<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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 September 30,
1994.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ___________ to
___________
Commission file number: 1-5721
LEUCADIA NATIONAL CORPORATION
- ---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York 13-2615557
- -------------------------------- --------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
315 Park Avenue South, New York, New York 10010-3607
(212) 460-1900
- ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code
of Registrant's Principal Executive Offices)
N/A
- ---------------------------------------------------------------------------
(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 by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [_] No [_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, at November 7, 1994: 28,027,019.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements.
--------------------
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Dollars in thousands, except par value)
<CAPTION>
September 30, December 31,
1994 1993
------------ ------------
(Unaudited)
ASSETS
------
<S> <C> <C>
Investments:
Available for sale (aggregate cost of
$2,372,895 and $2,447,180) $2,338,864 $2,524,493
Trading securities (aggregate cost of
$49,386 and $40,578) 50,356 41,984
Held to maturity (aggregate market value
of $52,758 and $77,243) 53,766 74,796
Policyholder loans 18,186 18,138
Other investments, including accrued interest income 49,017 38,559
---------- ----------
Total investments 2,510,189 2,697,970
Cash and short-term investments 275,975 291,414
Reinsurance receivable, net 330,591 462,671
Trade, notes and other receivables, net 470,526 390,394
Prepaids and other assets 206,112 161,441
Property, equipment and leasehold
improvements, net 101,421 99,741
Deferred policy acquisition costs
and value of insurance in force 72,493 55,410
Deferred income taxes 139,586 114,001
Separate and variable accounts 390,094 335,357
Investments in associated companies 181,876 80,873
---------- ----------
Total $4,678,863 $4,689,272
========== ==========
LIABILITIES
-----------
Customer banking deposits $ 165,720 $ 173,365
Trade payables and expense accruals 192,472 164,533
Other liabilities 116,880 110,396
Income taxes payable 39,066 40,378
Policy reserves 1,977,361 2,105,408
Unearned premiums 429,196 380,260
Separate and variable accounts 389,020 334,636
Liability for unredeemed trading stamps 46,195 58,541
Debt, including current maturities 425,379 401,335
---------- ----------
Total liabilities 3,781,289 3,768,852
---------- ----------
Minority interest 11,738 12,564
---------- ----------
SHAREHOLDERS' EQUITY
--------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 28,008,355
and 27,897,023 shares issued and
outstanding, after deducting 30,267,932
and 30,260,664 shares held in treasury 28,008 27,897
Additional paid-in capital 125,880 125,013
Net unrealized gain (loss) on investments (20,897) 49,912
Retained earnings 752,845 705,034
---------- ----------
Total shareholders' equity 885,836 907,856
---------- ----------
Total $4,678,863 $4,689,272
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
-2-<PAGE>
<PAGE>
<TABLE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the periods ended September 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
For the Three For the Nine
Month Period Ended Month Period Ended
September 30, September 30,
----------------- -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues and commissions $231,920 $223,109 $ 673,719 $ 672,420
Manufacturing 45,935 42,780 139,316 132,938
Trading stamps 4,844 5,710 14,886 18,351
Finance 12,202 8,763 32,732 24,328
Investment and other income 55,326 49,724 162,465 173,766
Net securities gains (losses) (2,764) 6,000 (13,887) 46,437
-------- -------- ---------- ----------
347,463 336,086 1,009,231 1,068,240
-------- -------- ---------- ----------
Expenses:
Provision for insurance losses and
policy benefits 201,579 184,387 602,873 598,639
Insurance commissions 2,084 1,741 4,153 5,176
Cost of goods sold:
Manufacturing 34,151 30,145 100,042 92,793
Trading stamps (189) 45 (273) 1,109
Interest 11,071 10,325 32,546 28,996
Salaries 22,212 19,706 64,563 60,899
Selling, general and other expenses 47,667 46,547 134,818 142,186
Minority interest 342 1,280 806 2,141
-------- -------- ---------- ----------
318,917 294,176 939,528 931,939
-------- -------- ---------- ----------
Income before income taxes and
cumulative effects of changes
in accounting principles 28,546 41,910 69,703 136,301
-------- -------- ---------- ----------
Provision for income taxes:
Currently payable 174 4,936 8,297 13,224
Applied to deferred taxes 7,128 4,168 13,595 31,484
-------- -------- ---------- ----------
7,302 9,104 21,892 44,708
-------- -------- ---------- ----------
Income before cumulative effects of
changes in accounting principles 21,244 32,806 47,811 91,593
Cumulative effects of changes in
accounting principles -- -- -- 129,195
-------- -------- ---------- ----------
Net income $ 21,244 $ 32,806 $ 47,811 $ 220,788
======== ======== ========== ==========
Earnings per common and dilutive common
equivalent share:
Income before cumulative effects of
changes in accounting principles $.73 $1.12 $1.64 $3.12
Cumulative effects of changes in
accounting principles -- -- -- 4.41
---- ----- ----- -----
Net income $.73 $1.12 $1.64 $7.53
==== ===== ===== =====
Fully diluted earnings per common share:
Income before cumulative effects of
changes in accounting principles $.72 $1.09 $1.64 $3.06
Cumulative effects of changes in
accounting principles -- -- -- 4.21
---- ----- ----- -----
Net income $.72 $1.09 $1.64 $7.27
==== ===== ===== =====
</TABLE>
See notes to interim consolidated financial statements.
