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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_______ to________
Commission file number 0-6234
ACMAT CORPORATION
Connecticut 06-0682460
(State of Incorporation) (I.R.S. Employer Identification No.)
233 Main Street, New Britain, Connecticut 06050-2350
(Address of principal executive offices)
Registrant's telephone number including area code: (860) 229-9000
NONE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares outstanding
Title of Class at April 30, 2004
- -------------- -----------------
Common Stock 545,329
Class A Stock 1,772,977
TABLE OF CONTENTS
PAGE
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidates Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Part II OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities 21
Item 4. Controls and Procedures 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures
Part I Financial Information
Item I Financial Statements
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2004 2003
----------- -----------
(Unaudited)
Assets
Investments:
Fixed maturities-available for sale at fair value (Cost of $52,986,854 in 2004
and $53,057,097 in 2003) $ 53,581,008 53,355,212
Equity securities, at fair value (Cost of $11,840,559 in 2004 and $10,240,559
in 2003) 12,288,244 10,541,515
Short-term investments, at cost which approximates fair value 20,560,343 760,872
------------ -----------
Total investments 86,429,595 64,657,599
Cash and cash equivalents 26,236,021 37,687,994
Accrued interest receivable 406,406 341,451
Receivables, net of allowance for doubtful accounts of $330,606 in 2004 and
$302,606 in 2003 3,498,373 2,222,971
Reinsurance recoverable:
Unpaid losses 3,889,281 4,376,220
Paid losses 2,242,379 2,327,436
Prepaid expenses 177,743 210,127
Income tax receivable 43,972 330,883
Deferred income taxes 2,056,919 2,155,028
Property & equipment, net 11,050,027 11,195,363
Deferred policy acquisition costs 1,590,962 1,639,325
Other assets 2,866,484 3,365,100
Intangibles 1,920,360 1,920,360
------------ -----------
142,408,522 132,429,857
============ ===========
Liabilities & Stockholders' Equity
Accounts payable 2,213,652 848,427
Reserves for losses and loss adjustment expenses 21,699,767 20,848,566
Unearned premiums 6,032,441 6,357,447
Collateral held 49,753,100 41,718,225
Accrued liabilities 1,693,454 1,467,721
Long-term debt 18,247,729 19,107,293
------------ -----------
Total liabilities 99,640,143 90,347,679
Stockholders' Equity:
Common Stock (No par value; 3,500,000 shares authorized; 547,329 and
549,355 shares issued and outstanding) 547,329 549,355
Class A Stock (No par value; 10,000,000 shares authorized; 1,741,679 and
1,742,705 shares issued and outstanding) 1,741,679 1,742,705
Retained earnings 39,924,392 39,438,778
Accumulated other comprehensive income 554,979 351,340
------------ -----------
Total stockholders' equity 42,768,379 42,082,178
------------ -----------
$142,408,522 132,429,857
============ ===========
See Notes to Unaudited Consolidated Financial Statements.
- 3 -
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings (Unaudited)
Three Months Ended March 31, 2004 and 2003
2004 2003
---------- ---------
Contract revenues $2,324,527 724,293
Earned premiums 3,399,584 2,259,803
Investment income, net 751,715 634,319
Net realized capital gains - 226,122
Other income 166,326 160,656
---------- ---------
6,642,152 4,005,193
---------- ---------
Cost of contract revenues 2,310,016 638,385
Losses and loss adjustment expenses 1,382,290 786,124
Amortization of policy acquisition costs 649,256 427,350
General and administrative expenses 1,250,424 1,294,877
Interest expense 234,358 287,380
---------- ---------
5,826,344 3,434,116
---------- ---------
Earnings before income taxes 815,808 571,077
Income taxes 296,484 193,490
---------- ---------
Net earnings $ 519,324 377,587
========== =========
Basic Earnings Per Share $ .23 $ .16
Diluted Earnings Per Share $ .22 $ .16
See Notes to Unaudited Consolidated Financial Statements.
- 4 -
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Unaudited)
March 31, 2004 and 2003
Accumulated
Common other Total
Stock par Class A Stock Retained comprehensive stockholders'
value par value earnings income (loss) equity
--------- ------------- ----------- ------------- -------------
Balance as of December 31, 2002 $ 553,355 1,756,405 37,972,590 571,358 40,853,708
Comprehensive income:
Net unrealized losses on debt and
equity securities, net of reclassification adjustment - - - (267,574) (267,574)
Net unrealized loss on derivatives qualifying as cash
flow hedges - - - (7,984) (7,984)
Net earnings - - 377,587 - 377,587
-----------
Total comprehensive income 102,029
Acquisition and retirement of 2,000 shares
of Common Stock (2,000) - (18,650) - (20,650)
Acquisition and retirement of 1,300 shares
of Class A Stock - (1,300) (11,310) - (12,610)
--------- --------- ----------- ----------- -----------
Balance as of March 31, 2003 $ 551,355 1,755,105 38,320,217 295,800 40,922,477
========= ========= =========== =========== ===========
Balance as of December 31, 2003 $ 549,355 1,742,705 39,438,778 351,340 42,082,178
Comprehensive income:
Net unrealized gains on debt and equity securities - - - 292,226 292,226
Net unrealized loss on derivatives qualifying as cash
flow hedges - - - (88,587) (88,587)
Net earnings - - 519,324 - 519,324
-----------
Total comprehensive income 722,963
Acquisition and retirement of 2,026 shares
of Common Stock (2,026) - (21,780) - (23,806)
Acquisition and retirement of 1,026 shares
of Class A Stock - (1,026) (11,930) - (12,956)
--------- --------- ----------- ----------- -----------
Balance as of March 31, 2004 $ 547,329 1,741,679 39,924,392 554,979 42,768,379
========= ========= =========== =========== ===========
See Notes to Unaudited Consolidated Financial Statements.
