-----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, P/mv0Lrx4J2iMlTPFIVc/RrQ2eDhSd/cLkjFo1j2EB7toc/5iT8OREZ7XY1QoKxT W7QRCJWJG0PdKHZqo8s3Rw== /in/edgar/work/20000814/0000914039-00-000386/0000914039-00-000386.txt : 20000921 0000914039-00-000386.hdr.sgml : 20000921 ACCESSION NUMBER: 0000914039-00-000386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACMAT CORP CENTRAL INDEX KEY: 0000002062 STANDARD INDUSTRIAL CLASSIFICATION: [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: 700947 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 e10-q.txt FORM 10-Q 1 UNITED STATES 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 June 30, 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 July 31, 2000 - -------------- ---------------- Common Stock 567,148 Class A Stock 2,246,454
2 TABLE OF CONTENTS
Part I FINANCIAL INFORMATION PAGE ---- Item 1.Unaudited Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Earnings 4 Consolidated 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 Conditions and Results of Operations 11 Part II OTHER INFORMATION Item 4.Submission of Matters to a Vote of Security Holders 16 Item 6.Exhibits and Reports on Form 8-K 16 Signatures 17
2 3 Part I Financial Information Item I Financial Statements ACMAT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
June 30, December 31, Assets 2000 1999 - ------ ---- ---- (Unaudited) Investments: Fixed maturities-available for sale at fair value (Cost of $83,622,873 in 2000 and $89,290,810 in 1999) $ 82,394,621 87,826,920 Equity securities, at fair value (Cost of $2,065,262 in 2000 and 1999) 1,636,916 1,614,763 Mortgage loans 300,531 -- Short-term investments, at cost which approximates fair value 4,152,654 518,557 ------------- ------------ Total investments 88,484,722 89,960,240 Cash and cash equivalents 3,746,356 7,054,911 Accrued interest receivable 1,242,738 1,324,356 Reinsurance recoverable 889,555 3,924,064 Receivables, net 3,030,122 2,823,381 Income tax refund receivable 402,121 173,465 Prepaid expenses 202,214 106,049 Deferred income taxes 1,137,578 1,560,324 Property & equipment, net 12,600,672 12,675,956 Deferred policy acquisition costs 1,765,052 1,323,780 Other assets 2,998,565 2,360,366 Intangibles, net 2,405,394 2,568,719 ------------- ------------ $ 118,905,089 125,855,611 ============= ============ Liabilities & Stockholders' Equity Accounts payable $ 2,485,007 1,923,081 Reserves for losses and loss adjustment expenses 32,250,315 38,544,491 Unearned premiums 6,428,988 5,262,468 Collateral held 10,039,399 11,954,554 Accrued liabilities 666,044 1,251,305 Long-term debt 29,998,666 30,792,720 ------------- ------------ Total liabilities 81,868,419 89,728,619 Commitments and contingencies Stockholders' Equity: Common Stock (No par value; 3,500,000 shares authorized; 567,148 and 584,828 shares issued and outstanding) 567,148 584,828 Class A Stock (No par value; 10,000,000 shares authorized; 2,286,454 and 2,304,587 shares issued and outstanding) 2,286,454 2,304,587 Retained earnings 35,839,666 35,151,966 Accumulated other comprehensive income (loss) (1,656,598) (1,914,389) ------------- ------------ Total stockholders' equity 37,036,670 36,126,992 ------------- ------------ $ 118,905,089 125,855,611 ============= ============
See Notes to Consolidated Financial Statements. 3 4 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings (Unaudited)
Three months ended Six months ended June 30 June 30 ------------------------------ -------------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Earned premiums $2,119,632 2,356,264 4,468,106 4,745,713 Contract revenues 3,197,675 2,119,920 5,710,485 4,603,596 Investment income, net 1,216,594 1,360,043 2,359,148 2,727,081 Net realized capital gains (losses) -- 187,631 (108,554) 346,792 Other income 241,812 241,469 427,835 417,716 ---------- ---------- ----------- ---------- 6,775,713 6,265,327 12,857,020 12,840,898 ---------- ---------- ----------- ---------- Cost of contract revenues 2,986,343 1,748,064 5,350,573 3,976,409 Losses and loss adjustment expenses 392,125 436,113 833,785 906,814 Amortization of policy acquisition costs 593,681 511,463 985,360 869,246 General and administrative expenses 1,283,344 1,450,042 2,547,892 2,860,240 Interest expense 731,447 901,469 1,477,857 1,815,125 ---------- ---------- ----------- ---------- 5,986,940 5,047,151 11,195,467 10,427,834 ---------- ---------- ----------- ---------- Earnings before income taxes 788,773 1,218,176 1,661,553 2,413,064 Income taxes Federal 211,164 303,900 453,637 597,730 State 15,000 20,000 35,000 40,000 ---------- ---------- ----------- ---------- 226,164 323,900 488,637 637,730 ---------- ---------- ----------- ---------- Net earnings $ 562,609 894,276 1,172,916 1,775,334 ========== ========== =========== ========== Basic earnings per share $ .20 .30 .41 .59 Diluted earnings per share $ .19 .27 .40 .53
