<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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-6234
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ACMAT CORPORATION
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Connecticut 06-0682460
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
233 Main Street, New Britain, Connecticut 06050-2350
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(Address of principal executive offices)
Registrant's telephone number including area code: (860) 229-9000
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NONE
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(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.
<TABLE>
<CAPTION>
Shares outstanding
Title of Class at July 31, 1996
- -------------- ----------------
<S> <C>
Common Stock 634,340
Class A Stock 2,582,585
</TABLE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Earnings 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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Part I Financial Information
Item I Financial Statements
ACMAT CORPORATION AND SUBSIDIARIES
Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1996 1995
- ------ ---- ----
<S> <C> <C>
Investments:
Fixed maturities-available for sale,
at market
(Cost of 120,180,404 in 1996 and
121,612,706 in 1995) $120,324,844 122,387,491
Equity securities, at market value
(Cost $255,262 in 1996 and
$20,000 in 1995) 289,062 20,000
Limited partnership investment, at
market value (Cost $1,108,995 in 1996
and $1,120,354 in 1995) 1,776,755 1,641,763
Short-term investments, at cost which
approximates market 15,082,321 8,359,047
------------ -----------
Total investments 137,472,982 132,408,301
Cash 5,976,949 5,120,375
Accrued interest receivable 2,294,206 2,230,988
Reinsurance recoverable 3,666,685 3,872,099
Receivables, net 10,736,998 9,022,434
Federal income tax recoverable -- 233,572
Prepaid expenses 216,389 178,965
Deferred income taxes 2,049,420 1,971,148
Property & equipment, net 13,771,895 13,987,256
Deferred policy acquisition costs 3,432,968 3,459,308
Other assets 3,342,422 3,869,028
Intangibles, net 3,885,438 4,048,764
------------ -----------
$186,846,352 180,402,238
============ ===========
Liabilities & Stockholders' Equity
- ----------------------------------
Notes payable to banks $ 12,700,000 7,500,000
Accounts payable 2,101,835 2,189,645
Reserves for losses and loss
adjustment expenses 46,737,736 45,235,311
Unearned premiums 14,310,177 14,302,613
Collateral held 19,407,150 17,767,955
Accrued liabilities 1,855,128 1,861,815
Income taxes 173,016 --
Long-term debt 37,750,034 40,127,590
------------ -----------
Total liabilities 135,035,076 128,984,929
Minority interests 14,429,609 13,830,050
Stockholders' Equity:
Common Stock (No Par Value; 3,500,000 Shares
Authorized; 634,340 and 642,464
Shares Issued and Outstanding) 634,340 642,464
Class A Stock (No Par Value; 10,000,000
Shares Authorized; 2,582,585 and
2,665,836 Shares Issued and Outstanding) 2,582,585 2,665,836
Additional paid-in capital -- 1,921,100
Retained earnings 33,669,056 31,601,383
Net unrealized gain on securities 495,686 756,476
------------ -----------
Total stockholders' equity 37,381,667 37,587,259
------------ -----------
$186,846,352 180,402,238
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
Three months ended, Six months ended,
June 30, June 30,
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earned premiums $ 5,663,800 6,345,619 10,307,832 12,048,233
Contract revenues 2,703,736 3,021,427 4,690,418 5,741,948
Investment income, net 1,577,588 1,562,565 3,226,615 2,939,451
Net realized capital gains (losses) 12,400 (7,580) 4,612 (7,700)
Other income 125,803 205,442 312,823 371,376
----------- ---------- ---------- ----------
10,083,327 11,127,473 18,542,300 21,093,308
----------- ---------- ---------- ----------
Losses and loss adjustment
expenses 1,699,139 1,953,231 3,092,349 3,664,015
Amortization of policy
acquisition costs 1,014,681 980,699 1,688,937 2,069,530
Cost of contract revenues 2,461,358 2,922,516 4,368,233 5,451,984
Selling, general and
administrative expenses 1,387,932 1,546,914 2,707,853 2,913,304
Interest expense 1,310,915 1,201,738 2,543,298 2,412,573
----------- ---------- ---------- ----------
7,874,025 8,605,098 14,400,670 16,511,406
----------- ---------- ---------- ----------
Earnings before income taxes and
minority interests 2,209,302 2,522,375 4,141,630 4,581,902
Income taxes
Federal 517,830 685,725 965,290 1,167,710
State 35,000 30,000 70,000 70,000
----------- ---------- ---------- ----------
552,830 715,725 1,035,290 1,237,710
----------- ---------- ---------- ----------
Earnings before minority
interests 1,656,472 1,806,650 3,106,340 3,344,192
Minority interests (326,141) (357,681) (635,895) (691,798)
----------- ---------- ---------- ----------
Net earnings $ 1,330,331 1,448,969 2,470,445 2,652,394
=========== ========== ========== ==========
Net earnings per share and
equivalent share $ .44 .38 .77 .69
Net earnings per share -
assuming full dilution .33 .31 .60 .56
Weighted average shares
outstanding 3,053,044 3,776,797 3,226,468 3,871,366
</TABLE>
See Notes to Consolidated Financial Statements.
