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, 1996 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	 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	 (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 $72,401,400 based upon the closing sales price reported by the NASDAQ National Market on March 10, 1997, 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 10, 1997 Common Stock, par value $.20 -- 10,044,199 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 24, 1997 ASTEC INDUSTRIES, INC. 1996 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS 								 					Page PART I Item 1.	Business	 Item 2.	Properties		 Item 3.	Legal Proceedings		 Item 4.	Submission of Matters to a Vote of Security Holders		 Executive Officers of the Registrant		 PART II Item 5.	Market for Registrant's Common Equity and Related 		Shareholder Matters		 Item 6.	Selected Financial Data		 Item 7.	Management's Discussion and Analysis of Financial 		Condition and Results of Operations		 Item 8.	Financial Statements and Supplementary Data		 Item 9.	Changes in and Disagreements With Accountants on 		Accounting and Financial Disclosure		 PART III Item 10.	Directors and Executive Officers of the Registrant		 Item 11.	Executive Compensation		 Item 12.	Security Ownership of Certain Beneficial Owners 		and Management		 Item 13.	Certain Relationships and Related Transactions		 PART IV Item 14.	Exhibits, Financial Statement Schedules, and 		Reports on Form 8-K		 Appendix A	 SIGNATURES		 PART I Item 1. BUSINESS General 	Astec Industries, Inc. (the "Company") is a Tennessee corporation which was incorporated in 1972. The Company designs, engineers, manufactures and markets equipment and components used primarily in road building 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 65 United States and 63 foreign patents, and has been responsible for many technological and engineering innovations in the industry. The Company currently manufactures over 140 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 seven manufacturing subsidiaries are: (i) Astec, Inc., which manufactures a line of hot-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; (iv) Roadtec, Inc., which manufactures milling machines used to recycle asphalt and concrete, asphalt paving equipment and material transfer vehicles; (v) Trencor, Inc., which manufactures chain and wheel trenching equipment, excavating equipment and log loaders; (vi) CEI Enterprises, Inc., which manufactures heat transfer equipment and recycled rubber blending systems for the hot-mix asphalt industry; and (vii) Production Engineered Products, Inc. ("PEP"), which 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 in portable crushing and screening plants serving the aggregate and industrial markets. 	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 subsidiaries and their customers in arranging financing for equipment. AFS provides loans, operating leases, floor plans for dealers, fleet rental plans, and other financing plans to meet the needs of the industry. 	In 1996, we also began operations at Pavement Technology, Inc. ("PTI"), located in Conyers, Georgia. The Company is a 50% shareholder of PTI, which manufactures an asphalt pavement analyzer, vibratory compactor and packages mix-design laboratory products, that allows our customer 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 adds a completely new dimension to the services and equipment we are able to provide our customers. 	The Company's strategy is to become the high quality, low cost producer in each of its product lines while continuing to develop innovative new products for its customers. Management believes that the Company is well positioned to capitalize on the need to rebuild and enhance roadway infrastructure, both in the United States and abroad. Disposition of Foreign Operating Subsidiaries 	As previously disclosed, due to 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-business segment. In 1996 it manufactured and marketed products in five principal categories: (i) hot-mix asphalt plants, soil purification and environmental remediation equipment and related components; (ii) 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	 1996 1995 1994 (In thousands) Asphalt plants and components $93,786 $110,321 $100,514 Aggregate processing equipment 52,739 46,586 38,823 Mobile construction equipment 37,845 29,706 30,291 Trenching and excavating equipment 23,543 21,110 25,867 Financial information in connection with the Company's international sales is included in Note 14 to "Notes to Consolidated Financial Statements - Segment Information," appearing at Page A-11 of this report. Hot-mix Asphalt Plants 	Astec, Inc. designs, engineers, manufactures and markets a complete line of portable, stationary and relocatable hot-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-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" 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, Astec, Inc. developed an improved version of the "Six Pack" plant, making the new "Six Pack" considerably more portable and self- erecting. This design will eliminate the use of cranes for disassembly or erection. The enhanced version of the "Six Pack," known as the Turbo 400, is capable of producing 400 tons-per-hour of hot-mix asphalt. This highly portable plant is especially useful in less populated areas where plants must be moved from job to job. 	The components in the Company's asphalt mixing plants are fully automated and use microprocessor-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-mix asphalt plants. Many of the 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. Roadtec manufactures one paver model which must be used with a material transfer vehicle described below. 	Material Transfer Vehicles. The patented "Shuttle Buggy"TM 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" TM 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 Buggy" TM 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 upgrades and options were added in 1996 to enhance the products and their capabilities. 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), designs, engineers, manufactures and markets heating equipment and storage tanks mainly for the asphalt paving industry. 	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. Aggregates Processing Equipment 	Founded in 1906, Telsmith, Inc. designs, manufactures, and markets a complete line of aggregate and mineral processing equipment and related machinery under the "TELSMITH" trademark for the mining, quarrying, and sand and gravel industries worldwide. Telsmith's products include jaw, cone, and impact crushers; several types of feeders which move virgin, recycled, or crushed material to primary, secondary, or tertiary crushing equipment; vibrating screens to separate the aggregate into various sizes; and washing and conveying equipment. In metallic mining operations, Telsmith equipment 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 and services in the worldwide marketplace. 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. Trenching and Excavating Equipment 	Trencor, Inc. designs, engineers, manufactures and markets chain and wheel trenching equipment, canal excavators, rock saws, road miners and log-loading equipment. 	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 thirty 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. 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, fiber optics cable, constructing highway drainage systems and for other applications. 	Roadminers. Trencor manufactures four "Road Miner" 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 Roadminer has applications in the road construction industry and in mining and aggregates processing operations. 	Log Loaders. Trencor also manufactures several different models of log loaders. Its products include mobile/truck mounted models, 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. In 1996, due to the depressed nature of the timber industry as a whole and the resulting price competition it created, the Company made a decision to de- emphasize this product line and reallocate resources to strengthen Trencor's core product lines. 	Material Processor. During 1996, Trencor developed 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 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 1996 took place at eight 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. Telsmith products are sold through two leased branch locations in San Francisco, California, and 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 percent of Heatec's sales volume during 1996. Direct sales employees are paid salaries and are generally entitled to commissions after obtaining certain sales quotas. See "Business - 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 1996, approximately 238 representatives of contractors and owners of hot-mix asphalt plants attended seminars held by the Company in Chattanooga, Tennessee. These seminars, which are taught by Company management and employees, cover a range of subjects including technological innovations in the hot-mix asphalt business and other industry segments 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. Five seminars with up to eighty participants each are being held in 1997 in the newly constructed, state-of-the-art training center at Astec, Inc. 	In addition to the seminars, the Company publishes a number of detailed technical bulletins covering various technological and business issues relating to the asphalt industry. Patents and Trademarks 	The Company seeks to obtain patents to protect the novel features of its products. The Company and its subsidiaries hold 65 United States patents and 63 foreign patents. There are eight United States and four foreign patent applications pending. 	The Company and its subsidiaries have approximately 40 trademarks registered in the United States, including logos for Astec, Telsmith, Roadtec and Trencor, and the names ASTEC, TELSMITH, HEATEC, LOG HOG, ROADTEC and TRENCOR. Many of these trademarks are also registered in foreign countries, including Canada, Great Britain, Mexico, and Australia. 	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, 1996, the Company and its subsidiaries had 103 full-time individuals employed domestically 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, 1996, the Company had a backlog for delivery of products at certain dates in the future of approximately $44,911,000. At December 31, 1995, the total backlog was approximately $34,751,000. 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-held companies with resources significantly greater than those of the Company and various smaller manufacturers. Hot-mix asphalt plant competitors include CMI Corporation; Cedarapids, Inc., a subsidiary of Raytheon Company; and Gencor Industries, Inc. Paving equipment competitors include Caterpillar Paving Products Inc., a subsidiary of Caterpillar, Inc.; Blaw-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 is Gencor/Hyway Heat Systems. The Company's milling machine equipment competitors include Ingersoll-Rand Company; CMI Corporation; Cedarapids, Inc.; Caterpillar; and Wirtgen America, Inc. Aggregates processing equipment competitors include the Pioneer Division of Portec, Inc.; Nordberg, Inc.; Eagle Iron Works; Boliden Allis, a member of the Trelleborg Group; Cedarapids, Inc.; and other smaller manufacturers, both domestic and foreign. Competition for sales of trenching and excavating equipment includes Ditch Witch; J.I. Case; Vermeer and other smaller manufacturers in the small utility trencher market. Astec Financial Services competitors are 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. Regulation 	The Company does not operate within a highly regulated industry. However, air pollution equipment manufactured by the Company principally for hot-mix asphalt plants must comply with certain performance standards promulgated by the federal Environmental Protection Agency under the Clean Air Act applicable to "new sources" or new plants. Management believes that the Company's products meet all material requirements of such regulations and of applicable state pollution standards and environmental protection laws. 	In addition, due to the size and weight of certain equipment, the Company 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 and a unit of Trencor production and maintenance employees voted to be represented by the United States Steelworkers of American, AFL-CIO, CLC. Trencor has 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 by the union. Trencor has requested that a new representation election be held. The proceeding currently is pending before the United States Court of Appeals for the Fifth Circuit. 	At December 31, 1996, the Company and its subsidiaries employed 1,457 persons, of which 916 were engaged in manufacturing operations, 138 in engineering, including support staff, and 403 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 United States Court of Appeals for the Fifth Circuit, 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	 	Location	 Square Footage 	Acreage	 Principal Function Chattanooga, Tennessee 361,000 59.1 Corporate and sub- sidiary offices, manufacturing - Astec Chattanooga, Tennessee --- 63.0 Storage yard - Astec Chattanooga, Tennessee 66,200 5.0 Offices, manufact- uring - Heatec Chattanooga, Tennessee 135,000 15.1 Offices, manufact- uring - Roadtec Chattanooga, Tennessee 1,820 --- Offices leased for Astec Financial Services, Inc. North Aurora, Illinois 16,700 3.5 Roadtec and Trencor (sales and service office) San Francisco, California 550 1.0 Leased sales and service office - Telsmith Mequon, Wisconsin 203,000 30.0 Offices and manufact- uring - Telsmith Walnut, Illinois 28,000 3.0 Leased offices and manufacturing - PEP Rossville, Georgia 40,500 2.6 Manufacturing - Astec Grapevine, Texas 175,513 51.67 Offices, manufact- uring - Trencor Walpole, Massachusetts 1,800 --- Leased sales and service office - Telsmith Odessa, Texas 4,072 0.8 Sales office and parts warehouse - Trencor 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 --- Leased sales office - Heatec Albuquerque, New Mexico 110,700 14.0 Offices and manufact- uring - CEI 	Management believes that each of the Company's facilities provides 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 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 director of the Company since its incorporation in 1972 and assumed the additional position of Chairman of the Board in 1975. He was the Treasurer of the Company from 1972 until 1994. From 1969 to 1972, Dr. Brock was President of the Asphalt Division of CMI Corporation. 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 58. 	Richard W. Bethea, Jr., became Vice President, Corporate Counsel, and Secretary on February 1, 1997. Mr. Bethea has been a practicing lawyer since 1978. He has an undergraduate degree in accounting from the University of Georgia. Before joining the Company, Mr. Bethea was a member (stockholder) and partner with the law firm Stophel & Stophel, P. C., in Chattanooga, Tennessee. He has served as the Company's litigation counsel since 1983. He is 44. 	F. McKamy Hall, a Certified Public Accountant, has served as Controller of the Company since May 1987. From 1985 to 1987, Mr. Hall was Vice President-Finance of 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 54. 	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 57. 	Robert G. Stafford has served as President of Telsmith, Inc. 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-Greene in December 1986, Mr. Stafford was Vice President - Operations of Barber-Greene and General Manager of Telsmith. He became a director of the Company in March 1988. He is 58 	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 47. 	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 55. 	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 52. 	Albert E. Guth has been President of Astec Financial Services, Inc. since June 1996. He served as Chief Financial Officer of 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 57. 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." 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, are as follows: 	 Price Per Share 	1996	 High	 Low 	1st Quarter	 10 5/8	 9 1/8 	2nd Quarter	 11 1/8	 8 1/4 	3rd Quarter	 9 1/8	 8 1/8 	4th Quarter	 9 3/4	 8 3/8 		Price Per Share 	1995	 High	 Low 	1st Quarter	 14 1/4	 11 	2nd Quarter	 13 1/8	 10 7/8 	3rd Quarter	 11 3/4	 9 7/8 	4th Quarter	 12 1/4	 9 3/4 The number of holders of record of the Company's Common Stock as of March 10, 1997 was 696. 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 24, 1997, 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." 