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, 1995
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
incorporation or organization) Identification Number)
315 Park Avenue South, New York, New York 10010-3607
(Address of principal executive offices) (Zip Code)
(212) 460-1900
(Registrant's telephone number, including area code)
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 Sections 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 November 8, 1995: 60,122,974
(after giving effect to the stock split described herein).
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and December 31, 1994
(Dollars in thousands, except par value)
SEPTEMBER 30, December 31,
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of $2,490,223 and $2,396,288) $ 2,515,390 $ 2,331,288
Trading securities (aggregate cost of $30,807 and $53,312) 31,760 52,231
Held to maturity (aggregate fair value of $61,011 and $52,820) 60,752 54,586
Policyholder loans 17,764 17,943
Other long-term investments, including accrued interest income 68,204 56,347
---------------- ---------------
Total investments 2,693,870 2,512,395
Cash and cash equivalents 428,261 252,495
Reinsurance receivable, net 270,205 310,682
Trade, notes and other receivables, net 527,061 463,981
Prepaids and other assets 254,857 245,476
Property, equipment and leasehold improvements, net 112,414 110,887
Deferred policy acquisition costs 90,797 74,536
Deferred income taxes 112,016 144,631
Separate and variable accounts 466,495 420,398
Investments in associated companies 179,643 138,565
---------------- ---------------
Total $ 5,135,619 $ 4,674,046
================ ===============
LIABILITIES
Customer banking deposits $ 199,733 $ 179,888
Trade payables and expense accruals 264,243 189,280
Other liabilities 112,125 106,046
Income taxes payable 37,422 39,491
Policy reserves 1,961,124 1,964,730
Unearned premiums 464,194 413,546
Separate and variable accounts 466,315 419,355
Liability for unredeemed trading stamps 36,642 42,433
Debt, including current maturities 525,757 425,848
---------------- ---------------
Total liabilities 4,067,555 3,780,617
---------------- ---------------
Minority interest 9,910 11,614
---------------- ---------------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share, authorized 150,000,000 shares; 60,105,374
and 56,100,074 shares issued and outstanding, after deducting
54,319,654 and 54,305,016 shares held in treasury 60,105 56,100
Additional paid-in capital 159,516 98,175
Net unrealized gain (loss) on investments 14,226 (41,309)
Retained earnings 824,307 768,849
---------------- ---------------
Total shareholders' equity 1,058,154 881,815
---------------- ---------------
Total $ 5,135,619 $ 4,674,046
================ ===============
<FN>
See notes to interim consolidated financial statements.
</TABLE>
2
NYFS04...:\30\76830\0001\6678\FRMN095V.110
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the periods ended September 30, 1995 and 1994
(Unaudited)
For the Three For the Nine
Month Period Ended Month Period Ended
September 30, September 30,
----------------------- ------------------------
1995 1994 1995 1994
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Insurance revenues and commissions $ 250,155 $ 231,920 $ 727,677 $ 673,719
Manufacturing 42,428 45,935 131,234 139,316
Trading stamps 4,435 4,844 13,607 14,886
Finance 13,512 12,202 40,292 32,732
Investment and other income 68,670 55,326 204,063 162,465
Net securities gains (losses) 11,787 (2,764) 11,559 (13,887)
------------- ------------ ---------------- --------------
390,987 347,463 1,128,432 1,009,231
------------- ------------ ---------------- --------------
EXPENSES:
Provision for insurance losses and policy benefits 214,442 182,164 619,507 544,029
Amortization of deferred acquisition costs 25,981 19,415 73,344 58,844
Cost of goods sold:
Manufacturing 31,571 34,151 100,783 100,042
Trading stamps 1,025 (189) 3,318 (273)
Interest 14,318 11,071 38,723 32,546
Salaries 22,272 22,212 65,885 64,563
Selling, general and other expenses 52,339 49,751 149,821 138,971
Minority interest 36 342 345 806
------------- ------------ ---------------- --------------
361,984 318,917 1,051,726 939,528
------------- ------------ ---------------- --------------
Income before income taxes 29,003 28,546 76,706 69,703
------------- ------------ ---------------- --------------
Income taxes:
Current (4,202) 174 144 8,297
Deferred 11,479 7,128 21,104 13,595
------------- ------------ ---------------- --------------
7,277 7,302 21,248 21,892
------------- ------------ ---------------- --------------
Net income $ 21,726 $ 21,244 $ 55,458 $ 47,811
============= ============ ================ ==============
Earnings per common and dilutive
common equivalent share $.37 $.37 $.94 $.82
==== ==== ==== ====
