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 SEPTEMBER 30, 1996
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
375 PARK AVENUE, NEW YORK, NEW YORK 10152
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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
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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:
7,241,302
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(AS OF SEPTEMBER 30, 1996)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except share and per share amounts)
(unaudited)
1996 1995***
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REVENUES
Title premiums, escrow and trust fees $342,873 $288,893
Net reinsurance premiums earned 91,273 68,409
Interest, dividend and other income 51,799 43,782
Net mineral and filtration sales 51,833 44,560
Net gain on investment transactions 950 2,246
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Total revenues 538,728 447,890
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COSTS AND EXPENSES
Agents' commissions and brokerage expense 149,834 122,193
Salaries, administrative, selling and other expenses 219,539 181,698
Provisions for title losses and other claims 24,632 22,727
Property and casualty losses and loss adjustment
expenses 67,271 48,782
Cost of mineral and filtration sales 33,328 27,959
Interest expense 9,370 11,006
Corporate administration 4,608 3,901
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Total costs and expenses 508,582 418,266
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Earnings before income taxes 30,146 29,624
Income taxes 10,242 6,207
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Net earnings $ 19,904 $ 23,417
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EARNINGS PER SHARE OF COMMON STOCK $2.76 $3.25
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DIVIDENDS PER SHARE OF COMMON STOCK * *
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AVERAGE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK** 7,210,867 7,219,959
====================
* In March 1995 and 1996, 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 1996.
*** Restated to conform to the current year's presentation.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(dollars in thousands, except share and per share amounts)
(unaudited)
1996 1995***
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REVENUES
Title premiums, escrow and trust fees $966,603 $790,673
Net reinsurance premiums earned 269,023 205,505
Interest, dividend and other income 143,422 132,696
Net mineral and filtration sales 150,666 131,242
Net gain on investment transactions 2,150 2
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Total revenues 1,531,864 1,260,118
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COSTS AND EXPENSES
Agents' commissions and brokerage expense 420,853 347,197
Salaries, administrative, selling and other expenses 628,617 527,303
Provisions for title losses and other claims 62,340 61,373
Property and casualty losses and loss adjustment
expenses 195,840 148,809
Cost of mineral and filtration sales 99,049 85,189
Interest expense 22,262 25,067
Corporate administration 13,907 10,516
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Total costs and expenses 1,442,868 1,205,454
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Earnings before income taxes 88,996 54,664
Income taxes 29,483 13,265
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Net earnings $59,513 $41,399
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EARNINGS PER SHARE OF COMMON STOCK $8.26 $5.74
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DIVIDENDS PER SHARE OF COMMON STOCK * *
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AVERAGE NUMBER OF OUTSTANDING SHARES OF COMMON
STOCK** 7,208,726 7,201,167
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* In March 1995 and 1996, 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 1996.
*** Restated to conform to the current year's presentation.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(dollars in thousands, except share and per share amounts)
September 30,
1996 December 31,
(Unaudited) 1995**
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ASSETS
Available for sale securities:
Fixed maturities:
U.S. Government, government agency
and municipal obligations (amortized cost $1,142,779) $1,141,756 $1,037,312
Certificates of deposit and
commercial paper (amortized cost 211,952) 211,952 90,902
Bonds, notes and other (amortized cost 575,673) 570,514 571,568
Equity securities (cost 318,066) 696,958 637,956
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2,621,180 2,337,738
Cash 46,924 55,175
Cash pledged to secure trust and escrow deposits 164,997 122,893
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 345,798 301,290
Title records and indexes 151,646 155,170
Property and equipment - at cost, less
accumulated depreciation and amortization 288,640 272,289
Reinsurance receivable 404,699 399,783
Other assets 400,292 386,640
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$4,515,712 $4,122,514
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LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Title losses and other claims $531,363 $530,986
Property and casualty losses and
loss adjustment expenses 1,112,364 1,014,000
Other liabilities 596,848 538,750
Long-term debt of parent company 17,000 0
Long-term debt of subsidiaries 460,671 331,689
Net deferred tax liability 24,113 21,659
Trust and escrow deposits secured by pledged assets 392,453 364,787
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Total liabilities 3,134,812 2,801,871
Common stockholders' equity 1,380,900 1,320,643
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$4,515,712 $4,122,514
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SHARES OF COMMON STOCK OUTSTANDING 7,241,302 7,237,559*
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COMMON STOCKHOLDERS' EQUITY PER SHARE $190.69 $182.47*
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* Adjusted to reflect the common stock dividend declared in March
1996.
