Note 16.  Subsequent Event

In August 2016, the Company acquired substantially all of the assets and certain liabilities of Power Flame Incorporated ("PFI")  located in Parsons, Kansas.  The Company paid a purchase price of approximately $43,000, which is subject to certain post-closing adjustments, from available cash balances in early August 2016.  $5,000 of the purchase price will be held in escrow for up to two years pending the final resolution of any post-closing adjustments and indemnifications.  Approximately $75 of acquisition related costs have been expensed by the Company in the six-month period ended June 30, 2016.  The Company has not yet completed its allocation of the purchase price to the fair values of the various assets and liabilities acquired.  The Company does not expect PFI's revenues or profits to be material to the Company's 2016 operating results.

PFI, which began operations in 1948, manufactures and sells gas, oil and combination gas/oil burners and combustion control systems designed for commercial, industrial and process applications.

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Statements contained anywhere in this Quarterly Report on Form 10-Q that are not limited to historical information are considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are sometimes identified by the words "will," "would," "should," "could," "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 2016, the Company's expected capital expenditures in 2016, 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, 2017, 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, 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, 2015, should be carefully considered when evaluating the Company's business and future prospects.

O verview  

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

·   design, engineer, manufacture and market equipment that is used in each phase of road building, including quarrying and crushing the aggregate, mobile bulk and material handling solutions, producing asphalt or concrete, recycling old asphalt or concrete and applying the asphalt;

·   design, engineer, manufacture and market additional equipment and components, including equipment for geothermal drilling, oil and natural gas drilling, industrial heat transfer, wood chipping and grinding, and wood pellet processing; and

·   manufacture and sell replacement parts for equipment in each of its product lines.

Astec Industries, Inc. currently consists of 19 companies: 15 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, paver screeds and wood pellet plants. 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, foreign and domestic governmental agencies and wood pellet processors.

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 was transferred to the Company's GEFCO, Inc. subsidiary in Enid, Oklahoma. The Company sold the Loudon, Tennessee facility in October 2015.

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.

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

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.

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. Federal transportation funding operated on short-term appropriations until December 4, 2015 when the Fixing America's Surface Transportation Act ("FAST Act") was signed into law. The $305 billion FAST Act approved funding for highways of approximately $205 billion and transit projects of approximately $48 billion for the five-year period ending September 30, 2020. The Company believes multi-year highway programs (such as the FAST Act) have the greatest positive impact on the road construction industry and allow its customers to plan and execute longer-term projects, but given the inherent uncertainty in the political process, the level of governmental funding for federal highway projects will similarly continue to be uncertain. Governmental funding that is committed or earmarked for federal highway projects is always subject to repeal or reduction. Although continued funding under the FAST Act is expected, it may be at lower levels than originally approved. In addition, Congress could pass legislation in future sessions that would allow for the diversion of previously appropriated highway funds for other purposes, or it could restrict funding of infrastructure projects unless states comply with certain federal policies. The level of future federal highway construction is uncertain and any future funding may be at levels lower than those currently approved or that have been approved 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 2016 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 asphalt producers and road building 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 2015 or the first half of 2016. The Company expects oil prices to continue to fluctuate during the remainder of 2016 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, have suffered due to the recent reduction in the price of oil and 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 increased during the first half of 2016. Prices have stabilized in July 2016 and we expect prices to remain stable for the remainder of 2016. The Company continues to utilize forward-looking contracts coupled with advanced steel purchases to minimize the impact of future price increases.  The Company will review the trends in steel prices in the second half of 2016 and establish future contract pricing accordingly.

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 first half of 2016 has negatively impacted pricing and the Company's backlog at June 30, 2016 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 2016.

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, EBITDA as a percent of sales 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 2016 were $294,394 compared to $268,042 for the second quarter of 2015, an increase of $26,352 or 9.8%. Sales are generated primarily from new equipment and parts sales to domestic and international customers.  Increased sales of $36,379 in the Infrastructure Group and $256 in the Aggregate and Mining Group were offset by a decrease in sales of $10,283 in the Energy Group.  Domestic sales in the Infrastructure group continue to be positively impacted by effects of the long-term federal highway bill enacted in December 2015 and pellet plant sales; however, sales of the Company's other groups are being negatively impacted by low oil prices, the strong U.S. dollar and the continuing downturn in the mining sector.  Sales reported by the Company's foreign subsidiaries in U.S. dollars for the second quarter of 2016 would have been reported $3,436 higher had 2016 foreign exchange rates been the same as 2015 rates.

