FORM 10-K
                         SECURITIES AND EXCHANGE COMMISSION
                                  Washington, D.C.

      (Mark One)

      X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934     For the fiscal year ended December 31, 19951997


                                         OR

         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 0-14714



       ASTEC INDUSTRIES, INC.

      (Exact name of registrant as specified in its charter)

               Tennessee                                   62-0873631

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


      P. O. Box 72787, 4101 Jerome Avenue, Chattanooga, Tennessee    37407

      (Address of principal executive offices)                   (Zip Code)


      Registrant's telephone number, including area code:  (423) 867-4210


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

      Title of each class      NONE

Name of each exchange on which registered

             NONE                            NONE           


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

                    Common Stock, $.20 par value

                           (Title of class)

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

Exhibit Index Appears at Page 49

                         (Form 10-K Cover Page - Continued)

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

      The aggregate market value of the voting stock held by non-affiliates  of
      the registrant  was  $68,094,670$148,371,903 based upon  the  closing  sales  price
      reported by the NASDAQ National Market on March 11, 1996,9, 1998, using beneficial
      ownership of stock rules adopted pursuant to Section 13 of the Securities
      Exchange Act of 1934 to exclude  voting stock owned by all directors  and
      executive officers of the registrant, some of whom may not be held to  be
      affiliates upon judicial determination.


                     (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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


                                 As of March 11, 19969, 1998
                   Common Stock, par value $.20 -- 10,037,199- 9,360,580 shares


                         DOCUMENTS INCORPORATED BY REFERENCE

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

                Document                                Form 10-K


           Proxy Statement relating to                   Part III
           Annual Meeting of Shareholders
           to be held on April 25, 199623, 1998


                               ASTEC INDUSTRIES, INC.

                            19951997 FORM 10-K ANNUAL REPORT

                                  TABLE OF CONTENTS
                                                                       Page

      PART I

      Item  1.  BusinessBusiness............................................    1
      Item  2.  PropertiesProperties..........................................    8
      Item  3.  Legal ProceedingsProceedings...................................    9
      Item  4.  Submission of Matters to a Vote of Security HoldersHolders.    9
      Executive Officers of the RegistrantRegistrant..........................    9

      PART II

      Item  5.  Market for Registrant's Common Equity and Related
                     Shareholder MattersMatters............................   10
      Item  6.  Selected Financial DataData.............................   11
      Item  7.  Management's Discussion and Analysis of Financial
                     Condition and Results of OperationsOperations............   11
      Item  8.  Financial Statements and Supplementary DataData.........   11
      Item  9.  Changes in and Disagreements With Accountants on
                     Accounting and Financial DisclosureDisclosure............   11


      PART III

      Item 10.  Directors and Executive Officers of the RegistrantRegistrant..   11
      Item 11.  Executive CompensationCompensation..............................   11
      Item 12.  Security Ownership of Certain Beneficial Owners
                     and ManagementManagement.................................   12
      Item 13.  Certain Relationships and Related TransactionsTransactions......   12

      PART IV

      Item 14.  Exhibits, Financial Statement Schedules, and
                     Reports on Form 8-K8-K............................   12
      Appendix A		  
  
SIGNATURESA....................................................  A-1

      SIGNATURES....................................................


                                        -iii-


                                       PART I
      Item 1.  BUSINESS
                                       General

           Astec Industries, Inc.  (the "Company") is  a Tennessee  corporation
      which  was  incorporated  in  1972.    The  Company  designs,  engineers,
      manufactures,  markets,  and  marketsfinances  equipment  and  components   used
      primarily in  road building  and related  construction activities.  The
      Company's products  are  used  in  each  phase  of  road  building, from
      quarrying and crushing the aggregate to application of the road  surface.
      The Company also manufactures certain equipment and components  unrelated
      to road  construction,  including  trenching  and  excavating  equipment,
      environmental  remediation  equipment,   log loading and  industrial  heat   transfer
      equipment.  The Company holds over 70101  United States and 57 foreign  patents,
      has 47 patent  applications pending, and  has been  responsible for  many
      technological and engineering innovations in  the industry.  The  Company
      currently manufactures over 135140 different products, which it markets both
      domestically and internationally.   In  addition to  plant and  equipment
      sales, the Company manufactures and sells replacement parts for equipment
      in each of its product lines.   The distribution and sale of  replacement
      parts is an integral part of the Company's business.

           The Company's six operatingeight manufacturing subsidiaries are: (i) Astec, Inc.,
      which manufactures a  line of hot mixhot-mix  asphalt plants, soil  purification
      and environmental  remediation  equipment and  related  components;  (ii) Telsmith, Inc., which   
manufactures aggregate processing equipment for the production and   
classification of sand, gravel and crushed stone   
for road and other construction applications; (iii)
      Heatec, Inc., which manufactures thermal oil heaters, asphalt heaters and
      other heat transfer equipment used in the Company's asphalt mixing plants
      and in other industries; (iii) CEI Enterprises, Inc., which  manufactures
      heat transfer equipment and recycled rubber blending systems for the hot-
      mix asphalt industry; (iv)  Telsmith, Inc., which manufactures  aggregate
      processing equipment  for  the  production and  classification  of  sand,
      gravel, and crushed stone for  road and other construction  applications;
      (v)  Kolberg-Pioneer,  Inc.,  which  manufactures  aggregate   processing
      equipment for the crushed stone, manufactured sand, recycle, top soil and
      remediation markets;  (vi) Production  Engineered Products,  Inc.,  which
      designs, manufactures and  markets high-frequency  vibrating screens  for
      sand and  gravel  and  asphalt operations;  (vii)  Roadtec,  Inc.,  which
      manufactures milling  machines  used  to recycle  asphalt  and  concrete,
      asphalt paving  equipment  and  material transfer  vehicles;  (v)and  (viii)
      Trencor, Inc., which manufactures chain and wheel trenching equipment and
      excavating equipmentequipment.

           Astec Financial Services, Inc. ("AFS") was formed in June 1996 as  a
      wholly-owned subsidiary  of  the  Company to  provide  a  wide  range  of
      financing products  for leasing  or  acquiring the  Company's  equipment.
      AFS, a captive finance company, is dedicated to working exclusively  with
      all the Company's subsidiaries and log loaders and; (vi) CEI Enterprises,their customers in arranging financing
      for the Company's equipment.  AFS provides loans, operating leases, floor
      plans for dealers, fleet rental plans, and other financing plans to  meet
      the needs of the industry.
                                         1

           In  1996,  the  Company  became   a  50%  shareholder  of   Pavement
      Technology, Inc.  ("PTI"), located  in Conyers,  Georgia.   PTI  ,  which
      manufactures heat transferasphalt pavement analyzers,  vibratory compactors and  other
      mix-design laboratory products  that allow  our customers  to purchase  a
      complete design  laboratory  from  one source.    The  pavement  analyzer
      technology  has   captured  the   interest   of  state   departments   of
      transportation and universities as a new standard for measuring  rutting,
      fatigue, and  water  susceptibility in  hot-mix  asphalt.   The  pavement
      technology product line added a completely new dimension to the  services
      and equipment and recycled   
rubber blending systems for the hot mix asphalt industry.  CEI was acquired   
in the first quarter of 1995.we are able to provide our customers.

           The Company's strategy is to become the high quality, low costlow-cost producer in each of
      its product  lines for  any given  product  while continuing  to  develop
      innovative  new  products  and  provide  first  class  service  for   its
      customers.  WithManagement  believes that  the disposition of its foreign operations   
described below, managementCompany  is the  technological
      innovator in the markets in which it operates.  Management believes  that
      the Company is well positioned to  capitalize on the current need to rebuild  and
      enhance roadway infrastructure, both in the United States and abroad.

                    Disposition of Foreign Operating Subsidiaries

           In 1993, the Company acquired a 50% ownership interest in   
Wibau-Astec Maschinenfabrik GmbH, a newly   
formed German limited liability companyAs previously disclosed, due to engage in the manufacture and   
marketing of asphalt plants and certain   
related equipment in Granadau, Germany.  The Company acquired the   
remaining 50% interest in Wibau-Astec in   
1994, making it a wholly owned subsidiary of the Company.  In June 1995   
the Company sold Wibau-Astec to Wirtgen   
Gesellschaft mit beschr*nkter Haftung, a German equipment manufacturer.   
See Note 2 to the Consolidated Financial   
Statements included in the Company's Annual Report to Shareholders for   
the fiscal year ended December 31, 1995,   
which information is incorporated by reference under item 8 of this Report.   
   
	In an unrelated transaction, the Company acquired Gibat Ohl   
Ingenieurgesellschaft fur Anlagentechnik mbH   
located in Hasselroth, Germany in October 1994.  The  Gibat Ohl name was   
changed to Astec-Europa in the third   
quarter of 1995.  In connection with the sale of Wibau-Astec, the   
Company's technology was purchased by Astec-  
Europa which manufactured asphalt batch plants and certain related   
equipment.  In February 1996, the Board of   
Directors of the Company decided to abandon the operations of Astec-  
Europa to avoid continuing losses related to its   
operations.  As a result of the Company's decision, on February 9, 1996, the   
management of Astec-Europa filed a   
request for bankruptcy in Germany.  Due to the abandonment of Astec-  
Europa, the Company will not recover any   
amounts related to Astec-Europa's assets nor does it expect to be required to   
liquidate any of Astec-Europa's   
liabilities, except to the extent such liabilities were guaranteed by the   
Company.  Total losses recognized in 1995   
related to Astec-Europa, including net losses from operations and the loss   
on abandonment, were approximately   
$9,945,000 before taxes and $6,037,000 after taxes.  The Company does not   
expect to incur any additional losses   
related to this subsidiary.  See Note 3 to the Consolidated Financial   
Statements included in the Company's Annual   
Report to Shareholders for the fiscal year ended December 31, 1995, which   
information is incorporated by reference   
under item 8 of this Report.   
   
	As a result of  the disposition of Wibau-Astec  and
      the abandonment of Astec-Europa, the  Company no longer conducts  foreign
      manufacturing operations and  instead has decided  to concentrate all  of
      its manufacturing  activities, whether  or not  related to  international
      sales, with its more efficient domestic operations.

                                      Products

           The Company operates predominantly in a single businesssingle-business segment.  In
      19951997 it manufactured and marketed products in five principal  categories:
      (i)  hot mixhot-mix  asphalt   plants,  soil   purification  and   environmental
      remediation equipment  and  related  components; (ii)  hot  oil  heaters,
      asphalt heaters  and  other  heat transfer  equipment;  (iii)  aggregates
      processing  equipment;  (iv)  mobile  construction  equipment,  including
      asphalt pavers, milling machines and material transfer vehicles and other
      auxiliary equipment; (iii) hot oil heaters, asphalt heaters 
and other heat transfer equipment; (iv)   
aggregates processing equipment; and  (v) chain  and wheel  trenching and  excavating
      equipment.   The  following table  shows  the Company's  sales  for  each

      product category which accounted for 10% or more of consolidated  revenue
      for the periods indicated.
                                              Years Ended December 31,
                                             (in1997        1996       1995
                                                     (In thousands) 
                                      1995           1994            1993
         Asphalt plants and components       $117,849    $93,786    $110,321
         $100,514        $88,116Aggregate processing equipment        55,362     52,739      46,586
         Mobile construction equipment         49,704     37,845      29,706         30,291          22,120  
Aggregate processing equipment        46,586         38,823          40,108
         Trenching and excavating equipment    26,803     23,543      21,110         25,867          16,535

      Financial information  in  connection with  the  Company's  international
      sales is  included  in  Note  113  to  "Notes  to  Consolidated  Financial
      Statements - Segment Information",Information," appearing at Page A-11 of this report.

      Hot MixHot-mix Asphalt Plants

           Astec, Inc. designs, engineers, manufactures and markets a  complete
      line of portable, stationary and  relocatable hot mixhot-mix asphalt plants  and
      related components under the "ASTEC" trademark.  An asphalt mixing  plant
      typically consists of  heating and storage  equipment for liquid  asphalt
      (manufactured by Heatec), cold feed bins  for storing aggregates, a  drum
      mixer for drying, heating and mixing, a baghouse composed of air  filters
      and other  pollution  control devices,  hot  storage bins  or  silos  for
      temporary storage of hot mixhot-mix  asphalt and a control  house.  The  Company
      introduced the  concept  of  plant portability  in  1979.    Its  current
      generation of portable asphalt plants is  marketed as the "Six Pack"Six PackTM  and
      consists of six portable components which  can be disassembled and  moved
      to  the  construction  site  to   reduce  relocation  expenses.     Plant
      portability represents an industry innovation developed and  successfully
      marketed by the Company.  In 1996, an improved version of the Six  PackTM
      plant was  developed,  making it  considerably  more portable  and  self-
      erecting.  This design  eliminated the use of  cranes for disassembly  or
      erection.  The enhanced version of the Six PackTM, known as the Turbo Six
      PackTM, is a  highly portable plant  which is especially  useful in  less
      populated areas where plants must be moved from job to job.

           The components in the Company'sAstec's asphalt mixing plants are fully  automated
      and use  microprocessor basedmicroprocessor-based control  systems for  efficient  operation.
      The plants are manufactured to meet or exceed federal and state clean air
      standards.

           The  Company  has  also  developed  specialized  asphalt   recycling
      equipment for use with its hot mixhot-mix asphalt plants.  Many of theits  existing Astec
      products are  suited for  blending, vaporizing,  drying and  incinerating
      contaminated products.   As  a  result, Astec  Inc. has  developed a  line  of
      thermal  purification  equipment   for  the   remediation  of   petroleum
      contaminated soil.

      Mobile Construction Equipment   
   
	Roadtec, Inc. designs, engineers, manufactures and markets   
asphalt pavers, material transfer vehicles and   
milling machines.  Roadtec engineers emphasize simplicity, productivity,   
versatility and accessibility in product design   
and use.   
   
	Asphalt Pavers.  Asphalt pavers are used in the application of hot   
mix asphalt to the road surface.  Roadtec   
pavers have been designed to minimize maintenance costs while exceeding   
road surface smoothness requirements.    
In 1994, Roadtec introduced several new paver models, including one   
which must be used with a material transfer   
vehicle described below.   
   
	Material Transfer Vehicles.  The "Shuttle Buggy" is a mobile, self-  
propelled material transfer vehicle which   
allows continuous paving by separating truck unloading from the paving   
process while remixing the asphalt surface   
material.  A typical asphalt paver must stop paving to permit truck   
unloading of asphalt mix.  By permitting continuous   
paving, the "Shuttle Buggy" allows the asphalt paver to produce a smoother   
road surface.  Certain states are now   
requiring the use of the "Shuttle Buggy" on their jobs.   
   
	Milling Machines.  Roadtec milling machines are designed to   
remove old asphalt from the road surface before   
new asphalt mix is applied.  They are manufactured with a simplified   
control system, wide conveyors, direct drives   
and a wide range of horsepower and cutting capabilities to provide   
versatility in product application.  Additional   
models were introduced in 1994 to meet contractor needs and additional   
upgrades and options have been added in   
1995.   
   
   
Heat Transfer Equipment

           Heatec, Inc., designs, engineers, manufactures and markets a variety
      of heaters  and heat  transfer processing  equipment under  the  "HEATEC"
      trade name for use in various industries, including the asphalt industry.

           CEI Enterprises, Inc.  ("CEI")(CEI), designs,  engineers, manufactures  and
      markets heating equipment and storage tanks mainly for the asphalt paving
      industry.  CEI located in Albuquerque,   
New Mexico was acquired by the Company   
in the first quarter of 1995.

           Asphalt Heating Equipment.  Heatec  manufactures a complete line  of
      heating and liquid  storage equipment  for the  asphalt paving  industry.
      Heaters are offered in  both direct-fired and  helical coil models  while
      CEI's heating  equipment is  hot  oil, direct  fired  or electric.    The
      equipment includes portable and stationary tank models with capacities up
      to 35,000 gallons each.

           Industrial Heating  Equipment.   Heatec  builds  a wide  variety  of
      industrial heaters  to  fit  a broad  range  of  applications,  including
      equipment for  emulsion  plants,  roofing  material  plants,  refineries,
      chemical processing, rubber plants and the agribusiness.  Heatec has  the
      technical  staff  to  custom  design  heating  systems  and  has  systems
      operating as large as 40,000,000 BTU's per hour.

      AggregatesAggregate Processing Equipment

           Founded in 1906, Telsmith, Inc. designs, engineers, manufactures, and markets a
      wide rangecomplete line of portableaggregate and  stationarymineral processing equipment and  related
      machinery under the "TELSMITH" trademark  for the productionmining, quarrying,  and
      classification of sand and gravel and quarried stone and recycled concrete   
and asphalt for road and other construction applicationsindustries worldwide.   Telsmith's products include  jaw,
      cone, and impact crushers;  several types of  feeders which transportmove  virgin,
      recycled, or crushed material to primary, secondary, or tertiary crushing
      equipment; vibrating  screens  to  separate the  aggregate  into  various
      mixes;sizes;  and  washing  and  conveying  equipment.    In  metallic   mining
      operations, Telsmith marketsequipment is used  in primary crushing stages  after
      the material has been blasted from  the deposit.  Secondary and  tertiary
      crushing equipment, as well as vibrating screens, are employed in systems
      to reduce the material down to sizes for grinding mill feed or leech  bed
      processes.

           Equipment furnished  by  Telsmith  can be  purchased  as  individual
      components,  as  portable  plants  for  flexibility,  or  as   completely
      engineered systems for both portable and stationary applications.

           In 1994, Telsmith received ISO 9001 certification, the international
      standard of  quality assurance  in the  design, development,  production,
      installation and  servicing of  Telsmith's  products.   This  designation
      recognizes the  quality of  its products  individually and asservices  in the  worldwide
      marketplace.

           Kolberg-Pioneer, Inc. ("K-P") designs,  manufactures and supports  a
      complete systems, incorporating   
microprocessor based automated controlsline of aggregate processing equipment for the sand and  gravel,
      mining, quarry and concrete recycle markets.  The product range  includes
      feeders,  crushers,  classifying  tanks,  material  washers,   conveyors,
      portable screening plants and pugmills.

           Rock Crushers.   Kolberg-Pioneer rock crushers  are used by  mining,
      quarry and  sand and  gravel producers  to crush  oversized aggregate  to
      salable size.  Types of crushers include compression (jaw, cone and roll)
      and impact (vertical shaft and horizontal  shaft).  Models are  available
      for primary, secondary, tertiary and quaternary applications.
           Feeders.   Feeders  are used  to  transfer aggregate  into  crushing
      operations.  Crusher efficiency is increased as fines bypass the crusher.
      Styles include vibrating grizzly, apron, pan and belt feeders.
           Sand Classifying Tanks.   These tanks are  used to clean,  segregate

      and re-blend natural or  manufactured sand to  meet the fineness  modulus
      (FM) and  sand equivalent  (SE) specifications  for concrete,  mason  and
      other sand products.

           Washers and Blademills.   These provide aggressive scrubbing  action
      to remove unwanted clays, silts  and foreign materials from  contaminated
      aggregate deposits.

           Conveyors.  Kolberg-Pioneer manufactures conveyors designed to  move
      or store aggregate and other bulk materials, typically in a radial  cone-
      shaped stockpile.  Models offered include road portable, stationary,  and
      overland styles.