- 5 -
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2004 and 2003
2004 2003
------------ ------------
Cash flows from operating activities:
Net earnings $ 519,324 377,587
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 201,528 397,434
Net realized capital gains - (226,122)
Deferred income taxes 98,109 (70,576)
Changes in:
Accrued interest receivable (64,955) 104,685
Reinsurance recoverable 571,996 (1,779,651)
Receivables, net (1,275,402) 293,572
Deferred policy acquisition costs 48,363 (260,704)
Prepaid expenses and other assets 531,000 (375,378)
Accounts payable and accrued liabilities 1,502,371 (927,830)
Cash collateral held 8,034,875 2,320,089
Reserves for losses and loss adjustment expenses 851,201 630,133
Income taxes, net 136,372 228,819
Unearned premiums (325,006) 967,717
------------ ------------
Net cash provided by operating activities 10,829,776 1,679,775
------------ ------------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities-sold - 6,652,707
Fixed maturities-matured 5,628,318 16,573,669
Purchases of:
Fixed maturities (5,612,269) (15,521,706)
Equity securities (1,600,000) (2,500,000)
Short-term investments, (purchases) sales, net (19,799,471) (1,353,882)
Capital expenditures (2,000) (32,902)
------------ ------------
Net cash (used for) cash provided by investing activities (21,385,422) 3,817,886
------------ ------------
Cash flows from financing activities:
Repayments on long-term debt (859,564) (597,557)
Payments for acquisition & retirement of stock (36,763) (33,260)
------------ ------------
Net cash used for financing activities (896,327) (630,817)
------------ ------------
Net change in cash and cash equivalents (11,451,973) 4,866,844
Cash and cash equivalents at beginning of period 37,687,994 18,724,560
------------ ------------
Cash and cash equivalents at end of period $ 26,236,021 23,591,404
============ ============
See Notes to Unaudited Consolidated Financial Statements.
- 6 -
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Financial Statements
The consolidated financial statements include the accounts of ACMAT Corporation
("ACMAT" or the "Company") and its subsidiaries. The consolidated financial
statements have been prepared in conformity with accounting principles generally
accepted in the United States of America and are unaudited.
The interim financial information contained in this report has been prepared
from the books and records of the Company and its subsidiaries and reflects, in
the opinion of the management of the Company, all adjustments (consisting of
normal and recurring accruals) necessary to fairly present results of operations
for the periods indicated. All significant intercompany accounts and
transactions have been eliminated in consolidation.
These statements should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 2003. Certain reclassifications have been made to prior years
financial statements to conform to current year presentation.
(2) Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations for the three-month
periods ended March 31, 2004 and 2003.
Average
Shares Per-Share
Earnings Outstanding Amount
-------- ----------- ---------
2004:
Basic EPS:
Earnings available to stockholders $ 519,324 2,289,711 $ .23
Effect of Dilutive Securities:
Stock options --- 82,809
--------- ---------
Diluted EPS:
Earnings available to stockholders $ 519,324 2,372,520 $ .22
========= ========= =========
2003
Basic EPS:
Earnings available to stockholders $ 377,587 2,308,137 $ .16
Effect of Dilutive Securities:
Stock options --- 18,797
--------- ---------
Diluted EPS:
Earnings available to stockholders $ 377,587 2,326,934 $ .16
========= ========= =========
(3) Supplemental Cash Flow Information
Income tax paid during the three months ended March 31, 2004 and 2003 was
$62,002 and $35,247, respectively. Interest paid for the three months ended
March 31, 2004 and 2003 was $236,176 and $289,132, respectively.
- 7 -
(4) Comprehensive Income
The following table summarizes reclassification adjustments for other
comprehensive income (loss) and the related tax effects for the three months
ended March 31, 2004 and 2003:
2004 2003
-------- --------
Unrealized gains (losses) on investments:
Unrealized holding gain (loss) arising during period, net of income tax $292,226 (416,815)
Less reclassification adjustment for gains included in net income, net of income
tax expense of $76,881 for 2003 - 149,241
Unrealized loss on derivatives qualifying as hedges (88,587) (7,984)
-------- --------
Other comprehensive income (loss) $203,639 (275,558)
======== ========
(5) Stock-Based Compensation
In December, 2002, the FASB issued Statement of Financial Accounting Standards
No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" (FAS
148), an amendment to FASB Statement No. 123 "Accounting for Stock-Based
Compensation" (FAS 123). It amends the disclosure provisions of FAS 123 to
require prominent annual disclosure about the effects on reported net earnings
of stock-based compensation in the Summary of Significant Accounting Policies
and also requires disclosure about these effects in interim financial
statements. These provisions are effective for financial statements for fiscal
years ending after December 15, 2002. Accordingly, the Company has adopted the
applicable disclosure requirements of this statement for year-end reporting.
The Company accounts for stock options under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees", and related interpretations.
The stock options were awarded at an exercise price equal to the market value of
the underlying common stock on the date of the grant. Accordingly, there has
been no employee compensation cost recognized in earnings for the stock options.
FAS 123 provides an alternative to APB 25 whereby fair values may be ascribed to
options using a valuation model and amortized to compensation cost over the
vesting period of the options. The following tables illustrate the pro forma
effect on net earnings and earnings per share for each period indicated as
if the Company applied the fair value recognition provisions of FAS 123 to its
stock option program.
