-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CqVT3k1h5IWHMMhKioFw/VU4NDaU2+OeWF9N4ptOiFEFY70DVyNJ1VBx7zuicb56 dAy4cOTWSE2ywbAztAxMfA== 0000914039-00-000268.txt : 20000516 0000914039-00-000268.hdr.sgml : 20000516 ACCESSION NUMBER: 0000914039-00-000268 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACMAT CORP CENTRAL INDEX KEY: 0000002062 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 060682460 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-06234 FILM NUMBER: 635062 BUSINESS ADDRESS: STREET 1: 233 MAIN ST STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 BUSINESS PHONE: 2032299000 MAIL ADDRESS: STREET 1: 233 MAIN STREET STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------- ----------- Commission file number 0-6234 ACMAT CORPORATION Connecticut 06-0682460 (State of Incorporation) (I.R.S. Employer Identification No.) 233 Main Street, New Britain, Connecticut 06050-2350 (Address of principal executive offices) Registrant's telephone number including area code: (860) 229-9000 NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Shares outstanding Title of Class at April 30, 2000 - -------------- --------------- Common Stock 570,568 Class A Stock 2,288,527
2 TABLE OF CONTENTS
Part I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Earnings 4 Consolidates Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
2 3 Part I Financial Information Item I Financial Statements ACMAT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, Assets 2000 1999 - ------ ---- ---- Investments: Fixed maturities-available for sale at fair value (Cost of $85,708,449 in 2000 and $89,290,810 in 1999) $ 83,517,852 87,826,920 Equity securities, at fair value (Cost of $2,065,262 in 2000 and 1999) 1,648,992 1,614,763 Short-term investments, at cost which approximates fair value 3,259,798 518,557 ------------- ------------- Total investments 88,426,642 89,960,240 Cash and cash equivalents 5,817,113 7,054,911 Accrued interest receivable 1,372,688 1,324,356 Receivables, net 3,995,181 2,823,381 Reinsurance recoverable 820,823 3,924,064 Income tax refund receivable 342,726 173,465 Prepaid expenses 173,200 106,049 Deferred income taxes 1,156,443 1,560,324 Property & equipment, net 12,662,485 12,675,956 Deferred policy acquisition costs 1,711,652 1,323,780 Other assets 2,698,303 2,360,366 Intangibles, net 2,487,056 2,568,719 ------------- ------------- 121,664,312 $ 125,855,611 ============= ============= Liabilities & Stockholders' Equity Accounts payable 2,106,259 1,923,081 Reserves for losses and loss adjustment expenses 32,841,646 38,544,491 Unearned premiums 6,472,586 5,262,468 Collateral held 11,019,226 11,954,554 Accrued liabilities 2,428,208 1,251,305 Long-term debt 30,397,006 30,792,720 ------------- ------------- Total liabilities 85,264,931 89,728,619 Commitments and contingencies Stockholders' Equity: Common Stock (No par value; 3,500,000 shares authorized; 570,568 and 584,828 shares issued and outstanding) 570,568 584,828 Class A Stock (No par value; 10,000,000 shares authorized; 2,288,527 and 2,304,587 shares issued and outstanding) 2,288,527 2,304,587 Retained earnings 35,353,023 35,151,966 Accumulated other comprehensive income (loss) (1,812,737) (1,914,389) ------------- ------------- Total stockholders' equity 36,399,381 36,126,992 ------------- ------------- $ 121,664,312 125,855,611 ============= =============
See Notes to Consolidated Financial Statements. 3 4 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Three Months Ended March 31, 2000 and 1999
2000 1999 ---- ---- Earned premiums $ 2,348,474 2,389,449 Contract revenues 2,512,810 2,483,676 Investment income, net 1,142,554 1,367,038 Net realized capital gains (losses) (108,554) 159,161 Other income 186,023 176,247 ----------- ----------- 6,081,307 6,575,571 ----------- ----------- Cost of contract revenues 2,364,230 2,228,345 Losses and loss adjustment expenses 441,660 470,701 Amortization of policy acquisition costs 391,679 357,783 General and administrative expenses 1,264,548 1,410,198 Interest expense 746,410 913,656 ----------- ----------- 5,208,527 5,380,683 ----------- ----------- Earnings before income taxes 872,780 1,194,888 Income taxes Federal 242,473 293,830 State 20,000 20,000 ----------- ----------- 262,473 313,830 ----------- ----------- Net earnings $ 610,307 881,058 =========== =========== Basic Earnings Per Share $ .21 .30 Diluted Earnings Per Share $ .21 .26
See Notes to Consolidated Financial Statements. 4 5 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity March 31, 2000 and 1999
