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