The pro forma fair value of stock-based compensation in the Company's Class A
Shares for the quarter ended March 31, 2004 and 2003 is as follows:
2004 2003
--------- ---------
Net earnings as reported $ 519,324 377,587
Add: Stock-based employee compensation reported in
net earnings, net of related tax effects - -
Deduct: Stock-based compensation expense determined
under fair value based method, net of related tax effects (37,083) (32,067)
--------- ---------
Net earnings, pro forma $ 482,241 345,520
========= =========
Earnings per share
Basic and diluted - as reported $.23/.22 .16/.16
Basic and diluted - pro forma $.21/.20 .15/.15
- 8 -
The significant assumptions used during the year in estimating the fair value on
the date of the grant for original options and reload options granted in 2004
were as follows:
2004
----
Expected life of stock options, in years 9
Expected volatility of ACMAT stock 44%
Risk-free interest rate 1.0
Expected annual dividend yield ---
Expected annual forfeiture rate ---
No options were granted in 2003.
(6) Investments
The Company's portfolio is comprised primarily of fixed maturity securities
rated AA or better by Standard and Poor's and includes mostly U.S. Treasuries
and tax-free municipal securities.
The Company makes investments in collateralized mortgage obligations (CMOs).
CMOs typically have high credit quality, offer good liquidity, and provide a
significant advantage in yield and total return compared to U.S. Treasury
securities. The Company's investment strategy is to purchase CMO tranches which
offer the most favorable return given the risks involved. One significant risk
evaluated is prepayment sensitivity. This drives the investment process to
generally favor prepayment protected CMO tranches including planned amortization
classes and last cash flow tranches. The Company does invest in other types of
CMO tranches if a careful assessment indicates a favorable risk/return tradeoff.
The Company does not purchase residual interests in CMOs.
Effective December 31, 2003, the Company adopted FASB Emerging Issues Task Force
(EITF) Issue 03-01, "The Meaning of Other-than-Temporary Impairment and Its
Application to Certain Investments (EITF 03-01). EITF 03-01 requires that
certain quantitative and qualitative disclosures be made for debt and marketable
equity securities classified as available for sale or held to maturity that are
impaired at the balance sheet date but for which an impairment has not been
recognized.
An investment in debt or equity security is impaired if its fair value falls
below its book value and the decline is considered to be other-than temporary.
Factors considered in determining whether a decline is other-than-temporary
include the length of time and the extent to which fair value has been below
cost, the financial condition and the near-term prospects of the issuer; and the
Company's ability and intent to hold the investment for a period of time
sufficient to allow for any anticipated recovery. Additionally, for certain
securitized financial assets with contractual cash flows (including asset backed
securities), EITF 99-20 requires the Company to periodically update its best
estimate of cash flows over the life of the security. If management determines
that the fair value of its securitized financial asset is less than its carrying
amount and there has been a decrease in the present value of the estimated cash
flows since the last revised estimate, considering both timing and amount, then
an other-than-temporary impairment charge is recognized. A debt security is
impaired if it is probable that the Company will not be able to collect all
amounts due under the security's contractual terms. Equity investments are
impaired when it becomes apparent that the Company will not recover its cost
over the expected holding period and consideration is given to the financial
condition of the issue. Further, for securities expected to be sold, an
other-than-temporary impairment charge is recognized if the Company does not
expect the fair value of a security to recover the cost prior to the expected
date of sale.
The Company's process for reviewing invested assets for impairments during any
quarter includes the following:
- Identification and evaluation of investments which have possible
indications of impairment;
- Analysis of investments with gross unrealized investment losses that
have fair value less than 80% of amortized cost during successive
quarterly periods over a rolling one-year period;
- Management review of for other-than-temporary impairments based on the
investee's current financial condition, liquidity, near term recovery
prospects and other factors, as well as consideration of other
investments that were not recommended for other-than-temporary
impairments;
- Consideration of evidential matter, including an evaluation of factors
or triggers that would or could cause individual investments to
qualify as having other-than-temporary impairment and those that would
not support other-than-temporary impairments;
- Determination of the status of each analyzed investment as
other-than-temporary or not.
- 9 -
The gross unrealized investment losses and related fair value for fixed
maturities and equity securities at March 31, 2004 were as follows:
Less than 12 months 12 months or longer Total
----------------------- ----------------------- -----------------------
Gross Gross Gross
Unrealized Unrealized Unrealized
Fair Value Loss Fair Value Loss Fair Value Loss
---------- ---------- ---------- ---------- ---------- ----------
Fixed maturities:
States, municipalities and political $ --- --- 548,425 319 548,425 319
subdivisions
United States government and
government agencies 1,985,620 14,380 --- --- 1,985,620 14,380
Mortgage-backed securities 2,060,000 6,118 2,434,563 64,694 4,494,563 70,812
Industrial and miscellaneous 3,773,564 26,436 1,967,500 32,500 5,741,064 58,936
---------- ---------- ---------- ---------- ---------- ----------
Total fixed maturities 7,819,184 46,934 4,950,488 97,513 12,769,672 144,447
Equity securities - common stocks: --- --- --- --- --- ---
Equity securities - redeemable preferred: --- --- 171,500 13,500 171,500 13,500
---------- ---------- ---------- ---------- ---------- ----------
Total equity 996,000 4,000 171,500 13,500 171,500 13,500
---------- ---------- ---------- ---------- ---------- ----------
Total temporarily impaired securities $7,819,184 46,934 5,121,988 111,013 12,941,172 157,947
========== ========== ========== ========== ========== ==========
Management has determined that the above unrealized losses were temporary.
- 10 -
(7) Accounting Changes
Consolidation of Variable Interest Entities
In December 2003, the FASB issued Revised Interpretation No. 46R, "Consolidation
of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46R separates entities into two groups: (1)
those for which voting interests are used to determine consolidation and (2)
those for which variable interests are used to determine consolidation. FIN 46R
clarifies how to identify a variable interest entity and how to determine when a
business enterprise should include the assets, liabilities, non-controlling
interests and results of activities of a variable interest entity in its
consolidated financial statements. FIN 46R was effective for public companies
that have VIEs or potential VIEs that are special-purpose entities for periods
ending after December 15, 2003. Application by public companies for all other
types of entities is required for periods ending after March 15, 2004.