           Portable Recycling Plants.   Portable recycling  plants are used  to
      reclaim aggregate from concrete,  construction and demolition debris  and
      asphalt, while separating metal contaminants.

           Portable Screening Plants.  These are used by aggregate and top soil
      producers to separate materials by size.  They adapt easily  to  multiple
      applications by  changing  the  screen cloth.    An  optional  hammermill
      shredder conditions  dry  material for  more  efficient operationscreening.    The
      optional wet deck, when  used with a fine  material washer, replicates  a
      low-cost washing plant.

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


           Production Engineered Products, Inc. ("PEP") designs,  manufactures,
      and  markets  high-frequency  vibrating  screens  for  sand  and   gravel
      customers, as  well  as customers  engaged  in asphalt  production.    In
      addition, PEP  incorporates  the  high-frequency  screens  into  portable
      crushing and  screening  plants  serving  the  aggregate  and  industrial
      markets.

      Mobile Construction Equipment

           Roadtec, Inc., designs, engineers, manufactures and markets  asphalt
      pavers, material  transfer  vehicles,  and  milling  machines.    Roadtec
      engineers   emphasize   simplicity,    productivity,   versatility    and
      accessibility in product design and use.
           Asphalt Pavers.  Asphalt pavers are used in the application of  hot-
      mix asphalt to the  road surface.  Roadtec  pavers have been designed  to
      minimize  maintenance  costs  while  exceeding  road  surface  smoothness
      requirements.  Roadtec manufactures  one paver model  which must be  used
      with a material transfer vehicle described below.
           Material Transfer  Vehicles.    The patented  Shuttle  BuggyR  is  a
      mobile, self-propelled material transfer vehicle which allows  continuous
      paving by  separating  truck  unloading from  the  paving  process  while
      remixing the asphalt surface material.  A typical asphalt paver must stop
      paving  to  permit  truck  unloading  of  asphalt  mix.    By  permitting

      continuous paving, the Shuttle BuggyR allows the asphalt paver to produce
      a smoother road surface.  As a result of the pavement smoothness achieved
      with this  machine, certain  states  are now  requiring  the use  of  the
      Shuttle BuggyR on their jobs.   Recent studies using infrared  technology
      have revealed  problems caused  by differential  cooling of  the  hot-mix
      during hauling.   The Shuttle BuggyR  remixes the material  to a  uniform
      temperature, eliminating the problem.

           Milling Machines.  Roadtec milling  machines are designed to  rmove
      old asphalt from  the road  surface beforee  new asphalt  mix is  applied.
      They are manufactured with a  simplified control system, wide  conveyors,
      direct drives and a wide range o horsepower and cutting capabilities  to
      provide versatility  in product  application.   Additional  upgrades  and
      options are available to enhance the products and their capabilities.

      Trenching and Excavating Equipment

           Trencor, Inc. designs, engineers, manufactures and markets chain and
      wheel trenching equipment, canal excavators, rock saws and road miners and log loading equipment.  In August   
1994, Trencor acquired the product line   
and related manufacturing rights, trademarks, patents, intellectual property   
and engineering designs of Capitol   
Trencher Corporation ("CTC"), also a manufacturer of trenching and   
excavation equipment.  This purchase excluded   
the manufacturing plant and equipment operated by CTC. The fabrication   
of the CTC product line has been relocated   
to Trencor's new facility in Grapevine, Texas.miners.

           Chain Trenchers.  Trencor chain  trenching machines utilize a  heavy
      duty chain (equipped with cutting teeth attached to steel plates) wrapped
      around a long moveable boom.  These machines, with weights up to  400,000
      pounds, are capable of cutting a trench up to eight feet wide and thirtythirty-
      five feet deep  through rock.   Trencor also  makes foundation  trenchers
      used in areas where drilling and blasting are prohibited.

           Wheel Trenchers.    Trencor wheel  trenching  machines are  used  in
      pipeline excavation in soil and soft rock.  The wheel trenchers weigh  up
      to 390,000 pounds and have a trench capacity of up to seven feet in width
      and ten feet in depth.

           Canal Excavator.Excavators.    Trencor  canal  excavators  are  used  to  make
      finished  and  trimmed   trapezoidal  canal   excavations  within   close
      tolerances.  The canals are primarily used for irrigation systems.

           Rock Saws.  Trencor  manufactures a rock saw  which is utilized  for
      laying water and gas  lines and fiber  opticsoptic cable, constructing  highway
      drainage systems and for other applications.

           Roadminers.  Trencor manufactures four "Road Miner"Road MinerTM models  weighing
      up to 400,000 pounds with an attachment which allows it to cut a path  up
      to twelve and a half feet wide and five feet deep on a single pass.   The
      RoadminerRoad MinerTM has applications  in the road  construction industry and  in
      mining and aggregatesaggregate processing operations.

           Log Loaders.Material Processors.  Trencor also manufactures several different models   
of log loaders.  Its products include   
mobile/truck mounted models,a machine which  includes
      a crusher that operates independently from  the trencher to process  rock
      and related material (spoil) removed from the trench to make it  suitable
      for use as well as track mounted and stationary   
models, each of which is used in harvesting   
and processing wood products.  The equipment is sold under the Log-Hog   
name.a filler around pipes, cables or other lines being  installed.
      Patents are pending on this product.

                                    Manufacturing

           The Company manufactures  many of  the component  parts and  related
      equipment for  its  products.    In  many  cases,  the  Company  designs,
      engineers and manufactures custom component  parts and equipment to  meet
      the particular needs of  individual customers.  Manufacturing  operations
       during 19951997  took  place  at sevennine  separate  locations.    The  Company's
      manufacturing  operations   consist   primarily  of   fabricating   steel
      components and the assembly and testing of its products to ensure quality
      control standards have been achieved.

                                      Marketing

           The   Company   markets   its   products   both   domestically   and
      internationally.   The principal  purchasers  of the  Company's  products
      include highway  and heavy  equipment contractors,  utility  contractors,
      pipeline contractors, open mine  operators, quarry operators and  foreign
      and domestic governmental agencies.   Astec, Inc.  sells directly to  its
      customers  with  domestic,  soil  remediation  and  international   sales
      departments.   Astec, Inc. also has a branch in   
Chino, California to service customers in the western United States.    
Telsmith products  are sold  through  twoa leased  branch  locations in
      San Francisco, California and Sharon,Walpole, Massachusetts, as well as through a combination of direct sales,
      both domestic and international, and dealer  sales.  Roadtec and  Trencor
      share a warehouse facility in Aurora, Illinois, that supports both  their
      product lines.  Heatec, CEI, Roadtec,  and Trencor products are  marketed
      through a combination of direct sales and dealer sales.  Approximately 18
      manufacturers' representatives sell Heatec  products for applications  in
      industries other than  the asphalt  industry with  such sales  comprising
      approximately 30%38 percent of  Heatec's sales volume  during 1995.1997.   Direct
      sales  employees  are  paid  salaries  and  are  generally  entitled   to
      commissions after  obtaining  certain  sales quotas.    See  "Business  -
      Properties"Properties."

           The Company's international  sales efforts  are decentralized,  with
      each subsidiary  maintaining  responsibility for  its  own  international
      marketing efforts.


                          Seminars and Technical Bulletins

           The Company  periodically conducts  technical and  service  seminars
      which are  primarily for  contractors, employees  and owners  of  asphalt
      mixing plants.  In 1995,1997, approximately 290419 representatives of contractors
      and owners  of  hot mixhot-mix asphalt  plants  attended seminars  held  by  the
      Company in Chattanooga, Tennessee.  These  seminars, which are taught  by
      Company management and  employees, cover  a range  of subjects  including
      technological innovations in the  hot mixhot-mix asphalt, businessaggregate  processing,
      paving, milling, and  other industry   
segmentsrecycle markets in  which the Company  manufactures
      products.

           The Company also sponsors executive  seminars for the management  of
      the customers of Astec,  Inc.  The seminars  are taught primarily by  the
      management of the Company,  but outside speakers are  also utilized.   In
      1997, approximately 331 participants  attended seminars at the  Company's
      state-of-the-art training center.

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

           The Company sponsors Paving Professionals workshops at its  training
      center for customers or  potential customers of Roadtec,  Inc.  In  1997,
      240 attended  these classroom  sessions.   Actual  equipment  application
      experience was  provided  at  the Roadtec  facility.    Service  training
      seminars were also held at the Roadtec facility for 320 customer  service
      representatives.

           In 1997,  Telsmith had  technical seminars  for 85  English-speaking
      customer  representatives  and  another  multi-lingual  seminar  with  40
      attendees.


                               Patents and Trademarks

           The Company seeks to obtain patents to protect the novel features of
      its products.  The  Company and its subsidiaries  hold 77101 United  States
      patents and 6257 foreign patents.   There are 1647 United States and 16  foreign
      patent applications pending.

           The Company and  its subsidiaries have  approximately 4037  trademarks
      registered in the  United States,  including logos  for Astec,  Telsmith,
      Roadtec and  Trencor, and  the names  ASTEC, TELSMITH,  HEATEC,  LOG HOG,   
ROADTEC,
      TRENCOR and TRENCOR.  ManyKOLBERG.   Ten  of these  trademarks are  also registered  in
      foreign countries, including Canada,  Great Britain, Mexico, AustraliaNew  Zealand
      and Japan.Indonesia.  The Company has five trademark applications pending.

           The Company and  its subsidiaries also  license their technology  to
      manufacturers.

                         Engineering and Product Development

           The Company dedicates substantial  resources to its engineering  and
      product  development.    At  December  31,  1995,1997,  the  Company  and  its
      subsidiaries had  122171  full-time  individuals  employed  domestically full-time  in
      engineering and design capacities.


                                    Raw Materials

           Raw materials used by the Company in the manufacture of its products
      include carbon steel and various types of alloy steel, which are normally
      purchased from steel mills and other sources.

                               Seasonality and Backlog

           The Company's business  is somewhat seasonal.   The Company's  sales
      tend to  be  stronger from  January  through  June each  year,  which  is
      attributable  largely  to  orders  placed   in  the  fourth  quarter   in
      anticipation of warmer summer months when most asphalt paving is done.

           As of December 31, 1995,1997, the  Company had a backlog for delivery  of
      products at certain dates in the future of approximately $34,751,000$61,387,000.  At
      December 31, 19941996, the total backlog, updated to include Kolberg-Pioneer,
      Inc., was approximately $50,465,000, excluding   
Wibau-Astec and Astec-Europa.$54,298,000.  The Company's backlog is subject to
      some seasonality, as noted above.

           The Company's contracts reflected in the  backlog are not, by  their
      terms, subject to termination.  Management  believes that the Company  is
      in substantial compliance with all manufacturing and delivery  timetables
      relating to its products.

                                     Competition

           The Company faces strong competition  in price, service and  product
      performance in each product category.  While the Company does not compete
      with any one manufacturer in all of its product lines, it competes as  to
      certain products with both  large publicly heldpublicly-held companies with  resources
      significantly greater  than  those of  the  Company and  various  smaller
      manufacturers.     Hot mixHot-mix   asphalt  plant   competitors   include   CMI
      Corporation; Cedarapids,  Inc., a  divisionsubsidiary  of Raytheon  Company;  and
      Gencor Industries, Inc.  Paving equipment competitors include Caterpillar
      Paving Products  Inc. (including the Company's former Barber-Greene product   
line),  a  subsidiary  of  Caterpillar,  Inc.;  Blaw-  
KnoxBlaw-Knox
      Construction Equipment Company, a  subsidiary of Clark Equipment   
Co.; Ingersoll-Rand  Company;
      and Cedarapids, Inc.

           The market  for the  Company's heat  transfer equipment  is  diverse
      because of the  multiple applications  for such  equipment.   Its principal competitor isCompetitors
      include Gencor/Hyway Heat  Systems.Systems, Sundance,  American Heating,  Gentec,
      and First Thermal.  The  Company's milling machine equipment  competitors
      include  Ingersoll-Rand  Company;  CMI  Corporation;  Cedarapids,   Inc.;
      Caterpillar;Caterpillar, Inc.;  and  Wirtgen  America,  Inc.    AggregatesAggregate  processing
      equipment  competitors   include   the   
Pioneer Division of Portec,Nordberg,  Inc.;   Nordberg,Cedarapids,   Inc.;
      Powerscreen; Deister;  Seco/Hewitt  Robins;  Eagle  Iron  Works;  Boliden Allis, a member of the Trelleborg Group;   
Cedarapids, Inc.;Finley;
      Universal; Svedala;  Greystone  and  other  smaller  manufacturers,  both
      domestic and foreign.  Competition for sales of trenching and  excavating
      equipment includes  Ditch Witch;  J.I. Case;  Tesmec; Vermeer  and  other
      smaller manufacturers in the small utility trencher market.   Competitors
      of  the  captive   finance  company  include   General  Electric   Credit
      Corporation, The CIT Group, and Safeco  Credit Company, Inc., as well  as
      local financial institutions.

           As a whole, imports do not constitute significant competition in the
      United States;  however, in  international sales,  the Company  generally
      competes with foreign manufacturers  which may have  a local presence  in
      the market the Company is attempting to penetrate.

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

                                     RegulationRegulations

           The Company does  not operate  within a  highly regulated  industry.
      However, air pollution equipment manufactured by the Company, principally
      for  hot mixhot-mix  asphalt  plants,  must  comply  with  certain   performance
      standards promulgated  by  the federal  Environmental  Protection  Agency
      under the  Clean Air  Act  applicable to  "new  sources" or  new  plants.
      Management  believes  that  the  Company's  products  meet  all  material
      requirements of  such  regulations  and  of  applicable  state  pollution
      standards and environmental protection laws.

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

                                      Employees


           On August 3, 1995, a union  representation election was held at  the
      Trencor plant in whichand a unit of Trencor production and maintenance  employees
      voted to be represented  by Thethe United  States Steelworkers of  America,American,
      AFL-CIO, CLC.  DueTrencor filed a Petition for Review with the United States
      Court of Appeals for  the Fifth Circuit and  requested that the  National
      Labor Relation Board's certification of the election be overturned due to
      alleged improper activity  and interference,by the union.   Trencor has assertedrequested  that the   
election was illegal and has requested a  new
      election.  The proceeding is currently pending beforerepresentation election  be held.   Recently,  in response  to  Trencor's
      appeal, the United States Court of Appeals for the Fifth Circuit returned
      the matter to  the National  Labor Relations  Board.Board and  ordered that  an
      evidentiary  hearing   on  Trencor's   complaints  be   held  before   an
      administrative law judge.  That hearing was held on January 15, 1998 with
      the administrative law judge  rejecting Trencor's claims.   Consequently,
      Trencor has appealed the decision to  the National Labor Relations  Board
      where it is still pending.

           At December 31, 1995,1997 the Company and its subsidiaries employed 1,4021,925
      persons, of which 1,0481,435 were engaged in manufacturing operations, 122171  in
      engineering, including support staff, and design   
functions and 232319 in selling,  administrative
      and management functions.   Telsmith has  a labor  agreement expiring  on
      October 14, 1998.  Except as set forth above, none of the Company's other
      employees   are   covered   by   a   collective   bargaining   agreement.
      Notwithstanding the current preceding before the National Labor Relations
      Board, the Company considers its employee relations to be good.


