(1) The expiration date for the lease is March 31, 2007.
The following discussion and analysis of financial condition and results of operations of Acceptance Insurance Companies Inc. and its consolidated subsidiaries (“Company”) should be read in conjunction with the Company’s Consolidated Financial Statements and the notes thereto included elsewhere herein.
AICI currently does not have access to the assets of its wholly owned subsidiary, AIC. AIC is regulated by the Nebraska Department of Insurance (“NEDOI”). The NEDOI Director (“Director”) entered an administrative Order of Supervision with respect to AIC on December 20, 2002 and AIC currently is operating pursuant to that Order. AIC’s total statutory policyholders’ deficit was approximately $61.3 million at December 31, 2003.
If the Company is able to meet these short-term objectives, the Company may consider several strategies. These strategies may include commutation of reinsurance treaties, loss portfolio transfers, unwinding of trust balances and related items, sale of active and/or shell subsidiaries and other options that may be available. The Company may be required to accomplish certain of these strategies to meet its short-term and long-term objectives. At this time, the Company is unable to determine if any of these strategies will be available and if so, under acceptable terms to both the Company and the NEDOI. As such, it is uncertain if the Company can achieve its short-term or long-term objectives.
Under the provisions of SFAS No. 144 a component of an entity is deemed to be disposed of if both of the following conditions are met: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. EITF Topic No. D-104, Clarification of Transition Guidance in Paragraph 51 of FASB Statement No. 144 clarifies that when “a component of an entity will be abandoned through the liquidation or run-off of operations, that component should not be reported as a discontinued operation in accordance with FASB 144 until all operations, including run-off operations, cease.” The Company originally concluded that both components of its insurance operations had been discontinued when the NEDOI placed AGIC in rehabilitation and AIC in supervision. Although the Company is no longer writing property and casualty insurance policies, managing the run-off of the liabilities resulting from that business has been determined to be a continuing operation of the Company under SFAS No. 144 until all such run-off ceases. Therefore, the Company’s consolidated financial statements for 2002 and 2001 have been restated from amounts previously reported to reflect the property and casualty operations as continuing operations of the Company. The Agricultural Segment continues to be reported as discontinued operations.
Additionally, subsequent to the issuance of the December 31, 2002 financial statements, the Company determined that the consolidated statements of cash flows did not include cash flows from discontinued operations. The 2002 and 2001 consolidated cash flows previously reported solely reflected cash flows from continuing operations.
Additionally, certain components in the consolidated statement of cash flows for 2001 were incorrectly presented. The misstatements in 2001 related to the understatement of proceeds from maturities and sales of short-term investments resulting in the understatement of cash and cash equivalents by $48,463,000 on the consolidated statement of cash flows. The Company properly reflected short term investments on the consolidated balance sheet, however, short term investments that represent cash equivalents were improperly presented on the consolidated statement of cash flows. Therefore, the Company’s consolidated statement of cash flows for 2001 have been restated to reflect an additional $48,463,000 of proceeds from maturities and sales of short term investments. As a result, the accompanying consolidated statements of cash flows for the years ending December 31, 2002 and 2001 have been restated from the amounts previously reported.
The restatement of the consolidated balance sheets and statement of operations had no impact to the previously reported stockholders’ equity and net loss. Certain other reclassifications of the prior year’s financial statements were made to conform to the 2003 presentation. The following Management’s Discussion and Analysis gives effect to the restatement as discussed in Note 2 to the consolidated financial statements.
The Company accrues liabilities for unpaid losses and loss adjustment expenses. This liability for policy claims is established based on its review of individual claim cases and the estimated ultimate settlement amounts. This liability also includes estimates of claims incurred but not reported based on Company and industry paid and reported claim and settlement expense experience. The liability for losses and loss adjustment expenses represents management’s best estimate and is based on sources of available evidence including an analysis prepared by an independent actuary engaged by the Company. The Company previously wrote property and casualty coverages in a number of specialty areas of business which may involve greater risks than standard property and casualty lines, including the risks associated with the absence of long-term, reliable historical claims experience. These risk components may make more difficult the task of estimating reserves for losses, and cause the Company’s underwriting results to fluctuate. Due to the inherent uncertainty of estimating reserves, it has been necessary, and may over time continue to be necessary, to revise estimated liabilities, as reflected in the Company’s loss and loss adjustment expense reserves. Additionally, conditions and trends that have affected the development of loss reserves in the past may not necessarily occur in the future.
