-----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, NHwDOyAAp2ZJEgFxYm8k728KUkuFWMKkB1CCO6Zw8pG6m5mkibjmpo87+RpKB8In FHIDKnzOqvK6A5i6aWYqtg== /in/edgar/work/0000914039-00-000484/0000914039-00-000484.txt : 20001115 0000914039-00-000484.hdr.sgml : 20001115 ACCESSION NUMBER: 0000914039-00-000484 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 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: 766656 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 y42543e10-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 September 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.
Title of Class Shares outstanding - ------------- at October 31, 2000 ------------------ Common Stock 567,148 Class A Stock 2,057,254
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 Condition and Results of Operations 11 Part II OTHER INFORMATION 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
September 30, December 31, Assets 2000 1999 (Unaudited) ------------- ------------ Investments: Fixed maturities-available for sale at fair value (Cost of $78,689,071 in 2000 and $89,290,810 in 1999) $77,969,589 87,826,920 Equity securities, at fair value (Cost of $2,561,512 in 2000 and 1999) 2,132,546 1,614,763 Mortgage loans 297,368 - Short-term investments, at cost which approximates fair value 2,346,567 518,557 ----------- ------------ Total investments 82,746,070 89,960,240 Cash and cash equivalents 3,280,099 7,054,911 Accrued interest receivable 1,219,094 1,324,356 Reinsurance recoverable 753,029 3,924,064 Receivables, net 4,588,764 2,823,381 Income tax refund receivable 277,019 173,465 Prepaid expenses 247,359 106,049 Deferred income taxes 913,491 1,560,324 Property & equipment, net 12,560,332 12,675,956 Deferred policy acquisition costs 1,606,888 1,323,780 Other assets 3,448,675 2,360,366 Intangibles, net 2,323,730 2,568,719 ------------ ------------- $113,964,550 125,855,611 ============ =========== Liabilities & Stockholders' Equity Accounts payable 3,071,744 1,923,081 Reserves for losses and loss adjustment expenses 27,728,862 38,544,491 Unearned premiums 5,748,725 5,262,468 Collateral held 8,416,553 11,954,554 Accrued liabilities 1,713,362 1,251,305 Long-term debt 29,598,968 30,792,720 ---------- ----------- Total liabilities 76,278,214 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; 2,232,254 and 2,304,587 shares issued and outstanding) 2,232,254 2,304,587 Retained earnings 36,035,464 35,151,966 Accumulated other comprehensive income (loss) (1,148,530) (1,914,389) ------------ ------------ Total stockholders' equity 37,686,336 36,126,992 ------------ ------------ $113,964,550 125,855,611 =========== ===========
See Notes to Consolidated Financial Statements. 3 4 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings (Unaudited)
Three months ended, Nine months ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ----------- ----------- ----------- ----------- Earned premiums $ 2,310,467 2,433,719 6,778,573 7,179,432 Contract revenues 3,840,853 2,681,087 9,551,338 7,284,683 Investment income, net 1,147,016 1,378,914 3,506,164 4,105,995 Net realized capital gains (losses) (6,325) (1,530) (114,879) 345,262 Other income 372,445 510,526 800,280 928,242 ----------- ----------- ----------- ----------- 7,664,456 7,002,716 20,521,476 19,843,614 ----------- ----------- ----------- ----------- Losses and loss adjustment expenses 394,324 395,991 1,228,109 1,302,805 Amortization of policy acquisition costs 698,137 640,939 1,683,497 1,510,185 Cost of contract revenues 3,592,296 2,522,333 8,942,869 6,498,742 General and administrative expenses 1,263,964 1,409,822 3,811,856 4,270,062 Interest expense 798,508 1,061,299 2,276,365 2,876,424 ----------- ----------- ----------- ----------- 6,747,229 6,030,384 17,942,696 16,458,218 ----------- ----------- ----------- ----------- Earnings before income taxes 917,227 972,332 2,578,780 3,385,396 Income taxes Federal 354,868 274,286 808,505 872,016 State 15,000 15,000 50,000 55,000 ----------- ----------- ----------- ----------- 369,868 289,286 858,505 927,016 ----------- ----------- ----------- ----------- Net earnings $ 547,359 683,046 1,720,275 2,458,380 =========== =========== =========== =========== Basic earnings per share $ .20 .23 .60 .83 Diluted earnings per share $ .19 .22 .60 .75