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 24, 1997 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," "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 24, 1997 is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions 	On March 18, 1996, Dr. J. Don Brock, Chairman of the Board and President of the Company loaned $1,178,000 to the Company to supplement its working capital revolving credit facility. The Company executed a demand note payable to Dr. Brock in connection with this loan bearing interest at a rate equal to that paid to First Chicago NBD under the Company's unsecured revolving line of credit. At the time Dr. Brock loaned these funds to the Company, the 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. As of December 31, 1996, interest of $73,135 has been accrued with respect to this loan. 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, 1996 and 1995. .	Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994. .	Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994. .	Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994. . 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: 	.	Report of Independent Auditors. 	.	Schedule VIII - Valuation and Qualifying Accounts. 	(a)(3) The following Exhibits* are incorporated by reference into or are filed with this Report: 	3.1	Restated Charter of the Company (incorporated by reference 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). 	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). 	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). 	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). 10.83 	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 First 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 First 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 First 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). 	10.89	Waiver for December 31, 1994, dated February 24, 1995 with respect to First 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 First 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 First 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 First 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 (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 (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 First Chicago NBD Credit Agreement dated July 20, 1994, as amended (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 	10.97	Limited Consent of First 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. (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 (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 (incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 0-14714). 	10.100	Demand note dated March 18, 1996 between the Company and the Company's Chief Executive Officer, Dr. J. Don Brock. 	10.101	Loan Agreement dated December 5, 1996 between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. ("CIT"). 	10.102	Astec Industries, Inc. Guaranty dated December 5, 1996 of Line of Credit Agreement between Astec Financial Services, Inc. and The CIT Group/Equipment Finance. 	11	 Statement Regarding Computation of Per Share Earnings. 	22	 Subsidiaries of the Registrant. 	23	 Consent of Independent Auditors 	(b)	No reports on Form 8-K were filed in the fourth quarter. 	(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 Data		 A-1 Management's Discussion and Analysis of Financial Condition and Results of Operations		 A-2 Consolidated Balance Sheets at December 31, 1996 and 1995		 A-6 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994		 A-7 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994		 A-8 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994		 A-9 Notes to Consolidated Financial Statements		 A-11 Report of Independent Auditors		 A-24 Schedule VIII - Valuation and Qualifying Accounts		 A-25 ASTEC INDUSTRIES, INC. 1996 ANNUAL REPORT Astec Industries, Inc., through its seven manufacturing subsidiaries, designs, engineers, manufactures and markets equipment and components used in road building and various other 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 equipment, environmental remediation equipment, log handling equipment and industrial heat transfer equipment. The Company has been responsible for many technological and engineering innovations in the road building industry and presently holds 65 United States and 63 foreign patents and has eight domestic and four foreign patents pending. The Company currently manufactures over 140 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, which is an integral part of the Company's business. The Company's eight subsidiaries are: (i) Astec, Inc., which manufactures a line of hot 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; (iv) CEI Enterprises, Inc., which manufactures heating equipment, mixing equipment, agitating tanks and storage tanks used primarily in the asphalt paving industry; (v) Roadtec, Inc., which manufactures reclaiming equipment used to recycle asphalt and concrete, asphalt paving equipment and material transfer vehicles; (vi) Trencor, Inc., which manufactures chain and wheel trenching equipment, excavating equipment, and logging equipment; (vii) Production Engineered Products, Inc., which designs, manufactures, and markets high-frequency vibrating screens for sand and gravel and asphalt operations; and (viii) Astec Financial Services, Inc., which provides a wide range of financial services for financing the purchase of Astec products for Astec's customers. The principal purchasers of the Company's products for road building and related construction activities include highway and heavy equipment contractors, utility contractors, pipeline contractors, open mine operators, quarry operators and foreign and domestic governmental agencies. International sales represented approximately 17.3% of net sales for 1996 and included sales in Canada, Mexico, Europe, the Middle East, Asia, Africa, Australia, South America and the West Indies. TABLE OF CONTENTS TO OUR SHAREHOLDERS	 FINANCIAL HIGHLIGHTS	 CORPORATE OVERVIEW	 FINANCIAL STATEMENTS Selected Consolidated Financial Data	 Quarterly Financial Highlights	 Management's Discussion and Analysis of Financial Condition 	 and Results of Operations	 Consolidated Balance Sheets	 Consolidated Statements of Income Consolidated Statements of Shareholders' Equity	 Consolidated Statements of Cash Flows	 Notes to Consolidated Financial Statements	 Report of Independent Auditors	 Corporate Information	 Total sales for 1996 were $221,413,000 compared to $242,601,000 during 1995. Income before income taxes for the year ended December 31, 1996 was $7,018,000 compared to $6,141,000 in 1995. Net income for the year ended December 31, 1996 was $4,345,000, or $0.43 per share, compared to $4,560,000, or $0.45 per share for 1995. We are not satisfied with the level of our profits during 1996, which were adversely affected by unusual events at our Trencor, Inc. subsidiary and a significant downturn in international sales of hot-mix asphalt plants and components at our Astec, Inc. subsidiary. In an effort to diversify Trencor's product line, we acquired the Log Hog log loader line in early 1994 and produced a significant amount of inventory in anticipation of continued high demand in the timber industry. Unfortunately, a significant and unexpected downturn in the paper industry, which produced a similar decline in the timber market, substantially reduced the demand for the log loaders. This market downturn increased price competition to the point that in order to sell units we were experiencing unacceptable losses. Consequently, in December we decided it was in the best interest of the Company to de-emphasize this product line, reduce the investment in inventory, and reallocate these resources for further expansion of Trencor's core trencher business. As a result, the appropriate writedowns on inventory were taken. We also decided to terminate Trencor's research and development of a large mining machine for use in rock quarries and surface mines. After two years of experimentation with a prototype, we had doubts about the long-range cost effectiveness of the machine, so we felt that the project should be discontinued. This decision allowed us to redirect our engineering resources to the trencher line to which three new models of trenchers were added in 1996. In 1996, Astec, Inc. experienced an 11.3% increase in domestic sales compared to 1995, but these gains were not sufficient to offset a decrease of approximately $25 million in the cyclical and often unpredictable international market. Also during 1996, Astec continued to be the industry's innovator in plant technology as it completed the development of a new Turbo 400 ton per hour "Six Pack" plant, which we believe is the most portable high-production asphalt plant ever built. While 1996 was a disappointing year in terms of earnings, it was, nevertheless, a year of successes and great progress. For example, the Telsmith operation realized many of the efficiencies we had hoped to achieve with our capital investments in state-of-the-art machine tools and expanded facilities. In December, we completed the acquisition of Production Engineered Products, Inc. ("PEP") in Walnut, Illinois. PEP manufactures and markets patented high- frequency screening units for sand and gravel and asphalt operations. PEP will be operated in conjunction with Telsmith. We believe the high-production capacity of the PEP screens will enhance sales of Telsmith's portable crushing plants and that Telsmith's experienced sales force will significantly increase sales in the PEP product lines. Roadtec, Inc. continued to be an innovator in the paver and milling machine markets and introduced a new model of paver and a new model of our patented "Shuttle Buggy"TM which is a market leader in the material transfer vehicle market. Heatec, Inc. also had a good year. Even though sales of Astec, Inc., Heatec's largest customer, declined in 1996, Heatec's sales increased and it is currently adding to its manufacturing facility. We also acquired a new facility for CEI, Inc. These additions should position Heatec and CEI for continuing growth, particularly in the western United States. In a further effort to enhance the strength of our core businesses, during 1996 we formed a new subsidiary, Astec Financial Services, Inc., which will offer our customers access to capital financing through a lender that better understands the equipment being purchased and the road construction industry in general. Albert E. Guth, former Senior Vice President and Chief Financial Officer of Astec Industries, Inc., is President of this new subsidiary. In 1996, we also began operations at Pavement Technology, Inc. located in Conyers, Georgia. Astec Industries, Inc. is a 50% shareholder of this company, which manufactures an asphalt pavement analyzer and a vibratory compactor and packages mix-design laboratory products. These products 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 adds a completely new dimension to the services and equipment we are able to provide our customers. We never take our shareholders for granted, and we deeply appreciate your patience with us over the last two years. Quite candidly, we are not happy with the profits we have earned over the past two years, and we have taken a hard look at our operations in order to make the changes necessary to maximize our profit potential in the future. We believe we have done that and that we are strategically positioned to reap the benefits. Our Company has the largest share of the hot-mix asphalt plant, asphalt heater, and large custom trencher markets. We are among the leaders in rock crushers, milling machines, and asphalt pavers, and we believe that our technology, much of which is patented, is the most innovative and reliable in the world today. Astec Industries, Inc. went public approximately ten years ago in June 1986. While the amount and consistency of our profits has not been satisfactory to us, we are proud of the overall performance of the Company which we intend to enhance. For example, on September 30, 1986, our net worth was $17,803,000. By December 31, 1996 our net worth had risen to $99,393,000. On a per-share basis, the net worth of the Company was $3.04 on September 30, 1986, and had increased to $9.84 per share by December 31, 1996, representing a compounded growth rate of net worth of approximately 12.1% per year. Our mission in 1997 is the expansion and enhancement of our core businesses and improvement of the return on our shareholders' investments. We believe we will fulfill that mission and will set a new standard of performance that will continue into the future. We deeply appreciate the trust, confidence, and support of our customers, employees, and especially our stockholders. Sincerely, /s/ J. Don Brock J. Don Brock, Ph.D., P.E. Chairman of the Board and Chief Executive Officer FINANCIAL HIGHLIGHTS (in thousands, except as noted *) 								 						Percent 							 Increase 			 1996		 1995		 (Decrease) Operating Results	 Net sales 		$221,413	 $242,601	 (8.7)% Patent suit damages and expenses	 264		 699		 (62.2)% Loss on abandonment of foreign subsidiary			 7,037 Pre-tax income		 7,018	 	6,141	 	14.3% Net income		 4,345		 4,560		 (4.7)% Financial Position Working capital		 $69,884		 $58,015 		20.5% Shareholders' equity	 99,393	 	95,901 	3.6% Per Common Share Net income*		 $0.43		 $0.45		 (4.4)% Book value per common 	share at year-end*	 9.84	 9.50		 3.6% Other Data Weighted average number of common and common equivalent shares outstanding	 10,047		 10,072	 Common shareholders - 	approximate*	 700	 	750 Employees*		 1,457 		1,402 CORPORATE OVERVIEW Astec Industries, Inc. and its operating subsidiaries share a commitment of providing quality equipment for rebuilding infrastructure, both domestically and internationally. From rock to road, each company provides a critical function in the road building process. Using the latest design and manufacturing technology, these companies provide the most modern and innovative equipment available today. Hot Mix Asphalt Plants Astec, Inc. designs, engineers, manufactures and markets a complete line of portable, stationary, and relocatable hot mix asphalt plants and related components under the "ASTEC" trademark. An asphalt mixing plant consists of heating and storage equipment (manufactured by Heatec or CEI) for liquid asphalt, cold feed bins for storing aggregates, a drum mixer, a baghouse composed of air filters and other pollution control devices, hot storage bins or silos for temporary storage of hot mix asphalt and a control house. The Company introduced the concept of plant portability in 1979. Its current generation of portable asphalt plants is marketed as the "Six Pack" 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, Astec, Inc. developed an improved version of the "Six Pack" plant, making the new "Six Pack" considerably more portable and self-erecting. This design will eliminate the use of cranes for disassembly or re-erection. The enhanced version of the "Six Pack," known as the Turbo 400, is capable of producing 400 tons per hour of hot mix asphalt. This highly portable plant is especially useful in less populated areas where plants must be moved from job to job. The components in the company's asphalt mixing plants are fully automated and use microprocessor-based control systems for efficient operation. The plants are manufactured to meet or exceed federal and state clean air standards. Many of the 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 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. 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 the asphalt mix. By permitting continuous paving, the "Shuttle Buggy" allows the asphalt paver to produce a smoother road surface. Milling Machines. Roadtec milling machines are designed to remove old asphalt from the road surface before new hot mix asphalt 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. Heat Transfer Equipment Heatec 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 ("CEI") designs, manufactures and markets heating equipment and storage tanks primarily for the asphalt paving industry, and markets equipment under the CEI name. Asphalt Heating Equipment. Heatec manufactures direct-fired and helical coil heaters for the asphalt industry, while CEI's heating equipment is hot oil, direct fired or electric. CEI and Heatec make a wide range of models that are both portable and stationary in capacities up to 35,000 gallons. Heatec and CEI both manufacture rubber blending and mixing systems. Industrial Heating Equipment. Heatec also 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 BTUs per hour. Aggregates Processing Equipment Founded in 1906, Telsmith, Inc. designs, manufactures, and markets a complete line of aggregate and mineral processing equipment and related machinery under the "TELSMITH" trademark for the mining, quarrying, and sand and gravel industries worldwide. Telsmith's products include jaw, cone, and impact crushers; several types of feeders which move virgin, recycled, or crushed material to primary, secondary, or tertiary crushing equipment; vibrating screens to separate the aggregate into various sizes; and washing and conveying equipment. In metallic mining operations, Telsmith equipment is used in primary crushing stages after the material has been blasted from the deposit. Secondary and tertiary crushing equipment, as well as vibrating equipment, are employed in Telsmith 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 our products. This designation is a recognition of the quality of our products and services in the worldwide marketplace. Production Engineered Products, Inc. ("PEP") designs, manufactures, and markets high-frequency vibrating screens for sand and gravel and asphalt operations. In addition, PEP incorporates the high-frequency screens into portable crushing and screening plants serving the aggregate and industrial markets. Trenching and Excavating Equipment Trencor designs, manufactures and markets chain and wheel trenching equipment, canal excavators, rock saws, roadminers and log handling equipment. Chain Trenchers. Trencor chain trenching machines utilize a heavy duty chain (equipped with cutting teeth attached to steel plates) wrapped around a long movable boom. These machines, with weights up to 400,000 pounds, are capable of cutting a trench up to eight feet wide and thirty feet deep. 