Net sales for the first six months of 2016 were $573,116 compared to $556,791 for the first six months of 2015, an increase of $16,325 or 2.9%. Sales are generated primarily from new equipment and parts sales to domestic and international customers.  Increased sales of $54,447 in the Infrastructure Group were offset by decreased sales of $13,668 in the Aggregate and Mining Group and $24,454 in the Energy Group.  Domestic sales in the Infrastructure group are continuing to be positively impacted by effects of the long-term federal highway bill enacted in December 2015 and pellet plant sales; however, sales of the Company's other groups are being negatively impacted by low oil prices, the strong U.S. dollar and the continuing downturn in the mining sector.  Sales reported by the Company's foreign subsidiaries in U.S. dollars for the first six months of 2016 would have been reported $7,493 higher had 2016 foreign exchange rates been the same as rates during 2015.

Domestic sales for the second quarter of 2016 were $242,211 or 82.3% of consolidated net sales compared to $194,620 or 72.6% of consolidated net sales for the second quarter of 2015, an increase of $47,591 or 24.5%. Domestic sales for the second quarter of 2016 as compared to the second quarter of 2015 increased $48,606 in the Infrastructure Group and $7,434 in the Aggregate and Mining Group, but decreased $8,449 in the Energy Group.

Domestic sales for the first six months of 2016 were $476,459 or 83.1% of consolidated net sales compared to $405,673 or 72.9% of consolidated net sales for the first six months of 2015, an increase of $70,786 or 17.4%. Domestic sales for the first six months of 2016 as compared to the first six months of 2015 increased $75,523 in the Infrastructure Group and $7,832 in the Aggregate and Mining Group, but decreased $12,569 in the Energy Group.

International sales for the second quarter of 2016 were $52,183 or 17.7% of consolidated net sales compared to $73,422 or 27.4% of consolidated net sales for the second quarter of 2015, a decrease of $21,239 or 28.9%. International sales decreased $12,227 in the Infrastructure Group, $7,178 in the Aggregate and Mining Group and $1,834 in the Energy Group.  The decreases in international sales occurred primarily in Canada, Russia, Europe, Africa, Australia, India, the Middle East, Brazil, Central America and Mexico, offset by small increases in sales in South America, Japan and China.  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, as well as low oil and gas pricing and the continuing downturn in the mining and oil and gas sectors.

International sales for the first six months of 2016 were $96,657 or 16.9% of consolidated net sales compared to $151,118 or 27.1% of consolidated net sales for the first six months of 2015, a decrease of $54,461 or 36.0%. International sales decreased $21,076 in the Infrastructure Group, $21,500 in the Aggregate and Mining Group and $11,885 in the Energy Group.  The decreases in international sales occurred primarily in Canada, Africa, Australia, the Middle East, Europe, Post-Soviet States, Russia, India, Brazil, Central America and South America, offset by small increases in sales in Japan and China.  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, as well as low oil and gas pricing and the continuing downturn in the mining and oil and gas sectors.

Parts sales for the second quarter of 2016 were $63,839 compared to $67,416 for the second quarter of 2015, a decrease of $3,577 or 5.3%.  Parts sales as a percentage of net sales decreased 350 basis points from 25.2% for the second quarter of 2015 to 21.7% for the second quarter of 2016.  Parts sales increased in the Infrastructure Group but decreased in the Aggregate and Mining Group and the Energy Group.

Parts sales for the first six months of 2016 were $137,892 compared to $140,505 for the first six months of 2015, a decrease of $2,613 or 1.9%.  Parts sales as a percentage of net sales decreased 110 basis points from 25.2% for the first six months of 2015 to 24.1% for the first six months of 2016.  Parts sales increased in the Infrastructure Group but decreased in the Aggregate and Mining Group and the Energy Group.

Gross Profit

Consolidated gross profit increased $11,219 or 18.0% to $73,452 for the second quarter of 2016 compared to $62,233 for the second quarter of 2015.  Gross profit as a percentage of sales increased 180 basis points to 25.0% for the second quarter of 2016 compared to 23.2% for the second quarter of 2015 partially due to improvements of $857 in gains/losses on foreign currency exchange transactions and decreases of $1,297 in payroll related benefits (primarily, health insurance costs).