Common Additional stock par Class A stock paid-in value par value capital ----- --------- ------- Balance as of December 31, 1998 $ 592,088 2,460,808 -- Comprehensive income: Net unrealized losses on debt and equity securities -- -- -- Net earnings -- -- -- Total comprehensive income Acquisition and retirement of 2,180 shares of Common Stock (2,180) -- -- Acquisition and retirement of 89,000 shares of Class A Stock (89,000) (144,000) Issuance of 18,000 Shares of Class A Stock pursuant to stock options -- 18,000 144,000 ----------- ----------- ----------- Balance as of March 31, 1999 $ 589,908 2,389,808 -- =========== =========== =========== Balance as of December 31, 1999 $ 584,828 2,304,587 -- Comprehensive income: Net unrealized gains on debt and equity securities -- -- -- Net earnings -- -- -- Total comprehensive income Acquisition and retirement of 14,260 shares of Common Stock (14,260) -- -- Acquisition and retirement of 16,060 shares of Class A Stock -- (16,060) (152,570) ----------- --------- -------- Balance as of March 31, 2000 $ 570,568 2,288,527 -- =========== ========= ========
Accumulated other Total Retained comprehensive stockholders' earnings income (loss) equity -------- ------------- ------ Balance as of December 31, 1998 34,074,538 495,492 37,622,926 Comprehensive income: Net unrealized losses on debt and equity securities -- (252,201) (252,201) Net earnings 881,058 -- 881,058 Total comprehensive income 628,857 Acquisition and retirement of 2,180 shares of Common Stock (42,783) (44,963) Acquisition and retirement of 89,000 shares of Class A Stock (1,036,499) (1,269,499) Issuance of 18,000 Shares of Class A Stock pursuant to stock options -- -- 162,000 ---------- ---------- ---------- Balance as of March 31, 1999 33,876,314 243,291 37,099,321 ========== ========== ========== Balance as of December 31, 1999 35,151,966 (1,914,389) 36,126,992 Comprehensive income: Net unrealized gains on debt and equity securities -- 101,652 101,652 Net earnings 610,307 -- 610,307 Total comprehensive income 711,959 Acquisition and retirement of 14,260 shares of Common Stock (256,680) -- (270,940) Acquisition and retirement of 16,060 shares of Class A Stock (152,570) -- (168,630) ---------- ---------- ---------- Balance as of March 31, 2000 35,353,023 (1,812,737) 36,399,381 ========== ========== ==========
See Notes to Consolidated Financial Statements. 5 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended March 31, 2000 and 1999
2000 1999 ---- ---- Cash flows from operating activities: Net earnings $ 610,307 881,058 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 417,613 434,530 Net realized capital (gains) losses 108,554 (159,161) Changes in: Accrued interest receivable (48,332) 86,687 Reinsurance recoverable 3,103,241 (71,116) Receivables, net (1,171,800) 798,567 Deferred policy acquisition costs (387,872) (134,333) Prepaid expenses and other assets (431,113) (483,296) Accounts payable and accrued liabilities 1,360,081 664,416 Cash collateral held (935,328) 554,494 Reserves for losses and loss adjustment expenses (5,702,845) 220,386 Income taxes, net 240,934 301,558 Unearned premiums 1,210,118 381,846 ----------- ----------- Net cash provided by (used for) operating activities (1,626,442) 3,475,636 ----------- ----------- Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 4,986,176 16,652,198 Fixed maturities-matured 1,646,000 430,000 Short-term investments 363,562 50,893,522 Purchases of: Fixed maturities (2,530,101) (19,523,750) Short-term investments (3,104,803) (46,781,210) Capital expenditures (136,906) (21,688) ----------- ----------- Net cash provided by investing activities 1,223,928 1,649,072 ----------- ----------- Cash flows from financing activities: Borrowings under lines of credit -- 2,980,000 Repayments on long-term debt (395,714) (387,538) Issuance of Class A Stock -- 162,000 Payments for acquisition & retirement of stock (439,570) (1,314,462) ----------- ----------- Net cash provided by (used for) financing activities (835,284) 1,440,000 ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,237,798) 6,564,708 Cash and cash equivalents at beginning of period 7,054,911 2,306,232 ----------- ----------- Cash and cash equivalents at end of period $ 5,817,113 8,870,940 =========== ===========
See Notes to Consolidated Financial Statements. 6 7 ACMAT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Financial Statements The consolidated financial statements include the accounts of ACMAT Corporation ("ACMAT" or the "Company") and its subsidiaries. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles and are unaudited. The interim financial information contained in this report has been prepared from the books and records of the Company and its subsidiaries and reflects, in the opinion of the management of the Company, all adjustments (consisting of normal and recurring accruals) necessary to fairly present results of operations for the periods indicated. All significant intercompany accounts and transactions have been eliminated in consolidation. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1999. (2) Earnings Per Share The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the three-month periods ended March 31, 2000 and 1999.
