SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1995
COMMISSION FILE NUMBER 1-9371
ALLEGHANY CORPORATION
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Exact Name of Registrant as Specified in its Charter
DELAWARE
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State or Other Jurisdiction of Incorporation or Organization
51-0283071
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Internal Revenue Service Employer Idenfification Number
Park Avenue Plaza, New York, New York 10055
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Address of Principal Executive Office, including Zip Code
212/752-1356
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Registrant's Telephone Number, including Area Code
Not Applicable
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Former Name, Former Address, and Former Fiscal Year,
If Changed Since Last Report
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding for each of the
Issuer's classes of common stock, as of the close of the
period covered by this report:
7,053,813
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(As of March 31, 1995)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
(dollars in thousands, except share and per share amounts)
(unaudited)
1995 1994 *
-----------------------
Revenues
Title premiums, escrow and trust fees $243,948 $352,759
Net reinsurance premiums earned 68,777 52,679
Interest, dividend and other income 45,355 38,489
Net mineral and filtration sales 41,279 35,964
Net gain (loss) on investment transactions (2,307) 92
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Total revenues 397,052 479,983
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Costs and expenses
Salaries, commissions and other employee benefits 208,354 267,451
Administrative, selling and other operating expenses 82,884 84,331
Provisions for title losses and other claims 19,449 23,421
Property and casualty losses and loss adjustment
expenses 49,480 44,160
Cost of mineral and filtration sales 27,809 25,480
Interest expense 6,776 7,076
Corporate administration 2,581 3,507
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Total costs and expenses 397,333 455,426
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Earnings (loss) from continuing operations,
before income taxes (281) 24,557
Income taxes (1,074) 7,568
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Net earnings from continuing operations 793 16,989
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Discontinued operations
Earnings from discontinued operations, net of tax 0 2,950
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Net earnings $793 $19,939
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Earnings per share of common stock
Operations $0.11 $2.47
Discontinued operations 0.00 0.42
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Total earnings per share $0.11 $2.89
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Dividends per share of common stock ** **
======================
Average number of outstanding shares of common stock *** 7,045,662 6,894,410
======================
* Restated to reflect discontinued operations.
** In March 1995 and 1994, Alleghany declared a dividend consisting of
one share of Alleghany common stock for every fifty shares outstanding.
*** Adjusted to reflect common stock dividends declared in March 1995 and
1994.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND DECEMBER 31, 1994
(dollars in thousands, except share and per share amounts)
March 31, December 31,
1995 1994
(Unaudited)
-------------------------
Assets
Investments:
Fixed maturities - available
for sale:
U.S. Government, government
agency and municipal
obligations (amortized cost $1,034,130) $1,005,992 $1,006,421
Certificates of deposit and
commercial paper (amortized cost 38,214) 38,214 107,082
Bonds, notes and other (amortized cost 418,387) 406,162 465,011
Equity securities (cost 347,187) 544,226 357,220
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1,994,594 1,935,734
Cash 169,215 107,942
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 257,174 211,451
Title records and indexes 156,395 156,293
Property and equipment - at cost, less
accumulated depreciation and amortization 208,274 202,918
Reinsurance receivable 428,090 422,683
Other assets 390,788 459,334
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$3,696,066 $3,587,891
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Liabilities and Common Stockholders' Equity
Title losses and other claims $530,392 $537,073
Property and casualty losses and loss
adjustment expenses 970,987 940,527
Other liabilities 420,652 436,180
Long-term debt of parent company 59,600 59,600
Long-term debt of subsidiaries 319,470 275,473
Trust and escrow deposits secured by
pledged assets 283,878 317,845
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Total liabilities 2,584,979 2,566,698
Common stockholders' equity 1,111,087 1,021,193
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$3,696,066 $3,587,891
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Shares of common stock outstanding 7,053,813 7,044,407 *
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Common stockholders' equity per share $157.52 $144.97 *
==========================
* Adjusted to reflect the common stock dividend declared in March 1995.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND 1994
(dollars in thousands)
(unaudited)
1995 1994 *
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Cash flows from operating activities
Earnings from continuing operations $793 $16,989
Adjustments to reconcile earnings from continuing
operations to cash provided by continuing
operations:
Depreciation and amortization 10,549 11,721
Net loss (gain) on investment transactions 2,307 (92)
Other charges to continuing operations, net (720) 1,197