-3-<PAGE>
<PAGE>
<TABLE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1994 and 1993
(Dollars in thousands)
(Unaudited)
<CAPTION>
1994 1993
---- ----
Net cash flows from operating activities:
----------------------------------------
<S> <C> <C>
Net income $ 47,811 $ 220,788
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Cumulative effects of changes in accounting principles -- (129,195)
Reduction of SFAS 109 deferred tax asset, principally the
benefit from utilization of tax loss carryforwards 13,595 31,484
Depreciation and amortization of property, equipment and
leasehold improvements 12,627 12,260
Other amortization 65,404 71,525
Provision for doubtful accounts 9,964 5,793
Net securities (gains) losses 13,887 (46,437)
Equity in losses of associated companies 5,585 2,408
(Gain) related to CAESS (8,458) (130)
Purchases of investments classified as trading (100,506) --
Proceeds from sales of investments classified as trading 93,327 --
Net change in reinsurance receivable 132,507 46,648
Net change in trade, notes and other receivables (42,181) (56,033)
Net change in prepaids and other assets (17,501) (19,156)
Deferred policy acquisition costs incurred and deferred (75,927) (62,630)
Net change in trade payables and expense accruals 21,742 15,888
Net change in other liabilities 5,051 1,784
Net change in income taxes (1,272) (2,341)
Net change in policy reserves (113,808) (60,479)
Net change in unearned premiums 48,936 56,840
Decrease in liability for unredeemed trading stamps (12,346) (11,571)
Cash related to reinsurance transaction with John Hancock -- (510,698)
Minority interest 806 2,141
Other 1,517 847
--------- ---------
Net cash provided by (used for) operating activities 100,760 (430,264)
--------- ---------
Net cash flows from investing activities:
----------------------------------------
Acquisition of real estate, property, equipment and
leasehold improvements (69,624) (15,157)
Proceeds from disposals of property, equipment and
leasehold improvements 6,529 4,932
Investment in Caja (45,711) --
Investment in HSD Venture (42,433) --
Advances on loan receivables (133,810) (105,904)
Principal collections on loan receivables 88,942 77,468
Purchases of investments (other than short-term) (876,256) (1,313,177)
Proceeds from maturities of investments 282,032 359,522
Proceeds from sales of investments 672,265 999,376
--------- ----------
Net cash provided by (used for) investing activities (118,066) 7,060
--------- -----------
Net cash flows from financing activities:
----------------------------------------
Net change in credit agreement and other short-term
borrowings 279 (5,565)
Net change in customer banking deposits (7,550) (10,980)
Net change in policyholder account balances (14,239) (92,415)
Issuance of long-term debt, net of issuance costs 50,000 194,133
Reduction of long-term debt (26,342) (11,467)
Purchase of common shares for treasury (281) (873)
--------- ----------
Net cash provided by financing activities 1,867 72,833
--------- ----------
Net (decrease) in cash and short-term investments (15,439) (350,371)
Cash and short-term investments at January 1, 291,414 670,599
--------- ----------
Cash and short-term investments at September 30, $ 275,975 $ 320,228
========= ==========
</TABLE>
See notes to interim consolidated financial statements.
