SECURITIES AND EXCHANGE COMMISSION
OF THE SECURITIES EXCHANGE ACT OF 1934
FORM 10 - Q
[X]Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1994 or
[ ]Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-4625
OLD REPUBLIC INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware No. 36-2678171
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
307 North Michigan Avenue, Chicago, Illinois 60601
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 312-346-8100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 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 classes of
common stock, as of the close of the period covered by this report.
Shares Outstanding
Class March 31, 1994
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Common Stock / $1 par value 51,881,203 *
*Excludes 4,439,267 common shares issued, outstanding and held by an affiliate,
which are classified as treasury stock for financial accounting purposes only.
There are 11 pages contained in this report.
OLD REPUBLIC INTERNATIONAL CORPORATION
Report on Form 10-Q / March 31, 1994
INDEX
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PAGE NO.
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PART I FINANCIAL INFORMATION:
CONSOLIDATED SUMMARY BALANCE SHEETS 3
CONSOLIDATED SUMMARY STATEMENTS OF INCOME 4
CONSOLIDATED SUMMARY STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS 6
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS 7 & 8
PART II OTHER INFORMATION 9 - 11
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY BALANCE SHEETS (Unaudited)
($ in Millions)
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<CAPTION>
March 31, December 31,
1994 1993
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<S> <C> <C>
Assets
Investments: Held to maturity:
Fixed maturity securities (at amortized cost) (Fair value: $2,525.1
and $2,599.3) $2,547.3 $2,509.8
Other long-term investments 19.1 19.8
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Total 2,566.4 2,529.6
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Available for sale:
Fixed maturity securities (at fair value) (Cost: $604.0 and $616.5) 605.8 642.4
Equity securities (at fair value) (Cost: $202.6 and $180.5) 198.8 191.9
Short-term investments 252.6 254.3
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Total 1,057.2 1,088.7
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Total investments 3,623.7 3,618.4
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Other Assets:Cash 43.6 43.9
Accrued investment income 65.0 60.6
Accounts and notes receivable 284.9 288.3
Federal income tax recoverable - deferred 97.1 83.2
Reinsurance balances and funds held 173.1 165.8
Reinsurance recoverable:
Paid losses 25.4 20.2
Policy and claim reserves 1,504.7 1,524.2
Deferred policy acquisition costs 95.9 95.5
Sundry assets 195.7 197.7
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2,485.7 2,479.8
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Total assets $6,109.5 $6,098.3
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Liabilities, Preferred Stock and
Common Shareholders' Equity
Liabilities: Future policy benefits $188.1 $190.1
Losses, claims and settlement expenses 3,433.0 3,405.6
Unearned premiums 399.2 419.2
Other policyholders' benefits and funds 80.5 82.9
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Insurance reserves 4,100.9 4,097.9
Commissions, expenses, fees and taxes 94.5 105.8
Reinsurance balances and funds 181.6 169.5
Federal income tax payable - current 11.1 14.8
Debt and debt equivalents 293.5 282.7
Sundry liabilities 93.8 92.4
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Total liabilities 4,775.6 4,763.3
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Preferred Redeemable convertible preferred stock 16.3 16.6
Stock: Convertible preferred stock 3.7 3.9
Cumulative preferred stock 57.5 57.5
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Total preferred stock 77.6 78.0
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Common Common stock 57.5 57.5
Shareholders'Additional paid-in capital 455.7 455.2
Equity: Net unrealized appreciation of securities --- 25.2
Retained earnings 774.3 750.2
Treasury stock (31.3) (31.3)
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Total common shareholders' equity 1,256.2 1,256.9
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Total liabilities, preferred stock
and common shareholders' equity $6,109.5 $6,098.3
============ ============
See accompanying notes.
</TABLE>
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED SUMMARY STATEMENTS OF INCOME (Unaudited)
($ in Millions, Except Common Share Data)
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<CAPTION>
Quarters Ended
March 31,
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1994 1993
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<S> <C> <C>
Revenues: Net premiums earned $331.4 $299.4
Title, escrow and other fees 43.8 35.2
Net investment income 55.1 54.2
Realized investment gains 3.2 9.5
Other income 4.3 4.5
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Net revenues 438.0 403.1
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Expenses: Benefits, claims and settlement expenses 203.1 203.9
Underwriting, acquisition and insurance expe 178.8 148.5
Interest and other expenses 5.6 6.0
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Total expenses 387.7 358.5
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Income before income taxes and items below 50.3 44.5
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Income Taxes: Currently payable 14.8 12.2
Deferred 1.4 1.0
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Total income taxes 16.2 13.3
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34.0 31.2
Other items - net --- 0.1
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Income before cumulative effect
of accounting changes 34.0 31.4
Cumulative effect of accounting changes --- 8.6
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Net Income: $34.0 $40.1
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Earnings and Primary Earnings:
Dividends Per Before cumulative effect of accounting ch $0.57 $0.53
Common Share: Cumulative effect of accounting changes --- 0.15
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Net income $0.57 $0.68
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Fully Diluted Earnings:
Before cumulative effect of accounting ch $0.55 $0.51
Cumulative effect of accounting changes --- 0.14
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Net income $0.55 $0.65
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Cash dividends $0.11 $0.10
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Average number of common and common
equivalent shares outstanding:
Primary 57,264,289 57,121,667
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Fully Diluted 61,693,146 61,601,784
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See accompanying notes.
