-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N0E4ZssRxhj24uJCQeeNzGpZGd/mlqrkhti7tImZAVt9ivWyr+uAUxjzKO9Kq/+d HvkHYLUXuRDWkar4ISOc2A== 0000906416-96-000009.txt : 19960510 0000906416-96-000009.hdr.sgml : 19960510 ACCESSION NUMBER: 0000906416-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960509 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEGHANY CORP /DE CENTRAL INDEX KEY: 0000775368 STANDARD INDUSTRIAL CLASSIFICATION: TITLE INSURANCE [6361] IRS NUMBER: 510283071 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09371 FILM NUMBER: 96558326 BUSINESS ADDRESS: STREET 1: PARK AVE PLZ CITY: NEW YORK STATE: NY ZIP: 10055 BUSINESS PHONE: 2127521356 MAIL ADDRESS: STREET 1: PARK AVENUE PLAZA CITY: NEW YORK STATE: NY ZIP: 10055 FORMER COMPANY: FORMER CONFORMED NAME: ALLEGHANY FINANCIAL CORP DATE OF NAME CHANGE: 19870115 10-Q 1 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, 1996 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 SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS: 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: 7,198,660 --------- (AS OF MARCH 31, 1996) -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (dollars in thousands, except share and per share amounts) (unaudited) 1996 1995 --------- --------- REVENUES Title premiums, escrow and trust fees $291,122 $243,948 Net reinsurance premiums earned 82,976 68,777 Interest, dividend and other income 45,997 45,355 Net mineral and filtration sales 47,582 41,279 Net gain (loss) on investment transactions 416 (2,307) --------- --------- Total revenues 468,093 397,052 --------- --------- COSTS AND EXPENSES Salaries, commissions and other employee benefits 129,139 208,354 Administrative, selling and other operating expenses 200,030 82,884 Provisions for title losses and other claims 14,014 19,449 Property and casualty losses and loss adjustment expenses 58,518 49,480 Cost of mineral and filtration sales 31,449 27,809 Interest expense 6,170 6,776 Corporate administration 4,069 2,581 --------- --------- Total costs and expenses 443,389 397,333 --------- --------- Earnings (loss) from continuing operations, before income taxes 24,704 (281) Income taxes 7,893 (1,074) --------- --------- Net earnings from continuing operations 16,811 793 --------- --------- -3- Discontinued operations Earnings from discontinued operations, net of tax 0 0 --------- --------- Net earnings $16,811 $793 ========= ========= EARNINGS PER SHARE OF COMMON STOCK Operations $2.33 $0.11 Discontinued operations 0.00 0.00 --------- --------- Total earnings per share $2.33 $0.11 ========= ========= DIVIDENDS PER SHARE OF COMMON STOCK * * ========= ========= AVERAGE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK** 7,217,086 7,045,662 ========= =========
[FN] * In March 1996 and 1995, 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 and 1995. -4- ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 1996 AND DECEMBER 31, 1995 (dollars in thousands, except share and per share amounts) March 31, 1996 December 31, (Unaudited) 1995 ----------- ------------ ASSETS Investments: Fixed maturities - available for sale: U.S. Government, government agency and municipal obligations (amortized cost $1,020,356) $1,023,878 $1,037,312 Certificates of deposit and commercial paper (amortized cost 135,442) 135,442 90,902 Bonds, notes and other (amortized cost 739,024) 484,189 571,568 Equity securities (cost 311,234) 674,046 637,956 ---------- ---------- 2,317,555 2,337,738 Cash 234,453 178,068 Notes receivable 91,536 91,536 Funds held, accounts and other receivables 310,054 301,290 Title records and indexes 151,549 155,170 Property and equipment - at cost, less accumulated depreciation and amortization 275,789 272,289 Reinsurance receivable 397,650 399,783 Other assets 395,671 386,640 ---------- ---------- $4,174,257 $4,122,514 ========== ========== -5- LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Title losses and other claims $519,410 $530,986 Property and casualty losses and loss adjustment expenses 1,035,974 1,014,000 Other liabilities 512,484 538,750 Long-term debt of parent company 23,000 0 Long-term debt of subsidiaries 318,602 331,689 Net deferred tax liability 31,102 21,659 Trust and escrow deposits secured by pledged assets 397,163 364,787 ---------- ---------- Total liabilities 2,837,735 2,801,871 Common stockholders' equity 1,336,522 1,320,643 ---------- ---------- $4,174,257 $4,122,514 ========== ========== SHARES OF COMMON STOCK OUTSTANDING 7,198,660 7,237,559 * ========== ========== COMMON STOCKHOLDERS' EQUITY PER SHARE $185.66 $182.47 * ========== ==========