-4-<PAGE>
<PAGE>
<TABLE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1994 and 1993
(Dollars in thousands, except par value)
(Unaudited)
<CAPTION>
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-In (Loss) on Retained
Value Capital Investments Earnings Total
------- -------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $27,945 $123,656 $ 9 $466,551 $618,161
Exercise of options to
purchase common shares 189 1,639 1,828
Purchase of stock for
treasury (245) (8,922) (9,167)
Net change in unrealized
gain (loss) on investments 820 820
Income tax benefit related
to warrant and option
transactions recognized
upon adoption of SFAS 109 9,410 9,410
Net income 220,788 220,788
------- -------- -------- -------- --------
Balance, September 30, 1993 $27,889 $125,783 $ 829 $687,339 $841,840
======= ======== ========= ======== ========
Balance, January 1, 1994 $27,897 $125,013 $ 49,912 $705,034 $907,856
Exercise of options to
purchase common shares 118 1,141 1,259
Purchase of stock for
treasury (7) (274) (281)
Net change in unrealized
gain (loss) on investments (70,809) (70,809)
Net income 47,811 47,811
------- -------- -------- -------- --------
Balance, September 30, 1994 $28,008 $125,880 $(20,897) $752,845 $885,836
======= ======== ======== ======== ========
</TABLE>
See notes to interim consolidated financial statements.
-5-
<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
-------------------------
1. The unaudited interim consolidated financial statements, which
reflect all adjustments (consisting only of normal recurring
items) that management believes necessary to present fairly
results of interim operations, should be read in conjunction with
the Notes to Consolidated Financial Statements (including the
Summary of Significant Accounting Policies) included in the
Company's audited consolidated financial statements for the year
ended December 31, 1993, which are included in the Company's
Annual Report filed on Form 10-K for such year (the "1993 10-K").
Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated
balance sheet at December 31, 1993 was extracted from the audited
annual financial statements and does not include all disclosures
required by generally accepted accounting principles for annual
financial statements.
Certain amounts for prior periods have been reclassified to be
consistent with the 1994 presentation.
2. As more fully described in the 1993 10-K, the results of the most
recent statistical studies of trading stamp redemptions indicate
that the recorded liability for unredeemed trading stamps is in
excess of the amount that ultimately will be required to redeem
trading stamps outstanding. Although the Company believes a
significant change in redemption patterns has occurred, the amount
of the excess may be different than is indicated by these studies.
Accordingly, the Company is amortizing the aggregate apparent
excess over a five year period. The amount of amortization of
such apparent excess, which is reflected in results of operations
in the caption "Cost of goods sold," was approximately $9,000,000
for each of the nine month periods ended September 30, 1994 and
1993 and approximately $3,000,000 for each of the three month
periods ended September 30, 1994 and 1993. Based on the latest
studies, the unamortized apparent excess at September 30, 1994 was
approximately $8,285,000. The Company provided the liability for
unredeemed trading stamps based on the estimate that approximately
75% of stamps issued during 1994 and 1993 ultimately will be
redeemed.
3. In March 1993, in settlement of claims related to El Salvador's
1986 seizure of the assets of Compania de Alumbrado Electrico de
San Salvador, S.A. ("CAESS"), the Company received cash of
approximately $5,300,000 and approximately $12,000,000 principal
amount of 6% U.S. dollar denominated El Salvador Government bonds
due in instalments through 1996. The Company has recognized the
gain on the cash basis. During the first quarter of 1994, the
Company disposed of the remaining bonds and reported a pre-tax
gain of approximately $8,458,000 which gain is included in the
caption "Investment and other income" for the nine month period
ended September 30, 1994. Gains recognized in 1993 were not
significant.
4. During the second quarter of 1994, the Company acquired a 30%
interest in Caja de Ahorro y Seguro S.A. ("Caja") for a
preliminary purchase price (subject to audit adjustment) of
approximately $46,000,000, including costs. Caja is a holding
company whose subsidiaries are engaged in property and casualty
insurance, life insurance and banking in Argentina. The equity in
the earnings of Caja, which were not material for the nine and
three month periods ended September 30, 1994, are recorded on a
three month lag.
