<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 June 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 [_]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, at August 8,
1994: 27,995,448.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1994 and December 31, 1993
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Investments:
Available for sale (aggregate cost of
$2,187,596 and $2,447,180) $2,159,547 $2,524,493
Trading securities (aggregate cost of
$49,379 and $40,578) 48,088 41,984
Held to maturity (aggregate market value
of $71,549 and $77,243) 72,261 74,796
Policyholder loans 18,239 18,138
Other investments, including accrued interest income 49,858 38,559
---------- ----------
Total investments 2,347,993 2,697,970
Cash and short-term investments 451,950 291,414
Reinsurance receivable, net 340,726 462,671
Trade, notes and other receivables, net 499,823 390,394
Prepaids and other assets 206,094 161,441
Property, equipment and leasehold
improvements, net 97,298 99,741
Deferred policy acquisition costs
and value of insurance in force 66,110 55,410
Deferred income taxes 144,643 114,001
Separate and variable accounts 368,727 335,357
Investments in associated companies 135,223 80,873
---------- ----------
Total $4,658,587 $4,689,272
========== ==========
LIABILITIES
- -----------
Customer banking deposits $ 164,892 $ 173,365
Trade payables and expense accruals 190,610 164,533
Other liabilities 123,731 110,396
Income taxes payable 41,482 40,378
Policy reserves 1,983,717 2,105,408
Unearned premiums 421,296 380,260
Separate and variable accounts 367,719 334,636
Liability for unredeemed trading stamps 50,215 58,541
Debt, including current maturities 435,232 401,335
---------- ----------
Total liabilities 3,778,894 3,768,852
---------- ----------
Minority interest 11,638 12,564
---------- ----------
SHAREHOLDERS' EQUITY
- --------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 27,989,382
and 27,897,023 shares issued and
outstanding, after deducting 30,266,905
and 30,260,664 shares held in treasury 27,989 27,897
Additional paid-in capital 125,703 125,013
Net unrealized gain (loss) on investments (17,238) 49,912
Retained earnings 731,601 705,034
---------- ----------
Total shareholders' equity 868,055 907,856
---------- ----------
Total $4,658,587 $4,689,272
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
-2-<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the periods ended June 30, 1994 and 1993
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
-------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance revenues and commissions $224,216 $227,774 $441,799 $449,311
Manufacturing 46,731 45,559 93,381 90,158
Trading stamps 4,835 5,937 10,042 12,641
Finance 10,860 8,058 20,530 15,565
Investment and other income 48,674 57,273 107,139 124,042
Net securities gains (losses) (9,656) 27,467 (11,123) 40,437
-------- -------- -------- --------
325,660 372,068 661,768 732,154
-------- -------- -------- --------
Expenses:
Provision for insurance losses
and policy benefits 193,301 209,239 401,294 414,252
Insurance commissions 1,350 2,424 2,069 3,435
Cost of goods sold:
Manufacturing 33,402 31,843 65,891 62,648
Trading stamps (139) 363 (84) 1,064
Interest 10,704 9,495 21,475 18,671
Salaries 21,424 20,196 42,351 41,193
Selling, general and other expenses 46,273 44,879 87,151 95,639
Minority interest 222 384 464 861
-------- -------- -------- --------
306,537 318,823 620,611 637,763
-------- -------- -------- --------
Income before income taxes and
cumulative effects of changes in
accounting principles 19,123 53,245 41,157 94,391
-------- -------- -------- --------
Provision for income taxes:
Currently payable 4,192 5,083 8,123 8,288
Applied to deferred taxes 2,583 15,227 6,467 27,316
-------- -------- -------- --------
6,775 20,310 14,590 35,604
-------- -------- -------- --------
Income before cumulative effects of
changes in accounting principles 12,348 32,935 26,567 58,787
Cumulative effects of changes in
accounting principles - - - 129,195
-------- -------- -------- --------
Net income $ 12,348 $ 32,935 $ 26,567 $187,982
======== ======== ======== ========
Earnings per common and dilutive common
equivalent share:
Income before cumulative effects of
changes in accounting principles $.42 $1.13 $.91 $2.00
Cumulative effects of changes in
accounting principles - - - 4.40
---- ----- ---- -----
Net income $.42 $1.13 $.91 $6.40
==== ===== ==== =====
Fully diluted earnings per common share:
Income before cumulative effects of
changes in accounting principles $.42 $1.09 $.91 $1.97
Cumulative effects of changes in
accounting principles - - - 4.22
---- ----- ---- -----
Net income $.42 $1.09 $.91 $6.19
==== ===== ==== =====
</TABLE>
See notes to interim consolidated financial statements.
