-----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, PLBCOJ3gPyour4/ahtuCPhhA2LbMBX1iTxulRloO9MCzNMSu42Ry3vvHgVkzpuqV AippyCijv92gb1VM8kadCw== 0000914039-96-000278.txt : 19960816 0000914039-96-000278.hdr.sgml : 19960816 ACCESSION NUMBER: 0000914039-96-000278 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACMAT CORP CENTRAL INDEX KEY: 0000002062 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 060682460 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06234 FILM NUMBER: 96613629 BUSINESS ADDRESS: STREET 1: 233 MAIN ST STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 BUSINESS PHONE: 2032299000 MAIL ADDRESS: STREET 1: 233 MAIN STREET STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 10-Q 1 FORM 10-Q 1 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, 1996 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, 1996 - -------------- ---------------- Common Stock 634,340 Class A Stock 2,582,585
2 TABLE OF CONTENTS
Part I FINANCIAL INFORMATION PAGE ---- Item 1. 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 9 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
2 3 Part I Financial Information Item I Financial Statements ACMAT CORPORATION AND SUBSIDIARIES Financial Statements Consolidated Balance Sheets
June 30, December 31, Assets 1996 1995 - ------ ---- ---- Investments: Fixed maturities-available for sale, at market (Cost of 120,180,404 in 1996 and 121,612,706 in 1995) $120,324,844 122,387,491 Equity securities, at market value (Cost $255,262 in 1996 and $20,000 in 1995) 289,062 20,000 Limited partnership investment, at market value (Cost $1,108,995 in 1996 and $1,120,354 in 1995) 1,776,755 1,641,763 Short-term investments, at cost which approximates market 15,082,321 8,359,047 ------------ ----------- Total investments 137,472,982 132,408,301 Cash 5,976,949 5,120,375 Accrued interest receivable 2,294,206 2,230,988 Reinsurance recoverable 3,666,685 3,872,099 Receivables, net 10,736,998 9,022,434 Federal income tax recoverable -- 233,572 Prepaid expenses 216,389 178,965 Deferred income taxes 2,049,420 1,971,148 Property & equipment, net 13,771,895 13,987,256 Deferred policy acquisition costs 3,432,968 3,459,308 Other assets 3,342,422 3,869,028 Intangibles, net 3,885,438 4,048,764 ------------ ----------- $186,846,352 180,402,238 ============ =========== Liabilities & Stockholders' Equity - ---------------------------------- Notes payable to banks $ 12,700,000 7,500,000 Accounts payable 2,101,835 2,189,645 Reserves for losses and loss adjustment expenses 46,737,736 45,235,311 Unearned premiums 14,310,177 14,302,613 Collateral held 19,407,150 17,767,955 Accrued liabilities 1,855,128 1,861,815 Income taxes 173,016 -- Long-term debt 37,750,034 40,127,590 ------------ ----------- Total liabilities 135,035,076 128,984,929 Minority interests 14,429,609 13,830,050 Stockholders' Equity: Common Stock (No Par Value; 3,500,000 Shares Authorized; 634,340 and 642,464 Shares Issued and Outstanding) 634,340 642,464 Class A Stock (No Par Value; 10,000,000 Shares Authorized; 2,582,585 and 2,665,836 Shares Issued and Outstanding) 2,582,585 2,665,836 Additional paid-in capital -- 1,921,100 Retained earnings 33,669,056 31,601,383 Net unrealized gain on securities 495,686 756,476 ------------ ----------- Total stockholders' equity 37,381,667 37,587,259 ------------ ----------- $186,846,352 180,402,238 ============ ===========
See Notes to Consolidated Financial Statements. 3 4 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings
Three months ended, Six months ended, June 30, June 30, -------- -------- 1996 1995 1996 1995 ---- ---- ---- ---- Earned premiums $ 5,663,800 6,345,619 10,307,832 12,048,233 Contract revenues 2,703,736 3,021,427 4,690,418 5,741,948 Investment income, net 1,577,588 1,562,565 3,226,615 2,939,451 Net realized capital gains (losses) 12,400 (7,580) 4,612 (7,700) Other income 125,803 205,442 312,823 371,376 ----------- ---------- ---------- ---------- 10,083,327 11,127,473 18,542,300 21,093,308 ----------- ---------- ---------- ---------- Losses and loss adjustment expenses 1,699,139 1,953,231 3,092,349 3,664,015 Amortization of policy acquisition costs 1,014,681 980,699 1,688,937 2,069,530 Cost of contract revenues 2,461,358 2,922,516 4,368,233 5,451,984 Selling, general and administrative expenses 1,387,932 1,546,914 2,707,853 2,913,304 Interest expense 1,310,915 1,201,738 2,543,298 2,412,573 ----------- ---------- ---------- ---------- 7,874,025 8,605,098 14,400,670 16,511,406 ----------- ---------- ---------- ---------- Earnings before income taxes and minority interests 2,209,302 2,522,375 4,141,630 4,581,902 Income taxes Federal 517,830 685,725 965,290 1,167,710 State 35,000 30,000 70,000 70,000 ----------- ---------- ---------- ---------- 552,830 715,725 1,035,290 1,237,710 ----------- ---------- ---------- ---------- Earnings before minority interests 1,656,472 1,806,650 3,106,340 3,344,192 Minority interests (326,141) (357,681) (635,895) (691,798) ----------- ---------- ---------- ---------- Net earnings $ 1,330,331 1,448,969 2,470,445 2,652,394 =========== ========== ========== ========== Net earnings per share and equivalent share $ .44 .38 .77 .69 Net earnings per share - assuming full dilution .33 .31 .60 .56 Weighted average shares outstanding 3,053,044 3,776,797 3,226,468 3,871,366