The Company holds mortgage-backed and asset-backed securities which are
considered variable interest entities. The provisions of the new standard did
not impact the Company.
Hedging Instruments
In April 2003, the FASB issued Statement of Financial Standards No.149,
"Amendment of Statement 133 on Derivative Investments and Hedging Activities"
(FAS 149), which amends and clarifies the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under FAS 133. FAS 149 amends FAS 133 for decisions made as
part of the Derivatives Implementation Group process that effectively required
amendment to FAS 133. FAS 149 also clarifies under what circumstances a contract
with an initial net investment and purchases and sales of when-issued securities
that do not yet exist meet the characteristics of a derivative. In addition, it
clarifies when a derivative contains a Financing Component that warrants special
reporting in the statement of cash flows. FAS 149 is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of FAS 149 did not have an impact
on the Company's results of operations, financial condition or liquidity.
(8) Segment Reporting
The Company has three reportable operating segments: ACMAT Contracting, ACSTAR
Bonding and United Coastal Liability Insurance. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.
ACMAT Contracting provides construction contracting services to commercial and
governmental customers. ACMAT Contracting also provides underwriting services to
its insurance subsidiaries. In addition, ACMAT Contracting owns a commercial
office building in New Britain Connecticut and leases office space to its
insurance subsidiaries as well as to third parties.
The United Coastal Liability Insurance operating segment offers specific lines
of liability insurance as an approved non-admitted excess and surplus lines
insurer in forty-seven states, Puerto Rico, the Virgin Islands and the District
of Columbia. United Coastal offers claims made and occurrence policies for
specific specialty lines of liability insurance through certain excess and
surplus lines brokers who are licensed and regulated by the state insurance
department(s) in the state(s) in which they operate. United Coastal offers
general liability insurance for a wide range of commercial risks and provides
general, asbestos, lead, pollution and professional liability insurance
nationwide to specialty trade contractors, environmental contractors, property
owner, storage and treatment facilities and professionals. United Coastal also
offers products liability insurance to manufacturers and distributors.
The Bonding operating segment provides, primarily through ACSTAR, surety bonds
written for prime, specialty trade, environmental, asbestos and lead abatement
contractors and miscellaneous obligations. ACSTAR also offers commercial and
other miscellaneous surety such as workers' compensation bonds, supply bonds,
subdivision bonds and license and permit bonds.
- 11 -
The Company evaluates performance based on earnings before income taxes and
excluding interest expense. The Company accounts for intersegment revenue and
expenses as if the products/services were to third parties. Information relating
to the three segments for the three-month periods ended March 31, 2004 and 2003
is summarized as follows:
2004 2003
----------- -----------
Revenues:
ACSTAR Bonding $ 1,894,036 1,747,851
United Coastal Liability Insurance 2,163,732 1,399,415
ACMAT Contracting 3,129,664 1,412,151
----------- -----------
$ 7,187,432 4,559,417
=========== ===========
Operating Earnings (Loss):
ACSTAR Bonding $ 635,565 671,718
United Coastal Liability Insurance 564,859 435,049
ACMAT Contracting (150,258) (248,310)
----------- -----------
$ 1,050,166 858,457
=========== ===========
Depreciation and Amortization:
ACSTAR Bonding $ 56,414 130,025
United Coastal Liability Insurance 30,348 145,611
ACMAT Contracting 114,766 121,798
----------- -----------
$ 201,528 397,434
=========== ===========
March 31, 2004 December 31, 2003
-------------- -----------------
Identifiable Assets:
ACSTAR Bonding $ 84,407,839 73,704,644
United Coastal Liability Insurance 40,321,135 41,015,316
ACMAT Contracting 17,679,548 17,709,897
------------ ------------
$142,408,522 132,429,857
============ ============
The components of revenue for each segment for the three-month periods
ended March 31, 2004 and 2003 are as follows:
2004 2003
----------- -----------
ACSTAR Bonding:
Premiums $ 1,587,583 1,177,974
Investment income, net 340,231 323,486
Capital gains --- 180,145
Other income (expense) (33,778) 66,246
----------- -----------
$ 1,894,036 1,747,851
=========== ===========
United Coastal Liability Insurance:
Premiums $ 1,812,001 1,081,829
Investment income, net 345,181 265,915
Capital gains --- 45,977
Other 6,550 5,694
----------- -----------
$ 2,163,732 1,399,415
=========== ===========
ACMAT Contracting:
Contract revenues $ 2,324,527 724,293
Investment income, net 3,716 5,414
Intersegment revenue:
Rental income 178,702 178,702
Underwriting services and agency commissions 507,283 415,026
Other 115,436 88,716
----------- -----------
$ 3,129,664 1,412,151
=========== ===========
12
The following is a reconciliation of segment totals for revenue and operating
income to corresponding amounts in the Company's statement of earnings:
2004 2003
----------- -----------
Revenue:
Total revenue for reportable segments $ 7,187,432 4,559,417
Intersegment eliminations (545,280) (554,224)
----------- -----------
$ 6,642,152 4,005,193
=========== ===========
The adjustments and eliminations required to arrive at consolidated amounts
shown above consist principally of the elimination of the intersegment revenues
related to the performance of certain services and rental charges. Identifiable
assets are those assets that are used by each segment's operations.
2004 2003
----------- -----------
Operating Earnings:
Total operating earnings for reportable segments $ 1,050,166 858,457
Interest expense (234,358) (287,380)
----------- -----------
$ 815,808 571,077
=========== ===========
Operating earnings for ACMAT contracting are operating revenues less cost of
contract revenues and identifiable selling, general and administrative expenses.
Operating earnings for the bonding and liability insurance segments are revenues
less losses and loss adjustment expenses, amortization of policy acquisition
costs and identifiable general and administrative expenses.
