-----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, IjBJw4V35vos8BIKB+BFuoWyozAXkZmspIObxX4RREhv2gu6HBUlZyZkkMytTOcz 8euF2cwQB1Up0q/gSpBSVw== 0000914039-98-000212.txt : 19980518 0000914039-98-000212.hdr.sgml : 19980518 ACCESSION NUMBER: 0000914039-98-000212 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 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: SEC FILE NUMBER: 000-06234 FILM NUMBER: 98623054 BUSINESS ADDRESS: STREET 1: 233 MAIN ST STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 BUSINESS PHONE: 2032299000 MAIL ADDRESS: STREET 1: 233 MAIN STREET STREET 2: P O BOX 2350 CITY: NEW BRITAIN STATE: CT ZIP: 06050-2350 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-6234 ACMAT CORPORATION Connecticut 06-0682460 (State of Incorporation) (I.R.S. Employer Identification No.) 233 Main Street, New Britain, Connecticut 06050-2350 (Address of principal executive offices) Registrant's telephone number including area code: (860) 229-9000 NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Shares outstanding Title of Class at April 30, 1998 - -------------- ------------------ Common Stock 596,857 Class A Stock 2,684,773
2 TABLE OF CONTENTS
Part I FINANCIAL INFORMATION PAGE ---- Item 1. Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Earnings 4 Consolidates Statements of Stockholders' Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
3 Part I Financial Information Item 1 Financial Statements ACMAT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets
March 31, December 31, Assets 1998 1997 ---- ---- Investments: Fixed maturities-available for sale, at market (Cost of $121,995,916 in 1998 and $101,523,931 in 1997) $ 122,111,159 101,852,980 Equity securities, at market value (Cost $983,074 in 1998 and $983,074 in 1997) 1,003,033 1,010,927 Short-term investments, at cost which approximates market 7,475,974 32,422,313 ------------ ----------- Total investments 130,590,166 135,286,220 Cash and cash equivalents 1,962,512 2,095,449 Accrued interest receivable 1,638,612 1,458,164 Reinsurance recoverable 3,477,023 3,478,121 Receivables, net 6,516,424 7,118,527 Prepaid expenses 247,737 204,642 Deferred income taxes 1,870,849 1,940,936 Limited partnership investment 2,466,411 2,052,475 Property & equipment, net 13,052,712 13,179,337 Deferred policy acquisition costs 1,973,618 2,078,405 Other assets 4,394,183 3,529,634 Intangibles, net 3,140,360 3,222,023 ------------ ------------ 171,330,607 176,208,762 =========== =========== Liabilities & Stockholders' Equity Notes payable to banks 7,000,000 5,000,000 Accounts payable 2,509,745 3,188,554 Reserves for losses and loss adjustment expenses 47,609,200 48,900,713 Unearned premiums 9,128,992 9,804,159 Cash collateral held 17,650,592 20,275,702 Accrued liabilities 1,321,939 1,249,168 Income taxes 140,834 - Long-term debt 45,995,099 48,212,727 ------------ ----------- Total liabilities 131,356,401 136,631,023 Stockholders' Equity: Common Stock (No Par Value; 3,500,000 Shares Authorized; 596,857 and 596,857 Shares Issued and Outstanding) 596,857 596,857 Class A Stock (No Par Value; 10,000,000 Shares Authorized; 2,684,774 and 2,712,174 Shares Issued and Outstanding) 2,684,774 2,712,174 Retained earnings 36,603,342 36,033,153 Net unrealized gain on securities 89,233 235,555 ----------- ----------- Total stockholders' equity 39,974,206 39,577,739 ----------- ----------- $ 171,330,607 176,208,762 =========== ===========
See Notes to Consolidated Financial Statements. 4 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Earnings Three Months Ended March 31, 1998 and 1997
1998 1997 ---- ---- Earned premiums $2,848,325 $ 4,477,238 Contract revenues 2,175,692 1,773,134 Investment income, net 1,722,274 1,736,102 Net realized capital gains 103,201 35,556 Other income 553,005 241,779 --------- --------- 7,402,497 8,263,809 --------- --------- Cost of contract revenues 2,255,453 1,660,662 Losses and loss adjustment expenses 684,737 1,343,171 Amortization of policy acquisition costs 520,871 863,054 Selling, general and administrative expenses 1,333,192 1,461,013 Interest expense 1,241,134 1,320,284 --------- --------- 6,035,387 6,648,184 --------- --------- Earnings before income taxes 1,367,110 1,615,625 Income taxes Federal 361,584 446,399 State 2,000 20,000 --------- -------- 363,584 466,399 ------- ------- Net earnings $1,003,526 $1,149,226 ========= ========== Basic Earnings Per Share .30 .31 Diluted Earnings Per Share .27 .27
See Notes to Consolidated Financial Statements. 5 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements Of Stockholders' Equity