[FN] * Adjusted to reflect the common stock dividend declared in March 1996. -6- ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (dollars in thousands) (unaudited) 1996 1995 --------- --------- Cash flows from operating activities Earnings from continuing operations $16,811 $793 Adjustments to reconcile earnings from continuing operations to cash provided by continuing operations: Depreciation and amortization 12,548 10,549 Net loss (gain) on investment transactions (1,028) 2,307 Other charges to continuing operations, net 729 (720) Increase in funds held, accounts and other receivables (8,764) (45,723) Decrease (increase) in reinsurance receivable 2,133 (5,407) (Decrease) increase in title losses and other claims (11,576) (6,681) Increase in property and casualty loss and loss adjustment expenses 21,974 30,460 Decrease (increase) in other assets (13,182) 6,609 Decrease in other liabilities (20,695) (15,528) Increase (decrease) in trust and escrow deposits 32,376 (33,967) -------- -------- Net adjustments 14,515 (58,101) -------- -------- Cash used in continuing operations 31,326 (57,308) -------- -------- Cash provided by discontinued operations 0 0 -------- -------- Cash used in operations 31,326 (57,308) -------- -------- -7- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investments (139,914) (155,552) Maturities of investments 115,671 133,465 Sales of investments 55,430 98,170 Purchases of property and equipment (11,775) (5,904) Disposition of property and equipment 1,151 3,080 Net sales of title records and indexes 3,621 (102) -------- -------- Net cash provided by investing activities 24,184 73,157 -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on long-term debt (62,266) (11,022) Proceeds of long-term debt 73,000 55,000 Purchase of treasury shares (11,884) (778) Common stock distributions 2,025 2,224 -------- -------- Net cash provided by (used in) financing activities 875 45,424 -------- -------- Net increase in cash 56,385 61,273 Cash at beginning of period 178,068 107,942 -------- -------- Cash at end of period $234,453 $169,215 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $6,200 $5,372 Income taxes $21,242 $2,151
-8- 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, 1995 (the "1995 Form 10-K Report") 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 ------------- 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, 1996. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS. ----------------------------------- The Company reported net earnings of $16.8 million on revenues of $468.1 million in the 1996 first quarter, compared with $0.8 million on revenues of $397.1 million in the 1995 first quarter. Chicago Title and Trust Company ("CT&T") contributed pre-tax earnings of $14.8 million on revenues of $306.5 million, compared with a pre-tax loss of $12 million on revenues of $258.3 million in the 1995 first quarter. Although the first quarter is characteristically a slow period for the title industry, CT&T's title operations in the first quarter of 1996 reflected active real estate markets, including an increase in home mortgage refinancings, as well as the benefits of expense reduction efforts undertaken in 1995. In -9- contrast, results for the first quarter of 1995 showed a dramatic decline in title revenues from prior quarters reflecting severely depressed markets and CT&T's inability to reduce its expenses in line with the drop-off in revenue. CT&T's 1996 first quarter results 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. In addition CT&T's 1996 first quarter included pre-tax earnings of $8.0 million in respect of a reduction in title claims reserves resulting from a reexamination of such reserves. CT&T's flood certification and credit reporting businesses (acquired in May and August 1995, respectively) contributed pre-tax earnings of $1.2 million in the 1996 first quarter. CT&T's Financial Services Group contributed pre-tax operating income to CT&T of about $2.8 million in the 1996 first quarter, an increase of about 25.3 percent over the 1995 first quarter contribution of $2.2 million. As of March 31, 1996, the Financial Services Group managed $11.1 billion