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## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

On September 10, 2001, the Company and Astec Financial Services entered into a $125,000,000 revolving credit facility with a syndicate of banks that expires on September 10, 2004 and an $80,000,000 note purchase agreement for senior secured notes, placed with private institutions. The Company did not meet certain financial covenants under the revolving credit facility and note agreement for each of the first three quarters during 2002. The Company obtained waivers and amendments for each of these violations which ultimately resulted in the Company granting a security interest in its inventory, machinery and equipment, and trade receivables to the banks and note holders, and reducing the maximum commitment available under the credit facility to $58,200,000. Approximately $21,300,000 of the revolving credit facility at December 31, 2002 was supporting outstanding letters of credit, primarily for industrial development revenue bonds. Advances to Astec Financial under the credit facility are limited to eligible receivables as defined in the agreement. 

Amounts outstanding under the credit facility bear interest, at the Company’s option, at a rate from prime to prime plus .875% or from 1.0% to 1.875% above the London Interbank Offering Rate. The interest rate applied to borrowings is based on a leverage ratio, calculated quarterly, as defined by the credit agreement. As a result of covenant violations during 2002, the Company paid interest rate surcharges from .375% to 1.375% above the rates in the credit agreement and senior secured note agreement. Both the credit agreement and the senior secured note agreement contain certain restrictive covenants relative to operating ratios and capital expenditures and also restrict the payment of dividends. 

The Company was not in compliance with certain covenants of the revolving credit facility and the senior note agreement as of December 31, 2002 and March 31, 2003. On March 31, 2003 the Company entered into an amendment to the credit facility and note purchase agreement, which waived the violations of the financial covenants as of December 31, 2002 and March 31, 2003. The amendment increased the maximum commit- ment available under the amended credit facility to $60,700,000; amended the financial ratio covenants prospec- tively; added additional operating ratio covenants; requires the funding of a collateral account; restricts the aggre- gate amount of recourse obligations; prohibits the Company from making additional loans to its customers for the purchase of equipment or entering into equipment leases with its customers; and, if the credit agreement and notes are not paid in full by April 15, 2003, grants additional security interests in all of the Company’s real and intellectual property and any other asset of the Company with a book value greater than $500,000. Under the terms of the note purchase agreement, if the Company repays the senior note before September 10, 2011, it will incur pre-payment fees. Management believes the Company will remain in compliance with the amended covenants under the credit facility and the senior secured notes throughout 2003. 

The aggregate of all maturities of long-term debt in each of the next five years is as follows: 

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For 2002, the weighted average interest rate on short-term borrowings, which includes current maturities of Industrial Revenue Bonds, was 3.84%. 

## 9. Product Warranty Reserves 

Changes in the Company’s product liability during the year are as follows: 

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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. The Company estimates the costs that may be incurred under its warranties and records a liability at the time product sales are recorded. The warranty liability is primarily based on historical claim rates, nature of claims and the associated cost. 

