ASTE Astec Industries Inc

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PART I -- FINANCIAL INFORMATION

See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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See Notes to Unaudited Condensed Consolidated Financial Statements

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ASTEC INDUSTRIES, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar and share amounts in thousands, except per share amounts, unless otherwise specified)

Note 1.  Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated under the Securities Act of 1933.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("U.S. GAAP") for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and six-month periods ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.  It is suggested that these unaudited condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Astec Industries, Inc. Annual Report on Form 10-K for the year ended December 31, 2014.

The unaudited condensed consolidated balance sheet as of December 31, 2014 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Dollar and share amounts shown are in thousands, except per share amounts, unless otherwise specified.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which raises the previous threshold for disposals to qualify as discontinued operations and requires new disclosures for individually material disposal transactions that do not meet the definition of a discontinued operation.  The standard also allows companies to have significant continuing involvement and continuing cash flows with the discontinued operation.  The standard requires the reclassification of assets and liabilities of a discontinued operation in the balance sheet for all periods presented.  The standard is effective for public entities for annual periods beginning on or after December 15, 2014 and is to be implemented prospectively.  The Company's adoption of this standard effective January 1, 2015 did not have a significant impact on the Company's financial position or results of operations.

In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers," which supersedes existing revenue guidance under U.S. GAAP.  The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.  The implementation of this new standard will require companies to use more judgment and to make more estimates than under current guidance.  The standard is effective for public companies for annual periods beginning after December 15, 2017.  The Company plans to adopt the new standard effective January 1, 2018.  The Company has not yet determined what impact, if any, the adoption of this new standard will have on the Company's financial position or results of operations.

Note 2.  Earnings per Share

Basic earnings per share are determined by dividing earnings by the weighted average number of common shares outstanding during each period.  Diluted earnings per share include the potential dilutive effect of options, restricted stock units and shares held in the Company's Supplemental Executive Retirement Plan.

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The following table sets forth the computation of net income attributable to controlling interest and the number of basic and diluted shares used in the computation of earnings per share:

Antidilutive options are not included in the diluted earnings per share computation.  The number of antidilutive options in the three and six-month periods ended June 30, 2015 and 2014 were not material.

Note 3.  Receivables

Receivables are net of allowances for doubtful accounts of $1,665 and $2,248 as of June 30, 2015 and December 31, 2014, respectively.

Note 4.  Inventories

Inventories consist of the following:

Raw material inventory is comprised of purchased steel and other purchased items for use in the manufacturing process or held for sale in the Company's after-market parts business. The category also includes the manufacturing cost of completed equipment sub-assemblies produced for either integration into equipment manufactured at a later date or for sale in the Company's after-market parts business.

Work-in-process inventory consists of the value of materials, labor and overhead incurred to date in the manufacturing of incomplete equipment or incomplete equipment sub-assemblies being produced.

Finished goods inventory consists of completed equipment manufactured for sale to customers.

Used inventory consists of equipment accepted in trade or purchased on the open market. The category also includes equipment rented to prospective customers on a short-term or month-to-month basis. Used equipment is valued at the lower of acquired or trade-in cost or market determined on each separate unit.  Each unit of rental equipment is valued at its original manufacturing cost and is reduced by an appropriate reserve each month during the period of time the equipment is rented.

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Inventories are valued at the lower of cost (first-in, first-out) or market, which requires the Company to make specific estimates, assumptions and judgments in determining the amount, if any, of reductions in the valuation of inventories to their net realizable values. The net realizable values of the Company's products are impacted by a number of factors, including changes in the price of steel, competitive sales pricing, quantities of inventories on hand, the age of the individual inventory items, market acceptance of the Company's products, the Company's normal gross margins, actions by our competitors, the condition of our used and rental inventory and general economic factors. Once an inventory item's value has been deemed to be less than cost, a net realizable value allowance is calculated and a new "cost basis" for that item is effectively established. This new cost is retained for that item until such time as the item is disposed of or the Company determines that an additional write-down is necessary. Additional write-downs may be required in the future based upon changes in assumptions due to general economic downturns in the markets in which the Company operates, changes in competitor pricing, new product design or other technological advances introduced by the Company or its competitors and other factors unique to individual inventory items.

The most significant component of the Company's inventory is steel. A significant decline in the market price of steel could result in a decline in the market value of the equipment or parts the Company sells. During periods of significant declining steel prices, the Company reviews the valuation of its inventories to determine if reductions are needed in the recorded value of inventory on hand to its net realizable value.

The Company reviews the individual items included in its finished goods, used equipment and rental equipment inventory on a model-by-model or unit-by-unit basis to determine if any item's net realizable value is below its carrying value each quarter. This analysis is expanded to include items in work-in-process and raw material inventory if factors indicate those items may also be impacted. In performing this review, judgments are made and, in addition to the factors discussed above, additional consideration is given to the age of the specific items of used or rental inventory, prior sales offers or lack thereof, the physical condition of the specific items and general market conditions for the specific items. Additionally, an analysis of raw material inventory is performed each quarter to calculate reserves needed for obsolete inventory based upon quantities of items on hand, the age of those items and their recent and expected future usage or sale.

When the Company determines that the value of inventory has become impaired through damage, deterioration, obsolescence, changes in price levels, excessive levels of inventory or other causes, the Company reduces the carrying value to estimated market value based on estimates, assumptions and judgments made from the information available at that time.

Abnormal amounts of idle facility expense, freight, handling cost and wasted materials are recognized as current period charges.

Note 5.  Property and Equipment

Property and equipment is stated at cost, less accumulated depreciation of $215,961 and $222,001 as of June 30, 2015 and December 31, 2014, respectively.

During the second quarter of 2015, the Company closed its Astec Underground facility in Loudon Tennessee and relocated (or disposed of) the majority of its non-real estate fixed assets to other Company facilities.  The Loudon facility is currently being marketed for sale at prices well above its carrying value and the assets have been reclassified as held for sale at June 30, 2015.  The book value of these assets totaling $9,283 is included in other current assets in the accompanying condensed consolidated balance sheet as of June 30, 2015.  Costs totaling $634 and $1,500 were incurred in the three and six-month periods ended June 30, 2015, respectively, related to the closing of the Loudon facility and are included in cost of sales in the accompanying condensed consolidated statement of income.

Note 6.  Fair Value Measurements

The Company has various financial instruments that must be measured at fair value on a recurring basis, including marketable debt and equity securities held by Astec Insurance Company ("Astec Insurance"), the Company's captive insurance company, and marketable equity securities held in an unqualified Supplemental Executive Retirement Plan ("SERP").  The obligations of the Company associated with the financial assets held in the SERP also constitute a liability of the Company for financial reporting purposes and are included in other long-term liabilities in the accompanying balance sheets.  The Company's subsidiaries also occasionally enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.

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The carrying amount of cash and cash equivalents, trade receivables, other receivables, revolving debt and accounts payable approximates their fair value because of the short-term nature of these instruments.  Investments are carried at their fair value based on quoted market prices for identical or similar assets or, where no quoted prices exist, other observable inputs for the asset.  The fair values of foreign currency exchange contracts are based on quotations from various banks for similar instruments using models with market based inputs.