See Notes to Consolidated Financial Statements. 4 5 ACMAT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Net Common Class A unrealized stock stock Additional gains Total par par paid-in Retained (losses) stockholders' value value capital earnings on securities equity ----- ----- ------- -------- ------------- ------ Balance as of December 31, 1994 $652,920 $3,313,067 $ 9,358,948 $26,251,103 $(1,571,103) $38,004,935 Acquisition and retirement of 2,746 Shares of Common Stock (2,746) -- (39,314) -- -- (42,060) Acquisition and retirement of 525,104 Shares of Class A Stock -- (525,104) (5,560,959) -- -- (6,086,063) Issuance of 49,999 Shares of Class A Stock -- 49,999 449,991 -- -- 499,990 Net Unrealized Appreciation of Equity Securities -- -- -- -- 2,193,627 2,193,627 Net Earnings -- -- -- 2,652,394 -- 2,652,394 -------- ---------- ----------- --------- ----------- ----------- Balance as of June 30, 1995 $650,194 $2,837,962 $ 4,208,666 8,903,497 $ 622,524 $37,222,823 ======== ========== =========== =========== =========== =========== Balance as of December 31, 1995 $642,464 $2,665,836 $ 1,921,100 $31,601,383 $ 756,476 $37,587,259 Acquisition and Retirement of 8,124 Shares of Common Stock (8,124) -- (126,925) -- -- (135,049) Acquisition and Retirement of 483,250 Shares of Class A Stock -- (483,250) (5,394,166) (402,772) -- (6,280,188) Issuance of 399,999 Shares of -- 399,999 3,599,991 -- -- 3,999,990 Class A Stock Net Unrealized Losses on Debt and Equity Securities -- -- -- -- (260,790) (260,790) Net Earnings -- -- -- 2,470,445 -- 2,470,445 -------- ---------- ----------- --------- ----------- ----------- Balance as of June 30, 1996 $634,340 $2,582,585 $ -- $33,669,056 $ 495,686 $37,381,667 ======== ========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. 5 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, 1996 and 1995
1996 1995 ---- ---- Cash flows from operating activities: Net earnings $ 2,470,445 2,652,394 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 944,705 1,135,136 Minority interests 635,895 691,798 Net realized capital (gains) losses (4,612) 7,700 Changes in: Accrued interest receivable (63,218) 47,482 Reinsurance recoverable 205,414 322,091 Receivables, net (1,714,564) (841,425) Deferred policy acquisition costs 26,340 21,215 Prepaid expenses and other assets 452,768 22,561 Accounts payable and accrued liabilities (94,497) 37,599 Collateral held 1,639,195 5,691,690 Reserves for losses and loss adjustment expenses 1,502,425 2,535,105 Income taxes, net 481,383 (165,858) Unearned premiums 7,564 277,684 ------------ ----------- Net cash provided by operating activities 6,489,243 12,435,172 ------------ ----------- Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 4,370,628 7,016,843 Fixed maturities-matured 31,096,500 34,216,250 Equity securities 20,000 614,340 Purchases of: Fixed maturities (34,484,821) (43,387,981) Equity securities (255,262) -- Limited Partnership Investment Adjustment 11,360 -- Short-term investments, net (6,723,274) (6,181,293) Capital expenditures (74,997) (98,417) ------------ ----------- Net cash used for investing activities (6,039,866) (7,820,258) ------------ ----------- Cash flows from financing activities: Borrowings under line of credit 8,700,000 700,000 Payments under line of credit (3,500,000) -- Repayments on long-term debt (877,566) (1,204,578) Issuance of long-term debt 2,500,000 -- Payments for subsidiary stock (35,000) Payments for acquisition & retirement of stock (6,415,237) (6,128,123) ------------ ----------- Net cash provided by (used for) financing activities 407,197 (6,667,701) ------------ ----------- Net (decrease) increase in cash 856,574 (2,052,787) Cash at beginning of period 5,120,375 5,471,148 ------------ ----------- Cash at end of period $ 5,976,949 3,418,361 ============ ===========
