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 JUNE 30, 1997
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:
7,259,513
---------
(AS OF JUNE 30, 1997)
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED
JUNE 30, 1997 AND 1996
(dollars in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
REVENUES
Title premiums, escrow and trust fees $354,439 $332,608
Net property and casualty premiums earned 87,351 94,774
Interest, dividend and other income 54,108 45,626
Net mineral and filtration sales 52,963 51,251
Net (loss) gain on investment transactions (301) 784
---------------------
Total revenues 548,560 525,043
---------------------
COSTS AND EXPENSES
Commissions and brokerage expense 145,267 141,880
Salaries, administrative, and other expenses 223,034 209,048
Provisions for title losses and other claims 24,693 23,694
Property and casualty losses and loss
adjustment expenses 57,499 70,051
Cost of mineral and filtration sales 34,339 34,272
Interest expense 8,886 6,722
Corporate administration 5,432 5,230
---------------------
Total costs and expenses 499,150 490,897
---------------------
Earnings before income taxes 49,410 34,146
Income taxes 15,471 11,348
---------------------
Net earnings $ 33,939 $ 22,798
=====================
Earnings per share of common stock $4.67 $3.11
=====================
Dividends per share of common stock * *
=====================
Average number of outstanding shares of common
stock ** 7,258,269 7,333,161
=====================
</TABLE>
* In March 1997 and 1996, 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
1997.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(dollars in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---------------------
<S> <C> <C>
REVENUES
Title premiums, escrow and trust fees $665,076 $623,730
Net property and casualty premiums earned 184,542 177,750
Interest, dividend and other income 104,422 91,623
Net mineral and filtration sales 100,228 98,833
Net (loss) gain on investment transactions (1,037) 1,200
---------------------
Total revenues 1,053,231 993,136
---------------------
COSTS AND EXPENSES
Agents' commissions and brokerage expense 282,947 271,019
Salaries, administrative, and other expenses 431,156 409,078
Provisions for title losses and other claims 46,156 37,708
Property and casualty losses and loss
adjustment expenses 130,136 128,569
Cost of mineral and filtration sales 67,462 65,721
Interest expense 17,878 12,892
Corporate administration 9,698 9,299
---------------------
Total costs and expenses 985,433 934,286
---------------------
Earnings before income taxes 67,798 58,850
Income taxes 20,951 19,241
---------------------
Net earnings $ 46,847 $ 39,609
=====================
Earnings per share of common stock $6.44 $5.39
=====================
Dividends per share of common stock * *
=====================
Average number of outstanding shares of common
stock ** 7,272,552 7,347,961
=====================
</TABLE>
* In March 1996 and 1997, 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
1997.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30,
1997 December
(Unaudited) 31, 1996
---------------------
<S> <C> <C>
ASSETS
Available for sale securities:
Fixed maturities:
U.S. Government, government agency and
municipal obligations (amortized cost $1,235,764) $1,242,048 $1,243,148
Certificates of deposit
and commercial paper (amortized cost 143,275) 143,275 160,029
Bonds, notes and other (amortized cost 604,218) 604,414 596,072
Equity securities (cost 357,006) 767,644 714,868
----------------------
2,757,381 2,714,117
Cash 59,913 59,954
Cash pledged to secure trust and escrow deposits 247,086 118,066
Notes receivable 91,536 91,536
Funds held, accounts and other receivables 314,726 285,895
Title records and indexes 152,596 152,291
Property and equipment - at cost, less
accumulated depreciation and amortization 288,111 287,177
Reinsurance receivable 397,719 392,210
Other assets 386,524 399,377
----------------------
$4,695,592 $4,500,623
======================
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Title losses and other claims $540,979 $533,738
Property and casualty losses and loss
adjustment expenses 1,133,535 1,110,020
Other liabilities 620,505 569,599
Long-term debt of parent company 24,000 0
Long-term debt of subsidiaries 431,199 447,525
Net deferred tax liability 50,077 38,941
Trust and escrow deposits secured by pledged assets 440,197 377,540
----------------------
Total liabilities 3,240,492 3,077,363
Common stockholders' equity 1,455,100 1,423,260
----------------------
$4,695,592 $4,500,623
======================
Shares of common stock outstanding 7,259,513 7,386,332 *
======================
Common stockholders' equity per share $200.44 $192.69 *
======================
</TABLE>
* Adjusted to reflect the common stock dividend declared in March
1997.