Average Shares Per-Share 2000: Earnings Outstanding Amount ----- -------- ----------- ------ Basic EPS: Earnings available to stockholders $ 610,307 2,860,095 $ .21 Effect of Dilutive Securities: Stock options -- 43,506 ---------- --------- Diluted EPS: Earnings available to stockholders $ 610,307 2,903,601 $ .21 ========== ========= ======= 1999: Basic EPS: Earnings available to stockholders $ 881,058 2,985,868 $ .30 Effect of Dilutive Securities: Stock options -- 72,601 Convertible Note 292,215 1,400,000 ---------- --------- Diluted EPS: Earnings available to stockholders $1,173,273 4,458,469 $ .26 ========== ========= =======
The Convertible Notes were anti-dilutive in 2000. (3) Supplemental Cash Flow Information Income tax paid during the three months ended March 31, 2000 and 1999 was $27,854 and $12,270, respectively. Interest paid for the three months ended March 31, 2000 and 1999 was $218,234 and $296,532, respectively. 7 8 (4) Comprehensive Income The following table summarizes reclassification adjustments for other comprehensive income (loss) and the related tax effects for the three months ended March 31, 2000 and 1999:
2000 1999 ---- ---- Unrealized gains (losses) on investments: Unrealized holding gain (loss) arising during period, net of income tax (benefit) of ($75,807) for 1999. $ 30,006 (147,155) Less reclassification adjustment for gains (losses) included in net income, net of income tax expense (benefit) of ($36,908) and $54,115 for 2000 and 1999, (71,646) 105,046 --------- -------- respectively Other comprehensive income (loss) $ 101,652 (252,201) ========= ========
(5) Future Accounting Standard SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", was issued in June 1998 and establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement was to be effective for all fiscal quarters of fiscal years beginning after June 15, 1999. However, in June 1999, SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133" was issued. SFAS No. 137 allows entities which have not adopted SFAS No. 133 to defer its effective date to all fiscal quarters of all fiscal years beginning after June 15, 2000. This Statement should not be applied retroactively to financial statements of prior periods. The Company adopted the deferral provisions of SFAS No. 137, effective January 1, 2000 and has not completed its evaluation of the effect SFAS No. 133 will have on the Company's results of operations or financial condition. (6) Segment Reporting The Company has three reportable operating segments: ACMAT Contracting, ACSTAR Bonding and United Coastal Liability Insurance. The Company's reportable segments are primarily the three main legal entities of the Company which offer different products and services. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. ACMAT Contracting provides construction contracting services to commercial and governmental customers. ACMAT Contracting also provides underwriting services to its insurance subsidiaries. In addition, ACMAT Contracting owns a commercial office building in New Britain Connecticut and leases office space to its insurance subsidiaries as well as third parties. The United Coastal Liability Insurance operating segment offers specific lines of liability insurance as an approved non-admitted excess and surplus lines insurer in forty-six states, Puerto Rico, the Virgin Islands and the District of Columbia. United Coastal offers claims made and occurrence policies for specific specialty lines of liability insurance through certain excess and surplus lines brokers who are licensed and regulated by the state insurance department(s) in the state(s) in which they operate. United Coastal offers general, asbestos, lead, pollution and professional liability insurance nationwide to specialty trade contractors, environmental contractors, property owner, storage and treatment facilities and professionals. United Coastal also offers products liability insurance to manufacturers and distributors. The Bonding operating segment provides, primarily through ACSTAR, surety bonds written for prime, specialty trade, environmental, asbestos and lead abatement contractors and miscellaneous obligations. ACSTAR also offers other miscellaneous surety such as workers' compensation bonds, supply bonds, subdivision bonds and license and permit bonds. 8 9 The Company evaluates performance based on earnings before income taxes and excluding interest expense. The Company accounts for intersegment revenue and expenses as if the products/services were to third parties. Information relating to the three segments for the three-month periods ended March 31, 2000 and 1999 is summarized as follows:
