0000950123-95-002323.txt : 19950815 0000950123-95-002323.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950123-95-002323 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACMAT CORP CENTRAL INDEX KEY: 0000002062 STANDARD INDUSTRIAL CLASSIFICATION: FINANCE SERVICES [6199] 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: 95563055 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, 1995 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) Registrants's telephone number including area code: (203) 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, 1995 Common Stock 649,974 Class A Stock 2,827,962 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 Stockholder's 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 8 Part II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 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 1995 1994 ------ ------------ ------------ Investments: Fixed maturities-available for sale, at market (Cost of 112,146,227 in 1995 and 111,996,797 in 1994) $112,561,634 108,911,211 Equity securities, at market value (Cost $20,000 in 1995 and $627,253 in 1994) 20,000 444,109 Limited partnership investment, at market value (Cost $1,097,261 in 1995 and $1,123,120 in 1994) 1,392,452 1,204,914 Short-term investments, at cost which approximates market 14,907,349 8,726,056 ------------ ------------ Total investments 128,881,435 119,286,290 Cash 3,418,361 5,471,148 Accrued interest receivable 1,843,344 1,890,826 Reinsurance recoverable 3,906,788 4,228,879 Receivables, net 10,321,992 9,480,567 Federal income tax recoverable 23,518 23,518 Prepaid expenses 250,938 234,929 Deferred income taxes 2,672,541 2,285,649 Property & equipment, net 14,168,235 14,364,020 Deferred policy acquisition costs 3,640,206 3,661,421 Other assets 3,117,167 3,192,151 Intangibles, net 4,212,090 4,375,416 ------------ ------------ $176,456,615 168,494,814 ============ ============ Liabilities & Stockholders' Equity ---------------------------------- Notes payable to banks $ 5,000,000 4,300,000 Accounts payable 2,603,871 2,302,202 Reserves for losses and loss adjustment expenses 43,489,888 40,954,783 Unearned premiums 15,255,509 14,977,825 Collateral held 16,095,396 10,403,706 Accrued liabilities 1,417,196 1,681,266 Income taxes 516,013 294,980 Long-term debt 41,700,698 43,405,266 ------------ ------------ Total liabilities 126,078,571 118,320,028 Minority interests 13,155,221 12,169,851 Stockholders' Equity: Common Stock (No Par Value; 3,500,000 shares Authorized; 650,174 and 652,920 Shares Issued and Outstanding) 650,174 652,920 Class A Stock (No Par Value; 10,000,000 Shares Authorized; 2,837,962 and 3,313,067 shares Issued and Outstanding) 2,837,962 3,313,067 Additional paid-in capital 4,208,666 9,358,948 Retained earnings 28,903,497 26,251,103 Net unrealized gain (loss) on securities 622,524 (1,571,103) ------------ ------------ Total stockholders' equity 37,222,823 38,004,935 ------------ ------------ $176,456,615 168,494,814 ============ ============
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, ------------------------- --------------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- Earned premiums $6,345,619 6,496,700 12,048,233 13,036,566 Contract revenues 3,021,427 1,877,095 5,741,948 3,693,631 Investment income, net 1,562,565 1,066,898 2,939,451 2,242,511 Net realized capital losses (7,580) (55,555) (7,700) (31,945) Other income 205,442 189,108 371,376 367,916 ---------- --------- ---------- ---------- 11,127,473 9,574,246 21,093,308 19,308,679 ---------- --------- ---------- ---------- Losses and loss adjustment expenses 1,953,231 1,987,075 3,664,015 3,949,054 Amortization of policy Acquisition costs 980,699 965,694 2,069,530 2,037,928 Cost of contract revenues 2,922,516 1,814,522 5,451,984 3,718,691 Selling, general and administrative expenses 1,546,914 1,490,127 2,913,304 3,202,485 Interest expense 1,201,738 1,105,147 2,412,573 2,486,755 ---------- --------- ---------- ---------- 8,605,098 7,362,565 16,511,406 15,394,913 ---------- --------- ---------- ---------- Earnings before income taxes and minority interests 2,522,375 2,211,681 4,581,902 3,913,766 Income taxes Federal 685,725 573,109 1,167,710 973,727 State 30,000 11,000 70,000 37,500 ---------- --------- ---------- ---------- 715,725 584,109 1,237,710 1,011,227 ---------- --------- ---------- ---------- Earnings before minority interests 1,806,650 1,627,572 3,344,192 2,902,539 Minority interests (357,681) (401,455) (691,798) (772,663) ---------- --------- ---------- ---------- Net earnings $1,448,969 1,226,117 2,652,394 2,129,876 ========== ========= ========== ========== Net earnings per share and $.38 .30 .69 .51 equivalent share Net earnings per share - assuming full dilution $.31 -- .56 -- Weighted average shares outstanding 3,776,797 4,133,710 3,871,366 4,153,577
