Alleghany Corporation Reports 2003 Second Quarter Results.Business Editors NEW YORK--(BUSINESS WIRE)--Aug. 6, 2003 Net earnings of Alleghany Corporation (NYSE NYSE See: New York Stock Exchange : Y) in the second quarter of 2003 were $6.0 million, or approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.81 per share of common stock, compared with net earnings of $8.9 million, or approximately $1.19 per share of common stock, in the second quarter of 2002, John J. Burns, Jr., President and chief executive officer of Alleghany, announced today. Net earnings include net gains on investment transactions after taxes in the second quarter of 2003 of $1.0 million, or $0.14 per share, compared with $2.8 million, or $0.38 per share, in the corresponding 2002 period. In the first six months of 2003, Alleghany's net earnings were $13.7 million, or approximately $1.85 per share, compared with net earnings of $34.7 million, or $4.64 per share, in the first six months of 2002. The 2003 six-month results include net gains on investment transactions after taxes of $3.1 million, or approximately $0.42 per share, compared with $25.3 million, or approximately $3.39 per share, in the corresponding 2002 period. Alleghany common stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. per share at June June: see month. 30, 2003 was $193.07 per share, an increase from common stockholders' equity per share of $185.85 as of March 31, 2003 (both as adjusted for the stock dividend declared de·clare v. de·clared, de·clar·ing, de·clares v.tr. 1. To make known formally or officially. See Synonyms at announce. 2. To state emphatically or authoritatively; affirm. 3. in March 2003). Alleghany Insurance Holdings, a holding company for Alleghany's insurance operations, consisting principally of Capitol Capitol, seat of the U.S. Congress Capitol, seat of the U.S. government at Washington, D.C. It is the city's dominating monument, built on an elevated site that was chosen by George Washington in consultation with Major Pierre L'Enfant. Transamerica Corporation Transamerica Corporation is a holding company for various life insurance companies and investment firms doing business primarily in the United States. Transamerica began as a holding company controlled by A. P. , recorded pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta earnings of $2.7 million on revenues of $38.3 million in the second quarter of 2003, compared with a pre-tax loss of $2.1 million on revenues of $33.2 million in the 2002 second quarter. Alleghany Insurance Holdings recorded pre-tax investment income of $4.8 million and realized pre-tax net losses on investment transactions of $0.03 million in the 2003 second quarter, compared with pre-tax investment income of $3.6 million and realized pre-tax net losses on investment transactions of $1.0 million in the corresponding 2002 period. Alleghany Insurance Holdings' 2003 pre-tax investment income reflects a larger invested asset base, principally due to capital contributions by Alleghany. On July July: see month. 1, 2003, Alleghany Insurance Holdings completed the acquisition of Royal Specialty A contract under seal. A specialty is a written document that has been sealed and delivered and is given as security for the payment of a specifically indicated debt. Underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. , Inc., as discussed below. World Minerals recorded pre-tax earnings of $6.5 million in the 2003 second quarter, compared with pre-tax earnings of $7.7 million in the 2002 second quarter, primarily reflecting lower margins due to competitive pricing pressures and increased labor and benefit costs. Revenues in the 2003 second quarter were $69.0 million, compared with $66.9 million in the second quarter of 2002, reflecting the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. impact of the strengthening of the Euro and the pound sterling against the U.S. dollar. Heads & Threads recorded a pre-tax loss of $1.8 million in the 2003 second quarter, compared with pre-tax earnings of $0.6 million in the corresponding 2002 period, primarily reflecting a $1.1 million charge in connection with changes in senior management and the relocation RELOCATION, Scotch law, contracts. To let again to renew a lease, is called a relocation. 2. When a tenant holds over after the expiration of his lease, with the consent of his landlord, this will amount to a relocation. of Heads & Threads' corporate offices from New Jersey to Chicago Chicago, city, United States Chicago (shĭkä`gō, shĭkô`gō), city (1990 pop. 2,783,726), seat of Cook co., NE Ill., on Lake Michigan; inc. 1837. , competitive pricing pressures and higher material costs due to increases in the cost of steel from China. Revenues in the 2003 second quarter were $27.3 million, compared with $29.0 million in the 2002 second quarter, primarily reflecting reduced demand in the U.S. economy. Highlights are as follows (in millions, except for shares and per share amounts):
Three Months Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
--------------------------------------------
Revenues $144.4 $141.8 $283.0 $299.8
Earnings before income
taxes $ 8.7 $ 13.4 $ 20.3 $ 52.7
Net earnings $ 6.0 $ 8.9 $ 13.7 $ 34.7
Basic earnings per
share of common stock * $ 0.81 $ 1.19 $ 1.85 $ 4.64
Diluted earnings per
share of common stock* $ 0.80 $ 1.09 $ 1.84 $ 4.53
Average number of
outstanding shares of
common stock* 7,433,436 7,479,050 7,423,296 7,484,571
* Adjusted to reflect the dividend of common stock declared in March
2003.