See Notes to Consolidated Financial Statements. 4 5 ACMAT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) June 30, 1999 and 2000
Accumulated Common Class A Additional other Total stock par stock par paid-in Retained comprehensive stockholders' value value capital earnings income (loss) equity --------- --------- ----------- ------------ ----------- ------------ Balance as of December 31, 1998 $ 592,088 $ 2,460,808 $ -- $ 34,074,538 $ 495,492 $ 37,622,926 Comprehensive income: Net unrealized losses on debt and equity securities -- -- -- -- (1,335,511) (1,335,511) Net earnings -- -- -- 1,775,334 -- 1,775,334 ------------ Total comprehensive income 439,823 Acquisition and retirement of 2,180 shares of Common Stock (2,180) -- -- (42,783) -- (44,963) Acquisition and retirement of 112,621 shares of Class A Stock -- (112,621) (350,250) (1,158,637) -- (1,621,508) Issuance of 15,000 shares of Class A Stock pursuant to investment agreement -- 15,000 206,250 -- -- 221,250 Issuance of 18,000 shares of Class A Stock pursuant to stock options -- 18,000 144,000 -- -- 162,000 --------- ----------- ----------- ------------ ----------- ------------ Balance as of June 30, 1999 $ 589,908 $ 2,381,187 $ -- $ 34,648,452 ($ 840,019) $ 36,779,528 ========= =========== =========== ============ =========== ============ Balance as of December 31, 1999 $ 584,828 2,304,587 -- 35,151,966 (1,914,389) 36,126,992 Comprehensive income: Net unrealized gains on debt and equity securities -- -- -- -- 257,791 257,791 Net earnings -- -- -- 1,172,916 -- 1,172,916 ------------ Total comprehensive income 1,430,707 Acquisition and retirement of 17,680 shares of Common Stock (17,680) -- -- (318,240) -- (335,920) Acquisition and retirement of 18,133 shares of Class A Stock -- (18,133) -- (166,976) -- (185,109) --------- ----------- ----------- ------------ ----------- ------------ Balance as of June 30, 2000 $ 567,148 2,286,454 -- 35,839,666 (1,656,598) 37,036,670 ========= =========== =========== ============ =========== ============
See Notes to Consolidated Financial Statements. 5 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2000 and 1999
2000 1999 ---- ---- Cash flows from operating activities: Net earnings $ 1,172,916 1,775,334 Adjustments to reconcile net earnings to net cash used for operating activities: Depreciation and amortization 792,340 902,684 Net realized capital (gains) losses 108,554 (346,792) Changes in: Accrued interest receivable 81,618 (169,500) Reinsurance recoverable 3,034,509 (133,441) Receivables, net (206,741) 1,183,154 Deferred policy acquisition costs (441,272) (205,856) Prepaid expenses and other assets (741,150) (357,587) Accounts payable and accrued liabilities (23,335) (85,353) Reserves for losses and loss adjustment expenses (6,294,176) (2,214,162) Collateral held (1,915,155) (3,049,259) Income taxes, net 194,090 73,267 Unearned premiums 1,166,520 337,797 ------------ ------------ Net cash used for operating activities (3,071,282) (2,289,714) ------------ ------------ Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 5,293,654 45,989,860 Fixed maturities-matured 7,661,000 5,939,136 Short term investments 6,495,204 123,965,330 Purchases of: Fixed maturities (7,712,627) (62,236,700) Equity securities -- (24,404) Mortgages (300,531) -- Short-term investments (10,129,301) (112,711,816) Capital expenditures (229,589) (177,557) ------------ ------------ Net cash provided by investing activities 1,077,810 743,849 ------------ ------------ Cash flows from financing activities: Borrowings under line of credit -- 2,980,000 Repayments on long-term debt (794,054) (776,015) Issuance of Class A Stock -- 162,000 Payments for acquisition & retirement of stock (521,029) (1,666,471) ------------ ------------ Net cash provided by (used for) financing activities (1,315,083) 699,514 ------------ ------------ Net decrease in cash (3,308,555) (846,351) Cash at beginning of period 7,054,911 2,306,232 ------------ ------------ Cash at end of period $ 3,746,356 1,459,881 ============ ============
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 six-month periods ended June 30, 2000 and 1999:
Average Shares Per-Share 2000: Earnings Outstanding Amount ----- -------- ----------- ------ Basic EPS: Earnings available to stockholders $1,172,916 2,859,508 $.41 Effect of Dilutive Securities: Stock options -- 41,904 ---------- --------- Diluted EPS: Earnings available to stockholders $1,172,916 2,901,412 $.40 ========== ========= ==== 1999: ----- Basic EPS: Earnings available to stockholders $1,775,334 2,985,636 $.59 Effect of Dilutive Securities: Stock options -- 71,331 Convertible Note $ 584,430 1,400,000 ---------- --------- Diluted EPS: Earnings available to stockholders $2,359,764 4,456,967 $.53 ========== ========= ====
The Convertible Notes were anti-dilutive in 2000. 7 8 (3) Supplemental Cash Flow Information Income taxes paid during the six months ended June 30, 2000 and 1999 was $294,547 and $564,463, respectively. Interest paid for the six months ended June 30, 2000 and 1999 was $1,302,508 and $1,466,377, respectively. (4) Comprehensive Income The following table summarizes reclassification adjustments for other comprehensive income (loss) and the related tax affects for the six months ended June 30, 2000 and 1999:
2000 1999 ---- ---- Unrealized gains (losses) on investments: Unrealized holding gain (loss) arising during period $186,145 (1,106,628) Less reclassification adjustment for gains (losses) included in net income, net of income tax expense (benefit) of ($36,908) and $117,909 for 2000 and 1999, respectively (71,646) 228,883 -------- ---------- Other comprehensive income (loss) $257,791 (1,335,511) ======== ==========
(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. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 113," which amends the accounting and reporting standards of FAS 133. 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. 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. 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, professional, products, pollution, asbestos, and lead 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. 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. 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 and six-month periods ended June 30, 2000 and 1999 is summarized as follows:
Three Months ended Six Months ended ------------------ ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: ACSTAR Bonding $1,375,302 1,471,344 3,022,938 2,799,737 United Coastal Liability Insurance 1,796,108 2,333,184 3,450,734 4,762,282 ACMAT Contracting 4,460,496 3,023,906 8,063,206 6,582,682 ---------- ---------- ---------- ---------- $7,631,906 6,828,434 14,536,878 14,144,701 ========== ========== ========== ========== Operating Earnings: ACSTAR Bonding $ 280,239 625,028 990,457 1,241,482 United Coastal Liability Insurance 873,337 1,322,935 1,561,399 2,582,379 ACMAT Contracting 477,354 253,594 806,365 584,478 ---------- ---------- ---------- ---------- $1,630,930 2,201,557 3,358,221 4,408,339 ========== ========== ========== ========== Depreciation and Amortization: ACSTAR Bonding $ 127,159 119,827 260,584 214,708 United Coastal Liability Insurance 98,435 93,399 200,729 164,725 ACMAT Contracting 149,217 254,908 331,111 523,251 ---------- ---------- ---------- ---------- $ 374,811 468,134 792,424 902,684 ========== ========== ========== ==========
Identifiable Assets: June 30, 2000 December 31, 1999 ------------- ----------------- ACSTAR Bonding $ 40,967,248 44,594,402 United Coastal Liability Insurance 61,500,389 63,335,872 ACMAT Contracting 16,437,452 17,925,337 ------------ ----------- $118,905,089 125,855,611 ============ ===========
The components of revenue for each segment for the three and six-month periods ended June 30, 2000 and 1999 are as follows: Three Months ended Six Months ended ------------------ ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- ACSTAR Bonding: Premiums $1,076,284 1,105,577 2,361,090 2,090,110 Investment income, net 299,018 300,063 643,547 640,195 Capital gains/(losses) -- 65,705 -- 65,705 Other -- (1) 18,301 3,727 ---------- ---------- ---------- --------- $1,375,302 1,471,344 3,022,938 2,799,737 ========== ========== ---------- ========= United Coastal Liability Insurance: Premiums $1,043,348 1,250,687 2,107,016 2,655,603 Investment income, net 748,384 955,015 1,445,906 1,811,155 Capital gains -- 121,926 (108,554) 281,087 Other 4,376 5,556 6,366 14,437 ---------- ---------- ---------- --------- $1,796,108 2,333,184 3,450,734 4,762,282 ========== ========== ========== ========= ACMAT Contracting: Contract revenues $3,197,675 2,119,920 5,710,485 4,603,596 Investment income, net 13,455 4,622 47,012 25,388 Intersegment revenue: Rental income 310,737 305,342 649,752 647,956 Underwriting services, agency commissions and funds administration services 701,193 358,914 1,252,789 906,190 Other 237,436 235,108 403,168 399,552 ---------- ---------- ---------- --------- $4,460,496 3,023,906 8,063,206 6,582,682 ========== ========== ========== =========