4
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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, 1994 $652,920 $3,313,067 $ 9,358,948 $26,251,103 $(1,571,103) $38,004,935
Acquisition and retirement of
2,746 Shares of Common Stock (2,746) -- (39,314) -- -- (42,060)
Acquisition and retirement of
525,104 Shares of Class A Stock -- (525,104) (5,560,959) -- -- (6,086,063)
Issuance of 49,999 Shares
of Class A Stock -- 49,999 449,991 -- -- 499,990
Net Unrealized Appreciation of
Equity Securities -- -- -- -- 2,193,627 2,193,627
Net Earnings -- -- -- 2,652,394 -- 2,652,394
-------- ---------- ----------- --------- ----------- -----------
Balance as of June 30, 1995 $650,194 $2,837,962 $ 4,208,666 8,903,497 $ 622,524 $37,222,823
======== ========== =========== =========== =========== ===========
Balance as of December 31, 1995 $642,464 $2,665,836 $ 1,921,100 $31,601,383 $ 756,476 $37,587,259
Acquisition and Retirement of
8,124 Shares of Common Stock (8,124) -- (126,925) -- -- (135,049)
Acquisition and Retirement of
483,250 Shares of Class A Stock -- (483,250) (5,394,166) (402,772) -- (6,280,188)
Issuance of 399,999 Shares of -- 399,999 3,599,991 -- -- 3,999,990
Class A Stock
Net Unrealized Losses on Debt
and Equity Securities -- -- -- -- (260,790) (260,790)
Net Earnings -- -- -- 2,470,445 -- 2,470,445
-------- ---------- ----------- --------- ----------- -----------
Balance as of June 30, 1996 $634,340 $2,582,585 $ -- $33,669,056 $ 495,686 $37,381,667
======== ========== =========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
5
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ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,470,445 2,652,394
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 944,705 1,135,136
Minority interests 635,895 691,798
Net realized capital (gains) losses (4,612) 7,700
Changes in:
Accrued interest receivable (63,218) 47,482
Reinsurance recoverable 205,414 322,091
Receivables, net (1,714,564) (841,425)
Deferred policy acquisition costs 26,340 21,215
Prepaid expenses and other assets 452,768 22,561
Accounts payable and accrued liabilities (94,497) 37,599
Collateral held 1,639,195 5,691,690
Reserves for losses and loss
adjustment expenses 1,502,425 2,535,105
Income taxes, net 481,383 (165,858)
Unearned premiums 7,564 277,684
------------ -----------
Net cash provided by operating
activities 6,489,243 12,435,172
------------ -----------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Fixed maturities-sold 4,370,628 7,016,843
Fixed maturities-matured 31,096,500 34,216,250
Equity securities 20,000 614,340
Purchases of:
Fixed maturities (34,484,821) (43,387,981)
Equity securities (255,262) --
Limited Partnership Investment Adjustment 11,360 --
Short-term investments, net (6,723,274) (6,181,293)
Capital expenditures (74,997) (98,417)
------------ -----------
Net cash used for investing activities (6,039,866) (7,820,258)
------------ -----------
Cash flows from financing activities:
Borrowings under line of credit 8,700,000 700,000
Payments under line of credit (3,500,000) --
Repayments on long-term debt (877,566) (1,204,578)
Issuance of long-term debt 2,500,000 --
Payments for subsidiary stock (35,000)
Payments for acquisition & retirement
of stock (6,415,237) (6,128,123)
------------ -----------
Net cash provided by (used for)
financing activities 407,197 (6,667,701)
------------ -----------
Net (decrease) increase in cash 856,574 (2,052,787)
Cash at beginning of period 5,120,375 5,471,148
------------ -----------
Cash at end of period $ 5,976,949 3,418,361
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements.
