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 JUNE 30, 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 IDENTIFICATION 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
--------------
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
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASS OF
COMMON STOCK, AS OF THE CLOSE OF THE PERIOD COVERED BY THIS REPORT:
7,049,847
(AS OF JUNE 30, 1995)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
JUNE 30, 1995 AND 1994
(dollars in thousands, except share and per share amounts)
(unaudited)
1995 1994
----------------------
Revenues
Title premiums, escrow and trust fees $257,832 $338,773
Net reinsurance premiums earned 68,319 43,856
Interest, dividend and other income 43,559 37,552
Net mineral and filtration sales 45,403 41,562
Net gain on investment transactions 63 6,427
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Total revenues 415,176 468,170
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Costs and expenses
Salaries, commissions and other employee benefits 195,163 254,681
Administrative, selling and other operating expenses 84,208 86,072
Provisions for title losses and other claims 19,197 27,491
Property and casualty losses and loss adjustment expenses 50,547 35,622
Cost of mineral and filtration sales 29,421 28,943
Interest expense 7,285 6,847
Corporate administration 4,034 6,907
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Total costs and expenses 389,855 446,563
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Earnings from continuing operations, before income taxes 25,321 21,607
Income taxes 8,132 5,277
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Net earnings from continuing operations 17,189 16,330
=======================
Discontinued operations
Earnings from discontinued operations, net of tax - 2,275
Benefit of excess of tax basis over book - 16,800
-----------------------
Net earnings $17,189 $35,405
=======================
Earnings per share of common stock
Operations $2.44 $2.37
Discontinued operations 0.00 0.22
Benefit of excess of tax basis over book 0.00 2.44
-----------------------
Total earnings per share $2.44 $5.14
=======================
Dividends per share of common stock * *
=======================
Average number of outstanding shares of common stock ** 7,051,763 6,891,119
=======================
[FN]
* 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 STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1994
(dollars in thousands, except share and per share amounts)
(unaudited)
1995 1994
----------------------
Revenues
Title premiums, escrow and trust fees $501,780 $691,532
Net reinsurance premiums earned 137,096 96,535
Interest, dividend and other income 88,914 76,041
Net mineral and filtration sales 86,682 77,526
Net gain (loss) on investment transactions (2,244) 6,519
-----------------------
Total revenues 812,228 948,153
-----------------------
Costs and expenses
Salaries, commissions and other employee benefits 403,517 522,132
Administrative, selling and other operating expenses 167,092 170,403
Provisions for title losses and other claims 38,646 50,912
Property and casualty losses and loss adjustment expenses 100,027 79,782
Cost of mineral and filtration sales 57,230 54,423
Interest expense 14,061 13,923
Corporate administration 6,615 10,414
-----------------------
Total costs and expenses 787,188 901,989
-----------------------
Earnings from continuing operations, before income taxes 25,040 46,164
Income taxes 7,058 12,845
-----------------------
Net earnings from continuing operations 17,982 33,319
-----------------------
Discontinued operations
Earnings from discontinued operations, net of tax - 5,225
Benefit of excess of tax basis over book - 16,800
-----------------------
Net earnings $17,982 $55,344
=======================
Earnings per share of common stock
Operations $2.55 $4.83
Discontinued operations 0.00 0.76
Benefit of excess of tax basis over book 0.00 2.44
-----------------------
Total earnings per share $2.55 $8.03
=======================
Dividends per share of common stock * *
=======================
Average number of outstanding shares of common stock ** 7,047,984 6,892,530
=======================
[FN]
* 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
JUNE 30, 1995 AND DECEMBER 31, 1994
(dollars in thousands, except share and per share amounts)
June 30,
1995 December 31,
(Unaudited) 1994
--------------------------
Assets
Investments:
Fixed maturities - available for sale:
U.S. Government, government agency
and municipal obligations (amortized cost $1,076,564) $1,070,186 $1,006,421
Certificates of deposit and
commercial paper (amortized cost $46,589) 46,539 107,082
Bonds, notes and other (amortized cost $431,359) 429,577 465,011
Equity securities (cost $349,458) 595,045 357,220
-------------------------
2,141,397 1,935,734
Cash 235,621 107,942
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 280,965 211,451
Title records and indexes 156,451 156,293
Property and equipment - at cost, less accumulated depreciation and amortization 212,299 202,918
Reinsurance receivable 418,369 422,683
Other assets 380,294 459,334
-------------------------