See Notes to Consolidated Financial Statements. 4 5 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited) September 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 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 -- -- -- -- (1,701,197) (1,701,197) Net earnings -- -- -- 2,458,380 -- 2,458,380 ------------ Total comprehensive income 757,183 Acquisition and retirement of 7,260 shares of Common Stock (7,260) -- -- (142,478) -- (149,738) Acquisition and retirement of 139,221 -- (139,221) (350,250) (1,482,067) -- (1,971,538) shares of Class A Stock 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 September 30, 1999 $584,828 $2,354,587 $ -- $34,908,373 $(1,205,705) $36,642,083 =========== ============ ============ ============ ============ ============ 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, net of tax -- -- -- -- 765,859 765,859 Net earnings -- -- -- 1,720,275 -- 1,720,275 ------------ Total comprehensive income 2,486,134 Acquisition and retirement of 17,680 shares of Common Stock (17,680) -- -- (318,240) -- (335,920) Acquisition and retirement of 72,333 shares of Class A Stock -- (72,333) -- (518,537) -- (590,870) ----------- ------------ ------------ ------------ ------------ ------------ Balance as of September 30, 2000 $567,148 $2,232,254 $ -- $36,035,464 $(1,148,530) $37,686,336 =========== ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements. 5 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and 1999
2000 1999 ---- ---- Cash flows from operating activities: Net earnings $ 1,720,275 2,458,380 Adjustments to reconcile net earnings to net cash (used for) provided by operating activities: Depreciation and amortization 1,180,261 1,407,835 Net realized capital (gains) losses 114,879 (345,262) Changes in: Accrued interest receivable 105,262 (184,500) Reinsurance recoverable 3,171,035 (523,309) Receivables, net (1,765,383) 487,129 Deferred policy acquisition costs (283,108) 28,774 Prepaid expenses and other assets (1,240,509) 494,711 Accounts payable and accrued liabilities 1,610,720 90,677 Reserves for losses and loss adjustment expenses (10,815,629) (3,895,384) Collateral held (3,538,001) (4,156,488) Income taxes, net 543,279 347,330 Unearned premiums 486,257 (726,534) ------------ ------------ Net cash used for operating activities (8,710,662) (4,516,641) ------------ ------------ Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 9,251,178 53,006,633 Fixed maturities-matured 8,651,000 9,779,136 Equity securities 325,000 -- Short-term investments 13,230,100 131,000,241 Purchases of: Fixed maturities (7,873,333) (65,461,977) Equity securities (821,250) (24,405) Mortgages (297,368) Short-term investments (15,058,110) (124,694,884) Capital expenditures (350,825) (244,296) ------------ ------------ Net cash provided by investing activities 7,056,392 3,360,448 ------------ ------------ Cash flows from financing activities: Borrowings under line of credit -- 9,000,000 Payments under line of credit -- (4,500,000) Payments on long-term debt (1,193,752) (5,415,417) Issuance of long-term debt -- 4,500,000 Issuance of Class A Stock -- 162,000 Payments for acquisition & retirement of stock (926,790) (2,121,285) ------------ ------------ Net cash used for financing activities (2,120,542) 1,625,298 ------------ ------------ Net increase (decrease) in cash (3,774,812) 469,105 Cash at beginning of period 7,054,911 2,306,232 ------------ ------------ Cash at end of period $ 3,280,099 2,775,337 ============ ============
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 nine-month periods ended September 30, 2000 and 1999. The Convertible Notes were anti-dilutive in 2000.