      Item 2.  Properties


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

                                  
                     		Approximate        	Approximate	  Principal 
Location              	Square Footage     	Acreage	      Function   
Chattanooga, Tennessee 361,000 56.6 Corporate and subsidiary offices, manufacturing - Astec Chattanooga, Tennessee 0 63.0 Storage yard - Astec Chattanooga, Tennessee 66,200 5.0 Offices, manufacturing - Heatec Chattanooga, Tennessee 125,000 13.6 Offices, manufacturing - Roadtec North Aurora, Illinois 16,700 3.5 Roadtec (sales and service office) San Francisco, California 5,000 1.0 Leased sales and service office and warehouse - Telsmith St. Charles, Illinois 300 0 Leased international sales office - Telsmith Chino, California 4,762 1.0 Leased parts warehouse - Astec Rossville, Georgia 40,500 2.6 Manufacturing and sales office facility - Astec Grapevine, Texas 175,000 51.67 Offices, manufacturing - Trencor Grand Prairie, Texas 83,000 6.1 Former offices, manufacturing - Trencor, Inc.(property for sale) Sharon, Massachusetts 4,000 1.0Approximate Approximate Location Square FootageAcreage Principal Function Chattanooga, 361,000 59.1 Corporate and Tennessee subsidiary offices, manufacturing - Astec Chattanooga, --- 63.0 Storage yard - Astec Tennessee Chattanooga, 84,200 5.0 Offices, Tennessee manufacturing - Heatec Chattanooga, 135,000 15.1 Offices, Tennessee manufacturing - Roadtec Chattanooga, 1,820 --- Offices leased for Tennessee Astec Financial Services North Aurora, 16,700 3.5 Roadtec and Trencor Illinois (sales and service office) Mequon, Wisconsin 203,000 30.0 Offices and manufacturing - Telsmith Walnut, Illinois 28,770 3.0 Leased offices and manufacturing - PEP Rossville, Georgia 40,500 2.6 Manufacturing - Astec Grapevine, Texas 175,513 51.67 Offices, manufacturing - Trencor Walpole, 1,800 --- Leased sales and Massachusetts service office - Telsmith Odessa, Texas 4,072 .8 Sales office and parts warehouse - Trencor, Inc. Inman, South Carolina 13,600 8.0 Leased with option to buy (office and warehouse of former Soil Purification of Carolina, Inc.) Houston, Texas 120 0 Leased sales office - Heatec Albuquerque, New Mexico 28,592 9.0 Leased - offices and plant - CEI Albuquerque, New Mexico 111,908 14.0 New plant and offices- CEI
In 1995 significant office and plant improvements were made at Roadtecparts warehouse - Trencor Inman, South 13,600 8.0 Leased until Carolina September 30, 2000 with option to buy (office and Astec,warehouse of former Soil Purification of Carolina, Inc.) Albuquerque, New 110,700 14.0 Offices and Mexico manufacturing - CEI Yankton, South 252,000 50.0 Offices and Dakota manufacturing - Kolberg-Pioneer Management believes that each of the Company's facilities provideprovides office or manufacturing space suitable for its current needs and considers the terms under which it leases facilities to be reasonable. Item 3. Legal Proceedings The Company's subsidiary, Telsmith, was a defendant in a patent infringement action brought by Nordberg, Inc., a manufacturer of a competing line of rock crushing equipment, seeking monetary damages and an injunction to cease an alleged infringement of a patent on certain components used in the production of its rock crushing equipment. On March 30, 1995, the United States District Court for the Eastern District of Wisconsin issued a ruling in favor of the Company and entered a declaratory judgment in favor of Telsmith, and against Plaintiff Nordberg, Inc. declaring that claims 8 through 11 and 13 of Nordberg's United States patent No. 4,478,373, entitled "Conical Crusher" are invalid. The Court also entered judgment in favor of Telsmith, Inc. and against Nordberg, Inc. dismissing Nordberg's claim of infringement against Telsmith. The Company was pleased with the Court's decision, but has filed an appeal asking the United States Court of Appeals for the Federal Circuit to overturn the trial court's decision not to award Telsmith its attorney's fees in the case. Nordberg did not cross-appeal to the Federal Circuit on the Telsmith judgment. The time for doing so has now expired. The judgment has therefore become "final" as to those issues not raised by Telsmith on appeal. On October 28, 1993, the Company was also named as a defendant in a patent infringement action brought by Gencor, Inc., a manufacturer of a competing line of asphalt plants, seeking monetary damages and an injunction to cease an alleged infringement of a patent on certain components used in the production of its asphalt plant product line. This case was filed in the U.S. District Court for the Middle District of Florida, Orlando Division, and went to trial on January 22, 1996. On February 3, 1996, the jury returned a verdict in the Company's favor holding that Astec's Double Barrel drum mixer does not infringe the Gencor patent in question. Judgment on that jury verdict was entered by the Court on February 5, 1996. It is anticipated that Gencor will appeal. Management believes that Gencor's anticipated appeal is without merit. During 1994, the United States Supreme Court refused to hear CMI Corporation's petition to overturn the United States Court of Appeals for the Federal Circuit's reversal of patent damages awarded to CMI Corporation and Robert L. Mendenhall by a lower court. As a result of the Supreme Court's refusal to grant certiorari, in 1994 the Company received $12,917,000 which was being held in escrow pending the Company's appeal of the two judgments. In addition, on December 31, 1994, the Company received $1,309,000 from CMI in satisfaction of the judgment entered in favor of the Company on its counterclaim against CMI. The receipt of these funds effectively concluded the litigation between the Company and CMI and Robert L. Mendenhall which had been pending for a number of years. As a result, in 1994 the Company reversed its accrued liability for patent damages. The reversal of $13,870,000 in accrued patent damages and the receipt of $1,309,000 in patent damages from CMI total $15,179,000 and are included in the Consolidated Statements of Income as Patent suit damages and expenses (net recoveries and accrual adjustments). Management has reviewed all claims and lawsuits and, upon the advice of counsel, has made provision for any estimable losses; however, the Company is unable to predict the ultimate outcome of the outstanding claims and lawsuits. Item 4. Submission of Matters to a Vote of Security Holders None. Executive Officers of the Registrant The name, title, ages and business experience of the executive officers of the Company are listed below. J. Don Brock, Ph.D., P.E., has been President and a directorDirector of Astecthe Company since its incorporation in 1972 and assumed the additional position of Chairman of the Board in 1975. He was the Treasurer of the Company from 1972 until 1994. From 1969 to 1972, Dr. Brock was President of the Asphalt Division of CMI Corporation. Dr. Brock earned his Ph.D. degree in mechanical engineering from the Georgia Institute of Technology. Dr. Brock and Thomas R. Campbell, President of Roadtec, are first cousins. Dr. Brock is 57. Albert E. Guth has been Chief Financial Officer of the Company since 1987, Senior59. Richard W. Bethea, Jr., became Vice President, since 1984,Corporate Counsel and Secretary of the Company since 1972 and Treasurer since 1994.on February 1, 1997. Mr. Guth, whoBethea has been a directorpracticing lawyer since 1972, was1978. He has an undergraduate degree in accounting from the Vice PresidentUniversity of Georgia. Before joining the Company, from 1972 until 1984. From 1969 to 1972, Mr. GuthBethea was a member (stockholder) and partner with the Controller oflaw firm Stophel & Stophel, P. C., in Chattanooga, Tennessee. He has served as the Asphalt Division of CMI Corporation.Company's litigation counsel since 1983. He is 56.45. F. McKamy Hall, a Certified Public Accountant, hasbecame Vice President, Corporate Controller and Treasurer in April 1997 and served as Controller of the Company since May 1987. From 1985 to 1987, Mr. Hall was Vice President-FinancePresident of Finance at Quadel Management Corporation, a company engaged in real estate management. Mr. Hall has an undergraduate degree in accounting and a Master of Business Administration degree from the University of Tennessee at Chattanooga. He is 53. Thomas R. Campbell has served as President of Roadtec, Inc. since 1988. From 1981 to 1988 he served as Operations Manager of Roadtec. Mr. Campbell and J. Don Brock, President of the Company, are first cousins. Mr. Campbell is 46.55. W. Norman Smith has served as the President of Astec, Inc. since December 1, 1994. He formerly served as President of Heatec, Inc. from 1977 to 1994. From 1972 to 1977, Mr. Smith was a Regional Sales Manager with the Company. From 1969 to 1972, Mr. Smith was an engineer with the Asphalt Division of CMI Corporation. Mr. Smith has also served as a director of the Company since 1972. He is 56. Jerry F. Gilbert has served as President of Trencor, Inc. since 1981 and as a director of the Company since May, 1991. He is 50.58. Robert G. Stafford has served as President of Telsmith, Inc., formerly the Barber-Greene Company, since April 1991. Between January 1987 and January 1991, Mr. Stafford served as President of Telsmith, Inc., a subsidiary of Barber-Greene. From 1984 until the Company's acquisition of Barber- GreeneBarber-Greene in December 1986, Mr. Stafford was Vice President - Operations of Barber-Greene and General Manager of Telsmith. From 1979 to 1984 he served as Director-Engineering and Operations for Telsmith. He became a director of the Company in March 1988. He is 57.59. Thomas R. Campbell has served as President of Roadtec, Inc. since 1988. From 1981 to 1988 he served as Operations Manager of Roadtec. Mr. Campbell and J. Don Brock, President of the Company, are first cousins. Mr. Campbell is 48. Roger Sandberg has served as President of Trencor, Inc. since October 1, 1996. Prior to that he served as Vice President of Sales and Marketing at Roadtec, Inc. and Director of Marketing with Astec Inc. Before joining the Company, Mr. Sandberg held various management positions with Cedarapids, Inc. and Standard Havens, Inc. since 1971. He is 56. James G. May has served as President of Heatec, Inc. since December 1, 1994. From 1984 until 1994 he served as Vice President of Engineering of Astec, Inc. He is 51. M. Brent England53. Albert E. Guth has been President of Astec Financial Services, Inc. since June 1996. He served as presidentChief Financial Officer of CEI Enterprises,the Company from 1987 through June 1996, as Senior Vice President since 1984, Secretary of the Company since 1972, and Treasurer since 1994. Mr. Guth, who has been a director since 1972, was the Vice President of the Company from 1972 until 1984. From 1969 to 1972, Mr. Guth was the Controller of the Asphalt Division of CMI Corporation. He is 58. Richard A. Patek became President of Kolberg-Pioneer, Inc. since March 1995. Previously, Mr. Englandon December 2, 1997. From 1995 to 1997, he served as presidentDirector of Trace Industries,Materials of Telsmith, Inc. d/b/From 1992 to 1995, Mr. Patek was Director of Materials and Manufacturing of the former Milwaukee plant location. From 1978 to 1992, he held various manufacturing management positions at Telsmith. Mr. Patek is a CEI Enterprises, since April 1992. Prior to joining CEI, Mr. England served as a trustee for the U.S. Bankruptcy Court for three years. Mr. England has also served as general managergraduate of N.C. Ribble Company, a large construction equipment distributor, in Albuquerque, New Mexico.Milwaukee School of Engineering. He is 63.41. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters The Company's Common Stock is traded in the National Association of Securities Dealers Automated Quotation System (NASDAQ) National Market under the symbol "ASTE"."ASTE." The Company has never paid any dividends on its Common Stock. The high and low sales prices of the Company's Common Stock as reported on the NASDAQ National Market for each quarter during the last two fiscal years, wereare as follows: Price Per Share 19951997 High Low 1st Quarter 14 1/10-1/8 8-1/4 11 2nd Quarter 13 1/12-7/8 10 7/9-5/8 3rd Quarter 11 3/17-3/4 9 7/812-5/16 4th Quarter 12 1/4 9 3/418-3/8 15-3/8 Price Per Share 19941996 High Low 1st Quarter 20 1/10-5/8 13 1/29-1/8 2nd Quarter 17 5/11-1/8 138-1/4 3rd Quarter 15 12 1/29-1/8 8-1/8 4th Quarter 15 7/8 11 5/9-3/4 8-3/8 The number of holders of record of the Company's Common Stock as of March 11, 1996,9, 1998 was 748.approximately 600. Item 6. Selected Financial Data Selected financial data appear on page A-1 of this Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations appears on pages A-2 to A-5 of this Report. Item 8. Financial Statements and Supplementary Data Financial statements and supplementary financial information appear on pages A-6 to A-23 of this Report. Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure None required to be reported in this item. PART III Item 10. Directors and Executive Officers of the Registrant Information regarding the Company's directors included under the caption "Election of Directors - Certain Information Concerning Nominees and Directors" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 25, 199623, 1998, is incorporated herein by reference. Required information regarding the Company's executive officers is contained in Part I of this Report under the heading "Executive Officers of the Registrant".Registrant." Information regarding compliance with Section 16(a) of the Exchange Act is included under "Election of Directors - Section 16(a) Filing Requirements" in the Company's definitive Proxy Statement, which is incorporated herein by reference. Item 11. Executive Compensation Information included under the caption, "Election of Directors - Executive Compensation" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 25, 199623, 1998 is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information included under the captions "Election of Directors - Certain Information Concerning Nominees and Directors",Directors," "Election of Directors - Common Stock Ownership of Management" and "Election of Directors - Common Stock Ownership of Certain Beneficial Owners" in the Company's definitive Proxy Statement to be delivered to the shareholders of the Company in connection with the Annual Meeting of Shareholders to be held on April 25, 199623, 1998 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions On March 20, 1995, the Company acquired all18, 1996, Dr. J. Don Brock, Chairman of the issuedBoard and outstanding shares of Trace Industries, Inc., a New Mexico corporation doing business as CEI Enterprises ("CEI"), in exchange for $852,004 in cash and 87,333 shares of Company Common Stock. The deemed effective date of this transaction for financial reporting purposes was February 28, 1995. The purchase price was determined by the Senior Vice President of the Company based on his opinion of the fair market value of CEI following arm's length negotiation. Priorloaned $1,178,000 to this acquisition, CEI was a closely held company with four shareholders including Mr. Brent England, its President. In connection with this transaction, CEI was merged into a wholly owned subsidiary of the Company with Mr. England continuing to serve as President of the successor corporation and, as such, is now an executive officer of the Company. In lieu of providing registration rights to the former shareholders of CEI with respect to the shares of Company Common Stock being issued in this transaction, the Company granted each such shareholder the right to require the Company to redeem the shares at any time within two years of the closing date atsupplement its working capital revolving credit facility. The Company executed a price of $12.00 per share. Mr. England received 23,333 shares of Company Common Stockdemand note payable to Dr. Brock in connection with this transaction and, consistent withloan bearing interest at a rate equal to that paid to First Chicago NBD under the rights grantedCompany's unsecured revolving line of credit. At the time Dr. Brock loaned these funds to each other former shareholder of CEI, has the right to require the redemption of such shares by the Company, for $12.00 per share at any timethe Company's outstanding balance under its $22,000,000 revolving credit facility was $9,605,000. The Company was able to use the proceeds of the loan from Dr. Brock to reduce the amount outstanding under the credit facility. The loan was repaid to Dr. Brock on or before March 20, 1997.January 6, 1997, along with interest accrued to that date. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)(1) The following financial statements and other information appear in Appendix "A" to this Report and are filed as a part hereof: . Selected Consolidated Financial Data. . Management's Discussion and Analysis of Financial Condition and Results of Operations. . Report of Independent Auditors. . Consolidated Balance Sheets at December 31, 19951997 and 1994.1996. . Consolidated Statements of Income for the Years Ended December 31, 1995, 19941997, 1996 and 1993.1995. . Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 19941997, 1996 and 1993.1995. . Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 19941997, 1996 and 1993.1995. . Notes to Consolidated Financial Statements. (a)(2) Other than as described below, Financial Statement Schedules are not filed with this Report because the Schedules are either inapplicable or the required information is presented in the Financial Statements or Notes thereto. The following Schedules appear in Appendix "A" to this Report and are filed as a part hereof: . ReportConsent of Independent Auditors. . Schedule VIIIII - Valuation and Qualifying Accounts. (a)(3) The following Exhibits* are incorporated by reference into or are filed with this Report: 2.2 Share Purchase and Transfer Agreement by and between the Company and Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik mbH, dated as of October 5, 1994 (incorporated by reference to the Form 8-K dated November 7, 1994, File No. 0-14714). 3.1 Restated Charter of the Company (incorporated by reference to the Company's Registration Statement on Form S-1, effective June 18, 1986, File No. 33-5348). 3.2 Articles of Amendment to the Restated Charter of the Company, effective September 12, 1988 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 0-14714). 3.3 Articles of Amendment to the Restated Charter of the Company, effective June 8, 1989 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14714)0- 14714). 3.4 Amended and Restated Bylaws of the Company, adopted March 14, 1990 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14714). 4.1 Trust Indenture between City of Mequon and Firstar Trust Company, as Trustee, dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). 4.2 Indenture of Trust, dated April 1, 1994, by and between Grapevine Industrial Development Corporation and Bank One, Texas, NA, as Trustee (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714)0- 14714). 4.3 Shareholder Protection Rights Agreement, dated December 22, 1995 (incorporated by reference to the Company's Current Report on Form 8-K dated December 22, 1995, File No. 0-14714). 10.29 Lease Agreement, dated as of August 28, 1989, between Telsmith, Inc., and Pine Hill Developers (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14714). 10.57 License Agreement, dated July 2, 1992, between Telsmith, Inc. and Gerlach Industries (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, File No. 0-14714). 10.75 Loan Agreement between City of Mequon, Wisconsin and Telsmith, Inc. dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). *The Exhibits are numbered in accordance with Item 601 of Regulation S-K. Inapplicable Exhibits are not included in the list. 10.76 Credit Agreement by and between Telsmith, Inc. and M&I Marshall & Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). 10.77 Security Agreement by and between Telsmith, Inc. and M&I Marshall & Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). 10.78 Mortgage and Security Agreement and Fixture Financing Statement by and between Telsmith, Inc. and M&I Marshall & Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). 10.79 Guarantee of Astec Industries, Inc. in favor of M&I Ilsley Bank, dated as of February 1, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14714). 10.80 Guarantee of Wibau-Astec Maschinenfabrik GmbH in favor of Dresdner Bank Aktiengensellschaft, dated as of December 22, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.81 Letter of Guarantee of Wibau-Astec Maschinenfabrik GmbH in favor of Berliner Hondels - und Frankfurter Bank, dated as of December 22, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.82 Guarantee of Wibau-Astec Maschinenfabrik GmbH in favor of Bayerische Vereinsbank, dated as of December 22, 1993 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.83 Loan Agreement dated as of April 1, 1994, between Grapevine Industrial Development Corporation and Trencor, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.84 Letter of Credit Agreement, dated April 1, 1994, between The First National Bank of Chicago NBD and Trencor, Inc. (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.85 Guaranty Agreement, dated April 1, 1994, between Astec Industries, Inc. and Bank One, Texas, NA, as Trustee (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.86 Astec Guaranty, dated April 29, 1994, of debt of Trencor, Inc. in favor of The First National Bank of Chicago NBD (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.87 Credit Agreement, dated as of July 20, 1994, between the Company and The First National Bank of Chicago NBD (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0- 14714). 