$3,916,932 $3,587,891
=========================
Liabilities and Common Stockholders' Equity
Title losses and other claims $527,994 $537,073
Property and casualty losses and loss adjustment expenses 990,107 940,527
Other liabilities 444,013 436,180
Long-term debt of parent company 59,600 59,600
Long-term debt of subsidiaries 320,584 275,473
Trust and escrow deposits secured by pledged assets 392,060 317,845
-------------------------
Total liabilities 2,734,358 2,566,698
Common stockholders' equity 1,182,574 1,021,193
-------------------------
$3,916,932 $3,587,891
=========================
Shares of common stock outstanding 7,049,847 7,044,407 *
=========================
Common stockholders' equity per share $167.74 $144.97 *
=========================
[FN]
* Adjusted to reflect the common stock dividend declared in March 1995.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1994
(dollars in thousands)
(unaudited)
1995 1994*
----------------------
Cash flows from operating activities
Earnings from continuing operations $17,982 $33,319
Adjustments to reconcile earnings from continuing operations to cash
provided by continuing operations:
Depreciation and amortization 21,271 22,889
Net loss (gain) on investment transactions 2,244 (6,519)
Other charges to continuing operations, net (2,812) 7,817
Increase in funds held, accounts and other receivables (69,514) (30,853)
Decrease (increase) in reinsurance receivable 4,314 (34,023)
(Decrease) increase in title losses and other claims (9,079) 5,998
Increase in property and casualty loss and loss adjustment expenses 49,580 41,809
(Increase) decrease in other assets (14,274) 8,289
Increase (decrease) in other liabilities 7,833 (4,370)
Increase (decrease) in trust and escrow deposits 74,215 (7,444)
-----------------------
Net adjustments 63,778 3,593
-----------------------
Cash provided by continuing operations 81,534 36,912
-----------------------
Cash provided by discontinued operations 0 5,602
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Cash provided by operations 81,534 42,514
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Cash flows from investing activities
Purchase of investments (306,925) (499,954)
Maturities of investments 140,781 252,954
Sales of investments 177,243 257,466
Purchases of property and equipment (15,312) (13,411)
Disposition of property and equipment 4,052 4,009
Net purchases of title records and indexes (158) (255)
-----------------------
Net cash (used in) provided by investing activities (319) 809
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Cash flows from financing activities
Principal payments on long-term debt (17,591) (16,328)
Proceeds of long-term debt 63,000 0
Purchase of treasury shares (1,274) (1,630)
Common stock distributions 2,103 (75)
-----------------------
Net cash provided by (used in) financing activities 46,238 (18,033)
-----------------------
Net increase in cash 127,679 25,290
Cash at beginning of period 107,942 109,166
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Cash at end of period $235,621 $134,456
=======================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $13,549 $14,426
Income taxes $4,517 $17,493
[FN]
* Restated to conform to current year presentation.
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, and the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995 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 June 30, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
The Company reported net earnings of $17.2 million
in the second quarter of 1995 compared with $35.4 million in
the second quarter of 1994, and $18.0 million in the first
six months of 1995 compared with $55.3 million in the first
six months of 1994.
Continuing operations contributed net earnings of
$17.2 million on revenues of $415.2 million in the 1995
second quarter, compared with $16.3 million on revenues of
$468.2 million in the 1994 second quarter. Discontinued
operations, consisting of the Company's retail banking
subsidiary, Sacramento Savings Bank, which was sold in the
fourth quarter of 1994, contributed net earnings of $19.1
million in the 1994 second quarter, of which $16.8 million
represented a tax credit related to the then impending sale
of Sacramento Savings Bank.
Net earnings from continuing operations were $18.0
million on revenues of $812.2 million in the first six months
of 1995 compared with $33.3 million on revenues of $948.2
million in the first six months of 1994. Discontinued
operations contributed net earnings of $22.0 million in the
first half of 1994.
Net losses on investment transactions after taxes
in the first half of 1995 totalled $1.5 million, compared
with net gains of $4.2 million in the first half of 1994.
Chicago Title and Trust Company ("CT&T")
contributed pre-tax earnings of $12.5 million on revenues of
$271.2 million in the 1995 second quarter, compared with
$13.3 million on revenues of $350.4 million in the second
quarter of 1994. In the first six months of 1995, CT&T
contributed pre-tax earnings of $0.5 million on revenues of
$529.4 million, compared with $36.6 million on revenues of
$715.3 million in the first six months of 1994.