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 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. Material Processors. During 1996, Trencor developed a machine which includes a crusher that operates independent of the trencher to process rock and related material (spoil) removed from the trench to make it suitable for use as a filler around pipes, cables or other lines being installed. Patents are pending on this product. Rock Saws. Trencor manufactures a rock saw which is utilized for laying water and gas lines, fiber optics cable, constructing highway drainage systems and for other applications. Roadminers. The "Roadminer" is a 400,000 pound unit manufactured by Trencor 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 Roadminer has applications in the road construction industry and in mining and aggregates processing operations. Log Loaders. Trencor also manufactures several different models of log loaders. Its products include mobile/truck mounted models, 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. Asphalt, Mix Design, and Quality Control Testing Equipment In 1996, Pavement Technology, Inc. was formed and is located in Conyers, Georgia. Astec Industries, Inc. is a 50% shareholder of this company, which manufactures an asphalt pavement analyzer, vibratory compactor and packages 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 adds a completely new dimension to the services and equipment we are able to provide our customers. Captive Finance Business Astec Financial Services, Inc. was formed in June 1996 as a wholly-owned subsidiary of Astec Industries, Inc. to provide a wide range of financing products for the Company's equipment. AFS, a captive finance company, is dedicated to working exclusively with all of the Company's subsidiaries and their customers in arranging financing for the Company's equipment. AFS has provided loans, operating leases, floor plans for dealers, fleet rental plans and has developed financing plans to meet the needs of the industry. SELECTED CONSOLIDATED FINANCIAL DATA (in thousands, except as noted *) 				1996 1995	 1994 	 1993	 1992 Consolidated Income	 Statement Data Net sales	 		$221,413 $242,601	 $213,806 $172,801	 $149,133 Selling, general and 	administrative expenses	 35,082 	34,326 	31,142 	28,624 	23,969 Research and development	 5,868	 5,128	 3,166	 2,923 	2,580 Patent suit damages 	 and expenses (net recoveries and accrual adjustments)	 264	 699	 (14,947) 	375	 567 Loss on abandonment of 	foreign subsidiary 7,037 Income from operations	 8,051 	2,566	 27,236 	9,974 7,058 Interest expense	 1,656 	2,125 	713 	1,788 	3,241 Net income	 4,345 	4,560 	23,436 	9,338 	6,014 Income per common share*(1) 	.43 	.45 	2.38 	1.07 	.82 Consolidated Balance	 Sheet Data Working capital	 $	69,884	$	58,015	 $	53,000	 $40,767 	$33,641 Total assets	 167,853 154,356 	155,964 	102,967	 87,885 Total short-term debt	 2,051 	774 	8,573 	10 	3,103 Long-term debt, less 	current maturities	 30,497 	17,150	 16,155	 	 22,660 Shareholders' equity	 99,393 	95,901	 90,373 	64,105 	27,631 Book value per common 	share at year-end*(1) 	9.84 	9.50 	9.04 	6.54 	3.78 Quarterly Financial	Highlights (Unaudited) First	 Second	 Third	 Fourth Quarter	 Quarter Quarter	 Quarter 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		 (1,747) Net income per 		common share*	 	.28	 	.22 		.10	 	(.17) 1995	 Net sales	 $	57,544 $	70,368 	$	65,015 $	49,674 Gross profit	 13,637 	14,011 	13,298 	8,811 Net income	 2,516 	4,730 	2,768 	(5,454) Net income per 	 common share* 	.25 	.47 	.27	 (.54) Common Stock Price*	 1996 High	 10-5/8	 11-1/8	 9-1/8	 9-3/4 1996 Low	 9-1/8 	8-1/4 	8-1/8	 8-3/8 1995 High 	14-1/4	 13-1/8	 11-3/4	 12-1/4 1995 Low	 11 10-7/8	 9-7/8	 9-3/4 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 700. (1) Restated to retroactively reflect the two-for-one stock split effected in the form of a dividend on August 12, 1993. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations 1996 vs. 1995	 Net income for 1996 was $4,345,000, or $.43 per share, compared to net income of $4,560,000, or $.45 per share, in 1995. Net income for 1995 included losses of approximately $4,279,000 relative to the Company's former German subsidiaries, Astec-Europa and Wibau-Astec, while pre-tax income for 1996 was reduced by approximately $3,000,000 due to various fourth quarter charges. Net income from domestic operations was $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 net income from domestic operations for 1996. 	Net sales for 1996 were $221,413,000, a decrease of $21,188,000, or approximately 8.7% compared to 1995. 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 in domestic sales was offset by a $20,656,000 decrease in international sales, primarily as a result of a $25,447,000 decline in international sales of asphalt plants. International sales by domestic subsidiaries were 17.3% of total sales in 1996 compared to 24.3% of total sales in 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 low. Domestic operations' gross profit margin for 1996 was 22.3% compared to 22.5% for 1995. In 1996, selling, general, and administrative expenses increased to 15.8% of net sales from 14.1% in 1995. In 1995, selling, general, and administrative expenses were 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 the reduction in net sales for 1996, increased sales accommodations on the log loader product line, increased selling expenses primarily related to salaries, travel, and entertainment expenses at all subsidiaries, and product demonstration expenses at the Roadtec subsidiary. Research and development expenses increased from 2.1% of net sales in 1995 to 2.6% in 1996. Excluding the German operations, research and development expenses were 1.3% in 1995. This increase in 1996 was principally attributed to the product development expenses related to a prototype mining machine which will be discontinued in 1997. Interest expense for 1996 decreased to .8% of sales from .9% of sales in 1995. The decrease 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 decrease was only $525,000. The 1995 other income, excluding Germany, included gains on the sale of fixed assets, primarily related to the sale of the former manufacturing facility operated by Telsmith, Inc., but no such comparable gains occurred in 1996. Income tax expense for 1996 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 in 1995. The variance from the normal corporate tax rate in 1995 was primarily attributed to a lower effective tax rate related to the Company's foreign operations. The 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, 1996 was $44,911,000 compared to $34,751,000 at December 31, 1995, representing a 29.2% increase which was principally attributed to increased domestic 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. In contrast to the strong domestic market, international asphalt plant orders continue to be slow and unpredictable. In an effort to improve international asphalt plant sales, the Company is reviewing its international sales efforts and developing a plan to add agents in Singapore, Malaysia, and Indonesia, as well as increase its participation in international trade shows in 1997. The Company will also hold a service school for Spanish- speaking customers in 1997. Results of Operations 1995 vs. 1994 Net income for 1995 was $4,560,000 or $.45 per share compared to net income of $23,436,000 or $2.38 per share in 1994. Net income for 1994 included $14,947,000 in non- recurring gains as a result of final judgments entered in connection with 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 of Wibau-Astec	 (2,449,000)	 Loss on abandonment of Astec-Europa	 7,037,000 	 Loss from foreign subsidiaries	 3,598,000 	5,366,000 Adjusted pre-tax income from domestic operations	 14,327,000 	16,156,000 Income taxes for domestic operations 		(5,487,000)	 	(916,000) Net income from domestic operations	 $	8,840,000 	$	15,240,000 The decrease in adjusted pre-tax income for domestic operations of $1,829,000 in 1995 as compared to 1994 was the result of increased gross profit margin due to increased sales of domestic subsidiaries which were more than offset by increased interest and research and development expenses, and a decrease in other income from domestic subsidiaries. Net sales for 1995 were $242,601,000, an increase of $28,795,000 or approximately 13.5% compared to 1994. Of this increase, $14,615,000 is attributable to the acquisition of Gibat Ohl and the acquisition 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%. International sales by domestic subsidiaries were 24.3% of total sales in both 1995 and 1994. The net increase in sales reflected a strong sales increase in asphalt plants, heaters and rock crushing equipment, but reduced sales in mobile equipment and trenchers. The gross profit margin for 1995 was 20.5% compared to 22.5% for 1994. This decrease was primarily due to lower gross profit margins from our foreign operations which had gross profit margins of 3.4% in 1995 compared to 11.4% in 1994. Domestic operations gross profit margin for 1995 was 22.5% compared to 23.0% for 1994. In 1995, selling, general, and administrative expenses decreased to 14.1% of net sales from 14.6% in 1994. The Gencor patent litigation accounted for $699,000 of legal fees which were included in 1995 patent damages and expenses. Research and development expenses increased from 1.5% of net sales in 1994 to 2.1% in 1995, primarily due to foreign operations. As noted above, income from operations was significantly impacted by the losses of Astec-Europa in 1995. The total pre- tax loss, including the cost of abandonment, was approximately $9,945,000. Astec-Europa incurred pre-tax operating losses in 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, and elected instead to abandon the subsidiary in accordance with German law. Astec-Europa management filed a request for bankruptcy in Germany on February 9, 1996. Consequently, the Company was not 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 included the liabilities of Astec- Europa that were guaranteed by the Company and the remainder of the original investment recorded 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 was due to the sale of Wibau- Astec as described in Note 2 to Consolidated Financial Statements. Income tax expense for 1995 was $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. The reason for the variance from the normal corporate tax rate in 1994 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 was primarily attributed to foreign operations. See Note 9 to Consolidated Financial Statements. Due to the utilization of the majority of its credit carryforwards, the Company's tax rate for 1996 and subsequent years will approximate the normal corporate rate. The backlog at December 31, 1995 was $34,751,000 compared to $50,465,000 at December 31, 1994 which represented a 31.1% decrease. The Company's 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. Liquidity and Capital Resources Working capital increased to $69,884,000 at December 31, 1996 from $58,015,000 at December 31, 1995. The Company's debt-to-equity ratio was .33 to 1.00 at December 31, 1996 and .19 to 1.00 at December 31, 1995. The Company's principal source of liquidity in 1996 was its borrowings under current and newly-obtained credit facilities. Total short-term borrowings, including current maturities of long-term debt, were $2,051,000 at December 31, 1996 and $774,000 at December 31, 1995. 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 $30,497,000 at December 31, 1996 and $17,150,000 at December 31, 1995. The majority of the increase in long-term debt related to increased usage of the Company's revolving line of credit. Contributing to the significant increase was payment of $3,049,000 for liabilities guaranteed by the Company related to the 1995 abandonment of Astec-Europa operations, capital expenditures of $8,708,000, and an increase in finance receivables of $5,226,000 related to the operations of Astec Financial Services, Inc., which began in June 1996. Capital expenditures of $8,708,000 were made in 1996 as compared to capital expenditures in 1995 of $15,160,000. The Company has an unsecured revolving credit loan agreement with First Chicago NBD. The line of credit is $22,000,000. This credit facility expires June 30, 1999. At December 31, 1996, $13,322,000 of the line of credit was utilized. Principal covenants under the First Chicago credit agreement include (i) the maintenance of certain levels of net worth and compliance with certain current, leverage, interest expense, and fixed charge ratios, (ii) a limitation on capital expenditures, (iii) a 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, 1996. In addition to the Company's $22,000,000 revolving credit facility, Astec Financial Services, Inc. established a $15,000,000 line of credit with The CIT Group/Equipment Financing. At December 31, 1996, Astec Financial Services, Inc. had utilized $2,508,000 of this line. Advances under this line are limited to "Eligible Receivables" of Astec Financial Services, Inc. as defined in the credit agreement. Principal covenants under the CIT Group credit agreement are substantially the same as those of the First Chicago credit facility with the exception of a minimum net worth requirement for Astec Financial Services, Inc. The Company and Astec Financial Services, Inc. were in compliance with all financial covenants related to the CIT line of credit at December 31, 1996. In 1996, year-end trade receivables rose to $30,040,000 from $27,075,000 at December 31, 1995 with slower receivable turnaround being the primary reason for the increase. Inventory levels increased $881,000 during 1996 with the increase in ending inventory of asphalt plants and aggregate processing products offset by decreased ending inventory of asphalt paving equipment. 