Consolidated gross profit increased $17,129 or 13.4% to $145,408 for the first six months of 2016 compared to $128,279 for the first six months of 2015.  Gross profit as a percentage of sales increased 240 basis points to 25.4% for the first six months of 2016 compared to 23.0% for the first six months of 2015 partially due to improvements of $2,320 in gains/losses on foreign currency exchange transactions/translations, decreases of $1,995 in payroll related benefits (primarily health insurance costs) and a reduction in manufacturing utilities and supplies of $1,095.  Additionally, non-recurring expenses totaling $999 related to the closing of the Company's Astec Underground facility in Loudon, Tennessee and relocating the related equipment and inventory to the Company's GEFCO subsidiary were incurred in early 2015.

Selling, General, Administrative and Engineering Expenses

Selling, general, administrative and engineering expenses increased $1,653 or 3.8% to $44,961 for the second quarter of 2016 compared to $43,308 for the second quarter of 2015 due primarily to increased exhibit costs, profit sharing expense associated with improved earnings and SERP expense due to the impact of stock price increases on Company stock held by the SERP, offset by reduced health insurance and engineering expenses.

Selling, general, administrative and engineering expenses increased $1,654 or 1.9% to $88,766 for the first six months of 2016 compared to $87,112 for the first six months of 2015 due primarily to increased exhibit costs, profit sharing expense associated with improved earnings and SERP expense due to the impact of stock price increases on Company stock held by the SERP, offset by reduced health insurance and engineering expenses.

Interest Expense

Interest expense for the second quarter of 2016 decreased $94 to $326 from $420 for the second quarter of 2015.

Interest expense for the first six months of 2016 increased $76 to $793 from $717 for the first six months of 2015.

Other Income, Net of Expenses

Other income, net of expenses was $276 for the second quarter of 2016 compared to $273 for the second quarter of 2015, an increase of $3 or 1.1%.

Other income, net of expenses was $819 for the first six months of 2016 compared to $2,033 for the first six months of 2015, a decrease of $1,214 due primarily to $1,204 of key-man life insurance proceeds recorded in the first six months of 2015.

Income Tax Expense

The Company's combined effective income tax rate was 36.2% for the second quarter of 2016 compared to 37.9% for the second quarter of 2015.  The continuing high tax rate in each period is due primarily to the Company's inability to book tax benefits on losses in certain of the Company's foreign companies and increased state effective tax rates.  The tax rate for 2015 does not include a benefit for research and development tax credits as legislation extending the credit for 2015 was not enacted by Congress until the fourth quarter of 2015.

The Company's combined effective income tax rate was 36.8% for the first six months of 2016 compared to 37.4% for the first six months of 2015.  The continuing high tax rate in each period is due primarily to the Company's inability to book tax benefits on losses in certain of the Company's foreign companies and increased state effective tax rates. The tax rate for 2015 does not include a benefit for research and development tax credits as legislation extending the credit for 2015 was not enacted by Congress until the fourth quarter of 2015.

Net Income

The Company had net income attributable to controlling interest of $18,192 for the second quarter of 2016 compared to $11,805 for the second quarter of 2015, an increase of $6,387 or 54.1%. Net income attributable to controlling interest per diluted share was $0.79 for the second quarter of 2016 compared to $0.51 for the second quarter of 2015, an increase of $0.28.  Diluted shares outstanding for the quarters ended June 30, 2016 and 2015 were 23,135 and 23,119, respectively.

The Company had net income attributable to controlling interest of $35,935 for the first six months of 2016 compared to $26,909 for the first six months of 2015, an increase of $9,026 or 33.5%. Net income attributable to controlling interest per diluted share was $1.55 for the first six months of 2016 compared to $1.16 for the first six months of 2015, an increase of $0.39.  Diluted shares outstanding for the six-month periods ended June 30, 2016 and 2015 were 23,135 and 23,117, 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 2015 and the first two quarters of 2016.

Backlog

The backlog of orders as of June 30, 2016 was $364,459 compared to $229,474 as of June 30, 2015, an increase of $134,985 or 58.8%. Domestic backlogs increased $138,058 or 80.3% while international backlogs decreased $3,073 or 5.3%.  The June 30, 2016 backlog was comprised of 85.1% domestic orders and 14.9% international orders, as compared to 74.9% domestic orders and 25.1% international orders as of June 30, 2015.  Included in the June 30, 2016 backlog is approximately $60,000 for a three line pellet plant from one customer under a Company financed arrangement whereby the Company will record the related revenues when payment is received, which is expected in 2017.  Additionally, the Company received a $122,500 pellet plant order in the first quarter of 2016 of which approximately $84,000 is included in the June 30, 2016 backlog.  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.