2000 1999 ---- ---- Revenues: ACSTAR Bonding $ 1,647,636 1,328,393 United Coastal Liability Insurance 1,654,626 2,429,098 ACMAT Contracting 3,602,710 3,558,776 ------------ ------------ $ 6,904,972 7,316,267 ============ ============ Operating Earnings: ACSTAR Bonding $ 710,218 616,454 United Coastal Liability Insurance 688,062 1,259,444 ACMAT Contracting 329,011 330,883 ------------ ------------ $ 1,727,291 2,206,781 ============ ============ Depreciation and Amortization: ACSTAR Bonding $ 133,425 94,881 United Coastal Liability Insurance 102,294 71,326 ACMAT Contracting 181,894 268,343 ------------ ------------ $ 417,613 434,530 ============ ============ Identifiable Assets: ACSTAR Bonding $ 43,013,935 51,891,552 United Coastal Liability Insurance 61,434,386 82,704,627 ACMAT Contracting 17,215,991 15,590,422 ------------ ------------ $121,664,312 150,186,601 ============ ============
The components of revenue for each segment for the three-month periods ended March 31, 2000 and 1999 are as follows:
2000 1999 ---- ---- ACSTAR Bonding: Premiums $ 1,284,806 984,533 Investment income, net 344,529 340,132 Other 18,301 3,728 ----------- ----------- $ 1,647,636 1,328,393 =========== =========== United Coastal Liability Insurance: Premiums $ 1,063,668 1,404,916 Investment income, net 697,522 856,140 Capital gains (losses) (108,554) 159,161 Other 1,990 8,881 ----------- ----------- $ 1,654,626 2,429,098 =========== =========== ACMAT Contracting: Contract revenues $ 2,512,810 2,483,676 Investment income, net 33,557 20,766 Intersegment revenue: Rental income 339,015 342,614 Underwriting services and agency commissions 551,596 548,082 Other 165,732 163,638 ----------- ----------- $ 3,602,710 3,558,776 =========== ===========
9 10 The following is a reconciliation of segment totals for revenue and operating income to corresponding amounts in the Company's statement of earnings:
Revenue: 2000 1999 ---- ---- Total revenue for reportable segments $ 6,904,972 7,316,267 Intersegment eliminations (823,665) (740,696) ----------- ----------- $ 6,081,307 6,575,571 =========== =========== Operating Earnings: Total operating earnings for reportable segments $ 1,727,291 2,206,781 Interest expense (746,410) (913,656) Other operating expenses (108,101) (98,237) ----------- ----------- $ 872,780 1,194,888 =========== ===========
Operating earnings for ACMAT contracting are operating revenues less cost of contract revenues and identifiable selling, general and administrative expenses. Operating earnings for the bonding and liability insurance segments are revenues less losses and loss adjustment expenses, amortization of policy acquisition costs and identifiable selling, general and administrative expenses. The adjustments and eliminations required to arrive at consolidated amounts shown above consist principally of the elimination of the intersegment revenues related to the performance of certain services and rental charges. Identifiable assets are those assets that are used by each segment's operations. Foreign revenues are not significant. 10 11 ACMAT CORPORATION AND SUBSIDIARIES Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations CONSOLIDATED RESULTS OF OPERATIONS: Net earnings were $610,307 for the three months ended March 31, 2000 compared to $881,058 for the same period a year ago. The decrease in 2000 net earnings compared to the 1999 net earnings was due primarily to the realized capital losses of $108,554 in 2000 compared with capital gains of $159,161 in 1999 offset by the decrease in interest expense related to the reduction of long-term debt partially offset by the decrease in investment income. Revenues were $6,081,307 for the three months ended March 31, 2000 compared to $6,575,571 for the same period in 1999. The decrease in revenues over the past year reflects the Company's strategy to avoid the unfavorable pricing in the Company's casualty insurance operations. Earned premiums were $2,348,474 for the three months ended March 31, 2000 compared to $2,389,449 for the same period a year ago. Contract revenue is difficult to predict and depends greatly on the successful securement of contracts bid. Contract revenues were $2,512,810 for the three months ended March 31, 2000 compared to $2,483,676 for the same period a year ago. Investment income was $1,142,554 compared to $1,367,038 for the same period in 1999. The decrease in investment income was primarily related to a decrease in invested assets which were used to reduce long-term debt. Net realized capital losses were $108,554 for the three months ended March 31, 2000 compared to realized capital gains of $159,161 for the same period a year ago. Other income was $186,023 for the three months ended March 31, 2000 compared to $176,247 for the same period in 1999 Losses and loss adjustment expenses were $441,660 for the three months ended March 31, 2000 compared to $470,701 for the same period a year ago. The decreases in losses and loss adjustment expenses are attributable to the decline in earned premiums. Amortization of policy acquisition costs were $391,679 for the three months ended March 31, 2000 compared to $357,783 for the same period in 1999. The increase in amortization of policy acquisition costs is primarily