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, the Company has no material reserve requirements for potential environmental liabilities. Forward Looking Statments 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 foward-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 habor" 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 consturction 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 SHEETS December 31, 	1996 	1995 Assets	Current assets: Cash and cash equivalents Note 1	 $	3,382,484	 $	3,133,070 Trade receivables less allowance for doubtful 	accounts of $1,267,000 in 1996 and 	$1,279,000 in 1995	 30,039,813 	27,075,401 Finance receivables Note15	 3,371,513 Notes and other receivables	 1,191,223 	596,134 Inventories Note 1 56,764,085	 55,882,679 Prepaid expenses	 1,967,999 	 894,593 Refundable income taxes	 2,071,063 	2,341,849 Deferred tax asset Note 9	 5,534,950 	6,667,052 Other current assets	 4,169	 5,214 Total current assets	 104,327,299 	96,595,992 Property and equipment, net Note 5	 54,317,352	 51,709,033 Other assets: Goodwill	 5,285,051 	4,066,152 Finance receivables Note 15 	1,854,443 Notes receivable	 320,000	 572,829 Deferred tax asset Note 9 442,458 	 Other 	1,306,113 	1,412,326 Total other assets	 9,208,065	 6,051,307 Total	 $	167,852,716 	$	154,356,332	 Liabilities and	Shareholders' Equity	 Current liabilities: Current maturities of long-term debt Note 7	 $	2,051,003	 $ 	774,274 Accounts payable	 14,613,782 	15,877,964 Customer deposits 	2,150,852 	4,989,557 Accrued product warranty	 2,364,705	 2,470,775 Deferred tax liability Note 9	 173,388	 Accrued insurance	 2,672,274	 2,783,246 Amounts payable in business combination	 2,405,145 Liabilities related to abandoned subsidiary Note 3	 593,886 	3,643,077 Other accrued liabilities	 7,418,242 	8,041,719 Total current liabilities 	34,443,277 	38,580,612 Long-term debt, less current maturities Note 7	 30,496,734	 17,150,000 Deferred tax liability Note 9	 2,838,024	 2,351,283 Deferred retirement costs Note 8	 544,911	 373,310 Other	 136,842	 Total liabilities	 68,459,788 	58,455,205 Shareholders' equity: Note 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 - 	10,101,199 in 1996 and 10,092,199 in 1995	 2,020,240	 2,018,440 Additional paid-in-capital	 51,980,855 	51,940,580 Retained earnings 	 46,286,983	 41,942,107 Minimum pension liability adjustment 	(127,150) 		100,160,928	 95,901,127 Less common stock in treasury at cost - 64,000 	shares in 1996	 (768,000) Total shareholders' equity	 99,392,928	 95,901,127 Total 	$	167,852,716 	$	154,356,332 	 	See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF INCOME 	Year Ended December 31, 	 1996 	1995 	1994 Net sales	 $ 221,412,796	 $ 242,601,351	 $ 213,806,411 Cost of sales	 172,147,913	 192,844,160 	165,709,245 Gross profit	 49,264,883 	49,757,191 	48,097,166 Selling, general, and 	administrative expenses 	35,081,800	 34,325,974 	31,142,335 Research and 	development expenses	 5,867,909	 5,128,495 	3,165,795 Patent suit damages and 	expenses (net recoveries 	and accrual adjustments) Note 10 	 263,978 699,222	 (14,947,498) Restructuring costs Note 12			 1,500,469 Loss on abandonment 	of foreign subsidiary Note 3		 7,037,105 Income from operations	 8,051,196	 2,566,395 	27,236,065 Other income (expense): 	Interest expense	 (1,656,466)	 (2,125,261) 	(712,853) 	Interest income	 386,646	 565,724 426,489 	Other income - net	 247,434	 2,685,161 	1,963,633 	Gain on sale of foreign 		subsidiary Note 2		 2,448,551 	Equity in loss of joint 		venture Note 2	 (10,652) 		(3,176,834) Income before income taxes	 7,018,158	 6,140,570 	25,736,500 Income taxes Note 9 	 2,673,282	 1,580,210	 2,300,126 Net income	 $	4,344,876	 $	4,560,360	 $	23,436,374 Earnings per Common and Common Equivalent Share: Net income 	$	.43	 $	.45	 $	2.38 Weighted average number of 	 common and common 	 equivalent shares outstanding Note 1 	 10,047,442 	10,071,930	 9,843,980 	See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the Years Ended December 31, 1996, 1995, and 1994 						 			 Foreign 	 	 	 	 Common Stock Additional Currency Pension Common Note 1	 	 Paid-in	 Translation	 Retained	 Liability	 Stock in 	 Shares	 Amount	 Capital	 Adjustment	 Earnings 	 Adjustment	 Treasury 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 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						 $(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 	$0	 $46,286,983	 $(127,150) $(768,000) [FN] See Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS 	Year Ended December 31, 1996 	1995 	1994 Cash Flows From 	 Operating Activities Net income	 $	4,344,876	 $	4,560,360	 $	23,436,374 Adjustments to reconcile net 	income to net cash provided 	by operating activities: 	Depreciation and amortization	 5,812,723 	5,697,862	 3,941,871 	Provision for doubtful accounts	 157,183 	533,136	 362,089 	Provision for inventory reserves 	1,231,828 	1,196,876	 3,621,218 	Provision for warranty	 3,018,990	 3,194,240 	2,616,565 	Provision for patent damages 		(net recoveries and 		accrual adjustments)		 	(13,250,048) 	Foreign currency translation 		adjustment		 (74,519)	 89,975 	(Gain) loss on sale of fixed assets	 59,118	 (263,195) 	 322,587 	(Gain) on sale of finance 		receivables	 (67,492) 	Equity in loss of joint venture	 10,652		 3,176,834 	Gain on sale of foreign subsidiary		 (2,448,551) 	Loss on abandonment of foreign 		subsidiary	 	7,037,105 (Increase) decrease in: 	Receivables	 (3,855,177) 	(2,551,526) 	(7,660,990) 	Inventories 	(1,353,245) 	(5,921,052) 	(3,537,955) 	Prepaid expenses	 (991,145) (2,071,266) 	(803,177)	 	Patent damage escrow funds	 		12,309,420 	Deferred tax asset	 1,349,773	 413,524 	(4,156,695) 	Other assets	 196,607	 (993,322)	 (1,916,921) Increase (decrease) in: 	Accounts payable 	(1,383,256) 	6,062,733	 	2,138,449 	Customer deposits	 (2,838,705)	 (1,211,925) 	(1,738,643) 	Accrued product warranty	 (3,127,860)	 (3,433,374) 	(2,256,128) 	Income taxes payable	 270,786	 (1,117,518) 400,355 	Other accrued liabilities	 (3,723,984)	 (2,373,657) 	(947,201) Total adjustments	 (5,233,204) 	1,675,571	 	(7,288,395) Net cash (used) provided by 	operating activities	 (888,328) 	6,235,931 	16,147,979 Cash Flows From Investing Activities Proceeds from sale of property and equipment - net 	1,202,335	 953,766	 307,099 Expenditures for property 	and equipment	 (8,707,987)	 (15,159,921) 	(21,886,011) Additions to finance receivables	 (8,333,293) Collections of finance receivables	 536,089 Proceeds from sale of finance receivables	 2,638,739	 Cash received in connection 	with sale of subsidiary		 (36,687)	 Cash balance abandoned 	with subsidiary 		(203,643) Additions to notes receivable	 (60,000) Repayments on notes receivable	 901,233	 95,256 600,499 Investment in joint venture	 (100,000)	 	(635,700) Cash payments in connection 	with business combination, net 	of cash acquired	 164,794	 (834,591) 	1,447,965 Net cash (used by) investing 	activities	 (11,758,090)	 (15,185,820) 	(20,166,148) 	 Cash Flows From	 Financing Activities Proceeds from industrial bonds				 $ 14,000,000 Purchase of treasury shares	 $	(768,000) Proceeds from issuance of 	common stock	 42,075	 $ 9,750	 34,750 Net borrowings under 	revolving credit loan 	11,680,000 	1,495,000 	2,655,000 Principal repayments of industrial 	bonds, loans and notes payable	 (1,027,023) 	(1,523,213) 	(5,658,355) Proceeds from debt and notes payable	 2,968,780 	1,629,978 Net cash provided by 	financing activities 	12,895,832 	1,611,515 	11,031,395 Increase (decrease) in cash and 	cash equivalents	 249,414 	(7,338,374) 	7,013,226 Cash and cash equivalents, 	beginning of period	 3,133,070	 10,471,444 	3,458,218 Cash and cash equivalents 	end of period	 $	3,382,484	 $ 3,133,070	 $ 10,471,444 Supplemental Cash Flow Information Cash paid during the year for: Interest	 $	1,572,642	 $ 1,800,598	 $ 595,767 Income taxes	 $	3,466,100	 $ 5,088,465	 $ 282,709 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 	Capital stock		 	(17,467)	 (39,871) 	Additional paid-in-capital			 	(1,030,529) 	(2,667,125) 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, 1996, 1995, and 1994 1. Summary of Significant Accounting Policies Basis of Presentation - The consolidated financial statements include the accounts of Astec Industries, Inc. and its subsidiaries. The Company's wholly-owned subsidiaries at December 31, 1996, are as follows: Astec, Inc.	 		Production Engineered Products, Inc. Astec Financial Services, Inc.	 Roadtec, Inc. CEI Enterprises, Inc.		 Telsmith, Inc. Heatec, Inc.			 Trencor, 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, in 1995 the Company sold Wibau-Astec Maschinenfabrik GmbH ("Wibau-Astec") and abandoned Gibat Ohl Ingenieurgesellschaft fur Anlagentechnik ("Gibat Ohl"). 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. Cash Equivalents - The Company considers all 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 calculated for financial reporting purposes using the straight-line method based on the estimated useful lives 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. Goodwill - Goodwill represents the excess of cost over the fair value of net assets acquired. Goodwill amounts are being amortized using the straight-line method over twenty years. Additions to goodwill in 1996 reflect the purchase of Production Engineered Products, Inc. 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 - Income taxes have been provided using the liability method in accordance with 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 recognized 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. Advertising Expense - The cost of advertising is expensed as incurred. The Company incurred $2,661,000, $2,199,000, and $1,504,000 in advertising costs during 1996, 1995, and 1994, respectively. Foreign Currency Translation - The financial statements of foreign subsidiaries have been translated into U.S. Dollars in accordance with SFAS No. 52, "Foreign Currency 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. The 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, "Accounting for Stock Issued to 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 - Primary and fully diluted earnings per share are based on the weighted average number of common and common equivalent shares outstanding and include the potentially dilutive effects of the exercise of stock options in years where there are earnings. Fully diluted earnings per share are not presented for 1996, 1995, or 1994 since the dilution is not material. Impairment of Assets - In 1995, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 121 requires impairment losses to be recorded on long-lived assets used in operations 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. Reclassifications - Certain amounts for 1995 and 1994 have been reclassified to conform with the 1996 presentation. 2. Business Combinations 	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 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 value of the assets acquired. That portion of the purchase price in 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. 		Effective July 1, 1993, 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, the results of operations and accounts of Wibau-Astec subsequent to November 7, 1994 are included 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). Effective June 30, 1995, the Company sold Wibau-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: 	PEP 	 CEI	 Wibau-Astec 	 Gibat Ohl Current assets	 $1,292,161	 $1,035,148 	 $4,938,766	 $	11,007,164 Property, plant and equipment		 551,289	 	243,877	 412,193	 300,657 Current liabilities		 (243,511)	 	(768,647) (8,678,984)	 (10,029,223) Other liabilities	 	(1,094,453)	 	(39,683) 	(2,038,165)	 Goodwill	 	1,734,865	 	1,411,892 	1,193,259 	4,153,364 Net assets acquired excluding cash	 	2,240,351	 	1,882,587 	(4,172,931) 	5,431,962 Cash		 164,794	 	17,413 	4,240,331 32,984 Net assets acquired	 $	2,405,145	 $1,900,000 	$	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 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 acquisitions occurred at the beginning of the periods presented or of results which may occur in the future. 	Year Ended December 31, 	1996 	1995 	1994 Net sales	 $	224,927,000	 $	247,256,000	 $	227,891,000 Income from operations 	8,219,000 	6,303,000 	28,814,000 Net income	 4,400,000	 4,630,000	 24,863,000 Per common and common 	equivalent share: 	Net income 	$	.44	 $	.46 	$	2.53 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 Statement of Income for 1994 includes the Company's share of Wibau-Astec's losses for the period prior to the acquisition of $3,177,000. 3. Abandonment of Foreign Subsidiary During 1995, the Company's subsidiary, Astec-Europa, incurred a net loss of approximately 	Subsidiary $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 will not recover any amounts related to Astec-Europa's assets nor will it be required to liquidate Astec- 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, 	1996	 1995 Raw materials and parts	 $	23,541,508	 	$23,709,839 Work-in-process		 9,038,158	 	10,384,847 Finished goods		 16,994,736 		14,583,127 Used equipment		 7,189,683 		7,204,866 Total	 $	56,764,085 		$55,882,679 5. Property and Equipment	 Property and equipment consisted of the following: 	December 31, 	 1996	 1995 Land, land improvements, and buildings	 $	38,161,554 	$ 35,220,996 Equipment	 41,217,853	 39,322,961 Less accumulated depreciation	 (26,829,232) 	(22,864,623) Land, buildings, and equipment - net 	52,550,175 	51,679,334 Rental property: Equipment	 2,004,118 	122,347 Less accumulated depreciation	 (236,941) 	(92,648) Rental property - net	 1,767,177	 29,699 Total	 $	54,317,352	 $	51,709,033 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 $1,272,000, $1,213,000, and $615,000 for the years ended December 31, 1996, 1995 and 1994 respectively. Minimum rental commitments for all noncancelable operating leases at December 31, 1996 are as follows: 	1997	 $ 766,000 	1998	 542,000 	1999 	359,000 	2000 	238,000 	2001 and beyond	 80,000 The Company also leases equipment to customers under short- term contracts generally ranging from two months to twenty- four months. Rental income under such leases was $2,073,000, $1,630,000, and $1,394,000 for the years ended December 31, 1996, 1995 and 1994, respectively. Scheduled minimum rental payments to be received for equipment leased to others during the years 1997 through 1998 and in total thereafter are $263,000, $114,000 and $0, respectively. 7. Long-term Debt 	Long-term debt consisted of the following: 	 December 31, 	1996 	 1995 Revolving credit loan of 	$22,000,000 at December 31, 1996 	and 1995, available through June 30, 1999 at 	interest rates from 6.69% to 8.0% at 	December 31, 1996 and 8.25% at December 31, 	1995	 $	13,322,000	 $	4,150,000 Revolving credit loan of $15,000,000 at 	December 31, 1996 available through 	June 30, 1999 at an interest rate of prime, 	which was 8.25% at December 31, 1996	 	2,508,000 Loans payable maturing at various dates through 	2000 at interest rates from 8.0% to 9.25%	 	2,639,307	 	274,274 Industrial Development Revenue Bonds 	payable in annual installments through 	2006 at weekly negotiated interest rates	 	5,000,000		 5,500,000 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		 32,547,737	 	17,924,274 Less current maturities	 	 2,051,003 		774,274 Long-term debt less 	current maturities	 $	30,496,734 	$	17,150,000 The Company has a $22,000,000 revolving credit agreement with First Chicago NBD. Amounts outstanding under the agreement bear interest, at the Company's option, at a rate of prime less one quarter or the London Interbank Offering Rate plus one. The credit agreement contains certain restrictive covenants relative to operating ratios and capital expenditures and also restricts the payment of dividends. The Company also has a $15,000,000 revolving credit agreement with The CIT Group/Equipment Financing, Inc., which is available to Astec Financial Services, Inc. Amounts outstanding under the agreement bear interest at a rate of prime and are limited to "Eligible Receivables" as defined in the agreement. The credit agreement contains certain restrictive covenants relative to operating ratios and maintenance of net worth and also restricts the payment of dividends. Loan payable to related party at December 31, 1996 was a note payable to the Company's Chief Executive Officer. Interest expense related to this note for 1996 was calculated at the Company's current borrowing rate and was approximately $73,000. The aggregate of all maturities of long-term debt in each of the next five years is as follows: 	 1997	 $	2,051,000 	 1998 	1,974,000 	1999 	16,803,000 	2000 	720,000 	2001 and beyond 	11,000,000 For 1996, the weighted average interest rate on short term borrowings, which includes current maturities of Industrial Revenue Bonds, was 7.12%. 8. Retirement Benefits 	The 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 Company match an amount equal to 50% of employee savings subject to certain limitations. The total expense for such matching was approximately $799,000, $777,000 and $696,000 for the years ended December 31, 1996, 1995 and 1994, respectively. A former subsidiary of the Company, the Barber-Greene Company, had defined benefit pension plans ("Barber-Greene Plans") covering substantially all of its employees. Non-union benefits were frozen as of September 1, 1986, and certain union benefits were frozen as of October 31, 1986. The Company retained responsibility for the Barber-Greene Plans when it sold the Barber-Greene Company in 1991. 