Increase in funds held, accounts and other
receivables (45,723) (1,104)
Increase in reinsurance receivable (5,407) (12,974)
(Decrease) increase in title losses and
other claims (6,681) 2,353
Increase in property and casualty loss and
loss adjustment expenses 30,460 13,215
Decrease (increase) in other assets 6,609 (920)
Decrease in other liabilities (15,528) (29,017)
Decrease in trust and escrow deposits (33,967) (12,833)
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Net adjustments (58,101) (28,454)
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Cash used in continuing operations (57,308) (11,465)
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Cash provided by discontinued operations 0 2,304
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Cash used in operations (57,308) (9,161)
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Cash flows from investing activities
Purchase of investments (155,552) (380,496)
Maturities of investments 133,465 175,586
Sales of investments 98,170 267,646
Purchases of property and equipment (5,904) (7,313)
Disposition of property and equipment 3,080 38
Net purchases of title records and indexes (102) (110)
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Net cash provided by investing activities 73,157 55,351
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Cash flows from financing activities
Principal payments on long-term debt (11,022) (5,832)
Proceeds of long-term debt 55,000 0
Purchase of treasury shares (778) 0
Common stock distributions 2,224 46
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Net cash provided by (used in)
financing activities 45,424 (5,786)
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Net increase in cash 61,273 40,404
Cash at beginning of period 107,942 109,166
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Cash at end of period $169,215 $149,570
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Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $5,372 $4,941
Income taxes $2,151 $1,142
* Restated to reflect discontinued operations.
Notes to Consolidated Financial Statements
This report should be read in conjunction with the
Annual Report on Form 10-K for the year ended December 31,
1994 (the "1994 Form 10-K Report") of Alleghany Corporation
(the "Company").
The information included in this report is
unaudited but reflects all adjustments which, in the opinion
of management, are necessary to a fair statement of the
results of the interim periods covered thereby. All
adjustments are of a normal and recurring nature except as
described herein.
Contingencies
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The Company's subsidiaries and division are parties
to pending claims and litigation in the ordinary course of
their businesses. Each such operating unit makes provisions
on its books in accordance with generally accepted accounting
principles for estimated losses to be incurred as a result of
such claims and litigation, including related legal costs.
In the opinion of management, such provisions are adequate as
of March 31, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS.
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The Company reported net earnings of $.8 million on
revenues of $397.1 million in the 1995 first quarter,
compared with $19.9 million on revenues of $480 million in
the 1994 first quarter. The Company's net earnings in the
1994 quarter include $2.9 million of earnings from
discontinued operations, representing the results of the
Company's retail banking subsidiary, Sacramento Savings Bank,
which was sold in the fourth quarter of 1994.
Chicago Title and Trust Company ("CT&T") recorded a
pre-tax loss of $12 million on revenues of $258.3 million,
compared with a contribution of pre-tax earnings of $23.3
million on revenues of $364.9 million in the 1994 first
quarter.
CT&T's title operations in the first quarter of
1994 produced the best first-quarter results in CT&T's
history. The first quarter is characteristically a slow
period in the title industry, but in 1994 the residential
refinancing and resale markets were very active and there was
continued momentum in the commercial sector. However,
refinancings virtually disappeared from the residential real
estate market during the remainder of 1994 as a result of
sharp increases in interest rates that began about February
1994. Interest rates continued to rise in early 1995,
further depressing real estate markets. Home resales
declined nationally from a peak of 417,000 in June 1994 to a
low of 210,000 in January 1995. While CT&T responded quickly
to bring costs into line with its reduced revenues, such
action proved insufficient in the 1995 first quarter.
Revenues declined by $106.6 million, from $364.9 million in
the 1994 quarter to $258.3 million in the 1995 quarter, while
CT&T's expenses declined by $71.4 million, from $341.7
million to $270.3 million. Since March 1994, CT&T has
reduced its staff count by over 1,400 full-time equivalent
employees or about 16%. Moreover, in 1995, CT&T postponed
salary increases and most highly compensated employees have
taken pay cuts of 5%-10%. CT&T is continuing its efforts to
bring its costs into line with its reduced volume of title
business. Title orders have increased substantially since
February 1995, indicating improved activity in real estate
markets. However, any renewed increases in interest rates
could be expected to halt or depress such improvement.
CT&T's Financial Services Group contributed pre-tax
operating income to CT&T of about $2.8 million in the 1995
first quarter, an increase of about 33% over the 1994 first
quarter contribution of $2.1 million, primarily as a result
of the inclusion of results of Montag & Caldwell which was
acquired by CT&T in July 1994. As of March 31, 1995, the
Financial Services Group managed $7.7 billion in assets.