Infrastructure Group : Sales in this group were $152,476 for the second quarter of 2016 compared to $116,097 for the same period in 2015, an increase of $36,379 or 31.3%.  Domestic sales for the Infrastructure Group increased $48,606 or 52.7% for the second quarter of 2016 compared to the same period in 2015 due primarily to increased sales of asphalt plants and mobile asphalt equipment (impacted by the passage of a new long-term Federal highway bill in December 2015) and pellet plant sales of $18,141 in the second quarter of 2016 (part of the $122,500 order discussed in the backlog section above).  International sales for the Infrastructure Group decreased $12,227 or 51.3% for the second quarter of 2016 compared to the same period in 2015 due primarily to reduced sales across most product lines resulting from the continued strength of the U.S. dollar compared to many local foreign currencies.  Sales decreases in Europe, Canada, Asia and South America were partially offset by a small increase in sales in China. Parts sales for the Infrastructure Group increased 8.0% for the second quarter of 2016 compared to the same period in 2015 due primarily to improved sales of parts for mobile asphalt equipment.

Aggregate and Mining Group : Sales in this group were $99,085 for the second quarter of 2016 compared to $98,829 for the same period in 2015, an increase of $256 or 0.3%.  Domestic sales for the Aggregate and Mining Group increased $7,434 or 11.8% for the second quarter of 2016 compared to the same period in 2015 due to small increases in domestic sales by each business unit in this group.  International sales for the Aggregate and Mining Group decreased $7,178 or 19.9% in the second quarter of 2016 compared to the same period in 2015.  International sales decreases in Canada, India, the Middle East, Africa and Brazil were partially offset by increased sales in Asia and South America.  Most of the Company's United States based business units experienced declines in international sales as they 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 many local foreign currencies.  The Company's subsidiaries based in South Africa and Northern Ireland experienced slight increases in international sales.  Parts sales for this group decreased 12.6% for the second quarter of 2016 compared to the same period in 2015 due primarily to reduced sales in the mining sector.

Energy Group : Sales in this group were $42,833 for the second quarter of 2016 compared to $53,116 for the same period in 2015, a decrease of $10,283 or 19.4%.  Domestic sales for the Energy Group decreased $8,449 or 21.4% for the second quarter of 2016 compared to the same period in 2015 due primarily to a lack of demand across most product lines impacted by the continuing low oil and gas prices, offset by sales increases in wood processing equipment.  International sales for the Energy Group decreased $1,834 or 13.5%. Sales decreases occurred in most foreign territories.  International sales continue to be negatively impacted due to the strength of the U.S. dollar compared to many local foreign currencies and continuing low oil and gas prices.  Parts sales for this group decreased 16.3% for the second quarter of 2016 compared to the same period in 2015 due primarily to reduced sales of parts for drilling rig equipment.

Segment Net Sales-Six Months :

Infrastructure Group : Sales in this group were $305,590 for the first six months of 2016 compared to $251,143 for the same period in 2015, an increase of $54,447 or 21.7%.  Domestic sales for the Infrastructure Group increased $75,523 or 37.4% for the first six months of 2016 compared to the same period in 2015 due primarily to increased sales of asphalt plants, mobile asphalt equipment (positively impacted by the passage of a new long-term Federal highway bill in December 2015) and pellet plant sales of $44,737 in the second quarter of 2016 (part of the $122,500 order discussed in the backlog section above).  International sales for the Infrastructure Group decreased $21,076 or 42.8% for the first six months of 2016 compared to the same period in 2015 due primarily to reduced sales across most product lines resulting from the continued strength of the U.S. dollar compared to many local foreign currencies.  Sales decreases in Canada, Europe, post-Soviet States, the Middle East, Asia, South America and Africa were partially offset by a small increase in sales in China. Parts sales for the Infrastructure Group increased 8.8% for the first six months of 2016 compared to the same period in 2015 due primarily to improved sales of parts for mobile asphalt equipment and asphalt plants.

