STATE OF THE COMPANY - JANUARY 2004

The following is a summary of information shared with our Field Supervisors and Office Staff at the annual State of the Company meetings presented at all locations.

This tradition of meeting at the beginning of the year has been going on as long as I can remember. Now is the time that we give thanks for the past year's successes and I look at the challenges of the coming year. As members of the Marek team, we want you to know what is ahead of us. It is the sum of each person's efforts that will make things happen.

I begin my comments this year with our Vision Statement for 2004. This statement represents a summary of my remarks and will be posted in all of our offices.

Vision Statement

Now, more than ever, is the time for members of the Marek team to exert powerful leadership - - just as generations of team members have done in the past.
In 2004, we recognize that tremendous challenges lie ahead and that we must be lean and efficient, finding ways to get the most from our labor, materials, and methods.
It should be the goal of each team member to rekindle the 'fire in the belly' that helped us get to where we are today.

We know that with challenges come opportunity, new leaders will emerge, and prosperity will return.

As you can see, we do not expect 2004 to be business as usual. 2002 was the first year in five that we didn't make money in all branches and it looks like it will happen again in 2003. In addition, our backlog of jobs sold is down and margins are lower than we have seen in some time.

Now, we are not trying to scare you. Our company has been around for 66 years and is financially stable and capable of withstanding downturns that are inevitable in this industry.

But what I really want to do is send a wake up call to everyone that the downturn we knew would come after a decade of prosperity is now at hand. Branches such as Austin, Atlanta, and Raleigh will tell you it has been here for a while.

Our message today is simply that if we want to preserve the benefits and rewards to which we have grown accustomed, each of us will have to do more in 2004 to make that happen.

Let's take a look at what has happened in our industry over the past 10 years. The beginning of the nineties brought us out of a recession and into one of the longest periods of growth we may ever see in the construction industry. We enjoyed a steady expansion and "made hay while the sun was shining." We steadily raised wages and improved benefits even when our competition did not. We were able to pay bonuses based on profits. And, most importantly, we built our war chest to withstand hard times.

However, our competitors were not sitting still. They were enjoying the same markets, margins were good, and everyone was making money. The small guys got larger and more folks entered the business. Some were from out of town, some were homegrown. So, now that business is slowing down, we have more people chasing less work and that means lower margins and profits.

And, if we are struggling in some of our markets, I think our competitors are having their problems as well. And, with less on the horizon in 2004, our competition may operate their businesses like they're on the verge of going broke because some of them probably are.

Our competitors are taking work cheap and looking at their field forces to do whatever they have to do to make money. And that includes subcontracting their work, which means not having employees but calling them independent subcontractors instead. This is a system that has been used in the residential markets since the mid-seventies and is now showing up more and more on commercial jobs. One obvious advantage these companies have is that their insurance costs are pushed on to the smaller sub, who more than likely provides no insurance coverage at all and have no benefit cost at all.

For us to be competitive, the cost of our insurance and benefits can only be offset by increased production when competing against contractors who provide nothing but an hourly wage or who subcontract their work. With insurance costs since 9/11 going up over 10% a year, it's going to take the best of each of us to stay ahead of our competitors.

Obviously, the answer to rising costs is increased productivity from every team member. Our biggest enemy is complacency. We have had so many good years that we have lost the 'fire in the belly' that got us through the tough years of the 80s. This year we must regain the sense of urgency that makes us do our jobs better.

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At our State of the Company meeting at Houston MBS, Mike Holland, division president, summed it up very well. His remarks apply to all branches:

"The volume of jobs we sell will be off substantially, perhaps as much as one-third. Even in the last six months, the number of jobs has declined significantly. NET PROFITS WILL BE DETERMINED BY HOW WE RESPOND. It is a buyers market and price is king again. Those of us who were here in the eighties have experienced this kind of market before. We know what to do, or have we forgotten? I think some of us have forgotten. My goal is to remind everyone, including myself, of what it takes to succeed in times like this:

• Show up on time and work all day
  
• Help your co-workers
  
• Support your supervisor
  
• Have a helpful attitude to our customers
  
• Do not settle for sloppy work
  
• Fix your mistakes
  
• Go the extra mile

Key words are hard work, grit, determination, savvy, optimism, accountability, sacrifice, teamwork, trust, attitude, and drive.

We talk about 'back to the basics' but now we have to do it. This is not a cruise ship with free food and drink like the Love Boat, where you ask the captain how it's going, then go back to sleep. Instead, this is a battleship, where everyone on board has an assigned task, from the captain to the guy mopping the deck. For our battleship to be successful in this "war" we are in, everyone must pull their load. If we all do that, the captain will report back, "everything is shipshape, keep up the good work."

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I think Mike's comments are right on the mark. As I said earlier, 2004 can not be business as usual. Times have changed and so must we.

One very important part of 2004 will be our safety programs. The 'war on falls' is working. The reviews, the suspensions, and the added concern that everyone has about falls, is paying off. But we are not where we want to be and we will keep the pressure on every supervisor to completely eliminate falls on their jobs.

AS ALWAYS, WE WANT TO REMIND YOU OF OUR THREE CORPORATE GOALS:

MAKE A PROFIT
IMPRESS THE CUSTOMER
MAKE THIS A BETTER PLACE TO WORK.

Please do not forget it is a great time of the year to set a personal goal. Pick something that will improve the quality of your life or that of your family. And stick with it!

Each year our Marek team builds a remarkable number of projects. Each of us can have a deep feeling of pride for the part we play as builders in touching the lives of so many in our communities. As we drive anywhere in the cities in which we live, we see evidence of our work. We work for the best contractors and we do the best work.

I asked each manager to give me a list of three jobs that their teams worked on in 2003 and, as you can see, it's a tremendous group of projects:

Atlanta
Woodstock Baptist Church
Mountainside Medical Center
Atlanta Gas & Light

Austin
Lehman High School
Seton Hospital
Nordstrom's

Dallas MBS
Opryland Conference Center
UT Southwest Medical Center
DFW Terminal D Interiors

Houston MBS
Moody Gardens Hotel and Convention Center
MD Anderson Basic Sciences Research Building
St. Martin's Episcopal Church

Raleigh/Durham
East Carolina Internal Medicine
Abbot Labs
EDS Expansion

Rio Grande Valley
Lighthouse Condo on Padre Island
IBC Bank
T-Mobile

San Antonio
Valero Energy Headquarters
USAA Renovation
San Antonio Airport Renovation

MBC
Calais at Courtland Square (356 units)
Escalon at Canyon Creek Austin (572 units)
Mansions of the Lake Louisiana (234 units)

And the list goes on and on ....

In closing, on behalf of the entire management team, thanks for your efforts and loyalty in 2003. The new year is upon us and with it an opportunity and a challenge to get back to the basics and rekindle that 'fire in the belly.'

Let's have a great year.

.