</TABLE>
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in Millions)
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<CAPTION>
Quarters Ended
March 31,
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1994 1993
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<S> <C> <C>
Cash flows from operating activities:
Net income $34.0 $40.1
Change in non-cash items:
Deferred policy acquisition costs (0.3) (0.2)
Premiums and other receivables 5.1 9.2
Unpaid claims and related items 40.2 23.2
Future policy benefits and policyholders' funds (14.6) (7.6)
Income taxes (4.0) (2.8)
Reinsurance balances and funds (0.2) (1.4)
Accounts payable, accrued expenses and other (10.7) (13.7)
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Total 49.4 46.6
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Cash flows from investing activities:
Sales of fixed maturity securities 86.1 136.6
Sales of equity securities 2.9 7.5
Sales of other investments 0.9 0.8
Sales of fixed assets for company use 0.2 0.1
Purchases of fixed maturity securities (115.8) (154.5)
Purchases of equity securities (25.1) (45.2)
Purchases of other investments (0.3) (1.3)
Purchases of fixed assets for company use (3.1) (1.3)
Other-net (0.3) 6.1
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Total (54.6) (51.1)
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Cash flows from financing activities:
Increase in term loans 11.0 ---
Issuance of preferred and common stocks 0.3 0.6
Issuance of debentures and notes --- ---
Repayments of term loans --- ---
Dividends on common shares (5.7) (4.6)
Dividends on preferred shares (2.0) (2.1)
Other-net (0.5) 0.1
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Total 3.0 (6.0)
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Increase (decrease) in cash and short-term investments (2.0) (10.4)
Cash and short-term investments, beginning of year 298.3 280.7
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Cash and short-term investments, end of period $296.2 $270.3
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $3.7 $3.5
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Income taxes $18.5 $10.7
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See accompanying notes.
</TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED SUMMARY FINANCIAL STATEMENTS (Unaudited)
($ in Millions, Except Share Data)
1. Accounting Policies and Basis of Presentation:
The accompanying consolidated summary financial statements have been prepared
in conformity with generally accepted accounting principles as described in
the Corporation's latest annual report to shareholders or as disclosed herein.
The financial accounting and reporting process relies on estimates and on the
exercise of judgement, but in the opinion of management all adjustments,
consisting of normal recurring accruals, necessary to a fair presentation of
the accompanying statements have been reflected therein. Realized gains or
losses on dispositions of investment securities have been reflected in the
operating results for each period presented.
2. Common Share Data:
Earnings per share have been calculated on the basis of average common and
common equivalent shares outstanding for the quarters ended March 31, 1994 and
1993. Retroactive adjustment has been made for all stock dividends and splits
declared through March 31, 1994. Primary earnings per share calculations give
effect to the deduction of dividend requirements applicable to preferred stock
of $1.2 and $1.4 for the quarters ended March 31, 1994 and 1993, respectively.
Fully diluted earnings per share are similarly calculated, after taking into
account substantially all convertible securities and options includable for
each period.
Common shares outstanding were 51,881,203 at March 31, 1994 after elimination
of 4,439,267 shares issued and outstanding, which are held by a consolidated
affiliate. These shares are classified as treasury stock for financial
accounting purposes only.
3. Unrealized Appreciation of Investments:
Cumulative net unrealized losses on investments (fixed maturity securities
available for sale and equity securities) debited to a separate account in
common shareholders' equity amounted to $40.7 thousand at March 31, 1994.
Unrealized depreciation of investments, before applicable income tax credits
of $0.8, at March 31, 1994 included gross unrealized gains and (losses) of
$12.4 and $(13.2), respectively.
For the quarters ended March 31, 1994 and 1993, net unrealized appreciation
(depreciation) of investments, net of deferred income taxes, amounted to
$(25.3) and $25.3, respectively.
OLD REPUBLIC INTERNATIONAL CORPORATION
MANAGEMENT ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS
Quarters Ended March 31, 1994 and 1993
OVERVIEW
This analysis pertains to the consolidated accounts of Old Republic
International Corporation. The Company conducts its business through four major
segments, namely its General (property and liability coverages), Title, Mortgage
Guaranty, and Life insurance groups.
