<PAGE> 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
<PAGE> 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
<PAGE> 3
Part I Financial Information
Item I Financial Statements
ACMAT CORPORATION AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1995 1994
------ ------------ ------------
<S> <C> <C>
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
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three months ended, Six months ended,
June 30, June 30,
------------------------- ---------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
ACMAT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Common Class A unrealized
stock stock Additional gains Total
par par paid-in Retained (losses) stockholders'
value value capital earnings on securities equity
----- ----- ------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
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
======== ========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Votes Votes Brokers
For Against Non-Votes
------- ------- ---------
<S> <C> <C> <C>
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
</TABLE>
c. Other matters voted upon:
<TABLE>
<CAPTION>
Votes Votes Brokers
For Against Abstain Non-Votes
------- ------- ------- ---------
<S> <C> <C> <C> <C>
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
</TABLE>
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits -
27. Financial Data Schedule
b. Report on Form 8-K - None
13
<PAGE> 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
<PAGE> 15
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 3,418,361
<SECURITIES> 128,881,435
<RECEIVABLES> 10,516,807
<ALLOWANCES> (194,815)
<INVENTORY> 0
<CURRENT-ASSETS> 149,646,376
<PP&E> 17,500,585
<DEPRECIATION> 3,332,350
<TOTAL-ASSETS> 176,456,615
<CURRENT-LIABILITIES> 84,377,873
<BONDS> 41,700,698
<COMMON> 3,488,136
0
0
<OTHER-SE> 33,734,687
<TOTAL-LIABILITY-AND-EQUITY> 176,456,615
<SALES> 9,367,046
<TOTAL-REVENUES> 11,127,473
<CGS> 5,856,446
<TOTAL-COSTS> 5,856,446
<OTHER-EXPENSES> 1,546,914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,201,738
<INCOME-PRETAX> 2,522,375
<INCOME-TAX> 715,725
<INCOME-CONTINUING> 1,806,650
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,448,969
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.31
</TABLE>
