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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, 2000
COMMISSION FILE NUMBER 1-9371
ALLEGHANY CORPORATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
DELAWARE
STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION
51-0283071
INTERNAL REVENUE SERVICE EMPLOYER IDENTIFICATION NUMBER
375 PARK AVENUE, NEW YORK, NEW YORK 10152
ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE
212 / 752-1356
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
YES X NO
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:
7,441,004
(AS OF MARCH 31, 2000)
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(dollars in thousands, except share and per share amounts)
(unaudited)
2000 1999
---- ----
REVENUES
Investment management fees $ 44,039 $ 39,373
Net property and casualty premiums earned 162,656 144,237
Interest, dividend and other income 53,488 43,203
Net mineral and filtration sales 49,106 48,886
Net gain on investment transactions 475 363
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Total revenues 309,764 276,062
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COSTS AND EXPENSES
Commissions and brokerage expenses 40,135 37,134
Salaries, administrative and other operating expenses 86,832 69,171
Property and casualty losses and loss adjustment expenses 135,076 100,158
Cost of mineral and filtration sales 34,658 33,322
Interest expense 7,699 7,750
Corporate administration 5,571 4,658
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Total costs and expenses 309,971 252,193
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(Loss) earnings from continuing operations, before income taxes (207) 23,869
Income taxes (benefit) expense (689) 7,915
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Net earnings $ 482 $ 15,954
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Basic earnings per share of common stock ** $ 0.07 $ 2.13
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Diluted earnings per share of common stock ** $ 0.06 $ 2.09
=========== ===========
Dividends per share of common stock * *
=========== ===========
Average number of outstanding shares of common stock ** 7,444,502 7,505,777
=========== ===========
* In March 2000, Alleghany declared a dividend consisting of one share of
Alleghany common stock for every fifty shares outstanding.
** Adjusted to reflect the common stock dividend declared in March 2000.
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ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(dollars in thousands, except share and per share amounts)
March 31, December 31,
2000 1999
---- ----
(Unaudited)
ASSETS
Available for sale securities:
Fixed maturities:
U.S. Government, government agency 3/31/2000 12/31/1999
and municipal obligations (amortized cost $713,267 $707,250) $701,902 $695,718
Short-term investments (amortized cost 260,961 $277,798) 260,961 277,798
Bonds, notes and other (amortized cost 492,898 $496,872) 480,758 484,127
Equity securities (cost 245,185 $240,623) 450,463 470,104
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1,894,084 1,927,747
Cash 30,980 26,786
Cash pledged to secure trust deposits 17,469 14,307
Premium trust funds 182,312 170,508
Notes receivable 91,535 91,536
Funds held, accounts and other receivables 529,685 529,786
Property and equipment - at cost, less
accumulated depreciation and amortization 204,592 207,617
Reinsurance receivable 882,236 844,605
Other assets 663,928 672,133
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$4,496,821 $4,485,025
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LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Property and casualty losses and loss
adjustment expenses $2,063,387 $1,973,924
Unearned premiums 356,811 419,608
Other liabilities 529,097 501,453
Long-term debt of subsidiaries 399,791 407,950
Net deferred tax liability 36,746 53,625
Trust deposits secured by pledged assets 22,910 20,568
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Total liabilities 3,408,742 3,377,128
Common stockholders' equity 1,088,079 1,107,897
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$4,496,821 $4,485,025
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Shares of common stock outstanding * 7,441,004 7,458,955
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Common stockholders' equity per share * $146.23 $148.53
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* Adjusted to reflect the common stock dividend declared in March 2000.
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ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(dollars in thousands)
(unaudited)
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $482 $15,954
Adjustments to reconcile net earnings to cash
provided by (used in) operations:
Depreciation and amortization 5,809 5,226
Net gain on investment transactions (475) (363)
Other charges, net (10,894) 3,012
Decrease in funds held, accounts and other receivables 101 28,031
Increase in reinsurance receivable (37,631) (72,957)
Increase in property and casualty losses and loss adjustment expenses 89,463 112,564
Decrease in unearned premium reserves (62,797) (48,724)
Increase in premium trust funds (11,804) (11,174)
Decrease (increase) in other assets 8,205 (7,953)
Increase (decrease) in other liabilities 27,644 (17,438)
(Increase) decrease in cash pledged to secure trust deposits (3,162) 46,998
Increase (decrease) in trust deposits 2,342 (42,314)
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Net adjustments 6,801 (5,092)
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Cash provided by operations 7,283 10,862
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (61,956) (218,855)
Maturities of investments 15,585 16,994
Sales of investments 30,437 183,909
Purchases of property and equipment (3,418) (6,704)
Net change in short-term investments 19,870 574
Other, net 8,182 18,228
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Net cash provided by (used in) investing activities 8,700 (5,854)
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (13,000) (19,800)
Proceeds of long-term debt 4,841 35,834
Treasury stock acquisitions (11,958) (14,172)
Other, net 8,328 4,221
-------- -------
Net cash (used in) provided by financing activities (11,789) 6,083
-------- -------
Net increase in cash 4,194 11,091
Cash at beginning of period 26,786 25,441
-------- -------
Cash at end of period $30,980 $36,532
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $3,948 $3,354
Income taxes $1,249 $6,746
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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, 1999 (the "1999 Form 10-K") 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.