13
ACMAT CORPORATION AND SUBSIDIARIES
Item 2: Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Management's discussion and analysis (MD&A) reviews our consolidated and segment
financial condition as of March 31, 2004 and 2003, our consolidated results of
operations for the periods ended March 31, 2004 and 2003 and where appropriate,
factors that may affect our future financial performance. The MD&A should be
read in conjunction with the consolidated financial statements of the Company
and related notes included in the Company's annual report on Form 10-K for the
year ended December 31, 2003.
Executive Summary
2004 Consolidated Results of Operations:
- - Net earnings of $519,324, or $.23 per share basic and $.22 per share
diluted.
- - Earned premiums increased 50% over prior year.
- - Favorable insurance premium rate environment.
- - Higher interest income and lower interest expense compared to the same
quarter last year.
- - Construction contract revenues increased significantly compared to the same
quarter last year.
2004 Financial Condition:
- - Total assets of $142.4 million, up $10 million from the prior year-end.
- - Total cash and invested assets of $112.6 million, up $10.3 million from the
prior year-end.
- - Stockholders' Equity of $42.8 million, up $.7 million from the prior
year-end.
- - Total debt reduced to $18.2 million from $19.1 million.
- - Cash flow provided from operations of $10.8 million, up from $1.7 million
CONSOLIDATED OVERVIEW
2004 2003
----------- ---------
Net Earnings $ 519,324 377,587
Basic Earnings Per Share $ .23 $ .16
Diluted Earnings Per Share $ .22 $ .16
The Company's discussions related to all items, other than net earnings, are
presented on a pretax basis, unless otherwise noted.
Net earnings were $519,324 or $.23 per share basic and $.22 per share diluted in
2004 compared to $377,587 or $.16 per share basic and $.16 per share diluted in
2003. The increase in net earnings for 2004 compared to 2003 is primarily due to
an increase in earned premiums and
14
investment income offset by a decrease in net realized capital gains in 2004.
Net earnings for 2004 reflected the continuing favorable rate environment.
Consolidated revenues were as follows:
2004 2003
---------- ----------
Contract revenues $2,324,527 724,293
Earned premium 3,399,584 2,259,803
Investment income 751,715 634,319
Net realized capital gains - 226,122
Other income 166,326 160,656
---------- ----------
Consolidated revenues $6,642,152 4,005,193
========== ==========
Total consolidated revenues increased $2,636,959 or 66% in 2004.
Contract revenues increased $1,600,234 or 221% in 2004 due primarily to the
timing of four large projects that were started in late 2003. Contract revenue
depends greatly on the successful securement of contracts bid and execution. The
backlog at March 31, 2004 was $7,350,000 compared to $9,680,000 at December 31,
2003.
Earned premiums increased $1,139,781 or 50% in 2004 due to a 23% increase in net
written premiums in ACSTAR Bonding primarily due to a growth in new business and
strong customer retention offset by a 22% decrease in 2004 net written premiums
in United Coastal liability insurance. Net written premiums for United Coastal
liability insurance business in 2004 decreased by 22% due to the non-renewal of
several large premium policies in 2004.
Investment income increased $117,396 or 19% in 2004 due primarily to higher
average invested assets resulting from strong cash flows from operations. The
increase was offset by a reduction in investment yields to 2.80% in 2004 from
2.86% in 2003. The decrease in yield reflected the lower interest rate
environment and the short duration of the Company's portfolio partially offset
by the reinvestment of proceeds from the sale of lower yielding tax-exempt
investments during 2003.
Net realized capital gains were $-0- in 2004 compared to $226,122 in 2003.
During 2003, the Company sold most of its tax-exempt investments in order to
accelerate the use of an alternative minimum tax credit carryforward generated
with the recognition of net life insurance proceeds in 2002 that were exempt for
income tax purposes.
Other income increased $5,670 or 4% in 2004. Other revenues consist primarily of
rental income and funds administration fees charged to bonding customers.
Consolidated expenses were as follows:
2004 2003
---------- ----------
Cost of contract revenues $2,310,016 638,385
Losses and loss adjustment expenses 1,382,290 786,124
Amortization of policy acquisition costs 649,256 427,350
General and Administrative expenses 1,250,424 1,294,877
Interest expense 234,358 287,380
---------- ----------
$5,826,344 3,434,116
========== ==========
Consolidated expenses increased $2,392,228 or 70% in 2004.
Cost of contract revenues increased $1,671,631 or 262% in 2004 primarily due to
the 221% increase in contract revenues in 2004 due to the timing of four large
projects that were started later in 2003. The gross profit margin on
construction projects was 0.6% in 2004 compared to a 13.5% in 2003. The gross
profit of the four-current projects was offset by costs associated with closing
out older projects. Gross margins fluctuate each year based upon the
profitability of specific projects.
Losses and loss adjustment expenses increased $596,166 or 76% in 2004 primarily
due to the 50% increase in earned premiums and an increase in current year
expected loss trends for liability insurance.
Amortization of policy acquisition costs increased $221,906 or 52% in 2004
primarily due to the increase in earned premiums offset in part by a decrease in
commissions rate.
General and administrative expenses decreased $44,453 or 3% in 2004 primarily
due to an decrease in salary expense and depreciation expense.
Interest expense decreased $53,022 or 18% in 2004 primarily due to the decrease
in long-term debt.
The Company's effective tax rate was 36.4% and 33.9% in 2004 and 2003,
respectively. The 2004 increase in the effective tax rate principally reflects
the elimination of tax-exempt investments during the first quarter of 2003.
Results of Operations by Segment:
The Company has three reportable operating segments: ACSTAR Bonding, United
Coastal Liability Insurance and ACMAT Contracting. The Company's reportable
segments are primarily the three main legal entities of the Company which offer
different products and services. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies. The
adjustments and eliminations required to arrive at consolidated amounts shown
above consist principally of the elimination of the intersegment revenues
related to the performance of certain services and rental charges.
