Interest expense was $1,928,084 in 2002, $2,723,052 in 2001 and $2,982,824 in 2000. The decrease in interest expense is due to the decrease in long-term debt and the replacement of high interest bearing debt with lower interest bearing debt during 2002.
Earned premiums were $3,570,542 in 2002, $3,772,539 in 2001 and $4,183,439 in 2000. The decrease in 2002 earned premiums compared to 2001 reflects the change and timing of premiums written in 2002. The decrease in 2001 earned premiums compared to 2000 reflects the 19% decrease in 2001 net written premiums compared to 2000.
Operating losses for the ACMAT Contracting segment were $2,690,427 in 2002 compared to operating earnings of $912,376 in 2001 and $1,111,731 in 2000. The 2002 operating loss is due primarily to additional remediation expenses incurred on a construction project that significantly exceeded the original estimate and cost overruns on several other projects. The decrease in 2001 operating earnings compared to 2000 operating earnings is due primarily to a decrease in funds control income and lower gross profit on contracts in 2001
The combined ratio is one means of measuring the underwriting experience of a property and casualty insurer. The combined ratio, consisting of the ratio of losses and loss adjustment expenses to premiums earned (the "loss ratio") plus the ratio of underwriting expenses to premiums written (the "expense ratio") reflects relative underwriting profit or loss. The Company's insurance subsidiaries' loss ratios under generally accepted accounting principles ("GAAP") were 53.8%, 20.3% and 16.4% for the years ended December 31, 2002, 2001 and 2000, respectively. The increase in losses and loss adjustment expenses is attributable to two large losses reported in current year of $2.2 million. In addition, prior year favorable development is significantly lower due to actual loss experience being closer to estimates. The Company's insurance subsidiaries' expense ratios under GAAP were 64.1%, 69.3% and 58.9% for the years ended December 31, 2002, 2001 and 2000, respectively. The decrease in the 2002 expense ratio results primarily from the decrease in commissions paid and one-time rental income recovered from an affiliate. The increase in the 2001 expense ratios compared to 2000 is due to the decline in premiums. The Company's insurance subsidiaries' combined ratios under GAAP were 117.9%, 89.6% and 75.3% for the years ended December 31, 2002, 2001 and 2000, respectively.
During 2002, 2001 and 2000, customers who individually accounted for more than 10% of consolidated construction contracting revenue are as follows; in 2002 -- four customers provided 31%, 26%, 19% and 18%, in 2001 -- three customers provided 33%, 27%, and 20%, respectively. In 2000 -- three customers provided 33%, 22% and 19%, respectively. One customer accounted for more than 10% of the United Coastal insurance revenues in 2001.
Deferred policy acquisition costs, representing commissions and certain underwriting costs, are deferred and amortized on a straight-line basis over the policy term.
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.
In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 changes the measurement of an asset retirement obligation from a cost-accumulation approach to a fair value approach, where the fair value (discounted value) of an asset retirement obligation is recognized as a liability in the period in which it is incurred and accretion expense is recognized using the credit-adjusted risk-free interest rate in effect when the liability was initially recognized. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and subsequently amortized into expense. The pre-FAS 143 prescribed practice of reporting a retirement obligation as a contra-asset will no longer be allowed. The Company does not expect any impact of this new standard which will take effect on January 1, 2003.
A summary of property and equipment at December 31, 2002 and 2001 follows:
On September 1, 1999, the Company obtained a $4,500,000 term loan from a financial institution, which is payable in quarterly installments of $250,000 which commenced December 1, 1999. The term loan, due 2004 has a balance of $1,250,000 at December 31, 2002. The interest rate is fixed at 7.25%. The loan agreement contains certain limitations on borrowings, minimum statutory capital levels and requires maintenance of certain ratios. The proceeds were used to replace a $5,000,000, five year term loan obtained on December 9, 1998.
The effective income tax rate, as a percentage of earnings before income taxes for the years ended December 31, 2002, 2001 and 2000 follows:
The following presents the condensed financial position of ACMAT Corporation (parent company only) as of December 31, 2002 and 2001 and its condensed statements of earnings and cash flows for the years ended December 31, 2002, 2001 and 2000.