Financial assets and liabilities are categorized based upon the level of judgment associated with the inputs used to measure their fair value.  The inputs used to measure the fair value are identified in the following hierarchy:

As indicated in the tables below (which excludes the Company's pension assets), the Company has determined that all of its financial assets and liabilities as of June 30, 2015 and December 31, 2014 are level 1 and level 2 in the fair value hierarchy as defined above:

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The Company reevaluates the volume of trading activity for each of its investments at the end of each quarter and adjusts the level within the fair value hierarchy as needed.  Two corporate bond investments with a combined June 30, 2015 market value of $387 changed from Level 1 in the hierarchy at December 31, 2014 to Level 2 at June 30, 2015 due to a reduction in trading activity.

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

Trading debt securities are comprised of marketable debt securities held by Astec Insurance. Astec Insurance has an investment strategy that focuses on providing regular and predictable interest income from a diversified portfolio of high-quality fixed income securities.

Net unrealized gains or losses incurred on investments still held as of June 30, 2015 and December 31, 2014 amounted to net gains of $115 and net losses of $17, respectively.

Note 7.  Debt

On April 12, 2012, the Company and certain of its subsidiaries entered into an amended and restated credit agreement whereby Wells Fargo extended to the Company an unsecured line of credit of up to $100,000, including a sub-limit for letters of credit of up to $25,000. During the six month period ended June 30, 2015, the highest amount of outstanding borrowings at any time under the facility was $7,871.  As of June 30, 2015 and December 31, 2014, there were no outstanding borrowings under the line of credit facility.  Letters of credit totaling $11,788, including $8,674 of letters of credit issued to banks in Brazil to secure the local debt of Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), were outstanding under the credit facility as of June 30, 2015, resulting in additional borrowing ability of $88,212 under the credit facility. The credit agreement has a five-year term expiring in April 2017. Borrowings under the agreement are subject to an interest rate equal to the daily one-month LIBOR rate plus a 0.75% margin, resulting in a rate of 0.94% as of June 30, 2015. The unused facility fee is 0.175%. Interest only payments are due monthly. The amended and restated credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income, minimum tangible net worth and maximum allowed capital expenditures. The Company was in compliance with these covenants as of June 30, 2015.

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The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd ("Osborn"), has a credit facility of $7,821 with a South African bank to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of June 30, 2015, Osborn had $3,104 of outstanding borrowings (which is included in short-term debt in the accompanying balance sheets) and $871 in performance, advance payment and retention guarantees outstanding under the facility. The facility is unsecured and a 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of June 30, 2015, Osborn had available credit under the facility of $3,846. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 9.0% as of June 30, 2015.

The Company's Brazilian subsidiary, Astec Brazil, has outstanding working capital loans totaling $6,937 from three Brazilian banks with interest rates ranging from 10.4% to 20.3%.  The loans' maturity dates range from December 2016 to April 2024 and the debts are secured by Astec Brazil's manufacturing building and also by letters of credit totaling $8,674 issued by Astec Industries, Inc.  Additionally, Astec Brazil has various 5-year equipment financing loans outstanding with two Brazilian banks in the aggregate of $1,981 as of June 30, 2015 that have interest rates ranging from 3.5% to 16.3%.  These equipment loans have maturity dates ranging from September 2018 to April 2020.  Astec Brazil's loans are included in the accompanying balance sheets as short-term debt ($3,389) and long-term debt ($5,529).

Note 8.  Product Warranty Reserves

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

Changes in the Company's product warranty liability for the three and six-month periods ended June 30, 2015 and 2014 are as follows:

Note 9.  Accrued Loss Reserves

The Company records reserves for losses related to known workers' compensation and general liability claims that have been incurred but not yet paid or are estimated to have been incurred but not yet reported to the Company.  The undiscounted reserves are actuarially determined based on the Company's evaluation of the type and severity of individual claims and historical information, primarily its own claims experience, along with assumptions about future events.  Changes in assumptions, as well as changes in actual experience, could cause these estimates to change in the future.  Total accrued loss reserves were $8,094 as of June 30, 2015 and $7,562 as of December 31, 2014, of which $4,869 and $4,512 were included in other long-term liabilities as of June 30, 2015 and December 31, 2014, respectively.

Note 10.  Income Taxes

The Company's effective income tax rate was 37.9% and 35.7% for the three-month periods ended June 30, 2015 and 2014, respectively.  The Company's effective income tax rate was 37.4% and 34.4% for the six-month periods ended June 30, 2015 and 2014, respectively.  The Company's effective tax rate for the three and six months ended June 30, 2015 includes the effect of state income taxes and other discrete items but did not include benefits for the research and development credit given that legislation extending the research and development credit to 2015 has not been enacted by Congress.  The Company's effective tax rate for the three and six months ended June 30, 2014 also did not include a benefit for the research and development tax credit given that Congress had not enacted legislation extending the credit to 2014 as of June 30, 2014.

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The Company's recorded liability for uncertain tax positions as of June 30, 2015 has decreased by approximately $521 as compared to December 31, 2014, primarily as the result of a tax audit settlement related to tax year 2010.  

Note 11.  Segment Information

The Company has three reportable segments, each of which is comprised of multiple business units that offer similar products and services and meet the requirements for aggregation. A brief description of each segment is as follows:

Infrastructure Group - This segment consists of five business units, three of which design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants, wood pellet plants, asphalt pavers, material transfer vehicles, milling machines and paver screeds. The other two business units in this segment primarily operate as Company-owned dealers in the foreign countries in which they are domiciled.  These two business units sell, service and install products produced by the manufacturing subsidiaries of the Company, and a majority of their sales are to customers in the infrastructure industry.  The principal purchasers of the products produced by this group are asphalt producers, highway and heavy equipment contractors, wood pellet processors and foreign and domestic governmental agencies.

Aggregate and Mining Group - This segment consists of eight business units that design, engineer, manufacture and market a complete line of jaw crushers, cone crushers, horizontal shaft impactors, vertical shaft impactors, material handling, roll rock crushers and stationary rockbreaker systems, vibrating feeders and high frequency vibrating screens, conveyors, inclined, vertical and horizontal screens and sand classifying and washing equipment. The principal purchasers of products produced by this group are distributors, open mine operators, quarry operators, port and inland terminal operators, highway and heavy equipment contractors and foreign and domestic governmental agencies. This group includes the operations of Telestack Limited, which was acquired in April 2014.

Energy Group - This segment consisted of five business units through May 2015 that design, engineer, manufacture and market a complete line of drilling rigs for the oil and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells, a variety of industrial heaters to fit a broad range of applications including heating equipment for refineries, oil sands and energy related processing, heat transfer processing equipment, thermal fluid storage tanks, waste heat recovery equipment, whole-tree pulpwood and biomass chippers and horizontal grinders. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production and contractors in the construction and demolition recycling markets.  Effective May 31, 2015, the Company's Astec Underground, Inc. business unit in Loudon, Tennessee ceased operations and responsibility for its product lines were transferred to the Company's GEFCO, Inc. subsidiary in Enid, Oklahoma.

Corporate - This category consists of business units that do not meet the requirements for separate disclosure as an operating segment or inclusion in one of the other reporting segments and includes the Company's parent company, Astec Industries, Inc., and Astec Insurance Company, a Company-owned captive insurance company. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes and corporate overhead and thus these costs are included in the Corporate category.