Except for the historical information contained in this Annual Report on Form 10-K, matters
The Company received the final 2002 NEDOI triennial examination report in April 2004. Based on two actuarial examinations performed by independent actuaries engaged by the NEDOI utilizing information available to these actuaries through 2003, the actuaries’ range of estimated reserves was up to $60 million higher than the Company’s recorded reserves. The final NEDOI triennial examination report utilized the low range of estimated adequate loss reserves in the NEDOI actuary report. The Company considered the NEDOI actuarial examinations as well as the actuarial work performed by its own independent actuary in examining reserves. The amount recorded by the Company as of December 31, 2003 is within the low range of the amount included in the NEDOI triennial examination report. The varying reserve estimates established by the actuarial firms demonstrates the significant variability in such reserve estimates. Changes in the Company’s reserve estimates are recorded as loss and loss adjustment expenses in the period such information becomes known. At this time, there can be no assurance as to what actions, if any, the NEDOI will take in connection with the varying estimates of the Company’s reserves and any further changes in estimates, if any. If the NEDOI does take action there can be no assurance as to when it may do so or how long it may take to complete any such action.
Additionally, there is significant uncertainty as to whether AIC will be able to meet its future cash flow needs. A major portion of AIC’s investments are pledged and AIC’s ability to meet its cash flow needs will be highly dependent upon AIC’s ability to get significant amounts of pledged funds released. Additionally, AIC’s cash flows are significantly impacted by any changes in the expected payout of insurance losses and loss adjustment expenses. AIC’s ability to meet its cash flow needs is also dependent upon the timely recovery of reinsurance balances, including the favorable resolution of balances currently in dispute. Based upon current estimates management of the Company believes AIC would likely have the ability to meet its cash flow needs through December 31, 2004 assuming the NEDOI does not obtain an Order of Rehabilitation or Order of Liquidation with respect to AIC. There can be no assurances considering the significant uncertainties that exist that AIC will have the ability to meet its cash flow needs through December 31, 2004.
d) reduce expenses required to manage the run-off of the property and casualty operations; and
Forward-looking information set forth herein does not take into account any impact from the various factors noted above which may affect future results. See “Business-Uncertainties”, “Overview” and “General” for additional information regarding these events and factors.
The Company’s net loss decreased to $43.3 million, or $3.05 loss per share, for the year ended December 31, 2003 from $209.7 million, or $14.65 loss per share for the year ended December 31, 2002. Operating loss was approximately $34.1 million and $22.8 million for the year ended December 31, 2003 and 2002, respectively.
During the first quarter of 2003, the Company sold its office building and certain contents in Council Bluffs, Iowa. The proceeds included approximately $204,000 of cash and a note receivable with a fair value of approximately $1.3 million and the sale resulted in a gain of approximately $334,000. During the fourth quarter of 2003, the Company sold the note receivable for approximately $1.2 million and the sale resulted in a loss of approximately $83,000 for a total net realized capital gain of $251,000 for the year ended December 31, 2003.
Included in the operating loss was the insurance underwriting loss, defined as insurance premiums earned less insurance loss and loss adjustment expenses and insurance expenses, for the Property and Casualty Segment of $37.0 million and $26.1 million for the year ended December 31, 2003 and 2002.
The Company’s Property and Casualty Segment underwriting loss for the year ended December 31, 2003 included a reserve strengthening of approximately $30.0 million. The $30.0 million charge in 2003 for unfavorable development of losses and loss adjustment expenses relating to prior years was primarily concentrated in the general liability line and the workers’ compensation lines of business. The results for the year ended December 31, 2002 included a reserve strengthening of approximately $21.1 million. The reserve development for the year ended December 31, 2002 was comprised of approximately $20.3 million of adverse reserve development attributable to the general liability and commercial multi-peril lines of business.