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, 1995. (2) Earnings Per Share The earnings per share and share equivalent were computed by dividing net earnings by the weighted average number of Common and Class A shares outstanding of 3,226,468 and 3,871,366 for 1996 and 1995, respectively, and includes the common stock equivalency of outstanding options, if dilutive. The number of shares was also increased by the number of shares issuable on the exercise of options when the market price of the stock exceeded the exercise price of the option. This increase in the number of shares was reduced by the number of shares which are assumed to have been purchased with the proceeds from the exercise of the option; these purchases were assumed to have been made at the average price of the common stock during that part of the period when the market price of the common stock exceeded the exercise price of the option. Earnings per share - assuming full dilution was determined on the assumptions that the convertible notes were converted and the options were exercised at the beginning of the period. As to the debentures, net earnings were adjusted for the interest expense, net of its tax effect. As to the options, outstanding shares were increased as described above, except that purchases were assumed to have been made at the period-end price of the shares as it was higher than the average price during the period. (3) Supplemental Cash Flow Information Income taxes paid during the six months ended June 30, 1996 and 1995 were $553,907 and $1,403,568 respectively, and interest paid for the six months ended June 30, 1996 and 1995 were $2,580,161 and $2,441,195, respectively. During the first six months of 1996, the Company issued 399,999 shares of Class A Stock at $10 per share pursuant to the conversion options of the Convertible Senior Notes to AIG Life Insurance Company and American International Life Assurance Company of New York. On June 30, 1995, the holders of the 10.5% Convertible Senior Notes elected to convert the principal payment of $500,000 due on June 30, 1995 to 49,999 shares of Class A Stock. The issuance of stock pursuant to the conversion option of the Convertible Senior Notes is a non-cash transaction that is not reflected in the Statements of Cash Flows. (4) Application of New Accounting Standards Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (FAS 121). This statement establishes accounting standards for the impairment of long-lived assets and certain identifiable intangibles to be disposed of. This statement requires a write down to fair value when long-lived assets to be held and used are impaired. The adoption of this statement did not have any effect on results of operations, financial condition or liquidity as no adjustments were required. Also, effective January 1, 1996 the Company adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). This statement addresses alternative accounting treatments for stock-based compensation, such as stock options and restricted stock. FAS 123 permits disclosing in the financial statement footnotes the proforma impact to net earnings as if the value of stock-based compensation 7 8 awards had been expensed. The value of awards are measured at the grant date based upon estimated fair value, using option pricing models. The Company has selected the alternative method which provides for pro forma disclosure in the footnotes to the year-end financial statements only. 8 9 ACMAT CORPORATION Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations RESULTS OF OPERATIONS: Overview Net earnings were $1,330,331 for the three months ended June 30, 1996 compared to $1,448,969 for the same period a year ago. Net earnings for the six months ended June 30, 1996 were $2,470,445 compared to $2,652,394 for the six months ended June 30, 1995. The decrease in net earnings for the three and six-month periods is a result of a decrease in earned premiums and contract revenues partially offset by an increase in investment income. Earned Premiums Net written premiums were $5,306,302 for the three months ended June 30, 1996 compared to $7,461,509 for the three months ended June 30, 1995. Net written premiums for the six months ended June 30, 1996 were $10,471,383 compared to $12,563,623 for the six months ended June 30, 1995. Premiums earned for the three months ended June 30, 1996 were $5,663,800 as compared to $6,345,619 for the three months ended June 30, 1995. Premiums earned for the six months ended June 30, 1996 were $10,307,832 as compared to $12,048,233 for the six months ended June 30, 1995. The decrease in net written premiums and earned premiums for the three and six months ended June 30, 1996 compared to the same periods in 1995 is primarily due to a continuing soft insurance market place. Variances in net premiums written have historically occurred due to the fluctuations in size, number and timing of bonds and policies bound by the Company. The Company will maintain its existing pricing strategy and high level of service. Contract Revenues Contract revenues decreased to $2,703,736 for the three-month period ended June 30, 1996 compared to $3,021,427 for the same period in 1995. Contract revenues decreased to $4,690,418 for the six-month period ended June 30, 1996 compared to $5,741,948 for the same period in 1995. During the past several years, the Company has focused on more profitable