The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are valued at prices comparable to those for unrelated parties.

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Segment Information:

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A reconciliation of total segment profits to the Company's consolidated totals is as follows:

Note 12.  Contingent Matters

Certain customers have financed purchases of Company products through arrangements in which the Company is contingently liable for customer debt of $2,427 as of June 30, 2015.  The maximum potential amount of future payments for which the Company would be liable was equal to $2,427 as of June 30, 2015.  These arrangements also provide that the Company will receive the lender's full security interest in the equipment financed if the Company is required to fulfill its contingent liability under these arrangements.  The Company has recorded a liability of $117 related to these guarantees as of June 30, 2015.

In addition, the Company is contingently liable under letters of credit issued by Wells Fargo totaling $11,788 as of June 30, 2015, including $8,674 of letters of credit that guarantee certain Astec Brazil bank debt.  The outstanding letters of credit expire at various dates through February 2019.  As of June 30, 2015, Osborn is contingently liable for a total of $871 in performance letters of credit, advance payments and retention guarantees.  As of June 30, 2015, Astec Australia is contingently liable for a total of $19 in performance bank guarantees.  The maximum potential amount of future payments under these letters of credit and guarantees for which the Company could be liable is $12,678 as of June 30, 2015.

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

During 2004, the Company received notice from the Environmental Protection Agency ("EPA") that it may be responsible for a portion of the costs incurred in connection with an environmental cleanup in Illinois. The discharge of hazardous materials and associated cleanup relate to activities occurring prior to the Company's acquisition of Barber-Greene in 1986. The Company believes that over 300 other parties have received similar notices. At this time, the Company cannot predict whether the EPA will seek to hold the Company liable for a portion of the cleanup costs or the amount of any such liability.  The Company has not recorded a liability with respect to this matter because no estimate of the amount of any such liability can be made at this time.

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Note 13.  Shareholders' Equity

Beginning in 2006 and again in 2011, the Company implemented five-year plans to award key members of management restricted stock units ("RSUs") each year based upon the annual financial performance of the Company and its subsidiaries. Each five-year plan allows up to 700 newly issued shares of Company stock to be granted to employees. The number of RSUs granted each year is determined based upon the performance of individual subsidiaries and consolidated annual financial performance, with additional RSUs available for cumulative five-year results. Generally, each award vests at the end of five years from the date of grant, or at the time a recipient retires after reaching age 65, if earlier.

A total of 66 and 73 RSUs vested during the six-month periods ended June 30, 2015 and 2014, respectively.  The Company withheld 14 and 23 shares due to statutory payroll tax withholding requirements upon the vesting of the RSUs in the first six months of 2015 and 2014, respectively, and used Company funds to remit the related required minimum withholding taxes to the various tax authorities.  The vesting date fair value of the RSUs that vested during the first six months of 2015 and 2014 was $2,785 and $2,981, respectively.  Compensation expense of $438 and $264 was recorded in the three-month periods ended June 30, 2015 and 2014, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2015 and cumulative five-year performance) less estimated forfeitures, amortized over the portion of the vesting period occurring during the periods.  Compensation expense of $740 and $569 was recorded in the six-month periods ended June 30, 2015 and 2014, respectively, to reflect the fair value of RSUs granted (or anticipated to be granted for 2015 and cumulative five-year performance) less estimated forfeitures, amortized over the portion of the vesting period occurring during the periods.

Note 14.  Other Income, Net of Expenses

Other income, net of expenses for the three and six-month periods ended June 30, 2015 and 2014 is presented below:

Note 15.  Derivative Financial Instruments

The Company is exposed to certain risks related to its ongoing business operations. The primary risk managed by using derivative instruments is foreign currency risk.  From time to time the Company's foreign subsidiaries enter into foreign currency exchange contracts to mitigate exposure to fluctuations in currency exchange rates.  The fair value of the derivative financial instrument is recorded on the Company's balance sheet and is adjusted to fair value at each measurement date.  The changes in fair value are recognized in the consolidated statements of income in the current period.  The Company does not engage in speculative transactions nor does it hold or issue financial instruments for trading purposes.  The average U.S. dollar equivalent notional amount of outstanding foreign currency exchange contracts was $10,791 during the six-month period ended June 30, 2015. The Company reported $583 of derivative assets in other current assets and $364 of derivative assets in other long term assets at June 30, 2015.  At December 31, 2014, the Company reported $434 of derivative assets in other current assets and $113 of derivative assets in other long-term assets. The Company recognized, as a component of cost of sales, a net gain of $390 on the change in fair value of derivative financial instruments in the three-month period ended June 30, 2015.   The Company recognized, as a component of cost of sales, a net loss on the change in fair value of derivative financial instruments of $26 in the three-month period ended June 30, 2014. In the six-months ended June 30, 2015, the Company recognized, as a component of cost of sales, a net gain of $808. For the six-month period ended June 30, 2014, the Company recognized, as a component of cost of sales, a net loss of $556.  There were no derivatives that were designated as hedges at June 30, 2015.

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Note 16.  Business Acquisition

On April 1, 2014, the Company purchased 100% of the stock of Telestack Limited ("Telestack") for a total purchase price of $36,183. The purchase price was paid in cash with $2,500 deposited into escrow for a period of time not to exceed one year and was subject to certain post-closing adjustments.  The post-closing adjustments were finalized during the first quarter of 2015 resulting in a decrease in the purchase price of $178.  The adjusted purchase price allocation recorded includes the recognition of $18,078 of goodwill and $14,445 of other intangible assets, based on the foreign exchange rate as of the acquisition date, consisting of trade names (15 year useful life), patents (5 to 10 year useful lives), non-compete agreements (3 year useful life) and customer relationships (11 year useful life).  Telestack's operating results are included in the Aggregate and Mining Group beginning in the second quarter of 2014. The revenue and results of operations of Telestack were not significant in relation to the Company's financial statements for the three or six-month periods ended June 30, 2015 or the nine-month period ending December 31, 2014 and would not have been significant on a pro forma basis to any earlier periods.

Telestack, located in Omagh, Northern Ireland, began operations in 1999 and specializes in the complete in-house design, manufacture, installation and commissioning of a complete line of material handling systems used extensively in the port, aggregate and mining industries. Telestack markets its products throughout the world by a combination of direct sales and distribution through dealers. The Company anticipates the synergies between Telestack and the Company's existing aggregate and wood pellet product lines will benefit both companies.

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements contained anywhere in this Quarterly Report on Form 10-Q that are not limited to historical information are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are sometimes identified by the words "will," "would," "should," "could," "may," "believes," "anticipates," "intends," "forecasts" and "expects" and similar expressions.  Such forward-looking statements include, without limitation, statements regarding the Company's expected sales and results of operations during 2015, the Company's expected capital expenditures in 2015, the expected benefit and impact of financing arrangements, the ability of the Company to meet its working capital and capital expenditure requirements through June 30, 2016, the amount and impact of any current or future state or federal funding for transportation construction programs, the need for road improvements, the amount and impact of other public sector spending and funding mechanisms, changes in the economic environment as it affects the Company, the market confidence of customers and dealers, the Company being called upon to fulfill certain contingencies, the expected dates of granting of restricted stock units, changes in interest rates and the impact of such changes on the financial results of the Company, changes in the prices of steel and oil and the impact of such changes generally and on the demand for the Company's products, customer's buying decisions and the Company's business, the ability of the Company to offset future changes in prices in raw materials, the change in the strength of the dollar and the level of the Company's presence and sales in international markets, the impact that further development of domestic oil and natural gas production capabilities would have on the domestic economy and the Company's business, the seasonality of the Company's business, the Company's investments, the percentage of the Company's equipment sold directly to end users, the amount or value of unrecognized tax benefits, the impact of IRS tax regulations, payment of dividends by the Company, and the ultimate outcome of the Company's current claims and legal proceedings.

