Back to GetFilings.com
1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
(Exact name of registrant as specified in its charter)
Connecticut 06-0682460
(State of incorporation) (I.R.S. Employer
Identification No.)
233 Main Street
New Britain, Connecticut 06050-2350
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code
(860) 229-9000
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, without par value
Class A Stock, without par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) or 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 such filing
requirements for the past 90 days.
Yes XX No________
The aggregate market value as of March 26, 1996 of the Common Stock and Class A
Stock held by non-affiliates of the registrant was $27,131,771.
As of March 26, 1996 there were 634,340 shares of the registrant's Common Stock
and 2,182,586 shares of registrant's Class A Stock, each without par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None
2
PART I 3
Item 1. Business 3
General 3
Company History 3
Financial Information about Industry Segments 4
Description of Business Segments 4
Insurance and Surety Bonding 4
General 4
Liability Insurance 4
Surety Bonding 5
Insurance Performance Ratios 6
Underwriting 6
Reinsurance 7
Claims 7
Reserves for Losses and Loss Adjustment Expenses 7
IRIS Ratios 10
A.M. Best Ratings 10
Risk Based Capital 10
Construction Contracting 11
General 11
Backlog 11
Materials 11
Contract Acquisition 11
Warranty 12
Asbestos Abatement Operations 12
Marketing 12
Competition 13
Regulation 14
Investments 15
Environmental Compliance 17
Employees 17
Item 2. Properties 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II 18
Item 5. Market for the Registrant's Common Stock and Related Stockholder matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations 19
Reserves for Losses and Loss Adjustment Expenses 22
Effect of Change in Accounting Principle 23
Liquidity and Capital Resources 23
Regulatory Environment 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 51
PART III
51
Item 10. Directors and Executive Officers of the Registrant 51
Item 11. Executive Compensation 53
Item 12. Security Ownership of Certain Beneficial Owners and Management 55
Item 13. Certain Relationships and Related Transactions 56
PART IV 57
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 57
3
PART I
ITEM 1. BUSINESS
General
ACMAT Corporation ("ACMAT" or the "Company") provides specialized commercial
insurance and bonding coverages for contractors, architects, engineers and other
professionals in the construction and environmental fields. The Company derives
its underwriting expertise from its construction and remediation operations.
Through United Coastal Insurance Company ("United Coastal Insurance"), the
Company provides a broad line of environmental, professional, general and other
liability insurance primarily to environmental and specialty trade contractors
and architects, engineers and other trade professionals. Through ACSTAR
Insurance Company ("ACSTAR Insurance"), the Company provides surety bonds for
general building, specialty trade and environmental contractors and others. Both
United Coastal Insurance and ACSTAR Insurance are rated A (excellent) by The
A.M. Best Co., Inc.("A.M. Best"). In 1995, insurance operations accounted for
over 70% percent of the Company's consolidated revenues.
The Company is also engaged in construction contracting, which was its original
business. The Company's construction operations currently consist of interior
contracting services involving the design and furnishing of building interiors
and asbestos abatement services for commercial, industrial and institutional
buildings.
Company History
The Company was organized in 1951 to provide acoustic materials for building
interiors and later expanded its construction operations to include a broad
range of coordinated interior contracting services. During the 1970's, the
Company became one of the first companies in the United States to specialize in
the abatement of asbestos. By 1984, asbestos abatement operations accounted for
a majority of the Company's revenues. However, in that year, the Company's
insurer stopped writing liability insurance for asbestos contractors. The
absence of adequate alternate sources of insurance and its high cost severely
curtailed the Company's operations.
These conditions lead directly to the Company's entry into the insurance field.
In 1985, the Company, based on its extensive knowledge in the asbestos abatement
field, co-founded United Coasts Corporation ("United Coasts"). Through its
subsidiary, United Coastal Insurance, United Coasts initially offered only
general liability insurance on a claims-made basis covering bodily injury and
property damage claims to contractors engaged in asbestos abatement activities.
On September 21, 1994, ACMAT purchased from The Environmental Venture Fund, a
Delaware limited partnership, The Apex Investment Fund, an Illinois partnership
and The Productivity Fund, a Delaware limited partnership, 15, 10 and 5 shares,
respectively, of the common stock of ACSTAR Holdings, Inc., a subsidiary of the
Company, for an aggregate consideration of $3,000,000. As a result of these
transactions, the amount of the outstanding common stock of Acstar Holdings,
Inc. owned by the Company has increased from 91% to 100%, thereby making ACSTAR
Holdings, Inc. a wholly-owned subsidiary of the Company.
3
4
During the past several years, the Company has expanded its insurance operations
from serving only the asbestos abatement marketplace to now serving the
specialty trade, environmental and professional liability and surety
marketplace. As a result, the contribution of the insurance segment of the
Company's operations has increased significantly in relation to the operations
of the Company's construction contracting segment.
Financial Information about Industry Segments
Financial information relating to the two segments is set forth in Note 16 to
the consolidated financial statements on page 43 of this document.
Description of Business Segments
INSURANCE AND SURETY BONDING
General
The Company's insurance subsidiaries primarily provide liability insurance and
surety bonding for specialty trade, environmental remediation, asbestos and lead
abatement contractors and professional liability for architects, engineers,
environmental consultants and others. The Company also provides products
liability insurance for manufacturers and distributors. This highly specialized
insurance market includes general liability, pollution liability, environmental
consulting liability, hazardous waste storage and treatment pollution liability
and other related liabilities. Few property and casualty insurers serve these
markets due to the technical skills required in the underwriting process and the
high degree and intensive amount of service required to tailor coverages to the
special needs of policyholders and to provide timely responses to individual
contract requirements.
Liability Insurance
The liability insurance lines of the Company, which consist primarily of
contractor policies and professional liability policies, are discussed more
fully below:
Contractors
- General Liability - Policies offered to general contractor and
specialty trade contractors involved in plumbing, heating, electrical,
framing, roofing, drilling, excavation, demolition, road work, and
other contracting activities. Coverage is limited to third-party bodily
injury and property damage arising out of the contractors' operations.
General liability insurance is offered on either a claims-made or an
occurrence basis.
- Contractor Pollution Liability - Policies offered to contractors
involved in hazardous waste remediation or cleanup, installation or
removal of storage tanks, or the transportation of hazardous waste.
Coverage is provided for third party-bodily injury or property damage
liability caused by a release of, or exposure to, pollutants as a
result of contractors' operations. The liability exposure commences
with the clean-up activities and ends when a hazard has been removed.
Contractors pollution liability insurance is offered only on a
claims-made basis.
- Asbestos and Lead Abatement Liability - Policies offered to contractors
involved in the removal or encapsulation of asbestos and/or lead
containing materials from structures or their containment through
appropriate encapsulation or repair. Coverage is provided for
third-party bodily injury and property damage liability as a result of
a release of asbestos or lead which arises out of the contractors'
operations. Asbestos and lead abatement liability insurance is provided
on either a claims-made or occurrence basis.
Professionals
- Architects and Engineers Professional Liability - Policies offered to
architects and engineers and consultants in the fields of architecture;
civil, electrical, mechanical, structural and process engineering;
construction/property management; laboratory testing and surveying. All
policies are written on a claims-made basis.
4
5
- Environmental Asbestos and/or Lead Consultants Professional Liability -
Policies offered to consultants involved in providing services such as
environmental assessments, design/build services, asbestos or lead
consulting, remedial investigations and feasibility studies, and
storage tank consulting. Coverage is provided for liability arising out
of the acts, errors or omissions of a consultant in the performance of
professional services. All professional liability coverages are written
on a claims-made basis.
Owners and Lenders
- Hazardous Waste Storage and Treatment Pollution Liability - Policies
offered on a claims-made basis in response to the insurance
requirements of the Environmental Protection Agency in connection with
facilities subject to the Resource Conservation and Recovery Act of
1976 ("RCRA").
- Site Specific Pollution Liability - Policies which cover pollution
claims arising or emanating from a specific site are provided on a
claims-made basis. Comprehensive site evaluations are required prior to
providing coverage for any site.
- Lenders Pollution Liability - Policies offered to financial
institutions for pollution occurring at property owned or controlled by
the institution as a result of foreclosure or otherwise. Lender
pollution liability coverage is offered on a claims-made basis.
Products Liability
- Products Liability - Policies offered on a claims-made or occurrence
basis to manufacturers for a variety of products including chemicals,
fertilizers, pesticides, pollution control devices and storage tanks.
The Company customizes many of its insurance policies to suit the individual
needs of its insureds. Combined policies insuring multiple exposures under one
policy form and one combined policy limit are available under favorable pricing
terms.
Surety Bonding
Surety bonds are written for specialty trade, environmental, asbestos and lead
abatement contractors. The Company also offers a wide variety of miscellaneous
bonds. Most bonds are supported by various levels of collateral based upon the
financial condition of the contractor. Collateral consists of cash, liquid
investments or letters of credit from financial institutions acceptable to the
Company.
The Company generally requires cash or irrevocable letters of credit to
collateralize a portion or all of most bonds issued. In addition, the Company
will only accept irrevocable letters of credit from financial institutions which
have a rating of C "sound credit risk" or higher as determined by Thomson
BankWatch, Inc. However, no assurance can be made that such financial
institutions will maintain their financial strength and, thus, that funds
guaranteed under letters of credit will be available, if needed, to offset any
potential future claims.
The Company provides the following types of bonds:
- Payment and performance bonds - Bonds to general building and specialty
trade contractors, environmental remediation and asbestos abatement
contractors and consultants, lead abatement contractors and solid waste
disposal contractors. A payment and performance bond guarantees
satisfactory performance and completion of the contractor's work and
payment of the contractor's debts and obligations relating to the
performance of the contract covered by the bond.
- Closure and post-closure bonds - Bonds for owners of solid and
hazardous waste landfills as required to meet certain requirements
under RCRA and remediation bonds in connection with the Comprehensive
Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). Closure bonds usually guarantee that a property owner will
restore property to a specified level or condition. Post-closure bonds
guarantee cultivation and maintenance of a closed site.
5
6
- Supply bonds and other specialty bonds - Bonds required by contractors,
manufacturers and other owners in their normal course of operations.
- Miscellaneous surety, license, permit, self insurer, supersedeas and
other bonds - Miscellaneous bonds issued to applicants based on bond
form and the applicant's financial strength.
The underwriting department and management are responsible for the development
of new insurance products and enhancements. Underwriting profitability is
enhanced by the creation of niche products focused on classes of business which
traditionally have provided underwriting profits.
Insurance Performance Ratios
The following table sets forth the combined ratios of the Company, prepared in
accordance with generally accepted accounting principles and statutory
accounting principles prescribed or permitted by state insurance authorities.
The combined ratio is a traditional measure of underwriting profitability. When
the combined ratio is under 100%, underwriting results are generally considered
profitable. Conversely, when the combined ratio is over 100%, underwriting
results are considered unprofitable. The combined ratio does not reflect
investment income, federal income taxes or other non-operating income or
expense.
Year
Ended December 31,
1995 1994 1993
---- ---- ----
GAAP Ratios:
Loss ratio 30.0% 30.0% 30.0%
Expense ratio 41.4 39.6 38.6
---- ---- ----
GAAP combined ratio 71.4 69.6 68.6
---- ---- ----
Statutory Ratios:
Loss ratio 30.5 30.3 30.3
Expense ratio 41.9 38.3 39.2
---- ---- ----
Statutory combined ratio 72.4 68.6 69.5
---- ---- ----
Underwriting
The Company's underwriting practices rely heavily upon the knowledge base which
it has developed in over forty years of construction contracting. Accordingly,
ACMAT, in addition to its construction contracting operations, provides risk
evaluation, loss adjustment, underwriting, claims handling and monitoring
services for its insurance subsidiaries, United Coastal Insurance and ACSTAR
Insurance. Contractors seeking liability insurance and bonding through the
Company are carefully reviewed with respect to their past practices, claims
history and records. Other factors considered are the contractors' and
professionals' financial conditions, training techniques, safety procedures,
histories of violations, record keeping, supervisory qualifications and
experience. Historically, the Company has issued policies and bonds to fewer
than twenty-five percent of its applicants.
Attention to the qualifications of its insureds continues after policies are
issued. Periodic inspections of selected job sites are performed as a means of
monitoring contractors' operations. In this way, the Company believes it is able
to effectively manage its risks while its policies are in force.
Underwriting procedures for products liability insurance involve conducting an
in-depth review of the product that is being manufactured or distributed. Such
review involves examining an applicant's past record of recalls, claims history
and litigation.
The Company's underwriting and pricing strategy is designed to produce an
underwriting profit resulting in a Company-wide combined ratio well below 100%.
The Company has a conservative underwriting philosophy which, in the opinion of
management, is one of the primary reasons for the favorable loss ratios relative
to the property and casualty insurance industry over the last three years.
The Company continually monitors financial stability of contractors with surety
bonds outstanding. Work in progress reports and updated financial information
are reviewed by the Company to ensure that the contractor continues to meet
the underwriting guidelines.
6
7
Reinsurance
The Company reinsures the excess limit on each insurance policy above $2
million up to $5 million for liability and reinsures $10 million of $15.3
million of individual bond limits offered by the Company through a treaty with
two companies, Transatlantic Reinsurance Company, an affiliate of AIG
Insurance, and United States Fidelity & Guaranty Company, each rated "A+" and
"A", respectively by A. M. Best. Effective April 1, 1995, the Company secured
additional treaty excess of loss reinsurance which provides limits on a per
policy basis of $5,000,000 per occurrence or claim made and in the aggregate
excess of $5,000,000 per occurrence or claim made and in the aggregate. To
date, the Company's reinsurers have fulfilled their obligations under their
reinsurance contracts with the Company. Facultative reinsurance is also used
for current insureds seeking project specific excess insurance. In general, a
reinsurance transaction takes place when an insurance company cedes all or a
portion of its exposure to liability on insurance written or surety bonds
issued to another insurer which assumes such exposure, as if the ceding insurer
were itself purchasing insurance from the assuming insurer. Reinsurance does
not legally discharge an insurance carrier from its primary liability to a
policyholder for the face amount of coverage and, accordingly, the financial
stability of the Company's reinsurers is an important factor in determining the
Company's ultimate exposure to claims.
The availability and price of reinsurace fluctuates according to market
conditions. In recent years, many reinsurers have withdrawn from the market or
become insolvent. Depending on the availability and cost of reinsurace, the
Company may, from time to time, elect to cede greater or lesser portions of its
underwriting risk.
Claims
The Company directly handles substantially all claims of its insureds, except
that independent claims adjustors and/or counsel selected for their experience
and reputation in the locality of the claim are retained to conduct initial
fact-finding investigations. All decisions respecting payment of claims are made
by experienced employees of the Company.
Reserves for Losses and Loss Adjustment Expenses
Reserves for losses and loss adjustment expenses are estimates at any given
point in time of what the Company may have to ultimately pay 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 losses. 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 contractor
and its indemnitors. Management believes that the reserves for losses and loss
adjustment expenses at December 31, 1995 are adequate to cover the unpaid
portion of the ultimate net cost of losses incurred through that date and
related adjustment expenses incurred, including losses incurred but not
reported.
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.
In determining appropriate adjustments to reserves 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 recomputed periodically using new information on
reported claims.
7
8
The following table sets forth a reconciliation of beginning and ending reserves
for losses and loss adjustment expenses for the periods indicated on a GAAP
basis for the business of the Company.
