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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, 2001
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
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:
7,263,018
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(AS OF MARCH 31, 2001)
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ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
(dollars in thousands, except share and per share amounts)
(unaudited)
2001 2000***
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REVENUES
Net property and casualty premiums earned $ 76,447 $ 155,089
Interest, dividend and other income 55,413 54,356
Net mineral and filtration sales 50,158 49,106
Gain on sale of subsidiary 775,823 0
Net gain on investment transactions 1,065 394
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Total revenues 958,906 258,945
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COSTS AND EXPENSES
Commissions and brokerage expenses 20,599 44,136
Salaries, administrative and other operating expenses 53,173 54,011
Property and casualty losses and loss adjustment expenses 63,670 166,004
Cost of mineral and filtration sales 38,913 34,658
Interest expense 4,014 7,699
Corporate administration 23,731 5,571
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Total costs and expenses 204,100 312,079
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Earnings (loss) from continuing operations, before income taxes 754,806 (53,134)
Income taxes 294,331 (19,802)
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Earnings (loss) from continuing operations 460,475 (33,332)
DISCONTINUED OPERATIONS
(Loss) earnings from discontinued operations, net of tax (5,066) 8,626
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Net earnings (loss) $ 455,409 ($24,706)
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BASIC EARNINGS PER SHARE OF COMMON STOCK **
Continuing operations $ 63.69 ($4.39)
Discontinued operations (0.70) 1.14
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Basic net earnings per share $ 62.99 ($3.25)
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DILUTED EARNINGS PER SHARE OF COMMON STOCK **
Continuing operations $ 62.75 ($4.39)
Discontinued operations (0.69) 1.14
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Diluted net earnings per share $ 62.06 ($3.25)
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Dividends per share of common stock * *
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Average number of outstanding shares of common stock ** 7,229,979 7,593,392
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* In March 2001, 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 2001.
*** Amounts have been restated to reflect the elimination of the one-quarter lag
in the reporting of Alleghany Underwriting's results.
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ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2001 AND DECEMBER 31, 2000
(dollars in thousands, except share and per share amounts)
(Unaudited)
March 31, December 31,
2001 2000
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ASSETS
Available for sale securities: 3/31/01 12/31/00
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Fixed maturities (amortized cost $ 10,781 $ 8,882) $ 10,781 $ 8,882
Equity securities ( cost $247,053 $222,101) 612,020 535,377
Short-term investments 1,046,981 342,341
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1,669,782 886,600
Cash 8,824 10,247
Premium trust funds 431,233 312,610
Notes receivable 92,155 92,156
Funds held, accounts and other receivables 219,204 190,221
Property and equipment - at cost, less accumulated depreciation and amortization 162,605 165,819
Reinsurance receivable 524,639 462,387
Other assets 546,707 525,791
Net assets of discontinued operations 0 61,785
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$3,655,149 $2,707,616
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LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Property and casualty losses and loss adjustment expenses $ 918,768 $ 855,905
Unearned premiums 257,017 217,754
Other liabilities 511,222 188,458
Long-term debt of subsidiaries 232,153 228,343
Net deferred tax liability 72,841 52,082
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Total liabilities 1,992,001 1,542,542
Common stockholders' equity 1,663,148 1,165,074
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$3,655,149 $2,707,616
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Shares of common stock outstanding * 7,263,018 7,211,820
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Common stockholders' equity per share * $ 228.99 $ 161.55
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* Adjusted to reflect the common stock dividend declared in March 2001.