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

The risks and uncertainties identified herein under the caption "Item 1A. Risk Factors" in Part II of this Report, elsewhere herein and in other documents filed by the Company with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, should be carefully considered when evaluating the Company's business and future prospects.

The Company is a leading manufacturer and seller of equipment for the road building, aggregate processing, geothermal, water, oil and gas, and wood processing industries. The Company's businesses:

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Astec Industries, Inc. consists of 20 companies: 16 manufacturing companies, 2 companies that operate as dealers for the manufacturing companies, a captive insurance company and the parent company.  The companies fall within three reportable operating segments:

Infrastructure Group – This segment consists of five business units, three of which design, engineer, manufacture and market a complete line of portable, stationary and relocatable hot-mix asphalt plants, asphalt pavers, material transfer vehicles, milling machines and paver screeds. The other two business units in this segment operate as Company-owned dealers in the foreign countries in which they are domiciled.  These two business units sell, service and install products produced by the manufacturing subsidiaries of the Company, and a majority of their sales are to customers in the infrastructure industry. The principal purchasers of the products produced by this group are asphalt producers, highway and heavy equipment contractors and foreign and domestic governmental agencies.

Aggregate and Mining Group – This segment consists of eight business units that design, engineer, manufacture and market a complete line of jaw crushers, cone crushers, horizontal shaft impactors, vertical shaft impactors, material handling systems, roll rock crushers and stationary rockbreaker systems, vibrating feeders and high frequency vibrating screens, conveyors, inclined, vertical and horizontal screens and sand classifying and washing equipment. The principal purchasers of products produced by this group are distributors, open mine operators, quarry operators, port operators, highway and heavy equipment contractors and foreign and domestic governmental agencies.

Energy Group – This segment consisted of five business units through May 2015 that design, engineer, manufacture and market a complete line of drilling rigs for the oil and gas, geothermal and water well industries, high pressure diesel pump trailers for fracking and cleaning oil and gas wells, a variety of industrial heaters to fit a broad range of applications including heating equipment for refineries, oil sands and energy related processing, heat transfer processing equipment, thermal fluid storage tanks, waste heat recovery equipment, and whole-tree pulpwood and biomass chippers and horizontal grinders. The principal purchasers of products produced by this group are oil, gas and water well drilling industry contractors, processors of oil, gas and biomass for energy production and contractors in the construction and demolition recycling markets. Effective May 31, 2015, the Company's Astec Underground, Inc. business unit in Loudon, Tennessee ceased operations and responsibility for its product lines were transferred to the Company's GEFCO, Inc. subsidiary in Enid, Oklahoma.

Individual Company subsidiaries included in the composition of the Company's segments are as follows:

1.	Infrastructure Group – Astec, Inc., Roadtec, Inc., Carlson Paving Products, Inc., Astec Australia, Pty Ltd and Astec Mobile Machinery GmbH.

2.

Aggregate and Mining Group – Telsmith, Inc., Kolberg-Pioneer, Inc., Johnson Crushers International, Inc., Osborn Engineered Products SA (Pty) Ltd, Breaker Technology, Inc., Astec Mobile Screens, Inc., Astec do Brasil Fabricacao de Equipamentos LTDA and Telestack Ltd (which was acquired on April 1, 2014).

3.	Energy Group – Heatec, Inc., CEI, Inc., GEFCO, Inc., Astec Underground, Inc. (through May 2015) and Peterson Pacific, Inc.

The Company has two other business units that do not meet the requirement for separate disclosure as an operating segment: the Company's parent company, Astec Industries, Inc., and Astec Insurance Company, a Company-owned captive insurance company. The Company evaluates performance and allocates resources to its operating segments based on profit or loss from operations before U.S. federal income taxes and corporate overhead and thus these costs are included in the Corporate category.

The Company's financial performance is affected by a number of factors, including the cyclical nature and varying conditions of the markets it serves. Demand in these markets fluctuates in response to overall economic conditions and is particularly sensitive to the amount of public sector spending on infrastructure development, the amount of privately funded infrastructure development, changes in the price of crude oil, which affects the cost of fuel and liquid asphalt, and changes in the price of steel.

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In July 2012, the "Moving Ahead for Progress in the 21st Century Act" ("Map-21") was approved by the U.S. federal government, which authorized $105 billion of federal spending on highway and public transportation programs through fiscal year 2014.  In August 2014, the U.S. government approved short-term funding of $10.8 billion through May 2015.  Another short-term extension of Map-21 was approved in May 2015 extending the funding through July 2015.  The most recent short-term extension of Map-21, entitled "the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015", which was signed into law on July 31, 2015, extended the provisions of Map-21 until October 30, 2015 and provided an additional $8.068 billion of funding to the Highway Trust Fund with $6.068 billion being designated for the Highway Account and the remaining $2 billion designated for the Mass Transit Account.  The Company believes a longer multi-year highway program would have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer-term projects. The level of future federal highway construction is uncertain and any future funding may be at lower levels than in the past.

 

The public sector spending described above is needed to fund road, bridge and mass transit improvements. The Company believes that increased funding is unquestionably needed to restore the nation's highways to a quality level required for safety, fuel efficiency and mitigation of congestion. In the Company's opinion, amounts needed for such improvements are significantly greater than amounts approved to date, and funding mechanisms such as the federal usage fee per gallon of gasoline, which is currently still at the 1993 level of 18.4 cents per gallon, would likely need to be increased along with other measures to generate the funds needed.

In addition to public sector funding, the economies in the markets the Company serves, the price of oil and its impact on customers' purchasing decisions and the price of steel may each affect the Company's financial performance. Economic downturns generally result in decreased purchasing by the Company's customers, which, in turn, causes reductions in sales and increased pricing pressure on the Company's products. Rising interest rates also typically negatively impact customers' attitudes toward purchasing equipment. The Federal Reserve has maintained historically low interest rates in response to the recent economic downturn; however, interest rates may increase during the remainder of 2015 and thereafter.

Significant portions of the Company's revenues relate to the sale of equipment involved in the production, handling, recycling or installation of asphalt mix. Liquid asphalt is a by-product of oil production. An increase in the price of oil increases the cost of asphalt, which is likely to decrease demand for asphalt and therefore decrease demand for certain Company products. While increasing oil prices may have a negative financial impact on many of the Company's customers, the Company's equipment can use a significant amount of recycled asphalt pavement, thereby mitigating the effect of increased oil prices on the final cost of asphalt for the customer. The Company continues to develop products and initiatives to reduce the amount of oil and related products required to produce asphalt mix. Oil price volatility makes it difficult to predict the costs of oil-based products used in road construction such as liquid asphalt and gasoline. The Company's customers appear to be adapting their prices in response to the fluctuating oil prices, and the fluctuations did not appear to significantly impair equipment purchases in 2014 or the first six months of 2015. The Company expects oil prices to continue to fluctuate during the remainder of 2015 and thereafter.  Minor fluctuations in oil prices should not have a significant impact on customers' buying decisions. However, political uncertainty in oil producing countries, interruptions in oil production due to disasters, whether natural or man-made, or other economic factors could significantly impact oil prices, which could negatively impact demand for the Company's products.