-6-
<PAGE>
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
5. On June 23, 1993, the Company reinsured substantially all of its
existing blocks of single premium whole life ("SPWL") business
with a subsidiary of John Hancock Mutual Life Insurance Company
("John Hancock"). In connection with the transaction, the Company
realized a net pre-tax gain of approximately $16,700,000 for the
nine month period ended September 30, 1993. Such net pre-tax gain
consists of net gains on sales of investments sold in connection
with the transaction (approximately $24,100,000) which are
included in the caption "Net securities gains (losses)," reduced
by a net loss of approximately $7,400,000 (principally the
write-off of deferred policy acquisition costs of approximately
$26,900,000 less the premium received on the transaction) which is
included in the caption "Provision for insurance losses and policy
benefits." For financial reporting purposes, the Company reflects
the policy liabilities assumed by John Hancock (in policy
reserves), with an offsetting receivable from John Hancock of the
same amount (in reinsurance receivable, net), until the Company is
relieved of its legal obligation to the SPWL policyholders.
6. In connection with the formation of Jordan Industries, Inc.
("JII"), on June 1, 1988, John W. Jordan II, a director and
significant shareholder of the Company, acquired from the Company
most of the Company's direct interest in JII in exchange for a
zero coupon note with an initial principal value of approximately
$7,132,000 and an accreted value at maturity on May 31, 1993 of
approximately $11,618,000 (the "Zero Coupon Note"). On June 1,
1993 Mr. Jordan delivered to the Company 224,175 of the Company's
Common Shares valued at $8,294,000 (the maturity value of the Zero
Coupon Note, after reflecting certain prepayments) as payment in
full of the Zero Coupon Note. The Common Shares were valued at
$37.00 per share, the closing price of a Common Share on the New
York Stock Exchange Composite Tape on May 24, 1993, the last full
trading day prior to the authorization by the Company's Board of
Directors of the agreement.
7. Effective as of January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS 109"), Statement of Financial Accounting Standards
No. 106 "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("SFAS 106"), Statement of Financial Accounting
Standards No. 112 "Employers' Accounting for Postemployment
Benefits" ("SFAS 112"), Statement of Financial Accounting
Standards No. 113 "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" ("SFAS 113") and
Financial Accounting Standards Board's Emerging Issues Task Force
Consensus No. 93-6 "Accounting for Multiple-Year Retrospectively
Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6").
As a result of adoption of SFAS 109, SFAS 106, SFAS 112 and EITF
93-6, the cumulative effects of such changes through January 1,
1993 were recorded as of the date of adoption and were principally
reflected in results of operations as "Cumulative effects of
changes in accounting principles." In addition, as a result of
adoption of SFAS 109, certain acquired intangibles were reduced
(for benefits of acquired tax loss carryforwards) and
shareholders' equity was directly increased (as a result of prior
stock transactions).
-7-
<PAGE>
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
A summary of the amounts included in cumulative effects of changes
in accounting principles and related per share amounts, for the
nine month period ended September 30, 1993 is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Per Share
Amount Primary Fully Diluted
------ ------- -------------
<S> <C> <C> <C>
SFAS 109 $127,152 $4.34 $4.14
SFAS 106, less income taxes of $2,298 (4,461) (.15) (.15)
SFAS 112, less income taxes of $1,632 (3,168) (.11) (.10)
EITF 93-6, less income taxes of $4,982 9,672 .33 .32
-------- ----- -----
$129,195 $4.41 $4.21
======== ===== =====
</TABLE>
8. During the third quarter of 1994, the Company lowered its
estimated annual effective income tax rate to reflect certain tax
benefits and foreign tax credits. In the 1993 periods, the tax
provision reflects a credit of approximately $4,215,000 from
recalculating current and deferred income taxes using the higher
corporate income tax rate, retroactive to January 1, 1993, under
the Omnibus Budget Reconciliation Act ("OBRA").
In addition, during the third quarter of 1993, the valuation
allowance applicable to the deferred income tax asset was reduced
to reflect the resolution of uncertainties regarding the
availability of certain income tax deductions. The reduction in
the valuation allowance resulted in a credit to the provision for
income taxes of approximately $4,100,000 in the 1993 periods.