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ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2000
(dollars in thousands)
(unaudited)
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings from continuing operations $ 460,475 ($33,332)
Adjustments to reconcile net earnings to cash provided by (used in) operations:
Depreciation and amortization 3,979 5,322
Net gain on investment transactions (475,871) (475)
Tax benefit on stock options exercised 622 141
Other charges, net 2,217 (27,240)
Increase in funds held, accounts and other receivables (28,983) (129,871)
Increase in reinsurance receivable (62,252) (113,002)
Increase in property and casualty losses and loss adjustment expenses 62,863 199,362
Increase in unearned premium reserves 39,263 70,996
Increase in premium trust funds (118,623) (45,590)
Increase in other assets (20,916) (46,624)
Increase in other liabilities 322,764 129,553
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Net adjustments (274,937) 42,572
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Cash provided by operations 185,538 9,240
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (71,410) (61,956)
Maturities of investments 0 15,585
Sales of investments 45,823 30,397
Purchases of property and equipment (2,279) (2,148)
Net change in short-term investments (704,640) 16,862
Other, net (2,289) 3,306
Proceeds from sale of AAM, net of cash disposed 531,477 0
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Net cash (used in) provided by investing activities (203,318) 2,046
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CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (100,946) (8,000)
Proceeds of long-term debt 106,847 4,841
Treasury stock acquisitions (316) (11,958)
Net cash provided by discontinued operations 0 9,000
Other, net 10,772 718
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Net cash provided (used in) by financing activities 16,357 (5,399)
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Net (decrease) increase in cash (1,423) 5,887
Cash at beginning of period 10,247 25,001
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Cash at end of period $ 8,824 $ 30,888
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 4,161 $ 3,948
Income taxes $ 938 $ 389
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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, 2000 (the "2000 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, 2001 and 2000 was $488,959 thousand and $(41,392) thousand, respectively.
Comprehensive loss includes the Company's net earnings adjusted for changes in
unrealized appreciation (depreciation) of investments, which was $35.5 million
and $(16.4) million, and cumulative translation adjustments, which was $(2.0)
million and $(239) thousand, for the three months ended March 31, 2001 and 2000,
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
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March 31, March 31,
2001 2000
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REVENUES
Property and casualty insurance* $ 83,103 $179,591
Mining and filtration 50,057 48,795
Industrial fasteners 33,763 23,576
Corporate activities 791,983 6,983
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Total $958,906 $258,945
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EARNINGS (LOSS) FROM
CONTINUING OPERATIONS
Property and casualty insurance* $ (8,254) $(58,924)
Mining and filtration 1,079 3,867
Industrial fasteners (3,888) 2,782
Corporate activities 765,869 (859)
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Total 754,806 (53,134)
Income tax expense (benefit) 294,331 (19,802)
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Earnings (loss) from
continuing operations $460,475 $(33,332)
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March 31, December 31,
2001 2000
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IDENTIFIABLE ASSETS
Asset management $ - $ 61,785
Property and casualty insurance 1,854,508 1,193,459
Mining and filtration 305,537 301,390
Industrial fasteners 114,094 117,639
Corporate activities 1,381,010 1,033,343
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Total $3,655,149 $2,707,616
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* Includes the operations of Underwriters Re Group until its sale to Swiss Re
America Holding Corporation on May 10, 2000.
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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, 2001.
ITEM 2. MANAGEMENT"S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The Company reported net earnings from continuing operations in the
first quarter of 2001 of $460.5 million on revenues of $958.9 million, compared
with net losses of $33.3 million on revenues of $258.9 million in the first
quarter of 2000. The 2001 results include the gain on the disposition of
Alleghany Asset Management, which merged into a wholly owned subsidiary of ABN
AMRO North America Holding Company on February 1, 2001. Alleghany received cash
proceeds of $825 million and recorded an after-tax gain of about $474.8 million,
excluding certain expenses relating to the closing of the transaction. The tax
on the gain is approximately $300 million, which is included in other
liabilities on the Company's March 31, 2001 balance sheet.
Net earnings including discontinued operations were $455.4 million in
the first quarter of 2001, compared with net losses of $24.7 million in the 2000
period. Discontinued operations consist of the operations of Alleghany Asset
Management prior to its disposition.
Excluding the gain on the disposition of Alleghany Asset Management,
net losses from continuing operations were $14.3 million in the 2001 first
quarter, compared with net losses of $33.3 million in the 2000 first quarter.