Net unrealized Total Common stock Class A Additional Retained gains stockholders' par value stock par paid-in earnings (losses) on equity value capital securities Balance as of December 31, 1996 $600,257 $3,488,860 $8,407,877 $36,894,494 $ 310,916 $49,702,404 Acquisition and Retirement of 1,900 Shares of Common Stock (1,900) - (37,396) - - (39,296) Acquisition and Retirement of 1,129,568 Shares of Class A Stock - (1,129,568) (12,420,481) (2,985,320) (16,535,369) Issuance of 450,000 Shares of Class A Stock - 450,000 4,050,000 - 4,500,000 - Issuance of 8,500 Shares of Class A Stock pursuant to stock options - 8,500 42,500 - - 51,000 Net Unrealized Appreciation of Debt and Equity Securities - - - - (691,221) (691,221) Net Earnings - - - 1,149,226 - 1,149,226 -------- ----------- ----------- ----------- ---------- ----------- Balance as of March 31, 1997 $598,357 $2,817,792 $ - $35,100,900 $(380,305) $38,136,744 ======== ========== =========== =========== ========== =========== - Balance as of December 31, 1997 $596,857 $2,712,174 $ - $36,033,153 $ 235,555 $39,577,739 Acquisition and Retirement of 27,400 Shares of Class A Stock - (27,400) - (433,337) - (460,737) Net Unrealized Losses on Debt and Equity Securities - - - - (146,322) (146,322) Net Earnings - - - 1,003,526 - 1,003,526 -------- -------- -------- ----------- --------- ----------- Balance as of March 31, 1998 $596,857 $2,684,774 $ - $36,603,342 $ 89,233 $39,974,206 ======== ========== =========== =========== ========= ===========
See Notes to Consolidated Financial Statements. 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Three Months Ended March 31, 1998 and 1997
1998 1997 ---- ---- Cash flows from operating activities: Net earnings $ 1,003,526 $ 1,149,226 Adjustments to reconcile net earnings to net cash provided by (used for) operating activities: Depreciation and amortization 357,051 388,177 Net realized capital gains (103,201) (35,556) Limited partnership investment adjustment (413,936) (61,668) Changes in: Accrued interest receivable (180,448) (495,408) Reinsurance recoverable 1,098 275,576 Receivables, net 602,103 (450,391) Deferred policy acquisition costs 104,787 296,858 Prepaid expenses and other assets (925,851) 686,284 Accounts payable and accrued liabilities (606,038) (6,665) Cash collateral held (2,625,110) (296,768) Reserves for losses and loss adjustment expenses (1,291,513) (239,734) Income taxes, net 851,125 329,178 Unearned premiums (675,167) (1,159,218) ------------ ----------- Net cash provided by (used for) operating activities (3,901,574) 379,891 ----------- ---------- Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 6,498,484 6,233,293 Fixed maturities-matured 10,545,000 6,800,000 Equity securities 1,022,466 - Short-term investments 40,154,527 80,604,928 Purchases of: Fixed maturities (37,565,287) (51,301,008) Equity securities (1,000,000) - Short-term investments (15,208,188) (42,755,938) Capital expenditures - (14,399) --------- ---------- Net cash provided by (used for) investing activities 4,447,002 (433,124) --------- --------- Cash flows from financing activities: Borrowings under lines of credit 2,000,000 2,000,000 Repayments under lines of credit - (5,200,000) Borrowings on long-term debt - 8,500,000 Repayments on long-term debt (2,217,628) (409,611) Payments for acquisition & retirement of stock (460,737) (4,523,665) ------------ ----------- Net cash provided by (used for) financing activities (678,365) 366,724 --------- ---------- Net increase (decrease) in cash and cash equivalents (132,937) 313,491 Cash and cash equivalents at beginning of period 2,095,449 2,187,227 --------- --------- Cash and cash equivalents at end of period $1,962,512 $2,500,718 ========= =========
See Notes to Consolidated Financial Statements. 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, 1997. (2) Earnings Per Share The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share, on December 31, 1997. SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share, and replaces primary earnings per share and fully diluted earnings per share with basic earnings per share and diluted earnings per share, respectively. The Company has restated earnings per share for all prior periods presented to comply with the provisions of SFAS No. 128. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for the three-month periods ended March 31, 1998 and 1997:
Average Shares Per-Share 1998: Earnings Outstanding Amount ----- -------- ----------- ------ Basic EPS: Earnings available to stockholders $1,003,526 3,300,340 $.30 Effect of Dilutive Securities: Stock options - 112,193 Convertible Note $ 313,088 1,500,000 ---------- --------- Diluted EPS: Earnings available to stockholders $1,316,614 4,912,533 $.27 ========= ========= === 1997: Basic EPS: Earnings available to stockholders $1,149,226 3,684,033 $.31 Effect of Dilutive Securities: Stock options - 126,387 Convertible Senior Notes $ 29,903 150,000 Convertible Note $ 313,088 1,500,000 ---------- --------- Diluted EPS: Earnings available to stockholders $1,492,217 5,460,420 $.27 ========= ========= ====
8 (3) Supplemental Cash Flow Information Income tax refund received during the three months ended March 31, 1998 was $487,541 and income taxes paid during the three months ended March 31, 1997 was $137,221. Interest paid for the three months ended March 31, 1998 and 1997 was $968,289 and $568,712, respectively. On February 5, 1997 the Company issued 450,000 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. 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 Consolidated Statement of Cash Flows. (4) Stock Transaction On February 5, 1997, ACMAT Corporation purchased 1,099,996 shares of Class A Stock which AIG Life Insurance Company (366,663 shares) and American International Life Assurance Company of New York, (733,333) had acquired over the last three years through conversion options. The shares were purchased at an average price of $14.70 per share for a total purchase price of $16,174,942. The purchase price of $16,174,942 consisted of $4,174,942 in cash and promissory notes totaling $12,000,000. The promissory notes are with AIG Life Insurance Company and American International Life Assurance Company of New York and are payable over eight years with annual payments of $1,500,000 which commenced January 31, 1998, with interest at prime rate (8-1/2%). The interest rate is equal to the prime rate, however, it shall not exceed 9-1/4% and it shall not be less than 7-1/4%. The purchase of stock with the $12,000,000 promissory notes is a non-cash transaction that is not reflected in the Consolidated Statement of Cash Flows. (5) Comprehensive Income The Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income" as of January 1, 1998. SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components (such as changes in net unrealized investment gains and losses). Comprehensive income includes net income and any changes in equity from non-owner sources that bypass the income statement. The purpose of reporting comprehensive income is to report a measure of all changes in equity of an enterprise that result from recognized transactions and other economic events of the period other than transactions with owners in their capacity as owners. Application of SFAS No. 130 will not impact amounts previously reported for net income or affect the comparability of previously issued financial statements. The following table summarizes comprehensive income for the three months ended March 31, 1998 and 1997:
1998 1997 ---- ---- Net income $1,003,526 $1,149,226 Other comprehensive income, net of tax Unrealized gains (losses) on investments: Unrealized holding gain (loss) arising during period (net of income tax expense (benefit) of $40,289 and ($343,994) for 1998 and 1997, respectively (78,209) (667,754) Less reclassification adjustment for gains included in net income (net of income tax expense of ($35,088) and ($12,089) for 1998 and 1997 68,113 23,467 --------- --------- Other comprehensive income (146,322) (691,221) --------- --------- Comprehensive income $ 857,204 $ 458,005 ======= =======
(6) Future Accounting Standard In June 1997, FASB issued SFAS No. 131, "Financial Reporting for Segments of a Business Enterprise". SFAS No. 131 was developed jointly by the FASB and the Accounting Standards Board of the Canadian Institute of Charted Accountants in response to request from financial statement users for additional and better segment information. This statement is effective for periods beginning after December 15, 1997. In the initial year of application, comparative information for earlier years is to be restated, unless it is impracticable to do so. The Company does not anticipate that SFAS No. 131 will significantly impact the composition of its current operating segments which are consistent with the management approach. The Company anticipates that the current insurance segment will be further disclosed as two segments as a result of SFAS No. 131. 