or 2.2%. This decrease is due primarily to a decrease in gross profit percentage from 26.0% in the first six months of 2010 to 25.3% in the first six months of 2011. The gross profit percentage returned to a normal level in the first six months of 2011 compared to the higher percentage for the first six months of 2010, which was the result of a few very high margin sales transactions that were recognized in the first six months of 2010. Additional factors contributing to the change was an increase in sales of $6,514,000 offset by increased selling, general and administrative costs of $1,200,000.

Aggregate and Mining Group: Segment profit for this group was $15,349,000 for the first six months of 2011 compared to $7,795,000 for the same period in 2010, an increase of $7,554,000 or 96.9%. This group’s profits were positively impacted by a $39,496,000 increase in sales and a 240 basis point increase in gross margin aided by a 20.7% increase in parts sales and improved plant utilization which benefited from increased production volumes offset by increased selling, general and administrative expenses of $4,956,000.

Mobile Asphalt Paving Group: Segment profit for this group was $15,843,000 for the first six months of 2011 compared to $11,475,000 in the first six months of 2010, an increase of $4,368,000 or 38.1%. The primary reasons for the increase in profit were increased sales of $14,107,000 and an increase in gross margin of 260 basis points during the first six months of 2011 compared to the first six months of 2010 due to increased demand and production volumes offset by increased selling, general and administrative costs of $1,736,000.

Other Group: The Other Group had a segment loss of $22,063,000 in the first six months of 2011 compared to a loss of $13,579,000 in the first six months of 2010 for a decrease of $8,484,000 or 62.5%. This group includes the parent company, Astec Industries, Inc., which records all of the domestic federal tax expense for the Company as well as other non-allocable administrative costs. Included in the Other Group is the asset impairment charge of $2,170,000. Other factors contributing to the increased loss were increases in selling, general and administrative costs of $3,937,000 and income taxes of $2,811,000.

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 $73,490,000 of cash available for operating purposes at June 30, 2011. In addition, the Company had no borrowings outstanding under its credit facility with Wells Fargo Bank, N.A. (“Wells Fargo”) at any time during the six months ended June 30, 2011. Net of letters of credit of $10,041,000, the Company had borrowing availability of $89,959,000 under the credit facility as of June 30, 2011.

Our credit facility with Wells Fargo consists of an unsecured line of credit of up to $100 million, including a sub-limit for letters of credit up to $15 million. The credit facility had an original term of three years with two one-year extensions available. Early in 2010, the Company exercised the final extension bringing the new loan maturity date to May 2012. 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 June 30, 2011, the applicable margin based upon the leverage ratio pricing grid was equal to 0.5%. The unused facility fee is 0.125%. The Wells Fargo 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 Wells Fargo credit agreement contains certain financial covenants, including a minimum fixed charge coverage ratio, minimum tangible net worth and maximum allowed capital expenditures. The Company was in compliance with the covenants under its credit facility as of June 30, 2011.

	Six Months Ended June 30,						Increase
	2011			2010			(Decrease)
Net income	$	24,263		$	19,162		$	5,101
Non-cash items in net income, net		21,868			19,069			2,799
Changes in working capital:
(Increase) decrease in receivables		(24,301	)		(16,517	)		(7,784	)
(Increase) decrease in prepaid expenses		1,021			8,335			(7,314	)
(Increase) decrease in inventories		(30,249	)		20,115			(50,364	)
Increase (decrease) in accounts payable		5,006			1,081			3,925
Increase (decrease) in customer deposits		4,009			1,516			2,493
Increase (decrease) in other accrued liabilities		2,178			(1,875	)		4,053
Other, net		(6,910	)		(5,797	)		(1,113	)
Net cash provided (used) by operating activities	$	(3,115	)	$	45,089		$	(48,204	)

For the six months ended June 30, 2011, net cash from operating activities decreased $48,204,000 compared to the same period in 2010. The primary reasons for the decrease in operating cash flows are an increase in cash used by inventory of $50,364,000, receivables of $7,784,000 and prepaid expenses of $7,314,000. These negative cash changes were offset by an increase in cash from net income of $5,101,000 and other accrued liabilities of $4,053,000. These changes in operating cash flows reflect increased sales and production activity during the first six months of 2011 compared to the first six months of 2010.

