NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2002, 2001 and 2000 Basis of Presentation  - The consolidated financial statements include the accounts of Astec Industries, Inc. and its subsidiaries. The Company’s wholly-owned and consolidated subsidiaries at December 31, 2002 are as follows: 1. Summary of Significant Accounting Policies American Augers, Inc. Astec, Inc. Astec Financial Services, Inc. Astec Insurance Company Astec Systems, Inc. Breaker Technology, Inc. Breaker Technology Ltd. Carlson Paving Products, Inc. CEI Enterprises, Inc. Heatec, Inc. Johnson Crushers International, Inc. Kolberg-Pioneer, Inc. Osborn Engineered Products SA (Pty) Ltd. (91%) Production Engineered Products, Inc. Roadtec, Inc. Superior Industries of Morris, Inc. Telsmith, Inc. Trencor, Inc. All significant intercompany transactions have been eliminated in consolidation. Until December 31, 2001, the Company’s investment in a 50% owned joint venture, Pavement Technology, Inc., was accounted for on an equity basis. On December 31, 2001, the Company acquired the remaining 50% inter- est in Pavement Technology, Inc. and merged it into Astec, Inc. Use of Estimates  - The preparation of the financial statements in conformity with accounting principles general- ly accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Cash Equivalents - The Company considers all highly liquid instruments purchased with a maturity of less than three months to be cash equivalents. Inventories - Inventories (excluding used equipment) are stated at the lower of first-in, first-out cost or market. Used equipment inventories are stated at the lower of specific unit cost or market. Property and Equipment  - Property and equipment is stated at cost. Depreciation is calculated for financial reporting purposes using the straight-line method based on the estimated useful lives of the assets as follows: buildings (40 years) and equipment (3 to 10 years). Both accelerated and straight-line methods are used for tax reporting purposes. Goodwill - Goodwill represents the excess of cost over the fair value of net identifiable assets acquired. Goodwill amounts were amortized using the straight-line method over 20 years through 2001. Effective January 1, 2002, goodwill is no longer being amortized in accordance with Statement of Financial Accounting  Standards No. 142 (SFAS 142) “Goodwill and Other Intangible Assets,” but will be tested for impairment at least annually. Accumulated goodwill amortization was approximately $7,258,000 at December 31, 2002 and 2001. Impairment of Long-lived Assets - In the event that facts and circumstances indicate that the carrying amounts of long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evalua- tion is required, the estimated future undiscounted cash flows associated with the asset would be compared to the carrying amount for each asset to determine if a writedown is required. If this review indicates that the assets will not be recoverable, the carrying value of the Company’s assets would be reduced to their estimated market value. Revenue Recognition - A portion of the Company’s equipment sales represents equipment produced in the Company’s plants under short-term contracts for a specific customer project or equipment designed to meet a customer’s specific requirements. Equipment revenues are recognized in compliance with the terms and condi- tions of each contract, which is ordinarily at the time the equipment is shipped. Certain contracts include terms and conditions through which the Company recognizes revenues upon completion of equipment production, which is subsequently stored at the Company’s plant at the customer’s request. Revenue is recorded on such contracts upon the customer’s assumption of title and all risks of ownership. The Company has a limited num-