The comparative contributions to earnings before taxes made by Alleghany's operating units operating unit A type of operating company that engages in transactions with outsiders and that is owned by another business. For example, in 1995 the stockholders of Capital Cities/ABC approved a $19 billion merger with the Walt Disney Company, whereupon Alleghany Insurance Holdings (insurance businesses), World Minerals (industrial minerals business) and Heads & Threads (industrial fasteners fasteners In construction, connectors between structural members. Bolted connections are used when it is necessary to fasten two elements tightly together, especially to resist shear and bending, as in column and beam connections. business), as well as by Alleghany's parent company and other operations, were as follows (in millions):
Three Months Six Months
Ended Ended
June 30 June 30
------------ -------------
2003 2002 2003 2002
Alleghany Insurance Holdings $2.7 $(2.1) $7.6 $(0.9)
World Minerals 6.5 7.7 11.4 10.7
Heads & Threads (1.8) 0.5 (1.7) 1.1
Parent company and other 1.3 7.3 3.0 41.8
----- ------ ------ ------
$8.7 $13.4 $20.3 $52.7
===== ====== ====== ======
On a per-share, after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. , the foregoing earnings contributions may be broken down as follows:
Three Months Ended June 30
World Heads & Parent
AIHL Minerals Threads co. Total
and
2003 other
----------------------------------------------------------------------
Operating income (loss)* $0.36 $0.46 $(0.15) $ -- $0.67
Net gain on investment
transactions -- -- -- 0.14 0.14
-----------------------------------------
Net earnings (loss) per share $0.36 $0.46 $(0.15) $0.14 $0.81
=========================================
2002
-----------------------------
Operating income (loss)* $(0.03) $0.58 $ 0.05 $0.21 $0.81
Net (loss) gain on investment
transactions (0.09) -- -- 0.47 0.38
-----------------------------------------
Net (loss) earnings per share $(0.12) $ 0.58 $ 0.05 $0.68 $1.19
=========================================
Six Months Ended June 30
World Heads & Parent
AIHL Minerals Threads co. and Total
2003 other
----------------------------------------------------------------------
Operating income (loss)* $0.82 $0.77 $(0.14) $(0.02) $1.43
Net gain on investment
transactions 0.08 -- -- 0.34 0.42
-----------------------------------------
Net earnings (loss) per share $0.90 $0.77 $(0.14) $0.32 $1.85
=========================================
2002
-----------------------------
Operating income (loss)* $0.33 $0.74 $ 0.09 $0.09 $1.25
Net (loss) gain on investment
transactions (0.23) -- -- 3.62 3.39
-----------------------------------------
Net earnings (loss) per share $ 0.10 $ 0.74 $ 0.09 $3.71 $4.64
=========================================
* Operating income represents net earnings per share less the net gain
or loss on investment transactions taxed at the federal income tax
rate.