Fully diluted earnings per common share $.36 $.36 $.93 $.82
==== ==== ==== ====
<FN>
See notes to interim consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---- ----
(Thousands of dollars)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 55,458 $ 47,811
Adjustments to reconcile net income to net cash provided by operations:
Provision for deferred income taxes 21,104 13,595
Depreciation and amortization of property, equipment and leasehold improvements 13,241 12,627
Other amortization 72,844 65,404
Provision for doubtful accounts 11,515 9,964
Net securities (gains) losses (11,559) 13,887
Equity in losses of associated companies 1,552 5,585
(Gain) related to El Salvador Government bonds receivable -- (8,458)
Purchases of investments classified as trading (97,894) (100,506)
Proceeds from sales of investments classified as trading 124,337 93,327
Deferred policy acquisition costs incurred and deferred (89,605) (75,927)
Net change in:
Reinsurance receivable 40,335 132,507
Trade, notes and other receivables (48,597) (42,181)
Prepaids and other assets (14,297) (17,501)
Trade payables and expense accruals (24,611) 21,742
Other liabilities (2,636) (7,295)
Income taxes (2,069) (1,272)
Policy reserves 9,850 (113,808)
Unearned premiums 50,648 48,936
Other (1,631) 2,042
--------------- ---------------
Net cash provided by operating activities 107,985 100,479
--------------- ---------------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate, property, equipment and leasehold improvements (43,821) (69,624)
Proceeds from disposals of real estate, property and equipment 16,112 6,529
Advances on loan receivables (118,702) (133,810)
Investment in MK Gold Company in 1995 and Caja and HSD Venture in 1994 (22,474) (88,144)
Principal collections on loan receivables 93,727 88,942
Purchases of investments (other than short-term) (1,176,314) (876,256)
Proceeds from maturities of investments 450,783 282,032
Proceeds from sales of investments 720,242 672,265
--------------- ---------------
Net cash used for investing activities (80,447) (118,066)
--------------- ---------------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in credit agreement and other short-term borrowings 115 279
Net change in customer banking deposits 19,539 (7,550)
Net change in policyholder account balances (13,456) (14,239)
Issuance of long-term debt, net of issuance costs 101,390 50,000
Reduction of long-term debt (3,096) (26,342)
Sale of common shares and exercise of warrants, net of expenses 43,736 --
--------------- ---------------
Net cash provided by financing activities 148,228 2,148
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 175,766 (15,439)
Cash and cash equivalents at January 1, 252,495 291,414
--------------- ---------------
Cash and cash equivalents at September 30, $ 428,261 $ 275,975
=============== ===============
<FN>
See notes to interim consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the nine months ended September 30, 1995 and 1994
(Unaudited)
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-In (Loss) on Retained
Value Capital Investments Earnings Total
----- ------- ----------- -------- -----
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 55,794 $ 97,116 $ 49,912 $ 705,034 $ 907,856
Exercise of options to purchase
common shares 236 1,023 1,259
Purchase of stock for treasury (14) (267) (281)
Net change in unrealized gain (loss)
on investments (70,809) (70,809)
Net income 47,811 47,811
------------ ------------ ------------- ------------- ----------------
BALANCE, SEPTEMBER 30, 1994 $ 56,016 $ 97,872 $ (20,897) $ 752,845 $ 885,836
============ ============ ============= ============= ================
BALANCE, JANUARY 1, 1995 $ 56,100 $ 98,175 $ (41,309) $ 768,849 $ 881,815
Exercise of options to purchase
common shares 368 1,912 2,280
Purchase of stock for treasury (29) (698) (727)
Exercise of warrants to purchase
common shares (net of expenses)
and related income tax benefit 3,188 47,736 50,924
Issuance of common shares, net of
underwriting discounts 478 12,391 12,869
Net change in unrealized gain (loss)
on investments 55,535 55,535
Net income 55,458 55,458
------------ ------------ ------------- ------------- ----------------
BALANCE, SEPTEMBER 30, 1995 $ 60,105 $ 159,516 $ 14,226 $ 824,307 $ 1,058,154
============ ============ ============= ============= ================
<FN>
See notes to interim consolidated financial statements.
</TABLE>
5
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
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, 1994, which are included in
the Company's Annual Report filed on Form 10-K for such year (the "1994
10-K"). Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated balance
sheet at December 31, 1994 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 1995 presentation.