For the nine and three month periods ended September 30, 1994 and
1993, the actual income tax rate is below the "expected" statutory
federal income tax rate principally due to the matters discussed
above, less the effects of state income taxes.
9. Earnings per common and dilutive common equivalent share were
calculated by dividing net income by the sum of the weighted
average number of common shares outstanding and the incremental
weighted average number of shares issuable upon exercise of
outstanding options and warrants for the periods they were
outstanding. The number of shares used to calculate primary
earnings per share amounts was 29,077,000 and 29,311,000 for the
nine month periods ended September 30, 1994 and 1993,
respectively, and 29,028,000 and 29,216,000 for the three month
periods ended September 30, 1994 and 1993, respectively.
Fully diluted earnings per share was calculated as described above
and also assumes the outstanding 5 1/4% Convertible Subordinated
Debentures due 2003 had been converted into Common Shares for the
period they were outstanding and earnings increased for the
interest on such debentures, net of the income tax effect. The
number of shares used to calculate fully diluted earnings per
share was 30,816,000 and 30,704,000 for the nine month periods
ended September 30, 1994 and 1993, respectively, and 30,767,000
and 30,955,000 for the three month periods ended September 30,
1994 and 1993, respectively.
10. Cash paid for interest and income taxes (net of refunds) was
$32,694,000 and $9,564,000, respectively, for the nine month
period ended September 30, 1994 and $24,275,000 and
$15,137,000, respectively, for the nine month period ended
September 30, 1993.
11. In October 1994, the Company entered into an agreement to sell its
remaining interest in Compania Boliviana de Energia Electrica,
S.A. ("Bolivian Power") to an unaffiliated party for cash of
approximately $18,000,000. The Company expects the sale to close
during the fourth quarter and will record a pre-tax gain of
approximately $14,500,000.
-8-<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Interim Operations.
--------------------------------------------
The following should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the 1993 10-K.
Liquidity and Capital Resources
-------------------------------
During each of the nine month periods ended September 30, 1994 and
1993, the Company operated profitably and, exclusive of the
transaction with John Hancock in 1993, net cash was provided from
operations.
During the nine months ended September 30, 1994, the Company did not
utilize its $150,000,000 bank Credit Agreement facilities, except for
certain minor amounts borrowed to meet daily cash requirements.
In April 1994, the Company acquired a 30% interest in Caja for a
preliminary purchase price (subject to audit adjustment) of
approximately $46,000,000, including costs. Caja is a holding company
whose subsidiaries are engaged in property and casualty insurance,
life insurance and banking in Argentina. The Company believes that
the level of Caja's operating costs could not be justified by its
existing revenue base. Accordingly, the new management of Caja has
implemented an extensive restructuring plan including a substantial
reduction in the number of employees and a consolidation of Caja's
offices. The Company believes Caja's restructuring efforts will
increase its profitability, although there can be no assurance that
such efforts will be successful.
In May 1994, the Company acquired a 600,000 square foot office
building located near Grand Central Terminal in New York City for
approximately $50,800,000. The building has approximately 330,000
square feet of contiguous space available for occupancy. After
certain improvements to the building are completed, the Company
intends to lease the available space. The Company may also use some
of the available space for its operations. The funds to acquire the
building were provided by general corporate funds available to the
parent company.
In June 1994, the Company entered into a five-year term loan agreement
with certain of its bank lenders for new funds of $50,000,000. The
loan bears interest based on the prime rate or LIBOR. The funds are
available for general corporate purposes.
During 1994, the Company invested approximately $23,000,000 in the
Russian privatization program. Through this program, the Company
acquired equity interests in various companies through auctions
conducted by the Russian government. The Company carries these
investments at cost, in the caption "Other investments." In addition,
the Company has committed to invest up to $6,000,000 in Symskaya
Exploration, Inc., a joint venture engaged in the exploration of oil
and gas in the Krasnoyarsk region of Siberia. During the third
quarter of 1994, the Company entered into a joint venture agreement to
invest up to $6,000,000 in an enterprise involved in supplying raw
materials for aluminum smelting in Tajikistan, and the subsequent sale
of aluminum received in return. The amounts invested in these joint
ventures as of September 30, 1994 were not material.
