SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2004
CUMBERLAND TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida 0-109727 59-3094503
------- -------- ----------
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)
4311 West Waters Avenue
Suite 501 33614
-----
Tampa, Florida (Zip Code)
-----------------------
(Address of principal
executive offices)
Registrant's telephone number including area code: (813) 885-2112
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
As previously reported, on February 26, 2004, Cumberland Casualty & Surety
Company ("CCS"), a wholly-owned subsidiary of Cumberland Technologies, Inc., a
Florida corporation (the "Company"), undertook insolvency proceedings by filing
a voluntary petition for rehabilitation for CCS under Chapter 631, Part 1 of the
Florida Statutes (the "Rehabilitation Statute") with the Florida Department of
Financial Services (the "Department"). Under the Rehabilitation Statute, the
Department became the receiver for CCS, and the authority of the officers and
directors of CCS over CCS has been suspended until any such authority should be
redelegated by the Department. Since that date, CCS has operated under the
supervision of the Department.
On April 23, 2004, the Department, acting as the receiver for CCS, appointed
Carter, Cartier, Melby and Guarins CPAs, P.A. (the "New Accountants") as the new
accountant of CCS to perform the audit of CCS required by insurance regulations.
The Department did not take action to designate or change the principal
accountants of CCS for purposes of financial reports made with the Securities
and Exchange Commission. The foregoing actions were taken by the Department
without the participation of the Board of Directors of the Company.
On May 5, 2004, Deloitte & Touche LLP ("Deloitte") resigned as independent
auditors for the Company after being informed that it had been replaced by the
Department as the independent auditors for CCS.
As of the date of its resignation, Deloitte had not performed an audit of the
Company's financial statements for the year ended December 31, 2003. Deloitte's
reports on the consolidated financial statements of the Company and its
subsidiaries for the fiscal years ended December 31, 2002 and 2001 did not
contain an adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles. Deloitte has
not advised the Company that it has withdrawn or intends to withdraw its
opinions on the Company's financial statements for the fiscal years ended
December 31, 2002 and 2001.
During the two most recent fiscal years and the subsequent interim period
preceding Deloitte's resignation there were no disagreements with Deloitte on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Deloitte, would have caused it to make reference to the subject
matter of the disagreement in connection with its reports on the Company's
consolidated financial statements for such years, nor have there been any
reportable events as listed in Item 304(a)(l)(v) of Regulation S-K except as
described below.
As previously reported, the Company expects to incur a charge resulting from
adverse loss developments during 2003 and adjustments to reinsurance receivables
and recoverables of CCS, all related to claims incurred over the past and claims
exceeding CCS's reinsurance treaty limits. For contract and commercial surety
business, CCS has entered into 14 separate excess of loss reinsurance agreements
covering the past seven years with Transatlantic Reinsurance Company
(collectively, the "Transatlantic Treaty"). Excess of loss reinsurance is a form
of reinsurance which indemnifies the ceding insurer up to an agreed amount for
each individual loss and for all losses in the aggregate in excess of a
2
specified retention, subject to the terms and conditions of the various
reinsurance agreements. The reinsurance agreements comprising the Transatlantic
Treaty are written on an annual basis and indemnify CCS with respect to losses
reaching certain threshold levels during their respective treaty periods. CCS's
practice has been to reconcile losses incurred in its contract and commercial
surety business against the treaty limits under each of its various reinsurance
agreements on a year-end (and not on an interim period) basis. Consistent with
CCS's historical practices, CCS did not reconcile the aggregate losses incurred
in its contract and commercial surety business against the aggregate treaty
limits under each of the various reinsurance agreements included within the
Transatlantic Treaty for each of the interim periods ending March 31, 2003, June
30, 2003 and September 30, 2003 (the "2003 Interim Periods"). In connection with
CCS's completing these reconciliations as a part of customary year-end
accounting for 2003, the Company became aware that it had recorded reinsurance
recoverables and receivables in excess of reinsurance treaty limits in the
amount of $1,359,782 as of March 31, 2003, $1,731,742 as of June 30, 2003, and
$2,091,046 as of September 30, 2003. Unlike in prior accounting periods of CCS,
these amounts were material to the Company during the 2003 Interim Periods
because of the accumulation of higher losses in the aggregate over the seven
year duration of the Transatlantic Treaty and the reduction of aggregate limits
of the reinsurance agreements included in the Transatlantic Treaty available to
the Company for 2002 and 2003. Because CCS reconciled the aggregate losses
incurred in its contract and commercial surety business against aggregate treaty
limits as of December 31, 2002 and December 31, 2001, the Company believes that
its financial statements for the two fiscal years ended December 31, 2002 and
2001 are not affected by the foregoing and that such financial statements fairly
present in all material respects the financial condition, results of operations
and cash flows of the Company as of and for the years presented in such
financial statements.
In February 2004, Deloitte advised the Company that information had been brought
to its attention relating to potential questionable activities with respect to
the Company's analysis and recording of reinsurance receivables and
recoverables, and Deloitte requested that the Board of Directors of the Company
conduct an investigation to determine whether or not any illegal action or other
misconduct occurred. As of the date of Deloitte's resignation, this
investigation remains ongoing. The Company has authorized Deloitte to respond
fully to the inquiries of the successor accountant concerning this matter.
Upon receiving the request from Deloitte that the Company conduct an
investigation to determine whether or not any illegal action or other misconduct
occurred, the Board of Directors of the Company appointed independent legal
counsel ("Independent Counsel") to conduct an investigation into such matter. In
addition, CCS has appointed the New Accountants to perform the audit of CCS
required by insurance regulations. While subject to change, the Independent
Counsel and the New Accountants have advised the Company that they expect that
they will complete their investigation and audit, respectively, within
approximately the next month.
Upon becoming aware of the overstatement of its reinsurance recoverables and
receivables during the 2003 Interim Periods, the Company revised the internal
controls of CCS to include quarterly reconciliations against its reinsurance
agreements. Upon conclusion of the audit of the Company's financial statements
as of and for the year ending December 31, 2003 and the appointment of
independent accountants for the Company, the Company expects to restate its
financial statements for the 2003 Interim Periods to reflect the adjustments
described above.
3
The Company has requested Deloitte to furnish it with a letter addressed to the
Securities and Exchange Commission stating whether it agrees with the statements
made by the Company in this Item 4 and, if not, stating the respects in which it
does not agree. A copy of that letter from Deloitte to the Securities and
Exchange Commission is filed as Exhibit 16.1 to this report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Not applicable.
(b) Pro Forma Financial Information.
Not applicable.
(c) Exhibits.
Exhibit Number Description
-------------- -----------
16.1 Letter from Deloitte & Touche LLP dated July 1, 2004
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CUMBERLAND TECHNOLOGIES, INC.
Date: July 1, 2004 By: /s/ Joseph M. Williams
-----------------------------------
Joseph M. Williams,
President
5
1768693