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, 1993 $693,333 $3,392,051 $11,060,773 $21,411,242 $ 128,603 $36,686,002 Acquisition and Retirement of 1,125 Shares of Common Stock (1,125) -- (10,677) -- -- (11,802) Acquisition and Retirement of 84,734 Shares of Class A Stock -- (84,734) (625,075) -- -- (709,809) Effect of Adoption of FAS No. 115, Net of Taxes -- -- -- -- 472,000 472,000 Net Unrealized Losses on Debt and Equity Securities -- -- -- -- (1,246,821) (1,246,821) Net Earnings -- -- -- 2,129,876 -- 2,129,876 -------- ---------- ----------- ----------- ----------- ----------- Balance as of June 30, 1994 $692,208 $3,307,317 $10,425,021 $23,541,118 $ (646,218) $37,319,446 ======== ========== =========== =========== =========== =========== 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 $650,174 $2,837,962 $4,208,666 $28,903,497 $ 622,524 $37,222,823 ======== ========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. 5 6 ACMAT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Six Months Ended June 30, 1995 and 1994
1995 1994 ----------- ----------- Cash flows from operating activities: Net earnings $ 2,652,394 2,129,876 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,135,136 1,676,201 Minority interests 691,798 772,663 Net realized capital losses 7,700 31,945 Changes in: Accrued interest receivable 47,482 41,658 Reinsurance recoverable 322,091 536,226 Receivables, net (841,425) (2,222,547) Deferred policy acquisition costs 21,215 (54,073) Prepaid expenses and other assets 22,561 (522,398) Accounts payable and accrued liabilities 37,599 357,189 Collateral held 5,691,690 (3,896,891) Reserves for losses and loss adjustment expenses 2,535,105 2,088,900 Income taxes, net (165,858) 280,369 Unearned premiums 277,684 41,546 ----------- ----------- Net cash provided by operating activities 12,435,172 1,260,664 ----------- ----------- Cash flows from investing activities: Proceeds from investments sold or matured: Fixed maturities-sold 7,016,843 10,719,148 Fixed maturities-matured 34,216,250 8,160,000 Equity securities 614,340 925,272 Purchases of: Fixed maturities (43,387,981) (12,935,898) Equity securities - (384,013) Limited Partnership Investment - (49,836) Short-term investments, net (6,181,293) 142,989 Capital expenditures (98,417) (294,884) ----------- ----------- Net cash provided by (used for) investing activities (7,820,258) 6,282,778 ------------ ----------- Cash flows from financing activities: Borrowings under line of credit 700,000 1,700,000 Payments under line of credit - (1,700,000) Repayments on long-term debt (1,204,578) (12,724,415) Issuance of long-term debt - 8,000,000 Payments for subsidiary stock (35,000) (41,250) Payments for acquisition & retirement of stock (6,128,123) (721,611) ----------- ----------- Net cash used for financing activities (6,667,701) (5,487,276) ----------- ----------- Net (decrease) increase in cash (2,052,787) 2,056,166 Cash at beginning of period 5,471,148 8,666,748 ----------- ----------- Cash at end of period $ 3,418,361 10,722,914 =========== ===========
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, 1994. (2) Earnings Per Share Earnings per share and equivalent share are computed using the weighted average number of Common and Class A shares outstanding for the period and reflect the common stock equivalency of outstanding stock options and warrants, if dilutive. Earnings per share -- assuming full dilution were determined on the assumptions that convertible debt were converted on January 1, 1995. Net earnings were adjusted for the interest expense related to the convertible debt, net of its tax effect. In prior periods, there were no significant differences between primary and fully diluted earnings per share. (3) Supplemental Cash Flow Information Income taxes paid during the six months ended June 30, 1995 and 1994 were $1,403,568 and $730,860, respectively, and interest paid for the six months ended June 30, 1995 and 1994 were $2,441,195 and $2,486,755, respectively. On June 30, 1995, the holders of the 10.5% Convertible Senior Notes elected to convert the principal payment due on June 30, 1995 to shares of Class A Stock. The issuance of 49,999 shares of Class A Stock in the amount of $499,990 is a non-cash transaction that is not reflected in the Statements of Cash Flows. (4) Accounting Change Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under FAS 115, debt securities are classified as held for maturity, available for sale or trading. The Company classifies all debt and equity securities as available for sale. As of January 1, 1994, debt securities classified as available for sale, are carried at fair value and unrealized gains and losses are excluded from earnings and recorded as a separate component of stockholders' equity, net of estimated income taxes. Adjustments to minority interests are made as a result of unrealized gains and losses. The effect on stockholders' equity from adoption of the statement resulted in an increase in stockholders' equity of $472,000, net of deferred taxes, due to the revaluation of the Company's debt securities on January 1, 1994. 