As of June 30, 2003 Alleghany beneficially owned approximately 16.0 million shares, or 4.3 percent, of the outstanding common stock of Burlington Burlington, town, Canada Burlington, town (1991 pop. 129,575), SE Ont., Canada, on Lake Ontario. First settled (1798) by Mohawk Loyalist Joseph Brandt, Burlington's economy was built on the shipment of wheat, lumber, and quarried rock by waterway. Northern Santa Fe Santa Fe, city, Argentina Santa Fe, city (1991 pop. 341,000), capital of Santa Fe prov., NE Argentina, a river port near the Paraná, with which it is connected by canal. Corporation, which had an aggregate market value on that date of approximately $455.0 million, or $28.44 per share, compared with a market value on March 31, 2003 of $398.4 million, or $24.90 per share. The aggregate cost of such shares is approximately $181.8 million, or $11.36 per share. Alleghany has previously announced that it may purchase shares of its common stock in open market transactions from time to time. In the second quarter of 2003, Alleghany did not purchase any shares of its common stock. As of June 30, 2003, Alleghany had 7,458,192 shares of common stock outstanding (which includes the stock dividend declared in March 2003). As previously announced, on July 1, 2003, Alleghany Insurance Holdings completed the acquisition of Royal Specialty Underwriting, Inc. ("RSUI RSUI Rescue Swimmer Under Instruction (USMC) ") from Royal & Sun Alliance Insurance Group for approximately $115.0 million. In addition to RSUI, Alleghany Insurance Holdings acquired renewal rights to the ongoing business underwritten by RSUI for insurance affiliates of Royal & Sun Alliance and the related net unearned premium reserve portfolio of approximately $320.0 million. The transaction excluded loss reserves associated with business previously underwritten by RSUI for insurance affiliates of Royal & Sun Alliance. RSUI underwrites specialty insurance coverages through wholesale brokers and producers. Premiums related to RSUI underwritten business are approximately evenly split between the admitted and non-admitted insurance markets, with approximately 68.0% of total premiums written for specialty property coverages. Insurance policies underwritten by RSUI for insurance affiliates of Royal & Sun Alliance accounted for gross written premiums of $1,205.0 million and net written premiums of $515.0 million for the year ended December December: see month. 31, 2002 and gross written premiums of $359.8 million and net written premiums of $162.0 million for the first quarter of 2003. To support future business to be underwritten by RSUI, Alleghany Insurance Holdings acquired Underwriters Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Company ("URC URC - Uniform Resource Citation (previously Universal). "), an insurance company admitted in 50 states and capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. it at approximately $500.0 million. In connection with the acquisition, the seller contractually con·trac·tu·al adj. Of, relating to, or having the nature of a contract. con·trac  tu·al·ly adv.Adv. 1. retained all of the liabilities of URC that existed at the time of the sale. The name of URC will be changed to RSUI Indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. Company and the name of RSUI will be changed to Resurgens Specialty Underwriting, Inc. A.M. Best Co. has assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. a financial strength rating of A (Excellent) to URC. URC expects to acquire Landmark A structure that has significant historical, architectural, or cultural meaning and that has been given legal protection from alteration and destruction. Although landmark preservation laws vary by city and state, they have the same basic purpose: to keep landmarks as close American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Insurance Company ("Landmark"), a surplus lines insurance company, from Royal & Sun Alliance during the third quarter to write non-admitted or surplus business underwritten by RSUI. Pending satisfaction of regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. rate and form filings by URC and the acquisition of Landmark, RSUI is continuing to underwrite To insure; to sell an issue of stocks and bonds or to guarantee the purchase of unsold stocks and bonds after a public issue. The word underwrite has two meanings. on policies issued by insurance affiliates of Royal & Sun Alliance. All such policies are fully reinsured by URC. This press release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. with respect to the anticipated effects of the RSUI transaction. Actual results of the transaction could be significantly different. Factors that could affect results include those set forth in filings made by the Company with the Securities and Exchange Commission. Although forward-looking statements help to provide complete information about future prospects, readers should keep in mind that forward-looking statements are much less reliable than historical information.