-3-<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1994 and 1993
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Net cash flows from operating activities:
- ----------------------------------------
Net income $ 26,567 $ 187,982
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 6,467 27,316
Depreciation and amortization of property, equipment and
leasehold improvements 8,469 8,140
Other amortization 44,728 51,331
Provision for doubtful accounts 5,659 3,552
Net securities (gains) losses 11,123 (40,437)
Equity in losses of associated companies 5,321 1,429
(Gain) related to CAESS (8,458) (130)
Purchases of investments classified as trading (60,008) -
Proceeds from sales of investments classified as trading 51,459 -
Net change in reinsurance receivable 121,754 30,859
Net change in trade, notes and other receivables (43,447) (55,798)
Net change in prepaids and other assets (12,152) (22,958)
Deferred policy acquisition costs incurred and deferred (50,129) (42,465)
Net change in trade payables and expense accruals 5,127 2,937
Net change in other liabilities 12,164 11,515
Net change in income taxes 1,144 (5,138)
Net change in policy reserves (111,641) (46,095)
Net change in unearned premiums 41,036 57,729
Decrease in liability for unredeemed trading stamps (8,326) (7,119)
Cash related to reinsurance transaction with John Hancock - (510,698)
Minority interest 464 861
Other 2,154 (974)
--------- ---------
Net cash provided by (used for) operating activities 49,475 (477,356)
--------- ---------
Net cash flows from investing activities:
- ----------------------------------------
Acquisition of real estate, property, equipment
and leasehold improvements (60,710) (12,350)
Proceeds from disposals of property, equipment and
leasehold improvements 3,908 1,898
Investment in Caja (45,711) -
Advances on loan receivables (87,890) (72,184)
Principal collections on loan receivables 56,388 51,748
Purchases of investments (other than short-term) (569,913) (866,446)
Proceeds from maturities of investments 214,549 256,118
Proceeds from sales of investments 585,243 848,727
--------- ---------
Net cash provided by investing activities 95,864 207,511
--------- ---------
Net cash flows from financing activities:
- ----------------------------------------
Net change in credit agreement and other short-term
borrowings (488) 1,106
Net change in customer banking deposits (8,336) (10,001)
Net change in policyholder account balances (10,050) (88,332)
Issuance of long-term debt, net of issuance costs 50,000 96,786
Reduction of long-term debt (15,687) (6,806)
Purchase of common shares for treasury (242) (767)
--------- ---------
Net cash provided by (used for) financing activities 15,197 (8,014)
--------- ---------
Net increase (decrease) in cash and short-term investments 160,536 (277,859)
Cash and short-term investments at January 1, 291,414 670,599
--------- ---------
Cash and short-term investments at June 30, $ 451,950 $ 392,740
========= =========
</TABLE>
See notes to interim consolidated financial statements.