6
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ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
(1) Financial Statements
The consolidated financial statements include the accounts of ACMAT Corporation
("ACMAT" or the "Company") and its subsidiaries. The consolidated financial
statements have been prepared in conformity with generally accepted accounting
principles and are unaudited.
The interim financial information contained in this report has been prepared
from the books and records of the Company and its subsidiaries and reflects, in
the opinion of the management of the Company, all adjustments (consisting of
normal and recurring accruals) necessary to fairly present results of operations
for the periods indicated. All significant intercompany accounts and
transactions have been eliminated in consolidation.
These statements should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1995.
(2) Earnings Per Share
The earnings per share and share equivalent were computed by dividing net
earnings by the weighted average number of Common and Class A shares outstanding
of 3,226,468 and 3,871,366 for 1996 and 1995, respectively, and includes the
common stock equivalency of outstanding options, if dilutive. The number of
shares was also increased by the number of shares issuable on the exercise of
options when the market price of the stock exceeded the exercise price of the
option. This increase in the number of shares was reduced by the number of
shares which are assumed to have been purchased with the proceeds from the
exercise of the option; these purchases were assumed to have been made at the
average price of the common stock during that part of the period when the market
price of the common stock exceeded the exercise price of the option.
Earnings per share - assuming full dilution was determined on the assumptions
that the convertible notes were converted and the options were exercised at the
beginning of the period. As to the debentures, net earnings were adjusted for
the interest expense, net of its tax effect. As to the options, outstanding
shares were increased as described above, except that purchases were assumed to
have been made at the period-end price of the shares as it was higher than the
average price during the period.
(3) Supplemental Cash Flow Information
Income taxes paid during the six months ended June 30, 1996 and 1995 were
$553,907 and $1,403,568 respectively, and interest paid for the six months ended
June 30, 1996 and 1995 were $2,580,161 and $2,441,195, respectively.
During the first six months of 1996, the Company issued 399,999 shares of Class
A Stock at $10 per share pursuant to the conversion options of the Convertible
Senior Notes to AIG Life Insurance Company and American International Life
Assurance Company of New York. On June 30, 1995, the holders of the 10.5%
Convertible Senior Notes elected to convert the principal payment of $500,000
due on June 30, 1995 to 49,999 shares of Class A Stock. The issuance of stock
pursuant to the conversion option of the Convertible Senior Notes is a non-cash
transaction that is not reflected in the Statements of Cash Flows.
(4) Application of New Accounting Standards
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (FAS 121). This statement establishes
accounting standards for the impairment of long-lived assets and certain
identifiable intangibles to be disposed of. This statement requires a write down
to fair value when long-lived assets to be held and used are impaired. The
adoption of this statement did not have any effect on results of operations,
financial condition or liquidity as no adjustments were required.
Also, effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123). This statement addresses alternative accounting treatments for stock-based
compensation, such as stock options and restricted stock. FAS 123 permits
disclosing in the financial statement footnotes the proforma impact to net
earnings as if the value of stock-based compensation
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<PAGE> 8
awards had been expensed. The value of awards are measured at the grant date
based upon estimated fair value, using option pricing models. The Company has
selected the alternative method which provides for pro forma disclosure in the
footnotes to the year-end financial statements only.