1995 1994 1993
---- ---- ----
Balance at January 1 $ 40,954,783 $ 34,729,643 $ 35,963,164
Less reinsurance recoverable 4,228,879 4,293,049 6,722,906
------------ ------------ ------------
Net balance at January 1 36,725,904 30,436,594 29,240,258
Incurred related to:
Current year 8,015,877 8,209,992 7,623,178
Prior years (900,506) -- --
------------ ------------ ------------
Total incurred 7,115,371 8,209,992 7,623,178
Payments related to:
Current year 111,989 284,736 155,513
Prior years 2,366,074 1,635,946 6,271,329
------------ ------------ ------------
Total payments 2,478,063 1,920,682 6,426,842
Net balance at December 31 41,363,212 36,725,904 30,436,594
Plus reinsurance recoverable 3,872,099 4,228,879 4,293,049
------------ ------------ ------------
Balance at December 31 $ 45,235,311 $ 40,954,783 $ 34,729,643
============ ============ ============
The decrease in 1995 of incurred losses and loss adjustment expenses of prior
years represents a reallocation of reserves among accident years. The increases
in 1993 claim payments are partially a result of payments relating to settlement
of losses reserved in prior periods. These increases are also attributable to an
increase in earned premiums during the development of the Company's insurance
operations and the conversion of related loss reserves to loss payments in the
normal course of business. Based on lower payments made in 1995 and 1994, as
well as an evaluation of case reserves, the Company does not believe that the
claim payouts in 1993 represent a trend. There can be no assurance, however,
that the Company's reserves will be sufficient to cover ultimate losses and loss
adjustment expenses or that future adjustments to losses and loss adjustment
expense reserves will not be required.
As of December 31, 1995, 1994 and 1993 reserves for the combined losses and loss
adjustment expenses of the Company's insurance operations as determined in
accordance with accounting principles and practices prescribed or permitted by
insurance regulatory authorities ("Statutory basis reserves") were $58,835,913,
$53,642,609 and $46,186,650, respectively. As of December 31, 1995, 1994 and
1993 reserves determined in accordance with generally accepted accounting
principles ("GAAP basis reserves") were $45,235,311, $40,954,783 and
$34,729,643, respectively. The difference between the Statutory basis reserves
and the GAAP basis reserves result from the minimum statutory, or "Schedule P",
loss reserves required to be maintained by the Company's insurance subsidiaries,
partially offset by the netting of reinsurance recoverable against losses and
loss adjustment expense reserves for statutory purposes.
8
9
The following loss and loss adjustment expense reserve runoff table is for the
combined insurance operations of the Company's insurance subsidiaries. ACSTAR
Holdings operations began in 1988. Although United Coasts is consolidated only
since May 1989, the run-off table presents the reserve activity since the
inception of United Coastal Insurance in 1985. The data for 1992 and prior
periods are presented on a net basis in the reserve run-off table. Restatement
of prior periods is not practicable.
Each column shows the reserve held at the indicated calendar year-end and
cumulative data on payments and reestimated liabilities for that accident year
and all prior accident years making up that calendar year-end reserve.
Therefore, the redundancy (deficiency) is also a cumulative number for that year
and all prior years. It would not be appropriate to use this cumulative history
to project future performance.
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
-------- -------- -------- -------- -------- -------- -------- -------- ------- -------
(thousands)
Liability for unpaid losses
and loss adjustment expenses 1,790 6,178 11,528 15,626 21,378 26,234 29,240 30,437 36,726 41,363
Liability reestimated as of:
One year later 1,790 6,178 11,528 15,476 21,378 26,234 29,240 30,437 35,825
Two years later 1,790 6,178 11,378 15,476 21,378 26,234 29,240 28,337
Three years later 1,790 6,028 11,378 15,476 21,378 26,234 26,000
Four years later 1,640 6,028 11,378 14,876 21,378 22,094
Five years later 1,640 5,413 10,778 14,876 16,642
Six years later 1,640 4,813 10,778 6,622
Seven years later 1,040 4,813 2,924
Eight years later 1,040 671
Nine years later 658
Cumulative Redundancy
(deficiency): 1,132 5,507 8,604 9,004 4,736 4,140 3,240 2,100 901
Paid (cumulative) as of:
One year later 88 81 759 565 1,357 3,216 6,142 1,560 2,361
Two years later 91 581 1,026 743 4,067 8,699 7,574 3,655
Three years later 575 588 1,070 2,140 8,954 9,576 8,603
Four years later 575 588 1,178 3,460 10,233 10,488
Five years later 575 671 2,349 3,924 10,554
Six years later 658 671 2,355 4,010
Seven years later 658 671 2,238
Eight years later 658 671
Nine years later 658
Gross liability - end of year 34,730 40,955 45,235
Reinsurance recoverable 4,293 4,229 3,872
------ ------ ------
Net liability - end of year 30,437 36,726 41,363
In 1995, the Company changed its method of reporting estimated liabilities for
claims- made policies which is reflected in the reserve run-off table. For
calendar years 1994 and prior, reserves associated with claims-made policies
were reported based on accident year basis consistent with the Company's
treatment in Schedule P to the Company's Statutory Annual Statement. At the
request of the Arizona Insurance Department, ("Department") the Company was
required to change its method of reporting in Schedule P to the Annual
Statement, reserve and payment data associated with claims- made policies to a
report year basis versus an accident year basis in order to comply with the
National Association of Insurance Commissioners ("NAIC") guidelines. The
Company's prior treatment of claims-made loss data on an accident basis was
approved by the Department during years prior to 1995. For its 1995 statutory
filing, the Company restated loss data reported in Schedule P to comply with the
Department's request. As a result of the change to Schedule P for claims-made
policies, the Company has also changed the method for reporting claims-made loss
payment data in the reserve run-off table to conform to a report year basis for
claims-made policies. Occurrence policies were and continue to be reported on an
accident year basis. The 1995 reestimated liabilities for each calendar year
have been restated to reflect the new method of reporting.
9
10
Because of the change in reporting loss data for claims-made policies from an
accident year basis to a report year basis, prior accident year reserves have
been moved forward to fall within the report year resulting in no change to
total reserve amounts or estimates. Management believes that the aggregate
reserves for losses and loss adjustment expenses all accident years are
adequate.
IRIS Ratios
The National Association of Insurance Commissioners ("NAIC") has developed the
Insurance Regulatory Information System ("IRIS"), intended to assist state
insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies eleven industry ratios and specifies "usual values" for each
ratio. When an insurance company's ratio falls outside the "usual value," it is
designated an "unusual value," which event alerts state insurance departments to
potential problems. For the year ended December 31, 1995, none of the Company's
insurance subsidiaries' IRIS ratios were designated an "unusual value," except
for the investment yield ratio for ACSTAR Insurance Company. The calculated
investment yield was below the NAIC standard of 4.5% because of the Company's
policy of investing in relatively short-term tax-exempt securities and ACSTAR
Insurance Company's ownership of 2,070,000 shares of United Coasts Corporation
which is not an income producing security.
A.M. Best Ratings
A.M. Best ratings are indications of the solvency of an insurer based on an
analysis of the financial condition and operations of a company relative to the
industry in general. Occasionally, the requirement for A.M. Best's-rated insurer
is a condition imposed upon the contractor by the party engaging the contractor.
Certain insurance brokers also restrict the business they will place with
insurers which are not A.M. Best's-rated. The 1995 Best letter ratings range
from A++ (superior) to F (in liquidation).
Since 1994, United Coastal Insurance and ACSTAR Insurance each have an A.M.
Best's rating of A (excellent).
Risk Based Capital
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, 1995 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 to placing
the insurer under regulatory control. The ratio for both of the Company's
insurance subsidiaries as measured at December 31, 1995 was significantly above
the levels which would require regulatory action.
10
11
CONSTRUCTION CONTRACTING
General
The Company provides a broad range of coordinated interior contracting services.
The Company began to offer asbestos abatement services in the 1970's and the
Company continues to be active in the asbestos abatement field. The Company
installs interiors including mechanical systems and electrical systems in office
buildings, retail establishments, schools, colleges, churches, hospitals and
other buildings. The Company's interior contracting is provided both in
connection with new buildings and in connection with the remodeling and
renovation of interiors of existing buildings usually under contracts with
building owners and building occupants.
The interior design, construction and asbestos abatement industries are highly
fragmented. Many interior contractors, in contrast to the Company, specialize in
a particular interior component such as ceilings or partitions. The Company
provides a broad range of coordinated interior contracting services, many of
which are performed by subcontractors. Both the interior construction and
asbestos abatement markets have, in recent years, reflected the economic
recession in the Northeast. The asbestos abatement market has also declined as
many of the intensive abatement programs mandated in recent years with respect
to public buildings have been completed.
Backlog
The following table sets forth the Company's backlog of unbilled contract
amounts, the total number of contracts and the number of contracts with unbilled
amounts in excess of $400,000 as of December 31, 1995 and 1994:
December 31, 1995 December 31, 1994
----------------- -----------------
Total Number of Contracts.
16 12
Total unbilled contract
amounts. $3,600,000 $9,100,000
Number of contracts with
unbilled amounts in excess 3 5
of $400,000.
Aggregate unbilled amount of
contracts in excess of
$400,000. $3,000,000 $9,000,000
The Company estimates that substantially all of the December 31, 1995 backlog
will be completed prior to December 31, 1996. The decrease in the backlog is a
result of completing several large projects obtained in mid-1994.
Materials
The Company purchases the materials it installs in the course of its
construction contracting operations from a number of suppliers. Most of the
Company's materials are standard building components which historically have
been readily available from several suppliers. Some components are manufactured
to the Company's specifications. Most of the materials used by the Company are
shipped directly to the job site by the manufacturer.
Contract Acquisition
The Company's work projects are obtained by lump sum fixed price bids, unit
prices or are negotiated. Contract prices are usually determined by competition
with other contractors.
11
12
Warranty
Each project usually contains a one-year warranty or guaranty period, wherein
the Company warrants that its work is free from defects and was performed in
accordance with the plans and specifications. Occasionally, the Company is
required to make minor corrections or adjustments, but has never incurred any
significant costs in connection with any such work.
Asbestos Abatement Operations
Both the Company's insurance and construction contracting operations have
involved risks associated with asbestos. The Company has in the past insured and
continues to insure risks associated with asbestos abatement or containment
operations on both a claims-made and occurrence basis. Since harm from exposure
to asbestos fibers may not be detectable in humans for as much as thirty years,
losses under insurance contracts written on an occurrence basis may not be known
for some time.
The Company's construction contracting operations involve the removal of
asbestos. As asbestos containing materials deteriorate or become disturbed by
incidental or intentional contact, asbestos fibers may enter the air and can
circulate into the breathing zone of building occupants. Exposure to asbestos is
thought by some to be a cause of cancer. In the mid 1970's, the Company became
engaged in the removal of asbestos in addition to its other contracting
operations. Since that time, it has been engaged in hundreds of contracts
involving the removal of asbestos. Claims by non-employees related to asbestos
have been made against the Company from time to time and are pending and there
can be no assurance that claims will not be made in the future.
While the Company currently has claims pending against it by employees, the
Company believes that it is fully covered by workers' compensation insurance
with respect to any claims by current and former employees relating to asbestos
operations. The Company currently obtains its workers' compensation insurance in
those states in which it performs work either from state insurance funds or one
of several insurance companies designated in accordance with the Assigned Risk
Pool. The amount of workers' compensation insurance maintained varies from state
to state but is generally greater than the maximum recovery limits established
by law and is not subject to any aggregate policy limits. In the past, the
Company has received a number of asbestos-related claims from employees, all of
which have been fully covered by its workers' compensation insurance. The
Company believes, although no assurances can be given, that workers'
compensation insurance sufficient to cover all future claims will remain
available in accordance with applicable state laws.
MARKETING
Insurance and Surety Bonding
As an excess and surplus lines carrier, United Coastal Insurance markets its
policies through excess and surplus lines brokers only in those states in which
it is permitted to write coverage. Currently, United Coastal Insurance is
permitted to write excess and surplus lines insurance as a nonadmitted insurer
in forty-six states, the District of Columbia, Puerto Rico and the Virgin
Islands.
ACSTAR Insurance offers payment and performance bonds through carefully selected
insurance agents which specialize in the needs of contractors. All underwriting
approvals and issuance of policies and bonds are performed directly by the
Company's insurance subsidiaries.
The Company's insurance products are marketed in all 50 states primarily through
several of the largest insurance brokers, including Marsh & McLennan,
Incorporated, Johnson & Higgins, Willis Corroon and Alexander & Alexander, Inc.
12
13
Construction Contracting
The Company markets its construction contracting services directly to building
owners and building occupants. Project opportunities are brought to the
attention of the Company through various sources such as F. W. Dodge Company,
which publishes lists of projects available for bid, architects, owners, general
contractors, or engineers who are familiar with the Company. The Company also
depends upon repeat business and responses to the Company's extensive
advertising program which is intended to emphasize ACMAT's packaged interior
renovation capability. ACMAT's sales force consists of its senior management,
project managers and salesmen, all of whom function as construction consultants
and work closely with owners, tenants and architects.
COMPETITION
Insurance and Surety Bonding
The property and casualty insurance industry is highly competitive. The Company
competes with large national and smaller regional insurers in each state in
which it operates, as well as monoline specialty insurers. The Company's
principal competitors include certain insurance subsidiaries of American
International Group, Inc. ("AIG"), Reliance Insurance Group, Zurich Insurance
Group, Design Professionals Insurance Company, CNA Insurance Companies and
Lloyd's of London. Many of its competitors are larger and have greater financial
resources than the Company. Among other things, competition may take the form of
lower prices, broader coverage, greater product flexibility, higher quality
services or the insurer's rating by independent rating agencies. The Company
competes with admitted insurers, surplus line insurers, new forms of insurance
organizations such as risk retention groups, and alternative self-insurance
mechanisms.
Competition in the field of surety bonding is intense and many of the Company's
competitors are larger and have greater surplus than the Company, thereby
allowing them to provide bonds with higher limits than those which the Company
is able to provide. The Company's principal competitors include the St. Paul
Companies, Inc., Reliance Insurance Group and AIG. The Company's insurance
subsidiaries hold primary and reinsurance certificates of authority as
acceptable sureties on Federal bonds as do approximately 250 to 300 other surety
companies. The certificates give the Company an advantage over companies which
are not certified by the United States Treasury Department with respect to
surety bonding on Federal projects in that such certification has become a
standard with respect to both Federal and other bonds. Approximately one-half of
the surety bonds written by the Company's subsidiaries are required to be
provided by a Treasury listed company. With respect to other bonds, the Company
faces competition from as many as 1,000 additional non-certified surety
companies.
Construction Contracting
Competition in the interior construction business serviced by ACMAT generally is
intense. Historically, a majority of the Company's construction business was
performed on projects on which the Company had been in competition with other
contractors. The Company currently focuses its efforts on privately negotiated
contracts obtained through advertising and its reputation. Quality of service
and pricing are the Company's principal methods of competition.
The economic climate of the Northeast has increased the competitive pressure on
all aspects of the Company's contracting operations. The Company has responded
with marketing efforts seeking to obtain business when the Company's reputation
and experience allow it to privately negotiate contracts at prices which are
sufficiently profitable.
13
14
REGULATION
The business of ACMAT's insurance subsidiaries is subject to comprehensive and
detailed regulation and supervision throughout the United States. The laws of
the various jurisdictions establish supervisory agencies with broad
administrative authority which includes, but is not limited to, the power to
regulate licenses to transact business, trade practices, agent licensing, policy
forms, claim practices, underwriting practices, reserve requirements, the form
and content of required financial statements and the type and amounts of
investments permitted. The insurance companies are required to file detailed
annual reports with supervisory agencies in each of the jurisdictions in which
they do business, and their operations and accounts are subject to examination
by such agencies at regular intervals.