The Company’s Property and Casualty Segment insurance expenses totaled approximately $7.6 million and $6.8 million for the years ended December 31, 2003 and 2002, respectively. The $7.6 million was primarily comprised of $2.7 million of salaries and benefits, $2.1 million of professional fees and insurance costs, $1.0 million of bad debt expense and $850,000 of rent and utilities. During the past several years, the Company ceased writing or sold all remaining Property and Casualty Segment business. In March 2001, the Company sold a significant portion of its property and casualty business to Insurance Corporation of Hannover and in May 2001, the Company sold several of the remaining lines of business to McM Corporation and to American Reliable Insurance Company (See “Off-Balance Sheet Arrangements”). Accordingly, the net premiums earned in the Property and Casualty Segment decreased from approximately $8.3 million for the year ended December 31, 2002 to $624,000 for the year ended December 31, 2003.
The Company’s net investment income related to insurance operations declined from approximately $5.7 million for the year ended December 31, 2002 to approximately $3.1 million for year ended December 31, 2003. This decrease in investment income was primarily a result of the continuing decline in the size of the investment portfolio resulting from the runoff of the Property and Casualty Segment.
On September 29, 2003 the Company elected to terminate its operating lease of office property in Council Bluffs, Iowa effective March 31, 2004 and pay its portion of the termination fee totaling approximately $200,000. The Company and American Growers Insurance Company had previously agreed to share the cost of the lease expense through March 31, 2004 and any termination fee. The Company negotiated a new lease effective April 1, 2004 with the landlord for a smaller portion of space at an overall reduced cost.
During the year ended December 31, 2003 there was no income tax benefit or expense as the change in valuation allowance offset the deferred tax benefit. During the year ended December 31, 2002 the income tax expense from continuing operations was approximately $25.3 million. During the third quarter of 2002, the Company’s ability to generate sufficient taxable income in future periods was significantly impacted by the discontinuance of the Agricultural Segment and the only remaining insurance subsidiary of the Company being placed under supervision by the NEDOI. Management concluded it is unlikely that the deferred tax asset will be realized and recorded a valuation allowance impacting tax expense.
Many parts of the country experienced drought and abnormal growing conditions that significantly impacted the amount of losses under 2002 MPCI policies issued by the Company. In 2002, the Company experienced significant loss activity related to the crops of corn, soybeans and wheat in the states of Nebraska, Kansas, Colorado, North Dakota, South Dakota, Ohio and Missouri. These MPCI losses impact the Company’s share of profit it received from or losses it paid to the FCIC under the profit sharing formula established by law and administered by the Risk Management Agency. Because of the extraordinary reported and expected volume and severity of crop insurance claims in 2002, the Company recorded a negative 1.5% profit share on a retained pool of approximately $418.2 million, or $6.3 million, and recognized MPCI reinsurance costs and insurance expenses of approximately $79.6 million. Therefore the Company recorded a loss from crop insurance underwriting and operations for the year ended December 31, 2002 of approximately $87.3 million.
During the year ended December 31, 2002, the Company’s ability to generate sufficient taxable income in future periods was significantly impacted by the discontinuance of the Agricultural Segment. Management concluded it is unlikely that the deferred tax asset would be realized and recorded a valuation allowance of $46.3 million related to discontinued operations as of December 31, 2002.
During the past few years, the Company ceased writing or sold all remaining Property and Casualty Segment business. In March 2001, the Company sold a significant portion of its property and casualty business to Insurance Corporation of Hannover and in May 2001, the Company sold several of the remaining lines of business to McM Corporation and to American Reliable Insurance Company (See “Off-Balance Sheet Arrangements”). Accordingly, the net premiums earned in the Property and Casualty Segment decreased from approximately $31.1 million for the year ended December 31, 2001 to $8.3 million for the year ended December 31, 2002.