CT&T's results in the second quarter of 1995
reflect improved conditions in real estate markets over
conditions prevailing in the first quarter of 1995, the
results of its continuing efforts to reduce expenses and a
$3.0 million pre-tax payment received by CT&T in settlement
of litigation with a competitor. Real estate markets were
materially depressed by sharp increases in interest rates
that began in February 1994 and continued into early 1995.
In the 1994 second quarter, CT&T's results were affected by a
significant decline in residential refinancings which was
offset by improvements in new construction, resales and
commercial activity.
Although real estate markets have shown some
improvement, CT&T has continued its efforts to reduce
expenses, including through further staff reductions. The
immediate benefits of such expense reductions were somewhat
offset in the 1995 second quarter by severance benefits paid
to terminated employees of $0.9 million.
CT&T's results also reflect the contribution of
CT&T's Financial Services Group. The Financial Services
Group contributed pre-tax operating income to CT&T of about
$2.8 million in the 1995 second quarter, an increase of 75
percent over the 1994 second quarter contribution of $1.6
million, and $5.6 million in the first six months of 1995, an
increase of 51 percent over the contribution in the first six
months of 1994 of $3.7 million. The improved results of
CT&T's Financial Services Group are primarily due to the
inclusion of earnings of Montag & Caldwell which was acquired
by CT&T in July 1994. As of June 30, 1995, the Financial
Services Group managed $8.1 billion in assets.
Underwriters Reinsurance Company ("Underwriters")
contributed pre-tax earnings of $7.6 million on revenues of
$79.4 million in the second quarter of 1995, compared with
$3.6 million on revenues of $53.4 million in the second
quarter of 1994, and $14.2 million on revenues of $157.1
million in the first six months of 1995 as compared with $1.0
million on revenues of $112.9 million in the first six months
of 1994. Underwriters' results for the second quarter of
1995 reflect increased business, an absence of significant
catastrophe losses and an absence of adverse reserve
activity. The 1994 six-month results reflected a pre-tax
charge of about $5 million for estimated losses associated
with the earthquake in Los Angeles, California in January
1994. In addition, Underwriters recorded net pre-tax losses
of $2.4 million in the first six months of 1995, as compared
with net pre-tax losses of $3.5 million in the first six
months of 1994, on sales of fixed-maturity investments. Most
of these losses were due to restructurings by Underwriters of
portions of its bond portfolio.
World Minerals Inc. ("World Minerals") contributed
pre-tax earnings of $6.8 million on revenues of $45.5 million
in the 1995 second quarter, compared with $4.8 million on
revenues of $41.7 million in the second quarter of 1994. In
the first six months of 1995, World Minerals contributed
pre-tax earnings of $11.8 million on revenues of $87.4
million, compared with $8.0 million on revenues of $77.9
million in the first six months of 1994.
World Minerals' improved results in 1995 reflect
strong economic activity in markets served by World Minerals
and also the benefits of price increases, strategic
acquisitions and capital spending, in addition to ongoing
management attention to improving production efficiency,
customer service and cost reductions.
As of June 30, 1995, the Company beneficially owned
approximately 18.1 million shares, or 11.9 percent, of the
outstanding common stock of Santa Fe Pacific Corporation
("Santa Fe") which had an aggregate market value on that date
of approximately $461 million, or $25.50 per Santa Fe share.
The aggregate cost of such shares is approximately $252.5
million, or $13.98 per Santa Fe share. On July 20, 1995, the
Interstate Commerce Commission approved the merger of Santa
Fe into Burlington Northern, Inc. ("Burlington"). Pursuant
to the terms of the merger agreement between Santa Fe and
Burlington, as of June 30, 1995, the shareholders of Santa Fe
would receive 0.4073 shares of Burlington common stock for
each share of Santa Fe common stock. Based on the number of
shares of outstanding common stock of Santa Fe and Burlington
as of March 31, 1995, the Company would own approximately 4.9
percent of the combined companies after the merger.
The Company's results in the first half of 1995 are
not 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.
-----------------
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 have 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 1 of
Part II of the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1995.