Operating earnings for ACMAT contracting are operating revenues less cost of
contract revenues and identifiable general and administrative expenses.
Operating earnings for the bonding and liability insurance segments are revenues
less losses and loss adjustment expenses, amortization of policy acquisition
costs and identifiable general and administrative expenses.
ACSTAR BONDING:
2004 2003
---------- ----------
Operating Earnings $ 635,565 $ 671,718
---------- ----------
GAAP Combined Ratio 79.3% 91.4%
---------- ----------
Operating earnings for the ACSTAR Bonding segment decreased $36,153 or 5.4% in
2004. The operating earnings in 2004 benefited from an increase in earned
premiums and a 12 point improvement in the GAAP combined ratio in 2004.
ACSTAR Bonding revenues were as follows:
2004 2003
----------- -----------
Earned premium $ 1,587,583 1,177,974
Investment income 340,231 323,486
Net realized capital gains --- 180,145
Other income (expense) (33,778) 66,246
----------- -----------
$ 1,894,036 1,747,851
=========== ===========
Revenues increased $146,185 or 8.4% in 2004.
Earned premiums increased $409,609 or 35% in 2004 due to a 23% increase in net
written premiums primarily due to a growth in new business and strong customer
retention. ACSTAR continues to experience a significant increase in volume from
an increase in business opportunities that meet ACSTAR's underwriting standards.
Investment income increased $16,745 or 5% in 2004 despite higher average
invested assets resulting from strong cash flows from operations. The decline
resulted from a reduction in investment yields to 1.9% in 2004 from 2.5% in
2003. The decrease in yield reflected the lower interest rate environment and
the short duration of the Company's portfolio partially offset by the
reinvestment of proceeds from the sale of lower yielding tax-exempt investments
during 2003.
Net realized capital gains were $0 in 2004 compared to $180,145 in 2003. During
2003, the Company sold most of its tax-exempt investments in order to accelerate
the use of an alternative minimum tax credit carryforward generated with the
recognition of net life insurance proceeds by the parent company in 2002 that
were exempt for income tax purposes.
Other income (expense) relates primarily to fees related to funds administration
services. Funds administration fees charged to bonding customers for
administering payments to subcontractors and venders fluctuates depending on the
terms and conditions offered and accepted for the bonding programs each year.
ACSTAR Bonding expenses were as follows:
2004 2003
---------- ----------
Losses and loss adjustment expenses $ 476,290 353,392
Amortization of policy acquisition costs 494,549 432,168
General and administrative expenses 287,632 290,573
---------- ----------
$1,258,471 1,076,133
========== ==========
Expenses increased $182,338 or 17% in 2004.
Losses and loss adjustment expenses increased $122,898 or 35% in 2004 primarily
due to the increase in earned premiums from higher business volume.
Amortization of policy acquisition costs increased $62,381 or 14% in 2004
primarily due to the increase in earned premiums offset in part by a decrease in
commissions paid.
General and administrative expenses decreased $2,941 or 1% in 2004 primarily due
to a decrease in depreciation expense.
UNITED COASTAL LIABILITY INSURANCE:
2004 2003
------- ----------
Operating Earnings 564,859 $ 435,049
------- ----------
GAAP Combined Ratio 88.2% 89.1%
------- ----------
Operating earnings for the United Coastal Liability Insurance segment increased
$129,810 or 30% in 2004. The operating earnings in 2004 benefited from a 67%
increase in earned premiums and an increase in investment income.
United Coastal Liability Insurance revenues were as follows:
2004 2003
---------- ----------
Earned premium $1,812,001 1,081,829
Investment income 345,181 265,915
Net realized capital gains -0- 45,977
Other income 6,550 5,694
---------- ----------
$2,163,732 1,399,415
========== ==========
Revenues increased $764,317 or 55% in 2004.
Earned premiums increased $730,172 or 67% in 2004 due to a 73% increase in net
written premiums in 2003 offset in part by a 22% decrease in written premiums in
the first quarter of 2004 due to the non-renewal of several large premium
policies in 2004.
Investment income increased $79,266 or 30% in 2004 as a result of higher average
invested assets resulting from strong cash flows from operations and an
improvement in investment yields to 4.2% in 2004 from 3.0% in 2003.
Net realized capital gains were $0 in 2004 compared to $45,977 in 2003. During
2004, the Company sold most of its tax-exempt investments in order to accelerate
the use of an alternative minimum tax credit carryforward generated with the
recognition of net life insurance proceeds by the parent company in 2002 that
were exempt for income tax purposes.
United Coastal Liability Insurance expenses were as follows:
2004 2003
---------- ----------
Losses and loss adjustment expenses $ 906,000 432,732
Amortization of policy acquisition costs 446,076 293,713
General and administrative expenses 246,797 237,921
---------- ----------
$1,598,873 964,366
========== ==========
- 17 -
Expenses increased $634,507 or 66% in 2004.
Losses and loss adjustment expenses increased $473,218 or 110% in 2004 primarily
due to the 67% increase in earned premiums and an increase in current year
expected loss trends for liability insurance.
Amortization of policy acquisition costs increased $152,363 or 52% in 2004
primarily due to the 67% increase in earned premiums.
General and administrative expenses increased $8,876 or 4% in 2004 primarily due
to an increase in bad debt expense and salary expense offset in part by a
decrease in rental expense.
ACMAT CONTRACTING:
2004 2003
--------- ---------
Operating Earnings (Loss) $(150,258) $(248,310)
--------- ---------
Operating earnings (loss) for the ACMAT Contracting segment improved $98,052 or
39% in 2004.