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:
Three Months ended Six Months ended ------------------ ---------------- Revenue: 2000 1999 2000 1999 ---- ---- ---- ---- Total revenue for reportable segments $ 7,631,906 6,828,434 14,536,878 14,144,701 Intersegment eliminations (856,193) (563,107) (1,679,858) (1,303,803) ----------- ----------- ----------- ----------- $ 6,775,713 6,265,327 12,857,020 12,840,898 =========== =========== =========== =========== Operating Earnings: Total operating earnings for reportable segments $ 1,630,930 2,201,557 3,358,221 4,408,339 Interest expense (731,447) (901,469) (1,477,857) (1,815,125) Other operating expenses (110,710) (81,912) (218,811) (180,150) ----------- ----------- ----------- ----------- $ 788,773 1,218,176 1,661,553 2,413,064 =========== =========== =========== ===========
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 Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations CONSOLIDATED RESULTS OF OPERATIONS: Net earnings were $562,609 for the three months ended June 30, 2000 compared to $894,276 for the same period a year ago. Net earnings for the six months ended June 30, 2000 were $1,172,916 compared to $1,775,334 for the six months ended June 30, 1999. The decrease in 2000 net earnings compared to the 1999 net earnings was due primarily to the realized capital losses in 2000 compared with capital gains in 1999. The decrease in interest expense related to the reduction of long-term debt was partially offset by the decrease in investment income. Revenues were $6,775,713 for the three months ended June 30, 2000 compared to $6,265,327 for the same period in 1999. Revenues were $12,857,020 for the six months ended June 30, 2000 compared to $12,840,898 for the same period in 1999. Earned premiums were $2,119,632 for the three months ended June 30, 2000 compared to $2,356,264 for the same period a year ago. Earned premiums were $4,468,106 for the six months ended June 30, 2000 compared to $4,745,713 for the same period in 1999. Contract revenues were $3,197,675 for the three months ended June 30, 2000 compared to $2,119,920 for the same period a year ago. Contract revenues were $5,710,485 for the six months ended June 30, 2000 compared to $4,603,596 for the six months ended June 30, 1999. Contract revenue is difficult to predict and depends greatly on the successful securement of contracts bid. Investment income was $1,216,594 for the three months ended June 30, 2000 compared to $1,360,043 for the same period in 1999. Investment income was $2,359,148 for the six months ended June 30, 2000 compared to $2,727,081 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. There were no net realized capital gains or losses for the three months ended June 30, 2000 compared to realized capital gains of $187,631 for the same period a year ago. Net realized capital losses were $108,554 for the six months ended June 30, 2000 compared to net realized capital gains of $346,792 for the same period a year ago. Other income was $241,812 for the three months ended June 30, 2000 compared to $241,469 for the same period in 1999. Other income was $427,835 for the six months ended June 30, 2000 compared to $417,716 for the six months ended June 30, 1999. Other income consists primarily of rental income. Losses and loss adjustment expenses were $392,125 for the three months ended June 30, 2000 compared to $436,113 for the same period a year ago. Losses and loss adjustment expenses were $833,785 for the six months ended June 30, 2000 compared to $906,814 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 $593,681 for the three months ended June 30, 2000 compared to $511,463 for the same period in 1999. Amortization of policy acquisition costs were $985,360 for the six months ended June 30, 2000 compared to $869,246 for the six months ended June 30, 1999. The increase in amortization of policy acquisition costs is primarily attributable to the increased rate of in commissions paid to agents. Costs of contract revenues