In July 1995, the Company declared a two-for-one stock split payable on
November 15, 1995 in the form of a 100% stock dividend to shareholders
of record on November 1, 1995. The financial statements (and notes
thereto) give retroactive effect to the stock split for all periods
presented. The Board of Directors of the Company has also stated its
current intention to declare and pay a $.25 per common share cash
dividend in December 1995 on each common share outstanding (after giving
effect to the stock split). Although the Board has not taken any action
with respect to the cash dividend, the Board anticipates that, absent
the occurrence of a material adverse change to the Company's current
business or financial condition, it will authorize the cash dividend
during the fourth quarter of 1995.
2. As more fully described in the 1994 10-K, the most recent statistical
studies of trading stamp redemptions have indicated that the historical
pattern of redemptions has changed and that the recorded liability for
unredeemed trading stamps is in excess of the amount that ultimately
will be required to redeem trading stamps outstanding. Accordingly, the
Company has been amortizing the aggregate apparent excess over a five
year period. As a result, cost of goods sold applicable to the trading
stamp operations reflects a credit of approximately $4,000,000 and
$9,000,000 for the nine month periods ended September 30, 1995 and 1994,
respectively, and $1,300,000 and $3,000,000 for the three month periods
ended September 30, 1995 and 1994, respectively. Based on the latest
studies, the unamortized apparent excess at September 30, 1995 was
approximately $1,340,000, exclusive of reserves for redemption service
expenses of approximately $24,348,000. Recently, the Company entered
into a contract with an independent third party to provide warehousing
and certain gift fulfillment services. The Company believes that this
agreement will reduce redemption service expenses and may result in a
reduction in the reserve required for such costs.
3. During the first quarter of 1994, the Company sold its remaining
interest in 6% U.S. dollar denominated El Salvador Government bonds.
Including principal payments received prior to the sale, the Company
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.
4. In connection with the settlement of certain litigation during the
second quarter of 1995, the Company reported a gain, net of expenses, of
approximately $3,800,000. The gain is included in the caption
"Investment and other income" for the nine month period ended September
30, 1995.
5. In June 1995, the Company purchased a 46.4% common stock interest in MK
Gold Company ("MK Gold") for an aggregate cash purchase price of
$22,500,000. In addition, the Company purchased at par all of a lender's
interest under a $20,000,000 revolving credit facility with MK Gold, of
which approximately $15,000,000 was outstanding. This amount was repaid
during the third quarter of 1995. MK Gold, an international gold mining
company whose shares are quoted on the Nasdaq National Market System,
reported total assets and stockholders' equity of $96,566,000 and
$68,288,000, respectively, at March 31, 1995. The Company will account
for its investment in MK Gold under the equity method of accounting
based on a fiscal period ended three months prior to the end of the
Company's reporting period.
6
<PAGE>
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued
6. On May 26, 1995, the Company's Colonial Penn Group property and casualty
subsidiaries entered into an agreement with the California Department of
Insurance to settle their Proposition 103 rollback refund for
approximately $17,000,000, which is substantially less than the
Insurance Department's original assessment. The fairness of this
settlement was challenged in an administrative proceeding by a
California consumer group, that has also challenged the Proposition 103
settlements of other insurance companies. Subsequent to a hearing held
in October 1995, the Company and the consumer group reached a
preliminary agreement to settle its Proposition 103 liability for an
amount not materially different from its original agreement with the
California Department of Insurance. The agreement must be approved by
the administrative judge who presided at the hearing and the California
Department of Insurance. The Company believes that the ultimate
resolution of this matter will not have a material adverse affect on the
Company's financial condition or results of operations and will not
exceed reserves established in prior years.
7. In June 1995, the Company sold $100,000,000 principal amount of its
newly authorized 8 1/4% Senior Subordinated Notes due 2005 in an
underwritten public offering. A portion of the proceeds was used to
repay indebtedness outstanding under the Company's revolving credit
agreements incurred in connection with the acquisition of MK Gold. The
remaining proceeds were added to working capital.
8. On September 13, 1995, Ian M. Cumming and Joseph S. Steinberg, Chairman
of the Board and President of the Company, respectively, and certain
members of Mr. Cumming's family exercised previously granted warrants to
purchase an aggregate of 3,188,000 common shares and sold such shares in
an underwritten public offering. In connection with such public
offering, the Company granted the underwriters an over allotment option,
which was exercised, for 478,200 common shares. Under the terms of the
warrant agreement, the Company was required to pay expenses of the sale,
other than underwriting discounts. As a result of the exercise of the
warrants and the exercise of the over allotment option, the Company
realized aggregate cash proceeds, net of expenses, of $43,736,000. For
income tax purposes, the exercise of the warrants will result in the
Company receiving a current income tax deduction of approximately
$57,305,000. For financial reporting purposes, the benefit of such
deduction ($20,057,000) was credited directly to shareholders' equity.