Average Shares Per-Share Earnings Outstanding Amount -------- ----------- ------ 2000: Basic EPS: Earnings available to stockholders $1,720,275 2,847,641 $.60 Effect of Dilutive Securities: Stock options $ --- 38,405 ------------ ----------- Diluted EPS: Earnings available to stockholders $1,720,275 2,886,046 $. 60 ========== ========= ========== 1999: Basic EPS: Earnings available to stockholders $2,458,380 2,975,228 $.83 Effect of Dilutive Securities: Stock options -- 64,758 Convertible Note $876,645 1,400,000 --------- --------- Diluted EPS: Earnings available to stockholders $3,335,025 4,439,986 $.75 ========== ========== =========
(3) Supplemental Cash Flow Information Income taxes paid during the nine months ended September 30, 2000 and 1999 was $315,224 and $579,684, respectively. Interest paid for the nine months ended September 30, 2000 and 1999 was $1,745,660 and $2,255,552, respectively. 7 8 (4) Comprehensive Income The following table summarizes reclassification adjustments for other comprehensive income (loss) and the related tax affects for the nine months ended September 30, 2000 and 1999:
2000 1999 --------- ---------- Unrealized gains (losses) on investments: Unrealized holding gain (loss) arising during period $ 690,039 (1,473,324) Less reclassification adjustment for gains (losses) included in net income, net of income tax expense (benefit) of ($39,059) and $117,389 and for 2000 and 1999, respectively (75,820) 227,873 --------- ---------- Other comprehensive income (loss) $ 765,859 (1,701,197) ========= ==========
(5) Future Accounting Standards 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. 133", 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. Management does not expect that SFAS No. 133, as amended, will have a material effect on the Company's results of operations or financial condition in future periods. (6) Segment Reporting The Company has three reportable operating segments: ACSTAR Bonding, United Coastal Liability Insurance and ACMAT Contracting. 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. 8 9 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. 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 to third parties. 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 nine-month periods ended September 30, 2000 and 1999 is summarized as follows:
Three Months ended Nine Months ended ------------------ ----------------- 2000 1999 2000 1999 ---------- ----------- ----------- ---------- Revenues: ACSTAR Bonding $1,579,633 1,665,867 $ 4,602,571 4,465,604 United Coastal Liability Insurance 1,769,338 2,025,355 5,220,072 6,787,637 ACMAT Contracting 4,846,905 3,823,081 12,910,111 10,405,763 ---------- ----------- ----------- ---------- $8,195,876 7,514,303 $22,732,754 21,659,004 ========== =========== =========== ========== Operating Earnings: ACSTAR Bonding $ 587,495 843,898 $ 1,577,952 2,085,380 United Coastal Liability Insurance 892,461 1,070,779 2,453,860 3,653,158 ACMAT Contracting 344,742 211,666 1,151,107 796,144 ---------- ----------- ----------- ---------- $1,824,698 2,126,343 $ 5,182,919 6,534,682 ========== =========== =========== ========== Depreciation and Amortization: ACSTAR Bonding $ 131,065 110,143 $ 391,649 324,851 United Coastal Liability Insurance 90,795 110,611 291,524 275,336 ACMAT Contracting 166,059 284,397 497,088 807,648 ---------- ----------- ----------- ---------- $ 387,919 505,151 $ 1,180,261 1,407,835 ========== =========== =========== ==========
Identifiable Assets: September 30, 2000 December 31, 1999 ------------------ ----------------- ACSTAR Bonding $ 40,331,063 44,594,402 United Coastal Liability Insurance 55,905,861 63,335,872 ACMAT Contracting 17,727,626 17,925,337 ------------ ----------- $113,964,550 125,855,611 ============ ===========
9 10 The components of revenue for each segment for the three and nine-month periods ended September 30, 2000 and 1999 are as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ----------- ------------ ------------ ---------- ACSTAR Bonding: Premiums $ 1,272,951 1,343,337 $ 3,634,041 3,433,447 Investment income, net 305,942 327,646 949,489 967,841 Capital gains/(losses) (5,622) (1,530) (5,622) 64,175 Other income (expense) 6,362 (3,586) 24,663 141 ----------- ------------ ------------ ---------- $ 1,579,633 1,665,867 $ 4,602,571 4,465,604 =========== ============ ============ ========== United Coastal Liability Insurance: Premiums $ 1,037,516 1,090,382 $ 3,144,532 3,745,985 Investment income, net 728,235 930,472 2,174,141 2,731,038 Equity income (loss) from limited partnership investment -- -- -- 10,587 Capital gains/(losses) (703) -- (109,257) 281,087 Other income 4,290 4,503 10,656 18,940 ----------- ------------ ------------ ---------- $ 1,769,338 2,025,357 $ 5,220,072 6,787,637 =========== ============ ============ ========== ACMAT Contracting: Contract revenues $ 3,840,853 2,681,087 $ 9,551,338 7,284,683 Investment income, net 5,812 5,960 52,824 31,348 Intersegment revenue: Rental income 305,341 303,340 955,093 951,296 Underwriting services and agency commissions 333,106 334,203 1,296,426 1,240,393 Other income 361,793 498,491 1,054,430 898,043 ----------- ------------ ------------ ---------- $ 4,846,905 3,823,081 $ 12,910,111 10,405,763 =========== ============ ============ ==========