<PAGE>
ALLEGHANY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND 1996
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $46,847 $39,609
Adjustments to reconcile net earnings to
cash provided by (used in) operations:
Depreciation and amortization 27,320 24,151
Net loss (gain) on investment transactions 1,037 (1,200)
Other charges, net 4,396 3,219
Increase in funds held, accounts and other receivables (28,831) (40,363)
(Increase) decrease in reinsurance receivable (5,509) 3,477
Increase (decrease) in title losses and other claims 7,241 (6,894)
Increase in property and casualty loss
and loss adjustment expenses 23,515 58,370
Decrease (increase) in other assets 5,541 (10,816)
Increase in other liabilities 50,906 36,129
Increase in trust and escrow deposits 62,657 48,129
Increase in cash pledged to secure trust
and escrow deposits (129,020) (71,575)
--------------------
Net adjustments 19,253 42,627
--------------------
Cash provided by operations 66,100 82,236
--------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investments (330,183) (433,635)
Maturities of investments 186,367 115,939
Sales of investments 120,258 117,264
Purchases of property and equipment (23,759) (29,091)
Other, net 2,623 1,257
---------------------
Net cash used in investing activities (44,694) (228,266)
--------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (18,000) (135,836)
Proceeds of long-term debt 25,576 285,400
Other, net (29,023) (14,144)
--------------------
Net cash (used in) provided by financing activities (21,447) 135,420
--------------------
Net decrease in cash (41) (10,610)
Cash at beginning of period 59,954 55,175
--------------------
Cash at end of period $59,913 $44,565
====================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $17,539 $12,877
Income taxes $ 4,970 $31,100
</TABLE>
<PAGE>
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, 1996 and
the Quarterly Report on Form 10-Q for the quarter ended March
31, 1997 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 June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATION.
----------------------------------
The Company reported net earnings of $33.9 million in the
second quarter of 1997, compared with $22.8 million in the second
quarter of 1996, and $46.8 million in the first six months of
1997, compared with $39.6 million in the first six months of
1996.
Net losses on investment transactions after taxes in the
first half of 1997 totalled $674 thousand, compared with net
gains of $780 thousand in the first half of 1996.
Chicago Title and Trust Company ("CT&T") contributed pre-tax
earnings of $30.4 million on revenues of $370.4 million in the
1997 second quarter, compared with $24.4 million on revenues of
$348.4 million in the second quarter of 1996. In the first six
months of 1997, CT&T contributed pre-tax earnings of $42.4
million on revenues of $697.1 million, compared with $39.2
million on revenues of $654.9 million in the first six months of
1996.
CT&T's results in the second quarter and first six months of
1997 reflect exceptionally strong activity in commercial real
estate markets, offsetting a somewhat reduced volume of
residential real estate transactions. Home mortgage refinancing
activity in the first half of 1997 decreased approximately 24
percent from the level recorded in the first half of 1996. 1996
six-month 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, and pre-tax income of $8.0
million in respect of a reduction in title claims reserves.
CT&T's results also reflect an increase in the contribution
of its financial services businesses conducted through Alleghany
Asset Management, Inc. ("Alleghany Asset Management") and its
subsidiaries. Alleghany Asset Management contributed pre-tax
operating income to CT&T of $5.5 million in the 1997 second
quarter, an increase of 67 percent over the 1996 second quarter
contribution of $3.3 million, and $10.6 million in the first six
months of 1997, an increase of 74 percent over the contribution
in the first six months of 1996 of $6.1 million. The improved
results of Alleghany Asset Management are primarily due to an
increase in assets under management. As of June 30, 1997,
Alleghany Asset Management managed $19.0 billion in assets,
compared with $12.2 billion as of June 30, 1996.
Underwriters Re Group, Inc. ("Underwriters Re Group")
contributed pre-tax earnings of $14.9 million on revenues of
$107.2 million in the second quarter of 1997, compared with $8.1
million on revenues of $109.1 million in the second quarter of
1996, and $21.9 million on revenues of $222.4 million in the
first six months of 1997, compared with $15.0 million on revenues
of $205.8 million in the first six months of 1996.
The results of Underwriters Re Group for the second quarter
and first six months of 1997 reflect a leveling of business
growth in a highly competitive and soft market, an absence of
significant catastrophe losses and an absence of adverse reserve
activity. Net written premiums for the second quarter of 1997
were $106.1 million compared with $108.2 million in the prior
year second quarter, and $211.4 million for the first six months
of 1997 compared with $205.8 million in the prior year first six
months. 1997 second quarter results also reflect a pre-tax gain
of $1.7 million on a sale of an equity investment.
World Minerals Inc. ("World Minerals") contributed pre-tax
earnings of $7.1 million on revenues of $52.7 million in the 1997
second quarter, compared with $5.5 million on revenues of $51.3
million in the second quarter of 1996. In the first six months
of 1997, World Minerals contributed pre-tax earnings of $10.0
million on revenues of $99.8 million, compared with $10.1 million
on revenues of $98.9 million in the first six months of 1996.