As a nonadmitted excess and surplus lines insurer, United Coastal Insurance is
not subject to the comparatively more extensive state regulations to which
ACSTAR Insurance is subject. The regulations and restrictions to which ACSTAR
Insurance and United Coastal Insurance are subject include provisions intended
to assure the solvency of United Coastal Insurance and are primarily for the
protection of policyholders and loss claimants rather than for the benefit of
investors.
State insurance regulations impose certain restrictions upon the types of
investments that the Company's insurance subsidiaries can acquire and the
percentage of their capital or assets that may be placed in any particular
investment or type of investment. Certain states also require insurance
companies to furnish evidence of financial security by means of a deposit of
marketable securities with the state insurance regulatory authority. On December
31, 1995, the Company's insurance subsidiaries had securities with an aggregate
book value of approximately $9.7 million on deposit with various state
regulatory authorities.
The insurance subsidiaries of ACMAT are restricted as to the amount of cash
dividends they may pay. United Coastal Insurance is restricted by the Arizona
Insurance Holding Company Systems Act as to the amount of dividends it may pay
without the prior approval of the Arizona Department. During 1995, United
Coastal Insurance paid $5,181,000 in dividends to United Coasts Corporation. At
January 1, 1996, $4,047,500 is available for the payment of dividends by United
Coastal Insurance to United Coasts in 1996 without the prior approval of the
Arizona Insurance Department.
Under applicable insurance regulations in its domicile state of Illinois, ACSTAR
is also restricted as to the amount of dividends it may pay. ACSTAR may pay or
declare a dividend only up to the amount of any available surplus funds derived
from realized net profits on its business, as determined in accordance with
statutory accounting principles. During 1995, ACSTAR paid $2,470,000 in
dividends to ACSTAR Holdings. At January 1, 1996, approximately $2,590,000 is
available for the payment of dividends by ACSTAR in 1996 without the prior
approval of the Illinois Insurance Department.
The property and casualty insurance industry has recently received a
considerable amount of publicity because of rising insurance costs and the
unavailability of insurance. New regulations and legislation are being proposed
to limit damage awards, to control plaintiffs' counsel fees, to bring the
industry under regulation by the federal government and to control premiums,
policy terminations and other policy terms. It is not possible to predict
whether these proposals will be adopted or their likely effect, if any, on the
Company.
14
15
INVESTMENTS
The Company's investment strategy is to maintain a conservative investment
policy by generally acquiring high quality tax-exempt securities, primarily
bonds, with fixed effective maturities of approximately three years or less. The
investment portfolio is well diversified and is in compliance with regulatory
requirements. The Company's bond portfolio is composed primarily of investments
rated AA or better by Standard and Poor's. Management has also decided to avoid
long-term investing at what management believes to be low long-term interest
rates.
The Company's investment portfolio is subject to several risks including
interest rate and reinvestment risk. Fixed maturity security values generally
fluctuate inversely with movements in interest rates. The Company's corporate
and municipal bond investments may contain call and sinking fund features which
may result in early redemptions and the Company's mortgage-backed securities
investments held by the Company are subject to prepayment risk. Declines in
interest rates could cause early redemptions or prepayments which would require
the Company to reinvest at lower rates.
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 No. 115, debt securities are classified as held to
maturity, available for sale or trading. The Company classifies all debt
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. 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.
The Company invests primarily in tax-exempt securities as part of its strategy
to maximize after-tax income. Such strategy considers, among other factors, the
impact of the alternative minimum tax. The following table summaries the fixed
maturity investments portfolio at December 31, 1995 and 1994 (dollars in
thousands):
December 31,
------------
1995 1994
---------------- -------------------
Percent Percent
of of
Amount Total Amount Total
------ ------ ------ -------
Fixed maturities available
for sale (1):
U.S. government and
government agencies
and authorities $ 43,749 33.0% $ 18,957 15.9%
State and political
subdivisions 78,238 59.1 88,961 74.6
Industrial and
Miscellaneous 400 .3 993 .8
------- ----- ------- ---
Total fixed maturities
available for sale 122,387 92.4 108,911 91.3
Equity securities (2) 20 .1 444 .4
Limited Partnership Investment (3) 1,642 1.2 1,205 1.0
Short-term investments 8,359 6.3 8,726 7.3
-------- ----- -------- -----
Total investments $132,408 100.0% $119,286 100.0%
======== ====== ======== ======
- ------------------
(1) Fixed maturities available for sale are carried at fair value. Total cost
of fixed maturities was approximately $121,613,000 at December 31, 1995 and
$110,647,000 at December 31, 1994.
(2) Equity securities are carried at fair value. Total cost of equity
securities was approximately $20,000 at December 31, 1995 and $627,000 at
December 31, 1994.
(3) Limited Partnership Investments are carried at fair value. Total cost of
the limited partnership investments was approximately $1,120,000 at
December 31, 1995 and $1,097,000 at December 31, 1994.
15
16
The following table sets forth the maturities in the fixed maturity investment
portfolio at December 31, 1995 and 1994 (dollars in thousands):
December 31,
---------------------
1995 1994
----------------------- ------------------------
Percent Percent
of of
Amount Total Amount Total
------ ----- ------ -----
Due in (1):
One year or less $ 66,127 54.0% $ 46,175 42.4%
After one year through
five years 54,480 44.5 59,962 55.1
After five years through
ten years 1,097 .9 817 .7
After ten years 683 .6 1,957 1.8
-------- ----- -------- -----
$122,387 100.0% $108,911 100.0%
======== ===== ======== =====
- ---------------
(1) Based on stated maturity dates with no prepayment assumptions. Actual
maturities may differ because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
The Company's insurance subsidiaries are subject to state laws and regulations
that require diversification of its investment portfolio and limit the amount of
investments in certain investment categories. Failure to comply with these laws
and regulations would cause non-conforming investments to be treated as
non-admitted assets for purposes of measuring statutory surplus and, in some
instances, would require divestiture. As of December 31, 1995, the Company's
investments complied with such laws and regulations.
Investment results for the years ended December 31, 1995, 1994 and 1993 are
shown in the following table (dollars in thousands):
1995 1994 1993
---- ---- ----
Invested
assets (1) $132,513 $124,643 $125,154
Investment
income (2) $6,063 $4,637 $4,564
Average yield 4.6% 3.7% 3.6%
(1) Average of the aggregate invested amounts at the beginning and end of
the period including cash and cash equivalents.
(2) Investment income is net of investment expenses and does not include
realized investment gains or losses or provision for income taxes.
The yields reflect the Company's investment strategy of acquiring high quality
tax-exempt securities with fixed effective maturities of approximately three
years or less. The increase in investment income in 1995 over 1994 was due
substantially to higher yields on the portfolio as the result of higher interest
rates as well as an increase in total invested assets. The increase in invested
assets is attributable to the net cash flow generated by written premiums, cash
collateral and the reinvestment of investment income offset in part by cash used
to repay debt and repurchase stock.
16
17
ENVIRONMENTAL COMPLIANCE
The Company does not expect that its compliance with federal, state or local
environmental laws or regulations will have any material effect upon its capital
expenditures, earnings or competitive position.
EMPLOYEES
As of December 31, 1995, the Company employed approximately 40 persons, all in
the United States. Certain of its employees are employed subject to collective
bargaining agreements. The Company believes that its relations with all of its
employees are excellent.
ITEM 2. PROPERTIES
The Company and its subsidiaries occupy a 7 story office building located at 233
Main Street, in New Britain, Connecticut. ACMAT leases approximately 50% of the
building to unaffiliated tenants. The office building is suitable and adequate
for ACMAT's current and future requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to a few legal actions arising in the ordinary course of
its business. In management's opinion, the Company has adequate legal defenses
or insurance coverages respecting those actions where the Company is a defendant
and does not believe their settlement will materially affect the Company's
operations or financial position.
ACMAT and the directors of United Coasts, Henry W. Nozko, Sr., Henry W. Nozko,
Jr. and John C. Creasy are defendants in an action brought by a shareholder of
United Coasts seeking to enjoin a 1993 exchange offer by ACMAT for shares of
United Coasts held by unaffiliated persons. ACMAT subsequently withdrew the
exchange offer but the plaintiff continues to seek, among other things, (a) a
determination that the action is a proper class action, (b) a mandatory
injunction requiring the registration of United Coasts common stock under the
Securities Exchange Act of 1934, (c) unspecified damages and (d) attorneys' fees
and costs.
On December 20, 1995, ACMAT entered into a Memorandum of Understanding with
counsel to shareholders of United Coasts which will allow for a proposed merger
of United Coasts into ACMAT. Under the terms of the proposed merger, the United
Coasts shareholders would receive one share of ACMAT Class A Stock for each one
and one-half shares of United Coasts shares, adjusted to reflect any counsel
fees payable to the shareholders' counsel. The merger is subject to several
conditions, including the completion of a settlement of the shareholder
litigation and court approval.
The Company has, together with many other defendents, been named as a defendent
in approximately 110 actions brought in Connecticut state courts by injured or
deceased individuals or their representatives based on product liability claims
relating to materials containing asbestos. No specific claims for monetary
damages are asserted in these actions. Although it is early in the litigation
process, the Company does not believe that its exposure in connection with these
cases is significant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
17
18
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
ACMAT's Class A Stock trades on the Nasdaq National Market under the symbol
ACMTA. As of September 5, 1995, the Common Stock no longer qualified for
continued listing on the Nasdaq National Market and is now traded in the
over-the-counter market. The following table sets forth the quarterly high and
low closing prices of the Company's Common Stock and Class A Stock as reported
by Nasdaq.
1995 1994
HIGH LOW HIGH LOW
COMMON STOCK
1st Quarter 16 1/4 13 1/2 10 3/8 10 1/4
2nd Quarter 17 14 1/2 12 1/4 10 1/4
3rd Quarter 16 15 12 5/16 10 3/4
4th Quarter 17 15 15 1/8 11 1/2
CLASS A STOCK
1st Quarter 11 5/8 9 3/16 9 1/2 8 1/4
2nd Quarter 12 7/8 11 5/8 10 8 1/2
3rd Quarter 12 3/4 11 3/4 9 1/2 8 1/2
4th Quarter 13 1/4 11 5/8 9 5/8 8 1/2
No dividends have been paid in the past five years and there is no intention of
paying dividends in the near future. As of March 1, 1996, there were 331 Common
Stock shareholders of record and 564 Class A Stock shareholders of record.
18
19
ITEM 6. SELECTED FINANCIAL DATA
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Revenues $ 41,857,398 $ 40,755,676 $ 40,193,622 $ 39,697,632 $ 35,017,716
Total Assets 180,402,238 168,494,814 174,609,667 159,674,290 142,426,091
Long-Term Debt 40,127,590 43,405,266 49,832,463 51,396,504 34,954,654
Stockholders'
Equity 37,587,259 38,004,935 36,686,002 34,029,931 32,208,221
Net Earnings* 5,350,280 4,839,861 3,909,117 2,826,870 2,650,259
Earnings Per Share* 1.46 1.17 .91 .65 .60
Note: No cash dividends were paid during any of the periods above.
*Including cumulative effect of a change in accounting principle of $1,127,943
(26(cent) per share) in 1992.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
YEARS ENDED DECEMBER 31, 1995 AND 1994:
Earned Premiums
Earned premiums in 1995 were $23,492,905 compared to $27,141,639 in 1994. Net
written premiums were $22,856,791 in 1995 compared to $27,216,453 in 1994. The
decrease in earned premiums in 1995 reflects the 16% decrease in 1995 net
written premiums over 1994 net written premiums. The Company has written fewer
new accounts as a result of what is believed to be a temporary inadequate
pricing environment in the market. 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.
Contract Revenues
Contract revenues were $11,614,632 in 1995 compared to $8,160,758 in 1994.
During the past several years, the Company has focused on fewer projects and
devoted more resources to the Insurance Group. Increases for the 1995 period
are believed to be temporary and are related to more backlog on hand.
Construction revenue is difficult to predict in 1996 and depends greatly on the
successful securement of contracts bid. However, since the backlog at December
31, 1995 was lower than the backlog a year ago, the Company expects contract
revenues to be lower in 1996.
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 selectively
using its own labor force and subcontracting many of the trades involved in
contract performance. Although the Company believes that these strategies have
improved 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 continue to improve the Company's construction contracting
operations.
19
20
Investment Income, Net
Net investment income was $6,062,883 in 1995 compared to $4,637,158 in 1994,
representing effective yields of 4.58% and 3.72%, respectively. The increase in
investment income in 1995 over 1994 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 and cash equivalents, were $137,528,676 and $124,757,438 at
December 31, 1995 and 1994, respectively. The increase in invested assets is
attributable to the net cash flow generated by written premiums, cash collateral
and the reinvestment of investment income offset by the purchase of stock and
the repayment of debt.
Net Realized Capital Gains (Losses)
Realized capital gains from the sale of investments during 1995 were $7,897
compared to realized capital losses of $34,238 in 1994.
Cost of Contract Revenues
Cost of contract revenues were $10,774,758 in 1995 compared to $7,793,535 in
1994. The increase in cost of contract revenues during 1995 compared to 1994
reflects the increase in contract revenues and the elimination of the gross
losses on the construction operations. Costs of contract revenues vary from
period to period as a function of contract revenues (See Contract Revenues). The
Company's construction backlog at December 31, 1995 was approximately $3,600,000
compared to $9,100,000 at December 31, 1994.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses were $7,115,371 in 1995 compared to
$8,209,992 in 1994. The decreases in the 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 $3,939,008 in 1995 as compared to
$4,260,759 in 1994. 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 $6,097,322 in 1995 compared to
$6,964,686 in 1994. The decrease in selling, general and administrative expenses
from 1995 to 1994 reflects a decrease in the bad debts expense and a decrease in
the amortization of intangible assets. Amortization of intangible assets
amounted to approximately $399,000 in 1995 and $747,000 in 1994 due to the
expiration, in 1994 of certain covenants not to compete.
Interest Expense
Interest expense has decreased to $4,810,578 in 1995 from $4,940,014 in 1994.
The decrease in interest expense in 1995 is due primarily to the repayment of
notes totaling $11,690,000 on March 31, 1994 offset in part by the issuance on
June 30, 1994 of the $8,000,000 term loan.
Income Taxes
Income tax expense was $2,414,400 in 1995 compared to $2,245,300 in 1994,
representing effective Federal tax rates of 25.1% and 24.6%, respectively. The
Federal effective tax rate fluctuates according to the mix of tax exempt and
taxable securities held by the Company.
20
21
YEARS ENDED DECEMBER 31, 1994 AND 1993:
Earned Premiums
Earned premiums in 1994 increased 6.8% to $27,141,639 compared to $25,422,187 in
1993. Net written premiums were $27,216,453 in 1994 compared to $27,312,152 in
1993. The increase in earned premiums in 1994 reflects the 16.8% increase in
1993 net written premiums over 1992 net written premiums. 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.
Contract Revenues
Contract revenues were $8,160,758 in 1994 compared to $8,532,260 in 1993. The
decrease in contract revenues during 1994 compared to 1993 was the result of
fewer construction projects in progress. During the past several years, the
Company has focused on fewer more profitable projects and devoted more resources
to the Insurance Group.
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 of the 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 further
improve the Company's construction contracting operations.
Investment Income, Net
Net investment income was $4,637,158 in 1994 compared to $4,563,514 in 1993,
representing effective yields of 3.72% and 3.65%, respectively. The increase in
investment income in 1994 over 1993 was due substantially to higher yields on
the portfolio as the result of rising interest rates during 1994. The rise in
short-term interest rates has begun to impact the portfolio for the year ended
December 31, 1994. Invested assets, including cash, were $124,757,438 and
$130,877,552 at December 31, 1994 and 1993, respectively. The decrease in
invested assets is attributable to the repayment of debt and cash collateral
offset by the net cash flow generated by written premiums, cash collateral and
the reinvestment of investment income.