8
<PAGE> 9
ACMAT CORPORATION
Item 2: Management's Discussion and Analysis of
Financial Conditions and Results of Operations
RESULTS OF OPERATIONS:
Overview
Net earnings were $1,330,331 for the three months ended June 30, 1996 compared
to $1,448,969 for the same period a year ago. Net earnings for the six months
ended June 30, 1996 were $2,470,445 compared to $2,652,394 for the six months
ended June 30, 1995. The decrease in net earnings for the three and six-month
periods is a result of a decrease in earned premiums and contract revenues
partially offset by an increase in investment income.
Earned Premiums
Net written premiums were $5,306,302 for the three months ended June 30, 1996
compared to $7,461,509 for the three months ended June 30, 1995. Net written
premiums for the six months ended June 30, 1996 were $10,471,383 compared to
$12,563,623 for the six months ended June 30, 1995. Premiums earned for the
three months ended June 30, 1996 were $5,663,800 as compared to $6,345,619 for
the three months ended June 30, 1995. Premiums earned for the six months ended
June 30, 1996 were $10,307,832 as compared to $12,048,233 for the six months
ended June 30, 1995. The decrease in net written premiums and earned premiums
for the three and six months ended June 30, 1996 compared to the same periods in
1995 is primarily due to a continuing soft insurance market place. Variances in
net premiums written have historically occurred due to the fluctuations in size,
number and timing of bonds and policies bound by the Company. The Company will
maintain its existing pricing strategy and high level of service.
Contract Revenues
Contract revenues decreased to $2,703,736 for the three-month period ended June
30, 1996 compared to $3,021,427 for the same period in 1995. Contract revenues
decreased to $4,690,418 for the six-month period ended June 30, 1996 compared to
$5,741,948 for the same period in 1995. During the past several years, the
Company has focused on more profitable projects. Construction revenue is
difficult to predict and depends greatly on the successful securement of
contracts bid.
Investment Income, Net
Net investment income increased to $1,577,588 for the three-month period ended
June 30, 1996 compared to $1,562,565 for the same period in 1995, representing
effective yields of 4.45% and 4.71%, respectively. Net investment income was
$3,226,615 for the six-month period ended June 30, 1996 compared to $2,939,451
for the same period in 1995, representing effective yields of 4.59% and 4.57%,
respectively. The increase in investment income in 1996 over 1995 was due
substantially to higher yields on the portfolio as the result of higher interest
rates obtained on reinvested assets as well as an increase in total invested
assets. Invested assets, including cash, were $143,449,931 and $137,528,676 at
June 30, 1996 and December 31, 1995, respectively. The increase in invested
assets is attributable to net cash flow generated by written premiums, cash
collateral and the reinvestment of investment income offset by the repayment of
debt and the repurchase of stock.
Net Realized Capital Gains
Realized capital gains were $12,400 for the three-month period ended June 30,
1996 compared to realized capital losses of $7,580 for the same period in 1995.
Realized capital gains in the six-month period ended June 30, 1996 were $4,612
compared to realized capital losses of $7,700 for the same period in 1995.
Costs of Contract Revenues
Costs of contract revenues were $2,461,358 for the three-month period ended June
30, 1996 compared to $2,922,516 for the same period a year ago. Costs of
contract revenues increased to $4,368,233 for the six-month period ended June
30, 1996 compared to $5,451,984 for the same period in 1995. Costs of
construction revenues vary from period to period as a function of contract
revenues (See Contract Revenues). The Company's construction backlog was
approximately $6,230,000 at June 30, 1996 compared to $5,640,000 a year ago.
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Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses were $1,699,139 for the three-month period
ended June 30, 1996 compared to $1,953,231 for the same period in 1995. Losses
and loss adjustment expenses were $3,092,349 for the six months ended June 30,
1996 compared to $3,664,015 for the six months ended June 30, 1995. The decrease
in losses and loss adjustment expenses are attributable to the decline in earned
premiums from 1995 to 1996 without any fluctuations in the loss ratios. Losses
and loss adjustment expense reserves represent management's estimate of the
ultimate cost of unpaid losses incurred for these periods relative to premiums
earned.
Amortization of policy acquisition costs
Amortization of policy acquisition costs was $1,014,681 for the three-month
period ended June 30, 1996 as compared to $980,699 for the same period in 1995.