ACMAT Contracting revenues were as follows:
2004 2003
---------- ----------
Contract revenues $2,324,527 724,293
Investment income, net 3,716 5,414
Inter-segment revenue:
Rental income 178,702 178,702
Underwriting services and agency commissions 507,283 415,026
Other income 115,436 88,716
---------- ----------
$3,129,664 1,412,151
========== ==========
Contract revenues increased $1,600,234 or 221% in 2004 due primarily to the
timing of four large projects that were started in late 2003. Contract revenue
depends greatly on the successful securement of contracts bid and execution. The
backlog at March 31, 2004 was $7,350,000 compared to $9,680,000 at December 31,
2003.
Inter-segment revenues consists primarily of rental income and underwriting
services fees and agency commissions. Underwriting services fees and agency
commissions increased $92,257 or 22% in 2004. Other income consists primarily of
rental income and varies depending on the timing of tenants and their leases.
Other income increased $26,720 or 30% in 2004.
ACMAT Contracting expenses were as follows:
2004 2003
---------- ----------
Cost of contract revenues $2,310,016 638,385
General and administrative expenses 969,906 1,022,026
---------- ----------
$3,279,922 1,660,411
========== ==========
Expenses increased $1,619,511 or 98% in 2004.
Cost of contract revenues increased $1,671,631 or 262% in 2004 primarily due to
the 221% increase in contract revenues in 2004 due to the timing of four large
projects that were started in late 2003. The gross profit margin on construction
projects was 0.6% in 2004 compared to 13.5% in 2003. The gross profit of the
four current projects was offset by costs associated with closing out older
projects. Gross margins fluctuate each year based upon the profitability of
specific projects.
General and administrative expenses decreased $52,120 or 5% in 2004 primarily
due to an decrease in salary expense and depreciation expense.
CRITICAL ACCOUNTING ESTIMATES
The Company considers its most significant accounting estimates to be those
applied to reserves for losses and loss adjustment expenses and revenue
recognition on construction projects using the percentage of completion method.
Reserves for losses and loss adjustment expenses were $21,699,767 at March 31,
2004. The Company maintains reserves to cover estimated ultimate unpaid
liability for losses and loss adjustment expenses with respect to both reported
and incurred but not reported claims for insured risks incurred as of the end of
each accounting period. The amount of loss reserves for reported claims is
primarily based upon a case-by-case evaluation of the type of risk involved,
knowledge of the circumstances surrounding each claim and the policy provisions
relating to the type of
18
claim. As part of the reserving process, historical data is reviewed and
consideration is given to the anticipated impact of various factors such as
legal developments and economic conditions, including the effects of inflation.
Reserves are monitored and evaluated periodically using current information on
reported claims. This is a critical accounting policy for the insurance
operations.
Management believes that the reserves for losses and loss adjustment expenses at
March 31, 2004 are adequate to cover the unpaid portion of the ultimate net cost
of losses and loss adjustment expenses, including losses incurred but not
reported. Reserves for losses and loss adjustment expenses are estimates at any
given point in time of what the Company may have to pay ultimately on incurred
losses, including related settlement costs based on facts and circumstances then
known. The Company also reviews its claims reporting patterns, past loss
experience, risk factors and current trends and considers their effect in the
determination of estimates of incurred but not reported reserves. Ultimate
losses and loss adjustment expenses are affected by many factors which are
difficult to predict, such as claim severity and frequency, inflation levels and
unexpected and unfavorable judicial rulings. Reserves for surety claims also
consider the amount of collateral held as well as the financial strength of the
principal and its indemnitors.
Revenue on construction contracts is recorded using the percentage of completion
method. Under this method revenues with respect to individual contracts are
recognized in the proportion that costs incurred to date relate to total
estimated costs. Revenues and cost estimates are subject to revision during the
terms of the contracts, and any required adjustments are made in the periods in
which the revisions become known. Provisions are made, where applicable, for the
entire amount of anticipated future losses on contracts in progress.
Construction claims are recorded as revenue at the time of settlement and profit
incentives and change orders are included in revenues when their realization is
reasonably assured. Selling, general and administrative expenses are not
allocated to contracts. This is a critical accounting policy for the ACMAT
construction segment.
LIQUIDITY AND CAPITAL RESOURCES:
The Company internally generates sufficient funds for its operations and
maintains a relatively high degree of liquidity in its investment portfolio. The
primary sources of funds to meet the demands of claim settlements and operating
expenses are premium collections, investment earnings and maturing investments.
The Company has no material commitments for capital expenditures and, in the
opinion of management, has adequate sources of liquidity to fund its operations
over the next 12 months.
ACMAT, exclusive of its subsidiaries, has incurred negative cash flows from
operating activities primarily because of interest expense related to long-term
debt incurred by ACMAT to acquire and capitalize its insurance subsidiaries and
to repurchase Company stock.
ACMAT's principal sources of funds are dividends from its wholly-owned
subsidiaries, insurance underwriting fees from its subsidiaries, construction
contracting operations and rental income. Management believes that these sources
of funds are adequate to service its indebtedness. ACMAT has relied on dividends
from its insurance subsidiaries to repay debt.
The Company had net cash inflows from operations of $10,829,776 for the
three-month period ended March 31, 2004 compared to $1,679,775 for the same
period in 2003. The cash flow from operations is due primarily to the increase
in cash collateral. The Company's cash flow was used to repay long-term debt,
repurchase stock and purchase short investments.
Net cash used for investing activities in the first quarter of 2004 amounted to
$21,385,422 compared to net cash provided by investing activities of $3,817,886
for the same period in 2003. Purchases of investments are made based upon excess
cash available after the payment of losses and loss adjustment expenses and
other expenses. The Company's short term investment strategy coincides with the
relatively short maturity of its liabilities which are comprised primarily of
reserves for losses covered by claims-made insurance policies, reserves related
to surety bonds and collateral held for surety obligations.
