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Ridge Reinsurance Limited (“Ridge Re”) and a per-
formance-based instrument relating to the 1997 sale of
The Resolution Group (“TRG”).
Ridge Re: We provide aggregate excess of loss reinsur-
ance coverage (the Reinsurance Agreement) to one of
the former Talegen units, TRG, through Ridge Re, a
wholly-owned subsidiary. The coverage limit for this
remaining Reinsurance Agreement is $578. We have
guaranteed that Ridge Re will meet all its financial obli-
gations under the remaining Reinsurance Agreement.
Ridge Re maintains an investment portfolio in a trust
that is required to provide security with respect to
aggregate excess of loss reinsurance obligations under
the remaining Reinsurance Agreement. At December
31, 2003 and 2002, the balance of the investments in
the trust, consisting of U.S. government, government
agency and high quality corporate bonds, was $531
and $759, respectively. Our remaining net investment
in Ridge Re was $77 and $325 at December 31, 2003
and 2002, respectively. Based on Ridge Re’s current
projections of investment returns and reinsurance
payment obligations, we expect to fully recover our
remaining investment. The projected reinsurance pay-
ments are based on actuarial estimates. The decline in
our net investment in 2003 primarily relates to a return
of previously restricted cash pursuant to terms of the
underlying insurance contracts.
Performance-Based Instrument: In connection with
the 1997 sale of TRG, we received a $462 perform-
ance-based instrument as partial consideration. Cash
distributions are paid on the instrument, based on
72.5 percent of TRG’s available cash flow as defined in
the sale agreement. For the years ended December 31,
2003 and 2002, we received cash distributions of $23
and $24, respectively. The recovery of this instrument
is dependent upon the sufficiency of TRG’s available
cash flows. Such cash flows are supported by TRG’s
ultimate parent via a subscription agreement whereby
the parent has agreed to purchase from TRG an estab-
lished number of shares of this instrument each year
through 2017. Based on current cash flow projections,
we expect to fully recover the $387 remaining balance
of this instrument.
Internal Use Software: Capitalized direct costs associ-
ated with developing, purchasing or otherwise acquir-
ing software for internal use are amortized on a
straight-line basis over the expected useful life of the
software, beginning when the software is implement-
ed. The software useful lives generally vary from 3 to 5
years. Amortization expense, including applicable
impairment charges, was $63, $215, and $132 for the
years ended December 31, 2003, 2002 and 2001,
respectively.
Investments in non-affiliated companies: This caption
includes marketable securities classified as “available
for sale” instruments in accordance with SFAS No.
115, “Accounting for Certain Investments in Debt and
Equity Securities.” These investments have an original
cost of $51 and are reflected in the consolidated finan-
cial statements at their quoted fair value, based on
publicly traded common shares, of $68. For the year
ended December 31, 2003, the Company recorded net
unrealized gains of $17 within Accumulated Other
Comprehensive Loss.
Note 10 – Debt
Short-Term Debt: Short-term borrowings at December
31, 2003 and 2002 were as follows:
2003 2002
Notes payable $ 42 $ 20
Euro secured borrowing –377
Total short-term debt 42 397
Current maturities of long-term debt 4,194 3,980
Total $4,236 $4,377
We classify our debt based on the contractual
maturity dates of the underlying debt instruments or
as of the earliest put date available to the debt holders.
We defer costs associated with debt issuance over the
applicable term or to the first put date, in the case of
convertible debt or debt with a put feature. Total
deferred debt issuance costs included in Other long-
term assets were $79 as of December 31, 2003. These
costs are amortized as interest expense in our
Consolidated Statement of Income.