<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
-------------
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1994
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-5721
LEUCADIA NATIONAL CORPORATION
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(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
(212) 460-1900
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(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------------------------- -----------------------------------
Common Shares, par value $1 per share New York Stock Exchange
Pacific Stock Exchange
10-3/8% Senior Subordinated Notes due New York Stock Exchange
June 15, 2002
5-1/4% Convertible Subordinated New York Stock Exchange
Debentures due February 1, 2003
7-3/4% Senior Notes due August 15, New York Stock Exchange
2013
Securities registered pursuant to Section 12(g) of the Act:
None.
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(Title of Class)
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
<PAGE>
Aggregate market value of the voting stock of the registrant held by non-
affiliates of the registrant at March 16, 1995 (computed by reference to
the last reported closing sale price of the Common Stock on the New York
Stock Exchange on such date): $694,255,320.
On March 16, 1995, the registrant had outstanding 28,130,812 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with
the 1995 annual meeting of shareholders of the registrant are incorporated
by reference into Part III of this Report.
<PAGE>
<PAGE>
PART I
Item 1. Business.
------ --------
THE COMPANY
GENERAL
The Company is a diversified financial services holding company
principally engaged in personal and commercial lines of property and
casualty insurance, life and health insurance, banking and lending,
manufacturing and the trading stamps business. The Company
concentrates on return on investment and cash flow to build long-term
shareholder value, rather than emphasizing volume or market share.
Additionally, the Company continuously evaluates the retention and
disposition of its existing operations and investigates possible
acquisitions of new businesses in order to maximize shareholder value.
Shareholders' equity has grown from a deficit of $7,657,000 at
December 31, 1978 (prior to the acquisition of a controlling interest
in the Company by the Company's Chairman and President), to a positive
shareholders' equity of $881,815,000 at December 31, 1994, equal to a
book value per common share of negative $.22 at December 31, 1978 and
$31.44 at December 31, 1994.
The Company's principal operations are its insurance businesses,
where it is a specialty markets provider of property and casualty and
life insurance products to niche markets. The Company's principal
personal lines insurance products are automobile insurance, homeowners
insurance, graded benefit life insurance marketed primarily to the age
50-and-over population and variable annuity products. The Company's
principal commercial lines are property and casualty products provided
for multi-family residential real estate, retail establishments and
taxicabs in the New York metropolitan area. For the year ended
December 31, 1994, the Company's insurance segments contributed 79% of
total revenue and, at December 31, 1994, constituted 78% of
consolidated assets.
The Company's insurance subsidiaries have a diversified
investment portfolio of securities, substantially all of which are
issued or guaranteed by the U.S. Treasury or by U.S. governmental
agencies or are rated "investment grade" by Moody's Investors Service
Inc. ("Moody's") and/or Standard & Poor's Corporation ("S&P").
Investments in mortgage loans, real estate and non-investment grade
securities represented less than 2% of the insurance subsidiaries'
portfolio at December 31, 1994. In the recent rising interest rate
environment, the Company's primary goal has been to preserve
investment capital.
The Company's banking and lending operations principally consist
of making instalment loans primarily funded by customer banking
deposits insured by the Federal Deposit Insurance Company (the
"FDIC"). The Company has established a niche market for automobile
loans to individuals with poor credit histories. The Company's
manufacturing operations primarily manufacture products for the "do-
it-yourself" home improvement market and for industrial and
agricultural markets.
The Company and certain of its subsidiaries have substantial tax
loss carryforwards. The amount and availability of the tax loss
carryforwards are subject to certain qualifications, limitations and
uncertainties as more fully discussed in the Notes to the Consolidated
Financial Statements.
As used herein, the term "Company" refers to Leucadia National
Corporation, a New York corporation organized in 1968, and its
subsidiaries, except as the context otherwise may require.
<PAGE>
<PAGE>
Financial Information About Industry Segments
---------------------------------------------
Certain information concerning the Company's operations is
presented in the following table.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(In millions)
Revenues:
--------
<S> <C> <C> <C>
Property and Casualty Insurance $ 872.1 $ 842.1 $ 849.0
Life Insurance 223.3 286.3 395.5
Banking and Lending 49.0 38.2 56.4
Incentive Services (a) 19.4 30.7 95.7
Manufacturing 180.1 173.8 168.8
Corporate and Other (b) 40.5 37.0 7.6
-------- -------- --------
$1,384.4 $1,408.1 $1,573.0
======== ======== ========
<CAPTION>
Income (loss) before income taxes:
---------------------------------
<S> <C> <C> <C>
Property and Casualty Insurance $ 96.4 $ 128.0 $ 108.4
Life Insurance 49.1 62.0 63.7
Banking and Lending 16.3 12.6 17.4
Incentive Services (a) 10.3 13.9 12.9
Manufacturing (11.7) (2.2) (6.6)
Corporate and Other (b)(c) (60.1) (37.4) (52.2)
-------- -------- --------
$ 100.3 $ 176.9 $ 143.6
======== ======== ========
<CAPTION>
Identifiable assets employed:
----------------------------
<S> <C> <C> <C>
Property and Casualty Insurance $2,117.9 $2,169.6 $1,843.3
Life Insurance 1,515.1 1,610.5 1,857.0
Banking and Lending 316.4 262.6 268.9
Incentive Services (a) 5.9 37.8 41.2
Manufacturing 93.5 101.0 105.8
Corporate and Other (d) 625.2 507.8 214.4
-------- -------- --------
$4,674.0 $4,689.3 $4,330.6
======== ======== ========
At December 31, 1994, the Company and its consolidated
subsidiaries had 4,374 full-time employees.
