covenant for the fourth quarter of 2002; provided additional security to the lenders in the form of real estate mortgages on certain of the Company’s property; and waived the violations of financial ratios for the quarter ended September 30, 2002. At December 31, 2002, the Company was not in compliance with the consolidated total debt coverage covenant and the fixed charge coverage covenant of the note purchase agreements. On March 31, 2003, the Company entered into a fifth amendment to the note purchase agreement, which among other things, waived non-compliance with certain financial ratio covenants for the quarter ended December 31, 2002 and March 31, 2003; amended existing financial ratio covenants with which the Company was not in compliance as of December 31, 2002; added an excess cash-flow sweep that requires the funding of a $23,720,000 collateral account by May 31, 2003 with the amount of the collateral account increasing each month until its reaches $52,230,000 by December 31, 2003; limits fixed asset expenditures to certain agreed upon limits; and prohibits the Company from making additional loans to its customers for the purchase of equipment or entering into to equipment leases with its customers without the consent of the lenders. The Company intends to enter into a new credit facility in order to refinance the obligations under the senior secured note and the existing credit agreement and is currently in active negotiations with potential lenders regarding such a facility. If the Company repays the senior secured note before September 10, 2011, it will incur additional pre-payments fees. In the event the Company does not enter into a new credit facility, management believes the Company will remain in compliance with the amended covenants during 2003, however, no assurances can be provided that financial ratio covenant violations under the Note Purchase Agreement will not occur in the future or, if such violations occur, that the note holders will not elect to pursue their contractual remedies under the Note Purchase Agreement, including requiring the immediate repayment in full of all amounts outstanding. There can also be no assurance that the Company can secure adequate or timely replacement refinancing to repay its note holders in the event of an unanticipated repayment demand. The Company entered into a security agreement dated May 13, 2002 in order to comply with the terms of the credit agreement and the note purchase agreement. The Trigger Date, as defined in the credit agreement and the note purchase agreement, occurred on March 31, 2002, requiring the Company to secure its credit facility and the senior note with its inventory, machinery and equipment, and trade receivables. Capital expenditures in 2003, budgeted at a maintenance level, are expected to be approximately $7,288,000. The Company expects to finance these expenditures using the available capacity under the Company’s revolv- ing credit facility and internally generated funds. Capital expenditures (excluding those for equipment leased to others) for 2002 were $19,274,000, compared to $8,057,000 in 2001. Capital expenditures for 2002 included the purchase of the Loudon, Tennessee facility, machinery and equipment for approximately $12,800,000. The Company believes that its current working capital, cash flows generated from future operations and avail- able capacity remaining under its credit facility will be sufficient to meet the Company’s working capital and capital expenditure requirements through December 31, 2003. The Company is exposed to changes in interest rates, primarily from its revolving credit agreements and industrial revenue bonds. Under its current policies, the Company uses interest rate derivative instruments to manage expo- sure to interest rate changes for a portion of its debt arrangements. Taking into account the effects of interest rate derivatives designated as hedges, a hypothetical 100 basis point adverse move (increase) in interest rates would have adversely affected interest expense by approximately $436,000 for the year ended December 31, 2002. The Company’s earnings and cash flows are also subject to fluctuations due to changes in foreign currency exchange rates; however, these fluctuations would not be significant to the Company’s consolidated operations. Management has reviewed all claims and lawsuits and, upon the advice of counsel, has made adequate provi- sion for any estimable losses. However, the Company is unable to predict the ultimate outcome of the out- standing claims and lawsuits. Certain customers have financed purchases of the Company’s products through arrangements in which the Company is contingently liable for customer debt and residual value guarantees aggregating $14,749,000 and $12,137,000 at December 31, 2002 and 2001, respectively. These obligations average three years in duration Contingencies Market Risk and Risk Management Policies MANAGEMENT’S DISCUSSION AND ANALYSIS  (CONTINUED)