For the six months ended June 30, 1996, amortization of policy acquisition costs
was $1,688,937 compared to $2,069,530 for the same period a year ago. Policy
acquisition costs, primarily commissions, are deferred and amortized over the
policy term. The Company's expense ratio increased to 42.7% in 1996 from 40.6%
in 1995 due primarily to a decrease in earned premiums.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $1,387,932 for the three-month
period ended June 30, 1996 compared to $1,546,914 for the same period in 1995.
Selling, general and administrative expenses were $2,707,853 for the six-month
period ended June 30, 1996 compared to $2,913,304 for the same period in 1995.
The decrease in the selling, general and administrative expenses during the
three and six-month periods ended June 30, 1996 is due primarily to a decrease
in salary expense.
Interest Expense
Interest expense increased to $1,310,915 for the three-month period ended June
30, 1996 compared to $1,201,738 for the same period in 1995. Interest expense
increased to $2,543,298 for the six-month period ended June 30, 1996 compared to
$2,412,573 for the same period in 1995. The increase in interest expense for the
three and six-month periods is due primarily to the increase in short-term
borrowing, offset in part by the repayment of long-term debt.
Income Taxes
Income tax expense was $552,830 for the three-month period ended June 30, 1996
compared to $715,725 for the same period in 1995, representing effective Federal
tax rates of 23.4% and 27.2%, respectively. Income tax expense was $1,035,290
for the six-month period ended June 30, 1996 compared to $1,237,710 for the same
period in 1995, representing effective Federal tax rates of 23.3% and 25.5%,
respectively. The Federal effective tax rate fluctuates according to the mix of
tax-exempt and taxable securities held by the Company.
Reserves for Losses and Loss Adjustment Expenses:
Reserves for losses and loss adjustment expenses are established with respect to
both reported and incurred but not reported claims for insured risks. The amount
of loss reserves for reported claims is primarily based upon a case-by-case
evaluation of the type of risk involved, knowledge of the circumstances
surrounding each claim and the policy provisions relating to the type of claim.
As part of the reserving process, historical data is reviewed and consideration
is given to the anticipated impact of various factors such as legal developments
and economic conditions, including the effects of inflation. Reserves are
monitored and evaluated periodically using current information on reported
claims.
Management believes that the reserves for losses and loss adjustment expenses at
June 30, 1996 are adequate to cover the unpaid portion of the ultimate net cost
of losses and loss adjustment expenses, including losses incurred but not
reported. Reserves for losses and loss adjustment expenses are estimates at any
given point in time of what the Company may have to pay ultimately on incurred
losses, including related settlement costs, based on facts and circumstances
then known. The Company also reviews its claims reporting patterns, past loss
experience, risk factors and current trends and considers their effect in the
determination of estimates of incurred but not reported reserves. Ultimate
losses and loss adjustment expenses are affected by many factors which are
difficult to predict, such as claim severity and frequency, inflation levels and
unexpected and unfavorable judicial rulings. Reserves for surety claims also
consider the amount of collateral held
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as well as the financial strength of the principal and its indemnitors.
The Company's insurance subsidiaries' loss ratio under generally accepted
accounting principles ("GAAP") was 30.0% and 30.2 % for the six-month periods
ended June 30, 1996 and 1995, respectively. These loss ratios are below industry
averages and are believed to be the result of conservative underwriting. There
can be no assurance that such loss ratios can continue. The Company's insurance
subsidiaries' expense ratios under GAAP were 42.7% and 40.6% for the six-month
period ended June 30, 1996 and 1995, respectively. The Company's insurance
subsidiaries' combined ratios under GAAP were 72.7% and 70.8% for the six-month
period ended June 30, 1996 and 1995, respectively.
Liquidity and Capital Resources:
The Company generates sufficient funds from its operations and maintains a
relatively high degree of liquidity in its investment portfolio. The primary
source of funds to meet the demands of claim settlements and operating expenses
are premium collections, investment earnings and maturing investments. As of
June 30, 1996, the Company had no material commitments for capital expenditures
and, in the opinion of management of the Company, the Company currently has
adequate sources of liquidity to fund its operations over the next 12 months.