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, 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, 	 	1996	 1995 Actuarial present value of 	benefit obligations: 	Vested			 $	3,039,628	 $	2,991,159 	Nonvested		 	88,965	 	90,781 Accumulated benefit obligation			 $	3,128,593	 $	3,081,940 Projected benefit obligation			 $	3,128,593 	$	3,081,940 Plan assets at fair value			 	2,583,682 		2,539,151 Projected benefit obligation in excess 	of plan assets	 544,911 	542,789 Unrecognized net gain (loss)	 		(127,150) 	6,046 Prior service cost not yet recognized 	in net periodic pension cost	 (129,205) 	(148,819) Additional liability	 256,355 Pension liability in the consolidated 	balance sheets			 $	544,911 	$ 400,016 Net periodic pension cost for 1996, 1995 and 1994 included the following components: Year Ended December 31, 	 		1996	 1995 	1994 Service cost - benefits earned 	during the period	 $	20,986	 $ 24,585 	 $ 31,503 Interest cost on projected 	benefit obligation	 	227,815	 	219,465 	2,565,355 Actual return on plan assets	 	(122,607)	 	(238,493)	 2,148,873 Net amortization and deferral	 	(84,816)	 	(6,682) 	(5,405,871) Net expense (income)	 $	41,378	 $(1,125) 	 $	(660,140) The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% at September 30, 1996 and 1995. The expected long-term rate of return on assets was 9.0% for the years ending September 30, 1996 and 1995. Plan assets are primarily comprised of corporate equity and corporate and U.S. Treasury debt securities. In addition to the retirement plans discussed above, the Company has an unfunded post-retirement medical and life insurance plan covering employees of its Telsmith, Inc. subsidiary and retirees of its former Barber-Greene subsidiary. The plan is accounted for under the provision of SFAS No. 106, "Employees Accounting for Post-retirement Benefits Other Than Pensions." The accumulated post-retirement benefit obligation ("APBO") at adoption was approximately $674,000 and is being amortized over 20 years. 	The accumulated post-retirement benefit obligation and the amount recognized in the Company's consolidated balance sheets, is as follows: 	December 31, 		1996	 1995 Accumulated post-retirement 	benefit obligation: 	Retirees	 $ 	241,700	 $	246,300 	Active employees	 471,000 	393,500 		 712,700 	639,800 Unamortized transition obligation	 (538,200) 	(571,900) Unrecognized net gain	 64,100	 118,800 Accrued post-retirement benefit cost 	$	238,600 	 $	186,700 Net periodic post-retirement benefit cost included the following components: 	December 31, 		1996 	1995 Service cost	 $	64,700	 $	53,300 Interest cost	 	48,300	 	50,200 Amortization of transition obligation 		33,700	 	33,700 Amortization of net gain				 (1,900) Net expense	 $	146,700	 $	135,300 A discount rate of 7.5% was used in calculating the APBO. The APBO assumes a 13.0% increase in per capita health care costs decreasing gradually to 5.8% for years 2012 and later. A 1% increase in the medical inflation rate would increase the APBO by approximately $36,000 and the expense by approximately $8,900. 9. Income Taxes	 For financial reporting purposes, income before income taxes includes the following components: 	Year Ended December 31, 	1996	 1995 	1994 United States 	 $	6,655,652	 $	16,497,616	 $	30,726,395 Foreign: 	License income		 362,506	 277,855 		404,000 	Equity in loss of 		joint venture				 (3,176,834) Loss from foreign subsidiaries			 	(3,597,796) 		(2,217,061) Loss on abandonment		 		(7,037,105) Income before income taxes	 $	7,018,158 	 $	6,140,570	 $	25,736,500 The provision for income taxes consisted of the following: 	Year Ended December 31, 	1996	 1995	 	1994 Current 	$	1,416,242 	$	1,166,956 	$	7,029,419 Deferred (benefit)		 1,257,040	 	413,254 		(4,729,293) Total provision for 	income taxes	 $	2,673,282 	$	1,580,210 	$	2,300,126 	A reconciliation of the provision for income taxes at the statutory rate to those provided is as follows: 				Year Ended December 31, 	 1996 	1995	 	1994 Tax at statutory rates	 $	2,386,174	 $	2,087,794 	$	9,007,775 Effect of utilization 	of net operating loss 	carryforwards net of 	alternative minimum tax			 	(1,344,000)	 	(3,008,000) Effect of utilization 	of alternative minimum 	tax credits					 	(382,000) Benefit from foreign 	sales corporation		 (125,000)	 	(327,000)	 	(265,000) State taxes, net of federal 	income tax benefit	 	424,000		 522,000		 212,000 Income taxes of 	other countries		 20,000 		(553,000)	 27,000 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		 (31,892) 		(219,584) 		738,351 Income taxes	 $	2,673,282	 $	1,580,210	 $	2,300,126 At December 31, 1996, the Company had long-term capital loss carryforwards of approximately $709,000 expiring in 2000. As a result of utilizing the net operating loss carryforwards, net income from continuing operations increased by approximately $.13 and $.31 for the years ended December 31, 1995 and 1994, respectively. 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, 1996, the Company had deferred tax assets of approximately $6,218,000, and deferred tax liabilities of approximately $3,011,000, 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 of these carryforwards, the Company determined that a valuation allowance was necessary for this item. The change in valuation allowance in 1996 is due to the expiration of ITC credit carryforwards ($98,000) and the establishment of a valuation allowance relative to the capital loss carryforwards ($241,000). Significant components of the Company's deferred tax liabilities and assets are as follows: Year Ended December 31, 	 1996	 1995	 Deferred tax assets: 	Inventory reserves	 $	1,556,000	 $	1,812,000	 	Warranty reserves	 898,000 	939,939,000 	Accrued insurance	 864,000 725,000 	Bad debt reserves	 479,000 	505,000 	Other accrued expenses	 1,428,000	 1,455,000 	Alternative minimum tax credit	 560,000	 	Foreign net operating 		loss carryforwards		 1,384,000 	Other credit carryforwards 	433,000 98,000 Total deferred tax assets	 6,218,000	 6,918,000 Deferred tax liabilities: 	Property and equipment 	2,793,000	 2,475,000 	Other	 218,000 	29,000 Total deferred tax liabilities	 3,011,000	 2,504,000 Net deferred tax assets	 3,207,000 	4,414,000 Valuation allowance	 (241,000)	 (98,000) Deferred tax asset	 $	2,966,000	 $	4,316,000 	 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. The Court also entered judgment in favor of Telsmith, Inc. and against Nordberg, Inc., dismissing Nordberg's claim of infringement against Telsmith. 		During 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. On February 3, 1996, the jury returned a verdict in the Company's favor. In early July 1996, the Company and Gencor entered into a settlement of the case on appeal and two other lawsuits pending between the parties. Under the terms of the settlement, each of the pending cases was dismissed, with prejudice, with each party bearing its own costs. No payments were made by either party to the other in connection with the settlement as a result of which all litigation between the Company and Gencor is now ended. 	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 $4,618,000 and $7,362,000 at December 31, 1996 and 1995, respectively. These obligations average five years in duration and have minimal risk. 	Other - The Company is contingently liable for letters of credit of approximately $2,491,000 issued for bid bonds and performance bonds. 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, because 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 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 non-qualified options, incentive options and stock appreciation rights to officers and employees of the Company and its subsidiaries at prices determined by the Board of Directors. All options granted have ten-year terms and vest and become fully exercisable immediately or within one year of the grant 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 that 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 1994, 1995, and 1996, respectively; risk-free interest rates of 5.93%, 6.06%, and 6.04%; volatility factors of the expected market price of the Company's common stock of .275; and a weighted-average expected life of the option of five 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 fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value 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 pro forma information follows. 	 	 1996	 1995	 1994 Pro forma net income	 $	3,734,000	 $	4,362,000 	$	23,177,000 Pro forma earnings per share: 	Primary	 $	.37	 $	.43 	$	2.35 A summary of the Company's stock option activity and related information for the years ended December 31, 1996, 1995, and 1994 follows: 	Year Ended December 31 1996 1995 1994 Weighted Avg.	 Weighted Avg.	 Weighted Avg. 	 Options	 Exercise Price	 Options	 Exercise Price 	 Options	 Exercise Price Options outstanding, 	beginning of year	 308,000	 $ 8.33	 244,000 	$ 6.92	 170,000	 $ 2.35 Options granted	 250,000	 $ 10.17	 67,000	 $ 13.26 	87,000	 $ 15.22 Options exercised	 9,000	 $ 4.68	 3,000	 $ 3.25	 13,000	 $ 2.67 Options outstanding and 	exercisable, end of year	 549,000	 $ 9.23 	308,000	 $ 8.33	 244,000	 $ 6.92 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 $3.97, $4.65, and $4.66 for the years ended December 31, 1996, 1995, and 1994. The weighted average fair value of options granted whose exercise price exceeded the market price of the stock on the grant date was $3.14, $4.13, and $4.05 for the years ended December 31, 1996, 1995, and 1994. Exercise prices for options outstanding as of December 31, 1996, range from $1.38 to $16.36. 	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-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, 1996, concentrations of credit risk with respect to 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 long- and short-term debt. Substantially all of the company's short- and long-term debt is floating rate debt and, accordingly, book value approximates its fair value. 14. 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 and $10,133,000 and $5,394,000 for the year ended December 31, 1994. See Notes 2 and 3. International sales by domestic subsidiaries by major geographic region were as follows: 			Year Ended December 31, 	1996	 1995	 1994 		Asia	 $12,340,130	 $22,294,203 	$14,680,301 		Europe	 8,792,885 	11,257,809 	3,651,822 		South America 	6,889,869	 3,811,091 	4,662,530 		Canada	 3,852,792 	8,105,164 	4,007,019 	Australia	 1,760,828	 1,613,920 	413,368 		Africa	 1,131,318	 3,220,047 	9,594,267 		Central America 	1,381,030	 5,955,227 	13,285,042 		Other	 2,159,746	 2,707,225 	1,736,698 		TOTAL	 $38,308,598	 $58,964,686 	$52,031,047 15. Finance Receivables	 Finance receivables are receivables of Astec Financial Services, Inc. Contractual maturities of outstanding receivables at December 31, 1996 were: 	Financing 		Amounts Due In	 Leases	 Notes	 Total 		1997	 $ 1,330,422	 $ 1,829,819	 $ 3,160,241 		1998	 524,585	 980,668	 1,505,253 		1999	 481,585 	301,514 	783,099 		2000	 229,745 	153,000	 382,745 		Thereafter	 115,117	 	115,117 			2,681,454 	3,265,001	 5,946,455 		Less Unearned Income	 356,685 	363,814 	720,499 		Total	 $ 2,324,769 	$ 2,901,187 	 $ 5,225,956 Receivables may be paid prior to contractual maturity generally by payment of a prepayment penalty. At December 31, 1996, 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 removed--previously suspended income is recognized at that time. 	Astec Financial Services, Inc.'s net investment in financing leases at December 31, 1996 consisted of the following components: 	Total minimum lease payment receivables	 $ 2,681,454 		Less: unearned income	 356,685 		Net investment in financing leases	 $ 2,324,769 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, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young, LLP Chattanooga, Tennessee February 21, 1997 CORPORATE INFORMATION Corporate and Subsidiary	 Executive Officers J. Don Brock	 Chairman of the Board and President Richard W. Bethea, Jr. 	Vice President, Corporate Counsel, and Secretary F. McKamy Hall	 Vice President, Corporate Controller, and Treasurer W. Norman Smith	 President, Astec, Inc. Robert G. Stafford	 President, Telsmith, Inc. Thomas R. Campbell	 President, Roadtec, Inc. Roger Sandberg 	 President, Trencor, Inc. James G. May	 President, Heatec, Inc. Albert E. Guth	 President, Astec Financial Services, Inc. 	 Board of Directors	 J. Don Brock	 +#Chairman of the Board and President George C. Dillon	 *Former Chairman, Manville Corporation Ronald W. Dunmire	 *+#Former President of Cedarapids, Inc. Daniel K. Frierson	 *Chairman and CEO, Dixie Yarns Inc. Albert E. Guth	 President, Astec Financial Services, Inc. G. W. Jones	 *Former President of APAC, Inc. William B. Sansom	 *Chairman and CEO , The H.T. Hackney Co. E.D. Sloan, Jr.	 *Chairman of the Board, Nolas Trading Co, Inc. W. Norman Smith	 +#President, Astec, Inc. Robert G. Stafford	 #President, Telsmith, Inc. 	*Member of the Audit and Compensation Committees 	+Member of the Executive Committee	 #Member of the Technical Committee Subsidiaries	 Astec Financial Services, Inc.	Chattanooga, Tennessee 	Astec, Inc.	Chattanooga, Tennessee 	CEI Enterprises, Inc.	Albuquerque, New Mexico 	Heatec, Inc.	Chattanooga, Tennessee 	Production Engineered Products, Inc.	Walnut, Illinois 	Roadtec, Inc.	Chattanooga, Tennessee 	Telsmith, Inc.	Mequon, Wisconsin 	Trencor, Inc.	Grapevine, Texas Transfer Agent Registrar	 Chase Mellon Shareholder Services, L.L.C.	 Overpeck Centre 85 Challenger Road Ridgefield Park, NJ 07660 Stock Exchange	 NASDAQ	National Market - ASTE Auditors	 Ernst & Young LLP	Chattanooga, Tennessee General Counsel and Litigation	 Chambliss, Bahner & Stophel, P.C.	Chattanooga, Tennessee Securities Counsel	 Alston & Bird	Atlanta, Georgia Corporate Office	 Astec Industries, Inc.	 4101 Jerome Avenue P.O. Box 72787 Chattanooga, Tennessee 37407 Telephone 423-867-4210 The Form 10-K, as filed with the Securities and Exchange Commission, may be obtained at no cost by any shareholder upon written request to Astec Industries, Inc., attention Shareholder Relations. The Annual Meeting will be held at 10:00 a.m. on Thursday, April 24, 1997, in the Training Center at the Corporate office located at 4101 Jerome Avenue, Chattanooga, Tennessee. 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, 1996. 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, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, 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. /s/ Ernst & Young, LLP ERNST & YOUNG LLP Chattanooga, Tennessee February 21, 1997 A-24 ASTEC INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE (VIII) VALUATION AND QUALIFYING ACCOUNTS FOR CONTINUING OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 			 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 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 Schedule (VIII) - Page 1 A-25 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 (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 (VIII) - Page 2 A-26 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. /s/ J. Don Brock 	BY: 	J. Don Brock Chairman of the Board 	and President (Principal Executive Officer) 	BY: 	F. McKamy Hall Vice President, Corporate 	Controller, and Treasurer (Principal 	Financial and Accounting Officer) Date: March 14, 1997 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 14, 1997 J. Don Brock		 and President /s/ Albert E. Guth 		President, Astec Financial	 March 14, 1997 Albert E. Guth		 Services, Inc. and Director /s/ Norman Smith President - Astec, Inc.	 March 14, 1997 W. Norman Smith		 and Director /s/ Robert G. Stafford 		President - Telsmith, Inc.	 March 14, 1997 Robert G. Stafford		 and Director /s/ E. D. Sloan, Jr. 		Director	 March 14, 1997 E. D. Sloan, Jr. /s/ William B. Sansom 	Director	 March 14, 1997 William B. Sansom /s/ Ronald W. Dunmire 		Director	 March 14, 1997 Ronald W. Dunmire /s/ George C. Dillon 		Director 	March 14, 1997 George C. Dillon /s/ G.W. Jones 		Director	 March 14, 1997 G.W. Jones /s/ Daniel K. Frierosn 		Director	 March 14, 1997 Daniel K. Frierson 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. 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, 1996 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 10.100	 Demand Note dated March 18, 1996 between the Company and the Company's Chief Executive Officer, Dr. J. Don Brock. Exhibit 10.101	 Loan Agreement dated December 5, 1996 between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. ("CIT"). Exhibit 10.102	 Astec Industries, Inc. Guaranty dated December 5, 1996 of Line of Credit Agreement between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. ("CIT"). 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 10.100 Demand note dated March 18, 1996 between the Company and the Company's Chief Executive Officer, Dr. J. Don Brock. Exhibit 10.100 DEMAND NOTE Chattanooga, Tennessee $1,175,000							 	 March 18, 1996 On demand the undersigned promises to pay to the order of J. DON BROCK the sum of ONE MILLION ONE HUNDRED SEVENTY-FIVE THOUSAND DOLLARS ($1,175,000.00), value received, with interest at a rate equal to 0.25% less than "prime rate" as charged from time to time by The First National Bank of Chicago. Accrued interest on the unpaid balance shall be paid on the first day of each month until this note is paid in full. If this note is placed in the hands of an attorney for collection, by suit or otherwise, the undersigned will pay all costs of collection and litigation, together with a reasonable attorney's fee. The drawer and endorser hereof severally waive demand, protest and notice of nonpayment. It is further agreed that the right of recourse of the holder hereof against the endorser of this note shall not be impaired by any renewal, extension, modification or other indulgence which the holder may grant with respect to the indebtedness above mentioned, or any part thereof, although the same may be done without notice to or consent of such endorser. ASTEC INDUSTRIES, INC. By: /s/ Albert E. Guth Albert E. Guth Senior Vice President EXHIBIT 10.101 Loan Agreement dated December 5, 1996 between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. ("CIT") EXHIBIT 10.101 LOAN AGREEMENT LOAN AGREEMENT (the "Agreement") dated December 5, 1996 between Astec Financial Services, Inc. a corporation organized under the laws of the state of Tennessee (the "Company"), and The CIT Group/Equipment Financing, Inc. ("CIT"). 