7 8 ACMAT CORPORATION Item 2: Management's Discussion and Analysis of Financial Conditions and Results of Operations RESULTS OF OPERATIONS: Overview Net earnings increased 18% to $1,448,959 for the three months ended June 30, 1995 compared to $1,226,117 for the same period a year ago. Net earnings for the six months ended June 30, 1995 were $2,652,384 compared to $2,129,876 for the six months ended June 30, 1994. The increase in net earnings for the quarter ended June 30, 1994 reflects the increase in net investment income offset in part by an increase in interest expense. Earned Premiums Net written premiums were $7,461,509 for the three months ended June 30, 1995 compared to $7,705,007 for the three months ended June 30, 1994. Net written premiums for the six months ended June 30, 1995 were $12,563,623 compared to $13,240,177 for the six months ended June 30, 1994. Premiums earned for the three months ended June 30, 1995 were $6,345,619 as compared to $6,496,700 for the three months ended June 30, 1994. Premiums earned for the six months ended June 30, 1995 were $12,048,233 as compared to $13,036,566 for the six months ended June 30, 1994. The decrease in net written premiums for the three and six months ended June 30, 1995 compared to the same periods in 1994 is a result of a reduction in direct premiums written offset in part by an increase in assumed premiums each of which fluctuates from quarter to quarter. 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. Contract Revenues Contract revenues increased to $3,021,427 for the three-month period ended June 30, 1995 compared to $1,877,095 for the same period in 1994. Contract revenues increased to $5,741,948 for the six-month period ended June 30, 1995 compared to $3,693,631 for the same period in 1994. During the past several years, the Company has controlled its volume of construction business in an effort to focus on more profitable projects and to devote more resources to the Insurance Group. Increases for the 1995 periods are believed to be temporary and relate to two multi-million dollar projects that are in progress. The increase in construction revenue is expected to decline upon completion of these projects. Management has implemented several strategies designed to improve the results of its construction contracting operations. First, the Company has focused advertising to attract privately negotiated contracts which generally produce higher gross margins. Second, the Company has increased its prices on publicly bid contracts. The market for privately negotiated contracts is significantly smaller than the market for publicly bid contracts. Finally, the Company has focused on controlling both fixed and variable costs, primarily by minimizing the use of its own labor force in favor of subcontracting many trades involved in contract performance. Although the Company believes that these strategies have improved, and will continue to improve, the results of its construction contracting operations, such results will continue to be influenced by factors beyond the Company's control, such as the state of the economy in the Northeast, and there can be no assurance that these strategies will assure the Company's construction contracting operations profitability. 8 9 Investment Income, Net Net investment income increased to $1,562,565 for the three-month period ended June 30, 1995 compared to $1,066,898 for the same period in 1994, representing effective yields of 4.71% and 3.55%, respectively. Net investment income was $2,939,451 for the six- month period ended June 30, 1995 compared to $2,242,511 for the same period in 1994, representing effective yields of 4.57% and 3.54%, respectively. The increase in investment income in 1995 over 1994 was due substantially to higher yields on the portfolio as the result of rising interest rates in 1994 as well as an increase in total invested assets. Invested assets, including cash, were $132,299,796 and $124,757,438 at June 30, 1995 and December 31, 1994, 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 losses were $7,580 for the three-month period ended June 30, 1995 compared to $55,555 for the same period in 1994. Realized capital losses from the sale of investments in the six-month period ended June 30, 1995 were $7,700 compared to $31,945 for the same period in 1994. Cost of Contract Revenues Cost of contract revenues were $2,922,516 for the three-month period ended June 30, 1995 compared to $1,814,522 for the same period a year ago. Cost of contract revenues increased to $5,451,984 for the six-month period ended June 30, 1995 compared to $3,718,691 for the same period in 1994. 