10.88 Guarantee of Wibau-Astec Maschinenfabrik GmbH in favor of Bayerische Vereinsbank, dated as of January 16, 1995 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.89 Waiver for December 31, 1994, dated February 24, 1995 with respect to the First National Bank of Chicago NBD Credit Agreement dated July 20, 1994 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14714). 10.90 First Amendment to Guaranty of Payment, dated March 21, 1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.; Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.; and The First National Bank of Chicago.Chicago NBD (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.91 First Amendment to Credit Agreement, dated May 22, 1995 between the Company and The First National Bank of Chicago.Chicago NBD (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.92 Second Amendment to Guaranty of Payment, dated May 22, 1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.; Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.; and The First National Bank of Chicago.Chicago NBD (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.93 Guaranty of all obligations of Astec-Europa Strassenbaumaschinen GmbH executed by the Company in favor of Bayerische Vereinsbank Aktiengesellschaft, dated December 6, 1995.1995 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.94 Guaranty of a DM3,000,000 credit facility to Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik mbH executed by the Company in favor of Deutsche Bank AG, dated December 13, 1995.1995 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.95 Waiver for December 31, 1995, dated November 10, 1995 with respect to The First National Bank of Chicago NBD Credit Agreement dated July 20, 1994, as amended. 10.96 English translation of Applicationamended (incorporated by reference to the Company's Annual Report on Form 10-K for Commencement of Bankruptcy Proceedings filed on behalf of Astec-Europa Strassenbaumaschinen in Gelnhausen, Germany on February 9, 1996.the year ended December 31, 1995, File No. 0- 14714). 10.97 Limited Consent of The First National Bank of Chicago NBD dated as of March 21, 1995 related to the acquisition of Trace Industries, Inc. and the assignment of certain assets to Astec, Inc. Executive Compensation Plans and Arrangements(incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.98 Supplemental Executive Retirement Plan, dated February 1, 1996 to be effective as of January 1, 1995.1995 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.99 Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated January 1, 1996. 11 Statement Regarding Computation1996 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 10.101 Loan Agreement dated December 5, 1996 between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. (_CIT_) (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-14714). 10.102 Astec Industries, Inc. Guaranty dated December 5, 1996 of Per Share Earnings.Line of Credit Agreement between Astec Financial Services, Inc. and The CIT Group/Equipment Finance (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 0-14714). 10.103 Amended and Restated Credit Agreement dated November 27, 1997 between the Company, Astec Financial Services, Inc. and First Chicago NBD. 10.104 Asset Purchase Agreement dated October 16, 1997 between Portec, Inc. and Astec Industries, Inc. 10.105 Amendment to Asset Purchase Agreement dated December 2, 1997 by and between Astec Industries, Inc. and Portec, Inc. 10.106 Revolving Line of Credit Note dated December 2, 1997 between Kolberg-Pioneer, Inc. and Astec Holdings, Inc. 10.107 Guaranty Joinder Agreement dated December 1997 between Kolberg-Pioneer, Inc. and Astec Holdings, Inc. in favor of the First National Bank of Chicago. 22 Subsidiaries of the Registrant. 23 Consent of Independent Auditors (b) No reportsA report on Form 8-K werewas filed in the fourth quarter.on December 2, 1997. (c)The Exhibits to this Report are listed under Item 14(a)(3) above. (d)The Financial Statement Schedules to this Report are listed under Item 14(a)(2) above. *The Exhibits are numbered in accordance with Item 601 of Regulation S-K. Inapplicable Exhibits are not included in the list. APPENDIX "A" to ANNUAL REPORT ON FORM 10-K ITEMS 8 and 14(a)(1) and (2), (c) and (d) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES ASTEC INDUSTRIES, INC. Contents Page Selected Consolidated Financial DataData............................. A-1 Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations.................................................... A-2 Consolidated Balance Sheets at December 31, 19951997 and 19941996........ A-6 Consolidated Statements of Income for the Years Ended December 31, 1995, 19941997, 1996 and 19931995............................................... A-7 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 19941997, 1996 and 19931995............................................... A-8 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 19941997, 1996 and 19931995......................................... A-9 Notes to Consolidated Financial StatementsStatements....................... A-11 Report of Independent AuditorsAuditors................................... A-23 Schedule VIIIII - Valuation and Qualifying Accounts REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Astec Industries, Inc. We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. and subsidiaries and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Astec Industries, Inc. and subsidiaries at December 31, 1995 and 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 1, in 1995 the Company changed its method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of. /s/ ERNST & YOUNG LLP Chattanooga, Tennessee February 27, 1996 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE (VIII) VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993Accounts................ A-24 ADDITIONS CHARGES TO BEGINNING COSTS & OTHER
ENDING SELECTED CONSOLIDATED FINANCIAL DATA DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE December 31, 1995: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $ 1,684,242 $ 533,136 $ 20,000 (3) $ 958,740 (1) $ 1,278,638 Reserve for inventory $ 4,994,035 $ 1,196,876 $ 0 $ 752,401 $ 5,438,510 Other Reserves: Product warranty$ 3,470,703 $ 3,194,240 $ 0 $ 4,194,168 (2) $ 2,470,775 December 31, 1994: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $ 1,191,083 $ 362,089 $ 467,607 (3) $ 336,537 (1) $ 1,684,242 Reserve for inventory $6,494,533 $ 3,621,218 $ 0 $ 5,121,716 $ 4,994,035 Other Reserves: Product warranty $ 1,781,733 $ 2,616,565 $ 0 $ 927,595 (2) $ 3,470,703 Reserve for patent damages $ 13,250,048 $ 620,290 $ 0 $ 13,870,338 $ 0 December 31, 1993: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $1,060,588 $742,752 $ 21,609 $ 633,866 (1) $ 1,191,083 Reserve for inventory $ 5,948,084 $ 2,952,918 $ 0 $ 2,406,469 $ 6,494,533 Other Reserves: Product warranty$1,551,850 $ 2,689,441 $ 0 $ 2,459,558 (2) $ 1,781,733 Reserve for patent damages $ 12,554,640 $ 695,408 $ 0 $ 0 $ 13,250,048
[FN] (1) Uncollectible accounts written off, net of recoveries. (2) Warranty costs charged to the reserve. (3) Represents reserve balances of subsidiaries acquired in the year. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Astec Industries, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASTEC INDUSTRIES, INC. BY: /s/ J. Don Brock J. Don Brock, Chairman of the Board and President (Principal Executive Officer) BY: /s/ Albert E. Guth Albert E. Guth, Senior Vice President Secretary and Treasurer (Principal Financial and Accounting Officer) Date: March 1, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by a majority of the Board of Directors of the Registrant on the dates indicated: SIGNATURE TITLE DATE /s/ J. Don Brock Chairman of the Board March 1, 1996 J. Don Brock and President /s/ Albert E. Guth Senior Vice President, March 1, 1996 Albert E. Guth Secretary, Treasurer and Director /s/ W. Norman Smith President - Astec, Inc. March 1, 1996 W. Norman Smith and Director /s/ Robert G. Stafford President - Telsmith, Inc. March 1, 1996 Robert G. Stafford and Director /s/ Jerry F. Gilbert President - Trencor, Inc. March 1, 1996 Jerry F. Gilbert and Director SIGNATURE TITLE DATE /s/ E.D. Sloan Jr. Director March 1, 1996 E.D. Sloan, Jr. /s/ William B. Sansom Director March 1, 1996 William B. Sansom /s/ Joseph Martin, Jr. Director March 1, 1996 Joseph Martin, Jr. /s/ George C. Dillon Director March 1, 1996 George C. Dillon /s/ G.W. Jones Director March 1, 1996 G.W. Jones /s/ Daniel K. Frierson Director March 1, 1996 Daniel K. Frierson Commission File No. 0-14714 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 ASTEC INDUSTRIES, INC. 4101 Jerome Avenue Chattanooga, Tennessee 37407 ASTEC INDUSTRIES, INC. FORM 10-K INDEX TO EXHIBITS Sequentially Exhibit Number Description Numbered Page Exhibit 10.90 First Amendment to Guaranty of Payment, dated March 21, 1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.; Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.; and The First National Bank of Chicago. Exhibit 10.91 First Amendment to Credit Agreement, dated May 22, 1995 between the Company and The First Nationa Exhibit 10.92 Second Amendment to Guaranty of Payment, dated May 22, 1995 by and between Heatec, Inc.; Roadtec, Inc.; Trencor, Inc.; Telsmith, Inc.; Astec Transportation, Inc.; ACI, Inc.; Astec, Inc.; CEI Enterprises, Inc.; and The First National Bank of Chicago. Exhibit 10.93 Guaranty of all obligations of Astec-Europa Strassenbaumaschinen GmbH executed by the Company in favor of Bayerische Vereinsbank Aktiengesellschaft, dated December 6, 1995. Exhibit 10.94 Guaranty of a DM3,000,000 credit facility to Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik mbH executed by the Company in favor of Deutsche Bank AG, dated December 13, 1995. Exhibit 10.95 Waiver for December 31, 1995, dated November 10, 1995 with respect to The First National Bank of Chicago Credit Agreement dated July 20, 1994, as amended. Exhibit 10.96 English translation of Application for Commencement of Bankruptcy Proceedings filed on behalf of Astec-Europa Strassenbaumaschinen in Gelnhausen, Germany on February 9, 1996. Exhibit 10.97 Limited Consent of The First National Bank of Chicago dated as of March 21, 1995 related to the acquisition of Trace Industries, Inc. and the assignment of certain assets to Astec, Inc. Executive Compensation Plans and Arrangements Exhibit 10.98 Supplemental Executive Retirement Plan, dated February 1, 1996 to be effective as of January 1, 1995. Exhibit 10.99 Trust under Astec Industries, Inc. Supplemental Retirement Plan, dated January 1, 1996. Exhibit 11 Statement Regarding Computation of Per Share Earnings. Exhibit 22 Subsidiaries of the Registrant. Exhibit 23 Consent of Independent Auditors. For a list of certain Exhibits not filed with this Report that are incorporated by reference into this Report, see Item 14(a)(3). EXHIBIT 11 Statement Regarding Computation of Per Share Earnings ASTEC INDUSTRIES, INC. EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE 12/31/95 (In Thousands) Shares for Earnings Per Share Computations Primary: Weighted average outstanding during year 10,072 Common Stock equivalent for stock options & warrants 124 TOTAL 10,196 Fully Diluted: Weighted average outstanding during year 10,072 Common Stock equivalent for stock options & warrants 125 TOTAL 10,197 Earnings Applicable to Common Stock: Income from continuing operations $ 4,560 Net Income $ 4,560 Earnings Per Common Share (Based on Weighted Average Number of Common and Uncommon Equivalent Shares Outstanding): Income from continuing operations $ .45 Net Income $ .45 Additional Computations of EPS: Fully Diluted: Income from continuing operations $ .45 Net Income $ .45 EXHIBIT 22 Subsidiaries of the Registrant LIST OF SUBSIDIARIES Jurisdiction of Name Owned Incorporation Astec, Inc. 100 Tennessee Astec Transportation, Inc. 100 Tennessee CEI Enterprises, Inc. 100 Tennessee Heatec, Inc. 100 Tennessee Roadtec, Inc. 100 Tennessee Telsmith, Inc. 100 Delaware Trencor, Inc. 100 Texas Exhibit 23 Consent of Independent Auditors CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-14738 and 0-14714) pertaining to the Astec Industries, Inc. 1986 and 1992 Stock Option Plans of our report dated February 27, 1996, with respect to the consolidated financial statements and schedule of Astec Industries, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1995. /s/ERNST & YOUNG LLP Chattanooga, Tennessee March 15, 1996 SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except as noted*)1997 1996 1995 1994 1993 Consolidated Income Statement Data 1995 1994 1993 1992 1991
Net sales $265,365 $ 221,413 $242,601 $ 213,806 $ 172,801 $ 149,133 $134,512$213,806 $172,801 Selling, general and administrative expenses 36,125 35,082 34,326 31,142 28,624 23,969 20,456Research and development 3,707 5,868 5,128 3,166 2,923 Patent suit damages and expenses (net recoveries and accrual adjustments) 264 699 (14,947) 375 567 3,868 Research and development 5,128 3,166 2,923 2,580 2,503 Loss on abandonment of foreign subsidiary 7,037 Income from operations 24,661 8,051 2,566 27,236 9,974 Interest expense 2,398 1,656 2,125 713 1,788 3,241 4,597 Income from continuing operationsNet income 13,809 4,345 4,560 23,436 9,338 6,014 524 Discontinued operations 3,530 Net income 4,560 23,436 9,338 6,014 4,054 IncomeEarnings per common share from continuing operations*(1)share*(2) Basic 1.45 .43 .45 2.38 1.07 .82 .07Diluted 1.42 .43 .45 2.35 1.06 Consolidated Balance Sheet Data Working capital $ 58,015$71,459 $69,884 $58,015 $ 53,000 $ 40,767 $ 33,641 $ 31,167 Total assets 192,243 167,853 154,356 155,964 102,967 87,885 90,989 Total short-term debt 500 2,051 774 8,573 10 3,103 4,862 Long-term debt, less current maturities 35,230 30,497 17,150 16,155 0 22,660 29,387 Shareholders' equity 105,612 99,393 95,901 90,373 64,105 27,631 21,279 Book value per common share at year-end*(1) 11.25 9.84 9.50 9.04 6.54 3.78 2.95
Quarterly Financial HighlightHighlights (Unaudited) First Second Third Fourth Quarter Quarter Quarter Quarter 19951997 Net sales $ 57,544 $ 70,368 $ 65,015 $ 49,674$62,980 $73,159 $65,040 $64,186 Gross profit 13,637 14,011 13,298 8,81115,875 17,765 14,633 16,220 Net income 2,516 4,730 2,768 (5,454)3,525 4,625 2,821 2,838 Earnings per common share*(2) Basic .35 .48 .30 .30 Diluted .35 .48 .30 .30 1996 Net sales $59,570 $63,212 $47,182 $51,449 Gross profit 13,822 15,305 11,284 8,854 Net income 2,826 2,245 1,021 (l,747) Earnings per common share* .25 .47 .27 (.54) 1994 Net sales $ 46,226 $ 62,694 $ 49,021 $ 55,865 Gross profit 11,029 14,013 11,216 11,839 Net income 2,876 5,212 3,131 12,217 Net income per common share* .29 .53 .32 1.23(2) Basic .28 .22 .10 (.17) Diluted .28 .22 .10 (.17) Common Stock Price* 19951997 High 14-1/10-1/8 12-7/8 17-3/4 13-1/18-3/8 11-3/1997 Low 8-1/4 12-1/4 1995 Low 11 10-7/9-5/8 9-7/12-5/16 15-3/8 1996 High 10-5/8 11-1/8 9-1/8 9-3/4 1994 High 20-1/1996 Low 9-1/8 17-5/8-1/4 8-1/8 15 15-7/8 1994 Low 13-1/2 13 12-1/2 11-5/8-3/8 The Company's common stock is traded on the National Association of Securities Dealers Automated Quotation (NASDAQ) National Market under the symbol ASTE. Prices shown are the high and low bid prices as announced by NASDAQ. The Company has never paid any dividends on its common stock. The number of shareholders of record is approximately 750.600. (1) Restated to retroactively reflect the two-for-one stock split effected in the form of a dividend on August 12, 1993. (2) All earnings per share amounts have been restated to comply with Statement of Financial Standards No. 128, Earnings per Share. (3) Positive physical inventory adjustments, offset by certain other fourth quarter charges, increased earnings per share in the fourth quarter of 1997 by approximately $.04 per share. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 19951997 vs. 19941996 Net income for 1997 was $13,809,000, or $1.45 per share basic or $l.42 per share diluted, compared to net income of $4,345,000, or $.43 per share both basic and diluted in 1996. The effect of the Company's purchase of its common shares in the second quarter was to increase basic net income per share by $.08 and diluted net income per share by $.07. The 1996 results included approximately $3,000,000 of charges related to the discontinuance and writedown of a newly-developed mining machine product line, increases in inventory reserves related to the log loader business and litigation expenses. In 1996 the Company experienced a decline in international sales of asphalt plants of $25,447,000; however, the Company improved international asphalt plant sales in 1997 by $11,690,000. Net sales for 1997 were $265,365,000, an increase of $43,952,000, or approximately 19.9% compared to 1996. The 1997 international sales increased by $20,593,000 (53.8%) to approximately $58,902,000 compared to 1996 international sales of $38,309,000. The 1997 international sales represented a return to within $63,000 of the 1995 international sales volume. The 1997 domestic sales increased from $183,104,000 to $206,463,000, or $23,359,000, for a 12.8% increase from 1996. The increase in domestic sales is principally attributed to increased sales in asphalt plants and mobile equipment. The increase in international sales was $4,560,000attributed to all subsidiaries increasing their sales, with asphalt plants, mobile equipment and rock crushing equipment being the leaders. International sales by domestic subsidiaries in 1997 were 22.2% of total sales compared to 17.3% in 1996. The gross profit margin was 24.3% in 1997 compared to 22.3% in 1996. The improvement was generated primarily from increased volumes in the asphalt plant and mobile equipment operations and efficiences being realized from capital expenditures made over the last few years. In 1997, selling, general, and administrative expenses decreased to 13.6% of net sales from 15.8% of net sales in 1996. The volume increase in net sales, coupled with significant reductions in legal expenses from 1996, are the primary factors responsible for the decreased percentage. Research and development expenses decreased to 1.4% of net sales in 1997 from 2.7% in the prior year. Research and development expenses decreased from 1996 to 1997 primarily because of the product development expenses related to the mining machine in 1996, which were approximately $2,300,000. The reduction in expenses, coupled with the increase in sales volume, impacted the percentage of research and development expenses to net sales. Interest expense for 1997 increased to .9% of sales from .8% of sales for 1996. The increase related primarily to borrowings required for the captive finance company, which completed its first full year of operations in 1997 and funds needed for the purchase of shares under the Company's dutch tender offer completed in May 1997. Income tax expense for 1997 was $9,156,977, or $.4539.9% of pre-tax income, compared to $2,673,000 for 1996, or 38.1% of pre-tax income. The backlog at December 31, 1997 was $61,387,000 (including $8,022,000 for Kolberg-Pioneer) compared to $54,298,000. This represents a 13.1% increase over 1996. The backlog without Kolberg-Pioneer at December 31, 1996 was $44,911,000. The increase is principally attributed to increased asphalt plant orders. The Company is unable to determine whether this increase in backlog was experienced by the industry as a whole or whether it reflects an increase of market share. While this backlog reflects a positive development, management does not believe this increase represents a trend, but is attributed to periodic fluctuations in sales volume given the nature of the Company's products and customers. Results of Operations 1996 vs. 1995 Net income for 1996 was $4,345,000, or $.43 per share, compared to net income of $23,436,000$4,560,000, or $2.38$.45 per share, in 1994.1995. Net income for 19941995 included $14,947,000 in non-recurring gains as a resultlosses of final judgments entered in connection withapproximately $4,279,000 relative to the CMI litigation. The decline in 1995 also reflects a $7,037,000 loss resulting from the abandonment of Astec-Europa, as well as continuing losses from foreign operations during 1995. Income before income taxes was $6,141,000 in 1995 compared to $25,737,000 in 1994. This is shown in the following table: Year Ended December 31, 1995 1994 Income before income taxes $ 6,141,000 $ 25,737,000 Patent suit recoveries - CMI litigation (14,947,000) Gain on sale ofCompany's former German subsidiaries, Astec- Europa and Wibau-Astec, (2,449,000) Loss on abandonment of Astec-Europa 7,037,000 Loss from foreign subsidiaries 3,598,000 5,366,000 Adjustedwhile pre-tax income from domestic operations 14,327,000 16,156,000 Income taxes for domestic operations (5,487,000) (916,000)1996 was reduced by approximately $3,000,000 due to various fourth quarter charges. Net income from domestic operations $ 8,840,000 $ 15,240,000was $4,345,000 in 1996 compared to $8,840,000 in 1995. This decrease was principally attributed to the fourth quarter charges taken in connection with the discontinuance and writedown of a newly-developed mining machine product line, increases in inventory reserves related to the Company's log loader business and additional litigation expenses incurred by the Company. The Company also experienced a $25,447,000 decline in international asphalt plant sales from domestic operations from 1995 to 1996. This decline had a significant adverse impact on net income for 1996. In addition, the Company experienced an increase in income tax expense of approximately $870,000 in 1996 due to an increase in the effective income tax rate applicable to the Company. This also contributed to the decrease in adjusted pre-tax income for domestic operations of $1,829,000 in 1995 as compared to 1994 is the result of increased gross profit margin due to increased sales of domestic subsidiaries which were more than offset by increased interest, research and development expenses and a decrease in othernet income from domestic subsidiaries.operations for 1996. Net sales for 19951996 were $242,601,000, an increase$221,413,000, a decrease of $28,795,000$21,188,000, or approximately 13.5%8.7% compared to 1994. Of1995. Excluding sales of $24,748,000 related to German operations which were disposed of in 1995, 1996 sales increased by $3,560,000, or 1.6%, and domestic sales increased by $24,216,000 in 1996 compared to 1995. This increase in domestic sales is principally attributed to strong sales in mobile equipment, rock crushing equipment, a slight improvement in sales of trencher equipment and increased domestic sales of asphalt plants. However, this increase $14,615,000 is attributable to the acquisitionin domestic sales was offset by a $20,656,000 decrease in international sales, primarily as a result of Gibat Ohl and the acquisitiona $25,447,000 decline in international sales of the remaining 50% interest in Wibau-Astec. CEI, which was acquired in 1995, accounted for $3,543,000 in sales. Excluding the increase from the German operations and the CEI acquisition, sales increased $10,637,000 or 5.2%.asphalt plants. International sales by domestic subsidiaries were 17.3% of total sales in 1996 compared to 24.3% of total sales in both 1995 and 1994. The net increase in sales reflects a strong sales increase in asphalt plants, heaters and rock crushing equipment, but reduced sales in mobile equipment and trenchers.1995. The gross profit margin for 1996 was 22.3% compared to 20.5% for 1995. This increase reflects the improvement attributable to the disposition of German operations in 1995 where gross profit margin was 20.5%low. Domestic operations' gross profit margin for 1996 was 22.3% compared to 22.5% for 1994. This decrease is primarily due1995. In 1996, selling, general, and administrative expenses increased to lower gross profit margins15.8% of net sales from our foreign operations which had gross profit margins of 3.4%14.1% in 1995 compared to 11.4% in 1994. Domestic operations gross profit margin for 1995 was 22.5% compared to 23.0% for 1994.1995. In 1995, selling, general, and administrative expenses decreasedwere 14.0%, excluding the German operations. ConExpo, an equipment show which occurs once every three years, accounted for .4% of the increase. As a percentage, the additional increase is attributed to 14.1% ofthe reduction in net sales from 14.6% in 1994. The Gencor patent litigation accounted for $699,000 of legal fees which are included in 1995 patent damages1996, increased sales accommodations on the log loader product line, increased selling expenses primarily related to salaries, travel, and expenses.entertainment expenses at all subsidiaries, and product demonstration expenses at the Roadtec subsidiary. Research and development expenses increased from 1.5%2.1% of net sales in 19941995 to 2.1%2.6% in 1995 primarily due1996. Excluding the German operations, research and development expenses were 1.3% in 1995. This increase in 1996 was principally attributed to foreign operations. As noted above, incomethe product development expenses related to a prototype mining machine. Interest expense for 1996 decreased to .8%-of sales from operations was significantly impacted by the losses.9% of Astec-Europasales in 1995. The total pre-tax loss, includingdecrease resulted from reduced average borrowings and lower average interest rates during 1996. Other income decreased by $5,076,000 from 1995 to 1996. Excluding German operations, the cost of abandonment,decrease was approximately $9,945,000. Astec-Europa incurred pre- tax operating losses inonly $525,000. The 1995 of approximately $2,908,000. Due to Astec- Europa's poor operating results and its negative net worth at December 31, 1995, the Company declined to contribute additional capital to Astec- Europa, electing instead to abandon the subsidiary in accordance with German law. Astec-Europa management filed a request for bankruptcy inother income, excluding Germany, on February 9, 1996. Consequently, the Company does not believe that it will be required to fund Astec-Europa's liabilities except for certain liabilities previously guaranteed by the Company. The loss on abandonment of approximately $7,037,000 includes the liabilities of Astec- Europa that were guaranteed by the Company and the remainder of the original investment recordedincluded gains on the books of the Company. Interest expense for 1995 increased to .9% of net sales from .3% in 1994. The increase resulted from increased inventories in anticipation of sales which did not materialize and investment in capital expenditures of $15,160,000. Other income increased by approximately $722,000 or 36.7% in 1995, resulting primarily from Astec-Europa (formerly Gibat Ohl) receiving $1,430,000 to settle various claims related to Astec-Europa's business operations. The gain on sale of foreign subsidiary of $2,449,000 in 1995 is duefixed assets, primarily related to the sale of Wibau-Astec as describedthe former manufacturing facility operated by Telsmith, but no such comparable gains occurred in Note 2 to Consolidated Financial Statements.1996. Income tax expense for 19951996 was $2,673,000, or approximately 38.1% of pre-tax income, compared to $1,580,000, or approximately 25.7% of pre-tax income compared to $2,300,000 or approximately 8.9% of pre-tax income in 1994.1995. The reason for the variance from the normal corporate tax rate in 19941995 was the utilization of net operating loss carryforwards and establishment of a deferred tax benefit relative to net deductible temporary differences which could be recovered against future taxes or taxes previously paid. The variance in 1995 is primarily attributed to a lower effective tax rate related to the Company's foreign operations. See Note 9 to Consolidated Financial Statements. Due to the utilization ofThe Company has previously utilized the majority of its tax credit carryforwards, therefore,the Company's tax rate for 1996 and subsequent years will approximate the normal corporate rate. The backlog at December 31, 1995 is $34,751,0001996 was $44,911,000 compared to $50,465,000$34,751,000 at December 31, 19941995, representing a 29.2% increase which represents a 31.1% decrease.was principally attributed to increased domestic asphalt plant orders. The Company'sCompany is unable to determine whether this increase in backlog for 1994 was unusually large primarily due to the optimism of many of our major customers about the strength of the economy and increased demand resulting from the renewed emphasis to rebuild infrastructure. The Company's current backlog is more consistent with the historical trend experienced by the Company. Resultsindustry as a whole or whether it reflects an increase of Operations 1994 vs. 1993 Net sales for 1994 increased $41,005,000 or approximately 23.7% compared to 1993. Ofmarket share. While this backlog reflects a positive development, management does not believe this increase $10,133,000 was attributablerepresents a trend, but is attributed to periodic fluctuations in sales volume given the nature of theCompany's products and customers. In contrast to the acquisition of Gibat Ohlstrong domestic market, international asphalt plant orders continue to be slow and the remaining 50% of Wibau-Astec. Excluding these acquisitions,unpredictable. In an effort to improve international asphalt plant sales, increased $30,872,000 or 17.9%. International sales by domestic subsidiaries were 24.3% in 1994 and 17.2% in 1993. The increase in sales reflected the strength of our economy, the attitude of our customers toward the economy, expectations for infrastructure contracts and the quality, performance and competitiveness of our products as a result of many years of investment in research and development. The gross profit margin for 1994 was 22.5% compared to 24.2% for 1993. Domestic operations gross profit margin for 1994 was 23.0% compared to 24.2% for 1993. Foreign operations gross profit margin was 11.4% The domestic gross profit margin was negatively effected in 1994 for several reasons: 1) Telsmith's consolidation of plant operations with many inefficiencies involved. 2) Trencor's relocation to facilities in Grapevine, Texas from Grand Prairie, Texas. 3) Inefficiencies related to the training of a significant number of new manufacturing employees at Trencor and training of replacements for retirees at Telsmith. 4) Trencor's introduction of the Log Hog product line. Offsetting these negative factors were improved margins at Heatec and increased manufacturing efficiencies at Roadtec, both of which positively affected the gross profit margin. In 1994, selling, general, and administrative expenses decreased to 14.6% of net sales from 16.6% in 1993. The increase in sales was the primary reason for the percentage reduction. Research and development expense declined from 1.7% of net sales in 1993 to 1.5% in 1994, again, primarily due to the increase in sales. In October 1994, the decision by the United States Supreme Court to deny certiorari in connection with the appeal filed by CMI Corporation ("CMI") brought to a successful end the Company's long-standing patent litigation with CMI. The Supreme Court's actions effectively denied CMI's request to appeal a lower court ruling that found Astec did not have liability for infringement of CMI patents and left intact damages payable by CMI to Astec. As a result, previously established liabilities of $13,870,000, payable by the Company were reversedhas reviewed its international sales efforts and patent damages of $1,309,000 were received from CMI. These amounts are shownhas located a salesman in Consolidated Statements of Income as net recoveries and accrual adjustments of patent damages. See "Contingencies" and Note 10Singapore to the Consolidated Financial Statements. Because our joint venture, Wibau-Astec, continued to be unprofitable, it became apparentdevelop that major changes were necessary and we beganregional market. The Company held a plan of restructuring. Restructuring costs of $1,500,000 related to Wibau-Astec are discussedservice school for Spanish-speaking customers in Note 12 to Consolidated Financial Statements. The anticipated effect of the restructuring plan was reflected in the pro forma summary included in Note 2. Interest expense for 1994 decreased to 0.3% of net sales from 1.0% in 1993. This was due to a decrease in overall interest expense combined with the increase in sales. Plant expansion and improvements were financed by industrial revenue bonds at favorable interest rates. Other income decreased by approximately $371,000 or 15.9% in 1994. This was due to the fact that one international licensee that was not renewed for 1994 produced $665,000 in license fees in 1993. The equity in loss of joint venture of $3,177,000 reflects 50% of the losses from the joint venture for the ten months prior to the purchase of the remaining 50% interest in Wibau-Astec. Income tax expense for 1994 was $2,300,000 or approximately 8.9% of pre- tax income. The primary reasons for the variance from the normal corporate tax rate were the utilization of net operating loss carryforwards and establishment of a deferred tax benefit relative to net deductible temporary differences which could be recovered against future taxes or taxes previously paid. See Note 9 to Consolidated Financial Statements. In the first quarter of 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes". At December 31, 1994, there were net deferred tax assets of approximately $14,799,000, which were comprised of temporary differences, the tax benefit of net operating loss and credit carryforwards and foreign net operating loss carryforwards. Temporary differences related primarily to inventory reserves, warranty reserves and bad debt reserves. At December 31, 1994, a valuation allowance of approximately $10,070,000 was recorded. This valuation allowance offsets the deferred tax assets relative to net operating loss carryforwards. Both the net operating loss and credit carryforwards are SRLY carryforwards and can be used to offset only the income of a certain subsidiary of the Company. As a result, the Company determined that a valuation allowance was necessary for these items as well as the foreign net operating loss carryforward, the utilization of which was uncertain. The backlog at December 31, 1994 was $50,465,000 compared to $33,100,000 at December 31, 1993 which represents a 52.4% increase. The increase was primarily due to the optimism of our customers about the strength of the economy and the performance and competitiveness of our products.1997. Liquidity and Capital Resources Working capital increased to $58,015,000$71,459,000 at December 31, 19951997 from $53,000,000 at ResourcesDecember 31, 1994. The Company's debt to equity ratio was .19 to 1$69,884,000 at December 31, 1995 and .271996. The Company's debt- to-equity ratio was .34 to 11.00 at December 31, 1994.1997 and .33 to 1.00 at December 31, 1996. The debt for foreign subsidiaries has been removed from the balance sheet as a resultCompany's principal source of the sale of Wibau-Astecliquidity in 1997 was its borrowings under current and the abandonment of Astec- Europa.newly-obtained credit facilities. Total short-term borrowings, including current maturities of long-term debt, were $774,000$500,000 at December 31, 19951997 and $8,573,000$2,051,000 at December 31, 1994.1996. Included in short-term borrowings at December 31, 1996 was a loan from the Company's Chief Executive Officer, Dr. J. Don Brock, dated March 18, 1996, in the amount of $1,078,000. The principal and all accrued interest on the loan, calculated at the Company's current borrowing rate under its revolving credit facility with First Chicago NBD, was repaid to Dr. Brock on January 6, 1997. Long-term debt, less current maturities, was $17,150,000$35,230,000 at December 31, 19951997 and $16,155,000$30,497,000 at December 31, 1994.1996. Major items impacting the borrowing include business combinations of $22,383,000, the purchase of shares in the 1997 dutch tender for $7,782,000 and capital expenditures of $9,044,000, offset by funds generated from operations. Capital expenditures of $15,160,000$9,044,000, excluding those for equipment leased to others, were made in 1995 as1997 compared to capital expenditures in 19941996 of $21,886,000. The Company utilized industrial revenue bonds in 1994 in the amount of $8,000,000 to finance the Grapevine, Texas (Trencor) project which included improvements to the existing facility as well as additions of new equipment. Industrial bonds were issued in February 1994 in the amount of $6,000,000 to assist in financing the Telsmith expansion at Mequon, Wisconsin.$8,708,000. The Company has an unsecured revolving credit loan agreement with The First National Bank of Chicago.Chicago NBD. The line of credit is $22,000,000.$70,000,000. This credit facility expires June 30, 1997.November 22, 2002. At December 31, 1995, $4,150,0001997, $23,230,000 of the line of credit was utilized. At December 31, 1995Principal covenants under the Company was in violationFirst Chicago credit agreement include (i) the maintenance of the $10,000,000 limitcertain levels of net worth and compliance with certain net worth, leverage and interest coverage ratios, (ii) a limitation on capital expenditures and has receivedrental expense, (iii) a waiver for such violation.prohibition against dividends, and (iv) a prohibition on large acquisitions except upon the consent of the lenders. The Company was in compliance with all financial covenants related to the above loan agreement at December 31, 1997. As a resultpart of the Company's decision$70,000,000 revolving credit facility, Astec Financial Services, Inc. has a segregated portion of up to abandon Astec-Europa (see Note 3 to the Consolidated Financial Statements), the Company will be required to pay approximately $2,116,000 for bank loans made to Astec-Europa that were guaranteed by the Company and $1,228,000 in warranties guaranteed by the Company. It is expected that these amounts will be funded from cash from operations or by use of the Company'sa $30,000,000 line of credit. At December 31, 1997, Astec Financial Services had utilized $680,000 of this line. Advances under this line are limited to "Eligible Receivables" of Astec Financial Services as defined in the credit agreement. The guaranteed payments requiredCompany and Astec Financial Services were in compliance with all financial covenants related to the line of credit at December 31, 1997. In 1997, year-end trade receivables rose to $33,946,000 from $30,040,000 at 31, 1996. This increase of $3,906,000 reflects the business combination which accounted for loans and warranties have been accrued and are included$4,913,000 of receivables at December 31, 1997. Inventory levels increased $12,631,000 to $69,395,000 at December 31, 1997 from $56,764,000 at December 31, 1996. The increase in other liabilities.inventory primarily reflects the business combination which accounted for $12,198,000 of the increase at December 31, 1997. For additional information on current and long-term debt, see Note 7 to the Consolidated Financial Statements. Contingencies See Note 10 to Consolidated Financial Statements for information on certain pending litigation and contingent liabilities arising from recourse financing arrangements. Environmental Matters Based on information available, from environmental consultants,management believes the Company has no material reserve requirements for potential environmental liabilities. General The Company recognizes the need to ensure its operations will not be adversely impacted by Year 2000 software failures. The term "Year 2000" is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems generally arise from the fact that most of the world's computer hardware and software have historically used only two digits to identify the year in a date, often meaning that the computer will fail to distinguish dates in the "2000s" from dates in the "1900s." Software failures due to processing errors potentially arising from calculations using the Year 2000 date are a known risk. During the first quarter of 1998,the Company commenced a Year 2000 project to address all necessary code changes, testing and implementation. The Company is utilizing both internal and external resources to identify, correct or reprogram, and test its systems for Year 2000 compliance. Although the total cost of compliance and its effect on the Company's future results of operations is impossible to project at this time, the Company is attempting to determine the total costs and effect on results of operations as part of the project. Total costs associated with the Year 2000 issue have been immaterial to date but may be material in the future. The ultimate cost is subject to a number of uncertainties beyond the Company's control, including the availability of consultants and sufficient personnel to deal with the issue and the ability to locate and correct all relevant computer codes. FORWARD-LOOKING STATEMENTS The Company may, from time to time, make forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission (the "Commission") and its reports to shareholders. Statements made in this annual report on Form 10-K, other than those concerning historical information, should be considered forward-looking and subject to various risks and uncertainties. Such forward-looking statements are made based on management's belief as of the date thereof, as well as assumptions made by, and information currently available to management, pursuant to "safe harbor_ provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation: the effects of future economic conditions; the amount of federal, state and local governmental revenues to support road building and related activities; and the effects of competition in the design, engineering and manufacturing of equipment and components used in road building and various other construction activities. The Company does not undertake to update any forward-looking statement that may be made from time to time by, or on behalf of, the Company. CONSOLIDATED BALANCE SHEETSHEETS December 31, 1995 19941997 1996 Assets Current assets: Cash and cash equivalents noteNote 1 $2,926,294 $ 3,133,070 $ 10,471,4443,382,484 Trade receivables less allowance for doubtful accounts of $1,279,000$1,342,000 in 19951997 and $1,684,000$1,267,000 in 1994 27,075,401 29,852,1801996 33,945,574 30,039,813 Finance receivables Note1 44,074,230 3,371,513 Notes and other receivables 596,134 215,390751,235 1,191,223 Inventories note 1,4 55,882,679 56,309,735Note 1, 4 69,395,351 56,764,085 Prepaid expenses 894,593 2,149,7951,985,197 1,967,999 Refundable income taxes 2,341,8492,071,063 Deferred tax asset noteNote 9 6,667,052 2,901,7995,536,666 5,534,950 Other current assets 5,214 236,2297,550 4,169 Total current assets 96,595,992 102,136,572118,622,097 104,327,299 Property and equipment, net noteNote 5 51,709,033 42,348,79261,605,153 54,317,352 Other assets: Goodwill 4,066,152 8,370,6628,226,831 5,285,051 Finance receivables Note 14 670,801 1,854,443 Notes receivable 572,8291,261,985 320,000 Deferred tax asset noteNote 9 1,827,494711,987 442,458 Other 1,412,326 1,280,0691,144,245 1,306,113 Total other assets 6,051,307 11,478,22512,015,849 9,208,065 Total $ 154,356,332 $ 155,963,589$192,243,099 $167,852,716 Liabilities and Shareholders' Equity Current liabilities: Notes payable $ 3,249 $ 8,072,502 Current maturities of long-term debt noteNote 7 771,025$ 500,000 $ 2,051,003 Accounts payable 15,877,964 14,262,51821,421,882 14,613,782 Customer deposits 4,989,557 6,301,4816,464,842 2,150,852 Accrued product warranty 2,470,775 3,470,7033,206,372 2,364,705 Accrued payroll and related liabilities 6,049,429 3,503,080 Income taxes payable note809,384 Deferred tax liability Note 9 1,987,511275,687 173,388 Accrued insurance 2,242,447 2,672,274 Amounts payable in business combination Note 2 2,405,145 Liabilities related to abandoned subsidiary Note 3 360,760 593,886 Other accrued liabilities 14,468,042 14,541,9205,832,716 3,915,162 Total current liabilities 38,580,612 49,136,63547,163,519 34,443,277 Long-term debt, less current maturities noteNote 7 17,150,000 16,155,00035,230,000 30,496,734 Deferred tax liability noteNote 9 2,351,2833,216,948 2,838,024 Deferred retirement costs noteNote 8 373,310 192,242320,314 544,911 Other 106,716700,155 136,842 Total liabilities 58,455,205 65,590,59386,630,936 68,459,788 Shareholders' equity: noteNote 1,11 Preferred stock - authorized 2,000,000 shares of $1.00 par value; none issued Common stock - authorized 20,000,000 shares of $.20 par value; issued and outstanding - 10,092,19910,111,199 in 19951997 and 10,001,83110,101,199 in 1994 2,018,440 2,000,3661996 2,022,240 2,020,240 Additional paid-in-capital 51,940,580 50,900,908 Foreign currency translation adjustment 89,975paid-in capital 52,043,830 51,980,855 Retained earnings 41,942,107 37,381,74760,096,397 46,286,983 Minimum pension liability adjustment (127,150) 114,162,467 100,160,928 Less common stock in treasury at cost - 790,619 shares in 1997 and 64,000 shares in 1996 (8,550,304) (768,000) Total shareholders' equity 95,901,127 90,372,996105,612,163 99,392,928 Total $ 154,356,332 $ 155,963,589$192,243,099 $167,852,716 See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1997 1996 1995 1994 1993 Net sales $ 242,601,351 $ 213,806,411 $ 172,801,465$265,365,312 $221,412,796 $242,601,351 Cost of sales 200,872,181 172,147,913 192,844,160 165,709,245 130,906,009 Gross profit 64,493,131 49,264,883 49,757,191 48,097,166 41,895,456 Selling, general and administrativeadministative expenses 36,124,728 35,081,800 34,325,974 31,142,335 28,624,179 Research and development expenses 3,706,909 5,867,909 5,128,495 3,165,795 2,922,921 Patent suit damages and expenses (net recoveries and accrual adjustments) note 10263,978 699,222 (14,947,498) 374,740 Restructuring costs note 12 1,500,469 Loss on abandonment of foreign subsidiary noteNote 3 7,037,105 Income from operations 24,661,494 8,051,196 2,566,395 27,236,065 9,973,616 Other income(expense)income (expense): Interest expense (2,397,902) (1,656,466) (2,125,261) (712,853) (1,787,742) Loan prepayment penalty and expenses note 7 (544,783) Interest income 259,388 386,646 565,724 426,489 516,957 Other income - net 347,253 247,434 2,685,161 1,963,633 2,334,407 Gain on sale of foreign subsidiary noteNote 2 2,448,551 Equity in lossincome (loss) of joint venture note 2 (3,176,834) (720,000)Note 1 96,158 (10,652) Income before income taxes 22,966,391 7,018,158 6,140,570 25,736,500 9,772,455 Income taxes noteNote 9 9,156,977 2,673,282 1,580,210 2,300,126 434,246 Net income $ 4,560,36013,809,414 $ 23,436,374 $ 9,338,2094,344,876 $4,560,360 Earnings per Common and Common Equivalent Share:Share Net incomeincome: Basic $ 1.45 $ .43 $ .45 $2.38 $ 1.07Diluted 1.42 .43 .45 Weighted average number of common and common equivalent shares outstanding note 1 10,071,930 9,843,980 8,694,478Note 1: Basic 9,555,940 10,047,442 10,071,931 Diluted 9,726,096 10,158,658 10,195,917 See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Foreign Additional Currency Pension Common Common Stock notePaid-in Translation Retained Liability Stock in Shares Note 1 Additional Foreign Currency Retained Shares Amount Paid-in Capital Translation Adjustment Earnings