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 58,927,000 and
58,153,000 for the nine month periods ended September 30, 1995 and 1994,
respectively, and 59,427,000 and 58,055,000 for the three month periods
ended September 30, 1995 and 1994, 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 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
62,481,000 and 61,631,000 for the nine month periods ended September 30,
1995 and 1994, respectively, and 62,984,000 and 61,533,000 for the three
month periods ended September 30, 1995 and 1994, respectively.
10. Cash paid for interest and income taxes (net of refunds) was $37,138,000
and $2,221,000, respectively, for the nine month period ended September
30, 1995 and $32,694,000 and $9,564,000, respectively, for the nine
month period ended September 30, 1994.
7
<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 1994
10-K.
LIQUIDITY AND CAPITAL RESOURCES
During each of the nine month periods ended September 30, 1995 and 1994, the
Company operated profitably and net cash was provided from operations.
During the nine months ended September 30, 1995, the Company used its revolving
bank credit agreement facilities to meet daily cash requirements and in
connection with the MK Gold transaction.
In June 1995, the Company purchased a 46.4% common stock interest in MK Gold for
an aggregate cash purchase price of $22,500,000. In addition, the Company
purchased at par all of a lender's interest under a $20,000,000 revolving credit
facility with MK Gold, of which approximately $15,000,000 was outstanding. This
amount was repaid during the third quarter of 1995.
In June 1995, the Company sold $100,000,000 principal amount of its newly
authorized 8 1/4% Senior Subordinated Notes due 2005 in an underwritten public
offering. A portion of the proceeds was used to repay indebtedness outstanding
under the Company's revolving credit agreements incurred in connection with the
acquisition of MK Gold. The remaining proceeds were added to working capital.
During the second quarter of 1995, the Company purchased 2,365,200 common shares
of Rockefeller Center Properties, Inc. ("RCP") for approximately $11,130,000,
which increased its equity interest in RCP to 2,713,900 shares (7.1%) at an
average cost of $4.74 per share. RCP is a real estate investment trust, the
principal asset of which is a $1.3 billion collateralized loan to the owners of
the land and buildings known as Rockefeller Center in New York City. On November
7, 1995, RCP announced that, subject to shareholder approval, it had accepted an
offer from a group led by Goldman, Sachs & Company to buy out the shareholders
of RCP at a price of $8.00 per share. The Company is currently reviewing the
offer.
In July 1995, pursuant to the chapter 11 reorganization plan of HomeFed
Corporation ("HFC"), the Company acquired 41.2% of HFC's common stock for a net
cash investment of approximately $4,200,000. In addition, the Company entered
into a $20 million eight year secured loan with HFC, which is convertible into
additional shares of HFC common stock after three years (subject to certain
conditions) and which bears interest at the rate of 12% per year. HFC is a
public company headquartered in Salt Lake City, Utah, whose subsidiaries develop
real property.
In July 1995, the Company purchased approximately 52 acres of unimproved land
zoned for residential and commercial development in Walton County, Florida, for
approximately $13,000,000. The Company plans to make certain improvements to the
property, which will be subdivided into approximately 230 lots and sold in
phases.
On September 13, 1995, Ian M. Cumming and Joseph S. Steinberg, Chairman of the
Board and President of the Company, respectively, and certain members of Mr.
Cumming's family exercised previously granted warrants to purchase an aggregate
of 3,188,000 common shares and sold such shares in an underwritten public
offering. In connection with such public offering, the Company granted the
underwriters an over allotment option, which was exercised, for 478,200 common
shares. Under the terms of the warrant agreement, the Company was required to
pay expenses of the sale, other than underwriting discounts. As a result of the
exercise of the warrants and the exercise of the over allotment option, the
Company realized aggregate cash proceeds, net of expenses of $43,736,000. For
income tax purposes, the exercise of the warrants will result in the Company
receiving a current income tax deduction of approximately $57,305,000. For
financial reporting purposes, the benefit of such deduction ($20,057,000) was
credited directly to shareholders' equity.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF INTERIM OPERATIONS, continued.