were $2,986,343 for the three months ended June 30, 2000 compared to $1,748,064 for the same period a year ago, representing gross profit margin 6.6% and 17.5%, respectively. Costs of contract revenues were $5,350,573 for the six months ended June 30, 2000 compared to $3,976,409 for the same period a year ago, representing gross profit margins of 6.3% and 13.6%, respectively. Gross margin fluctuates each year based upon the profitability of specific projects. General and administrative expenses were $1,283,344 for the three months ended June 30, 2000 compared to $1,450,042 for the same period a year ago. General and administrative expenses were $2,547,892 for the six months ended June 30, 2000 compared to $2,860,240 for the six months ended June 30, 1999. 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 offset in part by an increase in salary expense. Interest expense was $731,447 for the three months ended June 30, 2000 compared to $901,469 for the same period in 1999. Interest expense was $1,477,857 for the six months ended June 30, 2000 compared to $1,815,125 for the same period a year ago. The decrease in interest expense is due to the decrease in long-term debt. During 1999, the Company repaid and refinanced long-term debt. 11 12 Income tax expense was $226,164 for the three months ended June 30, 2000 compared to $323,900 for the same period a year ago representing effective tax rates of 28.7% and 26.6%, respectively. Income tax expense was $488,637 for the six months ended June 30, 2000 compared to $637,730 for the same period a year ago, representing effective tax rates of 29.4% and 26.4%, 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. Results of Operations by Segment:
ACSTAR BONDING: Three Months ended June 30, Six Months ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenue $1,375,302 1,471,344 $3,022,938 2,799,737 Operating Earnings $ 280,239 625,028 $ 990,457 1,241,482
Revenues for the ACSTAR Bonding segment were $1,375,302 for the three months ended June 30, 2000 compared to $1,471,344 for the same period in 1999. Revenues for the ACSTAR Bonding segment were $3,022,938 for the six months ended June 30, 2000 compared to $2,799,737 for the six months ended June 30, 1999. Net written premiums were $1,044,616 for the three months ended June 30, 2000 compared to $1,258,263 for the three months ended June 30, 1999. Net written premiums were $2,414,245 for the six months ended June 30, 2000 compared to $2,274,957 for the same period a year ago. Earned premiums were $1,076,284 for the three months ended June 30, 2000 compared to $1,105,577 for the three months ended June 30, 1999. Earned premiums were $2,361,090 for the six months ended June 30, 2000 compared to $2,090,110 for the six months ended June 30, 1999. The lower net written premiums and earned premiums for the three months ended June 30, 2000 as compared to the three months ended June 30, 1999 reflect the Company's new reinsurance treaty. Effective May 1, 2000, the Company cedes significantly more of its bond exposure than under its previous reinsurance treaties. Such reinsurance is applicable on a per principal basis for losses in excess of $1,000,000 up to $13,000,000. Prior to May 1, 2000, reinsurance was applicable to losses in excess of $2,000,000 on a per bond basis with the company retaining approximately $5,000,000 of losses up to $13,000.000. ACSTAR has experienced a significant increase in surety business submitted by agents during 2000 as a result of developing stronger relationships with selected agents. The Company has also been able to maintain its pricing levels and its underwriting criteria during 2000. Investment income was $299,018 for the three months ended June 30, 2000 compared to $300,063 for the same period a year ago. Investment income was $643,547 for the six months ended June 30, 2000 compared to $640,195 for the six months ended June 30, 1999. The investment income reflects a decrease in invested assets offset by an increase in the effective yield on those invested assets. Operating earnings for the ACSTAR Bonding segment were $280,239 for the three months ended June 30, 2000 compared to $625,028 for the same period in 1999. Operating earnings for the six months ended June 30, 2000 were $990,457 compared to $1,241,482 for the six months ended June 30, 1999. The decrease in 2000 operating earnings compared to 1999 operating earnings reflects the Company's new reinsurance program and an increase in the amortization