9 ACMAT CORPORATION AND SUBSIDIARIES Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations RESULTS OF OPERATIONS: Overview Net earnings were $1,003,526 for the three months ended March 31, 1998 compared to $1,149,226 for the same period a year ago. The decrease in net earnings for the quarter ended March 31, 1998 reflects a decrease in earned premiums and contract earnings offset in part by the earnings from the limited partnership investment. Earned Premiums Earned premiums for the three months ended March 31, 1998 decreased to $2,848,325 compared to $4,477,238 for the same period in 1997. Net written premiums were $2,260,007 for the three months ended March 31, 1998 compared to $3,741,360 for the three months ended March 31, 1997. The decrease in earned premiums in 1998 reflects the 40% decrease in 1998 net written premiums over 1997 net written premiums primarily due to a continuing soft insurance market place and the Company's strategy to avoid current unfavorable pricing in the Company's casualty operations. Variances in net written premiums 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 were $2,175,692 for the three-month period ended March 31, 1998 compared to $1,773,134 for the same period in 1997. Construction revenue is difficult to predict and depends greatly on the successful securement of contracts bid. The Company's construction backlog was approximately $2,750,000 at March 31, 1998 compared to $7,000,000 a year ago. Investment Income, Net Net investment income was $1,722,274 for the three-month period ended March 31, 1998 compared to $1,736,102 for the same period in 1997, representing effective yields of 5.11% and 4.87%, respectively. Invested assets, including cash, were $132,552,678 and $137,381,669 at March 31, 1998 and December 31, 1997, respectively. The decrease in invested assets is attributable to the net cash flow used to repay debt, repurchase stock and repayment of cash collateral. Net Realized Capital Losses Realized capital gains from the sale of investments in the three-month period ended March 31, 1998 were $103,201 compared to $35,556 for the same period in 1997. Other Income Other income was $553,005 for the three-month period ended March 31, 1998 compared to $241,779 for the same period in 1997. The increase in other income reflects earnings of approximately $400,000 from the limited partnership investment in 1998. The earnings from the limited partnership investment, which invests primarily in small capitalization stocks, fluctuate as those stocks are traded on the national Market exchanges. Costs of Contract Revenues Costs of contract revenues were $2,255,453 for the three-month period ended March 31, 1998 compared to $1,660,662 for the same period in 1997. The gross loss in 1998 is primarily related to a large construction project. Costs of contract revenues vary from period to period as a function of contract revenues (See Contract Revenues). Losses and Loss Adjustment Expenses Losses and loss adjustment expenses were $684,737 for the three-month period ended March 31, 1998 compared to $1,343,171 for the same period in 1997. The decrease in losses and loss adjustment expenses are attributable to the decrease in earned premiums from 1998 to 1997. Losses and loss adjustment expense reserves represent management's estimate of the ultimate costs of unpaid losses incurred for these periods relative to premiums earned. 10 Amortization of Policy Acquisition Costs Amortization of policy acquisition costs was $520,871 for the three-month period ended March 31, 1998 as compared to $863,054 for the same period in 1997. The decrease in amortization of policy acquisition costs is primarily attributable to the decrease in premiums earned. Policy acquisition costs, primarily commissions, are deferred and amortized over the policy or bond term. Selling, General and Administrative Expenses Selling, general and administrative expenses were $1,333,192 for the three-month period ended March 31, 1998 compared to $1,461,013 for the same period in 1997. The decrease in the selling, general and administrative expenses during 1998 is due primarily to a decrease in bad debt expense and salary expense. Interest Expense Interest expense decreased to $1,241,134 for the three-month period ended March 31, 1998 compared to $1,320,284 for the same period in 1997. The decrease in interest expense in 1998 is due primarily to the decrease in long-term borrowings offset in part by an increased short-term debt. Income Taxes Income tax expense was $363,584 for the three-month period ended March 31, 1998 compared to $466,399 for the same period in 1997, representing effective Federal tax rates of 26.5% and 27.6%, 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 March 31, 1998 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 24.0% and 30.0% for the three-month periods ended March 31, 1998 and 1997, 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 54.5% and 46.0% for the three-month period ended March 31, 1998 and 1997, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 78.5% and 76.0% for the three-month period ended March 31, 1998 and 1997, respectively. 