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

Steel is a major component in the Company's equipment. Steel prices continued their decline during much of the second quarter of 2015 with mills experiencing weak order intakes amidst continued competition from import offerings. Steel prices have recently stabilized and we anticipate this stability to continue through the third quarter. The Company anticipates mild steel price increases into the fourth quarter of 2015. The Company continues to utilize forward-looking contracts coupled with advanced steel purchases when applicable to minimize the impact of fluctuations in steel prices. The Company will continue to review the trends in steel prices in future months and establish future contract pricing accordingly.

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In addition to the factors stated above, many of the Company's markets are highly competitive, and its products compete worldwide with a number of other manufacturers and dealers that produce and sell similar products. A weak dollar, combined with improving economic conditions in certain foreign economies, had a positive impact on the Company's international sales in 2010 through mid-2012. The strengthening of the U.S. dollar against many foreign currencies during the later portion of 2012 through the second quarter of 2015 has negatively impacted pricing and the Company's backlog at June 30, 2015 in certain foreign markets.  Increasing domestic interest rates or weakening economic conditions abroad could cause the dollar to further strengthen, which could negatively impact the Company's international sales.

In the United States and internationally, the Company's equipment is marketed directly to customers as well as through dealers. In recent years, approximately 75% to 80% of equipment sold by the Company was sold directly to the end user. The Company expects this ratio to remain relatively consistent through the end of 2015.

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

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

Results of Operations

Net Sales

Net sales for the second quarter of 2015 were $268,042 compared to $277,256 for the second quarter of 2014, a decrease of $9,214 or 3.3%. Sales are generated primarily from new equipment and parts sales to domestic and international customers.  Sales decreased by $7,862 in the Aggregate and Mining Group, $2,488 in the Infrastructure Group and increased $1,136 in the Energy Group.

Net sales for the first six months of 2015 were $556,791 compared to $515,929 for the first six months of 2014, an increase of $40,862 or 7.9%. Sales are generated primarily from new equipment and parts sales to domestic and international customers.  Sales increased by $33,767 in the Infrastructure Group, $5,442 in the Aggregate and Mining Group and $1,653 in the Energy Group.

Domestic sales for the second quarter of 2015 were $194,620 or 72.6% of consolidated net sales compared to $184,676 or 66.6% of consolidated net sales for the second quarter of 2014, an increase of $9,944 or 5.4%. Domestic sales for the second quarter of 2015 as compared to the second quarter of 2014 increased $9,109 in the Infrastructure Group and $2,907 in the Aggregate and Mining Group but decreased $2,072 in the Energy Group.  International sales for the second quarter of 2015 were $73,422 or 27.4% of consolidated net sales compared to $92,580 or 33.4% of consolidated net sales for the second quarter of 2014, a decrease of $19,158 or 20.7%. International sales decreased $11,597 in the Infrastructure Group and $10,769 in the Aggregate and Mining Group but increased $3,208 in the Energy Group.  The decreases in international sales occurred primarily in Russia, Asia, China, Mexico and Brazil and other South American countries, offset by increased sales in Europe, Canada, India and Africa.  International sales volumes continue to be negatively impacted by the strength of the U.S. dollar as compared to the currencies in many of the countries in which the Company operates.  Additionally, sales reported by the Company's foreign subsidiaries in U.S. dollars were $4,350 less in the second quarter of 2015 than in the second quarter of 2014 due to changes in foreign exchange rates between periods.

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Domestic sales for the first six months of 2015 were $405,673 or 72.9% of consolidated net sales compared to $360,108 or 69.8% of consolidated net sales for the first six months of 2014, an increase of $45,565 or 12.7%. Domestic sales for the first six months of 2015 as compared to the first six months of 2014 increased $37,840 in the Infrastructure Group and $12,598 in the Aggregate and Mining Group but decreased $4,873 in the Energy Group.  International sales for the first six months of 2015 were $151,118 or 27.1% of consolidated net sales compared to $155,821 or 30.2% of consolidated net sales for the first six months of 2014, a decrease of $4,703 or 3.0%. International sales decreased $4,073 in the Infrastructure Group and $7,156 in the Aggregate and Mining Group but increased $6,526 in the Energy Group.  The decreases in international sales occurred primarily in Russia, Mexico, China and other Asian countries offset by increased sales in Europe, Canada, Australia, India and the Middle East.  International sales volumes continue to be negatively impacted by the strength of the U.S. dollar as compared to the currencies in many of the countries in which the Company operates.  Additionally, sales reported by the Company's foreign subsidiaries in U.S. dollars were $7,281 less in the first six months of 2015 than in the first six months of 2014 due to changes in foreign exchange rates between periods.

Parts sales for the second quarter of 2015 were $67,416 compared to $60,168 for the second quarter of 2014, an increase of $7,248 or 12.0%.  Parts sales as a percentage of net sales increased 350 basis points from 21.7% for the second quarter of 2014 to 25.2% for the second quarter of 2015.  Parts sales increased in all groups with the Aggregate and Mining and Infrastructure Groups having the largest increases.

Parts sales for the first six months of 2015 were $140,505 compared to $129,426 for the first six months of 2014, an increase of $11,079 or 8.6%.  Parts sales as a percentage of net sales remained relatively constant at 25.1% for the first six months of 2014 and 25.2% for the first six months of 2015.  Parts sales increased in the Infrastructure Group and Aggregate and Mining Group but decreased in the Energy Group.

Gross Profit

Consolidated gross profit increased $55 or 0.1% to $62,233 for the second quarter of 2015 compared to $62,178 for the second quarter of 2014.  Gross profit as a percentage of sales increased 80 basis points to 23.2% for the second quarter of 2015 compared to 22.4% for the second quarter of 2014.

Consolidated gross profit increased $9,344 or 7.9% to $128,279 for the first six months of 2015 compared to $118,935 for the first six months of 2014.  Gross profit as a percentage of sales decreased 10 basis points to 23.0% for the first six months of 2015 compared to 23.1% for the first six months of 2014.

Selling, General, Administrative and Engineering Expenses

Selling, general, administrative and engineering expenses for the second quarter of 2015 were $43,308 or 16.2% of net sales, compared to $40,247 or 14.5% of net sales for the second quarter of 2014, an increase of $3,061 or 7.6%.  The increase was due primarily to increased spending on computer consulting installation costs, research and development projects, health insurance and certain selling expenses including wages and commissions as well as advertising related expenditures.

Selling, general, administrative and engineering expenses for the first six months of 2015 were $87,112 or 15.6% of net sales, compared to $83,672 or 16.2% of net sales for the first six months of 2014, an increase of $3,440 or 4.1%.  . The increase was due primarily to increased spending on computer consulting installation costs, research and development projects, costs incurred by Telestack (which was acquired in April 2014) in the first quarter of 2015, health insurance and certain selling expenses including wages and commissions as well as advertising related expenditures offset by a reduction in ConExpo related exhibit costs.