Net Realized Capital Gains
Realized capital losses from the sale of investments during 1994 were $34,238
compared to realized capital gains of $721,601 in 1993. In 1993, fixed maturity
investments totaling $93,433,751 were sold to realize gains available based on
market conditions at the time of the sale.
Cost of Contract Revenues
Cost of contract revenues were $7,793,535 in 1994 compared to $9,327,616 in
1993. The decrease in cost of contract revenues during 1994 compared to 1993
reflects the decrease in contract revenues and the elimination of the gross
losses on the construction operations. The gross loss in 1993 was primarily
attributable to unexpected costs overruns on two renovation contracts and two
asbestos abatement contracts. The Company's construction backlog at December 31,
1994 was approximately $9,100,000 compared to $3,900,000 at December 31, 1993.
21
22
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses were $8,209,992 in 1994 compared to
$7,623,178 in 1993. The increases in the losses and loss adjustment expenses are
attributable to the growth in earned premiums from 1993 to 1994 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 $4,260,759 in 1994 as compared to
$3,407,104 in 1993. 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 $6,964,686 in 1994 compared to
$6,873,217 in 1993. The slight increase in selling, general and administrative
expenses from 1993 to 1994 reflects normal increases in operating expenses and
an increase in the allowance for bad debts offset by a decrease in the
amortization of intangible assets. Amortization of intangible assets amounted to
approximately $747,000 in 1994 and $1,557,000 in 1993 due to the expiration of
certain covenants not to compete in May of 1994 and July of 1993.
Interest Expense
Interest expense has decreased to $4,940,014 in 1994 from $5,609,893 in 1993.
The decrease in interest expense in 1994 is due primarily to the repayment of
notes totaling $11,690,000 on March 31, 1994 offset in part by the issuance on
June 30, 1994 of the $8,000,000 term loan.
Income Taxes
Income tax expense was $2,245,300 in 1994 compared to $1,888,000 in 1993,
representing effective Federal tax rates of 24.6% and 24.3%, 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
December 31, 1995 are adequate to cover the unpaid portion of the ultimate net
cost of losses and lost 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 as well as the financial strength of the
contractor and its indemnitors.
22
23
The combined ratio is one means of measuring the underwriting experience of a
property and casualty insurer. The combined ratio, consisting of the ratio of
losses and loss adjustment expenses to premiums earned (the "loss ratio") plus
the ratio of underwriting expenses to premiums written (the "expense ratio")
reflects relative underwriting profit or loss. The Company's insurance
subsidiaries' loss ratios under generally accepted accounting principles
("GAAP") were 30.0% for each of the years ended December 31, 1995, 1994 and
1993. 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 41.4%, 39.6% and 38.6% for the years ended December 31, 1995, 1994 and
1993, respectively. The Company's insurance subsidiaries' combined ratios under
GAAP were 71.4%, 69.6% and 68.6% for the years ended December 31, 1995, 1994 and
1993, respectively. The increase in the 1995 combined ratio results primarily
from the decline in premiums.
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE:
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 115, Accounting for Certain Investments in Debt and Equity
Securities issued by the Financial Accounting Standards Board ("FASB"). Under
FAS No. 115, debt securities are classified as held to maturity, available for
sale, or trading. The Company classified all debt securities as available for
sale. Consequently, such securities 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. 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.
LIQUIDITY AND CAPITAL RESOURCES:
The Company internally generates sufficient funds for its current 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 12 months.
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 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 serve
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 borrowings 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 $19,312,412 in 1995 compared
to $9,629,444 in 1994 and $16,312,287 in 1993. Net cash flows provided by
operations in 1995 were derived principally from premium collections and
collateral held. The Company's cash flow was used to repay long-term debt,
repurchase stock 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.
23
24
Substantially all of the Company's cash flow was used to increase its investment
portfolio, repay debt and repurchase stock. 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 comprise primarily 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 amounted to $11,454,974 in 1995,
$4,535,375 in 1994 and $15,819,101 in 1993. In 1993, fixed maturity investments
totalling $93,434,000 were sold to realize gains available based on market
conditions at the time of the sale. Proceeds from the sale of these securities
were reinvested in U.S. Treasury and high grade municipal securities.
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 dividends 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 ("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 December 31, 1995, except for the limitation on the
reacquisition of shares which exceeded the Available Fund at December 31, 1995.
The Company has received a waiver to exceed this limitation at December 31,
1995.
The Company maintains a short-term unsecured bank credit line of $10 million to
fund interim cash requirements. There was $7,500,000 outstanding under this line
of credit as of December 31, 1995. 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 commencing September 30, 1994.
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.
On November 7, 1995, the Company obtained a $7,500,000 Demand Discretionary Line
of Credit with The Bank of Boston Connecticut which expires on November 6, 1996.
Under the terms of the line of credit, interest on the outstanding balance is
calculated based upon the LIBOR plus 160 basis points in effect during the
borrowing period. There were no borrowings outstanding under this line of credit
at December 31, 1995.
During 1995, the Company purchased, in the open market and privately negotiated
transactions, 10,456 shares of its Common Stock at an average price of $15.52.
The Company also repurchased, in open market and privately negotiated
transactions, 797,228 shares of its Class A Stock at an average price of $11.83
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. For 1996, the amount of
dividends ACMAT's insurance subsidiaries may pay are limited to approximately
$6,600,000.
In 1996, the Company anticipates that internally generated funds and short-term
borrowings will be utilized for repayment of long-term debt. Principal
repayments on long-term debt will be approximately $3,500,000 in 1996.
24
25
REGULATORY ENVIRONMENT
The National Association of Insurance Commissioners has 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, 1995, 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 its 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, 1995 was significantly above the level which might require
regulatory action.
25
26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Schedules
ACMAT Corporation and Subsidiaries:
The following Consolidated Financial Statements of the Company, related notes
and Independent Auditors' Report are included herein:
Independent Auditors' Report
Consolidated Statements of Earnings for the years ended December 31, 1995,
1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements - December 31, 1995, 1994 and
1993
Consolidated Schedules included in Part II of this Report - Years ended
December 31, 1995, 1994 and 1993:
I - Condensed Financial Information of Registrant
II - Valuation and Qualifying Accounts and Reserves
V - Supplemental Information Concerning Property-Casualty Insurance
Operations
26
27
INDEPENDENT AUDITORS' REPORT
The Board of Directors
ACMAT Corporation:
We have audited the consolidated financial statements of ACMAT Corporation and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ACMAT Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules,
when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set
forth therein.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company changed its method of accounting for investments.
KPMG Peat Marwick LLP
Hartford, Connecticut
February 23, 1996
27
28
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
---- ---- ----
Earned Premiums $ 23,492,905 27,141,639 25,422,187
Contract Revenues 11,614,632 8,160,758 8,532,260
Investment Income, Net 6,062,883 4,637,158 4,563,514
Net Realized Capital Gains (Losses) 7,897 (34,238) 721,601
Other Income 679,081 850,359 954,060
------------ ------------ ------------
41,857,398 40,755,676 40,193,622
------------ ------------ ------------
Losses and Loss Adjustment Expenses 7,115,371 8,209,992 7,623,178
Cost of Contract Revenues 10,774,758 7,793,535 9,327,616
Amortization of Policy Acquisition Costs 3,939,008 4,260,759 3,407,104
Selling, General and Administrative Expenses 6,097,322 6,964,686 6,873,217
Interest Expense 4,810,578 4,940,014 5,609,893
------------ ------------ ------------
32,737,037 32,168,986 32,841,008
------------ ------------ ------------
Earnings Before Income Taxes and Minority Interests 9,120,361 8,586,690 7,352,614
Income Taxes 2,414,400 2,245,300 1,888,000
------------ ------------ ------------
Earnings Before Minority Interests 6,705,961 6,341,390 5,464,614
Minority Interests (1,355,681) (1,501,529) (1,555,497)
------------ ------------ ------------
Net Earnings $ 5,350,280 4,839,861 3,909,117
============ ============ ============
Net Earnings Per Share and Share Equivalent $ 1.46 1.17 .91
------------ ------------ ------------
Net Earnings Per Share - Assuming Full Dilution $ 1.18 -- --
------------ ------------ ------------
See Notes to Consolidated Financial Statements.
28
29
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
- ------ ---- ----
Investments:
Fixed Maturities - Available for Sale at Fair Value
(Cost of $121,612,706 in 1995 and $110,647,319 in 1994) $122,387,491 108,911,211
Equity Securities, at Fair Value
(Cost of $20,000 in 1995 and $627,252 in 1994) 20,000 444,109
Limited Partnership Investment, at Fair Value
(Cost of $1,120,354 in 1995 and $1,097,261 in 1994) 1,641,763 1,204,914
Short-term Investments, at Cost Which Approximates Fair Value 8,359,047 8,726,056
------------ ------------
Total Investments 132,408,301 119,286,290
Cash and Cash Equivalents 5,120,375 5,471,148
Accrued Interest Receivable 2,230,988 1,890,826
Receivables, Net of Allowance for Doubtful Accounts of
$254,825 in 1995 and $194,815 in 1994 9,022,434 9,480,567
Reinsurance Recoverable 3,872,099 4,228,879
Income Tax Refund Receivable 233,572 23,518
Prepaid Expenses 178,965 234,929
Deferred Income Taxes 1,971,148 2,285,649
Property and Equipment, Net 13,987,256 14,364,020
Deferred Policy Acquisition Costs 3,459,308 3,661,421
Other Assets 3,869,028 3,192,151
Intangibles, Net 4,048,764 4,375,416
------------ ------------
$180,402,238 168,494,814
============ ============
Liabilities & Stockholders' Equity
Notes Payable to Banks $ 7,500,000 4,300,000
Accounts Payable 2,189,645 2,302,202
Reserves for Losses and Loss Adjustment Expenses 45,235,311 40,954,783
Unearned Premiums 14,302,613 14,977,825
Collateral Held 17,767,955 10,403,706
Other Accrued Liabilities 1,861,815 1,681,266
Income Taxes -- 294,980
Long-term Debt 40,127,590 43,405,266
------------ ------------
Total Liabilities 128,984,929 118,320,028
Minority Interests 13,830,050 12,169,851
Stockholders' Equity:
Common Stock (No Par Value; 3,500,000 Shares Authorized;
642,464 and 652,920 Shares Issued and Outstanding) 642,464 652,920
Class A Stock (No Par Value; 10,000,000 Shares Authorized;
2,665,836 and 3,313,067 Issued and Outstanding) 2,665,836 3,313,067
Additional Paid-in Capital 1,921,100 9,358,948
Retained Earnings 31,601,383 26,251,103
Unrealized gain (loss) on Securities, Net of Deferred Taxes
of $389,685 in 1995 756,476 (1,571,103)
------------ ------------
Total Stockholders' Equity 37,587,259 38,004,935
------------ ------------
Commitments and Contingencies
$180,402,238 168,494,814
============ ============
See Notes to Consolidated Financial Statements.
29
30
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
December 31, 1995, 1994 and 1993
Net
unrealized
Common Class A gains
stock stock Additional (losses) Total
par par paid-in Retained on stockholders'
value value capital earnings securities equity
Balance as of December 31, 1992 $ 714,275 3,529,505 12,347,677 17,502,125 (63,651) 34,029,931
Acquisition and retirement of
20,942 shares of Common Stock $ (20,942) -- (199,215) -- -- (220,157)
Acquisition and retirement of
137,454 shares of Class A Stock -- (137,454) (1,087,689) -- -- (1,225,143)
Net unrealized appreciation of
equity securities -- -- -- -- 192,254 192,254
Net earnings -- -- -- 3,909,117 -- 3,909,117
----------- ----------- ----------- ----------- ----------- -----------
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
40,413 shares of Common Stock $ (40,413) -- (447,343) -- -- (487,756)
Acquisition and retirement of
478,484 shares of Class A Stock -- (478,484) (3,736,514) -- -- (4,214,998)
Issuance of 379,500 shares
of Class A Stock -- 379,500 2,620,500 -- -- 3,000,000
Issuance of 20,000 shares of
Class A Stock pursuant to stock options -- 20,000 100,000 -- -- 120,000
Effect of adoption of FAS No. 115,
net of taxes -- -- -- -- 472,000 472,000
Net unrealized losses on debt and
equity securities -- -- -- -- (2,171,706) (2,171,706)
Deferred tax benefit on net
unrealized losses on debt and
equity securities -- -- -- -- 619,862 619,862
Deferred tax valuation allowance -- -- -- -- (619,862) (619,862)
Other -- -- (238,468) -- -- (238,468)
Net earnings -- -- -- 4,839,861 -- 4,839,861
----------- ----------- ----------- ----------- ----------- -----------
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
10,456 shares of Common Stock $ (10,456) -- (151,829) -- -- (162,285)
Aquisition and retirement of
797,228 shares of Class A Stock -- (797,228) (8,635,992) -- -- (9,433,220)
Issuance of 149,997 shares
of Class A Stock -- 149,997 1,349,973 -- -- 1,499,970
Net unrealized appreciation of
debt and equity securities -- -- -- -- 2,717,264 2,717,264
Deferred taxes on net unrealized gains
on debt and equity securities -- -- -- -- (389,685) (389,685)
Net earnings -- -- -- 5,350,280 -- 5,350,280
----------- ----------- ----------- ----------- ----------- -----------
Balance as of December 31, 1995 $ 642,464 2,665,836 1,921,100 31,601,383 756,476 37,587,259
=========== =========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
30
31
ACMAT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, 1993
1995 1994 1993
---- ---- ----
Cash Flows From Operating Activities:
Net Earnings $ 5,350,280 4,839,861 3,909,117
Adjustments to Reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 2,224,897 2,953,146 3,809,883
Minority Interests 1,355,681 1,501,529 1,555,497
Net Realized Capital (Gains) Losses (7,897) 34,238 (721,601)
Changes In:
Accrued Interest Receivable (340,162) (204,588) 81,591
Receivables, Net 458,133 (1,230,342) 589,369
Reinsurance recoverable 356,780 64,170 (4,293,049)
Deferred Policy Acquisition Costs 202,113 44,338 (1,133,633)
Prepaid Expenses and Other Assets (693,741) (184,745) (1,082,524)
Accounts Payable and Other Liabilities 67,992 (114,872) 184,733
Collateral Held 7,364,249 (4,811,215) 4,408,845
Reserves for Losses and Loss Adjustment Expenses 4,280,528 6,225,140 5,489,385
Income Taxes (631,229) 559,938 739,123
Unearned Premiums (675,212) (47,154) 2,775,551
------------ ------------ ------------
Net Cash Provided by Operating Activities 19,312,412 9,629,444 16,312,287
------------ ------------ ------------
Cash Flows From Investing Activities:
Proceeds From Investments Sold or Matured:
Fixed Maturities - Sold 12,902,187 12,832,799 93,433,751
Fixed Maturities - Matured 42,485,000 27,569,700 10,468,000
Equity Securities 614,340 925,272 484,405
Purchases Of:
Fixed Maturities (67,587,026) (38,382,662) (118,533,382)
Equity Securities -- (384,013) --
Limited Partnership Investment (23,092) (49,836) (553,284)
Short-term Investments, Net 367,009 (3,260,509) (502,343)
Purchase of 9% interest in ACSTAR Holdings, Inc. -- (3,000,000) --
Payments for Covenants Not-To-Compete -- -- (300,000)
Capital Expenditures (213,392) (786,126) (316,248)
------------ ------------ ------------
Net Cash Used for Investing Activities (11,454,974) (4,535,375) (15,819,101)
------------ ------------ ------------
Cash Flows From Financing Activities:
Borrowings Under Line of Credit 4,200,000 1,700,000 --
Repayments Under Line of Credit (1,000,000) (1,700,000) --
Repayments on Long-term Debt (1,777,706) (14,427,197) (1,564,041)
Issuance of Long-term Debt -- 8,000,000 --
Issuance of Class A Stock -- 2,881,532 --
Payments for Subsidiaries' Stock (35,000) (41,250) (567,655)
Payments for Acquisition and Retirement of Stock (9,595,505) (4,702,754) (1,445,300)
------------ ------------ ------------
Net Cash Used For Financing Activities (8,208,211) (8,289,669) (3,576,996)
------------ ------------ ------------
Net Decrease in Cash and Cash Equivalents (350,773) (3,195,600) (3,083,810)
Cash and Cash Equivalents, Beginning of Year 5,471,148 8,666,748 11,750,558
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 5,120,375 5,471,148 8,666,748
============ ============ ============
See Notes to Consolidated Financial Statements.
