The Company's operations are conducted principally within the United States, and the Company believes that its principal facilities are maintained in good operating condition and are adequate for the present needs of its operations.
Coal Properties The Company and a subsidiary own fee interests in approximately 161,000 acres of coal properties in Illinois, Ohio and Pennsylvania. Approximately two-thirds of these properties remain leased at various royalty rates to coal mining companies under long-term arrangements, including fixed-term leases with renewal options and exhaustion leases.
GCT and Related Development Rights Subsidiaries of the Company own Grand Central Terminal and rights to develop floor space in New York City.
Earnings from Continuing Operations before Income Taxes 113 41 190 84 79
(a) Amounts above include the following pretax items for the years indicated: 1994 - Loss on sale of General Cable securities ($76 million). 1993 - Tax benefit attributable to an increase in the Company's net deferred tax asset ($132 million); Gain on sale of equity investments ($99 million); Provision for asset impairment ($20 million); Loss on sale of subsidiaries ($22 million). 1991 - Provision for asset impairment ($21 million).
The Company's insurance operations consist primarily of a group of nonstandard private passenger automobile insurance companies (the "NSA Group") and a business which sells workers' compensation insurance principally in California ("Republic Indemnity").
During 1995, in connection with its previously announced divestiture effort, the Company completed the sale of its last industrial business. In addition, in March 1996 the Company sold its investment in a subsidiary which holds a 2% general partnership interest in an independent pipeline common carrier of refined petroleum products. See Note C of Notes to Financial Statements.
Ratios The following ratios may be considered relevant indicators of the Company's liquidity and are typically presented by the Company in its prospectuses and similar documents. Management believes that balance sheet ratios (debt-to-equity) are more meaningful on a parent only basis. On the other hand, earnings statement ratios (fixed charges) are more meaningful on a total enterprise basis since the parent only ratio is dependent, to a great degree, on the discretionary nature of dividend payments from subsidiaries.
The ratio of the Company's (parent-only) long-term debt to total capital was 17%, 24% and 23% at December 31, 1995, 1994 and 1993, respectively. The Company's ratio of earnings to fixed charges on a total enterprise basis was 3.35, 1.72 and 3.83 for the years ended December 31, 1995, 1994 and 1993, respectively.
The National Association of Insurance Commissioners' model law for risk based capital ("RBC") determines the amount of capital that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired. At December 31, 1995, the capital ratios of all of the Company's insurance companies substantially exceeded the RBC requirements.
In December 1995, Pennsylvania Company ("Pennco"), a wholly-owned subsidiary of the Company, entered into a new collateralized five-year reducing revolving credit agreement with several banks, under which it can borrow up to $75 million. At December 31, 1995, the Company had no outstanding borrowings under the agreement.
The Company's federal income tax loss carryforward is available to offset taxable income and, as a result, the Company's requirement to pay federal income tax for 1996 is substantially eliminated.
Investments Approximately half of the Company's consolidated assets are invested in marketable securities. The Company attempts to optimize investment income while building the value of its portfolio, placing emphasis upon long-term performance. The Company's goal is to maximize return on an ongoing basis rather than focusing on year-by-year performance.
Fixed income investment funds are generally invested in securities with short-term and intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 1995, the average life of the Company's bonds and redeemable preferred stocks was approximately 6 years.
MBSs will minimize the effect of prepayments on earnings over the anticipated life of the MBS portfolio. Substantially all of the Company's MBSs are rated "AAA" by Standard & Poor's Corporation and are collateralized primarily by GNMA, FNMA and FHLMC single-family residential pass-through certificates. The market in which these securities trade is highly liquid. Aside from interest rate risk, the Company does not believe a material risk (relative to earnings and liquidity) is inherent in holding such investments.
General Pretax earnings were $113 million in 1995 compared to $41 million in 1994 and $190 million in 1993.
Results for 1993 include $99 million in gains from the sales of the Company's shares of Tejas Gas Corporation and limited partnership units of Buckeye Partners L.P., a $22 million improvement in underwriting results of the Company's insurance operations and a $13 million increase in interest income on the General Cable notes. These items were partially offset by a $42 million loss recorded on the anticipated sale of the Company's non-insurance operations.
Results for the Company's property and casualty insurance subsidiaries are as follows (dollars in millions):
Year ended December 31, 1995 1994 1993 Net Written Premiums (GAAP) NSA Group $1,203.2 $1,154.1 $ 901.9 Republic Indemnity 287.5 479.5 465.8 Other Lines 1.6 1.9 11.2 $1,492.3 $1,635.5 $1,378.9
Combined Ratios (GAAP) NSA Group 105.7% 99.8% 97.0% Republic Indemnity 87.9% 91.1% 94.7% Aggregate 102.0% 97.0% 96.2%
Republic Indemnity The decline in California workers' compensation premiums reflects the impact of mandatory premium rate reductions which were phased in over the course of policy terms during 1994 and 1995, and extremely competitive pricing in the marketplace as a result of the repeal of the California workers' compensation minimum rate law effective January 1, 1995. As a consequence of the repeal of this law, Republic's rate levels reflect the change in its mix of business toward non-participating policies which do not require the payment of policyholder dividends. Management expects this change toward non-participating policies to continue. Despite lower premium volume, the combined ratio decreased in 1995 as compared to 1994 mainly because of lower policyholder dividends and a reduction in the amount of policyholder dividends estimated to be incurred, partially offset by an increase in the frequency of claims. Also, the underwriting expense ratio increased for 1995 due primarily to the decline in premiums.
Investee Corporations Equity in net earnings (losses) of investee corporations (companies in which the Company owns a significant portion of the voting stock) in 1995 represents the Company's proportionate share of the losses of Chiquita Brands. The Company purchased 3.2 million shares of Chiquita common stock from AFC during the second quarter of 1995.
Other Income Other income includes revenues from coal, oil and gas properties and gains and losses from real estate sales.
Sales of Other Products and Services Sales of other products and services represents the Company's revenues from its non- insurance businesses, substantially all of which have been sold.
1995 compared to 1994 Interest expense decreased by $8.3 million (16%) due primarily to the Company's repurchase throughout 1995 of $180 million principal amount of its Subordinated notes.
Income Taxes See Note J of Notes to Financial Statements for an analysis of the Company's deferred tax asset and other items affecting the Company's effective tax rate.
The 1994 provision for income tax reflects less than full realization of the tax benefit attributable to the net realized capital loss recorded in that period. The 1993 income tax benefit was attributable to an increase of $132 million in the Company's net deferred tax asset due to revisions to the estimated future taxable income during the Company's tax loss carryforward period.