of policy acquisition costs. Losses and loss adjustment expenses were $55,288 for the three months ended June 30, 2000 compared to $55,278 for the same period a year ago. Losses and loss adjustment expenses were $131,488 for the six months ended June 30, 2000 compared to $104,505 for the same period a year ago. Amortization of policy acquisition costs were $462,841 for the three months ended June 30, 2000 compared to $341,547 for the same period in 1999. Amortization of policy acquisition were $928,248 for the six months ended June 30, 2000 compared to $604,511 for the same period a year ago. The increase in amortization of policy acquisition costs in 2000 compared to 1999 is primarily attributable to the increased rate of commissions paid to agents. General and administrative expenses were $576,934 for the three months ended June 30, 2000 compared to $449,491 for the same period a year ago. General and administrative expenses were $972,745 for the six months ended June 30, 2000 compared to $849,239 for the same period a year ago. The increase in general and administrative expenses is due primarily to the implementation of a Funds Administration Agreement with ACMAT. ACMAT collects funds from certain obligees of ACSTAR and makes payments directly to the vendors and subcontractors of selected principals for certain bond obligations. 12 13 UNITED COASTAL LIABILITY INSURANCE:
Three Months ended June 30, Six Months ended June 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenue $1,796,108 2,333,184 $3,450,734 4,762,282 Operating Earnings $ 873,337 1,322,935 $1,561,399 2,582,379
Revenues for the United Coastal Liability Insurance segment were $1,796,108 for the three months ended June 30, 2000 compared to $2,333,184 for the same period in 1999. Revenues for the United Coastal Liability Insurance segment were $3,450,734 for the six months ended June 30, 2000 compared to $4,762,282 for the six months ended June 30, 1999. The 2000 decrease in revenue reflects a decrease in earned premiums and investment income compared to 1999. Net written premiums were $1,013,921 for the three months ended June 30, 2000 compared to $1,178,605 for the three months ended June 30, 1999. Net written premiums were $2,667,559 for the six months ended June 30, 2000 compared to $2,776,035 for the same period a year ago. Earned premiums were $1,043,348 for the three months ended June 30, 2000 compared to $1,250,687 for the three months ended June 30, 1999. Earned premiums were $2,107,017 for the six months ended June 30, 2000 compared to $2,655,603 for the six months ended June 30, 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 $748,384 for the three months ended June 30, 2000 compared to $955,015 for the same period a year ago. Investment income was $1,445,906 for the six months ended June 30, 2000 compared to $1,811,155 for the six months ended June 30, 1999. 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. There were no net realized capital gains for the three months ended June 30, 2000 as compared to realized capital gains of $121,926 for the same period a year ago. Operating earnings for the United Coastal Liability Insurance segment were $873,337 for the three months ended June 30, 2000 as compared to $1,322,935 for the same period in 1999. Operating earnings for the six months ended June 30, 2000 were $1,561,399 compared to $2,582,379 for the six months ended June 30, 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 $336,837 for the three months ended June 30, 2000 compared to $380,835 for the same period a year ago. Losses and loss adjustment expenses were $702,297 for the six months ended June 30, 2000 compared to $802,309 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 $333,770 for the three months ended June 30, 2000 as compared to $374,512 for the same period in 1999. Amortization of policy acquisition were $659,796 for the six months ended June 30, 2000 compared to $794,564 for the same period a year ago. The decrease in amortization of policy acquisition costs is primarily attributable to the decrease in earned premiums. General and administrative expenses were $252,164 for the three months ended June 30, 2000 compared to $254,902 for the same period a year ago. General and administrative expenses were $527,242 for the six months ended June 30, 2000 compared to $583,030 for the same period a year ago. The decrease in general and administrative expenses reflect the overall decrease in business activities.