31
32
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include ACMAT Corporation
("ACMAT" or the "Company"), its wholly-owned subsidiaries, AMINS,
Inc., Geremia Electric Co., ACMAT of Texas, Inc., ACSTAR Holdings,
Inc. ("ACSTAR Holdings") and ACSTAR Holdings' wholly-owned
subsidiary, ACSTAR Insurance Company ("ACSTAR"); and its 84% owned
subsidiary, United Coasts Corporation ("United Coasts") and United
Coasts' wholly-owned subsidiary, United Coastal Insurance Company
("United Coastal Insurance").
On September 21, 1994, ACMAT purchased 30 shares of ACSTAR Holdings
stock for $3,000,000. As a result of the stock purchase, ACMAT's
ownership of ACSTAR Holdings increased to 100%.
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP").
All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain re- classifications have been
made to the 1994 and 1993 financial statements to conform with the
classifications in 1995.
(b) Business
ACMAT operates as an insurance holding company and as an interior
contractor; designing, supplying, renovating and installing interiors
for commercial, industrial and institutional buildings, including
asbestos abatement contracting.
ACMAT's Insurance Group includes United Coastal Insurance, ACSTAR and
AMINS, Inc. United Coastal Insurance is an excess and surplus lines
property and casualty insurer providing specialty general and
environmental liability insurance to specialty trade and
environmental contractors, property owners, storage and treatment
facilities and allied professionals, as well as professional
liability insurance to architects, engineers and consultants. ACSTAR
is licensed as an admitted insurer in 49 states and the District of
Columbia and provides surety bonding for specialty trade,
environmental remediation and asbestos abatement contractors. AMINS,
Inc. is an insurance agency which acts primarily as a general agent
for ACSTAR and United Coastal Insurance. United Coastal Insurance
participates in a number of reinsurance arrangements with other
companies on a quota share basis. These arrangements primarily cover
marine and other property catastrophic risks.
During 1995, 1994 and 1993, customers who individually accounted for
more than 10% of consolidated construction contracting revenue for
the respective years are as follows: 1995 - three customers provided
28%, 24% and 18%, respectively; in 1994 - three customers provided
17%, 13% and 11%, respectively; 1993 - two customers provided 26% and
22%, respectively. No customers accounted for more than 10% of the
consolidated insurance revenues in any year.
(c) Investments
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 to 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.
Investments in equity securities, which is comprised of common
stocks, are classified as available for sale and carried at fair
value based on quoted market values.
Investment in limited partnership, which represents participation in
a joint venture which invests primarily in small capitalization
stocks traded on national market exchanges, is carried at fair value,
which is determined based upon the market value of the investments
held by the partnership.
Short-term investments, consisting primarily of money market
instruments maturing within one year are carried at cost which, along
with accrued interest, approximates fair value. Cash and cash
equivalents include cash on hand and short-term highly liquid
investments of maturities of three months or less when purchased.
These investments are carried at cost plus accrued interest which
approximates fair value.
Realized gains and losses are determined on a specific identification
basis. Unrealized gains and losses on debt and equity securities and
limited partnership gains and losses, net of deferred taxes, if
applicable, are included in stockholders' equity.
32
33
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company continually evaluates its investment portfolio and
establishes reserves for impairment in value deemed to be other than
temporary.
(d) Policy Acquisition Costs
Policy acquisition costs, representing commissions and certain
underwriting costs, are deferred and amortized on a straight-line
basis over the policy term. During the years ended December 31, 1995,
1994 and 1993, deferrable costs capitalized were $3,736,895,
4,216,421 and $4,540,737 respectively. The amortization of deferred
policy acquisition costs charged to operations for the years ended
December 31, 1995, 1994 and 1993 was 3,939,008, $4,260,759 and
$3,407,104 respectively.
(e) Property and Equipment
Property and equipment are reported at depreciated cost. Depreciation
is computed using the straight-line method at rates based upon the
respective estimated useful lives of the assets. Maintenance and
repairs are expensed as incurred.
(f) Intangibles
All intangibles are stated at amortized cost and are being amortized
using the straight-line method. Intangibles include insurance
operating licenses and goodwill, which represents the excess of cost
over the fair market value of net assets acquired. These intangible
assets are amortized over periods ranging from 15 to 25 years.
(g) Insurance Reserve Liabilities
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 the claim and
the policy provisions relating to the type of claim. As part of the
reserving process, historical data are 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 recomputed periodically using
new information on reported claims.
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 losses. 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 contractor and its indemnitors. Management
believes that the reserves for losses and loss adjustment expenses
are adequate to cover the unpaid portion of the ultimate net cost of
losses and loss adjustment expenses incurred, including losses
incurred but not reported.
(h) Collateral Held
The carrying amount of collateral held approximates its fair value
because of the short maturity of these instruments. Collateral held
represents cash and investments retained by the Company for surety
bonds issued by the Company.
(i) Reinsurance
In the normal course of business, the Company assumes and cedes
reinsurance with other companies. Reinsurance ceded primarily
represents excess of loss reinsurance with companies with "A" ratings
from the insurance rating organization, A.M. Best Company, Inc. Such
reinsurance is applicable on a per policy basis generally to those
policies with per occurrence limits in excess of $2 million up to $5
million for liability and in excess of $1.5 million up to $15.3
million for surety bonds. Effective April 1, 1995, the Company
secured additional treaty excess of loss reinsurance which provides
limits on a per policy basis of $5,000,000 per occurrence or claim
made and in the aggregate excess of $5,000,000 per occurrence or
claim made and in the aggregate. Reinsurance ceded also includes a
facultative reinsurance treaty which is applicable to excess policies
written over a primary policy issued by the Company for specific
projects. Reinsurance is ceded to limit losses from large exposures
and to permit recovery of a portion of direct losses; however, such a
transfer
33
34
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
does not relieve the originating insurer of its liability. The
Company participates in assumed quota-share reinsurance arrangements
covering marine and property catastrophe risks with one of its excess
of loss reinsurers.
Reinsurance recoverables include ceded reserves for losses and loss
adjustment expenses and ceded unearned premiums are included in other
assets. All reinsurance contracts maintained by the Company qualify
as short-duration prospective contracts under the provisions of FAS
No. 113. A summary of reinsurance premiums written and earned is
provided below:
Premiums Written Premiums Earned
---------------------------------------------- ---------------------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
Direct $ 22,810,600 26,307,031 28,514,995 $ 23,171,614 26,177,153 26,402,116
Assumed 1,427,542 2,509,377 613,365 1,582,138 2,480,330 775,544
Ceded (1,381,351) (1,599,953) (1,816,208) (1,260,847) (1,515,844) (1,755,473)
------------ ------------ ------------ ------------ ------------ ------------
Totals $ 22,856,791 27,216,455 27,312,152 $ 23,492,905 27,141,639 25,422,187
============ ============ ============ ============ ============ ============
Reinsurance recoveries on ceded paid losses and loss adjustment
expenses totalled approximately $30,000 and $388,000 for the year
ended December 31, 1995 and 1993, respectively. There were no ceded
paid losses and loss adjustment expenses for the year ended December
31, 1994. Ceded incurred losses and loss adjustment expenses totalled
$425,458 and $638,554 for the years ended December 31, 1995 and 1994,
respectively.
(j) Revenue Recognition
Revenue on construction contracts is recorded using the percentage of
completion method. Under this method revenues with respect to
individual contracts are recognized in the proportion that costs
incurred to date relate to total estimated costs. Revenues and cost
estimates are subject to revision during the terms of the contracts,
and any required adjustments are made in the periods in which the
revisions become known. Provisions are made, where applicable, for
the entire amount of anticipated future losses on contracts in
progress. Claims are recorded as revenue at the time of settlement
and profit incentives and change orders are included in revenues when
their realization is reasonably assured. Selling, general and
administrative expenses are not allocated to contracts.
Insurance premiums are recognized over the terms of the respective
policy contracts. Unearned premiums represent the portion of premiums
written that is applicable to the unexpired terms of policies in
force, calculated on a prorata basis.
(k) Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(l) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
reported results using those estimates.
(m) Future Application of Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB")
issued 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
effective January 1, 1996 will not have a material effect on results
of operations, financial condition or liquidity.
34
35
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 1995, the FASB issued 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 either expensing the value of stock-based compensation over
the period earned or disclosing in the financial statement footnotes the
pro forma impact to net income as if the value of stock-based
compensation awards had been expensed. The value of awards would be
measured at the grant date based upon estimated fair value, using option
pricing models. The requirements of this statement will be effective for
1996 financial statements, although earlier adoption is permissible if an
entity elects to expense the cost of stock-based compensation. The
Company is currently evaluating the disclosure requirements and expense
recognition alternatives addressed by this statement. However, the
Company expects to adopt the alternative which would provide for proforma
disclosure in the footnotes to the consolidated financial statements.
(2) ACQUISITIONS
On September 21, 1994, ACMAT purchased from The Environmental Venture
Fund, a Delaware limited partnership ("EVF"), The Apex Investment Fund,
an Illinois limited partnership ("Apex") and The Productivity Fund, a
Delaware limited partnership ("PF"), 15, 10 and 5 shares, respectively,
of the common stock of ACSTAR Holdings, a subsidiary of the Company, for
an aggregate consideration of $3,000,000. As a result of these
transactions, the amount of the outstanding common stock of ACSTAR
Holdings owned by the Company has increased from 91% to 100%, thereby
making ACSTAR Holdings a wholly-owned subsidiary of the Company.
In a separate transaction, EVF, Apex and PF exercised warrants to
purchase 189,750, 126,500 and 63,250 shares, respectively, of Class A
Stock of the Company for an aggregate consideration of $3,000,000.
(3) INVESTMENTS
Investments at December 31, 1995 and 1994 follows:
AMORTIZED ESTIMATED CARRYING
COST FAIR VALUE VALUE
------------ ------------ ------------
1995
Fixed Maturities Available for Sale:
Bonds:
States, Municipalities and Political Subdivision $ 78,052,947 78,237,674 78,237,674
United States Government and Government Agencies 43,156,415 43,749,435 43,749,435
Industrial and Miscellaneous 403,344 400,382 400,382
------------ ------------ ------------
Total Fixed Maturities 121,612,706 122,387,491 122,387,491
------------ ------------ ------------
Equity Securities - Common Stocks:
Industrial and Miscellaneous 20,000 20,000 20,000
------------ ------------ ------------
Total Equity Securities 20,000 20,000 20,000
------------ ------------ ------------
Limited Partnership Investment 1,120,354 1,641,763 1,641,763
Short-Term Investments 8,359,047 8,359,047 8,359,047
------------ ------------ ------------
Total Investments $131,112,107 132,408,301 132,408,301
============ ============ ============
1994
Fixed Maturities Available for Sale:
Bonds:
States, Municipalities and Political Subdivisions $ 90,483,496 88,960,649 88,960,649
United States Government and Government Agencies 19,161,595 18,957,597 18,957,597
Industrial and Miscellaneous 1,002,228 992,965 992,965
------------ ------------ ------------
Total Fixed Maturities 110,647,319 108,911,211 108,911,211
------------ ------------ ------------
Equity Securities - Common Stocks:
Banks, Trusts and Insurance 223,240 163,749 163,749
Industrial and Miscellaneous 404,012 280,360 280,360
------------ ------------ ------------
Total Equity Securities 627,252 444,109 444,109
------------ ------------ ------------
Limited Partnership Investment 1,097,261 1,204,914 1,204,914
Short-Term Investments 8,726,056 8,726,056 8,726,056
------------ ------------ ------------
Total Investments $121,097,888 119,286,290 119,286,290
============ ============ ============
35
36
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair value estimates are made at a specific point in time, based on quoted
market prices and information about the financial instrument. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the Company's entire holdings of a particular financial instrument. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses have not been considered in any of the estimates. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
The amortized cost and fair value of fixed maturities at December 31, 1995 and
1994, by effective maturity, follows:
1995 1994
---------------------------- ----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
Due In One Year or Less $ 65,835,788 66,127,246 46,454,143 46,175,371
Due After One Year Through Five Years 54,091,310 54,480,413 61,498,609 59,961,850
Due After Five Years Through Ten Years 1,007,381 1,096,708 837,833 817,000
Due After Ten Years 678,227 683,124 1,856,734 1,956,990
------------ ------------ ------------ ------------
Total $121,612,706 122,387,491 110,647,319 108,911,211
============ ============ ============ ============
The Company's portfolio is comprised primarily of fixed maturity
securities rated AA or better by Standard and Poor's and includes mostly
U.S. Treasuries and tax-free municipal securities.
A summary of gross unrealized gains and losses at December 31, 1995 and
1994 follows:
1995 1994
------------------------ ------------------------
Gains Losses Gains Losses
----- ------ ----- ------
Fixed Maturities:
States, Municipalities and
Political Subdivisions $ 240,670 (55,943) -- (1,522,847)
United States Government and
Government Agencies 595,921 (2,901) -- (203,998)
Industrial and Miscellaneous -- (2,962) -- (9,263)
---------- ---------- ---------- ----------
Total Fixed Maturities 836,591 (61,806) -- (1,736,108)
Equity Securities -- -- -- (183,143)
Limited Partnership Investment 521,409 -- 121,830 (14,177)
---------- ---------- ---------- ----------
Total $1,358,000 (61,806) 121,830 (1,933,428)
========== ========== ========== ==========
(4) INVESTMENT INCOME AND REALIZED CAPITAL GAINS AND LOSSES
A summary of net investment income for the years ended December 31, 1995,
1994 and 1993 follows:
1995 1994 1993
---- ---- ----
Tax-exempt Interest $ 3,317,887 3,439,654 2,983,133
Taxable Interest 2,769,577 1,202,619 1,531,716
Dividends on Equity Securities 7,617 24,749 77,943
Limited Partnership Income 23,094 49,836 53,284
Investment Expenses (55,292) (79,700) (82,562)
----------- ----------- -----------
Net Investment Income $ 6,062,883 4,637,158 4,563,514
=========== =========== ===========
36
37
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Realized capital gains (losses) for the years ended December 31, 1995, 1994 and
1993 follows:
1995 1994 1993
---- ---- ----
Fixed Maturities $ 810 (72,790) 762,701
Equity Securities 7,087 41,247 (41,100)
Sales of Property and Equipment -- (2,695) --
-------- -------- --------
Net Realized Capital Gains (Losses) $ 7,897 (34,238) 721,601
======== ======== ========
Gross gains of $25,235, 17,076 and $813,755 and gross losses of $24,425, $89,866
and $51,054 were realized on fixed maturity sales for the years ended December
31, 1995, 1994, and 1993, respectively.