1. LOAN ADVANCES CIT agrees subject to the terms and conditions of this Agreement, from time to time to make loans to the Company on a revolving basis in such amounts as may be mutually agreed upon, the maximum amount of such loans outstanding at any one time not to exceed one hundred percent (100%) of the amounts validly owing on "Eligible Receivables" (as hereinafter defined). 2. LOAN AMOUNT The aggregate loans made under this Agreement shall, in no event, exceed either the limitations set forth under Paragraph 1 hereof or the sum of $15,000,000.00 at any one time outstanding, unless CIT in its sole discretion shall agree to requests of the Company for loans in excess of said amounts. 3. INTEREST Interest shall be payable from the date hereof at the "Governing Rate", payable monthly on the average daily balance. The per annum rate is based on a year of 12 months of 30 days each computed on the basis of the average daily unpaid balance of principal outstanding during the preceding monthly period. As used herein, "monthly period" shall mean the period commencing on the first day of a calendar month and ending on the first day of the following calendar month, except that the first monthly period shall be payable within five days after your receipt of our statement therefore. As used herein the "Prime Rate" shall mean the rate publicly announced by The Chase Manhattan Bank from time to time as its Prime Rate. The Prime Rate of The Chase Manhattan Bank is not intended to be the lowest rate of interest charged by The Chase Manhattan Bank to its borrowers. The "commercial paper rate" means the average rate quoted by the Wall Street Journal, or such other sources as CIT may determine for 30-day dealer commercial paper. The "Wall Street Journal Prime Rate" shall mean the Prime Rate listed by The Wall Street Journal. If more than one Prime Rate is listed in The Wall Street Journal, then the highest rate shall apply. The "Governing Rate" shall mean a rate equal to the highest of: (i) the Prime Rate of The Chase Manhattan Bank or (ii) The Wall Street Journal Prime Rate or (iii) the commercial paper rate. In the event that the Governing Rate on the first day of any monthly period shall be more or less than the Governing Rate in effect on the date of this Agreement, the rate of interest on the loan during such monthly period shall be increased or decreased by a percentage per annum corresponding to the percentage per annum increase or decrease in the Governing Rate, but in no event, however, shall the rate of interest be more than that permitted by law. 4. LOAN ACCOUNTS; MONTHLY STATEMENTS 	 All loans made hereunder shall be disbursed by CIT to Astec Financial Services, Inc., Chattanooga, Tn., and will be repayable at CIT's account at the CIT-Industrial Finance, File # 54224, Los Angeles, CA. 90074-4224, or such other bank of which we may hereafter advise you in writing and the Company promises to repay all such loans and all other "Obligations" (as hereinafter defined) to CIT in the manner set forth in this Agreement, without the necessity on CIT's part of resorting to or having recourse to any collateral. In addition to the monthly payment of interest by the Company to CIT pursuant to the terms of Paragraph 3 hereof, the outstanding principal amount of each loan shall be repaid to CIT upon the earlier of (i) thirteen months after the disbursement of its proceeds or (ii) the Anniversary Date of this Agreement. Loans measured by Eligible Receivables will be charged to one or more open accounts maintained in the Company's name on CIT's books (the "Loan Accounts"). In the event CIT should for any reason honor requests for advances in excess of the limitations set forth in Paragraphs 1 and 2, such "overadvances" shall be made solely at CIT's option upon such additional terms as CIT shall determine, and shall be payable on demand. Each month CIT will render to the Company statements of the Loan Accounts, which the Company hereby agrees shall be deemed to be accounts stated and correct and acceptable to and binding on the Company unless CIT shall receive a written statement of exceptions from the Company within thirty (30) days after the monthly statements have been rendered to the Company. The Company will provide to CIT a borrowing base certificate for each loan request stating the amount of the request, current levels of funded accounts and the delinquencies thereunder. In the event CIT should so request, the Company agrees to also execute and deliver to CIT copies of such promissory notes of the Company as CIT shall request in order to evidence the loans, but unless and until CIT should so request, the borrowing base certificate and the Loan Accounts (and the monthly statements thereof rendered by CIT to the Company) shall constitute the primary evidence of the loans made hereunder. 5. DEFINITIONS (a) "Receivables" shall mean accounts, contract rights, chattel paper, notes, drafts, rental receivables, conditional sale contracts, security agreements, installment paper, installment sales, revolving charge accounts, and other obligations for the payment of money, including inter- company accounts and notes receivable, and all documents, contracts, invoices and instruments evidencing or constituting the same and all security instruments and security agreements relating thereto, which are created or acquired by the Company, all property the sale or lease of which gives rise or purports to give rise to Receivables, and all cash and non-cash proceeds thereof, including any merchandise returned or rejected by, or repossessed from, customers. (b) "Eligible Receivables" shall mean Receivables created or acquired by the Company in the regular course of its business as presently conducted. In general, no Receivable shall be deemed eligible unless: such Receivable represents an existing, valid and legally enforceable indebtedness based upon an actual and bona fide sale and delivery or lease of property or rendition of services to the named obligor, which has been finally accepted by the obligor and for which the obligor is unconditionally liable to make payment in the amount stated in each invoice, document or instrument evidencing, constituting or accompanying the Receivable in accordance with the terms thereof, without rights of rejection or return or offset, defense, counterclaim or claim of discount or dedication; all statements made and all unpaid balances appearing in the invoices, documents and instruments representing or constituting the Receivables, are true and correct and are in all respects what they purport to be, and all signatures and endorsements that appear thereon are genuine and all signatories and endorsers, if any, have full capacity to contract, and the obligor owing such Receivable is not affiliated with or employed by the Company; absolute title to each Receivable, free and clear of any liens and encumbrances or claims of others, including liens or encumbrances or claims of ownership on the property the sale or lease of which purports to give rise to such Receivable, is vested absolutely in the Company and no other assignment of or security interest or other interest in the Receivable in favor of others is then in effect; the transactions underlying or giving rise to any Receivable do not violate any applicable state or federal law or regulation and all documents relating to the Receivables are legally sufficient under such laws and regulations and are legally enforceable in accordance with their terms; and any contract under which any Receivable arises does not contain a prohibition against assignment or require the consent of or notice to the obligor with respect to any assignment of monies arising thereunder. (c) "Obligations" shall mean all loans and advances from time to time made by CIT to the Company hereunder and to others at the request of or for the account of or for the benefit of the Company, all other indebtedness and obligations which may be now or hereafter owing by the Company to CIT under this Agreement or any other agreement which may now or hereafter be entered into by CIT with the Company, howsoever arising, whether absolute or contingent, joint or several, matured or unmatured, direct or indirect, primary or secondary, including, but not limited to, CIT's interest or other charges hereunder or under any other agreement between the Company and CIT. The Company hereby agrees to pay on demand all costs and fees CIT may incur in the event of default by the Company hereunder, all costs and expenses (including, all out-of-pocket expenses and attorneys' fees actually paid by CIT) incurred by CIT, its employees or agents in protecting, maintaining, preserving, enforcing or foreclosing CIT's security interest in any collateral, including all efforts made to enforce collection of any Receivable, whether through judicial proceedings or otherwise, or in defending or prosecuting any action or proceeding arising out of or relating to CIT's transactions with the Company, all of which are hereby also included in the definition of "Obligations" and which may be charged at CIT's option to the Loan Accounts in the event the same are not promptly paid after demand. (d) "Anniversary Date" shall mean the date occurring two years from the date hereof and the same date in every year thereafter. 6. GRANT OF SECURITY INTEREST; COLLATERAL As security for the prompt payment in full of all present and future Obligations, the Company hereby grants to CIT a security interest in and hereby assigns and pledges to CIT, its successors and assigns, (which grant, assignment and pledge shall continue until payment in full of all Obligations, whether or not this Agreement shall have sooner terminated) all right, title and interest of the Company in and to the following (which, together with any other security at any time pledged, assigned or delivered by the Company to CIT or received by CIT in connection with any Obligations are herein sometimes collectively called "Collateral"): 	(a) All Receivables of the Company, whether or not the same be Eligible Receivables and whether or not specifically listed on any schedules, assignments or exports furnished to CIT from time to time, whether now existing or arising or created or acquired at any time hereafter, together with all rights to any and all sums due and to become due on Receivables, all proceeds of Receivables in whatever form, including cash, checks, notes, drafts and other instruments for the payment of money, and all right, title and interest in and to any merchandise the sale or lease of which gives rise to, or purports to create any Receivable or which secures any Receivable, all property allocable to unshipped orders and all merchandise returned by or reclaimed or repossessed from customers, all rights of stoppage in transit, replevin, repossession and reclamation and all other rights of any unpaid vendor or lienor. The continuing general assignment and pledge of and security interest in Receivables contained herein shall include all accounts, all documents, instruments, contracts, liens and security instruments, all credit insurance polices and other insurance and all guaranties relating to Receivables, all books and records evidencing, securing or relating to Receivables, all collateral, deposits, dealer reserves, or other security securing the obligations of any person under or relating to Receivables, all credit balances in favor of the Company on CIT's books, and all rights and remedies of whatever kind or nature the Company may hold or acquire for the purpose of securing or enforcing Receivables, and all general intangibles relating to or arising out of Receivables; 	(b) All general intangibles of the Company, now existing or hereafter arising or acquired, as such term is defined under the Uniform Commercial Code. 7. COLLECTION OF RECEIVABLES Until the Company's authority to do so is terminated by written notice from CIT, which notice CIT may give at any time after there has been a material adverse change in the Company's business or manner of operation or at any time after the occurrence of any "Event of Default" as specified below, the Company may continue to adjust all claims and disputes with obligors on Receivables and promptly collect and otherwise enforce all amounts owing on Receivables. Notwithstanding anything in the previous sentence to the contrary, all cash and non-cash proceeds of such sales or leases and all collections, including prepayments on Receivables, whether cash, other Receivables, checks, notes or other evidence of payment, and all documents and instruments relating thereto, are to be held in trust as CIT's property, and remitted to CIT in such manner and with such frequency as CIT shall determine. The Company shall notify CIT if any Receivable includes any tax due to any governmental taxing authority. If a Receivable includes a charge for any tax payable to any governmental taxing authority, CIT is authorized,in its discretion, to pay the amount thereof for the account of the Company and to charge the appropriate Loan Account therefor. 8. LOAN ACCOUNTS; CASH PROCEEDS, CHECKS AND OTHER INSTRUMENTS Any remittance received by the Company from customers shall be presumed to relate to the Collateral and shall be held in trust for and immediately delivered to CIT as set forth herein. Cash received with respect to the Collateral shall be credited to the appropriate Loan Account as of the same day such proceeds are received by CIT. Checks, drafts and other instruments for the payment of money shall be credited to the appropriate Loan Account the day following the day CIT's bank has made the proceeds of such instruments available as of right based on the bank's determination that the instrument has been finally paid. The excess of collections over the amount of Obligations owing to CIT hereunder may, at CIT's option, be paid by CIT from time to time to the Company, provided, however, that CIT may at any time in its discretion retain and apply such excess to any Obligations until all such Obligations have been paid in full. CIT shall have the right at all times to receive, receipt for, endorse, assign, deposit and deliver, in CIT's name or in the name of the Company, any and all checks, notes, drafts and other instruments for the payment of money constituting proceeds of or otherwise relating to the Collateral. The Company hereby authorizes CIT to affix, by facsimile signature or otherwise, the general or special endorsement of the Company, in such manner as CIT shall deem advisable, to any such instrument in the event the same has been delivered to CIT without appropriate endorsement, and CIT and any bank in which CIT may deposit any such instrument is hereby authorized to consider such endorsement to be a sufficient, valid and effective endorsement by the Company to the same extent as though it were manually executed by the duly authorized officer of the Company, regardless of by whom or under what circumstances or by what authority such facsimile signature or other endorsement is actually affixed, without duty of inquiry or responsibility as to such matters, and the Company and each guarantor and endorser of the Company's Obligations hereby waives demand, presentment, protest and notice of protest or dishonor and all other notices of every kind and nature with respect to any such instruments. 9. COMPANY BOOKS AND RECORDS CIT shall have the right at any time and from time to time to request from obligors indebted on Receivables, in the name of the Company or in the name of CIT's accountants, information concerning the Receivables and the amounts owing thereon. The Company agrees to maintain books and records pertaining to the Collateral in such detail, form and scope as CIT shall require, and to promptly notify CIT of any changes of name or address of the Company or of the legal entity of the Company or of the corporate structure of the Company and its subsidiaries or of the location of the Collateral. All records, computer tapes, discs and other data storage devices, ledger sheets, correspondence, invoices, delivery receipts, documents and instruments relating to the Collateral shall, unless and until delivered to CIT, be kept by the Company, without cost to CIT, in appropriate containers and in safe places, and if CIT should so request, shall bear suitable legends identifying them as being under CIT's dominion and control. CIT shall at all reasonable times have full access to and the right to audit any and all of the Company's books, computer tapes, discs and other data storage devices and records, including, but not limited to, books and records pertaining to the Collateral and including all files and correspondence with creditors and customers, and to confirm and verify the amounts owing on Receivables and the value and collectibility of other Collateral and to do whatever else CIT reasonably may deem necessary to protect its interest. 