attributable to the increase in commissions paid to agents. Costs of contract revenues were $2,364,230 for the three months ended March 31, 2000 compared to $2,228,345 for the same period a year ago. The gross profit margin on construction projects was 6% in 2000 compared to 10% in 1999. Gross margin fluctuations each year based upon the profitability of specific projects. General and administrative expenses were $1,264,548 for the three months ended March 31, 2000 compared to $1,410,198 for the same period a year ago. The decrease in general and administrative expenses in 2000 compared to 1999 is due primarily to the decrease in amortization of intangibles and a decrease in bad debt expense. Interest expense was $746,410 for the three months ended March 31, 2000 compared to $913,656 for the same period in 1999. The decrease in interest expense is due to the decrease in long-term debt. During 1999, the Company repaid and refinanced long-term debt. Income tax expense was $262,473 for the three months ended March 31, 2000 compared to $313,830 for the same period a year ago representing effective tax rates of 30.1% and 26.3%, respectively. The fluctuation in the effective tax rate is due to tax exempt interest income making up a smaller portion of taxable income in 2000. 11 12 Results of Operations by Segment: ACSTAR BONDING:
2000 1999 ---- ---- Revenue $1,647,636 1,328,393 Operating Earnings $ 710,218 616,454
Revenues for the ACSTAR Bonding segment were $1,647,636 for the three months ended March 31, 2000 compared to $1,328,393 for the same period in 1999. Net written premiums were $1,369,629 for the three months ended March 31, 2000 compared to $1,016,694 for the three months ended March 31, 1999. Earned premiums increased 30% to $1,284,806 for the three months ended March 31, 2000 compared to $984,533 for the three months ended March 31, 1999. Investment income was $344,529 for the three months ended March 31, 2000 compared to $340,132 for the same period a year ago. The increase in investment income was primarily related to a slight increase in invested assets and an increase in the effective yield on those invested assets. Operating earnings for the ACSTAR Bonding segment were $710,218 for the three months ended March 31, 2000 compared to $616,454 for the same period in 1999. The increase in 2000 operating earnings compared to 1999 operating earnings is due primarily to an increase in earned premiums offset in part by an increase in the amortization of policy acquisition costs. Losses and loss adjustment expenses were $76,200 for the three months ended March 31, 2000 compared to $49,227 for the same period a year ago. Amortization of policy acquisition costs were $465,407 for the three months ended March 31, 2000 compared to $262,964 for the same period in 1999. The increase in amortization of policy acquisition costs in 2000 compared to 1999 is primarily attributable to the increase in commissions paid to agents. General and administrative expenses were $395,811 for the three months ended March 31, 2000 compared to $399,748 for the same period a year ago. The decrease in general and administrative expenses is due primarily to the decrease in bad debt expense offset in part by an increase in salary expense. UNITED COASTAL LIABILITY INSURANCE:
2000 1999 ---- ---- Revenue $1,654,626 2,429,098 Operating Earnings 688,062 1,259,444
Revenues for the United Coastal Liability Insurance segment were $1,654,626 for the three months ended March 31, 2000 compared to $2,429,098 for the same period in 1999. The 2000 decrease in revenue reflects a decrease in earned premiums and investment income compared to 1999. Net written premiums were $1,653,638 for the three months ended March 31, 2000 compared to $1,597,430 for the three months ended March 31, 1999. Earned premiums decreased 24% to $1,063,668 for the three months ended March 31, 2000 compared to $1,404,916 for the three months ended March 31, 1999. The decrease in revenues reflect the Company's strategy to avoid the unfavorable pricing in the Company's casualty insurance market and use of invested assets to reduce Company debt. Investment income was $697,522 for the three months ended March 31, 2000 compared to $856,140 for the same period a year ago. The decrease in investment income was primarily related to a decrease in invested assets as a result of dividends distributed to the parent company to reduce corporate debt. Net realized capital losses were $108,554 for the three months ended March 31, 2000 as compared to realized capital gains of $159,161 for the same period a year ago. Operating earnings for the United Coastal Liability Insurance segment were $688,062 for the three months ended March 31, 2000 as compared to $1,259,444 for the same period in 1999. The decrease in 2000 operating earnings compared to 1999 operating earnings is due primarily to a decrease in earned premiums and investment income offset in part by a reduction in