Underwriters Reinsurance Company ("Underwriters")
contributed pre-tax earnings of $6.6 million in the first
quarter of 1995, compared with a pre-tax loss of $2.6 million
in the first quarter of 1994. Net written premiums for the
1995 quarter were $72.0 million compared with $57.3 million
in the prior year's quarter, reflecting increased business
and a $9 million positive premium adjustment on an adjustable
rate contract. 1995 results also include a pre-tax benefit
from IBNR (incurred but not reported) reserve reductions of
about $3.4 million, and a pre-tax loss on investments of
about $2.3 million incurred in connection with Underwriters'
investment portfolio restructuring. The first quarter of
1994 included a pre-tax charge of $5 million for estimated
losses associated with the earthquake in Northridge,
California in January of that year, and a pre-tax loss on
investments of about $3.2 million.
World Minerals contributed pre-tax earnings of $5.1
million in the first quarter of 1995 on revenues of $41.8
million, compared with $3.1 million on revenues of $36.2
million in the first quarter of 1994. The improved results
reflect strong economic activity in markets served by World
Minerals and also the benefits of price increases, strategic
acquisitions and capital spending and ongoing management
attention to improving production efficiency, customer
service and cost reduction. World Minerals achieved these
results notwithstanding the adverse effects of unusually
heavy rains at its Lompoc, California plant.
As of March 31, 1995, the Company beneficially
owned approximately 18.1 million shares, or 11.8%, of the
outstanding common stock of Sante Fe Pacific Corporation
which had an aggregate market value on that date of
approximately $413 million, or $22.875 per share. The
aggregate cost of such shares is approximately $251 million,
or $13.92 per share.
The Company's results in the first quarter of 1995
are not necessarily indicative of operating results in future
periods. The Company and its subsidiaries have adequate
internally generated funds, cash revenues and unused credit
facilities to provide for the currently foreseeable needs of
its and their businesses.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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In April 1990, a class action seeking treble
damages was filed in the United States District Court for the
District of Arizona against six of the nation's largest title
insurance companies, including the three principal title
insurance companies now owned by CT&T, alleging that the
title insurers violated Section 1 of the Sherman Act in
connection with their participation in rating bureaus in
Arizona and Wisconsin. In June 1994, counsel for the
plaintiffs and the defendants filed with the District Court
in Arizona a definitive written agreement embodying terms for
a proposed class action settlement of the asserted claims,
which would become effective upon final approval of the
Court. On April 21, 1994, a separate class action suit
seeking treble damages was filed in the United States
District Court for the Eastern District of Wisconsin,
asserting federal antitrust claims against the same six
defendants and a number of additional title insurers arising
from Wisconsin rating bureau activity. On October 11, 1994,
the Wisconsin suit was transferred to and consolidated with
the suit in the United States District Court in Arizona. The
status of such proceedings was last reported in Item 3 of
Part I of the Company's 1994 Form 10-K Report.
As previously reported, issues have arisen between
the parties to the settlement agreement since it was jointly
presented to the District Court in Arizona. The Court has
yet to act upon the settlement agreement, and on March 28,
1995, the Court deferred further action to allow the parties
to reach agreement on a global settlement of the foregoing
actions. The Court has scheduled a status conference for May
18, 1995. Negotiations among the parties are continuing.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits.
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Exhibit
Number Description
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3.1 By-Laws of Alleghany as
amended April 18, 1995.
10.1 Letter amendment dated
April 6, 1995 to the Stock
Purchase Related Agreement
dated as of July 28, 1993, as
supplemented and amended,
among certain persons named
therein and Alleghany.
27 Financial Data Schedule.
(b) Reports on Form 8-K.
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No reports on Form 8-K were filed during the first
quarter of 1995.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
ALLEGHANY CORPORATION
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Registrant
Date: May 11, 1995 /s/ David B. Cuming
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David B. Cuming
Senior Vice President
(and principal financial
officer)
Exhibit Index
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Exhibit
Number Description
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3.1 By-Laws of Alleghany as
amended April 18, 1995.
10.1 Letter amendment dated
April 6, 1995 to the Stock
Purchase Related Agreement
dated as of July 28, 1993, as
supplemented and amended,
among certain persons named
therein and Alleghany.
27 Financial Data Schedule