Aggregate and Mining Group : Sales in this group were $191,573 for the first six months of 2016 compared to $205,241 for the same period in 2015, a decrease of $13,668 or 6.7%.  Domestic sales for the Aggregate and Mining Group increased $7,832 or 6.0% for the first six months of 2016 compared to the same period in 2015 due primarily to increased sales of aggregate processing equipment into the U.S. market.  International sales for the Aggregate and Mining Group decreased $21,500 or 28.6% in the first six months of 2016 compared to the same period in 2015.  International sales decreases in Africa, Canada, South America, the Middle East, India, Brazil, Central America and Europe were partially offset by increased sales in Japan and other Asian countries.  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 many local foreign currencies.  Parts sales for this group decreased 10.5% for the first six months of 2016 compared to the same period in 2015 due primarily to reduced sales into the international mining sector.

Energy Group : Sales in this group were $75,953 for the first six months of 2016 compared to $100,407 for the same period in 2015, a decrease of $24,454 or 24.4%.  Domestic sales for the Energy Group decreased $12,569 or 17.0% for the first six months of 2016 compared to the same period in 2015 due primarily to a lack of demand across most product lines impacted by the continuing low oil and gas prices, offset by sales increases in wood processing equipment.  International sales for the Energy Group decreased $11,885 or 44.6%. International sales decreases in Australia, Russia, the Middle East and Africa were partially offset by increased sales in South America and Canada. International sales continue to be negatively impacted due to the strength of the U.S. dollar compared to many local foreign currencies and continuing low oil and gas prices.  Parts sales for this group decreased 11.7% for the first six months of 2016 compared to the same period in 2015 due primarily to reduced sales of parts for drilling rig equipment.

Segment Profit   (Loss)-Quarter :

Infrastructure Group : Segment profit for this group was $19,673 for the second quarter of 2016 compared to $11,845 for the same period in 2015, an increase of $7,828 or 66.1%.  This group had an increase in gross profit of $9,341 resulting from gross profits on the increase in sales of $36,379 described above while gross margins remained relatively constant.   The increase in gross profit was partially offset by a $706 increase in state and foreign income taxes  due to higher earnings and increased selling expenses of $459.

Aggregate and Mining Group : Segment profit for this group was $10,947 for the second quarter of 2016 compared to $10,056 for the same period in 2015, an increase of $891 or 8.9%.  This increase in profit primarily resulted from an increase of $1,156 in gross profit due to a 110 basis points increase in gross margins on relatively flat sales.  The improvement in gross margins is partially a result of improved gains/losses on foreign currency exchange transactions of $857 and decreased payroll related benefits, primarily health insurance, of $521.   Segment profit for this group was also negatively impacted by a $214 increase in selling, general and administrative and engineering expenses.

Energy Group : Segment profit for this group was $2,626 for the second quarter of 2016 compared to $701 for the second quarter of 2015, an increase of $1,925 or 274.6%.  Profit for the segment was positively impacted by a $516 increase in gross profit due to a 570 basis points increase in gross margins.  Margins were positively impacted by a $1,450 improvement in manufacturing overhead absorption variances between periods and a $474 reduction in direct labor (partially as a result of closing the Astec Underground facility in Loudon, Tennessee in the second quarter of 2015).  Additionally, margins for the quarter ended June 30, 2015 were negatively impacted by the one-time costs incurred at the Company's GEFCO subsidiary to absorb the Loudon production lines into its operations and to transfer the Louden equipment and inventory to its facility (resulting in the Group's second quarter 2015 margins being 310 basis points below the margins in the second quarter of 2014).  Net segment profits were further improved by declines in selling expenses of $322, general and administrative expenses of $438 (primarily major repairs) and engineering expenses of $641 (primarily research and development expenses).

Corporate : The Corporate Group had a loss of $14,912 for the second quarter of 2016 compared to a loss of $10,334 for the second quarter of 2015, an unfavorable increase of $4,578 or 44.3% due primarily to an increase of $2,245 in income taxes related to improved consolidated profits, increased profit sharing expense of $1,262 and increased SERP expense of $687 (due primarily to the increase in the Company's stock price).

Segment Profit   (Loss)-Six Months :

Infrastructure Group : Segment profit for this group was $41,536 for the first six months of 2016 compared to $27,356 for the same period in 2015, an increase of $14,180 or 51.8%.  This group had an increase in gross profit of $18,232 resulting from gross profits on the increased sales between periods of $54,447 described above and a 180 basis point increase in gross margins.  Margins were favorably impacted by a $1,025 improvement in the group's manufacturing overhead absorption variances between periods, margins on an 8.8% increase in parts sales, and increased sales of equipment with higher than average margins.   The increase in gross profit was partially offset by a $1,514 increase in state and foreign income taxes on the improved profits and increased selling expenses of $1,790, primarily due to increased exhibit and sales promotion costs and bad debt expense.