FINANCIAL POSITION
Old Republic's financial position at March 31, 1994 reflected increases in
assets of 0.2%, liabilities of 0.3%, and flat common shareholders' equity when
compared to the immediately preceding year-end. Cash and invested assets
represented 61.1% and 61.0% of consolidated assets as of March 31, 1994 and
December 31, 1993, respectively. Relatively high short-term maturity investment
positions continued to be maintained as of March 31, 1994 to provide necessary
liquidity for specific operating needs and to enhance flexibility in investment
strategy. Changes in short-term investments reflect a large variety of seasonal
and intermediate-term factors including seasonal operating cash needs,
investment strategy, and expectations as to trends in interest yields.
Accordingly, the future level of short-term investments will vary and respond to
the dynamics of these factors and may, as a result, increase or decrease from
current levels. During the first quarter of 1994, the Corporation committed
substantially all investable funds in short to intermediate-term fixed maturity
securities. Old Republic continues to adhere to its long-term policy of
investing primarily in investment grade, marketable securities; the Corporation
has not directed its investable funds to so-called "junk bonds." During the
first quarter of 1994 Old Republic increased its commitment to common stock
investments which reflected growth of 4% vis-a-vis the related invested balance
at year end 1993. As of March 31, 1994, the carrying value of fixed maturity
securities in default as to principal or interest was immaterial in relation to
consolidated assets or shareholders' equity.
Consolidated operations produced positive cash flows in this year's first
quarter. The parent holding company has met its liquidity and capital needs
principally through dividends paid by its subsidiaries. The insurance
subsidiaries' ability to pay cash dividends to the parent company is generally
restricted by law or subject to approval of the insurance regulatory authorities
of the states in which they are domiciled. Additionally, the terms of guarantees
by the Company of bank loans to the trustee of the Company's Employees Savings
and Stock Ownership Plan require the Company to maintain a minimum consolidated
tangible net worth and restrict the amount of debt the Company may incur, both
of which covenants are being met.
Old Republic's capitalization of $1.6 billion at March 31, 1994 consisted of
debt and debt equivalents of $293.5 million, redeemable convertible preferred
stock of $16.3 million (excluding $15.1 million of such stock classified as a
debt equivalent), convertible preferred stock of $3.7 million, cumulative
preferred stock of $57.5 million, and common shareholders' equity of $1.25
billion. The slight decrease in the common shareholders' equity account during
the first quarter ended March 31, 1994 reflects primarily the retention of earn-
ings in excess of dividends declared on outstanding preferred and common shares
and the net unrealized depreciation of securities.
RESULTS OF OPERATIONS
Revenues:
Net premiums and fees earned in the first quarter of 1994 amounted to $375.2
million and were 12.1% above the amount reported for the first quarter of 1993.
The Company's General Insurance Group posted premium revenues which increased
slightly due to varying levels of growth in certain parts of the Company's
business, but principally among liability coverages. Title Group premium and
fee revenues increased in the first quarter of 1994 when compared to the year
ago quarter; greater housing sales and resales in most markets were responsible
for the greater volume of business as title premium and fee revenues from
mortgage loan refinancings declined during the period. Continued growth in the
Mortgage Guaranty Group's premium production was affected by the factors cited
for title insurance as well as further expansion of this group's marketing
territory and increased share of the market.
Consolidated net investment income was $55.1 million in the first quarter of
1994 compared to $54.2 million in the same quarter of 1993. The slightly higher
revenue from this source is attributable to positive cash flow offset in part by
the decline in market yields for fixed-maturity securities and a greater
commitment to tax-exempt fixed maturity securities and common stock investments
that typically produce lower current yields. Equities made up about 5.4% of the
investment portfolio at the end of the first quarter of 1994 compared to 5.0%
one year ago. The average annual yield on investments was 6.1% and 6.6% for the
quarters ended March 31, 1994 and 1993, respectively.
While the Company's investment policies have not been designed to maximize
capital gains, in the first quarter of 1994 such gains were lower than those for
the comparable period in 1993. Dispositions of securities have, as in recent
periods, been caused principally by: (1) calls prior to maturity by issuers, (2)
a desire to extend moderately the average life of the portfolio, and (3) the
Company's ongoing process of monitoring its investments with a view toward
maximizing the quality of its portfolio. For the first quarter of 1994,
approximately 68% of total dispositions represented maturities and early calls
of existing holdings; for the year 1993 these transactions amounted to
approximately 58%.