(5) RECEIVABLES
A Summary of receivables at December 31, 1995 and 1994 follows:
1995 1994
---- ----
Insurance Premiums Due From Agents $ 7,081,648 7,496,893
Receivables Under Long-term Contracts:
Amounts Billed 973,882 1,062,600
Recoverable Costs in Excess of Billings on Uncompleted Contracts 221,827 340,124
Billings in Excess of Costs on Uncompleted Contracts (290,785) (117,694)
Retainage, Due on Completion of Contracts 637,102 225,543
----------- -----------
Total Receivables Under Long-term Contracts 1,542,026 1,510,573
Other 653,585 667,916
----------- -----------
Total Receivables 9,277,259 9,675,382
Less Allowances for Doubtful Accounts (254,825) (194,815)
----------- -----------
Total Receivables, Net $ 9,022,434 9,480,567
=========== ===========
The balances billed but not paid by customers pursuant to retainage provisions
in construction contracts will be due upon completion of the contracts and
acceptance by the owner. In management's opinion, the majority of contract
retainage is expected to be collected in 1996.
Recoverable costs in excess of billings on uncompleted contracts are comprised
principally of amounts of revenue recognized on contracts for which billings had
not been presented to the contract owners as of the balance sheet date. These
amounts will be billed in accordance with the contract terms.
37
38
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1995 and 1994
follows:
1995 1994
---- ----
Building $14,538,942 14,409,487
Land 800,000 800,000
Equipment and Vehicles 1,307,942 1,334,594
Furniture and Fixtures 886,639 864,530
----------- -----------
17,533,523 17,408,611
Less Accumulated Depreciation 3,546,267 3,044,591
----------- -----------
$13,987,256 14,364,020
=========== ===========
Future minimum rental income to be generated by leasing a portion of the
building under noncancelable operating leases as of December 31, 1995 are
estimated to be $529,000 for 1996, $84,000 for 1997, $84,000 for 1998 and
$21,000 for 1999. Rental income earned in 1995, 1994 and 1993 was
$543,507, $561,825, $512,731, respectively.
(7) INTANGIBLES
A summary of intangibles, acquired primarily in connection with the
purchases of ACSTAR and United Coasts, at December 31, 1995 and 1994
follows:
1995 1994
---- ----
Insurance Licenses $4,188,926 4,188,926
Goodwill 2,698,309 2,698,309
---------- ----------
6,887,235 6,887,235
Less Accumulated Amortization 2,838,471 2,511,819
---------- ----------
$4,048,764 4,375,416
========== ==========
Intangible assets are written off when they become fully amortized.
(8) RESERVES FOR LOSS AND LOSS ADJUSTMENT EXPENSES
The following table sets forth a reconciliation of beginning and ending
reserves for unpaid losses and loss adjustment expenses for the periods
indicated on a GAAP basis for the business of the Company.
1995 1994 1993
---- ---- ----
Balance at January 1 $ 40,954,783 34,729,643 35,963,164
Less reinsurance recoverable 4,228,879 4,293,049 6,722,906
------------ ------------ ------------
Net balance at January 1 36,725,904 30,436,594 29,240,258
Incurred related to:
Current year 8,015,877 8,209,992 7,623,178
Prior years (900,506) -- --
------------ ------------ ------------
Total incurred 7,115,371 8,209,992 7,623,178
Payments related to:
Current year 111,989 284,736 155,513
Prior years 2,366,074 1,635,946 6,271,329
------------ ------------ ------------
Total payments 2,478,063 1,920,682 6,426,842
Net balance at December 31 41,363,212 36,725,904 30,436,594
Plus reinsurance recoverable 3,872,099 4,228,879 4,293,049
------------ ------------ ------------
Balance at December 31 $ 45,235,311 40,954,783 34,729,643
============ ============ ============
38
39
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The decrease in 1995 of incurred losses and loss adjustment expenses of
prior years represents a reallocation of reserves among accident years.
The 1993 claim payments are partially a result of payments relating to
settlement of losses reserved in prior periods. These increases are also
attributable to an increase in earned premiums during the development of
the Company's insurance operations and the conversion of related loss
reserves to loss payments in the normal course of business. Based on
lower payments made in 1995 and 1994, as well as an evaluation of case
reserves, the Company does not believe that the claim payouts in 1993
represent a trend. Management believes that the reserves for losses and
loss adjustment expenses are adequate to cover the unpaid portion of the
ultimate net cost of losses and loss adjustment expenses, including
losses incurred but not reported.
(9) NOTES PAYABLE TO BANKS
The Company has available a $10,000,000 bank line of credit with Shawmut
Bank, N.A. which expires in June 1997. The line of credit requires the
Company to maintain, on deposit with the bank, a compensating balance
equal to 5% of the line of credit. Borrowings outstanding under the lines
were $7,500,000 at December 31, 1995 and $4,300,000 at December 31, 1994.
Under the terms of the line of credit, interest on the outstanding
balance is calculated based upon the London Inter-Bank Offering Rate
(LIBOR) plus 180 basis points in effect during the borrowing period (7.7%
and 8.0% at December 31, 1995 and 1994, respectively).
On November 7, 1995, the Company obtained a $7,500,000 Demand
Discretionary Line of Credit with The Bank of Boston Connecticut which
expires on November 6, 1996. Under the terms of the line of credit,
interest on the outstanding balance is calculated based upon the LIBOR
plus 160 basis points in effect during the borrowing period. There were
no borrowings outstanding under this line of credit at December 31, 1995.
(10) LONG-TERM DEBT
A summary of long-term debt at December 31, 1995 and 1994 follows:
1995 1994
---- ----
Term Loan Due 2000 $ 6,133,333 7,333,334
10.5% Convertible Senior Notes Due 1999 9,500,000 11,500,000
9.69% Mortgage Note Due 2000 7,994,257 8,071,932
11.5% Convertible Note Due 2022 16,500,000 16,500,000
----------- -----------
$40,127,590 43,405,266
=========== ===========
On June 30, 1994, the Company obtained an $8,000,000, six-year, term
loan, which is repayable in quarterly installments of $333,333 commencing
September 30, 1994. 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.
On July 1, 1992, the Company issued a 30-year unsecured $16,500,000,
11.5% subordinated debenture to the Sheet Metal Workers' National Pension
Fund ("Fund") to purchase 3,000,000 shares of United Coasts Corporation's
outstanding common stock held by the Fund. Annual principal payments of
$1,650,000 per year for ten years are due beginning on July 1, 2012. The
note is convertible into ACMAT Class A stock at $11 per share. The
conversion price of $11 per share would be adjusted at the time of
conversion to reflect any stock dividends, recapitalizations or
additional stock issuances. At December 31, 1995, the Company had
reserved 1,500,000 shares of Class A Stock for issuance pursuant to such
conversion option.
On April 18, 1990, the Company obtained a permanent mortgage loan from
The Manufacturer's Life Insurance Company. The $8,350,000 mortgage note,
with interest at 9.69%, is payable in monthly installments over 10 years
based on a thirty year amortization schedule. The remaining outstanding
principal balance is payable on April 1, 2000. The proceeds were used to
repay an existing construction loan and to fund completion of the
Company's headquarters.
39
40
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On July 18, 1989, the Company issued $15,000,000, 10.5% Convertible
Senior Notes due June 30, 1999 to AIG Life Insurance Company and American
International Life Assurance Company of New York. Quarterly principal
repayments of $500,000 began on June 30, 1993. The notes are convertible,
at any time prior to their payment date, into shares of ACMAT Class A
Stock at $10 per share. The conversion price of $10 per share would be
adjusted at the time of conversion to reflect any stock dividends,
recapitalizations or additional stock issuances. At December 31, 1995,
the Company had reserved 950,000 shares of Class A Stock for issuance
pursuant to such conversion option.
During 1995, the Company issued 149,997 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.
The terms of the note agreements contain limitations on payment of cash
dividends, re-acquisition of shares, borrowings and investments and
require maintenance of specified ratios and a minimum tangible net worth
of $12,000,000. ACMAT may also require its insurance subsidiaries to pay
dividends to the extent of funds legally available therefor, in order to
enable ACMAT to have funds to pay on a timely basis all amounts due with
respect to the notes. The Company is in compliance with all but one of
these covenants at December 31, 1995 and the Company has received a
waiver relative to the covenant with which the Company was not in
compliance.
Principal payments on long-term debt are $9,062,751, $3,417,108,
$1,437,094, $1,447,607 and $8,263,106 for the years 1996 through 2000,
respectively. Interest expense paid in 1995, 1994 and 1993 amounted to
$4,791,005, $4,911,392 and $5,609,893, respectively.
It is not practicable to estimate the fair value of long-term debt at
December 31, 1995 because of the complex and unique terms associated with
these debt instruments.
(11) INCOME TAXES
The components of income tax expense for each year follows:
1995 1994 1993
---- ---- ----
Current Taxes:
Federal $ 2,415,594 1,900,110 979,328
State 125,000 135,800 104,200
------------ ------------ ------------
2,540,594 2,035,910 1,083,528
------------ ------------ ------------
Deferred Taxes (Credits):
Federal (126,194) 209,390 804,472
State -- -- --
------------ ------------ ------------
(126,194) 209,390 804,472
------------ ------------ ------------
Total $ 2,414,400 2,245,300 1,888,000
============ ============ ============
The effective Federal income tax rate, as a
percentage of earnings before income taxes and
minority interests follows:
1995 1994 1993
---- ---- ----
Federal Statutory Tax Rate 34.0% 34.0% 34.0%
State Income Tax Benefit (.5) (.5) (.5)
Effect of Tax-Exempt Interest (10.5) (11.6) (11.7)
Dividends Received Deduction -- (.1) (.3)
Amortization of Goodwill 1.2 1.5 1.8
Officers Life Insurance Premiums .7 .7 .8
Other, Net .2 .6 .2
------------ ------------ ------------
Effective Federal Income Tax Rate 25.1% 24.6% 24.3%
============ ============ ============
40
41
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
1995 1994
---- ----
Deferred Tax Assets:
Reserves for Losses and Loss Adjustment Expenses,
Principally Due to Reserve Discounting $2,972,570 2,820,042
Unearned Premiums 891,902 950,458
Accounts Receivable, Principally Due to Allowance
For Doubtful Accounts 115,887 94,373
Contract Accounting Adjustment -- 6,800
Unrealized losses on investments -- 619,862
Other 22,073 31,657
---------- ----------
Total Gross Deferred Tax Assets 4,002,432 4,523,192
Less Valuation Allowance -- (619,862)
---------- ----------
Net Deferred Tax Assets $4,002,432 3,903,330
Deferred Tax Liabilities:
Plant and Equipment 411,498 372,798
Deferred Policy Acquisition Costs 1,176,165 1,244,883
Unrealized Gains on Investments 440,696 --
Other 2,925 --
---------- ----------
Total Gross Deferred Tax Liabilities 2,031,284 1,617,681
---------- ----------
Net Deferred Tax Assets $1,971,148 2,285,649
========== ==========
The valuation allowance of $619,862 at January 1, 1995 has been
eliminated during 1995. The valuation allowance at December 31, 1994
relates to the deferred taxes on the unrealized losses on debt and equity
securities. In assessing the realization of deferred tax assets,
management considers whether it is more likely than not that the deferred
tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
tax planning strategies and anticipated future taxable income in making
this assessment and believes it is more likely than not the Company will
realize the benefits of its deductible differences at December 31, 1995.
Taxes paid in 1995, 1994 and 1993 were $3,045,627, $1,685,362 and
$1,150,655, respectively.
(12) PENSION AND PROFIT SHARING PLANS
The Company and its subsidiaries maintain, for the benefit of non-union
employees, a qualified thrift, profit sharing and retirement plan.
Participants are required to contribute three percent of their
compensation to the plan annually. The Company's contributions,
established by the Board of Directors, were $100,000, $90,600 and
$107,500, for 1995, 1994 and 1993, respectively.
The Company participates in various multi-employer defined contribution
plans for its union employees. Charges to expense with respect to the
Company's contributions to the various plans were approximately $42,000
in 1995, $19,000 in 1994 and $7,000 in 1993. Upon withdrawal from these
plans, the Company may be liable for its share of the unfunded vested
liabilities of the plans. Such obligations, if any, of the Company are
not determinable at December 31, 1995.
41
42
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) STOCKHOLDERS' EQUITY
The Class A Stock has one-tenth voting privilege but has all the other
rights and privileges pertaining to the Common Stock.
During 1995, 1994 and 1993, ACMAT repurchased, in open market and
privately negotiated transactions, 10,456, 40,413 and 20,942,
respectively, shares of its Common Stock at an average price of $15.52,
$12.07 and $10.51 per share, respectively. The Company also repurchased
during 1995, 1994 and 1993, in open market and privately negotiated
transactions, 797,228, 478,484 and 137,454 shares, respectively, of its
Class A Stock at an average price of $11.83, $8.81 and $8.91 per share,
respectively.
During 1995, the Company issued 149,997 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.
On September 21, 1994, EVF, Apex and PF exercised warrants to purchase
189,750, 126,500 and 63,250 shares, respectively, of Class A Stock of the
Company for an aggregate consideration of $3,000,000.
The stockholders have periodically approved the distribution of
nonstatutory stock options to certain officers and directors giving such
individuals the right to purchase restricted shares of the Company's
Common and Class A Stock. Transactions regarding these stock options are
summarized below:
1995 1994 1993
---- ---- ----
Options outstanding at December 31 490,000 505,000 220,000
Weighted average price per share of
options outstanding $8.12 $8.13 $6.00
Expiration dates 1/2001 - 9/2004 1/2001 - 9/2004 1/2001
Options exercisable at December 31 490,000 165,000 160,000
Options granted - 340,000 60,000
Options exercised or surrendered 15,000 55,000 10,000
Price ranges of options exercised or surrendered $8.50 $6.00 $6.00
At its May 1, 1991, June 16, 1992 and December 29, 1992 meetings, the
Board of Directors of United Coasts approved the granting of nonstatutory
common stock options to certain officers and directors of ACMAT and
United Coasts giving such individuals the option to purchase a total of
40,000, 40,000 and 60,000 shares, respectively, of restricted common
stock of the United Coasts at an exercise price of $2 per share. The
option to purchase such shares must be exercised within 10 years of the
date of grant. In July 1993, June 1994 and June 1995, 40,000, 15,000 and
10,000 shares, respectively, were exercised which resulted in the United
Coasts issuance of 40,000, 15,000 and 10,000 shares of restricted common
stock in 1993, 1994 and 1995, respectively.
Under applicable insurance regulations, ACMAT's insurance subsidiaries
are restricted as to the amount of dividends they may pay, without the
prior approval of any insurance department, and are limited to
approximately $6,600,000 in 1996.
The Company's insurance subsidiaries, United Coastal Insurance and
ACSTAR, are domiciled in the State of Arizona and Illinois, respectively.
The statutory financial statements of United Coastal Insurance and ACSTAR
are prepared in accordance with accounting practices prescribed by the
Arizona Department of Insurance and the Illinois Department of Insurance.
Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners
(NAIC), as well as the state laws, regulations, and general
administrative rules. As of December 31, 1995, the Company does not
utilize any statutory accounting practices which are not prescribed by
insurance regulators that individually or in the aggregate materially
affect statutory shareholders' equity.
In accordance with statutory accounting principles, ACMAT's insurance
subsidiaries' statutory capital and surplus was $66,382,683 and
$63,072,338 at December 31, 1995 and 1994, respectively, and their
statutory net income for the years ended December 31, 1995, 1994 and 1993
was $9,072,104, $ 8,860,484 and $8,630,734, respectively.
Pursuant to various debt covenants, previously described, ACMAT is
restricted from purchasing treasury stock and paying dividends greater
than 20% of consolidated net earnings.