Aggregate and Mining Group : Segment profit for this group was $20,485 for the first six months of 2016 compared to $21,650 for the same period in 2015, a decrease of $1,165 or 5.4%.  This decrease in profit primarily resulted from a $13,668 reduction in sales between periods offset by a 200 basis points increase in gross margins resulting in a $332 net increase in gross profits.  The improvement in gross margins is partially a result of a decline in warranty expense of $1,079, improved foreign exchange translation/transaction gains/losses of $1,437 and a reduction in factory indirect wages of $674 .  Segment profit for this group was also negatively impacted by a $587 change in the elimination of intercompany profits; increased selling expenses of $146, and increased general and administrative expenses of $298 (primarily bad debt expense).

Energy Group : Segment profit for this group was $2,433 for the first six months of 2016 compared to  $864 for the first six months of 2015, an increase $1,569 or 181.6%.  Profit for the segment was negatively impacted by a $1,521 reduction in gross profit resulting from a $24,454 decline in sales between periods partially offset by a 420 basis point increase in gross margin.  Gross margins were positively impacted by a reduction in unabsorbed overhead as a result of closing the Astec Underground facility in Loudon, Tennessee in the first six months of 2015.  Additionally, margins for the quarter ended June 30, 2015 were negatively impacted by the one-time costs incurred at the Company's GEFCO subsidiary to absorb the Loudon production lines into its operations and to transfer the Loudon equipment and inventory to its facility (resulting in the Group's second quarter 2015 margins being 330 basis points below the margins in the second quarter of 2014).  Margins were also impacted by a reduction in total direct and indirect labor and benefits of $2,928 between periods as well as a decline in warranty expense of $1,307. The lower gross profits were offset by a $1,177 reduction in selling expenses (primarily sales promotions and outside services);  a $872 reduction in general and administrative expenses (primarily personnel and repairs and maintenance costs); and a $632 reduction in engineering costs (primarily research and development) between periods.

Corporate : The Corporate Group had a loss of $29,137 for the first six months of 2016 compared to a loss of $22,300 for the first six months of 2015, an unfavorable increase of $6,837 or 30.7% due to an increase of $3,501 in income taxes related to improved consolidated profits; a reduction of $1,204 of income from key-man life insurance; an increase of $1,556 in profit sharing expenses; and a $674 increase in SERP expense (due to the increase in the Company's stock price).

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 $68,473 of cash available for operating purposes as of June 30, 2016, of which $12,457 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, 2016 and at all times during the first six months of 2016, the Company had no borrowings outstanding under its credit facilities with Wells Fargo Bank, N.A. Net of letters of credit totaling $17,158, the Company had borrowing availability of $82,842 under the credit facility as of June 30, 2016.

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 1.22% as of June 30, 2016.  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, 2016.

The Company's South African subsidiary, Osborn Engineered Products SA (Pty) Ltd ("Osborn"), has a credit facility of $6,430 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, 2016, Osborn had overdraft protection coverage of $127 and $2,186 in performance, advance payment and retention guarantees outstanding under the facility. The facility has been guaranteed by Astec Industries, Inc., but is otherwise unsecured. A 0.75% unused facility fee is charged if less than 50% of the facility is utilized. As of June 30, 2016, Osborn had available credit under the facility of $4,116. The interest rate is 0.25% less than the South Africa prime rate, resulting in a rate of 10.5% as of June 30, 2016.

The Company's Brazilian subsidiary, Astec Brazil, has outstanding working capital loans totaling $9,180 from Brazilian banks with interest rates ranging from 10.4% to 20.8%.  The loans' maturity dates range from December 2016 to April 2024 and the debts are secured by Astec Brazil's manufacturing facility.  Additionally, Astec Brazil has various 5-year equipment financing loans outstanding with Brazilian banks in the aggregate of $1,446 as of June 30, 2016 that have interest rates ranging from 3.5% to 16.3%.  These equipment loans have maturity dates ranging from September 2018 to April 2020.  A portion of the Astec Brazil debt is also secured by letters of credit totaling $11,874 issued by Astec Industries, Inc.