amortization of policy acquisition costs and losses and loss adjustment expenses. Losses and loss adjustment expenses were $365,460 for the three months ended March 31, 2000 compared to $421,474 for the same period a year ago. The decrease in losses and loss adjustment expenses are attributable to the decrease in earned premiums. Amortization of policy acquisition costs were $326,026 for the three months ended March 31, 2000 as compared to $420,052 for the same period in 1999. The decrease in amortization of policy acquisition costs is primarily attributable to the decrease in earned premiums. General and administrative expenses were $275,078 for the three months ended March 31, 2000 compared to $328,128 for the same period a year ago. The decrease in general and administrative expenses is due primarily to the overall decrease in business activities. 12 13 ACMAT CONTRACTING:
2000 1999 ---- ---- Revenue $3,602,710 3,558,776 Operating Earnings $ 329,011 330,883
Revenues for the ACMAT Contracting segment were $3,602,710 for the three months ended March 31, 2000 compared to $3,558,776 for the same period in 1999. The 2000 increase in revenue reflects a slight increase in contract revenues compared to 1999. Contract revenue is difficult to predict and depends greatly on the successful securement of contracts bid. Operating earnings for the ACMAT Contracting segment were $329,011 for the three months ended March 31, 2000 compared to $330,883 for the same period a year ago. The decrease in 2000 operating earnings compared to 1999 operating earnings is due primarily to reduced gross margins on the 2000 projects offset by a decrease in general and administrative expenses. Cost of contract revenues were $2,364,230 for the three months ended March 31, 2000 compared to $2,228,345 for the same period in 1999. The gross profit margin on construction projects was 6% in 2000 and 10% in 1999. Gross margin fluctuations each year based upon the profitability of specific projects. General and administrative expenses were $909,469 for the three months ended March 31, 2000 compared to $999,548 for the same period a year ago. The decrease in general and administrative expenses in 2000 compared to 1999 is due primarily to the decrease in the amortization of intangibles. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES: Reserves for losses and loss adjustment expenses are established with respect to both reported and incurred but not reported claims for insured risks. The amount of loss reserves for reported claims is primarily based upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the policy provisions relating to the type of claim. As part of the reserving process, historical data is reviewed and consideration is given to the anticipated impact of various factors such as legal developments and economic conditions, including the effects of inflation. Reserves are monitored and evaluated periodically using current information on reported claims. Management believes that the reserves for losses and loss adjustment expenses at March 31, 2000 are adequate to cover the unpaid portion of the ultimate net cost of losses and loss adjustment expenses, including losses incurred but not reported. Reserves for losses and loss adjustment expenses are estimates at any given point in time of what the Company may have to pay ultimately on incurred losses, including related settlement costs, based on facts and circumstances then known. The Company also reviews its claim reporting patterns, loss experience, risk factors and current trends and considers their effect in the determination of estimates of incurred but not reported reserves. Ultimate losses and loss adjustment expenses are affected by many factors which are difficult to predict, such as claim severity and frequency, inflation levels and unexpected and unfavorable judicial rulings. Reserves for surety claims also consider the amount of collateral held as well as the financial strength of the principal and its indemnitors. The Company's insurance subsidiaries' loss ratios under generally accepted accounting principles ("GAAP") were 18.8% and 19.7% for the three-month periods ended March 31, 2000 and 1999, respectively. These loss ratios are below industry averages and are believed to be the result of conservative underwriting. There can be no assurance that such loss ratios can continue. The Company's insurance subsidiaries' expense ratios under GAAP were 60.6% and 57.5% for the three-month period ended March 31, 2000 and 1999, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 79.4% and 77.2% for the three-month period ended March 31, 2000 and 1999, respectively. The increase in the 2000 combined ratio results primarily from the increase in commissions paid. LIQUIDITY AND CAPITAL RESOURCES: The Company internally generates sufficient funds for its operations and maintains a relatively high degree of liquidity in its investment portfolio. The primary sources of funds to meet the demands of claim settlements and operating expenses are premium collections, investment earnings and maturing investments. The Company has no material commitments for capital expenditures and, in the opinion of management, has adequate sources of liquidity to fund its operations over the next year. ACMAT, exclusive of its subsidiaries, has incurred negative cash flows from operating activities primarily because of interest expense related to notes payable and long-term debt incurred by ACMAT to acquire and capitalize its insurance subsidiaries and to repurchase Company stock. 