in assets. Underwriters Reinsurance Company ("Underwriters") contributed pre-tax earnings of $6.9 million on revenues of $96.7 million in the first quarter of 1996, compared with pre-tax earnings of $6.6 million on revenues of $77.7 million in the first quarter of 1995. Net earned premiums for the 1996 quarter were $83.0 million, compared with $68.8 million in the prior year's quarter, reflecting increased business. Commissions and brokerage expenses also increased in 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 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 $2.3 million incurred in connection with Underwriters' investment portfolio restructuring. World Minerals Inc. ("World Minerals") contributed pre-tax earnings of $4.6 million in the first quarter of 1996 on revenues of $47.6 million, compared with $5.1 million on revenues of $41.8 million in the first quarter of 1995. The increase in revenues primarily reflects results of strategic acquisitions since the 1995 first quarter. Pre-tax earnings declined due to increased debt and related interest expense for strategic acquisitions and joint ventures, start-up costs related to World -10- Minerals' Chinese joint ventures and lower foreign exchange gains in the 1996 quarter compared with the year earlier quarter. As of March 31, 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, which had an aggregate market value on that date of approximately $613.1 million, or $82.50 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 1996 are not necessarily 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. ------------------ The federal tax returns of the Company and its consolidated subsidiaries for the tax years 1991 and 1992 are being audited by the Internal Revenue Service ("IRS"). By letter dated December 27, 1995, the IRS proposed adjustments to the Company's federal income tax liability for the 1988, 1991 and 1992 tax years totalling about $6.7 million. The status of such proposed adjustments was last reported in Item 3 of Part I of the Company's 1995 Form 10-K Report. On March 29, 1996, the Company filed a protest relating to most of the adjustments proposed by the IRS, and requested a conference with the IRS Appeals Office. As previously reported, the IRS proposed, among other things, to disallow about $3.3 million of bad debt deductions claimed by Ticor Title and its subsidiaries (the "Ticor Group") after CT&T's acquisition of the Ticor Group in 1991. The IRS has taken the position that the Ticor Group failed to demonstrate that the receivables giving rise to the bad debts were not worthless earlier than the period in which the bad debt deductions were claimed. In its protest, the Company contested the methodology and legal analysis of the IRS with respect to about $2.3 million of such proposed adjustments. To the extent that any adjustment in respect of these bad debt deductions is made, the pre-acquisition net operating loss -11- carryforward of the Ticor Group should be increased by an amount which corresponds to the reduction in such bad debt deductions. In addition, the IRS proposed adjustments increasing taxable income for the 1991 and 1992 tax years by a total of about $7.1 million in connection with the assets acquired by the Company and subsequently contributed to Celite Corporation upon its formation. The proposed adjustments are based on (i) a higher valuation of the ore reserves in Lompoc, California and No Agua, New Mexico than the valuation used by the Company, which was based on an initial appraisal obtained at the time of the Company's purchase of these assets, and (ii) a longer amortization period for certain computer software. With respect to the valuation of the ore reserves, the Company submitted with its protest the results of a new independent appraisal of the ore reserves, which supported the Company's initial appraisal and which identified certain flaws in the IRS appraisal. With respect to the computer software, the IRS asserted that a portion of such software was not available for purchase by the general public and was therefore subject to a longer amortization period than that claimed by the Company. The Company submitted with its protest information received from the vendors of certain of such software which supported the Company's position, and asserted in its protest that other portions of this proposed adjustment were not adequately supported by the IRS. -12- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------- (a) Exhibits. --------- Exhibit Number Description -------- ----------- 10.1 Amendments to the Alleghany Corporation Retirement Plan, effective as of January 1, 1996. 