Comprehensive Income
The Company's total comprehensive loss for the three months ended March
31, 2000 and 1999 was $(16,150) thousand and $(14,014) thousand, respectively.
Comprehensive loss includes the Company's net earnings adjusted for changes in
unrealized depreciation of investments, which was $(16,393) thousand and
$(28,485) thousand, and cumulative translation adjustments, which was $(239)
thousand and $(1,483) thousand, for the three months ended March 31, 2000 and
1999, respectively.
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Segment Information
Information concerning the Company's continuing operations by industry
segment is summarized below:
For the three months ended
March 31, March 31,
REVENUES 2000 1999
-------- ---- ----
Asset management $ 44,855 $ 39,937
Property and casualty
insurance 185,555 165,623
Mining and filtration 48,795 48,600
Industrial fasteners 23,576 18,981
Corporate activities 6,983 2,921
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Total $309,764 $276,062
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EARNINGS (LOSS) BEFORE TAX
--------------------------
Asset management $ 14,142 $ 14,428
Property and casualty
insurance (20,139) 11,056
Mining and filtration 3,867 4,344
Industrial fasteners 2,782 (1,388)
Corporate activities (859) (4,571)
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Total (207) 23,869
Income tax (benefit) expense (689) 7,915
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Net income $ 482 $ 15,954
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March 31, December 31,
IDENTIFIABLE ASSETS 2000 1999
------------------- ---- ----
Asset management $ 94,941 $ 103,838
Property and casualty
insurance 3,505,348 3,461,858
Mining and filtration 327,074 332,300
Industrial fasteners 67,415 53,926
Corporate activities 502,043 533,103
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Total $4,496,821 $4,485,025
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Contingencies
The Company's subsidiaries 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, 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The Company reported net earnings of $482 thousand on revenues of
$309.8 million during the first quarter of 2000, compared with net earnings of
$16.0 million on revenues of $276.1 million during the first quarter of 1999.
Net gains on investment transactions before taxes in the first quarter
of 2000 totalled $475 thousand, compared with $363 thousand in the first quarter
of 1999.
Underwriters Re Group, Inc. ("Underwriters Re Group") recorded a
pre-tax loss of $20.1 million on revenues of $185.6 million in the first three
months of 2000, compared with pre-tax earnings of $11.1 million on revenues of
$165.6 million in the first three months of 1999. These results reflect
decreased business, adverse loss development including losses relating to the
December 1999 European storms, additions to reserves at its Lloyd's operations
in the amount of $6.5 million for the recently closed 1997 year of account and
for uncollectible reinsurance, and a pre-tax charge of $2.7 million to cover
potential losses on a contract with an insurance company placed in receivership
by the State of California. The Lloyd's operations will continue to closely
monitor their loss reserves for the still open 1998 and 1999 years of account,
which have been recognized as generally poor years for Lloyd's.
On December 30, 1999, the Company entered into an agreement to sell
Underwriters Re Group to Swiss Re America Holding Corporation for $725 million
in cash, subject to adjustment based upon the stockholder's equity of
Underwriters Re Group at the closing date. The Company will retain Underwriters
Re Group's London-based Lloyd's operations to be conducted through Alleghany
Underwriting Holdings Ltd. (previously referred to as Venton Holdings Ltd). The
transaction is expected to close within the next month. Based upon current
unaudited financial information and subject to results of operations, changes in
value of investment securities and other matters which would affect the
stockholder's equity of Underwriters Re Group at the closing date, the Company
expects to report a gain on the sale, after tax and after expenses relating to
the closing of the sale, in excess of $12 per share of the Company's common
stock.