ALLEGHANY CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share and share amounts)
JUNE DECEMBER
30, 31,
2003 2002
----------- -----------
ASSETS
Available for sale securities:
Equity securities $ 707,066 $ 486,353
Debt securities 392,935 580,606
Short-term investments 201,487 237,698
----------- -----------
1,301,488 1,304,657
Cash 114,641 27,423
Notes receivable 92,575 92,358
Accounts receivables 101,350 85,710
Reinsurance receivables 155,157 147,479
Deferred acquisition costs 24,840 22,547
Property and equipment - at cost, less
accumulated depreciation 171,471 173,539
Inventory 90,468 81,978
Goodwill and other intangibles, net of
amortization 106,391 112,858
Other assets 105,693 85,833
----------- -----------
$2,264,074 $2,134,382
=========== ===========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current taxes payable $25,987 $28,372
Losses and loss adjustment expenses 270,857 258,471
Other liabilities 144,946 147,411
Unearned premiums 84,431 64,115
Subsidiaries' debt 171,046 152,507
Net deferred tax liability 126,887 104,164
----------- -----------
Total liabilities 824,154 755,040
Common stockholders' equity 1,439,920 1,379,342
----------- -----------
$2,264,074 $2,134,382
=========== ===========
COMMON STOCKHOLDERS' EQUITY PER SHARE $193.07 $186.16
=========== ===========
COMMON SHARES OUTSTANDING (adjusted for
dividends) 7,458,192 7,409,282
=========== ===========
ALLEGHANY CORPORATION
COMBINING STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
THREE MONTHS ENDED JUNE 30, 2003
---------------------------------------------
ALLEGHANY
INSURANCE WORLD HEADS & CORPORATE
HOLDINGS MINERALS THREADS ACTIVITIES COMBINED
---------------------------------------------
Revenues
Net fastener sales $0 $0 $27,292 $0 $27,292
Interest, dividend and
other income 4,833 119 0 8,159 13,111
Net insurance premiums
earned 33,525 0 0 0 33,525
Net mineral and
filtration sales 0 68,860 0 0 68,860
Net gain (loss) on
investment
transactions (39) 0 0 1,617 1,578
---------------------------------------------
Total revenues 38,319 68,979 27,292 9,776 144,366
Costs and expenses
Commissions and
brokerage expenses 9,370 0 0 0 9,370
Salaries, administrative
and other
operating expenses 6,425 9,801 8,039 1,264 25,529
Loss and loss
adjustment expenses 19,815 0 0 0 19,815
Cost of goods sold -
fasteners 0 0 20,809 0 20,809
Cost of mineral and
filtration sales 0 52,201 0 0 52,201
Interest expense 0 516 243 709 1,468
Corporate administration 0 0 0 6,483 6,483
---------------------------------------------
Total costs and
expenses 35,610 62,518 29,091 8,456 135,675
---------------------------------------------
Earnings before income
taxes $2,709 $6,461 ($1,799) $1,320 8,691
====================================
Income taxes 2,695
---------
Net earnings $5,996
=========
THREE MONTHS ENDED JUNE 30, 2002
---------------------------------------------
ALLEGHANY
INSURANCE WORLD HEADS & CORPORATE
HOLDINGS MINERALS THREADS ACTIVITIES COMBINED
---------------------------------------------
Revenues
Net fastener sales $0 $0 $28,953 $0 $28,953
Interest, dividend and
other income 3,617 57 0 7,316 10,990
Net insurance premiums
earned 30,647 0 0 0 30,647
Net mineral and
filtration sales 0 66,829 0 0 66,829
Net gain (loss) on
investment
transactions (1,043) 0 0 5,397 4,354
---------------------------------------------
Total revenues 33,221 66,886 28,953 12,713 141,773
Costs and expenses
Commissions and