The increase in the net loss from discontinued operations, net of tax, during the year ended December 31, 2002 was primarily attributable to an increase in the underwriting loss in the Agricultural Segment, the expensing of $27.5 million in current and future obligations under a multi-year reinsurance agreement, the impairment of $5.7 million of intangibles, the write-off of goodwill of $30.0 million, the impairment of property and equipment of $3.7 million, the establishment of a deferred income tax valuation allowance of $46.3 million and a decrease in net investment income and realized capital gains (losses). These increases were partially offset by the adjustment, to zero, of equity and investment interest in AGIC and subsidiaries as the Company is no longer responsible for AGIC’s net liabilities.
The Company historically has recorded its initial estimate of profit or loss for MPCI and related products in the fourth quarter. Any changes in such estimates typically occurred during the first two quarters of the following year, after the claim adjustment process is substantially complete. Due to the significance of known and estimable losses for the 2002 crop year, the Company recorded its initial estimate of loss for MPCI and related products in the third quarter of 2002.
MPCI Gross Premiums decreased from $698 million in 2001 to $580 million in 2002. The MPCI premium volume decrease was primarily due to planned reductions in certain territories, decline related to the merging of the Company’s book of business with the business acquired from IGF, generally lower base prices for several crops, and a change in the distribution of business from CRC to Revenue Assurance - Harvest Price Option (“RA”). While the Company had historically written a minimal amount of RA business, the Company experienced a substantial increase in RA business due to certain RA policies that provide the same coverage as CRC at a lower premium.
Many parts of the country experienced drought and abnormal growing conditions that significantly impacted the amount of losses under 2002 MPCI policies issued by the Company. Because of the extraordinary reported and expected volume and severity of crop insurance claims in 2002, the Company recorded a negative 1.5% profit share on a retained pool of approximately $418.2 million, or $6.3 million, and recognized MPCI reinsurance costs and insurance expenses of approximately $79.6 million. Therefore the Company recorded a loss from crop insurance underwriting and operations for the year ended December 31, 2002 of approximately $87.3 million. The negative 1.5% profit share in 2002 compares to an adjusted 2001 crop year profit share of 16.2% on a retained pool of approximately $498.4 million, or approximately $80.9 million.
The Company ceded approximately $65 million of its 2002 crop year MPCI Retained Premiums under quota share agreements to private reinsurers participating in its overall crop reinsurance programs. The net exposure was further reduced by excess of loss reinsurance purchased from private carriers with a total cost of approximately $10.7 million for the 2002 crop year.
Subsequent to the RMA and Rain and Hail actions, the operations of the Agricultural Segment were discontinued and AGIC was placed in rehabilitation by the District Court of Lancaster County, Nebraska. In rehabilitation, AGIC and its subsidiaries ceased to be under the control of the Company and are not included as consolidated subsidiaries of the Company at December 31, 2002. As the Company’s equity interest in AGIC and its subsidiaries is negative, the Company reflects its investment in AGIC and its subsidiaries at zero as the Company is no longer responsible for AGIC’s net liabilities. The adjustment to equity and investment interest in subsidiaries is comprised of the negative equity investment in AGIC and subsidiaries which was adjusted to zero as the Company is no longer responsible for AGIC’s net liabilities net of the establishment of a one hundred percent allowance for the $20 million surplus note receivable AIC has from AGIC.
During 2001 the Company recorded an estimated profit share of $86.2 million on its MPCI retained pool of approximately $499.4 million, or 17.3%. The Company ceded approximately $78 million of its 2001 crop year MPCI Retained Premiums under quota share agreements to private reinsurers participating in its overall crop reinsurance programs. Based upon the estimated profit share recorded in 2001, this reduced MPCI underwriting earnings by approximately $12.7 million. The net exposure was further reduced by excess of loss reinsurance purchased from private carriers with a total cost of approximately $22.4 million for the 2001 crop year.
As an insurance holding company, the AICI’s assets consist primarily of the equity interest in AIC, a surplus note issued by AIC and cash and cash equivalents held at the holding company level. The Company’s liquidity needs are primarily to service debt and pay operating expenses.