In July 1994, the Company acquired substantially all of the debt of
HSD Venture, a California general partnership in reorganization
proceedings under chapter 11 of the Bankruptcy Code, for approximately
$42,000,000. HSD Venture is the developer and owner of two luxury
condominium towers in downtown San Diego, California. The property
includes approximately 202
-9-
<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Interim Operations, continued
--------------------------------------------
residential units, of which approximately 180 are available for sale,
and approximately 42,000 square feet of retail space. Marketing of
the remaining units has commenced. The plan of reorganization, which
has been confirmed by the Bankruptcy Court and is expected to become
effective during the fourth quarter, will give the Company control of
the partnership. The funds for this investment were provided by
general corporate funds available to the parent company.
In October 1994, the Company entered into an agreement to sell its
remaining interest in Bolivian Power to an unaffiliated party for cash
of approximately $18,000,000. The Company expects the sale to close
during the fourth quarter and will record a pre-tax gain of
approximately $14,500,000.
As more fully described in the 1993 10-K, as of December 31, 1993 the
Company adopted Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities,"
which requires securities classified as "available for sale" to be
carried at market value with the corresponding adjustment reflected
directly in shareholders' equity. Principally as a result of
increases in market interest rates during 1994, the unrealized gain on
investments at the end of 1993 became an unrealized loss of
$20,897,000 (net of taxes) as of September 30, 1994. While this has
resulted in a reduction in shareholders' equity, it had no effect on
results of operations or cash flows. Further, the Company believes
that the high quality and relatively short duration of its investment
portfolios will enable it to take advantage of higher interest rates
and suffer relatively smaller reductions in aggregate market value
than others in its industries with investment portfolios of longer
duration and lesser quality.
New Jersey's insurance laws require all automobile insurers to share
in the losses of the Market Transition Facility (the "MTF"), the New
Jersey insurance pool for high risk drivers. In February 1994, the
Colonial Penn property and casualty group was assessed and paid
approximately $5,300,000 into a court mandated escrow account,
representing Colonial Penn's share of losses from the MTF's first year
of operation. On June 13, 1994, the New Jersey Department of
Insurance, the State of New Jersey, the MTF and certain of the MTF's
member insurers who had challenged the assessments entered into a
settlement agreement whereby the MTF member insurers were released
from further assessments beyond the amounts previously paid into the
escrow account. The remainder of the MTF deficit is to be funded by a
bond issue and surplus in the now defunct Joint Underwriting
Association, the predecessor to the MTF. The escrowed funds were
released to the MTF on July 26, 1994. Although Colonial Penn was not
a signatory to the settlement agreement with the MTF, management
believes that its liability to the MTF is limited to the $5,300,000
already paid.
Results of Operations
---------------------
The 1994 Periods Compared to the 1993 Periods
---------------------------------------------
Earned premium revenues of the property and casualty insurance
operations were approximately $543,454,000 and $533,528,000 for the
nine month periods ended September 30, 1994 and 1993, respectively,
and $189,312,000 and $180,087,000 for the three month periods ended
September 30, 1994 and 1993, respectively. The increase reflects
increased premium volume and increases in certain premium rates
applicable to the Empire Insurance Group offset in part by a decline
in premium levels applicable to the Colonial Penn property and
casualty insurance group. The decline in earned premiums of the
Colonial Penn property and casualty insurance operations is principally
the result of the Company's strategy to substantially reduce the
marketing programs employed prior to acquisition which the Company
believes were not justified by prior operating results. As more fully
described in the 1993 10-K, the
-10-
<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Interim Operations, continued
--------------------------------------------
Colonial Penn property and casualty operations are using other means
to market their products. The Company believes it is likely that new
business generated will be greater than business lost through normal
attrition in 1995, although there can be no assurance that this will
be achieved.
Earned premium revenues of the life and health insurance operations
were approximately $130,265,000 and $138,892,000 for the nine month
periods ended September 30, 1994 and 1993, respectively, and
$42,608,000 and $43,022,000 for the three month periods ended
September 30, 1994 and 1993, respectively. The decrease in earned
premium revenues principally results from the run-off of the agent
sold medicare supplement business, which the Company ceased marketing
at December 31, 1992. The Company continues to offer renewals to its
existing policyholders on a profitable basis.
Manufacturing revenues increased in the 1994 periods compared to the
1993 periods, principally at the divisions selling padding, absorbent
and erosion control products, thermo plastic netting products, wire
and cable products and commercial office furnishings and acoustical
products.