Interest Expense

Interest expense for the second quarter of 2015 increased $311 to $420 from $109 for the second quarter of 2014.  The increase in interest expense is primarily due to increased interest on bank borrowings by our foreign subsidiaries located in Brazil and South Africa.

Interest expense for the first six months of 2015 increased $535 to $717 from $182 for the first six months of 2014.  The increase in interest expense is primarily due to increased interest on bank borrowings by our foreign subsidiaries located in Brazil and South Africa.

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Other Income, Net of Expenses

Other income, net of expenses was $273 for the second quarter of 2015 compared to $729 for the second quarter of 2014, a decrease of $456 due primarily to reduced interest income and other investment earnings. Other income is generated primarily by earnings on investments of excess cash and funds held by Astec Insurance, the Company's captive insurance company, as well as interest income from customers and license fee income.

Other income, net of expenses was $2,033 for the first six months of 2015 compared to $1,544 for the first six months of 2014, an increase of $489 due to income from key-man life insurance policies recorded in the first six months of 2015 resulting from the death of the Company's Chairman (and former CEO), offset by reduced interest income and other investment earnings.  Other income is typically generated by earnings on investments of excess cash and funds held by Astec Insurance, the Company's captive insurance company, as well as interest income from customers and license fee income.

Income Tax Expense

The Company's combined effective income tax rate was 37.9% for the second quarter of 2015 compared to 35.7% for the second quarter of 2014.  The Company's effective tax rate for the three-month periods ended June 30, 2015 and 2014 include the effect of state income taxes and other discrete items but does not include benefits for the research and development credits as legislation extending the research and development credit for each year was not enacted by Congress as of the end of each period.  The increase in the tax rate between periods is due primarily to our inability to book tax benefits for second quarter 2015 losses in certain of our foreign companies as well as increasing state taxes due to apportionment legislative changes.

The Company's combined effective income tax rate was 37.4% for the first six months of 2015 compared to 34.4% for the first six months of 2014.  The Company's effective tax rates for the six-month periods ended June 30, 2015 and 2014 include the effect of state income taxes and other discrete items but does not include benefits for the research and development credits as legislation extending the research and development credit for each year was not enacted by Congress as of the end of each period.  The increase in the tax rate between periods is due primarily to our inability to book tax benefits for 2015 losses in certain of our foreign companies, adjustments to reconcile expenses previously booked to tax returns filed, other adjustments to reflect the impact of audits by certain taxing authorities, as well as increasing state taxes due to apportionment legislative changes.

Net Income

The Company had net income attributable to controlling interest of $11,805 for the second quarter of 2015 compared to $14,497 for the second quarter of 2014, a decrease of $2,692, or 18.6%. Net income attributable to controlling interest per diluted share was $0.51 for the second quarter of 2015 compared to $0.63 for the second quarter of 2014, a decrease of $0.12.  Diluted shares outstanding for the quarters ended June 30, 2015 and 2014 were 23,119 and 23,099, respectively.

The Company had net income attributable to controlling interest of $26,909 for the first six months of 2015 compared to $24,042 for the first six months of 2014, an increase of $2,867, or 11.9%. Net income attributable to controlling interest per diluted share was $1.16 for the first six months of 2015 compared to $1.04 for the first six months of 2014, an increase of $0.12.  Diluted shares outstanding for the six months ended June 30, 2015 and 2014 were 23,117 and 23,101, respectively.

Dividends

In February 2013, the Company's Board of Directors approved a dividend policy pursuant to which the Company began paying a quarterly $0.10 per share dividend on its common stock beginning in the second quarter of 2013.  The actual amount of future quarterly dividends, if any, will be based upon the Company's financial position, results of operations, cash flows, capital requirements and restrictions under the Company's existing credit agreement, among other factors.  The Board retained the power to modify, suspend or cancel the Company's dividend policy in any manner and at any time it deems necessary or appropriate in the future.  The Company paid quarterly dividends of $0.10 per common share to shareholders in each quarter of 2014 and the first two quarters of 2015.

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Backlog

The backlog of orders as of June 30, 2015 was $229,474 compared to $264,095 as of June 30, 2014, a decrease of $34,621, or 13.1%. Domestic backlogs increased $14,530 or 9.2%, and international backlogs decreased $49,151 or 46.1%.   The June 30, 2015 backlog was comprised of 74.9% domestic orders and 25.1% international orders, as compared to 59.6% domestic orders and 40.4% international orders as of June 30, 2014.  Included in both the June 30, 2015 and 2014 backlog is approximately $59 million for three pellet plant orders from one customer.  The Company has agreed to finance these first three pellet plant line orders for a two to three-year period and thus revenues will be recorded by the Company as payments are received.  The Company is unable to determine whether the changes in backlogs were experienced by the industry as a whole; however, the Company believes the changes in backlogs reflect the current economic conditions the industry is experiencing.

Segment Net Sales-Quarter:

Infrastructure Group: Sales in this group were $116,097 for the second quarter of 2015 compared to $118,585 for the same period in 2014, a decrease of $2,488 or 2.1%.  Domestic sales for the Infrastructure Group increased $9,109 or 11.0% for the second quarter of 2015 compared to the same period in 2014 due primarily to significant increases in both asphalt plant and asphalt parts sales.  Due to the financing structure of the sales contract with the initial pellet plant customer, revenue will be recorded on this three line plant over the life of the financing arrangement beginning after the final plant performance testing is completed.  To date, no pellet plant revenue on this order has been recorded.  International sales for the Infrastructure Group decreased $11,597 or 32.7% for the second quarter of 2015 compared to the same period in 2014.  Sales decreased in Russia, Australia, Mexico and South America, offset by increased sales in Europe and Canada. International sales continue to be negatively impacted due to the strength of the U.S. dollar compared to certain local foreign currencies. Parts sales for the Infrastructure Group increased 11.8% for the second quarter of 2015 compared to the same period in 2014 due primarily to improved sales of parts for asphalt plants.

Aggregate and Mining Group: Sales in this group were $98,829 for the second quarter of 2015 compared to $106,691 for the same period in 2014, a decrease of $7,862 or 7.4%.  Domestic sales for the Aggregate and Mining Group increased $2,907 or 4.9% for the second quarter of 2015 compared to the same period in 2014.  The increase in sales resulted from increased sales of the Company's aggregate processing equipment. International sales for the Aggregate and Mining Group decreased $10,769 or 23.0% in the second quarter of 2015 compared to the same period in 2014.  International sales in the Aggregate and Mining Group decreased in Asia, China, Brazil and other South American countries, offset by increased sales in Canada and India.  International sales continue to be negatively impacted by the reduced customer demand for equipment in the mining sector and pricing issues in many foreign countries due to the strength of the U.S. dollar compared to certain local foreign currencies.  Parts sales for this group increased 15.4% for the second quarter of 2015 compared to the same period in 2014.