Adjustment in Treasury Balance December 31, 1992 3,658,634 $ 731,713 $ 22,291,705 $0 $ 4,607,164 Issuance of common stock 1,243,067 248,627 26,887,481 Stock dividend 4,893,701 978,740 (978,740) Net income 9,338,209 Balance December 31, 1993 9,795,402 1,959,080 48,200,446 13,945,373 Issuance of common stock 206,429 41,286 2,700,462 Change during year $ 89,975 Net income 23,436,374 Balance December 31, 1994 10,001,831 2,000,366 50,900,908 89,975 37,381,747$2,000,366 $50,900,908 $89,975 $37,381,747 Issuance of common stock 90,368 18,074 1,039,672 Change during year (89,975) Net income 4,560,360 Balance December 31, 1995 10,092,199 2,018,440 51,940,580 41,942,107 Issuance of common stock 9,000 1,800 40,275 Common stock acquired for treasury - 64,000 shares $ 2,018,440 $ 51,940,580(768,000) Minimum pension liability adjustment $(127,150) Net income 4,344,876 Balance December 31, 1996 10,101,199 2,020,240 51,980,855 46,286,983 (127,150) (768,000) Issuance of common stock 10,000 2,000 62,975 Common stock acquired for treasury - 726,619 shares (7,782,304) Minimum pension liability adjustment 127,150 Net income 13,809,414 Balance December 31, 1997 10,111,199 $2,022,240 $52,043,830 $ 0 $60,096,397 $ 41,942,1070 $(8,550,304)
See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 1995 1994 1993 Cash Flows From Operating Activities Year Ended December 31, 1997 1996 1995 Net income $ 4,560,36013,809,414 $ 23,436,374 $ 9,338,2094,344,876 $4,560,360 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,944,918 5,812,723 5,697,862 3,941,871 3,105,694 Provision for doubtful accounts 272,578 157,183 533,136 362,089 742,752 Provision for inventory reserves 418,906 1,231,828 1,196,876 3,621,218 2,952,918 Provision for warranty 2,811,009 3,018,990 3,194,240 2,616,565 2,689,441 Provision for patent damages (net recoveries and accrual adjustments) (13,250,048) 13,697 Foreign currency translation adjustment (74,519) 89,975 (Gain) loss on sale of fixed assets 747,112 59,118 (263,195) 322,587 (19,976)(Gain) on sale of finance receivables (663,516) (67,492) Equity in (income) loss of joint venture 3,176,834 720,000(96,158) 10,652 Gain on sale of foreign subsidiary (2,448,551) Loss on abandonment of foreign subsidiary 7,037,105 (Increase) decrease in: Receivables 1,005,946 (3,855,177) (2,551,526) (7,660,990) (7,105,758) Inventories (1,833,029) (1,353,245) (5,921,052) (3,537,955) (2,988,734) Prepaid expenses (2,010) (991,145) (2,071,266) (803,177) (337,248) Patent damage escrow funds 12,309,420 (705,431) Deferred tax asset 209,978 1,349,773 413,524 (4,156,695) (572,598) Other assets 261,094 196,607 (993,322) (1,916,921) (400,318) Increase (decrease) in: Accounts payable 3,867,396 (1,383,256) 6,062,733 2,138,449 1,054,970 Customer deposits 4,285,052 (2,838,705) (1,211,925) (1,738,643) 113,091 Accrued product warranty (2,143,242) (3,127,860) (3,433,374) (2,256,128) (2,459,558) Income taxes payable 2,880,447 270,786 (1,117,518) 400,355 877,225 Reserve for patent damages 681,711 Other accrued liabilities 1,885,445 (3,723,984) (2,373,657) (947,201) 1,376,519 Total adjustments 20,851,926 (5,233,204) 1,675,571 (7,288,395) (261,603) Net cash (used) provided by operating activities 34,661,340 (888,328) 6,235,931 16,147,979 9,076,606 Cash Flows Fromfrom Investing Activities Proceeds from sale of property and equipment - net 459,024 1,202,335 953,766 307,099 74,284 Expenditures for property and equipment, including those for equipment leased to others (25,339,464) (8,707,987) (15,159,921) (21,886,011) (8,767,135)Additions to finance receivables (13,480,827) (8,333,293) Collections of finance receivables 1,349,934 536,089 Proceeds from sale of finance receivables 28,170,400 2,638,739 Cash received in connection with sale of subsidiary (36,687) Cash balance abandoned with w/subsidiary (203,643) Additions to notes receivable (116,536) (60,000) Repayments on notes receivable 758,076 901,233 95,256 600,499 47,672 Investment in joint venture (635,700) (589,900)(100,000) Cash payments in connection with business combination, net of cash acquired (22,383,071) 164,794 (834,591) 1,447,965 Net cash (used by)(used) by investing activities (30,582,464) (11,758,090) (15,185,820) (20,166,148) (9,235,079)See Notes to Consolidated Financial Statements. Year Ended December 31, 1997 1996 1995 Cash Flows From Financing Activities Purchase of treasury shares $(7,782,304) $ (768,000) Proceeds from industrial bonds 14,000,000 Proceeds form issuance of common stock 64,975 42,075 $ 9,750 34,750 27,136,109 Net (repayments) borrowings under revolving credit loan 9,908,000 11,680,000 1,495,000 2,655,000 (4,675,000) Principal repayments of industrial bonds, loans and notes payable (6,725,737) (1,027,023) (1,523,213) (5,658,355) (21,078,374) Proceeds from debt and notes payable 2,968,780 1,629,978 Net cash provided (used) by financing activities (4,535,066) 12,895,832 1,611,515 11,031,395 1,382,735 Increase (decrease) in cash and cash equivalents (456,190) 249,414 (7,338,374) 7,013,226 1,224,262 Cash and cash equivalents, beginning of period 3,382,484 3,133,070 10,471,444 3,458,218 2,233,956 Cash and cash equivalents end of period $ 3,133,0702,926,294 $ 10,471,444 $3,458,2183,382,484 $ 3,133,070 Supplemental Cash Flow Information Cash paid during the year for: Interest $ 1,800,5982,369,389 $ 595,767 $ 2,600,6881,572,642 $1,800,598 Income taxes $ 5,088,4658,142,405 $ 6,282,709 $ 176,0213,466,100 $5,088,465 Excluded from the Consolidated Statements of Cash Flows were the following effects of non-cash investing and financing activities: Non-cash business combination: Investment in subsidiary $ 2,405,145 Accrued liability (2,405,145) Non-cash transfer of assets: Trade receivables $ 1,200,000 Notes receivables (1,200,000) Capital stock issued for purchase of subsidiary: Investment in subsidiary $ 1,047,996 $ 2,706,996$1,047,996 Capital stock (17,467) (39,871) Additional paid-in-capitalpaid-in capital (1,030,529) (2,667,125) Non-cash sale of assets by assumption of receivable: Property and equipment $ (8,244) Receivable - other 8,244 Non-cash transfer of assets: Trade receivables $ 90,435 Notes receivables (90,435) Non-cash purchase of assets: Property, plant and equipment $ 547,587 Accrued liability (547,587) Non-cash assets assumed in connection with recourse customer financing: Notes receivables $ 369,229 Inventory (369,229) See Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 1. Summary of Significant Accounting Policies Basis of Presentation - The consolidated financial statements include the accounts of Accounting Policies Astec Industries, Inc. and its subsidiaries. The Company's wholly-owned subsidiaries at December 31, 19951997 are as follows: Astec, Inc. Production Engineered Products, Inc. Astec Financial Services, Inc. Roadtec, Inc. CEI Enterprises, Inc. Telsmith, Inc. Heatec, Inc. Trencor, Inc During 1995Inc. Kolberg-Pioneer, Inc. All significant intercompany transactions have been eliminated in consolidation. The Company's investment in a 50% owned joint venture, Pavement Technology, Inc., is accounted for on an equity basis. As discussed in Notes 2 and 3, the Company sold Wibau-Astec Maschinenfabrik GmbH ("Wibau-Astec") was sold and abandoned Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik ("Gibat Ohl") was abandoned. See Notes 2 and 3. All significant intercompany transactions have been eliminated in consolidation.1995. Use of Estimates - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Segment Information - The Company operates in one industry segment. Its products are used predominately for road construction and for the manufacture and processing of construction aggregates. International sales by domestic subsidiaries were $58,965,000, $52,031,000, and $29,693,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Net sales and net losses of foreign operations were $24,748,000 and $3,044,000 for the year ended December 31, 1995, and $10,133,000 and $5,394,000 for the year ended December 31, 1994. At December 31, 1994, assets of foreign subsidiaries were $23,953,000. See Notes 2 and 3. Cash Equivalents - The Company considers allconsidersall highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Inventories - Inventories (excluding used equipment) are stated at the lower of first-in, first-out cost or market. Used equipment inventories are stated on the specific unit cost method, which in the aggregate is less than market. Property and Equipment - Property and equipment is stated at cost. Depreciation is computed generally on the straight-line methodcalculated for financial reporting purposes at rates considered sufficient to amortize costs overusing the straight-line method based on the estimated useful lives. Depreciation is computed generally on bothlives of the assets as follows: buildings (40 years) and equipment (3 to 10 years). Both accelerated and straight-line methods are used for tax reporting purposes. Maintenance and repairs are expensed as incurred. Goodwill - Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill amounts are being amortized using the straight- linestraight-line method over twenty20 years. Additions to goodwill in 1995 reflect the purchase of CEI Enterprises,assets and liabilities by Kolberg-Pioneer, Inc. in 1997 and the purchase of Production Engineered Products, Inc. in 1996. Accumulated amortization balances netted against goodwill were $1,320,000 and $1,040,000 at December 31, 1997 and 1996, respectively. Product Warranty - The Company provides product warranties against defects in materials and workmanship for periods ranging from ninety days to one year following the date of sale. Estimated costs of product warranties are charged to cost of sales in the period of the sale. Income Taxes - The Company accounts for income taxes using the liability method in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes. Revenue Recognition - A portion of the Company's equipment sales represents equipment produced in the Company's plants under short-term contracts for a specific customer project or equipment designed to meet a customer's specific requirements. Equipment revenues are recognized in compliance with the terms and conditions of each contract, which is ordinarily at the time the equipment is shipped. Certain contracts include terms and conditions through which the Company recognizedrecognizes revenues upon completion of equipment production which is subsequently stored at the Company's plant at the customer's request. Revenue is recorded on such contracts upon the customer's assumption of title and all risks of ownership. 1. SummaryAdvertising Expense - The cost of Significant Accounting Policiesadvertising is expensed as incurred. The Company incurred $2,054,000, $2,661,000 and $2,199,000 in advertising costs during 1997, 1996 and 1995, respectively. Foreign Currency Translation - The financial statements of foreign subsidiaries have been translated into U.S. Dollars in accordance with FASB StatementSFAS No. 52, "ForeignForeign Currency Translation".Translation. All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. TheTranslation gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of shareholders' equity. Stock Based Compensation - The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock options granted in accordance with APB Opinion No. 25, "AccountingAccounting for Stock Issued to Employees"Employees and, accordingly, recognizes no compensation expense for the stock option grants. The Company adopted SFAS No. 123, Accounting for Stock-based Compensation, in 1996 and is utilizing the disclosure only option permitted by the statement. See Note 11. Earnings Per Share - PrimaryIn 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share are based on the weighted average number of commonwith basic and common equivalent shares outstanding and include the potentiallydiluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the exercisepreviously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the requirements of SFAS No. 128. The following table sets forth the computation of basic and diluted earnings per share: Year Ended December 31, 1997 1996 1995 Numerator: Net income $13,809,414 $4,344,876 $4,560,360 Denominator: Denominator for basic earnings per share 9,555,940 10,047,442 10,071,931 Effect of dilutive securities: Employee stock options in years where there are earnings. Fully170,156 111,216 123,986 Denominator for diluted earnings per share are not presented for 1995, 1994, or 1993 since the dilution is not material.$ 9,726,096 $10,158,658 $10,195,917 Earnings per share information has been restated to retroactively reflect the two-for-one stock split effected in the formcommon share: Basic $1.45 $.43 $.45 Diluted $1.42 $.43 $.45 Impairment of a dividend on August 12, 1993. Accounting ChangeAssets - Effective, January 1,In 1995, the Company adopted SFAS No. 121, "AccountingAccounting for the Impairment of Long-LivedLong-lived Assets and for Long-LivedLong-lived Assets to Bebe Disposed Of".of. SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations, including goodwill and other intangible assets, when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. During 1995, events and circumstances indicated that approximately $4,400,000 of assets of the Company's subsidiary, Astec-Europa might be impaired. As further discussed in Note 3, these assets were written off in connection with the abandonment of Astec-Europa. 2. BusinessReclassifications - Certain amounts for 1996 have been reclassified to conform with the 1997 presentation. Accounting Policies Not Yet Adopted - In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income and Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Statement No. 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Statement No. 131 generally requires that companies report segment information for operating segments which are revenue producing components and for which separate financial information is produced internally. The Company plans to adopt Statement No. 130 and Statement No. 131 in 1998, but has not yet Accounting Policies completed its analysis of the impact, if any, that Statement No. 131 may have on its financial statements. Statement No. 130 is not anticipated to have a material impact when adopted by the Company. 2.Business Combinations On December 2, 1997, the Company acquired certain assets and liabilities of the Construction Equipment Division of Portec, Inc. for $19,978,176 in cash. The transaction was accounted for as a purchase and, accordingly, the operating results of the new company, Kolberg-Pioneer, Inc. ("K-P"), have been included in the Company's consolidated statements of income from the effective date of acquisition. That portion of the purchase price in excess of the fair market value of the assets acquired was recorded as goodwill and is being amortized using the straight-line method over 20 years. The purchase was initially financed under the Company's revolving credit agreement but was structured in such a way to allow the utilization of industrial revenue bonds in the future. In connection with the acquisition, the Company and K-P entered into an equipment lease with First Chicago NBD under which the Company and K-P lease machinery and equipment. The terms of the equipment leases range from 36 to 84 months, with total monthly lease payments of approximately $69,000. These are included in the lease commitments in Note 6. Effective December 1, 1996, the Company acquired the operating assets and liabilities of Production Engineered Products, Inc. ("PEP") in exchange for $2,405,145 in cash. The operations of PEP are included in the consolidated statements of income from the effective date of acquisition. The transaction was accounted for as a purchase and the purchase price of $2,405,145 was allocated to the net tangible assets acquired based on the estimated fair market value of the assets acquired. The excess of the purchase price over the fair market value of PEP's net tangible assets was recorded as goodwill and is being amortized using the straight-line method over 20 years. On February 28, 1995, the Company acquired the operating assets and liabilities of Trace Industries, Inc., a New Mexico corporation doing business as CEI Enterprises ("CEI"), in exchange for 87,333 shares of the Company's common stock and approximately $852,000 in cash. The operations of CEI areCEI-are included in the consolidated statements of income from the effective date of acquisition. The transaction was accounted for as a purchase and the purchase price of approximately $1,900,000 was allocated to the net tangible assets acquired based on the estimated fair market valuesvalue of the assets acquired. The excessThat portion of the purchase price overin excess of the fair market value of CEI's net tangible assets was recorded as goodwill and is being amortized using the straight-line method over 20 years. A summary of the net assets acquired is as follows: K-P PEP CEI Current assets $ 1,035,148$16,530,866 $1,292,161 $1,035,148 Property, plant and equipment 4,714,500 551,289 243,877 Other assets 1,035,735 Current liabilities (5,032,911) (243,511) (768,647) Other liabilities (492,000) (1,094,453) (39,683) Goodwill 3,221,736 1,734,865 1,411,892 Net assets acquired excluding cash 19,977,926 2,240,351 1,882,587 Cash 250 164,794 17,413 Net assets acquired $ 1,900,000 Effective July 1, 1993,$19,978,176 $2,405,145 $1,900,000 The following unaudited pro forma summary presents the Company entered into a joint venture with Putzmeister-Werk Maschinenfabrik GmbH ("Putzmeister") to form a new German limited liability company, Wibau-Astec Maschinenfabrik GmbH ("Wibau-Astec"). Wibau-Astec designed, engineered, manufactured and marketed asphalt plants, stabilization plants, asphalt and thermal heaters, hot storage systems and soil remediation equipment. Putzmeister and the Company each owned 50% of Wibau- Astec. On November 7, 1994, the Company acquired the remaining shares of Wibau-Astec from Putzmeister for $67,400. The acquisition was accounted for as a purchase effective November 7, 1994 and accordingly, theconsolidated results of operations as if the acquisitions discussed above had occurred at the beginning of the period preceding the acquisition. The unaudited pro forma results have been prepared for comparative purposes only and accountsdo not purport to be indicative of Wibau-Astec subsequent to November 7, 1994 are includedthe results that would have occurred had the acquisitions taken place at the beginning of the periods presented or of results which may occur in the Company's consolidated financial statements. The purchase price was allocated to the net tangible assets of Wibau-Astec based on the estimated fair market value of the assets acquired. As required by the purchase method of accounting, the excess amount of the purchase price over the fair value of Wibau-Astec's net tangible assets was recorded as goodwill and was being amortized using the straight-line method over 20 years. Subsequent to the acquisition of Wibau-Astec, the Company undertook a plan to restructure Wibau-Astec's operations. See Note 12 - Restructuring Costs.future. Year Ended December 31, 1997 1996 1995 Net sales $300,336,000 $257,913,000 $247,256,000 Income from operations 26,363,000 10,372,000 6,303,000 Net income 14,917,000 5,459,000 4,630,000 Per common share outstanding: Basic $ 1.56 $ .54 $ .46 Diluted $ 1.53 $ .54 $ .46 Effective June 30, 1995, the Company sold Wibau- AstecWibau-Astec to Wirtgen Gesellschaft mit beschrankter Haftung for approximately $1,109,000. For the six months ended June 30, 1995, Wibau-Astec had a net loss of approximately $688,000. The Company realized a gain of approximately $2,449,000 on the sale of Wibau-Astec. Effective October 17, 1994, the Company acquired the operating assets and liabilities of Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik ("Gibat Ohl") in exchange for 193,357 shares of the Company's common stock and approximately $2,760,000 in cash. The acquisition was accounted for as a purchase effective October 17, 1994, and accordingly, the results of operations and accounts of Gibat Ohl subsequent to October 17, 1994 are included in the Company's consolidated financial statements. The purchase price of approximately $5,460,000 was allocated to the net tangible assets of Gibat Ohl based on the estimated fair market value of the assets acquired. The excess of the purchase price over the fair market value of Gibat Ohl's net tangible assets was recorded as goodwill and was being amortized using the straight-line method over 20 years. During 1995, Gibat Ohl's name was changed to Astec-Europa and in February 1996, the Company abandoned Astec-Europa. See Note 3. A summary of the net assets acquired is as follows: Wibau-Astec Gibat Ohl Current assets $ 4,938,766 $ 11,007,164 Property, plant and equipment 412,193 300,657 Current liabilities (8,678,984) (10,029,223) Other liabilities (2,038,165) Goodwill 1,193,259 4,153,364 Net assets acquired excluding cash (4,172,931) 5,431,962 Cash 4,240,331 32,984 Net assets acquired $ 67,400 $ 5,464,946 The following unaudited pro forma summary presents the consolidated results of operations as if the acquisitions discussed above had occurred at the beginning of each of the periods presented. Pro forma adjustments have been made to 1994 and 1993 to reflect the restructuring of Wibau-Astec as described in Note 12. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results that would have incurred had the acquisition occurred at the beginning of the periods presented or of results which may occur in the future. Year Ended December 31, 1995 1994 1993 Net sales $ 243,493,000 $ 227,891,000 $ 188,823,000 Income from operations 6,213,000 28,814,000 10,576,000 Net income 4,619,000 24,863,000 9,638,000 Per common and common equivalent share: Net income $ .46 $ 2.53 $ 1.11 Prior to its acquisition of the remaining 50% interest in Wibau-Astec, the Company's investment in Wibau-Astec was accounted for by the equity method. Accordingly, net income as presented in the Consolidated Statements of Income for 1994 and 1993 includes the Company's share of Wibau-Astec's losses for periods prior to the acquisition of $3,177,000 and $720,000, respectively. 3. Abandonment3.Abandonment of Foreign Subsidiary During 1995, the Company's subsidiary, Astec-Europa, incurred a net loss of approximately $2,354,000 and had a negative net worth at December 31, 1995. The Company determined that it would no longer support Astec-Europa and on February 9, 1996, Astec-Europa management filed a request for bankruptcy in Germany. Due to its decision to abandon Astec-Europa, the Company willhas not recoverrecovered any amounts related to Astec- Europa's assets nor willhas it bebeen required to liquidate Astec-Europa'sAstec- Europa's liabilities except to the extent such liabilities were guaranteed by the Company. Accordingly, Astec-Europa's assets and liabilities at December 31, 1995 were adjusted to liquidation basis values. This, along with the write-off of the Company's investment in Astec-Europa and the remaining goodwill associated with Astec-Europa of approximately $3,911,000 resulted in a total write-off related to the abandonment of approximately $7,037,000 before tax and $3,683,000 after tax. Total losses recognized in 1995, including net loss from operations and the loss on abandonment, related to Astec-Europa were approximately $9,945,000 before tax or $6,037,000 after tax. 4. Inventories Inventories consisted of the following: December 31, 1995 19941997 1996 Raw materials and parts $ 23,709,839 $ 26,705,110$27,986,696 $23,541,508 Work-in-process 10,384,847 14,380,19215,920,137 9,038,158 Finished goods 14,583,127 7,745,70919,911,602 16,994,736 Used equipment 7,204,866 7,478,7245,576,916 7,189,683 Total $ 55,882,679 $ 56,309,735$69,395,351 $56,764,085 5. Property and Equipment Property and equipment consisted of the following: December 31, 1995 19941997 1996 Land, land improvements and buildings $ 35,220,996 $ 26,676,486$42,659,308 $38,161,554 Equipment 39,322,961 37,497,34848,175,111 41,217,853 Less accumulated depreciation (22,864,623) (21,880,823)(31,339,876) (26,829,232) Land, buildings and equipment - net 51,679,334 42,293,01159,494,543 52,550,175 Rental property: Equipment 122,347 1,703,6082,517,574 2,004,118 Less accumulated depreciation (92,648) (1,647,827)(406,964) (236,941) Rental property - net 29,699 55,7812,110,610 1,767,177 Total $ 51,709,033 $ 42,348,792$61,605,153 $54,317,352 6. Leases The Company leases certain land, buildings and equipment which are used in its operations. Total rental expense charged to operations under operating leases was approximately $1,213,000, $615,000$1,569,000, $1,272,000 and $427,000$1,213,000 for the years ended December 31, 1995, 19941997, 1996 and 19931995, respectively. Minimum rental commitments for all noncancelable operating leases at December 31, 19951997 are as follows: 19961998 $ 691,000 1997 444,000 1998 230,0001,742,000 1999 122,0001,456,000 2000 1,202,000 2001 208,000 2002 and beyond 100,00021,000 The Company also leases equipment to customers under short-term contracts generally ranging from two months to sixforty-eight months. Rental income under such leases was $1,630,000, $1,394,000$1,181,000, $2,073,000 and $1,719,000$1,630,000 for the years ended December 31, 1997, 1996 and 1995, 1994 and 1993, respectively. 7. Long-termMinimum rental payments to be received for equipment leased to others at December 31, 1997 are as follows: 1998 $ 322,000 1999 208,000 2000 178,000 2001 33,000 7.Long-term Debt Long-term debt consisted of the following: December 31, 1995 19941997 1996 Revolving credit loan of $70,000,000 available through November 22, 2002 at interest rates from 6.6% to 8.25% at December 31, 1997 $23,230,000 Revolving credit loan of $22,000,000 at December 31, 1995 and $15,000,000interest rates from 6.69% to 8.0% at December 31, 1994, available through June 30, 19971996 $13,322,000 Revolving credit loan at an interest rate of prime, less a quarter, which was 8.25% at December 31, 1995 and 1994 $ 4,150,000 $ 2,655,00031,1996 2,508,000 Loans payable maturing at various dates through 19962000 at interest rates from 8.5%8.0% to 9.25% 271,0252,639,307 Industrial Development Revenue Bonds payable in annual installments through 2006 at weekly negotiated interest rates 5,500,000 6,000,0004,500,000 5,000,000 Industrial Development Revenue Bonds due in 2019 at weekly negotiated interest rates 8,000,000 8,000,000 Loan payable to related party at an interest rate of prime less a quarter, which was 8.0% at December 31, 1996 1,078,430 Total long-term debt 17,921,025 16,655,00035,730,000 32,547,737 Less current maturities 771,025 500,000 2,051,003 Long-term debt less current maturities $ 17,150,000 $ 16,155,000 During 1995, the$35,230,000 $30,496,734 The Company amended its unsecuredhas a $70,000,000 revolving loan agreement negotiated in 1994 thereby increasing the line of credit with First Chicago NBD. The agreement contains borrowing sub-limits which allow the Company and its subsidiary, Astec Financial Services, Inc., to $22,000,000.borrow up to $50,000,000 and $30,000,000 respectively, not to exceed the total commitment amount. Advances under Astec Financial's sub-limit are limited to eligible receivables as defined in the agreement. Amounts outstanding under the agreement bear interest, at the Company's option, at a rate from .25% below prime to prime plus .50%, or from .75% to 2.00% above the London Interbank Offering Rate. The loaninterest rate applied to borrowings is based upon a leverage ratio, calculated quarterly, as defined by the credit agreement. The credit agreement contains certain restrictive covenants relative to operating ratios and capital expenditures and also restrictsal the payment of dividends. AtThis agreement replaced two separate revolving credit facilities with an aggregate availability of $37,000,000. The former agreements also bore interest at rates based on prime or LIBOR and contained certain restrictive covenants similar to those in the new agreement. Loan payable to related party at December 31, 1995,1996 was a note payable to the CompanyCompany's Chief Executive Officer. Interest expense related to this note for 1996 was calculated at the Company's current bank borrowing rate and was approximately $1,580 in violation of the covenant relative to capital expenditures1997 and has received a waiver for such violation.$73,000 in 1996. This loan was paid off in January 1997. The aggregate of all maturities of long-term debt in each of the next five years is aas follows: 1996 $ 771,025 1997 4,650,000 1998 500,000$500,000 1999 500,000 2000 500,000 2001 500,000 2002 and beyond 11,500,00033,730,000 For 1995,1997, the weighted average interest rate on short termshort-term borrowings, which includeincludes current maturities of Industrial Revenue Bonds, and notes payable, were 4.16% and 8.62%, respectively.was 3.90%. 8. Retirement Benefits A former subsidiaryThe Company provides a deferred savings plan ("Savings Plan") under Section 401(k) of the Internal Revenue Code, under which substantially all employees of the Company and its subsidiaries are eligible to participate. The Savings Plan provides that the Barber-Greene Company had defined benefit pension plans ("Barber-Greene Plans") covering substantially allmatch is an amount equal to 50% of its employees. Non-union benefits were frozen asemployee savings subject to certain limitations or 30% of September 1, 1986,employee savings, subject to certain limitations, for employees of Kolberg-Pioneer, Inc. The total expense for such matching was approximately $856,000, $799,000 and certain union benefits were frozen as of October 31, 1986. The Company retained responsibility$777,000 for the Barber-Greene Plans when it sold the Barber-Greene Company in 1991.years ended December 31, 1997, 1996 and 1995, respectively. Telsmith, Inc. also sponsors a defined benefit pension plan covering certain employees hired prior to October 14, 1987 who have chosen not to participate in the Company's 401(k) savings plan. The benefit is based on years of benefit service multiplied by a monthly benefit as specified in the plan. The Company's funding policy for its pension plans is to make the minimum annual contributions required by applicable regulations. During 1994, the Company made the decision to terminate the Barber- Greene Plans and purchased annuities to fund the benefits provided for in the plans. In 1995, the Company received approval from the Internal Revenue Service to terminate the plans. As a result, the settlement loss of approximately $46,000 is included in Other income-net in 1995. A reconciliation of the funded status of the Plans,Plan, which is based on a valuation date of September 30, with amounts reported in the Company's consolidated balance sheets, is as follows: Year Ended December 31, 1995 19941997 1996 Actuarial present value of benefit obligations: Vested $ 2,991,159 $ 40,574,462$3,179,694 $3,039,628 Nonvested 90,781 85,24594,386 88,965 Accumulated benefit obligation $ 3,081,940 $ 40,659,707$3,274,080 3,128,593 Projected benefit obligation $ 3,081,940 $ 40,659,707$3,274,080 3,128,593 Plan assets at fair value 2,539,151 40,589,4172,982,882 2,583,682 Projected benefit obligation in excess of plan assets 542,789 70,290291,198 544,911 Unrecognized net gain 6,046 450,751(loss) 138,707 (127,150) Prior service cost not yet recognized in net periodic pension cost (148,819) (320,665)(109,591) (129,205) Additional liability 256,355 Pension liability in the consolidated balance sheets $ 400,016320,314 $ 200,376544,911 Net periodic pension cost for 1995, 19941997, 1996 and 19931995 included the following components: Year Ended December 31, 1997 1996 1995 1994 1993 Service cost - benefits earned during the period $ 24,58515,382 $ 31,50320,986 $ 26,87324,585 Interest cost on projected benefit obligation 222,812 227,815 219,465 2,565,355 2,754,319 Actual return on plan assets (623,731) (122,607) (238,493) 2,148,873 (12,318,009) Net amortization and deferral 417,295 (84,816) (6,682) (5,405,871) 9,345,175 Net expense (income) $ (1,125)31,758 $ (660,140)41,378 $ (191,642)(1,125) The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% and 8.5% at September 30, 19951997 and 1994, respectively.1996. The expected long-term rate of return on assets was 9.0% for the years ending September 30, 19951997 and 1994.1996. Plan assets are primarily comprised of corporate equity and corporate and U.S. Treasury debt securities. In 1987, the Company adopted deferred savings plan ("Savings Plans") under Section 401(k) of the Internal Revenue Code, under which substantially all employees of the Company and its subsidiaries are eligible. In 1991, the Savings Plans were consolidated and provide that the Company match an amount equal to 50% of employee savings subject to certain limitations. The total expense for such matching was approximately $777,000, $696,000, and $567,000 for the years ended December 31, 1995, 1994 and 1993 respectively. In addition to the retirement plans discussed above, the Company has an unfunded postretirementpost-retirement medical and life insurance plan covering employees of its Telsmith, Inc. subsidiary and retirees of its former Barber- GreeneBarber-Greene subsidiary. Effective January 1, 1993,The plan is accounted for under the Company adoptedprovision of SFAS No. 106, "Employers'Employers' Accounting for PostretirementPost- retirement Benefits Other than Pensions".Than Pensions. The accumulated postretirementpost- retirement benefit obligation ("APBO") at adoption was approximately $674,000 and is being amortized over 20 years. The accumulated postretirementpost-retirement benefit obligation and the amount recognized in the Company's consolidated balance sheets is as follows: December 31, 1995 19941997 1996 Accumulated postretirementpost-retirement benefit obligation: Retirees $ 246,300 $ 130,600$271,235 $241,700 Active employees 393,500 473,000 639,800 603,600499,068 471,000 770,303 712,700 Unamortized transition obligation (571,900) (605,600)(504,500) (538,200) Unrecognized net gain 118,800 118,8002,875 64,100 Accrued postretirementpost-retirement benefit cost $ 186,700 $ 116,800$268,678 $238,600 Net periodic postretirementpost-retirement benefit cost included the following components: December 31, 1995 19941997 1996 Service cost $ 53,30056,468 $ 53,50064,700 Interest cost 50,200 42,90055,241 48,300 Amortization of transition obligation 33,700 33,700 Amortization of net gain (1,900)(1,473) Net expense $ 135,300 $ 130,100$143,936 $146,700 A discount rate of 8.5%7.0% was used in calculating the APBO. The APBO assumes a 13.5%7.5% increase in per capita health care costs decreasing gradually to 5.8%5.5% for years 20122001 and later. A 1% increase in the medical inflation rate would increase the APBO by approximately $29,400$42,000 and the expense by approximately $7,500.$7,700. 9. Income Taxes Effective January 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes". There was no cumulative effect on income from the adoption of SFAS No. 109. For financial reporting purposes, income before income taxes includes the following components: Year Ended December 31, 1997 1996 1995 1994 1993 United States $22,738,605 $ 16,497,616 $ 30,726,395 $ 9,474,4556,655,652 $16,497,616 Foreign: License income 227,786 362,506 277,855 404,000 1,018,000 Equity in loss of joint venture (3,176,834) (720,000) Loss from foreign subsidiaries (3,597,796) (2,217,061) Loss on adandonmentabandonment (7,037,105) Income before income taxes $22,966,391 $7,018,158 $ 6,140,570 $25,736,500 $ 9,772,455 The provision for income taxes consisted of the following: Year Ended December 31, 1997 1996 1995 1994 1993 Current $ 1,166,956 $ 7,029,419 $ 434,246$9,264,743 $1,416,242 $1,166,956 Deferred provision (benefit) (107,766) 1,257,040 413,254 (4,729,293) Total provision for income taxes $ 1,580,210 $ 2,300,126 $ 434,246$9,156,977 $2,673,282 $1,580,210 A reconciliation of the provision for income taxes at the statutory rate to those provided is as follows: Year Ended December 31, 1997 1996 1995 1994 1993 Tax at statutory rates $ 2,087,794 $ 9,007,775 $ 3,322,635$8,038,237 $2,386,174 $2,087,794 Effect of utilization of net operating loss carryforwards net of alternative minimum tax (1,344,000) (3,008,000) (3,155,253) Effect of utilization of alternative minimum tax credits (382,000) Benefit from foreign sales corporation (360,000) (125,000) (327,000) (265,000) State taxes, net of federal income tax benefit 912,000 424,000 522,000 212,000 115,271 Income taxes of other countries 38,000 20,000 (553,000) 27,000 151,593 Loss from foreign operations (413,000) 2,636,000 Recognition of deferred tax asset 1,827,000 (4,729,000) Reversal of prior temporary differences (1,937,000) Other items 528,740 (31,892) (219,584) 738,351 Income taxes $ 1,580,210 $ 2,300,126 $ 434,246$9,156,977 $2,673,282 $1,580,210 At December 31, 1995,1997, the Company had investment tax and other creditlong-term capital loss carryforwards of approximately $98,000$80,000 expiring at various dates principally from 1995 through 1999. Utilization of these credits will be limited to use in offsetting only the taxable income of a subsidiary of the Company.2000. As a result of utilizing the net operating loss carryforwards, net income from continuing operations increased by approximately $.13 $.31 and $.36 for the yearsyear ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995, the Company had deferred tax assets of approximately $6,889,000, and deferred tax liabilities of approximately $2,475,000, related to temporary differences and tax loss and credit carryforwards. At December 31, 1995, a valuation allowance of approximately $98,000 was recorded. This valuation allowance offsets the deferred tax assets relative to credit carryforwards. The credit carryforwards are SRLY carryforwards and can be used to offset only the income of a certain subsidiary. Due to this, the Company determined that a valuation allowance was necessary for these items. The change in valuation allowance in 1995 is due to the loss of foreign net operating loss carryforwards ($8,085,000) due to the sale of the subsidiary, expiration of ITC credit carryforwards ($543,000) and the utilization of operating loss carryforwards ($1,344,000).1995. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax purposes. At December 31, 1997, the Company had deferred tax assets of approximately $6,248,700, and deferred tax liabilities of approximately $3,492,000, related to temporary differences and tax loss carryforwards. At December 31, 1996, a valuation allowance of approximately $241,000 was recorded. This valuation allowance offsets the deferred tax asset relative to capital loss carryforwards. Due to the uncertainty of the utilization and expected utilization of these carryforwards, the Company determined that a valuation allowance was necessary for this item. The change in valuation allowance in 1997 is due to the utilization of the capital loss carryfowards. Significant components of the Company's deferred tax liabilities and assets are as follows: Year Ended December 31, 1995 19941997 1996 Deferred tax assets: Inventory reserves $ 2,067,000 $ 1,753,000 Legal$1,878,300 $1,556,000 Warranty reserves 152,000 100,000 Pension expense 112,000 109,000 Investment in foreign joint venture 1,827,0001,098,400 898,000 Accrued insurance 820,800 864,000 Bad debt reserves 507,000 479,000 Other accrued expenses 3,076,000 3,002,000 Net operating loss carryforwards 1,344,000 Foreign net operating loss carryforwards 1,384,000 8,085,0001,695,700 1,428,000 Alternative minimum tax credit 98,500 560,000 Other credit carryforwards 98,000 641,000150,000 433,000 Total deferred tax assets 6,889,000 16,861,0006,248,700 6,218,000 Deferred tax liabilities: Property and equipment 2,475,000 2,062,0003,176,300 2,793,000 Other 316,300 218,000 Total deferred tax liabilities 2,475,000 2,062,0003,492,600 3,011,000 Net deferred tax assets 4,414,000 14,799,0002,756,100 3,207,000 Valuation allowance (98,000) (10,070,000)(241,000) Deferred tax asset $ 4,316,000 $ 4,729,000$2,756,100 $2,966,000 10. Contingencies The Company's subsidiary, Telsmith, was a defendant in a patent infringement action brought by Nordberg, Inc., a manufacturer of a competing line of rock crushing equipment, seeking monetary damages and an injunction to cease an alleged infringement of a patent on certain components used in the production of its rock crushing equipment. On March 30, 1995, the United States District Court for the Eastern District of Wisconsin issued a ruling in favor of the Company and entered a declaratory judgment in favor of Telsmith, and against Plaintiff Nordberg, Inc. declaring that claims 8 through 11 and 13 of Nordberg's United States patent No. 4,478,373, entitled "Conical Crusher" are invalid. The Court also entered judgment in favor of Telsmith, Inc. and against Nordberg, Inc. dismissing Nordberg's claim of infringement against Telsmith. The Company was pleased with the Court's decision, but has filed an appeal asking the United States Court of Appeals for the Federal Circuit to overturn the trial court's decision not to award Telsmith its attorney's fees in the case. Nordberg did not cross-appeal to the Federal Circuit on the Telsmith judgment. The time for doing so has now expired. The judgment has therefore become "final" as to those issues not raised by Telsmith on appeal. On October 28, 1993, the Company was also named as a defendant in a patent infringement action brought by Gencor, Inc., a manufacturer of a competing line of asphalt plants, seeking monetary damages and an injunction to cease an alleged infringement of a patent on certain components used in the production of its asphalt plant product line. This case was filed in the U.S. District Court for the Middle District of Florida, Orlando Division, and went to trial on January 22, 1996. On February 3, 1996, the jury returned a verdict in the Company's favor holding that Astec's Double Barrel drum mixer does not infringe the Gencor patent in question. Judgment on that jury verdict was entered by the Court on February 5, 1996. It is anticipated that Gencor will appeal. Management believes that Gencor's anticipated appeal is without merit. During 1994, the United States Supreme Court refused to hear CMI Corporation's petition to overturn the United States Court of Appeals for the Federal Circuit's reversal of patent damages awarded to CMI Corporation and Robert L. Mendenhall by a lower court. As a result of the Supreme Court's refusal to grant certiorari, the Company received $12,917,000 which was being held in escrow pending the Company's appeal of the two judgments. In addition, on December 31, 1994, the Company received $1,309,000 from CMI in satisfaction of the judgment entered in favor of the Company on its counterclaim against CMI. The receipt of these funds effectively concluded the litigation between the Company and CMI and Robert L. Mendenhall which had been pending for a number of years. As a result, in 1994 the Company reversed its accrued liability for patent damages. The reversal of $13,870,000 in accrued patent damages and the receipt of $1,309,000 in patent damages from CMI total $15,179,000 and are included in the Consolidated Statements of Income as Patent suit damages and expenses (net recoveries and accrual adjustments). Management has reviewed all claims and lawsuits and, upon the advice of counsel, has made provision for any estimable losses; however, the Company is unable to predict the ultimate outcome of the outstanding claims and lawsuits. Recourse Customer Financing - Certain customers have financed purchases of the Company's products through arrangements in which the Company is contingently liable for customer debt aggregating approximately $7,362,000$1,793,000 and $13,800,000$4,618,000 at December 31, 19951997 and 1994,1996, respectively. These obligations average five years in duration and have minimal risk. Other - The Company is contingently liable for letters of credit of approximately $3,390,000$12,993,000 issued for bid bonds and performance bonds. Astec Financial Services, Inc. has sold both finance and operating leases with limited recourse, subject to elimination of recourse responsibilities through remarketing of equipment. The limited recourse would not exceed 15% of the purchase price. 11. Shareholders' Equity The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations in accounting for its employee stock options -because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123, Accounting for Stock-based Compensation, requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is generally recognized. The Company has reserved 300,000 shares of common stock under the 1986 Stock Option Plan and 500,000 shares of common stock under the 1992 Stock Option Plan for issuance upon exercise of nonqualified options, incentivenon- qualified options and stock appreciation rightsincentive options to officers and employees of the Company and its subsidiaries at prices determined by the Board of Directors. At December 31, 1995, a total of 261,800 shares of common stock related to the 1992 Stock Option Plan are available forAll options to be granted. Nonqualified options aregranted have ten-year terms and vest and become fully exercisable at a price not less than 85%immediately or within one year of the Boardgrant date. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of Directors' determinationthat Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1995, 1996 and 1997, respectively; risk-free interest rates of 6.06%, 6.04% and 5.78%; volatility factors of the fairexpected market valueprice of the Company's common stock on the dateof .275, .275 and .281; and a weighted-average expected life of the grant. Nonqualifiedoption of seven and one half years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are exercisable starting one year fromfully transferable. In addition, option valuation models require the dateinput of highly subjective assumptions, including the grant and expire ten years afterexpected stock price volatility. Because the date of the grant. IncentiveCompany's employee stock options granted byhave characteristics significantly different from those of traded options, and because changes in the Board of Directors must be exercisable atsubjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a price not less than 100%reliable single measure of the fair marketvalue of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's commonpro forma information follows. 1997 1996 1995 Pro forma net income $13,782,000 $3,734,000 $4,362,000 Pro forma earnings per share: Basic $ 1.44 $ .37 $ .43 Diluted $ 1.42 $ .37 $ .43 A summary of the Company's stock option activity and related information for the years ended December 31, 1997, 1996 and 1995 follows: Year Ended December 31, 1997 1996 1995 Weighted Avg. Weighted Avg. Weighted Avg. Options Exercise Price Options Exercise Price Options Exercise Price Options outstanding, beginning
of year 549,000 $9.23 308,000 $ 8.33 244,000 $ 6.92 Options granted 10,000 $9.13 250,000 $ 10.17 67,000 $ 13.26 Options forfeited 23,000 $9.39 Options exercised 10,000 $6.50 9,000 $ 4.68 3,000 $ 3.25 Options outstanding and exercisable, end of year 526,000 $ 9.28 549,000 $ 9.23 308,000 $ 8.33
The weighted average fair value of options granted whose exercise price was equal to the market price of the stock on the grant date was $4.14, $3.97 and $4.65 for the years ended December 31, 1997, 1996 and 1995. The weighted average fair value of grant. Incentive stock options are exercisable immediately aftergranted whose exercise price exceeded the datemarket price of the grant, except for certain officers of the Company, and expire ten years after the date of the grant. Stock appreciation rights may be granted by the Board of Directors in conjunction withstock on the grant of an incentive or nonqualified option. A stock appreciation right permits a grantee to receive payment in either cash or shares of the Company's common stock equal to the difference between the fair market value of the common stockdate was $3.14 and the exercise price$4.13 for the related option. The following is a summary of stock option information: Outstanding,years ended December 31, 1992 257,000 $ 1.375 - 4.675 Exercised (87,000) 1.375 - 4.675 Outstanding,1996 and 1995. Exercise prices for options outstanding and exercisable as of December 31, 1993 170,000 1.375 - 4.675 Granted 87,000 14.875 - 16.363 Exercised (13,000) 1.375 - 3.25 Outstanding, December 31, 1994 244,000 1.375 - 16.363 Granted 67,000 12.875 - 14.163 Exercised (3,000) 3.25 Outstanding, December 31, 1995 308,000 $ 1.375 - 16.363 On July 29, 1993, the Company's Board of Directors approved a two-for-one split of the Company's common stock in the form of a 100% stock dividend for shareholders of record as of August 12, 1993. A total of 4,893,701 shares of common stock were issued in connection with the split. The stated par value of each share was not changed. A total of $978,740 was reclassified1997 range from additional paid-in-capital$1.38 to the Company's common stock account. All share$3.25 (128,000 options) and per share amounts for 1993 and prior years have been restatedfrom $9.13 to retroactively reflect the stock split.$16.36 (398,000 options). The Company has adopted a Shareholder Protection Rights Agreement and declared a distribution of one right (the "Right") for each outstanding share of Company common stock, par value $0.20 per share (the "Common Stock"). Each Right entitles the registered holder to purchase from the Company one one-hundrethone-hundredth of a share (a "Unit") of Series A Participating Preferred Stock, par value $1.00 per share (the "Preferred Stock"), at a purchase price of $36.00 per Unit, subject to adjustment. The rights currently attach to the certificates representing shares of outstanding Company Common Stock, and no separate Rights certificates will be distributed. The Rights will separate from the Common Stock upon the earlier of ten business days (unless otherwise delayed by the Board) following the (i) public announcement that a person or group of affiliated or associated persons (the "Acquiring Person") has acquired, obtained the right to acquire, or otherwise obtained beneficial ownership of 15% or more of the then outstanding shares of Common Stock, or (ii) commencement of a tender offer or exchange offer that would result in an Acquiring Person beneficially owning 15% or more of the then outstanding shares of Common Stock. The Board of Directors may terminate the Rights without any payment to the holders thereof at any time prior to the close of business ten business days following announcement by the Company that a person has become an Acquiring Person. The Rights, which do not have voting power and are not entitled to dividends, expire on December 21, 2005. In the event of a merger, consolidation, statutory share exchange or other transaction in which shares of Common Stock are exchanged, each Unit of Preferred Stock will be entitled to receive the per share amount paid in respect of each share of Common Stock. 12. Restructuring Costs In the fourth quarter of 1994, the Company developed and implemented a plan to restructure the operations of Wibau-Astec. In connection with the restructuring, the Company accrued costs of $1,500,000 ($1,250,000, net of tax, or $0.12 per share). The plan included, among other things, the cessation of manufacturing operations at Wibau-Astec along with related personnel reductions as well as personnel reductions in engineering and administration. Total personnel reductions were approximately 150. The plan was communicated to employees and severance notices given during the fourth quarter of 1994. As of the end of 1994, the restructuring was substantially complete. Total costs incurred were for the write-down of certain assets to estimated fair market value, severance payments and lease termination expenses. Severance costs and exit costs incurred were approximately $1,137,000 and $363,000, respectively. Costs incurred during 1995 were substantially the same as the amounts accrued as of December 31, 1994. Wibau-Astec sold Astec asphalt plants either manufactured in the United States or subcontracted in Europe. Wibau- Astec also sold Wibau-Astec parts and serviced a large customer base and utilized subcontractors as needed for parts and/or manufacturing components in Europe. As described in Note 2, Wibau-Astec was sold in 1995. 13. Financial Instruments Credit Risk - The Company sells products to a wide variety of customers. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company maintains an allowance for doubtful accounts at a level which management believes is sufficient to cover potential credit losses. As of December 31, 1995,1997, concentrations of credit risk with respect to trade receivables are limited due to the wide variety of customers. Fair Value of Financial Instruments - The book value of the Company's financial instruments approximates their fair values. Financial instruments include cash, accounts receivable, finance receivables, accounts payable and longlong- and short-term debt. Substantially all of the Company's shortshort- and long-term debt is floating rate debt and, accordingly, book value approximates its fair value. 13. Operations by Industry Segment and Geographic Area The Company operates predominately in one industry segment. Its products are used for road construction and for the manufacture and processing of construction aggregates. Net sales and net losses of foreign operations were $24,748,000 and $3,044,000 for the year ended December 31, 1995. See Notes 2 and 3. International sales by domestic subsidiaries by major geographic region were as follows: Year Ended December 31, 1997 1996 1995 Asia $14,217,777 $12,340,130 $22,294,203 Europe 3,076,510 8,792,885 11,257,809 South America 10,000,648 6,889,869 3,811,091 Canada 8,618,053 3,852,792 8,105,164 Australia 4,298,554 1,760,828 1,613,920 Africa 444,313 1,131,318 3,220,047 Central America 7,461,261 1,381,030 5,955,227 Middle East 5,224,857 467,146 293,006 West Indies 2,998,406 1,692,600 2,414,219 Other 2,561,868 TOTAL $58,902,247 $38,308,598 $58,964,686 14. Finance Receivables Finance receivables are receivables of Astec Financial Services, Inc. Contractual maturities of outstanding receivables at December 31, 1997 were: Financing Amounts Due In Leases Notes Total 1998 $ 933,951 $ 1,789,896 $ 2,723,847 1999 75,600 392,132 467,732 2000 37,800 408,629 446,429 2001 422,805 422,805 Thereafter 906,494 906,494 1,047,351 3,919,956 4,967,307 Less unearned income (50,553) (171,723) (222,276) Total $ 996,798 $ 3,748,233 $ 4,745,031 Receivables may be paid prior to contractual maturity generally by payment of a prepayment penalty. At December 31, 1997, there were no impaired loans or leases. Recognition of income on finance receivables is suspended when management determines that collection of future income is not probable. Accrual is resumed if the receivable becomes contractually current and collection doubts are are removed -- previously suspended income is recognized at that time. REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Astec Industries, Inc. We have audited the accompanying consolidated balance sheets of Astec Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1995.1997. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Astec Industries, Inc. and subsidiaries at December 31, 19951997 and 1994,1996, and the consolidated results of itstheir operations and itstheir cash flows for each of the three years in the period ended December 31, 1995,1997, in conformity with generally accepted accounting principles. As discussedAlso, in Note 1,our opinion, the related financial statement schedule, when considered in 1995relation to the Company changed its method of accounting forbasic financial statements taken as a whole, presents fairly in all material respects the impairment of long-lived assets and for long-lived assets to be disposed of.information set forth therein. /s/ ERNST & YOUNG LLP Chattanooga, Tennessee February 27,20, 1998 A-23 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE (II) VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 CORPORATE INFORMATION Corporate and Subsidiary Executive OfficersAND 1995 ADDITIONS CHARGES TO BEGINNING COSTS & OTHER ENDING DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE December 31, 1997: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $1,266,939 $ 272,578 $ 523,507(3) $ 509,787(1) $1,553,237 accounts Reserve for inventory $4,873,922 $ 418,906 $ 0 $ 964,658 $4,328,170 Other Reserves: Product warranty $2,364,705 $2,811,009 $ 173,900(3) $2,143,242(2) $3,206,372 ADDITIONS CHARGES TO BEGINNING COSTS & OTHER ENDING DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE December 31, 1996: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $1,278,638 $ 157,183 $ 0 $ 168,882(1) $1,266,939 Reserve for inventory $5,438,510 $1,231,828 $ 0 $1,796,416 $4,873,922 Other Reserves: Product warranty $2,470,775 $3,018,990 $ 0 $3,125,060(2) $2,364,705 Schedule (II) - Page 1 A-24 ADDITIONS CHARGES TO BEGINNING COSTS & OTHER ENDING DESCRIPTION BALANCE EXPENSES ADDITIONS DEDUCTIONS BALANCE December 31, 1995: Reserves deducted from assets to which they apply: Allowance for doubtful accounts $1,684,242 $ 533,136 $ 20,000(3)$ 958,740(1) $1,278,638 Reserve for inventory $4,994,035 $1,196,876 $ 0 $ 752,401 $5,438,510 Other Reserves: Product warranty $3,470,703 $3,194,240 $ 0 $4,194,168(2) $2,470,775 (1)Uncollectible accounts written off, net of recoveries. (2)Warranty costs charged to the reserve. (3)Represents reserve balances of subsidiaries acquired in the year. Schedule (II) - Page 2 A-25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Astec Industries, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ASTEC INDUSTRIES, INC. BY: /s/ J. Don Brock J. Don Brock, Chairman of the Board and President Thomas R. Campbell(Principal Executive Officer) BY: /s/ F. McKamy Hall F. McKamy Hall, Vice President, Roadtec, Inc. M. Brent EnglandCorporate Controller, and Treasurer (Principal Financial and Accounting Officer) Date: March 12, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by a majority of the Board of Directors of the Registrant on the dates indicated: SIGNATURE TITLE DATE /s/ J. Don Brock Chairman of the Board March 12, 1998 J. Don Brock and President CEI Enterprises, Inc. Jerry F. Gilbert President, Trencor, Inc./s/ Albert E. Guth Senior Vice President, SecretaryAstec Financial March 12, 1998 Albert E. Guth Services, Inc. and Treasurer F. McKamy Hall Corporate Controller James G. May President, Heatec, Inc.Director /s/ W. Norman Smith President - Astec, Inc. March 12, 1998 W. Norman Smith and Director /s/ Robert G. Stafford President - Telsmith, Inc. Board of Directors J. Don Brock +#Chairman of the BoardMarch 12, 1998 Robert G. Stafford and PresidentDirector /s/ E.D. Sloan Jr. Director March 12, 1998 E.D. Sloan, Jr. /s/ William B. Sansom Director March 12, 1998 William B. Sansom /s/ Ronald W. Dunmire Director March 12, 1998 Ronald W. Dunmire /s/ George C. Dillon *Former Chairman, Manville CorporationDirector March 12, 1998 George C. Dillon /s/ G.W. Jones Director March 12, 1998 G.W. Jones /s/ Daniel K. Frierson *ChairmanDirector March 12, 1998 Daniel K. Frierson /s/ Robert Dressler Director March 12, 1998 Robert Dressler Commission File No. 0-14714 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 EXHIBITS FILED WITH ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 ASTEC INDUSTRIES, INC. 4101 Jerome Avenue Chattanooga, Tennessee 37407 ASTEC INDUSTRIES, INC. FORM 10-K INDEX TO EXHIBITS Sequentially Exhibit Number Description Numbered Page Exhibit 10.103 Amended and CEO, Dixie YarnsRestated Credit Agreement dated November 27, 1997 between the Company, Astec Financial Services, Inc. Jerry F. Gilbert President, Trencor,and First Chicago NBD. Exhibit 10.104 Asset Purchase Agreement dated October 16, 1997 between Portec, Inc. Albert E. Guth +Senior Vice President, Secretary and Treasurer G. W. Jones *Former PresidentAstec Industries, Inc. Exhibit 10.105 Amendment to Asset Purchase Agreement dated December 2, 1997 by and between Astec Industries, Inc. and Portec, Inc. Exhibit 10.106 Revolving Line of APAC,Credit Note dated December 2, 1997 between Kolberg-Pioneer, Inc. Joseph Martin, Jr. *Partner, Martin and Lacy William B. Sansom *ChairmanAstec Holdings, Inc. Exhibit 10.107 Guaranty Joinder Agreement dated December, 1997 between Kolberg-Pioneer and CEO , The H.T. Hackney Co. E.D. Sloan, Jr. *ChairmanAstec Holdings, Inc. in favor of the Board, Nolas Trading Co, Inc. W. Norman Smith +#President,First National Bank of Chicago. Exhibit 22 Subsidiaries of the registrant. Exhibit 23 Consent of independent auditors. For a list of certain Exhibits not filed with this Report that are incorporated by reference into this Report, see Item 14(a)(3). EXHIBIT 22 Subsidiaries of the Registrant LIST OF SUBSIDIARIES Jurisdiction of Name Owned Incorporation Astec, Inc. Robert G. Stafford #President, Telsmith,100 Tennessee Astec Financial Services, Inc. *Member of the Audit and Compensation Committees +Member of the Executive Committee #Member of the Technical Committee Subsidiaries100 Tennessee Astec Holdings, Inc. Chattanooga,100 Tennessee Heatec,Astec Transportation, Inc. Chattanooga,100 Tennessee CEI Enterprises, Inc. Albuquerque, New Mexico100 Tennessee Heatec, Inc. 100 Tennessee Kolberg-Pioneer, Inc. 100 Tennessee Roadtec, Inc. Chattanooga,100 Tennessee Telsmith, Inc. Mequon, Wisconsin100 Delaware Trencor, Inc. Grapevine,100 Texas Transfer Agent Registrar Chemical Mellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Stock Exchange NASDAQ National Market - ASTEProduction Engineered Products, Inc. 100 Nevada Pavement Technology, Inc. 50 Georgia EXHIBIT 23 Consent of Independent Auditors Ernst & Young LLP Chattanooga, Tennessee General CounselCONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-14738 and Litigation Stophel & Stophel, P.C. Chattanooga, Tennessee Securities Counsel Alston & Bird Atlanta, Georgia Corporate Office0-14714) pertaining to the Astec Industries, Inc. 4101 Jerome Avenue P.O. Box 72787 Chattanooga, Tennessee 37407 Telephone 423-867-4210 The Form 10-K, as filed1986 and 1992 Stock Option Plans of our report dated February 20, 1998, with the Securities and Exchange Commission, may be obtained at no cost by any shareholder upon written requestrespect to the Senior Vice Presidentconsolidated financial statements and schedule of Astec Industries, Inc. The Annual Meeting will be held at 10:00 a.m. on Thursday, April 25, 1996included in the Training Center atAnnual Report (Form 10-K) for the Corporate office located at 4101 Jerome Avenue,year ended December 31, 1997. ERNST & YOUNG LLP Chattanooga, Tennessee.Tennessee March 19, 1998