-4-
<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the six months ended June 30, 1994 and 1993
(Dollars in thousands, except par value)
(Unaudited)
<TABLE>
<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 145 1,196 1,341
Purchase of stock for
treasury (242) (8,819) (9,061)
Net change in unrealized
gain (loss) on investments 776 776
Income tax benefit related
to warrant and option
transactions recognized
upon adoption of SFAS 109 9,410 9,410
Net income 187,982 187,982
------- -------- -------- -------- --------
Balance, June 30, 1993 $27,848 $125,443 $ 785 $654,533 $808,609
======= ======== ======== ======== ========
Balance, January 1, 1994 $27,897 $125,013 $ 49,912 $705,034 $907,856
Exercise of options to
purchase common shares 98 926 1,024
Purchase of stock for
treasury (6) (236) (242)
Net change in unrealized
gain (loss) on investments (67,150) (67,150)
Net income 26,567 26,567
------- -------- -------- -------- --------
Balance, June 30, 1994 $27,989 $125,703 $ (17,238) $731,601 $868,055
======= ======== ========= ======== ========
</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 $6,000,000 for each
of the six month periods ended June 30, 1994 and 1993 and
approximately $3,000,000 for each of the three month periods ended
June 30, 1994 and 1993. Based on the latest studies, the
unamortized apparent excess at June 30, 1994 was approximately
$11,213,000. 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 six month period ended June
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 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. The Company intends to record its
equity in earnings of Caja 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
six and three month periods ended June 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," 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 six
month period ended June 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 $4.33 $4.16
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 .31
-------- ----- -----
$129,195 $4.40 $4.22
======== ===== =====
</TABLE>
8. 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 29,102,000 and 29,352,000 for the
six month periods ended June 30, 1994 and 1993, respectively, and
29,059,000 and 29,209,000 for the three month periods ended June
30, 1994 and 1993, respectively.
Fully diluted earnings per share was calculated as described above
and, for 1993, 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.
Conversion was not assumed for the 1994 periods since the effect of
such assumed conversion would have been to increase earnings per
share. The number of shares used to calculate fully diluted
earnings per share was 29,102,000 and 30,597,000 for the six month
periods ended June 30, 1994 and 1993, respectively, and 29,059,000
and 30,955,000 for the three month periods ended June 30, 1994 and
1993, respectively.
9. Cash paid for interest and income taxes (net of refunds) was
$23,220,000 and $6,974,000, respectively, for the six month period
ended June 30, 1994 and $18,345,000 and $13,386,000, respectively,
for the six month period ended June 30, 1993.
-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 six month periods ended June 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 six months ended June 30, 1994, the Company did not utilize
its bank Credit Agreement facilities, except for certain minor amounts
borrowed to meet daily cash requirements.
In March 1993, in settlement of claims related to El Salvador's 1986
seizure of CAESS's assets, 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. During the first quarter of 1994, the Company disposed
of the remaining bonds for cash and a pre-tax gain of approximately
$8,458,000.
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 587,000 square foot office
building located near Grand Central Terminal in New York City for
approximately $50,800,000. The building has approximately 370,000
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 the second quarter of 1994, the Company invested approximately
$20,000,000 in the Russian privatization program. Through this
program, the Company will acquire 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 eastern
Siberia. The amount invested as of June 30, 1994 was 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 190 are available for sale,
and approximately 42,000 square feet of retail space. Marketing of
the remaining units has commenced. The plan of reorganization, if
confirmed by the Bankruptcy Court, would give the Company control of
the partnership. The funds for this investment were provided by
general corporate funds available to the parent company.
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
$17,238,000 (net of taxes) as of June 30, 1994. While this has
resulted in a reduction in shareholders' equity, it had no effect on
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.
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 $354,142,000 and $353,441,000 for the
six month periods ended June 30, 1994 and 1993, respectively, and
$179,760,000 and $178,657,000 for the three month periods ended June
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 was anticipated and is principally
the result of a substantial reduction in 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 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 by the end of 1994, although there can be no
assurance that this will be achieved.
-10-<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Interim Operations, continued
---------------------------------
Earned premium revenues of the life and health insurance operations
were approximately $87,657,000 and $95,870,000 for the six month
periods ended June 30, 1994 and 1993, respectively, and $44,456,000
and $49,117,000 for the three month periods ended June 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 $99,364,000 at June 30, 1994 and
$73,321,000 at December 31, 1993.