Energy Group: Sales in this group were $53,116 for the second quarter of 2015 compared to $51,980 for the same period in 2014, an increase of $1,136 or 2.2%.  Domestic sales for the Energy Group decreased $2,072 or 5.0% for the second quarter of 2015 compared to the same period in 2014 due primarily to a lack of demand for oil and gas related drilling rigs, double pumpers and heaters, and declines in sales of well drilling equipment and related parts.  International sales for the Energy Group increased $3,208 or 31.0% for the second quarter of 2015 compared to the same period in 2014 due primarily to increased sales of the Peterson wood chipping and grinding equipment offset by a reduction in oil and gas related drilling rig sales.  The increase in international sales occurred primarily in Australia, Russia and Africa, offset by a decrease in sales in Canada and the Middle East.  Parts sales for this group increased 4.9% for the second quarter of 2015 compared to the same period in 2014.

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Segment Net Sales-Six Months:

Infrastructure Group: Sales in this group were $251,143 for the first six months of 2015 compared to $217,376 for the same period in 2014, an increase of $33,767 or 15.5%.  Domestic sales for the Infrastructure Group increased $37,840 or 23.1% for the first six months of 2015 compared to the same period in 2014 with significant increases in both asphalt plant and mobile asphalt equipment as well as parts sales.  Due to the financing structure of the sales contract with the initial pellet plant customer, revenue will be recorded on this three line plant over the life of the financing arrangement beginning after the final plant performance testing is completed.  To date, no pellet plant revenue on this order has been recorded.  International sales for the Infrastructure Group decreased $4,073 or 7.6% for the first six months of 2015 compared to the same period in 2014 due primarily to decreased mobile asphalt equipment sales and decreased sales by the Company owned distributor in Australia. Sales decreased in Russia, Mexico, Australia and South America, offset by increased sales in Canada, Europe, the Middle East and Asia.  International sales continue to be negatively impacted due to the strength of the U.S. dollar compared to certain local foreign currencies.  Parts sales for the Infrastructure Group increased 16.2% for the first six months of 2015 compared to the same period in 2014 due primarily to improved sales of parts for asphalt plants.

Aggregate and Mining Group: Sales in this group were $205,241 for the first six months of 2015 compared to $199,799 for the same period in 2014, an increase of $5,442 or 2.7%.  Domestic sales for the Aggregate and Mining Group increased $12,598 or 10.7% for the first six months of 2015 compared to the same period in 2014.  The increase in sales resulted from increased sales of the Company's aggregate processing equipment. International sales for the Aggregate and Mining Group decreased $7,156 or 8.7% in the first six months of 2015 compared to the same period in 2014.  International sales in the Aggregate and Mining Group decreased in China, other Asian countries, Russia and Brazil and increased in Canada, India, Europe, South America and the Middle East.  International sales continue to be negatively impacted by the reduced customer demand for equipment in the mining sector.  Six month sales were favorably impacted by sales by the Company's Telestack subsidiary in Northern Ireland that was acquired in April 2014.  Parts sales for this group increased 6.8% for the first six months of 2015 compared to the same period in 2014.

Energy Group: Sales in this group were $100,407 for the first six months of 2015 compared to $98,754 for the same period in 2014, an increase of $1,653 or 1.7%.  Domestic sales for the Energy Group decreased $4,873 or 6.2% for the first six months of 2015 compared to the same period in 2014 due primarily to a lack of demand for oil and gas related drilling rigs, double pumpers and heaters as well as their related parts.  International sales for the Energy Group increased $6,526 or 32.4% for the first six months of 2015 compared to the same period in 2014 due primarily to increased sales of the Peterson wood chipping and grinding equipment in the Australian market  offset by a reduction in oil and gas related drilling rig sales.  The increase in international sales occurred primarily in Australia and Russia, offset by a decrease in sales in Canada, South America and Africa.  Parts sales for this group decreased 5.9% for the first six months of 2015 compared to the same period in 2014 due primarily to declines in the sale of parts into the oil and gas industries.

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Segment Profit (Loss)-Quarter:

Infrastructure Group: Segment profit for this group was $11,845 for the second quarter of 2015 compared to $11,808 for the same period in 2014, an increase of $37 or 0.3%.  This group had an increase in gross profits of $2,153 resulting from a 230 basis point increase in gross margins primarily due to improved overhead absorption in our asphalt plant production facilities that was largely offset by an increase of $2,404 in selling, general, administrative and engineering expenses (primarily related to computer installations, advertising and research and development expenditures).

Aggregate and Mining Group: Segment profit for this group was $10,056 for the second quarter of 2015 compared to $11,158 for the same period in 2014, a decrease of $1,102 or 9.9% which resulted from a decline in gross margins due to a $7,862 reduction in sales between periods and increased research and development expenses.

Energy Group: Segment profit for this group was $701 for the second quarter of 2015 compared to $2,946 for the second quarter of 2014, a decrease of $2,245 or 76.2%.  The impact of this group's $1,136 increase in sales was offset by a 310 basis point decline in gross margins, due mainly to costs associated with the closing of the Astec Underground Loudon, Tennessee facility in May 2015 and costs incurred at the Company's GEFCO, Inc. subsidiary (which is absorbing the Loudon product lines into its operations) to transfer the Loudon equipment and inventory to its facility.  Additionally this group's research and development expenses increased significantly between periods.

Corporate: The Corporate Group had a loss of $10,334 for the second quarter of 2015 compared to a loss of $11,323 for the second quarter of 2014, an improvement of $989 or 8.7% due primarily to a reduction in consolidated U.S. federal income taxes which are recorded in this group for all companies.

Segment Profit (Loss)-Six Months:

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Infrastructure Group: Segment profit for this group was $27,356 for the first six months of 2015 compared to $20,604 for the same period in 2014, an increase of $6,752 or 32.8% due primarily due to profits on a $33,667 increase in sales, offset by increased expenses related to sales commissions, computer installations and research and development.

Aggregate and Mining Group: Segment profit for this group was $21,650 for the first six months of 2015 compared to $20,259 for the same period in 2014, an increase of $1,391 or 6.9% due primarily to profits on a  $5,442 increase in sales. Reductions in selling expenses, primarily exhibit related, were offset by increased research and development expenses.

Energy Group: Segment profit for this group was $864 for the first six months of 2015 compared to $4,870 for the first six months of 2014, a decrease of $4,006 or 82.3%.  The increased profits due to this group's $1,653 sales increase between periods were offset by a 330 basis point reduction in gross margins and increased research and development expenses.  The 330 basis point reduction in margin between periods is due primarily to costs associated with the closing of the Astec Underground Loudon, Tennessee plant in May 2015 as well as additional costs incurred on the production of the first concrete plant produced by the Company's CEI subsidiary.

Corporate: The Corporate Group had a loss of $22,300 for the first six months of 2015 compared to a loss of $20,441 for the first six months of 2014, an increase in loss of $1,859 or 9.1%.  The increase in loss in the first six months of 2015 as compared to the first six months of 2014 is due primarily to increased U.S. consolidated federal income tax on higher consolidated earnings offset by $1,204 of income from key-man life insurance policies on the Company's Chairman (and former CEO) who passed away in March 2015.