42
43
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) EARNINGS PER SHARE AND SHARE EQUIVALENT
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 3,661,577, 4,134,110 and 4,289,206 for 1995, 1994 and
1993, 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 year when
the market price of the common stock exceeded the exercise price of the
option.
Earnings per share - assuming full dilution for 1995 was determined on
the assumptions that the convertible notes were converted and the options
were exercised on January 1, 1995. 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 year-end price of
the shares. Earnings per share - assuming full dilution was not presented
for 1994 and 1993 because the effects are not material.
(15) COMMITMENTS AND CONTINGENCIES
The Company is a party to a number of legal actions arising in the
ordinary course of its business. In management's opinion, the Company has
adequate legal defenses respecting those actions where the Company is a
defendant, has appropriate insurance reserves recorded, and does not
believe that their settlement will materially affect the Company's
operations or financial position.
Many construction projects in which the Company has been engaged have
included asbestos exposures which the Company believes to involve a
particularly high degree of risk because of the hazardous nature of
asbestos. The Company believes it has reduced the risks associated with
asbestos through proper training of its employees and by maintaining
general liability and workers' compensation insurance. Since 1986, the
Company has obtained its general liability insurance and surety bonds
from its insurance subsidiaries.
(16) SEGMENT REPORTING
The Company operates in two industry segments: Construction contracting
and insurance. Information relating to the two segments is summarized as
follows:
1995 1994 1993
---- ---- ----
Operating Revenues:
Insurance $ 30,715,995 33,318,620 32,081,441
Construction Contracting 15,787,715 12,359,565 12,453,945
Eliminations and Adjustments (4,646,312) (4,922,509) (4,341,764)
------------ ------------ ------------
$ 41,857,398 40,755,676 40,193,622
============ ============ ============
Operating Earnings (Loss):
Insurance $ 13,398,956 13,908,822 13,867,642
Construction Contracting 531,983 (382,118) (905,135)
------------ ------------ ------------
13,930,939 13,526,704 12,962,507
Interest Expense (4,810,578) (4,940,014) (5,609,893)
------------ ------------ ------------
Earnings Before Income Taxes and Minority
Interests
$ 9,120,361 8,586,690 7,352,614
============ ============ ============
Depreciation and Amortization:
Insurance $ 1,547,490 2,213,260 3,073,320
Construction Contracting 677,407 739,886 736,563
------------ ------------ ------------
$ 2,224,897 2,953,146 3,809,883
============ ============ ============
43
44
ACMAT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1995 1994
---- ----
Identifiable Assets:
Insurance $161,954,513 148,406,401
Construction Contracting 18,447,725 20,088,413
------------ ------------
$180,402,238 168,494,814
============ ============
Capital Expenditures:
Insurance $ 57,690 92,955
Construction Contracting 155,702 693,171
------------ ------------
$ 213,392 786,126
============ ============
Operating earnings for construction contracting is operating revenues
less cost of contract revenues and identifiable selling, general and
administrative expenses. Operating earnings for the insurance segment is
operating revenues less losses and loss adjustment expenses, amortization
of policy acquisition costs and identifiable selling, general and
administrative expenses. Interest expense has not been included in the
computation of operating earnings. The adjustments and eliminations
required to arrive at consolidated amounts shown above consist
principally of the elimination of the intersegment revenues related to
the performance of certain services and rental charges. Identifiable
assets are those assets that are used by each segment's operations.
(17) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the unaudited quarterly results of operations for 1995 and
1994 follows:
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1995
Operating Revenues $9,965,835 11,127,473 11,140,638 9,623,452
---------- ---------- ---------- ----------
Operating Earnings $3,270,362 3,724,113 3,665,735 3,270,729
---------- ---------- ---------- ----------
Net Earnings $1,203,425 1,448,969 1,459,857 1,238,029
---------- ---------- ---------- ----------
Net Earnings Per Share and Share Equivalent $ .30 .38 .42 .36
---------- ---------- ---------- ----------
Net Earnings Per Share - Assuming Full Dilution $ -. .31 .32 .29
---------- ---------- ---------- ----------
1994
Operating Revenues $9,734,433 9,574,246 9,009,282 12,437,715
---------- ---------- ---------- ----------
Operating Earnings $3,083,693 3,316,828 3,500,096 3,626,087
---------- ---------- ---------- ----------
Net Earnings $ 903,759 1,226,117 1,306,323 1,403,662
---------- ---------- ---------- ----------
Net Earnings Per Share $ .22 .30 .32 . 34
---------- ---------- ---------- ----------
Note: Earnings per common share are based on the weighted average number
of Common and Class A Stock and equivalent shares outstanding during each
of the quarters and at year end. Annual earnings per share for 1994 does
not equate to the sum of the quarters due to the timing of stock
purchases during the year.
Operating earnings represent operating revenues less the cost of contract
revenues, losses and loss adjustment expenses and amortization of policy
acquisition costs and selling, general and administrative expenses.
44
45
Schedule I
ACMAT CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant
As of December 31, 1995 and 1994 and for the
years ended December 31, 1995, 1994 and 1993
The following presents the condensed financial position of ACMAT Corporation
(parent company only) as of December 31, 1995 and 1994 and its condensed
statements of earnings and cash flows for the years ended December 31, 1995,
1994 and 1993.
BALANCE SHEETS
Assets 1995 1994
----------- -----------
Current assets:
Cash $ 485,339 626,170
Receivables 1,939,730 1,982,618
Other current assets 167,926 247,408
----------- -----------
Total current assets 2,592,995 2,856,196
Property and equipment, net 13,654,556 13,929,075
Investments in and advances from subsidiaries 69,823,996 69,109,147
Intangibles 1,214,652 1,389,012
Other assets 2,317,880 2,172,157
----------- -----------
$89,604,079 $89,455,587
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable to banks $ 7,500,000 4,300,000
Current portion of long-term debt 9,062,751 3,411,010
Other current liabilities 4,389,230 3,745,386
----------- -----------
Total current liabilities 20,951,981 11,456,396
Long-term debt 31,064,839 39,994,256
----------- -----------
Total liabilities 52,016,820 51,450,652
Stockholders' equity 37,587,259 38,004,935
----------- -----------
$89,604,079 89,455,587
=========== ===========
(Continued)
See Notes to Condensed Financial Statements.
45
46
Schedule 1,
Continued
ACMAT CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant, Continued
STATEMENTS OF EARNINGS
1995 1994 1993
------------ ---------- ----------
Contract revenues $ 11,614,632 8,160,758 8,532,260
Cost of contract revenues 10,999,758 8,018,230 9,327,092
------------ --------- ----------
Gross profit (loss) 614,874 142,528 (794,832)
Selling, general and administrative expenses 4,255,974 4,723,088 4,031,316
------------ ---------- ----------
Operating loss (3,641,100) (4,580,560) (4,826,148)
Interest expense (6,087,231) (5,594,659) (5,353,481)
Interest income 27,576 58,571 9,979
Underwriting fees 2,433,587 2,478,468 2,144,906
Other Income 1,711,920 1,661,609 1,766,614
------------ ---------- ----------
Loss before income taxes and equity in net
earnings of subsidiaries (5,555,248) (5,976,571) (6,258,130)
Income tax benefit (1,750,000) (1,919,485) (1,970,000)
------------ ---------- ----------
Loss before equity in net earnings of
subsidiaries (3,805,248) (4,057,086) (4,288,130)
Equity in net earnings of subsidiaries 9,155,528 8,896,947 8,197,247
------------ ---------- ----------
Net earnings $ 5,350,280 4,839,861 3,909,117
============ ========== ==========
(Continued)
See Notes to Condensed Financial Statements.
46
47
Schedule I,
Continued
ACMAT CORPORATION AND SUBSIDIARIES
Condensed Financial Information of Registrant, Continued
STATEMENTS OF CASH FLOWS
1995 1994 1993
------------ ------------ ------------
Cash flows from operating activities:
Net earnings $ 5,350,280 4,839,861 3,909,117
Depreciation and amortization 677,407 739,887 1,084,916
Equity in undistributed earnings of subsidiaries (9,155,528) (8,896,947) (8,197,247)
(Increase) decrease in accounts receivable 42,288 (30,164) 1,480,046
(Increase) decrease in other assets (139,069) (230,935) 14,098
Increase (decrease) in other liabilities 643,844 (33,158) 255,984
----------- ----------- -----------
Net cash used for operating activities (2,580,178) (3,611,456) (1,453,086)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of 9% interest in ACSTAR Holdings, Inc. - (3,000,000) -
Payment for non-compete agreement - - (50,000)
Capital expenditures (155,700) (693,171) (194,248)
----------- ----------- -----------
Net cash used for investing activities (155,700) (3,693,171) (244,248)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings under lines of credit 4,200,000 1,700,000 -
Repayments of lines of credit (1,000,000) (1,700,000) -
Repayment of long-term debt (1,777,706) (11,362,197) (1,564,041)
Increase (decrease) in amounts due to (from) subsidiaries 10,768,258 13,114,216 4,374,142
Issuance of long-term debt - 8,000,000
Proceeds from issuance of Class A stock - 2,881,532 -
Payments for acquisition and retirement of stock (9,595,505) (4,702,754) (1,445,300)
----------- ----------- -----------
Net cash provided by financing activities 2,595,047 7,930,797 1,364,801
----------- ----------- -----------
Net increase (decrease) in cash (140,831) 626,170 (332,533)
Cash, beginning of year 626,170 0 332,533
----------- ----------- -----------
Cash, end of year $ 485,339 626,170 0
=========== =========== ===========
See Notes to Condensed Financial Statements.
47
48
Schedule 1
Continued
ACMAT CORPORATION AND SUBSIDIARIES
Condensed Financial Information
Notes to Condensed Financial Statements
The accompanying condensed financial statements should be read in conjunction
with the Consolidated Financial Statements and Notes thereto in the Company's
1995 Annual Report.
(1) SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes received from subsidiaries during the years ended
December 31, 1995, 1994 and 1993 were $2,214,656, $1,962,126 and
$2,745,257, respectively. Interest paid during the years ended
December 31, 1995, 1994 and 1993 was $5,769,404, $5,566,037 and
$5,353,481, respectively. Interest paid in 1995 and 1994 included
$978,399 and $729,557, respectively, paid to subsidiaries for
intercompany loans.
During 1995, the Company issued 149,997 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.
(2) LONG-TERM DEBT
A summary of long-term debt at December 31, 1995 and 1994 follows:
1995 1994
---- ----
Term Loan Due 2000 $ 6,133,333 $ 7,333,334
10.5% Convertible Senior Notes Due 1999 9,500,000 11,500,000
9.69% Mortgage Note Due 2000 7,994,257 8,071,932
11.5% Convertible Note Due 2022 16,500,000 16,500,000
----------- -----------
$40,127,590 $43,405,266
=========== ===========
See Note 10 to the Consolidated Financial Statements in the Annual
Report for a description of the long-term debt and aggregate maturities
for 1996 to 2000 and thereafter.
(3) INCOME TAXES
See Notes 11 to the Consolidated Financial Statements in the Annual
Report for a description of income taxes.
(4) COMMITMENTS AND CONTINGENCIES
See Note 15 to the Consolidated Financial Statements in the Annual
Report for a description of the Commitments and Contingencies.
48
49
Schedule II
ACMAT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1995, 1994 and 1993
Balance Additions
at charged Balance
beginning to costs at
of and end of
Description period expenses Deductions(a) period
- ----------- --------- -------- ---------- -------
Allowance for
doubtful accounts:
1995 $194,815 100,000 39,990 254,825
======= ======= ======= =======
1994 $ 88,290 761,223 654,698 194,815
======= ======= ======= =======
1993 $ 65,000 50,000 26,710 88,290
======= ======= ====== =======
(a) Deductions represent accounts written off.
49
50
Schedule V
----------
ACMAT CORPORATION AND SUBSIDIARIES
Supplemental information concerning property-casualty insurance operations
As of and for the years ended December 31, 1995, 1994 and 1993
Discount
Reserves for Deducted from
Deferred Unpaid Losses Unpaid Losses
Affiliation Policy and Loss and Loss Net
with Acquisition Adjustment Adjustment Unearned Earned Investment
Registrant Costs Expenses Expenses Premiums Premiums Income
- ---------- ---------- ------------- ------------- ------------ ----------- ----------
Insurance
Segment
1995 $3,459,308 $45,235,311 $ - $14,302,613 $23,492,905 $6,035,307
========== =========== ==== =========== =========== ==========
1994 $3,661,421 $40,954,783 $ - $14,977,825 $27,141,639 $4,578,428
========== =========== ==== =========== =========== ==========
1993 $3,705,759 $34,729,643 $ - $15,024,979 $25,422,187 $4,553,349
========== =========== ==== =========== =========== ==========
Amortization
Loss and Loss Adjustment of Deferred Paid Losses
Affiliation Expenses Incurred Related to Policy and Loss
with ---------------------------- Acquisition Adjustment Premiums
Registrant Current Year Prior Years Costs Expenses Written
- ---------- ------------ ----------- ------------ ----------- -----------
Insurance
Segment
1995 $7,115,371 $ - $3,939,008 $2,478,063 $22,856,791
========== ==== ========== ========== ===========
1994 $8,209,992 $ - $4,260,759 $1,920,682 $27,216,455
========== ==== ========== ========== ===========
1993 $7,623,178 $ - $3,407,104 $6,426,842 $27,312,152
========== ==== ========== ========== ===========
50
51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL
DISCLOSURE: None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table shows for each director (a) his or her age, (b) the year in
which the director first served as a director of the Company, (c) position with
the Company and business experience during the past five years, including
principal occupation, (d) his or her committee assignments, and (e) his or her
other directorships. Each director is elected for a term of one year and until
his or her successor shall be elected.
NAME AGE DIRECTOR POSITION WITH THE COMPANY AND
SINCE BUSINESS EXPERIENCE DURING LAST FIVE
YEARS, INCLUDING OCCUPATION
HENRY W. NOZKO, SR. 76 1951 Chairman of the Board, President and
(1) Chief Executive Officer of the
Company. Chairman of the Board and
Director of United Coasts
Corporation, United Coastal
Insurance Company, ACSTAR Holdings,
Inc. and ACSTAR Insurance Company.
Co-Chief Executive Officer of United
Coasts Corporation and United
Coastal Insurance Company.
HENRY W. NOZKO, JR. 49 1971 Executive Vice President, Chief
(1) Operating Officer, and Treasurer of
the Company. Member of the Audit
Committee. President, Co-Chief
Executive Officer and Treasurer of
United Coasts Corporation and United
Coastal Insurance Company.
President and Treasurer of ACSTAR
Holdings, Inc. and ACSTAR Insurance
Company. Member, Boards of
Directors of United Coasts
Corporation, United Coastal
Insurance Company, ACSTAR Holdings,
Inc., ACSTAR Insurance Company and
Three D Departments, Inc.
VICTORIA C. NOZKO 77 1982 Housewife during past five years.
(1) Member of the Audit Committee.
JOHN C. CREASY 76 1987 Retired Chief Executive Officer of
Danbury Hospital, Member, Boards of
United Coasts Corporation and United
Coastal Insurance Company. Member
of the Compensation Committee and
Audit Committee.
MICHAEL J. SULLIVAN 51 1993 Business Manager, Financial
Secretary/Treasurer of Sheet Metal
Workers' Local Union No. 20;
General Secretary-Treasurer of Sheet
Metal Workers' International
Association.
(1) Mr. Henry W. Nozko, Sr. and Mrs. Victoria C. Nozko are husband and
wife and Mr. Henry W. Nozko, Jr. is their son.
51
52
Executive Officers of the Registrant:
The following are the Company's Executive Officers, their age, and offices held.
Officers are appointed to serve until the meeting of the Board of Directors
following the next Annual Meeting of Stockholders and until their successors
have been elected.