Investment and other income decreased in the 1994 periods compared to
the 1993 periods. The decrease was principally the result of a lower
level of investments due to the disposition of certain life insurance
product lines. Investment and other income for the six month period
ended June 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. Investment and other income for the six month
period ended June 30, 1994 includes approximately $8,458,000 related
to the disposition of the El Salvador government bonds receivable, as
described more fully above.
Net securities gains (losses) were ($11,123,000) and $40,437,000 for
the six month periods ended June 30, 1994 and 1993, respectively, and
($9,656,000) and $27,467,000 for the three month periods ended June
30, 1994 and 1993, respectively. Security gains for the 1993 periods
include approximately $24,100,000 realized in connection with the
reinsurance transaction with John Hancock. 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
six month period ended June 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 Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss Ratio:
GAAP 78.9% 76.5% 83.8% 77.3%
SAP 77.5% 75.4% 83.0% 76.3%
Expense Ratio:
GAAP 19.1% 20.0% 18.1% 20.9%
SAP 17.2% 16.5% 16.7% 17.0%
Combined Ratio:
GAAP 98.0% 96.5% 101.9% 98.2%
SAP 94.7% 91.9% 99.7% 93.3%
</TABLE>
The provision for insurance losses and policy benefits includes
aggregate catastrophe losses and related loss adjustment expenses
estimated at approximately $16,510,000 (including approximately
$11,000,000 related to the California earthquake) and $10,000,000 for
the six month periods ended June 30, 1994 and 1993, respectively
(primarily all in the first quarters). The increase in catastrophe
losses in the six month period ended June 30, 1994 as compared to the
similar period in 1993 accounted for approximately 29% (1.9 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 periods ended in 1993 include 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 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 and inventory adjustments. 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 in each
period reflects amortization of the apparent excess in the liability
for unredeemed trading stamps of approximately $6,000,000 for each of
the six month periods ended June 30, 1994 and 1993 and $3,000,000 for
each of the three month periods ended June 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 sale of $200,000,000 of new debt during
1993.
In the six month period ended June 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.
The six month period ended June 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.
-12-<PAGE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Interim Operations, continued
---------------------------------
The number of shares used to calculate primary earnings per share
amounts was 29,102,000 and 29,352,000 for the six month periods ended
June 30, 1994 and 1993, respectively, and 29,059,000 and 29,209,000
for the three month periods ended June 30, 1994 and 1993,
respectively. The number of shares used to calculate fully diluted
earnings per share amounts was 29,102,000 and 30,597,000 for the six
month periods ended June 30, 1994 and 1993, respectively, and
29,059,000 and 30,955,000 for the three month periods ended June 30,
1994 and 1993, respectively. The decrease in the number of shares
utilized in calculating per share amounts was principally caused by
the decrease in the market price of the Company's common stock. In
addition, for fully diluted per share amounts, the 5 1/4% Convertible
Subordinated Debentures due 2003 were not assumed to have been
converted in the 1994 periods since the effect of such assumed
conversion would have been to increase earnings per share.
-13-<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
On May 11, 1994, a Leucadia stockholder filed a purported
derivative action on behalf of the Company against the
Company's current Board Of Directors and one former
director, Melvin Hirsch. The action was filed in the United
States District Court for the Southern District of New York
and is entitled Pinnacle Consultants, Ltd. v. Leucadia
-------------------------- --------
National Corporation, et al. (Civil Action No. 94 Civ 3496).
----------------------------
The complaint alleges claims for violations of the Racketeer
Influenced and Corrupt Organizations Act, Section 14 (a) of
the Securities Act of 1934 and state law claims for waste,
breach of fiduciary duty and fraud. Defendants have
retained legal counsel and have requested that the court
dismiss the complaint on various grounds.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
a) Exhibits:
NONE
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: August 12, 1994 By /s/ Joseph A. Orlando
------------------------
Joseph A. Orlando
Vice President and Comptroller
(Principal Financial and
Accounting Officer)
-15-
