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, 1997
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:
7,258,180
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(AS OF MARCH 31, 1997)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(dollars in thousands, except share and per share amounts)
(unaudited)
1997 1996
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REVENUES
Title premiums, escrow and trust fees $310,637 $291,122
Net property and casualty premiums earned 97,191 82,976
Interest, dividend and other income 50,314 45,997
Net mineral and filtration sales 47,265 47,582
Net (loss) gain on investment transactions (736) 416
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Total revenues 504,671 468,093
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COSTS AND EXPENSES
Commissions and brokerage expense 137,680 129,139
Salaries, administrative, and other
expenses 208,122 200,030
Provisions for title losses and
other claims 21,463 14,014
Property and casualty losses and loss
adjustment expenses 72,637 58,518
Cost of mineral and filtration sales 33,123 31,449
Interest expense 8,992 6,170
Corporate administration 4,266 4,069
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Total costs and expenses 486,283 443,389
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Earnings before income taxes 18,388 24,704
Income taxes 5,480 7,893
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Net earnings $12,908 $16,811
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EARNINGS PER SHARE OF COMMON STOCK $1.77 $2.28
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DIVIDENDS PER SHARE OF COMMON STOCK * *
========= =========
AVERAGE NUMBER OF OUTSTANDING SHARES OF
COMMON STOCK** 7,283,242 7,361,428
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* In March 1997 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
1997 and 1996.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
(dollars in thousands, except share and per share amounts)
March 31,
1997 December
(Unaudited) 31, 1996
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ASSETS
Available for sale securities:
Fixed Maturities:
U.S. Government, government agency
and municipal obligations (amortized cost $1,212,091) $1,203,825 $1,243,148
Certificates of deposit and
commercial paper (amortized cost 116,890) 116,890 160,029
Bonds, notes and other (amortized cost 566,079) 559,696 596,072
Equity securities (cost 353,802) 645,199 714,868
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2,525,610 2,714,117
Cash 51,462 59,954
Cash pledged to secure trust and escrow deposits 122,915 118,066
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 313,432 285,895
Title records and indexes 152,291 152,291
Property and equipment - at cost, less
accumulated depreciation and amortization 289,893 287,177
Reinsurance receivable 399,407 392,210
Net deferred tax asset 235 0
Other assets 386,498 399,377
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$4,333,279 $4,500,623
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LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Title losses and other claims $534,165 $533,738
Property and casualty losses and loss adjustment expenses 1,145,347 1,110,020
Other liabilities 531,301 569,599
Long-term debt of parent company 19,000 0
Long-term debt of subsidiaries 432,905 447,525
Net deferred tax liability 0 38,941
Trust and escrow deposits secured by pledged assets 339,960 377,540
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Total liabilities 3,002,678 3,077,363
Common stockholders' equity 1,330,601 1,423,260
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$4,333,279 $4,500,623
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SHARES OF COMMON STOCK OUTSTANDING 7,258,180 7,386,332 *
========= =========
COMMON STOCKHOLDERS' EQUITY PER SHARE $183.32 $192.69 *
========= =========
* Adjusted to reflect the common stock dividend declared in
March 1997.
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND 1996
(dollars in thousands)
(unaudited)
1997 1996*
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $12,908 $16,811
Adjustments to reconcile net earnings to
cash provided by (used in) operations:
Depreciation and amortization 12,603 12,548
Net loss (gain) on investment transactions 736 (416)
Other charges, net 3,205 117
Increase in funds held, accounts and other receivables (27,537) (8,764)
(Increase) decrease in reinsurance receivable (7,197) 2,133
Increase (decrease) in title losses and other claims 427 (11,576)
Increase in property and casualty
loss and loss adjustment expenses 35,327 21,974
Decrease (increase) in other assets 10,235 (13,182)
Decrease in other liabilities (38,298) (20,695)
Increase in cash pledged to secure trust and escrow deposits (4,849) (63,638)
(Decrease) increase in trust and escrow deposits (37,580) 32,376
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Net adjustments (52,928) (49,123)
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Cash used in operations (40,020) (32,312)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (155,573) (139,914)
Maturities of investments 135,482 115,671
Sales of investments 88,582 55,430
Purchases of property and equipment (15,816) (11,775)
Other, net 2,705 4,772
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Net cash provided by investing activities 55,380 24,184
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (15,000) (62,266)
Proceeds of long-term debt 19,663 73,000
Other, net (28,515) (9,859)
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Net cash (used in) provided by financing activities (23,852) 875
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Net decrease in cash (8,492) (7,253)
Cash at beginning of period 59,954 55,175
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Cash at end of period $51,462 $47,922
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $5,617 $6,200
Income taxes $1,311 $21,242
* 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, 1996.
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.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share." Statement 128 supersedes APB Opinion No.
15, "Earnings per Share," and specifies the computation,
presentation, and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock or potential
common stock. Statement 128 was issued to simplify the
computation of EPS. It requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. The
Company's options and performance shares issued pursuant to the
Company's Amended and Restated Directors' Stock Option Plan and
the 1993 Long-Term Incentive Plan, respectively, are considered
potential common stock under Statement 128.
Statement 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. After adoption, all prior
period EPS data presented shall be restated to conform with
Statement 128. The Company does not expect the adoption of
Statement 128 to have a material impact on the EPS data that has
been presented.
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, 1997.
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 $12.9 million on
revenues of $504.7 million in the 1997 first quarter, compared
with $16.8 million on revenues of $468.1 million in the 1996
first quarter.
Net losses on investment transactions before taxes in the
first quarter of 1997 totalled $736 thousand, compared with net
gains of $416 thousand in the first quarter of 1996.