Cash payments for interest related to the Junior Subordinated Debentures were approximately $-0-, $6.4 million and $8.5 million during the years ended December 31, 2003, 2002 and 2001. Effective November 18, 2002, the Company elected to defer payment of interest on its Junior Subordinated Debentures, as permitted by the trust agreement and indenture, beginning with the interest payment date on December 31, 2002 until not later than September 30, 2007. The interest payments on the Preferred Securities will be deferred for a corresponding period.
There is significant uncertainty as to whether the Company will be able to meet its cash flow needs. As noted above, the Company has deferred interest payments on its Trust Preferred Securities and additionally, the Company has disputed or denied payment of certain other liabilities and commitments. While based upon current estimates management of the Company believes AICI would likely have the ability to meet its cash flow needs through December 31, 2004, there can be no assurances considering the significant uncertainties that exist. It is unlikely that AICI will be able to meet its long-term cash flow needs if either its short-term or long-term strategies are unsuccessful. If AICI is not able to meet its cash flow needs in the future, the Company will decide to take the course of action that is in the best interest of the Company based upon all relevant factors, which action may include filing bankruptcy.
The Company’s consolidated balance sheets include a significant amount of assets and liabilities whose fair value are subject to market risk. Market risk is the risk of loss arising from adverse changes in market interest rates or prices. The Company currently has interest rate risk as it relates to its fixed maturity securities and equity price risk as it relates to its marketable equity securities. The Company’s market risk sensitive instruments are entered into for purposes other than trading.
The Company uses two models to analyze the sensitivity of its market risk assets. For its fixed maturity securities, the Company uses duration modeling to calculate changes in fair value. For its marketable equity securities, the Company uses a hypothetical 20% decrease in the fair value of these securities. Actual results may differ from the hypothetical results assumed in this disclosure due to possible actions taken by management to mitigate adverse changes in fair value and because fair values of securities may be affected by credit concerns of the issuer, prepayment speeds, liquidity of the security and other general market conditions. The sensitivity analysis duration model used by the Company produces a loss in fair value of $587,000 and
$1.6 million on its fixed maturity securities as of December 31, 2003 and 2002, respectively, based on a 100 basis point increase in interest rates. The hypothetical 20% decrease in fair value of the Company’s marketable equity securities produces a loss in fair value of $211,000 and $1.5 million as of December 31, 2003 and 2002, respectively.
The Company sold its wholly owned subsidiary, Redland Insurance Company (“Redland”), to Clarendon National Insurance Company (“Clarendon”) effective as of July 1, 2000. The sale was a cash transaction of approximately $10.9 million based upon the market value of Redland after the divestiture of various assets, including the Redland subsidiaries, to a wholly owned subsidiary of Acceptance Insurance Companies Inc. The transaction included the appointment of other Company subsidiaries as a producer and administrator for the business the Company wrote through Clarendon and Redland. The Company also reinsures certain portions of the Company’s business issued by Clarendon and Redland. At December 31, 2003, approximately $37.5 million of fixed maturities available-for-sale and $8.5 million of cash equivalents were placed in a trust and pledged to Clarendon to secure the Company’s obligations under reinsurance agreements. Under these reinsurance agreements, the Company assumed business from Clarendon and Redland after cessions to outside reinsurers (“Clarendon Reinsurers”). At December 31, 2003, Clarendon and Redland reinsurance recoverables from Clarendon Reinsurers totaled approximately $84 million (See Business - Reinsurance”). The Company is contingently liable for any uncollectible amounts due from Clarendon Reinsurers related to this business.
The amounts pledged to Clarendon were used to secure the issuance of a $20.6 million Redland letter of credit to the California Department of Insurance related to bond requirements resulting from the Company’s workers’ compensation business written on Redland paper (“Bond Requirements”).
