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
--- ---
<PAGE>
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)
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<PAGE>
<PAGE>
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)
<TABLE>
1996 1995
--------- ---------
<S> <C> <C>
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-
<PAGE>
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
========= =========
</TABLE>
[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-
<PAGE>
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(dollars in thousands, except share and per share amounts)
<TABLE>
March 31,
1996 December 31,
(Unaudited) 1995
----------- ------------
<S> <C> <C>
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
========== ==========
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<PAGE>
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 *
========== ==========
</TABLE>
[FN]
* Adjusted to reflect the common stock dividend declared in March 1996.
-6-
<PAGE>
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(dollars in thousands)
(unaudited)
<TABLE>
1996 1995
--------- ---------
<S> <C> <C>
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)
-------- --------
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<PAGE>
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
</TABLE>
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<PAGE>
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
<PAGE>
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)
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<PAGE>
<PAGE>
Exhibit Index
-------------
Exhibit
Number Description
-------- -----------
10.1 Amendments to the Alleghany
Corporation Retirement Plan,
effective as of January 1,
1996.
27 Financial Data Schedule
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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
<PAGE>
(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-
<PAGE>
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-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 1,643,508
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 674,047
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,317,555
<CASH> 234,453
<RECOVER-REINSURE> 397,650
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,174,257
<POLICY-LOSSES> 1,555,384
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 341,602
0
0
<COMMON> 0
<OTHER-SE> 1,336,522
<TOTAL-LIABILITY-AND-EQUITY> 4,174,257
374,098
<INVESTMENT-INCOME> 45,997
<INVESTMENT-GAINS> 416
<OTHER-INCOME> 47,582
<BENEFITS> 72,532
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 24,704
<INCOME-TAX> 7,893
<INCOME-CONTINUING> 16,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,811
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.33
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