ACMAT CONTRACTING: Three Months ended June 30 Six Months ended June 30, -------------------------- ------------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenue $4,460,496 3,023,906 8,063,206 6,582,682 Operating Earnings $ 477,354 253,594 806,365 584,478
Revenues for the ACMAT Contracting segment were $4,460,496 for the three months ended June 30, 2000 compared to $3,023,906 for the same period in 1999. Revenues were $8,063,206 for the six months ended June 30, 2000 compared to $6,582,682 for the same period a year ago. The 2000 increase in revenue reflects an increase in contract revenues compared to 1999. Contract revenue is difficult to predict and depends greatly on the successful securement of contracts bid. 13 14 Operating earnings for the ACMAT Contracting segment were $477,354 for the three months ended June 30, 2000 compared to $253,594 for the same period a year ago. Operating earnings were $806,365 for the six months ended June 30, 2000 compared to $584,478 for the six months ended June 30, 1999. The increase in 2000 operating earnings compared to 1999 operating earnings is due primarily to the implementation of the Funds Administration Agreement with ACSTAR during the second quarter of 2000 offset in part by reduced gross margins on the 2000 projects. Cost of contract revenues were $2,986,343 for the three months ended June 30, 2000 compared to $1,758,064 for the same period in 1999 representing gross profit margin of 6.6% and 17.1%, respectively. Cost of contract revenues were $5,350,573 for the six months ended June 30, 2000 compared to $3,986,407 for the same period a year ago, representing gross profit margins of 6.3% and 13.4%, respectively. Gross margin fluctuates each year based upon the profitability of specific projects. General and administrative expenses were $996,799 for the three months ended June 30, 2000 compared to $1,012,248 for the same period a year ago. General and administrative expenses were $1,906,268 for the three months ended June 30, 2000 compared to $2,011,796 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 June 30, 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 18.7% and 19.1% for the six-month periods ended June 30, 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 60.9% and 58.1% for the six-month period ended June 30, 2000 and 1999, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 79.6% and 77.2% for the six-month period ended June 30, 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. 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. 14 15 The Company used cash flow for operations of $3,071,282 for the six-month period ended June 30, 2000 compared to $2,289,714 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 and the return of collateral. 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 six-months of 2000 amounted to $1,077,810 compared to $743,849 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 June 30, 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 June 30, 2000. During the six-month period ended June 30, 2000, the Company purchased in the open market and privately negotiated transactions, 17,680 shares of its Common Stock at an average price of $19.00. During the six-month period ended June 30, 2000, the Company also purchased, in the open market and privately negotiated transactions, 18,133 shares of its Class A Stock at an average price of $10.21 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 $10,077,000 in 2000. The dividend limitation has increased from previous disclosures reflecting an adjustment to reduce excess of statutory reserves over statement reserves and a related increase in unassigned surplus. 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 June 30, 2000 was above the level which might require regulatory action. 15 16 Part II - Other Information Item 4. - Submission of Matters to a Vote of Security Holders a. The Annual Meeting of Stockholders of ACMAT Corporation was held on Thursday, June 22, 2000. b. Directors elected at the meeting:
Votes Votes Brokers For Against Non-Votes Henry Nozko, Sr. 694,105 2,317 0 Henry Nozko, Jr. 686,815 9,607 0 Victoria Nozko 694,125 2,297 0 John Creasy 694,125 2,297 0 Arthur Moore 694,345 2,077 0 Alfred T. Zlotopolski 694,345 2,077 0
c. Other matters voted upon:
Brokers For Against Abstain Non-Votes 1. Appointment of Independent Auditors 695,779 472 171 0
Item 6 - Exhibits and Reports on Form 8-K a. 27 - Financial Data Schedule b. Report on Form 8-K - None 16 17 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: August 14, 2000 /S/ Henry W. Nozko, Sr. ----------------------- Henry W. Nozko, Sr. President and Chairman Date: August 14, 2000 /S/ Henry W. Nozko, Jr. ------------------------ Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer 17 EX-27 2 ex27.txt EXHIBIT 27
5 1 6-MOS DEC-31-1999 JUN-30-1999 3,746,356 88,484,722 3,225,240 (195,118) 0 97,997,828 18,078,823 (5,478,151) 118,905,089 51,869,753 29,998,666 0 0 2,853,602 34,183,068 118,905,089 5,317,307 6,775,713 3,972,149 3,972,149 1,283,344 0 731,447 788,773 226,164 562,609 0 0 0 562,609 .20 .19
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