As previously reported, issues arose between the
parties to the settlement agreement subsequent to
presentation of the settlement agreement to the District
Court in Arizona. The Court did not 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 parties presented a
global settlement to the Court, to which the Court has given
its preliminary approval, entering a Preliminary Settlement
Order dated June 19, 1995.
Pursuant to the terms of the proposed global
settlement, class members will be provided with a number of
benefits, including the option to receive cash payments from
the title insurance companies named in the Arizona and
Wisconsin actions, not to exceed in the aggregate $1,996,613
in Arizona and $2,070,326 in Wisconsin; an increase in the
face amount of title insurance policies purchased from the
title insurers reflecting the impact of inflation since
January 1, 1981; and the last $5,000 of future insurance
coverage at no cost on any new title insurance policy for
property in Arizona or Wisconsin purchased from any of such
title insurers within the one-year period following final
Court approval of the settlement. The settlement also
contemplates that the title insurance companies will pay
attorneys' fees of the plaintiffs and the costs of
administering the settlement.
In July 1995, pursuant to an order of the Court,
notice of the settlement was given to the class by
publication. The plaintiffs are expected to file for their
attorneys' fees and costs by September 22, 1995. The Court
has set a schedule for further briefing on the global
settlement, and has scheduled a hearing on October 10, 1995,
at which the fairness of the settlement will be considered
and members of the plaintiff class will be given an
opportunity to be heard.
ITEM 2. CHANGES IN SECURITIES.
---------------------
The Company entered into a Revolving Credit Loan
Agreement, dated as of June 14, 1995, with Chemical Bank (the
"Credit Agreement") in replacement of an existing credit
facility in the same amount. The Credit Agreement provides a
commitment for revolving credit loans in an aggregate
principal amount of $200 million. Each revolving credit loan
will bear interest at a rate selected by the Company from
three rates set forth in the Credit Agreement, which are based
on (i) prevailing rates for the purchase of negotiable
certificates of deposit, (ii) prevailing rates for dollar
deposits in the London interbank market, or (iii) the greatest
of three rates based on the Federal funds rate, Chemical
Bank's prime rate or a specified certificate of deposit rate.
The Credit Agreement requires the Company, among
other things, to maintain asset coverage of at least
four-to-one, limits the amount of certain other indebtedness
outstanding at any time to $100 million and contains
restrictions with respect to mortgaging or pledging any of
the Company's assets and with respect to consolidation or
merger with any other corporation. The Company's net
earnings available for payment of dividends are restricted to
the sum of $50 million, the Company's net earnings subsequent
to December 31, 1994 and cash proceeds received from the
issuance of capital stock subsequent to December 31, 1994.
The foregoing summary description is qualified in its
entirety by reference to the Credit Agreement, which is
attached hereto as Exhibit 10.1.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
The Company's 1995 Annual Meeting of Stockholders
was held on April 28, 1995. At the Annual Meeting, three
directors were re-elected to serve for three-year terms on
the Company's Board of Directors, by the following votes:
FOR WITHHELD
--- --------
Allan P. Kirby, Jr. 5,794,237 40,464
John E. Tobin 5,821,441 13,260
James F. Will 5,820,532 14,169
The Alleghany Corporation Directors' Equity
Compensation Plan was approved at the Annual Meeting by a
vote of 5,603,759 shares in favor and 46,385 shares opposed.
A total of 184,557 shares abstained from voting.
Amendments to the Alleghany Corporation 1993 Long-
Term Incentive Plan were approved at the Annual Meeting by a
vote of 5,242,142 shares in favor and 401,329 shares opposed.
A total of 191,230 shares abstained from voting.
At the Annual Meeting, the selection of KPMG Peat
Marwick as auditors for the Company for the year 1995 was
ratified by a vote of 5,825,981 shares in favor and 5,393
shares opposed. A total of 3,327 shares abstained from
voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
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Exhibit
Number Description
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10.1 Revolving Credit Loan
Agreement, dated as of
June 14, 1995, between
Alleghany and Chemical Bank.
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the second
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
---------------------
Registrant
Date: August 10, 1995 /s/ David B. Cuming
---------------------
David B. Cuming
Senior Vice President
(and principal financial
officer)
Exhibit Index
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Exhibit
Number Description
------- -----------
10.1 Revolving Credit Loan
Agreement, dated as of
June 14, 1995, between
Alleghany and Chemical Bank.