projects. Construction revenue is difficult to predict and depends greatly on the successful securement of contracts bid. Investment Income, Net Net investment income increased to $1,577,588 for the three-month period ended June 30, 1996 compared to $1,562,565 for the same period in 1995, representing effective yields of 4.45% and 4.71%, respectively. Net investment income was $3,226,615 for the six-month period ended June 30, 1996 compared to $2,939,451 for the same period in 1995, representing effective yields of 4.59% and 4.57%, respectively. The increase in investment income in 1996 over 1995 was due substantially to higher yields on the portfolio as the result of higher interest rates obtained on reinvested assets as well as an increase in total invested assets. Invested assets, including cash, were $143,449,931 and $137,528,676 at June 30, 1996 and December 31, 1995, respectively. The increase in invested assets is attributable to net cash flow generated by written premiums, cash collateral and the reinvestment of investment income offset by the repayment of debt and the repurchase of stock. Net Realized Capital Gains Realized capital gains were $12,400 for the three-month period ended June 30, 1996 compared to realized capital losses of $7,580 for the same period in 1995. Realized capital gains in the six-month period ended June 30, 1996 were $4,612 compared to realized capital losses of $7,700 for the same period in 1995. Costs of Contract Revenues Costs of contract revenues were $2,461,358 for the three-month period ended June 30, 1996 compared to $2,922,516 for the same period a year ago. Costs of contract revenues increased to $4,368,233 for the six-month period ended June 30, 1996 compared to $5,451,984 for the same period in 1995. Costs of construction revenues vary from period to period as a function of contract revenues (See Contract Revenues). The Company's construction backlog was approximately $6,230,000 at June 30, 1996 compared to $5,640,000 a year ago. 9 10 Losses and Loss Adjustment Expenses Losses and loss adjustment expenses were $1,699,139 for the three-month period ended June 30, 1996 compared to $1,953,231 for the same period in 1995. Losses and loss adjustment expenses were $3,092,349 for the six months ended June 30, 1996 compared to $3,664,015 for the six months ended June 30, 1995. The decrease in losses and loss adjustment expenses are attributable to the decline in earned premiums from 1995 to 1996 without any fluctuations in the loss ratios. Losses and loss adjustment expense reserves represent management's estimate of the ultimate cost of unpaid losses incurred for these periods relative to premiums earned. Amortization of policy acquisition costs Amortization of policy acquisition costs was $1,014,681 for the three-month period ended June 30, 1996 as compared to $980,699 for the same period in 1995. For the six months ended June 30, 1996, amortization of policy acquisition costs was $1,688,937 compared to $2,069,530 for the same period a year ago. Policy acquisition costs, primarily commissions, are deferred and amortized over the policy term. The Company's expense ratio increased to 42.7% in 1996 from 40.6% in 1995 due primarily to a decrease in earned premiums. Selling, General and Administrative Expenses Selling, general and administrative expenses were $1,387,932 for the three-month period ended June 30, 1996 compared to $1,546,914 for the same period in 1995. Selling, general and administrative expenses were $2,707,853 for the six-month period ended June 30, 1996 compared to $2,913,304 for the same period in 1995. The decrease in the selling, general and administrative expenses during the three and six-month periods ended June 30, 1996 is due primarily to a decrease in salary expense. Interest Expense Interest expense increased to $1,310,915 for the three-month period ended June 30, 1996 compared to $1,201,738 for the same period in 1995. Interest expense increased to $2,543,298 for the six-month period ended June 30, 1996 compared to $2,412,573 for the same period in 1995. The increase in interest expense for the three and six-month periods is due primarily to the increase in short-term borrowing, offset in part by the repayment of long-term debt. Income Taxes Income tax expense was $552,830 for the three-month period ended June 30, 1996 compared to $715,725 for the same period in 1995, representing effective Federal tax rates of 23.4% and 27.2%, respectively. Income tax expense was $1,035,290 for the six-month period ended June 30, 1996 compared to $1,237,710 for the same period in 1995, representing effective Federal tax rates of 23.3% and 25.5%, respectively. The Federal effective tax rate fluctuates according to the mix of tax-exempt and taxable securities held by the Company. 