Trading stamp revenues decreased in the 1994 periods compared to the
1993 periods principally due to reduced demand from existing
customers.
Finance revenues reflect the level of consumer instalment loans. As
more fully described in the 1993 10-K, based on its experience in
providing collateralized automobile loans to individuals with poor
credit histories, the Company concluded that there were excellent
opportunities for successful expansion of this business. Accordingly,
on a controlled basis the Company is increasing its investments in
such loans. Such loans approximated $116,037,000 at September 30,
1994 and $73,321,000 at December 31, 1993.
Investment and other income decreased in the nine month period ended
September 30, 1994 as compared to the similar 1993 period principally
as a result of a lower level of investments due to the disposition of
certain life insurance product lines in June 1993. The 1994 periods
also reflect increased fee income related to acquired blocks of
automobile assigned risk business from insurance companies required or
volunteering to terminate such coverage. Investment and other income
for the nine month period ended September 30, 1994 includes
approximately $8,458,000 related to the disposition of the El Salvador
government bonds receivable, as more fully described in Notes to
Interim Consolidated Financial Statements. Investment and other
income for the nine month period ended September 30, 1993 includes
revenues related to the Company's former motivation subsidiary, whose
net assets were transferred to a new joint venture in early 1993, in
exchange for a 45% equity interest in the joint venture.
Net securities gains (losses) were ($13,887,000) and $46,437,000 for
the nine month periods ended September 30, 1994 and 1993,
respectively, and ($2,764,000) and $6,000,000 for the three month
periods ended September 30, 1994 and 1993, respectively. Security
gains for the nine month period ended September 30, 1993 include
approximately $24,100,000 realized in connection with the reinsurance
transaction with John Hancock. As a result of realizing securities
gains and investing proceeds at the lower prevailing interest rates,
the Company provided additional provisions for policy benefits
aggregating approximately $4,750,000 for the nine and three month
periods ended September 30, 1993. Realized security losses during the
1994 periods principally resulted from the Company's strategy to
shorten the duration of its investment portfolio. In addition, the
nine month period ended September 30, 1994 included provisions for
write-downs of investments of approximately $3,568,000.
-11-
<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Interim Operations, continued
--------------------------------------------
The Company's operating ratios for its property and casualty
operations were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1994 1993 1994 1993
------ ---- ---- ----
<S> <C> <C> <C> <C>
Loss Ratio:
GAAP 78.4% 73.4% 82.0% 76.0%
SAP 79.0% 72.8% 81.6% 75.2%
Expense Ratio:
GAAP 18.3% 19.4% 18.1% 20.4%
SAP 17.6% 17.7% 17.0% 17.1%
Combined Ratio:
GAAP 96.7% 92.8% 100.1% 96.4%
SAP 96.6% 90.5% 98.6% 92.3%
</TABLE>
The provision for insurance losses and policy benefits includes
aggregate net catastrophe losses and related loss adjustment expenses
estimated at approximately $16,560,000 (including approximately
$11,560,000 related to the California earthquake) and $10,000,000 for
the nine month periods ended September 30, 1994 and 1993, respectively
(primarily all in the first quarters). The increase in catastrophe
losses in the nine month period ended September 30, 1994 as compared
to the similar period in 1993 accounted for approximately 20% (1.2
percentage points) of the increase in the GAAP loss ratio. In
addition, the loss experience of Colonial Penn's automobile insurance
business in the 1993 periods reflects lower frequency of claims and
settlement of prior years claims at amounts less than had been
provided.
Provision for insurance losses and policy benefits of the life and
health operations decreased in 1994 periods compared to the 1993
periods principally due to lower earned premiums and insurance in
force. In addition, the provision for insurance losses and policy
benefits for the nine month period ended September 30, 1993 includes a
loss related to the transaction with John Hancock of $7,400,000, as
more fully described in Notes to Interim Consolidated Financial
Statements. The 1993 periods also reflect the $4,750,000 additional
provisions described above.
The increase in manufacturing cost of goods sold in the 1994 periods
compared to the similar periods ended in 1993 principally reflects the
increase in manufacturing sales, inventory adjustments and product
mix. Pre-tax income related to the manufacturing operations was not
materially different for the 1994 and 1993 periods.