** Restated to conform to the current year's presentation.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(dollars in thousands)
(unaudited)
1996 1995*
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $59,513 $41,399
Adjustments to reconcile net earnings
to cash provided by (used in) operations:
Depreciation and amortization 36,855 32,317
Net gain on investment transactions (2,150) (2)
Other charges, net (3,346) (1,460)
Increase in funds held, accounts and other
receivables (44,508) (78,254)
(Increase) decrease in reinsurance receivable (4,916) 12,376
Increase (decrease) in title losses and
other claims 377 (5,969)
Increase in property and casualty loss and
loss adjustment expenses 98,364 49,539
(Increase) decrease in other assets (24,736) 72,202
Increase (decrease) in other liabilities 53,316 (50,619)
Increase in cash pledged to secure trust
and escrow deposits (42,104) (98,415)
Increase (decrease) in trust and escrow deposits 27,666 42,784
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Net adjustments 94,818 (25,501)
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Cash provided by (used in) operations 154,331 15,898
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (572,716) (487,472)
Maturities of investments 156,866 248,227
Sales of investments 153,256 218,361
Purchases of property and equipment (41,777) (50,233)
Disposition of property and equipment 1,611 5,100
Net assets acquired in pooling 653 0
Net purchases of title records and indexes (32) (242)
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Net cash used in investing activities (302,139) (66,259)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (139,561) (22,359)
Proceeds of long-term debt 295,419 69,010
Purchase of treasury shares (17,931) (4,308)
Common stock distributions 1,630 2,103
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Net cash provided by financing activities 139,557 44,446
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Net decrease in cash (8,251) (5,915)
Cash at beginning of period 55,175 47,497
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Cash at end of period $46,924 $41,582
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $17,540 $19,735
Income taxes $50,807 $5,936
* Restated to conform to the current year's presentation.
Notes to the Consolidated Financial Statements
This report should be read in conjunction with the Annual
Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Form 10-K Report"), and the Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1996 and June 30, 1996 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 September 30, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATION.
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The Company reported net earnings of $19.9 million in the
third quarter of 1996 compared with $23.4 million in the third
quarter of 1995, and $59.5 million in the first nine months of
1996 compared with $41.4 million in the first nine months of 1995.
Net gains on investment transactions after taxes in the first
nine months of 1996 totalled $2.2 million, compared with no net
gains in the first nine months of 1995.
Chicago Title and Trust Company ("CT&T") contributed pre-tax
earnings of $17.8 million on revenues of $358.3 million in the
1996 third quarter, compared with $23.4 million on revenues of
$306.4 million in the third quarter of 1995. In the first nine
months of 1996, CT&T contributed
pre-tax earnings of $57.0 million on revenues of $1,013.2 million,
compared with $23.9 million on revenues of $835.8 million in the
first nine months of 1995.
CT&T's results in the third quarter and first nine months of
1996 reflect continued active real estate markets and the benefits
of expense control efforts undertaken in 1995. The stronger year,
however, also gave rise to increased employee incentive and profit
sharing expenses, which were approximately $8.6 million higher in
the 1996 third quarter than in the prior year's third quarter.
Home mortgage refinancing activity continued to decline during the
third quarter of 1996 from second, and notably first, quarter
levels, but such decline was offset by an increase in residential
resale and commercial transactions. CT&T's results in the third
quarter of 1995 reflected improved conditions in real estate
markets over conditions prevailing in the first half of 1995, and
the results of its continuing efforts to control expenses.
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 $3.4 million
in the 1996 third quarter, an increase of 31 percent over the 1995
third quarter contribution of $2.6 million, and $9.5 million in
the first nine months of 1996, an increase of 36 percent over the
contribution in the first nine months of 1995 of $7.0 million
(1995 figures are adjusted to reflect CT&T's recently instituted
corporate overhead allocation). The improved results of CT&T's
Financial Services Group are primarily due to an increase in
assets under management. As of September 30, 1996, the Financial
Services Group managed $13.3 billion in assets, compared with $9.3
billion as of September 30, 1995.
On October 23, 1996, John Rau, currently dean of the School
of Business at Indiana University and former president and chief
executive officer of LaSalle National Bank, was elected, effective
January 1, 1997, president, chief executive officer and director
of CT&T and its subsidiary, Chicago Title Insurance Company. Mr.