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, 1996 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 claims reporting patterns, past 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 10 11 as well as the financial strength of the principal and its indemnitors. The Company's insurance subsidiaries' loss ratio under generally accepted accounting principles ("GAAP") was 30.0% and 30.2 % for the six-month periods ended June 30, 1996 and 1995, 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 42.7% and 40.6% for the six-month period ended June 30, 1996 and 1995, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 72.7% and 70.8% for the six-month period ended June 30, 1996 and 1995, respectively. Liquidity and Capital Resources: The Company generates sufficient funds from its operations and maintains a relatively high degree of liquidity in its investment portfolio. The primary source of funds to meet the demands of claim settlements and operating expenses are premium collections, investment earnings and maturing investments. As of June 30, 1996, the Company had no material commitments for capital expenditures and, in the opinion of management of the Company, the Company currently has adequate sources of liquidity to fund its operations over the next 12 months. 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 to acquire and capitalize its insurance subsidiaries. ACMAT has also incurred negative working capital as a result of holding short-term debt related to stock repurchases. 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 and its construction contracting operations without regard to any dividends from ACMAT's insurance holding company subsidiaries, United Coasts and ACSTAR Holdings. ACMAT has recently utilized short-term borrowing to repurchase its stock. On a long-term basis, ACMAT could rely, if necessary, on dividends from its insurance holding company subsidiaries to improve its working capital. The Company realized cash flow from operations of $6,489,243 for the six-month period ended June 30, 1996, compared to $12,435,172 for the same period in 1995. Net cash flows provided by operations in 1996 were derived principally from premium collections and the receipt of collateral held. 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 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 used for investing activities in 1996 amounted to $6,039,866, compared to net cash used for investing activities of $7,820,258 for the same period in 1995. 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 Company is prohibited from paying any dividend prior to July 1, 1997. 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, 1996, except for the limitation on the reacquisition of shares which exceeded the Available Fund at June 30, 1996. The Company does not consider this a significant Event of Default and has received a waiver from the note holders. The Company maintains two short-term unsecured bank credit lines totaling $17.5 million to fund interim cash requirements. There was $12,700,000 outstanding under this line of credit at June 30, 1996. During the six-month period ended June 30, 1996, the Company purchased, on the open market and in privately negotiated transactions, 8,124 shares of its Common Stock at an average price of $16.62. The Company also purchased, in open market and privately negotiated transactions, 483,250 shares of its Class A Stock at an average price of $13.00 per share. 11 12 The Company's principal source of cash for repayment of long-term debt is borrowings from its two insurance holding companies. Under applicable insurance regulations, ACMAT's insurance subsidiaries are restricted as to the amount of dividends they may pay to their respective holding company, without the prior approval of their domestic state insurance department. The amount of dividends ACMAT's insurance subsidiaries may pay without prior insurance department approval, are limited to approximately $6,600,000 in 1996. 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, 1996 was significantly above the level which might require regulatory action. 12 13 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K a. Exhibits - None b. Report on Form 8-K - None 13 14 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, 1996 /s/ Henry W. Nozko, Sr. --------------------------------------------- Henry W. Nozko, Sr. President and Chairman Date: August 14, 1996 /s/ Henry W. Nozko, Jr. --------------------------------------------- Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS DEC-31-1995 JUN-30-1996 5,976,949 137,472,982 10,991,823 (254,825) 0 162,413,629 17,604,943 3,833,048 186,846,352 97,285,042 37,750,034 0 0 3,216,925 34,164,742 186,846,352 8,367,536 10,083,327 5,175,178 5,175,178 1,387,932 0 1,310,915 2,209,302 552,830 1,656,472 0 0 0 1,330,331 .44 .33
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