brokerage expenses 6,063 0 0 0 6,063
Salaries, administrative
and other
operating expenses 4,962 10,561 6,203 1,203 22,929
Loss and loss
adjustment expenses 24,340 0 0 0 24,340
Cost of goods sold -
fasteners 0 0 22,002 0 22,002
Cost of mineral and
filtration sales 0 48,122 0 0 48,122
Interest expense 0 467 170 986 1,623
Corporate administration 0 0 0 3,251 3,251
---------------------------------------------
Total costs and
expenses 35,365 59,150 28,375 5,440 128,330
---------------------------------------------
Earnings before income
taxes ($2,144) $7,736 $578 $7,273 13,443
====================================
Income taxes 4,547
---------
Net earnings $8,896
=========
ALLEGHANY CORPORATION
COMBINING STATEMENTS OF EARNINGS
(dollars in thousands)
(unaudited)
SIX MONTHS ENDED JUNE 30, 2003
---------------------------------------------
ALLEGHANY
INSURANCE WORLD HEADS & CORPORATE
HOLDINGS MINERALS THREADS ACTIVITIES COMBINED
---------------------------------------------
Revenues
Net fastener sales $0 $0 $55,245 $0 $55,245
Interest, dividend and
other income 9,210 219 0 15,662 25,091
Net insurance premiums
earned 66,940 0 0 0 66,940
Net mineral and
filtration sales 0 130,908 0 0 130,908
Net gain (loss) on
investment transactions 872 0 0 3,970 4,842
---------------------------------------------
Total revenues 77,022 131,127 55,245 19,632 283,026
Costs and expenses
Commissions and
brokerage expenses 16,425 0 0 0 16,425
Salaries, administrative
and other
operating expenses 13,335 18,748 14,910 2,449 49,442
Loss and loss
adjustment expenses 39,668 0 0 0 39,668
Cost of goods sold -
fasteners 0 0 41,568 0 41,568
Cost of mineral and
filtration sales 0 100,121 0 0 100,121
Interest expense 0 871 446 1,429 2,746
Corporate administration 0 0 0 12,783 12,783
---------------------------------------------
Total costs and
expenses 69,428 119,740 56,924 16,661 262,753
---------------------------------------------
Earnings before income
taxes $7,594 $11,387 ($1,679) $2,971 20,273
====================================
Income taxes 6,553
---------
Net earnings $13,720
=========
SIX MONTHS ENDED JUNE 30, 2002
---------------------------------------------
ALLEGHANY
INSURANCE WORLD HEADS & CORPORATE
HOLDINGS MINERALS THREADS ACTIVITIES COMBINED
---------------------------------------------
Revenues
Net fastener sales $0 $0 $56,885 $0 $56,885
Interest, dividend
and other income 6,917 (483) 0 13,543 19,977
Net insurance
premiums earned 59,670 0 0 0 59,670
Net mineral and
filtration sales 0 124,292 0 0 124,292
Net gain (loss) on
investment
transactions (2,692) 0 0 41,639 38,947
---------------------------------------------
Total revenues 63,895 123,809 56,885 55,182 299,771
Costs and expenses
Commissions and
brokerage expenses 11,556 0 0 0 11,556
Salaries, administrative
and other
operating expenses 10,039 19,864 12,285 2,327 44,515
Loss and loss
adjustment expenses 43,227 0 0 0 43,227
Cost of goods sold -
fasteners 0 0 43,087 0 43,087
Cost of mineral and
filtration sales 0 92,382 0 0 92,382
Interest expense 0 898 433 1,965 3,296
Corporate administration 0 0 0 9,014 9,014
---------------------------------------------
Total costs
and expenses 64,822 113,144 55,805 13,306 247,077
---------------------------------------------
Earnings before income
taxes ($927)$10,665 $1,080 $41,876 52,694
====================================
Income taxes 17,990
---------
Net earnings $34,704
=========
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