As more fully described in the 1994 10-K, securities classified as "available
for sale" are carried at fair value with unrealized gains and losses reflected
as a separate component of shareholders' equity, net of taxes. Principally as a
result of decreases in market interest rates during 1995, the unrealized loss on
investments at the end of 1994 became an unrealized gain of $14,226,000 as of
September 30, 1995. While this has resulted in an increase in shareholders'
equity, it had no effect on results of operations or cash flows.
RESULTS OF OPERATIONS
THE 1995 PERIODS COMPARED TO THE 1994 PERIODS
Earned premium revenues of the Colonial Penn P&C Group were approximately
$363,757,000 and $327,104,000 for the nine month periods ended September 30,
1995 and 1994, respectively, and $128,568,000 and $112,447,000 for the three
month periods ended September 30, 1995 and 1994, respectively. The increase in
earned premiums principally resulted from acquired blocks of assigned risk
business from other insurance companies and increased premium volume on
voluntary automobile policies. Voluntary automobile policies in force at
September 30, 1995 were slightly greater than policies in force at December 31,
1994, as new business generated in the 1995 periods exceeded lapsed business.
Earned premium revenues and commissions of the property and casualty insurance
operations of the Empire Group were approximately $238,069,000 and $216,350,000
for the nine month periods ended September 30, 1995 and 1994, respectively, and
$80,727,000 and $76,865,000 for the three month periods ended September 30, 1995
and 1994, respectively. The increase in premium revenue principally resulted
from growth of policies in force and rate increases.
The Company's loss ratios for its property and casualty operations were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- --------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Loss Ratio:
GAAP 88.5% 78.4% 87.2% 82.0%
SAP 85.3% 79.0% 84.5% 81.6%
Expense Ratio:
GAAP 16.7% 18.3% 16.1% 18.1%
SAP 15.5% 17.6% 15.4% 17.0%
Combined Ratio:
GAAP 105.2% 96.7% 103.3% 100.1%
SAP 100.8% 96.6% 99.9% 98.6%
</TABLE>
The increase in the combined ratios is primarily attributable to the Empire
Group, which, principally during the first half of 1995, made additional
payments related to 1994 claims (primarily no-fault claims). In addition, during
the 1995 periods the Empire Group's reserves were strengthened in workmen's
compensation and automobile lines, principally as a result of revised loss
development patterns. The loss development may indicate that the new automobile
business acquired during recent years will have greater ultimate loss experience
than previously expected. Should actual loss development prove to be greater
than expected, additional reserve strengthening will occur. The Empire Group
will continue to analyze loss development patterns on a quarterly basis and will
evaluate the adequacy of its loss reserves.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF INTERIM OPERATIONS, continued.
The loss ratios for the Colonial Penn P&C Group reflect higher losses related to
acquired blocks of automobile assigned risk business, which are partially offset
by service fee income reflected as a reduction to the expense ratios. The
combined ratios reflect aggregate catastrophe losses and related loss adjustment
expenses estimated at approximately $2,990,000 for the nine month period ended
September 30, 1995 compared with $16,560,000 (including approximately
$11,560,000 related to the California earthquake) for the nine month period
ended September 30, 1994 (primarily all in the first quarter of 1994).
Earned premium revenues of the life and health insurance operations were
approximately $125,851,000 and $130,265,000 for the nine month periods ended
September 30, 1995 and 1994, respectively, and $40,860,000 and $42,608,000 for
the three month periods ended September 30, 1995 and 1994, respectively. Premium
revenues and provision for insurance losses and policy benefits of the life and
health operations reflect the continued profitable growth of the Graded Benefit
Life product. Premium revenues also reflect the run-off of the agent sold
Medicare supplement business, which had less favorable loss experience in 1995.
Manufacturing revenues decreased in the 1995 periods as compared to the 1994
periods principally due to reduced demand from customers of the bathroom
vanities division and a factory fire at the fibers division. This decrease was
partially offset by increased sales in the 1995 periods at the plastics
division, and increased revenues at the wire and cable divisions for the nine
month period ended September 30, 1995. The decrease in manufacturing gross
profit in the 1995 periods as compared to the 1994 periods principally reflects
the decrease in manufacturing sales, increased raw material costs at most
divisions and the fire at the fibers division. In addition, during the third
quarter of 1995, the Company sold a division that manufactured office furnishing
systems and recognized a loss of approximately $1,100,000.