In general, the minimum amount to be included in the trust account is based upon the greater of 1) certain percentages of loss and loss adjustment expense reserves assumed by the Company from Clarendon and Redland and reinsurance recoverables from Clarendon Reinsurers for which the Company is contingently liable or 2) 70% of the Bond Requirements. During 2003 the Company received funds from the trust resulting in a decline in the trust balance from $80.3 million at December 31, 2002 to $46.0 million at December 31, 2003.
As of July 1, 2001, the Company sold two wholly owned insurance companies to McM Corporation, a Raleigh, North Carolina based insurance holding company (“McM”). The two companies, Acceptance Indemnity Insurance Company (“AIIC”) and Acceptance Casualty Insurance Company (“ACIC”), underwrote primarily Property and Casualty Segment insurance. The Company reinsures certain portions of the Company’s business issued by AIIC and ACIC. As of December 31, 2003 approximately $11.7 million of fixed maturities available-for-sale and $337,000 of cash equivalents were placed in a trust and pledged to McM to secure the Company’s net obligations under the reinsurance agreements. Under these reinsurance agreements, the Company assumed business from AIIC and ACIC after cessions to outside reinsurers (“AIIC Reinsurers”). At December 31, 2003, AIIC and ACIC reinsurance recoverables from AIIC Reinsurers totaled approximately $28 million (See Business - Reinsurance”). The Company is contingently liable for any uncollectible amounts due from AIIC Reinsurers related to this business.
The Company’s off-balance sheet obligations for the Clarendon and AIIC Reinsurers total approximately $112 million (“Off-Balance Sheet Obligations”). The Company has guaranteed the performance of these Clarendon and AIIC Reinsurers. If these Clarendon and AIIC Reinsurers do not meet their obligations, whether or not due to their ability or willingness to pay, the Company will be obligated. The timing for the reinsurers performance of these obligations is currently not known and the amounts will become due from the reinsurers as the underlying direct claim payments are made. Additionally, the $112 million is an estimate of unpaid ceded losses and loss adjustment expenses on Redland, Clarendon, AIIC and ACIC, and are subject to considerable estimation judgment due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of many years.
At December 31, 2003, PMA Reinsurance Group (“PMA”) accounts for approximately 7.0% of the Company’s Off-Balance Sheet Obligations. PMA had its financial strength lowered by A.M. Best from A- (Excellent) to B++ (Very Good) in the fourth quarter of 2003. With the exception of outstanding questions related to specific claims, PMA continues to make regular payments to the Company for reinsurance billings and accordingly, no specific liability has been established for these balances.
In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. Intangible assets with a determinable useful life will continue to be amortized over that period. The adoption of SFAS No. 142 had no impact on the Company’s consolidated
In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), Accounting for the Impairment or Disposal of Long-Lived Assets, which addresses the financial accounting and reporting for the impairment or disposal of long-lived assets. The initial adoption of SFAS No. 144 had no impact on the Company’s consolidated financial statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146 (“SFAS No. 146”), Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities. This pronouncement is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company elected to adopt SFAS No. 146 during 2002. The initial adoption of SFAS No. 146 had no impact on the Company’s consolidated financial statements.
In November 2002, the FASB issued Interpretation (“FIN”) No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. Initial recognition and initial measurement provisions of this interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of annual periods ending after December 15, 2002. The adoption of FIN No. 45 had no impact on the Company’s consolidated financial statements.
beneficiaries are permitted to consolidate VIEs. Therefore, FIN 46R does not permit consolidation of VIEs in which a company has voting control but is not the primary beneficiary. The AICI Capital Trust that is liable for the Company’s Trust Preferred Securities meets the definition of a VIE. Under FIN 46R, the Company is not the primary beneficiary in the AICI Capital Trust. For this reason, starting in 2004 the Company may no longer consolidate the AICI Capital Trust, although the Company is the sole owner of the voting equity of these entities.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS No. 149”), Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 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 SFAS No. 149 had no impact on the Company’s consolidated financial statements.
In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150 (“SFAS No. 150”), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards on how to classify and measure certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise effective as of the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had no impact on the Company’s consolidated financial statements.
See Item 15 hereof and the Consolidated Financial Statements attached hereto.