Cost of goods sold applicable to the trading stamp operations reflects
amortization of the apparent excess in the liability for unredeemed
trading stamps of approximately $9,000,000 for each of the nine month
periods ended September 30, 1994 and 1993 and $3,000,000 for each of
the three month periods ended September 30, 1994 and 1993. The
Company provided the liability for unredeemed trading stamps based on
the estimate that approximately 75% of trading stamps issued in 1994
and 1993 ultimately will be redeemed.
Interest expense increased in the 1994 periods compared to the 1993
periods. Interest expense principally reflects the increased level of
borrowings resulting from the issuance of $200,000,000 of new debt
during 1993.
In the nine month period ended September 30, 1993, selling, general
and other expenses included expenses related to the Company's former
motivation subsidiary which, as described above, was contributed to a
joint venture in early 1993.
-12-<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Interim Operations, continued
--------------------------------------------
The provisions for income taxes were reduced in the 1994 periods to
reflect cetain tax benefits and foreign tax credits and, in the 1993
periods, as a result of the enactment of OBRA and a reduction in the
valuation allowance applicable to certain deferred tax assets, as more
fully described in Notes to Interim Consolidated Financial Statements.
The nine month period ended September 30, 1993 includes cumulative
effects of changes in accounting principles of $129,195,000, as more
fully described in Notes to Interim Consolidated Financial Statements.
The number of shares used to calculate primary earnings per share
amounts was 29,077,000 and 29,311,000 for the nine month periods
ended September 30, 1994 and 1993, respectively, and 29,028,000 and
29,216,000 for the three month periods ended September 30, 1994 and
1993, respectively. The number of shares used to calculate fully
diluted earnings per share amounts was 30,816,000 and 30,704,000 for
the nine month periods ended September 30, 1994 and 1993,
respectively, and 30,767,000 and 30,955,000 for the three month
periods ended September 30, 1994 and 1993, respectively. The change
in the number of shares utilized in calculating per share amounts was
principally caused by changes in the market price of the Company's
common stock.
-13-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders.
---------------------------------------------------
The Annual Meeting of Shareholders of the Company was held on
July 27, 1994. At the meeting:
1. The following persons were elected as Directors of the
Company to serve until the next Annual Meeting or until
their successors are elected and qualified.
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Ian M. Cumming 24,528,186 34,037
Joseph S. Steinberg 24,527,886 34,337
Paul M. Dougan 24,524,478 37,745
Lawrence D. Glaubinger 24,528,770 33,453
James E. Jordan 24,505,348 56,875
John W. Jordan II 24,505,376 56,847
Jesse Clyde Nichols III 24,529,011 33,212
</TABLE>
2. The selection of Coopers & Lybrand as independent
auditors to audit the Consolidated Financial Statements
of the Company and its subsidiaries for the year ended
December 31, 1994 was ratified by the shareholders, as
follows:
<TABLE>
<CAPTION>
<S> <C>
Votes For 24,483,083
Votes Against 56,136
Abstentions 23,004
Broker Non-Votes 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits:
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K:
NONE
-14-
<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.
LEUCADIA NATIONAL CORPORATION
-----------------------------
(Registrant)
Date: November 10, 1994 By /s/ Joseph A. Orlando
--------------------------
Joseph A. Orlando
Vice President and Comptroller
(Principal Financial and
Accounting Officer)
-15-
<PAGE>
<PAGE>
EXHIBIT INDEX
-------------
Exhibit 27 - Financial Data Schedule
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 275,975
<SECURITIES> 2,510,189
<RECEIVABLES> 801,117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 101,421
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,678,863
<CURRENT-LIABILITIES> 0
<BONDS> 425,379
0
0
<COMMON> 28,008
<OTHER-SE> 857,828
<TOTAL-LIABILITY-AND-EQUITY> 4,678,863
<SALES> 139,316
<TOTAL-REVENUES> 1,009,231
<CGS> 100,042
<TOTAL-COSTS> 706,795
<OTHER-EXPENSES> 200,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,546
<INCOME-PRETAX> 69,703
<INCOME-TAX> 21,892
<INCOME-CONTINUING> 47,811
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,811
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.64
</TABLE>