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. 11 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 has also incurred negative working capital as a result of holding short-term debt related to its operations. 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 utilized short-term borrowings to repurchase its stock. ACMAT has also relied on dividends from its insurance subsidiaries to repay debt. The Company used cash flow for operations of $3,901,574 for the three-month period ended March 31, 1998 compared to the cash flow provided by operations of $379,891 for the same period in 1997. Net cash flows provided by operations in 1998 were derived principally from premium collections and collateral held. Substantially all of the Company's cash flow was used to repay long-term debt, repurchase stock, repay cash collateral and purchase investments. 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 provided by investing activities in the first quarter of 1998 amounted to $4,447,002 compared to net cash used for investing activities of $433,124 for the same period in 1997. The terms of the Company's note agreements contain limitations on payment of cash dividends, re-acquisition of shares, borrowings and investments and require maintenance of specified ratios and minimum net worth levels, including cross default provisions. The payment of future cash dividends and the re-acquisition of shares are restricted each to amounts of an Available Fund. The Available Fund is a cumulative fund which is increased each year by 20% of the Consolidated Net Earnings (as defined). The Company is in compliance with all covenants at March 31, 1998. The Company maintains a short-term unsecured bank credit line totaling $10.0 million to fund interim cash requirements. There was $7.0 million outstanding under this line of credit as of March 31, 1998. During the three-month period ended March 31, 1998, the Company also purchased, in the open market and privately negotiated transactions, 27,400 shares of its Class A Stock at an average price of $16.82 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 $10,032,000 in 1998. YEAR 2000 ISSUE In 1997, the Company began converting its computer systems to be Year 2000 compliant (e.g. to recognize the difference between '99 and '00 as one year instead of negative 99 years). The total cost of the project is estimated to be less than $100,000 and is being funded through operating cash flows. The Company is expensing all costs associated with these system changes. At March 31, 1998, approximately 40% of the Company's systems were compliant, with all systems expected to be compliant by the end of 1998. However, there can be no assurance that the systems of other companies on which the Company's systems rely also will be timely converted or that any such failure to convert by another company would not have an adverse effect on the Company's systems. REGULATORY ENVIRONMENT Risk-based capital requirements are used as early warning tools by the National Association of Insurance Commissioners and the states to identify companies that require further regulatory action. The ratio for each of the Company's insurance subsidiaries as of March 31, 1998 was significantly above the level which might require regulatory action. 12 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K a. Exhibits -27. Financial Data Schedule b. Report on Form 8-K - None 13 SIGNATURES Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACMAT CORPORATION Date: May 13, 1998 /S/ Henry W. Nozko, Sr. _____________________________________________ Henry W. Nozko, Sr., President and Chairman Date: May 13, 1998 /S/ Henry W. Nozko, Jr. _____________________________________________ Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer EX-27 2 FINANCIAL DATA SCHEDULE
5 1 3-MOS DEC-31-1997 MAR-31-1998 1,962,512 130,590,166 6,826,170 (309,746) 0 148,769,734 17,444,404 4,391,692 171,330,607 85,361,302 45,995,099 0 0 3,281,631 36,692,575 171,330,607 5,024,017 7,402,497 3,461,061 3,461,061 1,333,192 0 1,241,134 1,367,110 363,584 1,003,526 0 0 0 1,003,526 .30 .27 Note: The Company has restated earnings per share to comply with the provisions of SFAS No. 128. Basic earnings per share for the quarter ended March 31, 1997 was restated to $.31. Diluted earnings per share for the quarter ended March 31, 1997 was restated to $.27.
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