Liquidity and Capital Resources

The Company's primary sources of liquidity and capital resources are its cash on hand, borrowing capacity under a $100,000 revolving credit facility and cash flows from operations. The Company had $16,353 of cash available for operating purposes as of June 30, 2015, of which $11,015 was held by the Company's foreign subsidiaries.  While the Company has no plans to transfer the cash held by its foreign subsidiaries to the U.S. in the foreseeable future, to the extent foreign earnings are eventually repatriated, such amounts may be subject to income tax liabilities, both in the U.S. and in various applicable foreign jurisdictions.  At June 30, 2015, the Company had no borrowings outstanding under its credit facilities with Wells Fargo Bank, N.A.  Net of letters of credit totaling $11,788, the Company had borrowing availability of $88,212 under the credit facility as of June 30, 2015.  During the six months ended June 30, 2015, the highest amount of outstanding borrowings at any time under the facility was $7,871.

The Wells Fargo credit facility is a five-year agreement that was entered into in April 2012.  The amended and restated credit agreement with Wells Fargo continued the Company's previous $100,000 revolving credit facility and includes a sub-limit for letters of credit of $25,000.  Borrowings under the agreement are subject to an interest rate equal to the daily one month LIBOR rate plus a 0.75% margin, resulting in a rate of 0.94% as of June 30, 2015.  Interest only payments are due monthly. The unused facility fee is 0.175%.  The amended and restated credit agreement contains certain financial covenants, including provisions concerning required levels of annual net income, minimum tangible net worth and maximum allowed capital expenditures.  The Company was in compliance with these covenants as of June 30, 2015.

The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd ("Osborn"), has a credit facility of $7,821 with a South African bank to finance short-term working capital needs, as well as to cover performance letters of credit, advance payment and retention guarantees. As of June 30, 2015, Osborn had $3,104 of outstanding borrowings and $871 in performance, advance payment and retention guarantees outstanding under the facility. The facility is unsecured and a 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of June 30, 2015, Osborn had available credit under the facility of $3,846. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 9.0% as of June 30, 2015.

The Company's Brazilian subsidiary, Astec do Brasil Fabricacao de Equipamentos Ltda. ("Astec Brazil"), has outstanding working capital loans totaling $6,937 from two Brazilian banks with interest rates ranging from 10.4% to 20.3%.  The loans' maturity dates range from December 2016 to April 2024 and are secured by Astec Brazil's manufacturing building and also letters of credit totaling $8,674 issued by Astec Industries, Inc.  Additionally, Astec Brazil has various 5-year equipment financing loans outstanding with another Brazilian bank in the aggregate of $1,981 as of June 30, 2015 that have interest rates ranging from 3.5% to 16.3%.  These equipment loans have maturity dates ranging from September 2018 to April 2020.

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Cash Flows from Operating Activities:

Net cash from operating activities increased by $1,340 for the first six months of 2015 as compared to the first six months of 2014 due primarily to less cash being used to finance changes in inventories of $18,527 and receivables of $13,074. These were offset by decreases associated with customer deposits of $16,861 and accounts payable of $14,929. Additionally, during the first six months of 2015, distributions totaling $2,595 were made from the Company's SERP to participants due to retirement or death.  The funds for the SERP distributions were acquired by selling the investments (both Company common stock and mutual funds) held in the SERP participant's SERP accounts.

Cash Flows from Investing Activities:

Net cash used by investing activities decreased by $22,594 for the first six months of 2015 as compared to the same period in 2014. The purchase of Telestack in April 2014, which was partially funded by the sale of a portion of the Company investments, was a significant one-time event that affected cash used from investing activities in 2014.

Total capital expenditures for 2015 are forecasted to be approximately $25,000. The Company expects to finance these expenditures using currently available cash balances, internally generated funds, available credit under the Company's credit facilities, as well as local financing for the equipment in the new Brazilian manufacturing facility. Capital expenditures are generally for machinery, equipment and facilities used by the Company in the production of its various products.  The Company believes that its current working capital, cash flows generated from future operations and available capacity under its credit facility will be sufficient to meet the Company's working capital and capital expenditure requirements through June 30, 2016.

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Cash Flows from Financing Activities:

Cash from financing activities decreased by $2,848 for the first six months of 2015 compared to the same period in 2014.  Major changes in financing activities between periods were driven by the contribution of capital to Astec Brazil in the first quarter of 2014 and the Company's purchase of shares of Osborn common stock from Osborn minority shareholders in 2015. Cash from financing activities was also impacted by a reduction in the amount of new loans needed to finance Astec Brazil's operations and capital expenditures, which were offset by the sale of Company stock held in participants' SERP accounts to fund SERP distributions in 2015.

Financial Condition

The Company's current assets increased to $566,737 as of June 30, 2015 from $553,191 as of December 31, 2014, an increase of $13,546 or 2.4%.  The increase is primarily attributable to increases in trade receivables of $10,897 and cash of $3,330.

The Company's current liabilities decreased to $144,883 as of June 30, 2015 as compared to $161,129 as of December 31, 2014, a decrease of $16,246 or 10.1%. The decrease is primarily due to decreases in customer deposits of 13,255 and accounts payable of $8,516, offset by an increase in short term debt of $2,652.

Market Risk and Risk Management Policies

We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2014.

Off-balance Sheet Arrangements

As of June 30, 2015, the Company does not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

Contractual Obligations

During the six months ended June 30, 2015, there were no substantial changes in the Company's commitments or contractual liabilities.

We have no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 31, 2014.

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The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The Company's management, under the supervision and with the participation of the Company's principal executive officer and principal financial officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.

There have been no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION

The Company is involved from time to time in legal actions arising in the ordinary course of its business. Other than as set forth in Part I, "Item 3. Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2014, we currently have no pending or threatened litigation that we believe will result in an outcome that would materially affect our business, financial position, cash flows or results of operations. Nevertheless, there can be no assurance that future litigation to which we become a party will not have a material adverse effect on our business, financial position, cash flows or results of operations.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results. There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2014.  The risks described in our Annual Report on Form 10-K for the year ended December 31, 2014 and in this Quarterly Report on Form 10-Q are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

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

* In accordance with Release No. 34-47551, this exhibit is hereby furnished to the SEC as an accompanying document and is not to be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended.

Items 2, 3, 4 and 5 are not applicable and have been omitted.

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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Exhibit 10.1

AMENDMENT TO "APPENDIX A" OF THE

ASTEC INDUSTRIES, INC.

THIS AMENDMENT to "Appendix A" of the Astec Industries, Inc. Supplemental Executive Retirement Plan, as amended and restated as of January 1, 2008 (the "Plan"), is adopted by Astec Industries, Inc. (the "Company"), effective as of July 23, 2015.

WHEREAS, Article 2 of the Plan permits the Board of Directors of the Company (the "Board") to designate participants in the Plan from time to time, whose names and effective dates of participation shall be set forth on Exhibit A to the Plan;

NOW, THEREFORE, the Company hereby amends "Appendix A" of the Plan in the form attached hereto, to update the same for changes in Plan participation approved by the Board, by action taken on July 23, 2015.

Except as amended herein, the Plan shall continue in full force and effect.

ASTEC INDUSTRIES, INC.

Name Steven C. Anderson

Title Secretary

 

 

 

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"APPENDIX A"

Each Participant's Date of Participation

Exhibit 31.1

Section 302 of the Sarbanes-Oxley Act of 2002

I, Benjamin G. Brock certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Astec Industries, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

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5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):