13 14 ACMAT's principal sources of funds are dividends from its wholly-owned subsidiaries, intercompany and short-term borrowings, insurance underwriting fees from its subsidiaries, construction contracting operations and rental income. Management believes that these sources of funds are adequate to service its indebtedness. ACMAT has recently relied on dividends from its insurance subsidiaries to repay debt. The Company used cash flow for operations of $1,626,442 for the three-month period ended March 31, 2000 compared to the cash flow provided from operations of $3,475,636 for the same period in 1999. Net cash flows used for operations in 2000 were used principally for payment of losses and loss adjustment expenses. Substantially all of the Company's cash flow was used to repay long-term debt, repurchase stock and purchase investments. The Company's short term investment strategy coincides with the relatively short maturity of its liabilities which are comprised primarily of reserves for losses covered by claims-made insurance policies, reserves related to surety bonds and collateral held for surety obligations. Net cash provided by investing activities in the first quarter of 2000 amounted to $1,223,928 compared to $1,649,072 for the same period in 1999. Purchases of investments are made based upon excess cash available after the payment of losses and loss adjustment expenses and other operating and non-operating expenses. The terms of the Company's note agreements contain limitations on payment of cash dividends, re-acquisition of shares, borrowings and investments and require maintenance of specified ratios and minimum net worth levels, including cross default provisions. The payment of future cash dividends and the re-acquisition of shares are restricted each to amounts of an Available Fund. The Available Fund is a cumulative fund which is increased each year by 20% of the Consolidated Net Earnings (as defined). The Company is in compliance with all covenants at March 31, 2000. The Company maintains a short-term unsecured bank credit line totaling $10 million to fund interim cash requirements. There were no borrowings under this line of credit as of March 31, 2000. During the three-month period ended March 31, 2000, the Company purchased in the open market and privately negotiated transactions, 14,260 shares of its Common Stock at an average price of $19.00. During the three-month period ended March 31, 2000, the Company also purchased, in the open market and privately negotiated transactions, 16,060 shares of its Class A Stock at an average price of $10.50 per share. The Company's principal source of cash for repayment of long-term debt is from dividends from its two insurance companies. Under applicable insurance regulations, ACMAT's insurance subsidiaries are restricted as to the amount of dividends they may pay to their respective holding companies, without the prior approval of their domestic State insurance department. The amount of dividends ACMAT's insurance subsidiaries may pay, without prior approval of their domestic State insurance departments, are limited to approximately $9,775,000 in 2000. REGULATORY ENVIRONMENT Risk-based capital requirements are used as early warning tools by the National Association of Insurance Commissioners and the states to identify companies that require further regulatory action. The ratio for each of the Company's insurance subsidiaries as of March 31, 2000 was above the level which might require regulatory action. 14 15 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K a. Exhibits -27. Financial Data Schedule b. Report on Form 8-K - None 15 16 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACMAT CORPORATION Date: May 12, 2000 /S/ Henry W. Nozko, Sr. ------------------------------------------- Henry W. Nozko, Sr., President and Chairman Date: May 12, 2000 /S/ Henry W. Nozko, Jr. --------------------------------------------- Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer 16 EX-27 2 EXHIBIT 27
5 1 3-MOS DEC-31-1999 MAR-31-2000 5,817,113 88,426,642 3,995,181 (195,118) 0 100,948,373 17,989,520 5,327,035 121,664,312 54,867,925 30,397,006 0 0 2,859,095 33,540,286 121,664,312 4,861,284 6,081,307 3,197,569 3,197,569 1,264,548 0 746,410 872,780 262,473 610,307 0 0 0 610,307 .21 .21
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