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 Nine Months Ended ------------------ ----------------- 2000 1999 2000 1999 ----------- ------------ ------------ ----------- Revenue: Total revenue for reportable segments $ 8,195,876 7,514,303 $ 22,732,754 21,659,004 Intersegment eliminations (531,420) (511,587) (2,211,278) (1,815,390) ----------- ------------ ------------ ----------- $ 7,664,456 7,002,716 $ 20,521,476 19,843,614 =========== ============ ============ =========== Operating Earnings: Total operating earnings for reportable segments $ 1,824,698 2,126,343 $ 5,182,919 6,534,682 Interest expense (798,508) (1,061,299) (2,276,365) (2,876,424) Other operating expenses (108,963) (92,712) (327,774) (272,862) ----------- ------------ ------------ ----------- $ 917,227 972,332 $ 2,578,780 3,385,396 =========== ============ ============ ===========
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. 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 $547,359 for the three months ended September 30, 2000 compared to $683,046 for the same period a year ago. Net earnings for the nine months ended September 30, 2000 were $1,720,275 compared to $2,458,380 for the nine months ended September 30, 1999. The decrease in net earnings for the nine months ended September 30, 2000 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 $7,664,456 for the three months ended September 30, 2000 compared to $7,002,716 for the same period in 1999. Revenues were $20,521,476 for the nine months ended September 30, 2000 compared to $19,843,614 for the same period in 1999. Earned premiums were $2,310,467 for the three months ended September 30, 2000 compared to $2,433,719 for the same period a year ago. Earned premiums were $6,778,573 for the nine months ended September 30, 2000 compared to $7,179,432 for the same period in 1999. Contract revenues were $3,840,853 for the three months ended September 30, 2000 compared to $2,681,087 for the same period a year ago. Contract revenues were $9,551,338 for the nine months ended September 30, 2000 compared to $7,284,683 for the nine months ended September 30, 1999. Contract revenue is difficult to predict and depends greatly on the successful securement of contracts bid. Investment income was $1,147,016 for the three months ended September 30, 2000 compared to $1,378,914 for the same period in 1999. Investment income was $3,506,164 for the nine months ended September 30, 2000 compared to $4,105,995 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. Realized capital losses for the three months ended September 30, 2000 were $6,325 compared to realized capital losses of $1,530 for the same period a year ago. Net realized capital losses were $114,879 for the nine months ended September 30, 2000 compared to net realized capital gains of $345,262 for the same period a year ago. Other income was $372,445 for the three months ended September 30, 2000 compared to $510,526 for the same period in 1999. Other income was $800,280 for the nine months ended September 30, 2000 compared to $928,242 for the nine months ended September 30, 1999. Other income consists primarily of rental income. Losses and loss adjustment expenses were $394,324 for the three months ended September 30, 2000 compared to $395,991 for the same period a year ago. Losses and loss adjustment expenses were $1,228,109 for the nine months ended September 30, 2000 compared to $1,302,805 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 $698,137 for the three months ended September 30, 2000 compared to $640,939 for the same period in 1999. Amortization of policy acquisition costs were $1,683,497 for the nine months ended September 30, 2000 compared to $1,510,185 for the nine months ended September 30, 1999. The increase in amortization of policy acquisition costs is primarily attributable to the increased rate of commissions paid to agents. Costs of contract revenues were $3,592,296 for the three months ended September 30, 2000 compared to $2,522,333 for the same period a year ago, representing gross profit margin 6.5% and 5.9%, respectively. Costs of contract revenues were $8,942,869 for the nine months ended September 30, 2000 compared to $6,498,742 for the same period a year ago, representing gross profit margins of 6.4% and 10.8%, respectively. Gross margin fluctuates each year based upon the profitability of specific projects. General and administrative expenses were $1,263,964 for the three months ended September 30, 2000 compared to $1,409,822 for the same period a year ago. General and administrative expenses were $3,811,856 for the nine months ended September 30, 2000 compared to $4,270,062 for the nine months ended September 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 $798,508 for the three months ended September 30, 2000 compared to $1,061,299 for the same period in 1999. Interest expense was $2,276,365 for the nine months ended September 30, 2000 compared to $2,876,424 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 $369,868 for the three months ended September 30, 2000 compared to $289,286 for the same period a year ago representing effective tax rates of 40.3% and 29.8%, respectively. Income tax expense was $858,505 for the nine months ended September 30, 2000 compared to $927,016 for the same period a year ago, representing effective tax rates of 33.3% and 27.4%, 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 September 30, Nine Months ended September 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ---------- --------- ---------- --------- Revenue $1,579,633 1,665,867 $4,602,571 4,465,604 Operating Earnings $ 587,495 843,898 $1,577,952 2,085,380