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Alleghany Asset Management, Inc. ("Alleghany Asset Management")
contributed pre-tax earnings of $14.1 million on revenues of $44.9 million in
the first quarter of 2000, compared with $14.4 million on revenues of $39.9
million in the 1999 first quarter. The results of Alleghany Asset Management
reflect an increase in assets under management, offset by increased expenses,
including personnel expenses. As of March 31, 2000, Alleghany Asset Management
had $47.7 billion of assets under management, compared with $40.4 billion as of
the same date in 1999.
World Minerals Inc. ("World Minerals") contributed pre-tax earnings of
$3.9 million on revenues of $48.8 million in the 2000 first quarter, compared
with $4.3 million on revenues of $48.6 million in the 1999 first quarter. World
Minerals' results reflect a lack of increased sales due to various continued
competitive pressures, and, to a lesser extent, due to the stockpiling of
inventories by customers during 1999 in anticipation of potential Year 2000
problems, and rising operating costs (including workers compensation, health
insurance and natural gas prices).
In light of its acquisition of Reynolds Fasteners, Inc. on April 3,
2000, Heads & Threads International LLC ("Heads & Threads") is now reported as a
segment of the Company. Heads & Threads contributed pre-tax earnings of $2.8
million on revenues of $23.6 million in the first three months of 2000, compared
with a pre-tax loss of $1.4 million on revenues of $19.0 million in the first
three months of 1999, reflecting increased sales without a commensurate increase
in operating costs.
As of March 31, 2000, the Company beneficially owned approximately 17.95
million shares, or 3.9 percent, of the outstanding common stock of Burlington
Northern Santa Fe Corporation, which had an aggregate market value on that date
of approximately $408.4 million, or $22.75 per share, compared with a market
value on December 31, 1999 of $435.3 million, or $24.25 per share. The aggregate
cost of such shares is approximately $201.3 million, or $11.21 per share.
The Company's common stockholders' equity per share at March 31, 2000
was $146.23 per share, a 1.5% decrease from common stockholders' equity per
share of $148.53 as of December 31, 1999 (adjusted for the March 2000 stock
dividend), reflecting a decline in market prices of the Company's securities
holdings.
The Company's results in the first three months of 2000 are not
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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices
and rates, such as interest rates, foreign currency exchange rates and commodity
prices. The primary market risk related to the Company's non-trading financial
instruments is the risk of loss associated with adverse changes in interest
rates.
The Company's 1999 Form 10-K provides a more detailed discussion of the
market risks affecting its operations. Based on the Company's estimates as of
March 31, 2000, no material change has occurred in its market risks, as compared
to amounts disclosed in its 1999 Form 10-K.
Forward-Looking Statements
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Quantitative and Qualitative Disclosures About
Market Risk" contain disclosures which are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts, and can be identified by the use of words such as
"may," "will," "expect," "project," "estimate," "anticipate," "plan" or
"continue." These forward-looking statements are based upon the Company's
current plans or expectations and are subject to a number of uncertainties and
risks that could significantly affect current plans and anticipated actions and
the Company's future financial condition and results. The uncertainties and
risks include, but are not limited to, those relating to conducting operations
in a competitive environment; acquisition activities; the complexity of
integrated computer systems; and general economic conditions. As a consequence,
current plans, anticipated actions and future financial condition and results
may differ from those expressed in any forward-looking statements made by or on
behalf of the Company.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description
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10.1 Asset Purchase Agreement dated as of April 3, 2000 by and among Heads
& Threads International LLC, Acktion Corporation and Reynolds
Fasteners, Inc. (the "Heads & Threads Asset Purchase Agreement").
10.2 List of Contents of Schedules to the Heads & Threads Asset Purchase
Agreement. The Company agrees to furnish supplementally a copy of
any omitted schedule to the Securities and Exchange Commission upon
request.
10.3 Credit Agreement dated as of April 3, 2000 among Heads & Threads
International LLC, various lending institutions, and American
National Bank and Trust Company of Chicago, as Agent (the "Heads &
Threads Credit Agreement).
10.4 List of Contents of Schedules and Exhibits to the Heads & Threads
Credit Agreement. The Company agrees to furnish supplementally a
copy of any omitted schedule or exhibit to the Securities and
Exchange Commission upon request.
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated January 3, 2000 to report
in Item 5 that on December 30, 1999, the Company entered into a Stock Purchase
Agreement with Swiss Re America Holding Corporation, pursuant to which the
Company would sell Underwriters Re Group to Swiss Re America Holding
Corporation.
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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: May 5, 2000 /s/ David B. Cuming
-------------------
David B. Cuming
Senior Vice President
(and principal financial officer)
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