The Company’s current assets increased to $482,745,000 at June 30, 2011 from $447,821,000 at December 31, 2010, an increase of $34,924,000, or 7.8%. The increase is primarily attributable to an increase in inventories of $28,171,000 combined with an increase in trade receivables of $23,614,000. The increase in inventories is due to increased manufacturing activity in response to increased sales volumes. The increase in trade receivables is due primarily to an increase in sales volume in the second quarter of 2011 as compared to the fourth quarter of 2010. These increases were offset by decreases in cash and cash equivalents of $21,107,000.

The Company’s current liabilities increased to $141,752,000 at June 30, 2011 from $130,426,000 at December 31, 2010, an increase of $11,326,000, or 8.7%. The increase is primarily attributable to increases in accounts payable of $5,006,000 and customer deposits of $4,009,000. Accounts payable increased in the second quarter of 2011 due primarily to increased purchases of inventory related to additional sales volumes. Customer deposits increased during the second quarter of 2011 primarily due to increased orders compared to the fourth quarter of 2010.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s principal executive officer and principal financial officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

The Company is involved from time to time in legal actions arising in the ordinary course of our business. Other than as set forth in Part I, “Item 3. Legal Proceedings” in our Annual Report on Form 10-K for the year ended December 31, 2010, we currently have no pending or threatened litigation that we believe will result in an outcome that would materially affect our business, financial position, cash flows or results of operations. Nevertheless, there can be no assurance that future litigation to which we become a party will not have a material adverse effect on our business, financial position, cash flows or results of operations.

As discussed in Note 12, “Contingent Matters“ to our financial statements, the Company received correspondence from the EPA during the second quarter of 2011 related to an enforcement action brought by the EPA against one of the Company’s subsidiaries, Johnson Crushers International, Inc. alleging failure to comply with federal air permitting regulations. Based upon this correspondence, the total expense related to the EPA enforcement action is expected to be less than $225,000 and an appropriate accrual has been made on the Company’s books as of June 30, 2011.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2010. The risks described in our Annual Report on Form 10-K for the year ended December 31, 2010 and in this Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Exhibit No.		Description
	31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase
101.DEF**		XBRL Taxonomy Extension Definition Linkbase
101.LAB**		XBRL Taxonomy Extension Label Linkbase
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

		EXHIBIT INDEX
	31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase


ASTEC INDUSTRIES, INC.
INDEX

PART I - Financial Information

	Item 1. Financial Statements

		Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010

		Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2011 and 2010

		Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010

		Condensed Consolidated Statement of Equity for the Six Months Ended June 30, 2011

		Notes to Unaudited Condensed Consolidated Financial Statements

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

	Item 3. Quantitative and Qualitative Disclosures about Market Risk

	Item 4. Controls and Procedures

PART II - Other Information

	Item 1. Legal Proceedings

	Item 1A. Risk Factors

	Item 6. Exhibits

	June 30, 2011		December 31, 2010
Raw materials and parts	$	117,114	$	96,731
Work-in-process		72,066		60,463
Finished goods		76,960		77,583
Used equipment		15,012		18,204
Total	$	281,152	$	252,981

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value (Net Carrying Amount)
June 30, 2011:
Trading equity securities	$	3,131	$	204	$	2	$	3,333
Trading debt securities		8,404		324		43		8,685
	$	11,535	$	528	$	45	$	12,018

December 31, 2010:
Trading equity securities	$	3,089	$	154	$	7	$	3,236
Trading debt securities		9,393		266		67		9,592
	$	12,482	$	420	$	74	$	12,828

	ASTEC INDUSTRIES, INC. (Registrant)


Date: August 9, 2011	/s/ J. Don Brock
	J. Don Brock Chairman of the Board and President (Principal Executive Officer)


Date: August 9, 2011	/s/ David C. Silvious
	David C. Silvious Chief Financial Officer, Vice President, and Treasurer (Principal Financial and Accounting Officer)