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 $5,640,000 at June 30, 1995 compared to $5,700,000 a year ago. Losses and Loss Adjustment Expenses Losses and loss adjustment expenses were $1,953,231 for the three-month period ended June 30, 1995 compared to $1,987,075 for the same period in 1994. Losses and loss adjustment expenses were $3,664,015 for the six months ended June 30, 1995 compared to $3,949,054 for the six months ended June 30, 1994. The decrease in losses and loss adjustment expenses are attributable to the decline in earned premiums from 1994 to 1995 without any fluctuations in the loss ratios. Loss 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 $980,699 for the three-month period ended June 30, 1995 as compared to $965,694 for the same period in 1994. For the six months ended June 30, 1995, amortization of policy acquisition cost was $2,069,530 compared to $2,037,928 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 40.8% in 1995 from 39.5% in 1994 due primarily to an increase in commissions and a decrease in earned premiums. Selling, General and Administrative Expenses Selling, general and administrative expenses were $1,546,914 for the three-month period ended June 30, 1995 compared to $1,490,127 for the same period in 1994. Selling, general and administrative expenses were $2,913,304 for the six-month period ended June 30, 1995 compared to $3,202,488 for the same period in 1994. The decrease in the selling, general and administrative expenses during the six-month period ended June 30, 1995 is due primarily to a decrease in amortization expense related to intangible assets. Amortization of intangible assets was approximately $100,000 for the three-month period ended June 30, 1995 compared to approximately $239,000 for the same period in 1994. Amortization of intangible assets was approximately $200,000 for the six-month period ended June 30, 1995 compared to $540,000 for the same period a year ago. 9 10 Interest Expense Interest expense increased to $1,201,738 for the three-month period ended June 30, 1995 compared to $1,105,147 for the same period in 1994 due to the issuance on July 1, 1994 of an $8,000,000 term loan. Interest expense decreased to $2,412,573 for the six-month period ended June 30, 1995 compared to $2,486,755 for the same period in 1994, due primarily to the repayment of principal relating to the $15,000,000 10.5% Convertible Senior Notes. Income Taxes Income tax expense was $715,725 for the three-month period ended June 30, 1995 compared to $584,109 for the same period in 1994, representing effective Federal tax rates of 27.2% and 25.9%, respectively. Income tax expense was $1,237,710 for the six-month period ended June 30, 1995 compared to $1,011,227 for the same period in 1994, representing effective Federal tax rates of 25.5% and 24.9%, respectively. The increase in the Federal effective tax rate for 1995 is due primarily to the decrease in the amount of tax- exempt investment income and an increase in taxable investment income. 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, 1995 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. The Company's insurance subsidiaries' loss ratio under generally accepted accounting principles ("GAAP") was 30.2% and 30.0 % for the six-month periods ended June 30, 1995 and 1994, 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 40.8% and 39.5% for the six-month period ended June 30, 1995 and 1994, respectively. The Company's insurance subsidiaries' combined ratios under GAAP were 71.0% and 69.5% for the six-month period ended June 30, 1995 and 1994, 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, 1995, 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. 10 11 ACMAT, exclusive of its subsidiaries, has incurred negative cash flows from operating activities primarily because of operating losses in its construction contracting operations and interest expense related to notes payable and long-term debt incurred by it to acquire and capitalize its insurance subsidiaries. 