NAME AGE OFFICES HELD
- ---- --- ------------
Henry W. Nozko, Sr. 76 President, Chief
Executive Officer,
Director and
Chairman of the
Board since 1951.
Henry W. Nozko, Jr. 49 Executive Vice
President since
1982. Treasurer
since 1973. Director
since 1971, and
Chief Operating
Officer since 1985.
Robert H. Frazer 49 Vice President since
1982. Secretary
since 1992. General
Counsel since 1977.
Michael P. Cifone 37 Vice President-
Finance since 1990.
Corporate Controller
since 1989.
52
53
ITEM 11. EXECUTIVE COMPENSATION
Directors who are not employees of the Company are paid an annual fee of $4,000.
The following table provides certain summary information regarding compensation
of the Company's Chief Executive Officer and each of the four most highly
compensated executive officers of the Company for the periods indicated.
ANNUAL LONG-TERM
COMPENSATION (A) COMPENSATION (B) ALL OTHER
COMPENSATION
(C)
NAME AND PRINCIPAL
POSITION YEAR SALARY BONUS CLASS A COMMON
OPTIONS OPTIONS
Henry W. Nozko, Sr. 1995 $407,875 $184,275 - - $ 9,876
Chairman, President 1994 $390,000 $175,500 15,000 50,000 $ 9,506
and Chief Executive 1993 $363,333 $195,000 15,000 - $13,836
Officer
Henry W. Nozko, Jr. 1995 $292,833 $132,300 - - $ 9,774
Executive Vice 1994 $280,000 $126,000 15,000 50,000 $ 9,408
President and Chief 1993 $260,000 $140,000 15,000 - $13,743
Operating Officer
Robert H. Frazer, Esq. 1995 $156,875 $ 70,875 - - $ 9,736
Vice President, 1994 $150,000 $ 67,500 50,000 - $ 9,371
Secretary and General 1993 $140,000 $ 60,000 15,000 - $11,299
Counsel
Michael P. Cifone 1995 $104,583 $ 47,250 - - $ 9,608
Vice President-Finance 1994 $100,000 $ 45,000 50,000 - $ 9,272
1993 $ 96,667 $ 50,000 - - $10,209
(A) Amounts shown include cash compensation earned and received by the executive
officers. There are no other forms of non-cash compensation or other perquisites
for any executive officer.
The Company has a Management Compensation Plan based upon earnings of the
Company. As a guideline, the plan provides that participants may share in an
incentive fund equal to 12% of pretax earnings, provided such pretax earnings
amount to at least a 10% return on the Company's equity. However, both the
participants and the amount of bonus are discretionary. In addition, the Company
may offer separate incentives and commissions on an individual basis.
(B) Options were granted for ACMAT Class A Stock and Common Stock.
(C) The amounts shown in this column represent contributions made by the Company
to the Company's Thrift, Profit Sharing and Retirement Plan ("Plan"). The Plan
provides that all nonunion employees employed on a full time or part time
salaried basis are eligible to participate on the first day of January or July
after twelve consecutive months of employment. The Company contributes amounts,
as determined by the Board of Directors, to be allocated among the participants
according to a formula based upon the employee's years of service and
compensation. A participant becomes vested at the rate of 20% per year
commencing after two years of service.
53
54
The following table provides information on options during 1995 by the named
Executive Officers and the value of their unexercised options at December 31,
1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END 1995 OPTION
VALUES
Number of
Unexercised Value of Unexercised
Options at In-the-Money Options
12/31/95 (1) at 12/31/95 (2)
------------ --------------------
Shares Acquired Value
Name on Exercise Realized Exercisable Exercisable
- ---- --------------- -------- ----------- -----------
Henry W. Nozko, Sr.
- ACMAT Class A Stock Options - - 55,000 $347,500
- ACMAT Common Stock Options - - 50,000 262,500
- UCC Stock Options - - 25,000 143,750
Henry W. Nozko, Jr.
- ACMAT Class A Stock Options - - 55,000 347,500
_ ACMAT Common Stock Options - - 50,000 262,500
- UCC Stock Options - - 25,000 143,750
Robert H. Frazer
- ACMAT Class A Stock Options - - 80,000 435,000
- UCC Stock Option - - 25,000 143,750
Michael P. Cifone
- ACMAT Class A Stock Options - - 65,000 330,000
(1) Represents the number of options held at year end. All options were
exercisable at December 31, 1995 and no options were exercised in 1995.
(2) Represents the total gain which would have been realized if all options for
which the year-end stock price was greater than the exercise price were
exercised on the last day of the year.
54
55
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
As of March 26, 1996, no person was known to the Company to be the beneficial
owner of more than five percent of its outstanding shares of Common Stock or
Class A Stock except as set forth in the following table which also shows, as of
that date, the total number of shares of each class of stock of the Company
beneficially owned, and the percent of the outstanding class of stock so owned,
by each director, and by all directors and officers of the Company, as a group:
PERCENTAGE PERCENTAGE
CLASS NUMBER OF SHARES OF CLASS OF TOTAL
BENEFICIAL OWNER OF STOCK BENEFICIALLY OWNED (1) OUTSTANDING (%) VOTING POWER (13)
- ---------------- --------- ---------------------- --------------- -----------------
Henry W. Nozko, Sr. Common 456,000 (2)(5) 68.09 51.92
Class A 55,000 (2)(4) 2.46
Henry W. Nozko, Jr. Common 189,274 (2)(3)(5) 27.66 22.82
Class A 179,824 (2)(3)(4) 8.04
Victoria C. Nozko Class A 29,000 1.33 .34
John C. Creasy Common 3,300 .52 .68
Class A 25,000 (6) 1.13
Michael J. Sullivan Class A 15,000 (7) .68 .18
Sheet Metal Workers'
National Pension Fund Class A 1,500,000 (8) 40.73 14.96
AIG Class A 1,099,997 (9) 35.11 11.61
Franklin Resources, Inc. Class A 495,000 (10) 22.68 5.81
First Manhattan Co. Class A 304,950 (11) 13.97 3.58
Investment Counselor of
Maryland, Inc. Class A 190,000 (12) 8.71 2.23
All Directors and
Officers (7 persons)
as a Group Common 658,574 89.68 71.64
Class A 450,474 18.18
(1) The person listed has the sole power to vote the shares of Common
Stock and Class A Stock listed above as beneficially owned by such
person and has sole investment power with respect to such shares.
(2) Does not include 14,260 shares of Common Stock nor 16,060 shares of
Class A Stock held of record by ACMAT's qualified Thrift, Profit
Sharing & Retirement Plan, of which Messrs. Nozko, Sr. and Nozko, Jr.
are trustees. Address is 233 Main Street, New Britain, Connecticut
06050-2350.
(3) Does not include 21,200 shares of Class A Stock and 5,500 shares of
Common Stock held by Mr. Nozko, Jr. as custodian for his minor
children nor 2,800 shares of Class A Stock and 2,750 shares of Common
Stock held by his wife, Gloria C. Nozko.
(4) Includes options to purchase 55,000 shares of Class A Stock.
(5) Includes options to purchase 50,000 shares of Common Stock.
(6) Includes options to purchase 25,000 shares of Class A Stock.
(7) Includes options to purchase 15,000 shares of Class A Stock.
(8) Assumes the full conversion of $16,500,000 principal amount of 11.5%
Convertible Note into 1,500,000 shares of Class A Stock. The Address
of the Fund is Suite 500, 601 North Fairfax Street, Alexandria, VA
22314.
(9) Includes an assumption that the full conversion of 10.5% Convertible
Senior Notes held by AIG Life Insurance Company ($3,166,667) and
American International Life Assurance Company of New York
($6,333,333) into 950,000 shares of Class A Stock. The address of
each such noteholder is One Chase Manhattan Place, New York, New York
10005.
(10) Address of Franklin Resources, Inc. is 777 Mariners Island Blvd. San
Mateo, CA 94404
(11) Address of First Manhattan Co. is 437 Madison Avenue, New York, NY
10022.
(12) Address of Investment Counselor's of Maryland, Inc. is 803 Cathedral
Street, Baltimore, Maryland 21201.
(13) Based upon one vote for each share of Company Common Stock and
one-tenth vote for each share of Class A Stock.
55
56
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
Sheet Metal Workers' National Pension Fund
The Pension Fund has the right to convert indebtedness of ACMAT to the Pension
Fund in the principal amount of $16,500,000 into shares of Class A Stock at the
current conversion price of $11.00 per share pursuant to the terms of a 30-year
unsecured, $16,500,000 subordinated debenture dated July 1, 1992 and bearing
interest at the annual rate of 11.5%.
Henry W. Nozko, Sr., Henry W. Nozko, Jr. and the Pension Fund are parties to a
voting agreement pursuant to which the parties have agreed to vote their
respective shares of Class A Stock in favor of the Pension Fund's nominees to
the ACMAT Board of Directors. Michael J. Sullivan, a director of ACMAT,
currently serves as the Business Manager and Financial Secretary/Treasurer of
the Sheet Metal Workers' Local Union No. 20 and as First General Vice President
of the Sheetmetal Workers' International Association.
AIG Life Insurance Company
On July 18, 1989, the Company issued $15,000,000 in principal amount of 10.5%
Convertible Senior Notes due June 30, 1999 to AIG Life Insurance Company and its
affiliate, American International Life Assurance Company of New York. These
Notes are convertible at any time into shares of Class A Stock at a current
conversion price of $10.00 per share, subject to adjustment in certain events.
At December 31, 1995, the Company had reserved 950,000 shares of Class A Stock
for issuance pursuant to such conversion rights, which shares may be deemed
beneficially owned by AIG Life Insurance Company and American International Life
Assurance Company of New York. American International Group, Inc., a holding
company for AIG Life Insurance Company and American International Life Assurance
Company of New York, is a substantial owner of Transatlantic Reinsurance
Company, a reinsurer to which the Company, through Coastal Insurance and ACSTAR
Insurance, ceded $470,000 in reinsurance premiums in the year ended December 31,
1995.
Other Relationships
During the year ended December 31, 1995, the Company paid to Dr. Arthur Cosmas
$135,800 in fees in connection with consulting services rendered by Dr. Cosmas
with respect to inspection and engineering services relating to ACMAT's asbestos
abatement activities. Dr. Cosmas is the son-in-law of Henry W. Nozko, Sr. and
Victoria C. Nozko and the brother-in-law of Henry W. Nozko, Jr.
56
57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements
Included in Part II of this Report:
Independent Auditors' Report
Consolidated Statements of Earnings for the years
ended December 31, 1995, 1994 and 1993
Consolidated Balance Sheets as of December 31, 1995 and
1994 Consolidated Statements of Stockholders' Equity for
the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements - December 31,
1995, 1994 and 1993
2. Financial Statement Schedules
None.
Consolidated Schedules included in Part II of this Report-
Years ended December 31, 1995, 1994 and 1993:
I - Condensed Financial Information of Registrant
II - Valuation and Qualifying Accounts and Reserves
V - Supplemental Information Concerning Property-
Casualty Insurance Operations
All other schedules are omitted as the required
information is not applicable or the information is
presented in the Consolidated Financial Statements or
related notes.
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K during the
fourth quarter of 1995.
(c) Exhibits
(3) Certificate Amending and Restating the Company's Bylaws
as filed as an Exhibit to the Company's Form 10-Q for the
Quarter ended March 31, 1989 is incorporated herein by
reference.
(3a) Certificate Amending and Restating the Company's
Certificate of Incorporation as amended May 1, 1991 as
filed as an Exhibit to the Company's Form 10-Q for the
Quarter ended March 31, 1991 is incorporated by
reference.
(4) Note Purchase Agreements between ACMAT Corporation and
AIG Life Insurance Company and American International
Life Assurance Company of New York dated July 18, 1989
regarding 10 1/2% Convertible Senior notes due June 30,
1999 filed as Exhibits to the Company's Form 10-Q for the
Quarter ended June 30, 1989 are incorporated by
reference.
(4a) Promissory Note between ACMAT Corporation and The Bank
of Boston Connecticut is attached hereto as Exhibit
4(a).
(4b) Promissory Note between ACMAT Corporation and The
Manufacturers Life Insurance Company filed as an
Exhibit to the Company's Form 10-Q for the Quarter
ended March 31, 1990 are incorporated by reference.
(4c) Open-end Mortgage Deed and Security Agreement between
ACMAT Corporation and The Manufacturers Life Insurance
Company filed as an Exhibit to the Company's Form 10-Q
for the Quarter ended March 31, 1990 are incorporated
by reference.
(4d) Loan Agreement dated as of June 30, 1994 between ACMAT
Corporation and Shawmut Bank Connecticut, N.A. filed as
an Exhibit to the Company's Amendment No. 1 to Form S-1
dated July 13, 1994 is incorporated by reference.
57
58
(10a) Annual Management Compensation Plan filed as an Exhibit
to the Company's 1984 Form 10-K is incorporated herein
by reference.
(10b) Stock Purchase Agreement dated as of July 1, 1992
between ACMAT Corporation and the Sheet Metal Workers'
National Pension Fund together with Note Agreement Re:
$16,500,000 11 1/2% Convertible Subordinated Notes due
2012 filed as Exhibit 10g to the Company's Form 10-K
for the year ended December 31, 1992 is incorporated
herein by reference.
(21) Subsidiaries of ACMAT.
(27) Financial Data Schedule.
(28) Information from Reports Furnished to State Insurance
Regulatory Authorities. Schedule P of the Annual
Statements of Acstar Insurance Company and United
Coastal Insurance Company for 1995.
58
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant had duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ACMAT CORPORATION
Dated: March 25, 1996 By:/s/ Henry W. Nozko, Sr.
---------------------------
Henry W. Nozko, Sr., President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Chairman of the Board,
President, Chief Executive
/s/ Henry W. Nozko, Sr. Officer and Director March 25, 1996
- -------------------------
Henry W. Nozko, Sr.
Chief Operating Officer,
Executive Vice President
/s/ Henry W. Nozko, Jr. Treasurer and Director March 25, 1996
- -------------------------
Henry W. Nozko, Jr.
Vice President - Finance
(Principal Financial and
/s/ Michael P. Cifone Accounting Officer) March 25, 1996
- -------------------------
Michael P. Cifone
/s/ Victoria C. Nozko Director March 25, 1996
- -------------------------
Victoria C. Nozko
/s/ John C. Creasy Director March 25, 1996
- -------------------------
John C. Creasy
59
60
INDEX TO EXHIBITS
Regulation S-K Exhibit Page Number
- ---------------------- -----------
Exhibit 3 - Bylaws Incorporated by Reference
Exhibit 3a - Certificate of Incorporation
as amended May 1, 1991 Incorporated by Reference
Exhibit 4 - Note Purchase Agreements Incorporated by Reference
Exhibit 4a - Promissory Note between ACMAT Page 61
and Bank of Boston Connecticut
Exhibit 4b - Promissory Note between ACMAT Incorporated by Reference
and The Manufacturers Life
Insurance Company
Exhibit 4c - Open-end Mortgage Deed/Security Incorporated by Reference
Agreement between ACMAT and The
Manufacturers Life Insurance Co.
Exhibit 4d - Loan Agreement between ACMAT and Incorporated by Reference
Shawmut Bank
Exhibit 10a - Annual Management Incorporated by Reference
Compensation Plan
Exhibit 10b - Stock Purchase and Note Agreement Incorporated by Reference
between ACMAT Corporation
and The Sheet Metal Workers'
National Pension Fund
Exhibit 21 - Subsidiaries of ACMAT Page 67
Exhibit 27 - Financial Data Schedule Page 68
Exhibit 28 - Information from Reports Page 69
Furnished to State Insurance
Regulatory Authorities
60