The terms of the Company's debt agreements contain limitations on payment of
cash dividends, re-acquisition of shares, borrowings and investments and require
maintenance of specified ratios and minimum net worth levels, including cross
default provisions. The payment of future cash dividends and the re-acquisition
of shares are restricted. The Company is in compliance with all covenants at
March 31, 2004, except for the ratio of Adjusted Cash Flow to the sum of
interest expense plus scheduled maturities of long-term debt. The Company
expects to be in compliance during 2004.
The Company maintains a short-term unsecured bank credit line totaling $10
million to fund interim cash requirements. There were no borrowings under this
line of credit as of March 31, 2004.
During the three-month period ended March 31, 2004, the Company purchased, in
the open market and privately negotiated transactions, 2,026 shares of its
Common Stock at an average price of $11.75 per share. In addition, the Company
purchased, in the open market and privately negotiated transactions, 1,026
shares of its Class A Stock at an average price of $12.63 per share during the
three-month period ended March 31, 2004.
The Company's principal source of cash for repayment of long-term debt is from
dividends from its two insurance companies. Under applicable insurance
regulations, ACMAT's insurance subsidiaries are restricted as to the amount of
dividends they may pay to their respective
19
holding companies, without the prior approval of their domestic state insurance
department. The amount of dividends ACMAT's insurance subsidiaries may pay,
without prior approval of their domestic state insurance departments, are
limited to approximately $3,920,000 in 2004.
REGULATORY ENVIRONMENT
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
require further regulatory action. The ratio for each of the Company's insurance
subsidiaries as of March 31, 2004 was above the level which might require
regulatory action.
CONTRACTUAL CASH OBLIGATIONS AND COMMITMENTS:
Contractual obligations at March 31, 2004 include the following:
Payment due by Period Total 2003 2004/2005 2006/2007 After 2006
- -------------------------- ----------- -------- ---------- ---------- ----------
Long-Term Debt (principal) $18,247,729 $858,804 $5,223,604 $5,217,451 $8,665,478
The Company also has cash collateral of $49,753,100 at March 31, 2004, which it
would be required to return at the end of expiration of applicable bond period
subject to any claims.
Forward-Looking Statement Disclosure and Certain Risks
This report contains certain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
are statements other than historical information or statements of current
condition. Words such as "expects", "anticipates", "intends", "plans",
"believes", "seeks", or "estimates", or variations of such words, and similar
expressions are intended to identify forward-looking statements.
In light of the risks and uncertainties inherent in future projections, many of
which are beyond our control, actual results could differ materially from those
in forward-looking statements. These statements should not be regarded as a
representation that anticipated events will occur or that expected objectives
will be achieved. Risks and uncertainties include, but are not limited to, the
following:
- - Changes in the demand for, pricing of, or supply of our products;
- - General economic conditions, including changes in interest rates and the
performance of financial markets;
- - Additional statement of earnings charges if our loss reserves are
insufficient;
- - The possibility that claims cost trends that we anticipate in our
businesses may not develop as we expect;
- - The possibility of downgrades in our ratings significantly adversely
affecting us, including, but not limited to, reducing the number of
insurance policies we write, generally, or causing clients who require an
insurer with a certain rating level to use higher-rated insurers;
- - The risk that our subsidiaries may be unable to pay dividends to us in
sufficient amounts to enable us to meet our obligations;
- - The cyclicality of the property-liability insurance industry causing
fluctuations in our results.
20
Part II - Other Information
Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
e. The following table provides information about purchases by the Company
during the quarter ended March 31, 2004 of equity securities that are registered
by the company pursuant to Section 12 of the Exchange Act.
ISSUER PURCHASE OF EQUITY SECURITIES
(a) (b) (c) (d)
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Total Number of Shares (or Units) Shares (or Units) that
Shares (or Units) Average Price Paid Purchased as Part of May Yet Be
Purchased (1) per Share (or Unit) Publicly Announced Purchased Under the
Period Common Class A Common Class A Plans or Programs (2) Plans or Programs (2)
- ----------------- ----------------- ------------------- -------------------- ----------------------
1/01/04 - 1/31/04 526 1,026 $11.75 $12.63 N/A N/A
2/01/04 - 2/29/04 1,500 -- $11.75 -- N/A N/A
3/01/04 - 3/31/04 -- -- -- -- N/A N/A
----- ------ ------ ------
TOTAL 2,026 1,026 $11.75 $12.63 N/A N/A
(1) During the three-month period ended March 31, 2004, the Company purchased,
in the open market and privately negotiated transactions, 2,026 shares of its
Common Stock at an average price of $11.75 per share. In addition, the Company
purchased, in the open market and privately negotiated transactions, 1,026
shares of its Class A Stock at an average price of $12.63 per share during the
three-month period ended March 31,2004.
(2) The Company does not have any stock repurchase plans or programs. Shares
were purchased in the open market and privately negotiated transactions and as a
result disclosure requirements in columns (c) and (d) are not applicable (N/A).
Item 4 - Controls and Procedures
The Company maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of our published financial
statements and other disclosures included in this report. Within the 90-day
period prior to the date of this report, we evaluated the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, our
Chief Executive Officer and our Principal Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to ACMAT Corporation (including its consolidated
subsidiaries) required to be included in this quarterly report on Form 10-Q.
There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date that we carried out our evaluation.
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits:
31.1 Certification of Chief Executive Officer as required by Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer as required by Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer, as required by Section
906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer, as required by Section
906 of the Sarbanes-Oxley Act of 2002
b. Report on Form 8-K - None
21
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ACMAT CORPORATION
Date: May 14, 2004 /s/ Henry W. Nozko, Jr.
-----------------------------------------
Henry W. Nozko, Jr., President, Chairman
Chief Executive Officer, and Treasurer
Date: May 14, 2004 /s/ Michael P. Cifone
-----------------------
Michael P. Cifone, Senior Vice President
(Principal Financial and
Accounting Officer)