Chicago Title and Trust Company ("CT&T") contributed pre-tax
earnings of $12.0 million on revenues of $326.7 million, compared
with pre-tax earnings of $14.8 million on revenues of $306.5
million in the 1996 first quarter.
CT&T's results in the first quarter of 1997 reflect strong
activity in commercial real estate markets and a larger
contribution from agency operations (as distinguished from
company-owned offices), offsetting weakness in residential real
estate markets, including a 31% decrease in home mortgage
refinancings from 1996 levels. CT&T's results in the first
quarter of 1996 reflected improved conditions in real estate
markets from the previous year's level, including an increase in
home mortgage refinancings, and the benefits of expense
reductions. CT&T's 1996 first quarter results also included a
$4.2 million pre-tax charge to write down the carrying value of
title plants and goodwill in connection with the implementation
of Financial Accounting Standards Board Statement No. 121, and
pre-tax income of $8.0 million in respect of a reduction in title
claims reserves. Disregarding these items, CT&T would have
recorded pre-tax earnings of $11.0 million in the first quarter
of 1996.
CT&T's 1997 first quarter results also reflect an increase
in the contribution of its financial services businesses
conducted through Alleghany Asset Management, Inc. ("Alleghany
Asset Management") and its subsidiaries. Alleghany Asset
Management contributed pre-tax operating income to CT&T of about
$5.1 million in the 1997 first quarter, an increase of about 82
percent over the 1996 first quarter contribution of $2.8 million.
Alleghany Asset Management's improved results are primarily due
to an increase in assets under management. As of March 31, 1997,
Alleghany Asset Management managed $15.7 billion in assets, an
increase of 41 percent from $11.1 billion as of March 31, 1996.
Underwriters Re Group, Inc. ("Underwriters Re Group")
contributed pre-tax earnings of $7.0 million on revenues of
$115.3 million in the first quarter of 1997, compared with $6.9
million on revenues of $96.7 million in the first quarter of
1996.
The results of Underwriters Re Group for the first quarter
of 1997 reflect increased business, including an 8 percent
increase in net written premiums to $105.3 million from $97.7
million in the first quarter of 1996. Commissions and brokerage
expenses were unchanged from the 1996 period due to lower
commission rates associated with two significant quota treaties
entered into in the 1997 first quarter.
World Minerals Inc. ("World Minerals") contributed pre-tax
earnings of $2.9 million on revenues of $47.1 million in the
first quarter of 1997, compared with pre-tax earnings of $4.6
million on revenues of $47.6 million in the first quarter of
1996.
World Minerals recorded revenues at the same level in the
1997 first quarter as the 1996 first quarter but pre-tax earnings
declined from the prior year period due to continuing high start-
up costs related to World Minerals' Chinese joint ventures,
increased operating costs of World Minerals' North American
diatomite operations as a result of high natural gas prices and
heavy winter rains on the West Coast and the continued strength
of the dollar which lowered the results of foreign operations.
As of March 31, 1997, the Company beneficially owned
approximately 7.43 million shares, or 4.8 percent of the
outstanding common stock of Burlington Northern Santa Fe
Corporation, which had an aggregate market value on that date of
approximately $549.9 million, or $74.00 per share, compared with
a market value on December 31, 1996 of $641.9 million, or $86.375
per share. The aggregate cost of such shares is approximately
$253.7 million, or $34.15 per share.
The Company's results in the first quarter of 1997 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 2. CHANGES IN SECURITIES.
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(c) Recent Sales of Unregistered Securities.
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On January 24, 1997, the Company issued 1,195 shares of
common stock to Paul F. Woodberry upon exercise of an option to
purchase 1,000 shares of the Company's common stock, subject to
adjustment for stock dividends, at an exercise price of $62.0245
per share, or $74,199.28 in the aggregate, granted to Mr.
Woodberry on July 1, 1987 pursuant to the Alleghany Corporation
Amended and Restated Directors' Stock Option Plan. The sale of
common stock was exempt from registration under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) thereof, as a transaction not involving a public
offering.
On April 2, 1997, the Company issued an aggregate of 4,288
shares of common stock to S. Arnold Zimmerman, a former director
of the Company, 1,104 shares upon the exercise of an option to
purchase 1,000 shares of the Company's common stock, subject to
adjustment for stock dividends, at an exercise price of $111.8578
per share, or $123,491.01 in the aggregate, 1,082 shares upon the
exercise of an option to purchase 1,000 shares of the Company's
common stock, subject to adjustment for stock dividends, at an
exercise price of $135.8053 per share, or $146,941.33 in the
aggregate, 1,061 shares upon the exercise of an option to
purchase 1,000 shares of the Company's common stock, subject to
adjustment for stock dividends, at an exercise price of $133.5742
per share, or $141,722.22 in the aggregate, and 1,040 shares upon
the exercise of an option to purchase 1,000 shares of the
Company's common stock, subject to adjustment for stock
dividends, at an exercise price of $149.2215 per share, or
$155,190.36 in the aggregate, granted to Mr. Zimmerman on April
27, 1992, April 26, 1993, April 25, 1994 and May 1, 1995,
respectively, pursuant to the Alleghany Corporation Amended and
Restated Directors' Stock Option Plan. The sale of the common
stock was exempt from registration under the Securities Act,
pursuant to Section 4(2) thereof, as a transaction not involving
a public offering.
The above does not include unregistered issuances of the
Company's common stock that did not involve a sale consisting of
a stock dividend paid in April 1997 and issuances of common stock
and other securities pursuant to employee incentive plans.
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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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 1997.
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 9, 1997 /s/ David B. Cuming
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David B. Cuming
Senior Vice President
(and principal financial
officer)