Revenues for the ACSTAR Bonding segment were $1,579,633 for the three months ended September 30, 2000 compared to $1,665,867 for the same period in 1999. Revenues for the ACSTAR Bonding segment were $4,602,571 for the nine months ended September 30, 2000 compared to $4,465,604 for the nine months ended September 30, 1999. Net written premiums were $1,229,862 for the three months ended September 30, 2000 compared to $1,059,979 for the three months ended September 30, 1999. Net written premiums were $3,644,107 for the nine months ended September 30, 2000 compared to $3,334,936 for the same period a year ago. Earned premiums were $1,272,951 for the three months ended September 30, 2000 compared to $1,343,337 for the three months ended September 30, 1999. Earned premiums were $3,634,041 for the nine months ended September 30, 2000 compared to $3,433,447 for the nine months ended September 30, 1999. The net written premiums and earned premiums for the three and nine months ended September 30, 2000 as compared to the three and nine months ended September 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 believes it has been able to maintain its pricing levels and its underwriting criteria during 2000. Investment income was $305,942 for the three months ended September 30, 2000 compared to $327,646 for the same period a year ago. Investment income was $949,489 for the nine months ended September 30, 2000 compared to $967,840 for the nine months ended September 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 $587,495 for the three months ended September 30, 2000 compared to $843,898 for the same period in 1999. Operating earnings for the nine months ended September 30, 2000 were $1,577,952 compared to $2,085,380 for the nine months ended September 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 $64,925 for the three months ended September 30, 2000 compared to $67,167 for the same period a year ago. Losses and loss adjustment expenses were $196,413 for the nine months ended September 30, 2000 compared to $171,672 for the same period a year ago. Amortization of policy acquisition costs were $551,030 for the three months ended September 30, 2000 compared to $462,165 for the same period in 1999. Amortization of policy acquisition were $1,479,278 for the nine months ended September 30, 2000 compared to $1,066,676 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 $376,183 for the three months ended September 30, 2000 compared to $292,637 for the same period a year ago. General and administrative expenses were $1,348,928 for the nine months ended September 30, 2000 compared to $1,141,876 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 September 30, Nine Months ended September 30, -------------------------------- ------------------------------- 2000 1999 2000 1999 ---------- --------- ---------- --------- Revenue $1,769,338 2,025,355 $5,220,072 6,787,637 Operating Earnings $ 892,461 1,070,779 $2,453,860 3,653,158
Revenues for the United Coastal Liability Insurance segment were $1,769,338 for the three months ended September 30, 2000 compared to $2,025,355 for the same period in 1999. Revenues for the United Coastal Liability Insurance segment were $5,220,072 for the nine months ended September 30, 2000 compared to $6,787,637 for the nine months ended September 30, 1999. The 2000 decrease in revenue reflects a decrease in earned premiums and investment income compared to 1999. Net written premiums were $502,866 for the three months ended September 30, 2000 compared to $501,498 for the three months ended September 30, 1999. Net written premiums were $3,170,425 for the nine months ended September 30, 2000 compared to $3,277,533 for the same period a year ago. Earned premiums were $1,037,516 for the three months ended September 30, 2000 compared to $1,090,382 for the three months ended September 30, 1999. Earned premiums were $3,144,532 for the nine months ended September 30, 2000 compared to $3,745,985 for the nine months ended September 30, 1999. The decrease in revenues reflect the Company's strategy to maintain its conservative underwriting standard in the Company's casualty insurance market and use of invested assets to reduce Company debt. Investment income was $728,235 for the three months ended September 30, 2000 compared to $919,883 for the same period a year ago. Investment income was $2,174,141 for the nine months ended September 30, 2000 compared to $2,731,038 for the nine months ended September 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. Net realized capital losses were $703 for the three months ended September 30, 2000, as compared to no realized capital gains for the same period a year ago. Operating earnings for the United Coastal Liability Insurance segment were $892,461 for the three months ended September 30, 2000 as compared to $1,070,779 for the same