Expenses:
Consolidated benefit, claim and settlement costs, as a percentage of net
premiums and fees earned, were approximately 54% and 61% in the first quarters
of 1994 and 1993, respectively. Claims for property and liability coverages were
slightly lower in 1994 due to reduced severity and frequency. Mortgage Guaranty
coverages benefited from continued reductions in claim costs due to lower loan
default experience, while Title and Life segments benefited from generally lower
claim provisions.
The ratio of consolidated underwriting, acquisition and insurance expenses to
net premiums and fees earned was 48% and 44% in the first quarter of 1994 and
1993, respectively. The consolidated expense ratio was affected in part by
higher Mortgage Guaranty and Life Group production costs offset by slight
decreases in the General and Title Insurance Groups' expense factor in the first
quarter of 1994. Variations in these percentages between comparative periods
typically reflect changing patterns in the mix of business and the varying
production costs pertaining thereto.
Income from Operations:
Income before taxes, other items, and the cumulative effect of accounting
changes increased by 13.0% in the first quarter of 1994 when compared to the
same period one year ago. The Corporation's Mortgage Guaranty and Title
insurance segments reflected much higher pre-tax operating earnings for the
aforementioned reasons, while the General and Life segments reflected more
moderate increases in pre-tax earnings from operations.
The effective consolidated income tax rate was 32% and 30% in the first quarter
of 1994 and 1993, respectively. The rates for each period reflect primarily the
varying proportions of pre-tax operating income derived from tax-sheltered
investment income (principally tax-exempt interest) on the one hand, and fully
taxable investment and underwriting/service income on the other hand. In August
1993, the corporate federal income tax rate was increased from 34% to 35%
retroactive to January 1, 1993. The 1993 income tax rate increase was recorded
by the Company in its third quarter 1993 financial statements on a cumulative
basis as required in the circumstances. Accordingly, the effective income tax
expenses for the first half of 1993 and 1994 are not comparable.
OTHER INFORMATION
Historical data pertaining to the operating results, liquidity, and other
financial matters applicable to an insurance enterprise such as the company are
not necessarily indicative of expectations for future periods. The long-term
nature of the insurance business, seasonal and annual patterns in premium
production and incidence of claims, the random nature of the latter costs,
changes in market yields obtained on invested assets, and changes in government
policies affecting inflation rates and general economic conditions are some of
the factors which bear upon comparisons of quarter-to-quarter and year-to-year
operating results.
OLD REPUBLIC INTERNATIONAL CORPORATION
FORM 10 - Q
PART II - OTHER INFORMATION
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Item 6 - Exhibits and reports on Form 8-K
(a) Exhibits
1. Earnings per share.
(b) Reports on Form 8-K
1. The registrant has not filed any reports on Form 8-K during the
quarter for which this report was f
Items other than those listed are omitted because they are not required.
SIGNATURE
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.
Old Republic International Corporation
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(Registrant)
Date: May 13, 1994
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______/s/__P.D. Adams_______
P.D. Adams
Senior Vice President &
Chief Financial Officer
<TABLE>
OLD REPUBLIC INTERNATIONAL CORPORATION
EARNINGS PER SHARE EXHIBIT
(Amounts in millions, except per share data)
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<CAPTION>
Computation of Primary
Earnings per Share
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Quarters Ended March 31,
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1994 1993
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<S> <C> <C>
Weighted average number of common shares outstanding 51.8 51.4
Add: Weighted average number of assumed common shares
to be issued upon conversion or exercise of:
Redeemable and/or Convertible Preferred Stock 4.9 5.0
Stock Options 0.4 0.6
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Weighted average number of common and
common equivalent shares 57.2 57.1
================ ================
Net income for the period $34.0 $40.1
Less dividends applicable to appropriate Series of
Redeemable and Convertible Preferred Stock 1.2 1.4
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Adjusted net income $32.8 $38.7
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Primary earnings per share $0.57 $0.68
================ ================
</TABLE>
<TABLE>
<CAPTION>
Computation of Fully Diluted
Earnings per Share
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Quarters Ended March 31,
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1994 1993
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<S> <C> <C>
Weighted average number of common shares outstanding 51.8 51.4
Add: Weighted average number of assumed common shares
to be issued upon conversion or exercise of:
Redeemable and/or Convertible Preferred Stock 5.1 5.2
Convertible Subordinated Debentures 4.2 4.2
Stock Options 0.4 0.6
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Weighted average number of common and
common equivalent shares 61.6 61.6
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Net income for the period $34.0 $40.1
Less dividends applicable to appropriate Series of
Redeemable and Convertible Preferred Stock 1.2 1.3
Plus interest applicable to Convertible Debentures 1.0 1.0
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Adjusted net income $33.8 $39.7
================= ================
Fully diluted earnings per share $0.55 $0.65
================= ================
</TABLE>