World Minerals Inc. ("World Minerals") recorded pre-tax earnings of
$1.1 million in the 2001 first quarter, compared with pre-tax earnings of $3.9
million in the 2000 first quarter. North American energy costs, particularly in
California, rose by an estimated 81 percent, or $3.0 million, compared with the
first quarter of 2000 and were primarily responsible for the decline in
earnings. In addition, interruptions in the supply of electricity at World
Minerals' Lompoc, California plant contributed to production delays and a
reduction in product shipped from that location. To mitigate the impact of high
energy costs and unreliable electric service in California, World Minerals has
switched from natural gas to oil at the Lompoc plant and, where possible,
shifted production to other locations. World Minerals expects the electricity
shortages and high energy costs to continue until the California energy crisis
is resolved, which may take several years.
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Alleghany Underwriting Holdings Ltd. ("Alleghany Underwriting")
recorded pre-tax losses of $8.3 million on revenues of $83.1 million in the 2001
first quarter, compared with pre-tax losses of $47.4 million on revenues of
$60.5 million in the corresponding 2000 period. The 2001 results reflect $8.4
million of pre-tax losses net of reinsurance relating to the Petrobras oil rig
explosion off the coast of Brazil earlier in the year. The first quarter 2000
loss reflects strengthening of Alleghany Underwriting's loss reserves in the
amount of $44.0 million pre-tax for the 1998, 1999 and 2000 years of account
following the completion of a reserve study. The results of Alleghany
Underwriting were reported on a one-quarter lag for a transitional period. The
lag was eliminated in the Company's results for the year ended December 31,
2000, and the Company's results for the first quarter of 2000 have been restated
to reflect such elimination.
Heads & Threads International LLC ("Heads & Threads") recorded pre-tax
losses of $3.9 million on revenues of $33.8 million in the 2001 first quarter,
compared with pre-tax earnings of $2.8 million on revenues of $23.6 million in
the 2000 first quarter, reflecting a material slowdown in the markets for its
products and costs of assimilating the acquisitions made in 2000. Revenues
increased in the first quarter of 2001, compared with the first quarter of 2000
due to the acquisitions made in 2000. The 2000 first quarter results include the
gain on the sale of a warehouse property.
Excluding the gain on the disposition of Alleghany Asset Management,
net gains on investment transactions from continuing operations after taxes in
the first quarter of 2001 totalled $0.7 million, compared with $0.3 million in
the 2000 period.
As of March 31, 2001, the Company beneficially owned approximately
17.95 million shares, or 4.6 percent, of the outstanding common stock of
Burlington Northern Santa Fe Corporation, which had an aggregate market value on
that date of approximately $545.3 million, or $30.38 per share, compared with a
market value on December 31, 2000 of $508.2 million, or $28.3125 per share. The
aggregate cost of such shares is approximately $201.3 million, or $11.21 per
share.
The Company has previously announced that it may purchase shares of its
common stock in open market transactions from time to time. In the first quarter
of 2001, the Company purchased an aggregate of 1,577 shares of its common stock
for about $0.3 million, for an average cost of about $200.47 per share. As of
March 31, 2001, the Company had 7,263,018 shares of its common stock
outstanding.
The Company's common stockholders' equity per share at March 31, 2001
was $228.99 per share, a 42 percent increase from common stockholders' equity
per share of $161.55 as of December 31, 2000 (adjusted for the March 2001 stock
dividend), primarily reflecting the gain on the disposition of Alleghany Asset
Management.
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The Company's results in the first three months of 2001 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.
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 2000 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, 2001, no material change has occurred in its market risks, as compared
to amounts disclosed in its 2000 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, 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 and disposition activities; 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
10.1 Third Amendment dated as of March
19, 2001 to 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).
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K dated February 16, 2001 to
report in Item 2 that on February 1, 2001, the Company completed the merger of
Alleghany Asset Management with a wholly owned subsidiary of ABN Amro North
America Holding Company, and to provide in Item 7 pro forma financial
information of the Company, which gives effect to the disposition of Alleghany
Asset Management.
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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 14, 2001 /s/ David B. Cuming
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David B. Cuming
Senior Vice President
(and principal financial officer)
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