10. REPORTS; ASSIGNMENTS OF RECEIVABLES In furtherance of the continuing assignment and security interest herein contained, the Company will execute and make available to CIT from time to time in such form and manner and with such frequency as may be required by CIT, solely for CIT's convenience in maintaining a record of the Collateral, such confirmatory assignments of Receivables, designating, identifying or describing the Collateral and copies of invoices to customers, agreements of any kind with its customers, copies of suppliers' invoices, evidence of shipment and delivery and such further documentation and information relating to the Collateral as CIT may require, provided,however, that if the Company should fail to execute and deliver such reports or assignments, such failure shall not affect, diminish, modify or otherwise limit CIT's security interest in all present and future Inventory and Receivables of the Company and the proceeds thereof. The Company agrees to advise CIT promptly of any substantial change relating to the type, quantity or quality of Collateral or of any event which would have a material effect on the value of the Collateral or on the security interested granted to CIT therein. 1l. INSURANCE AND RISK OF LOSS All risk of loss, damage to or destruction of the Collateral shall at all times be on the Company. The Company agrees to maintain in full force and effect at the Company's expense, policies of insurance covering all the Collateral with such insurance companies, in such amounts and covering such risks as are at all times satisfactory to CIT. Copies of certificates are to be made available to CIT on or prior to the date of disbursement of loans. 12. FINANCIAL STATEMENTS The Company agrees to furnish to CIT such information regarding the business affairs and financial condition of the Company, its parent, and its subsidiaries, if any, as CIT shall from time to time reasonably request, including, but not limited to, financial statements of the Company, its parent and such subsidiaries in such scope and detail and furnished with such frequency as CIT shall determine and certified by such independent certified public accountants as shall be satisfactory to CIT, including, but not by way of limitation, the financial statements referred to in Paragraph 25 hereof. 13. TAXES; USE The Company agrees that it will, and will cause each of the Company's subsidiaries, if any, to pay and discharge all taxes, assessments, licensing obligations and governmental charges or levies imposed on the income, profits, sale, business or properties of the Company or its subsidiaries prior to the date upon which penalties attach for non-payment thereof, and promptly discharge any liens, encumbrances or other claims which may be levied or claimed against any of the Collateral, provided that any such tax, assessment, charge or levy need not be paid if the payment thereof is being contested in good faith and by appropriate proceedings and for which adequate book reserves, determined in accordance with generally accepted accounting practices, shall be set aside, and if any such tax, assessment, charge or levy lawfully imposed shall remain unpaid after the date upon which a lien on any collateral arises or may be imposed as a result of such non- payment, or if any lien is claimed for any other reason against any of the Collateral, which if foreclosed would in CIT's opinion adversely affect the value of CIT's security interest in any of the Collateral, CIT may pay and discharge such taxes, assessments, charges, levies and liens, and the amount so paid by CIT shall be payable on demand and if not paid promptly, will be charged to the appropriate Loan Account and shall be secured by the Collateral. The Company agrees to comply and to cause its subsidiaries to comply with all laws and all acts, rules, regulations and orders of any legislative, administrative or judicial body or official, applicable to the Collateral or to the operation of the business of the Company or its subsidiaries. 14. TITLE TO COLLATERAL; INSPECTION The Company represents, warrants and agrees to take all steps and observe such formalities as CIT may request from time to time in order to create, perfect and maintain in CIT's favor a valid first lien upon and security interest in the Collateral, including the filing or recording of any financing statements or similar instruments which CIT deems necessary or appropriate, and to defend at its expense, Receivables and other Collateral from all liens, security interests, encumbrances, claims and demands of all other persons. The Company hereby further agrees that CIT may enter upon the Company's premises at any time and from time to time to inspect the Collateral. 15. DEFAULT The following shall constitute an "Event of Default" under this Agreement: (a) the Company or any of its subsidiaries fails to pay any Obligation as defined herein within fifteen (15) days of the due date thereof, by acceleration or otherwise; (b) there is a breach in the performance of any of the terms or provisions of this Agreement, as at any time amended, or of any of the terms or provisions of any other agreement between CIT and the Company or any of its subsidiaries, including, but not limited to, and any guaranty agreement under which any Obligation is guaranteed to CIT, or under any agreement between CIT and any other party with respect to CIT's transactions with the Company or with respect to any Obligations or the Collateral therefor, whether such agreements are now existing or are hereafter entered into, provided that such breach by the Company of any of the terms, provisions, warranties, representations or covenants referred to in this paragraph shall not be deemed an Event of Default unless and until such breach shall remain unremedied to CIT's satisfaction for a period of fifteen (15) days from the date at such breach, (c) any representation, covenant or warranty made by the Company in connection with this Agreement is breached; (d) any statement or data furnished by or for the Company relating to the Collateral or to the operations, financial condition or business affairs of the Company, or its subsidiaries, and any guarantor proves to be false in any material respect; (e) the Company fails to maintain any of the loans-to-collateral ratios specified in this Agreement or in any amendment or modification hereof; (f) the Company, any of its subsidiaries, or any guarantor becomes insolvent or unable to meet its debts as they mature, suspends operations as presently conducted, discontinues business as a going concern, or makes an assignment for the benefit of creditors; (g) a meeting of creditors is called by or for the Company, any of its subsidiaries, or any guarantor; (h) there is filed by or against the Company, any of its subsidiaries or any guarantor a petition under any of the provisions of the Bankruptcy Code, as at any time amended, or any proceedings are commenced by or against the Company, any of its subsidiaries, or any guarantor under any insolvency law, or a receiver or trustee is appointed to administer the assets or affairs of the Company, or any guarantor of its subsidiaries; (i) a judgment is entered or an attachment is levied against the assets of the Company, any of its subsidiaries or any guarantor which, in the judgment of CIT, will adversely affect the Company's ability to perform this Agreement or impair the enforceability of CIT's security interest in the Collateral; (j) CIT, in the good faith belief that the prospect for payment or performance by the Company is impaired, or deems itself or any of the Collateral to be insecure; or (k) any indebtedness to others owing by the Company, any of its subsidiaries or any guarantor is accelerated because of a default under any note or agreement relating thereto. 16. REMEDIES Upon the occurrence of any Event of Default, all Obligations shall, at CIT's option, immediately become due and payable, anything in any note evidencing any such Obligation or in this Agreement or in any other agreement to the contrary notwithstanding, without notice to the Company, and CIT shall have in any jurisdiction where enforcement hereof is sought, in addition to all other rights and remedies which CIT may have under law and at equity, the following rights and remedies, all of which may be exercised with or without further notice to the Company: (a) to notify any and all obligors on Receivables that the same have been assigned to CIT and that all payments thereon are to be made directly to CIT; (b) to settle, compromise, or release, on terms acceptable to CIT, in whole or in part, any amounts owing on Receivables; (c) to enforce payment and prosecute any action or proceeding with respect to any and all Receivables, to extend the time of payment, make allowances and adjustments and to issue credits in CIT's name or in the name of the Company; (d) to foreclose the liens and security interests created under this Agreement or under any other agreement relating to the Collateral by any available judicial procedure or without judicial process, to enter any premises where any of the Collateral may be located for the purpose of taking possession or removing the same; and (e) to sell, assign, lease or otherwise dispose of the Collateral or any part thereof, either at public or private sale or at any broker's board, in lots or in bulk, for cash, on credit or otherwise, with or without representations or warranties, and upon such terms as shall be acceptable to CIT, all at CIT's sole option and as CIT in its sole discretion may deem advisable, and CIT may bid or become a purchaser at any such sale if public, free from any right of redemption which is hereby expressly waived by the Company, and CIT shall have the right at its option to apply or be credited with the amount of all or any part of the Obligations owing to CIT against the purchase price bid by CIT at any such sale. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first, to the expenses (including all attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like, and then to the satisfaction of all Obligations, application as to particular Obligations or against principal or interest to be in CIT's absolute discretion. The Company shall be liable to CIT and shall pay to CIT on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral, and CIT in turn agrees to remit to the Company any surplus remaining after all Obligations have been paid in full. If any of the Collateral shall require repairing, maintenance, preparation, or the like, or is in process or other unfinished state, CIT shall have the right, but shall not be obligated, to do such repairing, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as CIT shall deem appropriate, but CIT shall have the right to sell or dispose of such Collateral without such processing. The Company will, at CIT's request, assemble the Collateral and make it available to CIT at places which CIT may select, whether at the premises of the Company or elsewhere, and will make available to CIT all premises and facilities of the Company for the purpose of CIT's taking possession of the Collateral or of removing or putting the Collateral in saleable form. In the event any goods called for in any sales order, contract, invoice or other instrument or agreement evidencing or purporting to give rise to any Receivable included in any assignment submitted to CIT for collateral purposes shall not have been delivered or shall be claimed to be defective by any customer, CIT shall have the right in its discretion to use and deliver to such customer any goods of the Company to fulfill such order, contract or the like so as to make good any such Receivable. The enumeration of CIT's rights and remedies set forth in this Agreement is not intended to be exhaustive and the exercise by CIT of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative and shall be in addition to any other rights or remedy given hereunder or under any other agreement between the parties or which may now or hereafter exist in law or at equity or by suit or otherwise. To facilitate the exercise by CIT of the rights and remedies set forth in this Paragraph, the Company hereby constitutes CIT or its agents, or any other person whom CIT may designate, as attorney-in-fact for the Company, at the Company's own cost and expense, to exercise all or any of the following powers, which being coupled with an interest, shall be irrevocable, shall continue until all Obligations have been paid in full and shall be in addition to any other rights and remedies that CIT may have: (i) to remove from any premises where the same may be located, any and all documents, instruments, files and records, and any receptacles and cabinets containing the same, relating to the Collateral, and CIT may at the Company's cost and expense, use such of the personnel, supplies and space of the Company at its places of business as may be necessary to properly administer and control the Collateral or the handling of collections and realizations thereon; (ii) to receive, open and dispose of all mail addressed to the Company and to notify postal authorities to change the address for delivery thereof to such address as CIT may designate; and (iii) to take or bring, in CIT's name or in the name of the Company, all steps, actions, suits or proceedings deemed by CIT necessary or desirable to effect the collection of or to realize upon the Collateral. CIT shall not, under any circumstances or in any event whatsoever, have any liability for any error or omission or delay of any kind occurring in the liquidation of the Collateral including the settlement, collection or payment of any Receivable or any instrument received in payment thereof, or for any damage resulting therefrom. 17. CROSS SECURITY It is understood and agreed that all of the collateral which CIT may at any time acquire from the Company or from any other source in connection with the Obligations of the Company to CIT, shall constitute collateral for each and every Obligation, without apportionment or designation as to particular Obligations, and that all Obligations, howsoever and whensoever incurred, shall be secured by all collateral howsoever and whensoever acquired, and that CIT shall have the right, in its sole discretion, to determine the order in which CIT's rights in or remedies against any collateral are to be exercised and which type of collateral or which portions of collateral are to be proceeded against and the order of application of proceeds of collateral as against particular Obligations. Notwithstanding anything which may be contained in any of the Receivables assigned to CIT hereunder, upon execution of this Agreement the Company agrees not to make any claims, or take any action against the property covered by the Receivables or to attempt to accelerate any of the Obligations due thereunder. 18. EFFECT OF WAIVER No delay on the part of CIT in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any event of default. No course of dealing between the Company and CIT or its agents or employees shall be effective to change, modify or discharge any provision of this Agreement or to constitute a waiver of any default. 19. SEVERABILITY Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 20. CONDITIONS PRECEDENT CIT's obligation to make any loan hereunder at any time is subject to compliance in full by the Company with all of the terms and provisions of this Agreement, as at any time amended, and to the further condition that at the time of the proposed making of any such loan there shall have been no material adverse change in the financial condition or business of the Company, its subsidiaries, and any guarantor and that no event of default, as defined herein and no event which with the lapse of time or the notice and lapse of time specified for the purpose of constituting such an event of default has occurred and is continuing at the time of such proposed loan. 21. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents, covenants and warrants to CIT that the Company is duly organized, validly existing and in good standing under the laws of the state of incorporation mentioned in the introductory Paragraph of this Agreement, and that the Company and its subsidiaries are duly qualified as foreign corporations to do business in every other state where the nature of the business of the Company or its subsidiaries requires such qualification, and that the Company and its subsidiaries are duly licensed to transact business under all applicable laws; that the Company and its subsidiaries have good and marketable title to all properties and assets, whether real or personal, shown on the latest balance sheets of the Company and its subsidiaries furnished to CIT before the execution of this Agreement, subject to no mortgage, pledge, lien or encumbrance except as are shown on said balance sheets and except for current taxes not now in default, and since the date of the latest of such balance sheets there has been no material adverse change in the condition, financial or otherwise, of the Company or its subsidiaries from that shown on said balance sheets; that the Company and its subsidiaries have no liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, due or to become due, except for taxes not now in default and except for operating expenses in the ordinary course of business, other than as reflected or reserved against in said balance sheets, and the Company and its subsidiaries have no liability for federal income or excess profits taxes or other than as shown on said balance sheets and except for taxes relating to operations since the date of said balance sheets and no federal tax deficiency assessment has been made or threatened against the Company or any of its subsidiaries and there is no pending claim of deficiency or recommendation of the assessment of any deficiency against the Company or any of its subsidiaries; that the execution and delivery of this Agreement and the full performance thereof by the Company and the granting of security to CIT as contemplated hereunder do not and will not violate any provisions of any of the Company's Certificate of Incorporation, Charter or By-Laws or any indenture or mortgage or other agreement to which the Company is a party or is bound; and that all collateral subject to the security interest in favor of CIT pursuant to this Agreement at the time of execution hereof is owned by the Company free and clear of all liens, encumbrances and claims in favor of others. 22. EFFECTIVENESS OF AGREEMENT This Agreement shall become effective only upon the written acceptance hereof by CIT. 23. ENTIRE AGREEMENT; SUCCESSORS When so accepted, this Agreement shall supersede all previous verbal or written agreements, commitments or understandings relating to CIT's loans to the Company and shall be binding on and inure to the benefit of the respective successors and assigns of the Company and of CIT. 24. RECORDING FEES CIT shall issue a statement to the Company indicating the cost of recording taxes and the Company shall pay the statement within 20 days therein. 25. ASSIGNMENT The Company may not assign this Agreement or its rights hereunder without the prior written consent of CIT. 26. ADDITIONAL AFFIRMATIVE COVENANTS OF THE COMPANY As long as any Obligations remain outstanding hereunder, the Company, in addition to the covenants made elsewhere in this Agreement, hereby covenants that, unless CIT shall otherwise consent in writing, (i) it shall maintain at each fiscal year end a tangible net worth of at least $3,500,000.00 for the first year of this Agreement, and (ii) Astec Industries, Inc. (the "Guarantor") shall: 	(a) Net Worth: Maintain at each fiscal year end a tangible net worth of at least $50,000,000.00 	(b) Current Ratio: Maintain at each fiscal year end a ratio of current assets to current liabilities of at least 1.5 to 1. 	(c) Additional Reporting Requirements: Furnish CIT: 	(i) Within one hundred twenty (120) days after the end of each fiscal year of the Guarantor a balance sheet and statements of income and surplus, together with supporting schedules, all certified by independent certified public accountants of recognized standing selected by the Guarantor and acceptable to CIT showing the financial condition of the Guarantor at the close of such year and the results of operations of the Guarantor during such year, and prepared in accordance with generally accepted accounting principles and practices consistently applied; 		 		 (ii) Within forty-five (45) days after the end of each quarter, similar financial statements similar to those referred to in subparagraph (i) above, each set of respective statements, all unaudited, but certified by the principal financial officer of the Company, such balance sheets to be as of the end of such month and such statements of income and surplus to be for the period from the beginning of the fiscal year to the end of such month, in each case subject to audit and year-end adjustments, and prepared in accordance with generally accepted accounting principles and practices consistently applied; 		(iii) Promptly, from time to time, such other information regarding the operations, business affairs and financial condition of the Company as CIT may reasonably request including, but not limited to, all business plans prepared by, or at the request of, the Company, annually during the term of this Agreement. 	(d) Dividends: The Company will not declare or pay any dividend (other than a dividend payable in stock of the Company) or authorize or make any other distribution on any stock of the Company, whether now or hereafter outstanding or make any payment on account of the purchase, acquisition, redemption or other retirement of any shares of such stock which would exceed in any fiscal year fifty percent (50%) of the after tax net profit of the Company for such fiscal year. 	(e) Debt to Worth Ratio: The ratio of the Company's total liabilities to tangible net worth at each fiscal year end shall not exceed .9 to 1. 	(f) Changes in Company: The Company will not, without CIT's prior written substantial portion of its assets; or (c) change its name or the form of organization of its business; or (d) sell, cause to have sold or permit or suffer the sale of any shares of consent, (a) liquidate or dissolve; or (b) sell or otherwise dispose of all or any voting stock of the Company to any person or entity than the Guarantor. 	(g) Minimum Fixed Charge Coverage Ratio: The Company's fiscal year end ratio of pre-tax income excluding non-recurring gains and losses divided by the sum of: (i) interest expense, plus, (ii) amortization of debt discount and related expenses, plus (iii) payments of principal and indebtedness shall be at least 2.5 to 1. 27. NOTICES Any notice or request required or permitted to be given under this Agreement shall be sufficient if in writing and sent by hand or by Certified Mail, in either case return receipt requested, to the parties at the following addresses: The CIT Group/Equipment Financing, Inc. Astec Financial Services, Inc. 1620 West Fountainhead Parkway 6400 Lee Highway Suite 620 Suite 107 	 Tempe, AZ 85282 	 Chattanooga, TN. 37421 					 28. TERMINATION Except as otherwise permitted herein, the Company or CIT may terminate this Agreement only as of the date two years from the date hereof or any subsequent Anniversary Date and then only by giving the other at least sixty (60) days prior written notice of termination. Notwithstanding the foregoing CIT may terminate this Agreement immediately upon the occurrence of an Event of Default. This Agreement, unless terminated as herein provided, shall automatically continue from Anniversary Date to Anniversary Date. All Obligations shall become due and payable as of any termination hereunder and, pending a final accounting, may withhold any balances in the Company's account (unless supplied with an indemnity satisfactory to CIT) to cover all of the Company's Obligations, whether absolute or contingent. All of CIT's rights, liens and security interests shall continue after any termination until all Obligations have been paid and satisfied in full. 29. GOVERNING LAW This Agreement shall be governed by, and construed in accordance with, the laws applicable to contracts made or performed in the State of Tennessee, without giving effect to the principles of conflicts of laws. IN WITNESS WHEREOF, the Company and CIT have caused this Agreement to be executed by their respective officers duly authorized thereto. THE CIT GROUP/EQUIPMENT SERVICES, INC. FINANCING, INC. By: CIT Group Name: CIT Group ASTEC FINANCIAL By: /S/ Albert E. Guth Name: Albert E. Guth Title: President, Astec Financial Services, Inc. EXHIBIT 10.102 Astec Industries, Inc. Guaranty dated December 5, 1996 of Line-of-Credit Agreement between Astec Financial Services, Inc. and The CIT Group/Equipment Financing, Inc. Exhibit 10.102 Guaranty To: The CIT Group/Equipment Financing, Inc. P.O. Box 27248 Tempe, AZ 85285-7248 Each of us severally requests you to extend credit to or purchase security agreements, leases, notes, accounts and/or other obligations (herein generally termed "paper") of or from or otherwise to do business with Astec Financial Services, Inc., Chattanooga, TN hereinafter called the "Company", and to induce you so to do and in considerations thereof and of benefits to accrue to each of us therefrom, each of us, as a primary obligor, jointly and severally and unconditionally guarantees to you that the Company will fully and promptly pay and perform all its present and future obligations to you, whether direct or indirect, joint or several, absolute or contingent, secured or unsecured, matured or unmatured and whether originally contracted with you or otherwise acquired by you, irrespective of any invalidity or unenforceability of any such obligation or the insufficiency, invalidity or unenforceability of any security therefor; and agrees without your first having to proceed against the Company or to liquidate paper or any security therefor, to pay on demand all sums due and to become due to you from the Company and all losses, costs, attorneys' fees or expenses which may be suffered by you by reason of the Company's default or default of any of the undersigned hereunder; and agrees to be bound by and on demand to pay any deficiency established by a sale of paper and/or security held, with or without notice to us. This guaranty is an unconditional guarantee of payment and performance. No guarantor shall be released or discharged, either in whole or in part, by your failure or delay to perfect or continue the perfection of any security interest in any property which secures the obligations of the Company or any of us to you, or to protect the property covered by such security interest. No termination hereof shall be effected by the death of any or all of us. No termination shall be effective except b notice sent to you by certified mail return receipt requested naming a termination date effective not less and 90 days after the receipt of such notice by you; or effective as to any of us who has not given such notice; or affect any transaction effected prior to the effective date of termination. Each of us waives: notice of acceptance hereof; presentment, demand, protest and notice of nonpayment of protest as to any note or obligation signed, accepted, endorsed or assigned to you by the Company; any and all rights of sub rogation, reimbursement, indemnity, exoneration, contribution or any other claim which any of us may now or hereafter have against the Company or any other person directly or contingently liable for the obligations guaranteed hereunder, or against or with respect to the Company's property (including, without limitation, property collateralizing its obligations to you), arising from the existence or performance of these guaranty; all exemptions and homestead laws and any other demands and notices required by law; all rights and defenses arising out of ( i ) an election of remedies by you even though that election of remedies may have destroyed rights of subrogation and reimbursement against the Company by operation of law or otherwise, ( ii ) protections afforded to the Company pursuant to antideficiency or similar laws limiting or discharging the Company's obligations to you, ( iii ) the invalidity or unenforceability of this guaranty, (iv) the failure to notify any of us of the disposition of any property securing the obligations of the Company, (v) the commercial reasonableness of such disposition or the impairment, however caused, of the value of such property, and (vi) any duty on your part (should such duty exist) of the Company or its affiliates or property, whether now or hereafter known by you. You may at any time and from time to time, without our consent, without notice to us and without affecting or impairing the obligation of any of us hereunder, do any of the following: (a) renew, extend (including extensions beyond the original term of the respective item of paper), modify (including changes in interest rates), release or discharge any obligations of the Company, of its customers, of co-guarantors (whether hereunder or under a separate instrument) or of any other party at any time directly or contingently liable for the payment of any of said obligations; (b) accept partial payments of said obligations; (c) accept new or additional documents, instruments or agreements relating to or in substitution of said obligations; (d) settle, release ( by operation of law or otherwise), compound, compromise, collect or liquidate any of said obligations and the security therefor in any manner; (e) consent to the transfer or return of the security, take and hold additional security or guaranties for said obligations; (f) amend, exchange, release or waive any security or guaranty ; or (g) bid and purchase at any sale of paper or security and apply any proceeds or security, and direct the order and manner or sale. If a claim is made upon you at any time for repayment or recovery of any amount(s) or other value received by you, form any source, in payment of or on account of any of the obligations of the Company guaranteed hereunder and you repay or otherwise become liable for all or any part of such claim by reason of; (a) any judgment, decree or order of any court or administrative body having competent jurisdiction; or (b) any settlement or compromise of any such claim, we shall remain jointly and severally liable to you hereunder for the amount so repaid r for which you are otherwise liable to the same extent as if such amount(s) had never been received by you, notwithstanding any termination hereof or the cancellation of any note or other agreement evidencing any of the obligations of the Company. This guaranty shall bind our respective heirs, administrators, representatives, successors, and assigns, and shall incur to your successors and assigns, including, but no limited to, any party to whom you may assign any item or items of paper, we hereby waiving notice of any such assignment. All of your rights are cumulative and not alternative. By execution of this guaranty each guarantor hereunder agrees to waive all rights to trial by jury in any action, proceeding, or counterclaim or any matter whatsoever arising out of, in connection with, or related to this guaranty. Executed December 5, 1996. Guarantors Astec Industries, Inc. Chattanooga TN 37407 By: J. Don Brock, President Corporate Seal Attest: Sam M. Sprouse EXHIBIT 11 Statement Regarding Computation of Per Share Earnings ASTEC INDUSTRIES, INC. EXHIBIT (11) - COMPUTATIONS OF EARNINGS PER SHARE (In Thousands) 	12-31-96	 12-31-95	 12-31-94 Shares for Earnings Per Share Computations Primary: Weighted average outstanding during year 10,047	 10,072	 9,844 Common Stock equivalent for stock options & warrants 111	 124	 141 TOTAL 10,158	 10,196	 9,985 Fully Diluted: Weighted average outstanding during year	 10,047	 10,072 	9,844 Common Stock equivalent for stock options & warrants	 112	 125	 146 TOTAL	 10,159	 10,197 	9,990 Earnings Applicable to Common Stock: Income from continuing operations	 $ 4,345 	$4,560 	$23,426 Net Income	 $ 4,345	 $4,560	 $23,436 Earnings Per Common Share (Based on Weighted Average Number of Common and Uncommon Equivalent Shares Outstanding): Income from continuing operations	$ .43	 $ .45	 $ 2.38 Net Income 	$ .43 	$ .45	 $ 2.38 Additional Computations of EPS: Fully Diluted: Income from continuing operations	 $ .43	 $ .45	 $ 2.38 Net Income	 $ .43	 $ .45	 $ 2.38 EXHIBIT 22 Subsidiaries of the Registrant LIST OF SUBSIDIARIES 	 	Jurisdiction of Name Owned 	Incorporation Astec Financial Services, Inc. 100 Tennessee 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 Production Engineered Products, Inc. 100 Nevada Pavement Technology, Inc.	 50 Georgia 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 21, 1997, 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, 1996. /s/ Ernst & Young, LLP ERNST & YOUNG LLP Chattanooga, Tennessee March 14, 1997