World Minerals' revenues and pre-tax earnings increased in
the 1997 second quarter from the prior year period due to higher
export volume from World Minerals' North American and Latin
American diatomite plants without a commensurate increase in
operating costs. 1997 six-month results reflect the improved
results from diatomite operations offset by continuing high start-
up costs related to World Minerals' Chinese joint ventures and
the continued strength of the dollar which lowered the results of
foreign operations.
As of June 30, 1997, the Company beneficially owned
approximately 7.43 million shares, or 4.8 percent, of the
outstanding common stock of Burlington Northern Santa Fe
Corporation which had an aggregate market value on that date of
approximately $667.9 million, or $89.875 per share, compared with
a market value on December 31, 1996 of $641.9 million, or $86.375
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 half of 1997 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
---------------------
(c) Recent Sales of Unregistered Securities.
---------------------------------------
On May 9, 1997, Alleghany issued an aggregate of 434 shares
of Alleghany common stock to seven non-employee directors of
Alleghany pursuant to the Alleghany Corporation Directors' Equity
Compensation Plan representing one-half of the value of each
director's retainer for the following twelve month's service as a
director, exclusive of any per meeting fees, committee fees or
expense reimbursements. The sale of the common stock was exempt
from registration under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to Section 4(2) thereof, as a
transaction not involving a public offering.
On June 12, 1997, the Company issued 1,219 shares of common
stock to Allan P. Kirby, Jr. upon exercise of an option to
purchase 1,000 shares of the Company's common stock, subject to
adjustment for stock dividends, at an exercise price of $60.8083
per share, or $74,125.32 in the aggregate, granted to Mr. Kirby
on July 1, 1987 pursuant to the Alleghany Corporation Amended and
Restated Directors' Stock Option Plan. The sale of common stock
was exempt from registration under the Securities Act, pursuant
to Section 4(2) thereof, as a transaction not involving a public
offering.
On July 25, 1997, the Company issued an aggregate of 2,366
shares of common stock to Paul F. Woodberry, 1,195 shares upon
the exercise of an option to purchase 1,000 shares of the
Company's common stock, subject to adjustment for stock
dividends, at an exercise price of $59.7757 per share, or
$71,437.50 in the aggregate, and 1,171 shares upon the exercise
of an option to purchase 1,000 shares of the Company's common
stock, subject to adjustment for stock dividends, at an exercise
price of $74.2537 per share, or $87,000 in the aggregate, granted
to Mr. Woodberry on May 23, 1988 and May 1, 1989, respectively,
pursuant to the Alleghany Corporation Amended and Restated
Directors' Stock Option Plan. The sale of common stock was
exempt from registration under the Securities Act, pursuant to
Section 4(2) thereof, as a transaction not involving a public
offering.
The above does not include unregistered issuances of the
Company's common stock that did not involve a sale consisting of
a stock dividend paid in April 1997 and issuances of common stock
and other securities pursuant to employee incentive plans.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
The Company's 1997 Annual Meeting of Stockholders was held
on April 25, 1997. At the Annual Meeting, three directors were
elected to serve for three-year terms, and one director was
elected to serve for a one-year term, on the Company's Board of
Directors, by the following votes:
FOR WITHHELD
--- --------
Three-Year Term:
---------------
John J. Burns, Jr. 5,581,157 3,032
Dan R. Carmichael 5,581,257 2,932
William K. Lavin 5,580,952 3,237
One-Year Term:
-------------
Thomas S. Johnson 5,579,782 4,407
At the Annual Meeting, the selection of KPMG Peat Marwick
LLP as auditors for the Company for the year 1997 was ratified by
a vote of 5,581,419 shares in favor and 1,246 shares opposed. A
total of 1,524 shares abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) Exhibits.
--------
Exhibit Description
------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the second quarter
of 1997.
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: August 6, 1997 /s/ David B. Cuming
---------------------------------
David B. Cuming
Senior Vice President
(and principal financial officer)
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
ALLEGHANY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT JUNE 30,
1997 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE 6 MONTHS THEN ENDED AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 1,989,737
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 767,644
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2,757,381
<CASH> 306,999
<RECOVER-REINSURE> 397,719
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 4,695,592
<POLICY-LOSSES> 1,674,514
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 455,199
0
0
<COMMON> 0
<OTHER-SE> 1,455,100
<TOTAL-LIABILITY-AND-EQUITY> 4,695,592
849,618
<INVESTMENT-INCOME> 104,422
<INVESTMENT-GAINS> (1,037)
<OTHER-INCOME> 100,228
<BENEFITS> 176,292
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 67,798
<INCOME-TAX> 20,951
<INCOME-CONTINUING> 46,847
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<NET-INCOME> 46,847
<EPS-PRIMARY> 6.44
<EPS-DILUTED> 6.44
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</TABLE>