Trading stamp revenues decreased in the 1995 periods compared to the 1994
periods principally due to reduced demand from existing customers. 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
$4,000,000 and $9,000,000 for the nine month periods ended September 30, 1995
and 1994, respectively, and $1,300,000 and $3,000,000 for the three month
periods ended September 30, 1995 and 1994, respectively.
Finance revenues reflect the level of consumer instalment loans. As more fully
described in the 1994 10-K, based on its experience in providing collateralized
automobile loans to individuals with poor credit histories, the Company
concluded that there were opportunities for successful expansion of this
business. Accordingly, on a controlled basis the Company is increasing its
investments in such loans. The Company's actual loss experience has increased
during this expansion, which in part reflects additional competition that has
recently entered this market. However, actual losses remain less than the 6%
reserve maintained on this portfolio. At September 30, 1995 and December 31,
1994, these loans aggregated $135,400,000 and $129,512,000, respectively.
Investment and other income increased in the 1995 periods compared to the 1994
periods as a result of higher available interest rates and increased fee income
related to acquired blocks of automobile assigned risk business. Investment and
other income for the nine month period ended September 30, 1995 includes a gain,
net of expenses, of approximately $3,800,000 related to the settlement of
certain litigation. 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.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF INTERIM OPERATIONS, continued.
Net securities gains (losses) were $11,559,000 and ($13,887,000) for the nine
month periods ended September 30, 1995 and 1994, respectively, and $11,787,000
and ($2,764,000) for the three month periods ended September 30, 1995 and 1994,
respectively. Principally during the third quarter of 1995, the Company sold its
interest in Washington Mutual, Inc. (the successor by merger to Olympus Capital
Corporation, in which the Company had a 17% interest) and recorded a gain of
$8,152,000. Included in the nine month period ended September 30, 1994 are
provisions for write-downs of investments of approximately $3,568,000.
Higher interest expense in the 1995 periods as compared to the 1994 periods
principally reflects an increased level of borrowings. Interest expense also
reflects the level of deposits at the Company's banking and industrial loan
subsidiaries and an increase in interest rates related to those deposits.
The increase in selling, general and other expenses in the 1995 periods as
compared to the 1994 periods principally reflects operating expenses of real
estate properties acquired during 1994, increased employee insurance costs,
expenses relating to certain investing activities and, for the nine month period
ended September 30, 1995, increased provision for bad debts. The real estate
properties acquired in 1994 did not generate significant revenues during the
1995 periods.
The provision for income taxes in the 1995 periods reflects a reduction for the
resolution of certain federal tax contingencies and, for the nine month period
ended September 30, 1995, a reduction in the tax provision for the favorable
resolution of a state tax matter. The provisions for income taxes in the 1994
periods were reduced to reflect certain tax benefits and foreign tax credits.
The number of shares used to calculate primary earnings per share amounts was
58,927,000 and 58,153,000 for the nine month periods ended September 30, 1995
and 1994, respectively, and 59,427,000 and 58,055,000 for the three month
periods ended September 30, 1995 and 1994, respectively. The number of shares
used to calculate fully diluted earnings per share amounts was 62,481,000 and
61,631,000 for the nine month periods ended September 30, 1995 and 1994,
respectively, and 62,984,000 and 61,533,000 for the three month periods ended
September 30, 1995 and 1994, respectively. The increase in the number of shares
utilized in calculating per share amounts was principally caused by the increase
in the market price of the Company's common stock.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) EXHIBITS.
27 Financial Data Schedule.
B) REPORTS ON FORM 8-K.
None
12
<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 13, 1995 By /s/ Joseph A. Orlando
----------------------------------------
Joseph A. Orlando
Vice President and Comptroller
(Principal Financial and Accounting Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------ ----------- ----------
27 Financial Data Schedule.
14
<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-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 428,261
<SECURITIES> 2,693,870
<RECEIVABLES> 797,266
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 112,414
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,135,619
<CURRENT-LIABILITIES> 0
<BONDS> 525,757
0
0
<COMMON> 60,105
<OTHER-SE> 998,049
<TOTAL-LIABILITY-AND-EQUITY> 5,135,619
<SALES> 131,234
<TOTAL-REVENUES> 1,128,432
<CGS> 100,783
<TOTAL-COSTS> 796,952
<OTHER-EXPENSES> 216,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,723
<INCOME-PRETAX> 76,706
<INCOME-TAX> 21,248
<INCOME-CONTINUING> 55,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,458
<EPS-PRIMARY> .94
<EPS-DILUTED> .93
</TABLE>