period in 1999. Operating earnings for the nine months ended September 30, 2000 were $2,453,860 compared to $3,653,158 for the nine months ended September 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 $329,399 for the three months ended September 30, 2000 compared to $328,824 for the same period a year ago. Losses and loss adjustment expenses were $1,031,696 for the nine months ended September 30, 2000 compared to $1,131,133 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 $321,980 for the three months ended September 30, 2000 as compared to $345,693 for the same period in 1999. Amortization of policy acquisition were $981,776 for the nine months ended September 30, 2000 compared to $1,140,257 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 $225,498 for the three months ended September 30, 2000 compared to $280,059 for the same period a year ago. General and administrative expenses were $752,740 for the nine months ended September 30, 2000 compared to $863,089 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 September 30 Nine Months ended September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ---------- --------- ----------- ---------- Revenue $4,846,905 3,823,081 $12,910,111 10,405,763 Operating Earnings $ 344,742 211,666 $ 1,151,107 796,144
Revenues for the ACMAT Contracting segment were $4,846,905 for the three months ended September 30, 2000 compared to $3,823,081 for the same period in 1999. Revenues were $12,910,111 for the nine months ended September 30, 2000 compared to $10,405,763 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. The Company's construction backlog at September 30, 2000 was approximately $14,500,000 compared to approximately 10,100,000 at December 31, 1999. 13 14 Operating earnings for the ACMAT Contracting segment were $344,742 for the three months ended September 30, 2000 compared to $211,666 for the same period a year ago. Operating earnings were $1,151,107 for the nine months ended September 30, 2000 compared to $796,144 for the nine months ended September 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 $3,592,296 for the three months ended September 30, 2000 compared to $2,512,333 for the same period in 1999 representing gross profit margin of 6.5% and 6.3%, respectively. Cost of contract revenues were $8,942,869 for the nine months ended September 30, 2000 compared to $6,498,742 for the same period a year ago, representing gross profit margins of 6.4% and 10.8%, respectively. Gross margin fluctuates each year based upon the profitability of specific projects. General and administrative expenses were $909,867 for the three months ended September 30, 2000 compared to $1,089,081 for the same period a year ago. General and administrative expenses were $2,816,135 for the nine months ended September 30, 2000 compared to $3,110,877 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 September 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 18.1% and 18.1% for the nine-month periods ended September 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 61.4% and 57.1% for the nine month period ended September 30, 2000 and 1999, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 79.5% and 75.2% for the nine-month period ended September 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. The Company used cash flow for operations of $8,710,662 for the nine-month period ended September 30, 2000 compared to $4,516,641 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 14 15 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 nine-months of 2000 amounted to $7,056,392 compared to $3,360,448 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 September 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 September 30, 2000. During the nine-month period ended September 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 nine-month period ended September 30, 2000, the Company also purchased, in the open market and privately negotiated transactions, 72,333 shares of its Class A Stock at an average price of $8.17 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 because of an adjustment to reduce excess of statutory reserves over statement reserves and similar increase to 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 September 30, 2000 was above the level which might require regulatory action. 15 16 Part II - Other Information Item - Exhibits and Reports on Form 8-K a. Exhibits - 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: November 14, 2000 /s/ Henry W. Nozko, Sr. ---------------------------- Henry W. Nozko, Sr., President and Chairman Date: November 14, 2000 /s/ Henry W. Nozko, Jr. ---------------------------- Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer Date: November 14, 2000 /s/ Michael P. Cifone ---------------------------- Michael P. Cifone Vice President - Finance (Principal Financial and Accounting Officer) 17 EX-27 2 y42543ex27.txt EXHIBIT 27
5 1 3-MOS DEC-31-1999 SEP-30-2000 3,280,099 82,746,070 4,783,882 (195,118) 0 94,024,925 18,196,679 (5,636,347) 113,964,550 46,679,246 29,598,968 0 0 2,799,402 34,886,934 113,964,550 6,151,320 7,664,456 4,684,757 4,684,757 1,263,964 0 798,508 917,227 369,868 547,359 0 0 0 547,359 .20 .19
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