27 Financial Data Schedule (b) Reports on Form 8-K. -------------------- No reports on Form 8-K were filed during the first quarter of 1996. -13- 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 9, 1996 /s/ David B. Cuming ----------------------- David B. Cuming Senior Vice President (and principal financial officer) -14- Exhibit Index ------------- Exhibit Number Description -------- ----------- 10.1 Amendments to the Alleghany Corporation Retirement Plan, effective as of January 1, 1996. 27 Financial Data Schedule -15- EX-10 2 EXHIBIT 10.1 ------------ Amendments to the Alleghany Corporation Retirement Plan ------------------------------------- The Alleghany Corporation Retirement Plan (hereinafter referred to as the "Plan"), is amended effective January 1, 1996, as follows: 1. Article I of the Plan is amended by deleting from Section 1.02 ", Late or Disability" and inserting in its place "or Late". 2. Article I of the Plan is amended by the addition of a new paragraph to the end of Section 1.09, to read in its entirety as follows: An Employee who becomes Totally Disabled shall be considered as earning Compensation for the period he is Totally Disabled equal to his annual rate of base salary on the date he first became Totally Disabled. Such rate of base salary shall be adjusted on the first day of each Plan Year thereafter on which the Participant remains Totally Disabled to take into account the percentage increase, if any, in the CPIU over the applicable period. The "CPIU" means the U.S. City Average All Items Consumer Price Index for all Urban Consumers, published by the U.S. Department of Labor, Bureau of Labor Statistics, or any successor index designated by the Department of Labor. 3. Article I of the Plan is amended by deleting Section 1.11 in its entirety and by renumbering Sections 1.12 through 1.34 to reflect the deletion of Section 1.11. 4. Article I of the Plan is amended by the addition of a new sentence to the end of Section 1.13 (formally Section 1.14 prior to the amendment described in Number 3 above), to read in its entirety as follows: An Employee who becomes Totally Disabled shall not be considered to have terminated employment with the Company for the period he is Totally Disabled. 5. Article I of the Plan is amended by the addition of a new paragraph (c) to the end of Section 1.20, to read in its entirety as follows: (c) An Employee who becomes Totally Disabled shall be credited with Hours of Service for the period during which he is Totally Disabled, without regard to the maximum number of hours requirement set forth under the Department of Labor Regulations codified at 29 C.F.R. Section 2530.200b-2(a)(2)(i). 6. Article I of the Plan is amended by revising Section 1.34, to read in its entirety as follows: 1.34 "Totally Disabled" means a physical ---------------- and/or mental incapacity of such condition that it qualifies an individual (after the waiting period required thereunder) for benefits under the Alleghany Corporation Group Long-Term Disability Plan, as in effect from time to time. 7. Article V of the Plan is amended by deleting Sections 5.04 and 5.05 in their entirety and by renumbering Sections 5.06 through 5.08 to reflect the deletion of Sections 5.04 and 5.05. 8. Article V of the Plan is amended by deleting from Section 5.04 (formally Section 5.06 prior to the amendment described in Number 7 above) ", Late or Disability" and inserting in its place "or Late". -2- 9. Article VI of the Plan is amended by deleting "5.06" from every Section in which it appears and by inserting in its place "5.04". 10. Article VI of the Plan is amended by deleting from Section 6.12 ", Disability". -3- EX-27 3
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET FOR THE QUARTER ENDING MARCH 31, 1996 AND THE CONSOLIDATED STATEMENT OF EARNING FOR THE 3 MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1,643,508 0 0 674,047 0 0 2,317,555 234,453 397,650 0 4,174,257 1,555,384 0 0 0 341,602 0 0 0 1,336,522 4,174,257 374,098 45,997 416 47,582 72,532 0 0 24,704 7,893 16,811 0 0 0 16,811 2.33 2.33 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----