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 and its construction contracting operations without regard to any dividends from ACMAT's insurance holding company subsidiaries, United Coasts and ACSTAR Holdings. On a long-term basis, ACMAT could rely, if necessary, on dividends from its insurance holding company subsidiaries to improve its working capital. In 1995, the Company anticipates that internally generated funds and short-term borrowings will be utilized for repayment of long-term debt. The Company realized cash flow from operations of $12,435,172 for the six-month period ended June 30, 1995, compared to $1,260,664 for the same period in 1994. The increase in net cash flows provided by operations in 1995 compared to 1994 were derived principally from premium collections and the receipt of collateral held. Substantially all of the Company's cash flow in 1994 was used to repay $12,207,000 of debt on March 31, 1994. 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 1995 amounted to $7,820,258, compared to net cash provided by investing activities of $6,282,778 for the same period in 1994. 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, 1995, except for the limitation on the reacquisition of shares which exceeded the Available Fund at June 30, 1995. The Company does not consider this a significant Event of Default and expects to receive a waiver from the note holders, as in prior years. The Company maintains a short-term unsecured bank credit line of $10,000,000 to fund interim cash requirements. Effective June 30, 1994, this credit line was renewed and modified to include an additional $8,000,000, six-year, term loan, which is repayable in quarterly installments. Portions of the proceeds of such term loan were applied to the repayment of intercompany debt and to the reduction of the Company's short-term credit line in 1994. There was $5,000,000 outstanding under this line of credit at June 30, 1995. During the six-month period ended June 30, 1995, the Company purchased, on the open market and in privately negotiated transactions, 2,746 shares of its Common Stock at an average price of $15.32. The Company also purchased, in open market and privately negotiated transactions, 525,104 shares of its Class A Stock at an average price of $11.58 per share. 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 companies, 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 $5,654,000 in 1995. 11 12 REGULATORY ENVIRONMENT The National Association of Insurance Commissioners has recently adopted a risk-based capital formula for property and casualty companies which will be used by insurance regulators in assessing the capital adequacy of insurance companies. The risk-based capital formula, effective December 31, 1994, is a regulatory tool designed to identify weakly capitalized companies. The formula determines a required amount of capital based on the risks that the insurer assumes. Various regulatory actions are then prescribed if a company's ratio falls below the minimum required ratio. These actions range from requiring the insurer to submit a comprehensive plan to the insurance commissioner in the event its statutory surplus falls below its Company Action Level which is 200% of it Authorized Control Level, as calculated under the formula, to placing the insurer under regulatory control if its statutory surplus falls below 70% of its Authorized Control Level. The ratio for each of the Company's insurance subsidiaries as of December 31, 1994 was significantly above the level which might require regulatory action. 12 13 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders a. The Annual Meeting of Stockholders of ACMAT Corporation was held on Thursday, June 29, 1995 b. Directors elected at the meeting:
Votes Votes Brokers For Against Non-Votes ------- ------- --------- Henry Nozko, Sr. 909,667 2,131 0 Henry Nozko, Jr. 909,667 2,131 0 Ralph Hart 909,574 2,225 0 Victoria Nozko 909,447 2,351 0 John Creasy 909,574 2,225 0 Michael Sullivan 909,794 2,005 0
c. Other matters voted upon:
Votes Votes Brokers For Against Abstain Non-Votes ------- ------- ------- --------- 1. Appointment of Independent Auditors 909,901 1,497 400 0 2. Approval of the grant of Stock options 805,855 57,780 3,075 0
Item 6 - Exhibits and Reports on Form 8-K a. Exhibits - 27. Financial Data Schedule 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, 1995 /s/ Henry W. Nozko, Sr. --------------------------------------------- Henry W. Nozko, Sr. President and Chairman Date: August 14, 1995 /s/ Henry W. Nozko, Jr. --------------------------------------------- Henry W. Nozko, Jr., Executive Vice President Chief Operating Officer, and Treasurer 14 15 EXHIBIT INDEX Exhibit 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1 6-MOS DEC-31-1994 JUN-30-1995 3,418,361 128,881,435 10,516,807 (194,815) 0 149,646,376 17,500,585 3,332,350 176,456,615 84,377,873 41,700,698 3,488,136 0 0 33,734,687 176,456,615 9,367,046 11,127,473 5,856,446 5,856,446 1,546,914 0 1,201,738 2,522,375 715,725 1,806,650 0 0 0 1,448,969 0.38 0.31