Rau succeeds Richard P. Toft as president and chief executive
officer of CT&T and Richard L. Pollay in both roles for Chicago
Title Insurance Company. Mr. Toft retains his responsibilities as
non-executive chairman of the combined boards of directors of CT&T
and Chicago Title Insurance Company and has been elected chairman
and chief executive officer of CT&T's investment
management and advisory services subsidiary. Mr. Pollay will
retire at year end after 40 years with CT&T and Chicago Title
Insurance Company.
URC Holdings Corp. on a consolidated basis, including
Underwriters Reinsurance Company, ("Underwriters") contributed
pre-tax earnings of $8.9 million on revenues of $109.8 million in
the third quarter of 1996, compared with $6.5 million on revenues
of $81.6 million in the third quarter of 1995, and $23.9 million
on revenues of $315.6 million in the first nine months of 1996,
compared with $20.7 million on revenues of $238.8 million in the
first nine months of 1995. Underwriters' results for the third
quarter of 1996 reflect increased business, an absence of
significant catastrophe losses, an absence of adverse reserve
activity and a pre-tax gain of $1.0 million on the sale of equity
investments.
Net earned premiums for the third quarter of 1996 were $91.3
million, compared with $68.4 million in the prior year's third
quarter, and $269.0 million for the first nine months of 1996,
compared with $205.5 million in the prior year first nine months,
reflecting increased business. Commissions and brokerage expenses
also increased in the first nine months of 1996 primarily because
of the increase in business written and a change in the mix of
treaty business having higher ceding commissions paid but lower
assumed levels of risk. 1995 nine-month results included 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 $3.1 million incurred in connection with
restructurings of Underwriters' investment portfolio.
World Minerals Inc. ("World Minerals") contributed pre-tax
earnings of $4.2 million on revenues of $52.1 million in the 1996
third quarter, compared with $7.0 million on revenues of $44.5
million in the third quarter of 1995. In the first nine months of
1996, World Minerals contributed pre-tax earnings of $14.3 million
on revenues of $151.0 million, compared with $18.9 million on
revenues of $131.8 million in the first nine months of 1995.
The increase in revenues primarily reflects results of
strategic acquisitions since the 1995 second quarter. Pre-tax
earnings declined in the 1996 third quarter and first nine months
from the prior year periods due to increased debt and related
interest expense associated with strategic acquisitions and joint
ventures, start-up costs related to
World Minerals' Chinese joint ventures, a charge related to the
purchase of minority interests in one of its businesses and lower
foreign exchange gains in the 1996 periods.
Interest expense for the 1995 third quarter included a $3.7
million non-cash charge in respect of the Company's 6-1/2%
Subordinated Exchangeable Debentures due 2014 (the "Debentures"),
which charge represented the excess market value of the common
shares of American Express Company into which the Debentures were
exchangeable over the aggregate principal amount of the Debentures
at the end of the 1995 third quarter. On November 6, 1995, the
Company redeemed the Debentures and disposed of the common shares
of American Express Company, resulting in net gains to the Company
of $23.6 million. The Company's tax provision in the third
quarter of 1995 reflected a tax benefit of $2.8 million
representing recognition by Underwriters of a tax reserve which
became unnecessary in the third quarter.
As of September 30, 1996, the Company beneficially owned
approximately 7.43 million shares, or 5.2 percent, of the
outstanding common stock of Burlington Northern Santa Fe
Corporation ("BNSF"), which had an aggregate market value on that
date of approximately $627.1 million, or $84.375 per BNSF share.
The aggregate cost of such shares is approximately $253.7 million,
or $34.15 per BNSF share.
The Company's results in the first nine months of 1996 are
not necessarily indicative of operating results in future periods.
The Company and its subsidiaries have adequate internally
generated funds and unused credit facilities to provide for the
currently foreseeable needs of its and their businesses.
PART II. OTHER INFORMATION
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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10.1 Credit Agreement dated as of October 23, 1996 among URC
Holdings Corp., the Lenders named therein and The First
National Bank of Chicago, as Agent.
27 Financial Data Schedule
(b) Reports on Form 8-K.
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No reports on Form 8-K were filed during the third
quarter of 1996.
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: November 7, 1996 /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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10.1 Credit Agreement dated as of October 23, 1996 among
URC Holdings Corp., the Lenders named therein and
The First National Bank of Chicago, as Agent.
27 Financial Data Schedule