ACMAT, exclusive of its subsidiaries, has incurred negative cash flows from
operating activities primarily because of interest expense related to notes
payable and long-term debt incurred to acquire and capitalize its insurance
subsidiaries. ACMAT has also incurred negative working capital as a result of
holding short-term debt related to stock repurchases.
ACMAT's principal sources of funds are dividends from its wholly-owned
subsidiaries, intercompany and short-term borrowings, insurance underwriting
fees from its subsidiaries, construction contracting operations and rental
income. Management believes that these sources of funds are adequate to service
its indebtedness and its construction contracting operations without regard to
any dividends from ACMAT's insurance holding company subsidiaries, United Coasts
and ACSTAR Holdings. ACMAT has recently utilized short-term borrowing to
repurchase its stock. On a long-term basis, ACMAT could rely, if necessary, on
dividends from its insurance holding company subsidiaries to improve its working
capital.
The Company realized cash flow from operations of $6,489,243 for the six-month
period ended June 30, 1996, compared to $12,435,172 for the same period in 1995.
Net cash flows provided by operations in 1996 were derived principally from
premium collections and the receipt of collateral held.
Purchases of investments are made based upon excess cash available after the
payment of losses and loss adjustment expenses and other operating and
non-operating expenses. The Company's short term investment strategy coincides
with the relatively short maturity of its liabilities which are comprised
primarily of reserves for losses covered by claims-made insurance policies,
reserves related to surety bonds and collateral held for surety obligations.
Net cash used for investing activities in 1996 amounted to $6,039,866, compared
to net cash used for investing activities of $7,820,258 for the same period in
1995.
The terms of the Company's note agreements contain limitations on payment of
cash dividends, re-acquisition of shares, borrowings and investments and require
maintenance of specified ratios and minimum net worth levels, including cross
default provisions. The Company is prohibited from paying any dividend prior to
July 1, 1997. The payment of future cash dividends and the re-acquisition of
shares are restricted each to amounts of an Available Fund. The Available Fund
is a cumulative fund which is increased each year by 20% of the Consolidated Net
Earnings (as defined). The Company is in compliance with all covenants at June
30, 1996, except for the limitation on the reacquisition of shares which
exceeded the Available Fund at June 30, 1996. The Company does not consider this
a significant Event of Default and has received a waiver from the note holders.
The Company maintains two short-term unsecured bank credit lines totaling $17.5
million to fund interim cash requirements. There was $12,700,000 outstanding
under this line of credit at June 30, 1996.
During the six-month period ended June 30, 1996, the Company purchased, on the
open market and in privately negotiated transactions, 8,124 shares of its Common
Stock at an average price of $16.62. The Company also purchased, in open market
and privately negotiated transactions, 483,250 shares of its Class A Stock at an
average price of $13.00 per share.
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<PAGE> 12
The Company's principal source of cash for repayment of long-term debt is
borrowings from its two insurance holding companies. Under applicable insurance
regulations, ACMAT's insurance subsidiaries are restricted as to the amount of
dividends they may pay to their respective holding company, without the prior
approval of their domestic state insurance department. The amount of dividends
ACMAT's insurance subsidiaries may pay without prior insurance department
approval, are limited to approximately $6,600,000 in 1996.
Regulatory Environment
Risk-based capital requirements are used as early warning tools by the National
Association of Insurance Commissioners and the states to identify companies that
require further regulatory action. The ratio for each of the Company's insurance
subsidiaries as of June 30, 1996 was significantly above the level which might
require regulatory action.
12
<PAGE> 13
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
a. Exhibits - None
b. Report on Form 8-K - None
13
<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, 1996 /s/ Henry W. Nozko, Sr.
---------------------------------------------
Henry W. Nozko, Sr. President and Chairman
Date: August 14, 1996 /s/ Henry W. Nozko, Jr.
---------------------------------------------
Henry W. Nozko, Jr., Executive Vice President
Chief Operating Officer, and Treasurer
14
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