<FN>
----------------
(a) Includes trading stamp operations for all years and motivation
services operations for 1992. Certain investments that are
reflected in the caption Incentive Services in 1993 and 1992 are
reflected in the caption Corporate and Other in 1994.
(b) Includes Jordan Associated Companies (described below), gains
(losses) from certain investments and real estate and other
operations.
(c) Includes corporate interest expense and overhead, including
expenses related to acquisition and certain investing activities.
(d) Principally consists of cash, investments, real estate,
receivables and, at December 31, 1994 and 1993, the deferred
income tax asset of $144,631,000 and $114,001,000, respectively.
</TABLE>
2<PAGE>
<PAGE>
INSURANCE OPERATIONS
GENERAL
The Company engages in the personal property and casualty and
life and health insurance businesses on a nationwide basis and
specializes in commercial property and casualty insurance business in
the New York metropolitan area. The Company's principal property and
casualty insurance subsidiaries are the Colonial Penn P&C Group,
consisting of Colonial Penn Insurance Company ("CPI"), Colonial Penn
Madison Insurance Company ("Madison"), Colonial Penn Franklin
Insurance Company ("Franklin") and Bay Colony Insurance Company ("Bay
Colony"), and the Empire Group, consisting of Empire Insurance Company
("Empire") and Allcity Insurance Company ("Allcity"). The Company's
principal life insurance subsidiaries are Charter National Life
Insurance Company ("Charter"), Colonial Penn Life Insurance Company
("CPL") and Intramerica Life Insurance Company ("Intramerica"). In
conducting its insurance operations, the Company focuses primarily on
profitability and persistency rather than volume.
A.M. Best Company ("Best"), an independent rating agency, has
rated CPL, Charter, Madison, and the Empire Group "A" (excellent),
Intramerica "A-" (excellent) and CPI, Franklin and Bay Colony "B++"
(very good).
PROPERTY AND CASUALTY INSURANCE
The Colonial Penn P&C Group, which maintains its headquarters in
Valley Forge, Pennsylvania, is licensed in all 50 states, the District
of Columbia, Puerto Rico and the U.S. Virgin Islands and writes
insurance throughout most of the United States. The Colonial Penn P&C
Group has regional offices in Wayne, Pennsylvania, Tampa, Florida and
Phoenix, Arizona. The Empire Group is licensed in five states and
operates primarily in the New York metropolitan area.
During the year ended December 31, 1994, 80%, 14% and 6% of net
earned premiums of the Company's property and casualty insurance
operations were derived from personal and commercial automobile lines,
other commercial lines and other personal lines, respectively. Total
property and casualty net earned premiums for the year ended December
31, 1994 were $746,400,000, of which $447,200,000 was attributable to
the Colonial Penn P&C Group.
Set forth below is certain statistical information for the
Company's property and casualty operations prepared in accordance with
generally accepted accounting principles ("GAAP") and statutory
accounting principles ("SAP"). The Loss Ratio is the ratio of
incurred losses and loss adjustment expenses to net premiums earned.
The Expense Ratio is the ratio of underwriting expenses (policy
acquisition costs, commissions, and a portion of administrative,
general and other expenses attributable to underwriting operations) to
net premiums written, if determined in accordance with SAP, or to net
premiums earned, if determined in accordance with GAAP. A Combined
Ratio below 100% indicates an underwriting profit and a Combined Ratio
above 100% indicates an underwriting loss. The Combined Ratio does
not include the effect of investment income.
3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Loss Ratio:
GAAP 81.2% 76.9% 82.3%
SAP 81.6% 76.1% 85.3%
Industry (SAP) (a) N/A 79.5% 88.1%
Expense Ratio:
GAAP 17.9% 20.0% 19.4%
SAP 17.2% 17.6% 17.5%
Industry (SAP) (a) N/A 27.4% 27.6%
Combined Ratio (b):
GAAP 99.1% 96.9% 101.7%
SAP 98.8% 93.7% 102.8%
Industry (SAP) (a) N/A 106.9% 115.7%
<FN>
---------------
(a) Source: Best's Aggregates & Averages, Property/Casualty, 1994 Edition.
Industry combined ratios may not be fully comparable as a result of,
among other things, differences in geographical concentration and in the
mix of property and casualty insurance products.
(b) For 1993, the difference in the treatment of certain costs for GAAP and
SAP purposes was a principal reason for the difference between the GAAP
Combined Ratio and the SAP Combined Ratio. For 1992, the results of
certain accident and health insurance business, which are reflected in
the SAP Combined Ratio but are not reflected in the GAAP Combined Ratio,
included a non-recurring income item which reduced the SAP Combined
Ratio. In addition, in 1992 certain income credits were recognized only
for GAAP purposes.
</TABLE>
Based on published reports, the Colonial Penn P&C Group's SAP Expense
Ratio for 1993, the last year for which annual industry data is
available, is among the lowest in the industry.
The Colonial Penn P&C Group
The Colonial Penn P&C Group's primary business is providing
private passenger automobile and homeowners insurance coverage to the
mature adult population. As of December 31, 1994, the Group had
approximately 352,000 voluntary auto policies in force. Substantially
all of the Group's policies are written for a one-year period.
However, in many states CPI and Franklin offer a "guaranteed lifetime
protection" provision to certain qualifying policyholders that ensures
their policies will be renewed at rates then in effect for their
classification.
The Colonial Penn P&C Group primarily markets its insurance
products to the standard and preferred risk market segments through
direct response marketing methods. Direct response marketing includes
any form of marketing in which a company and a customer deal directly
with each other, rather than through an insurance agent. The Colonial
Penn P&C Group has become a low cost provider of its products to its
niche markets,
4<PAGE>
<PAGE>
enabling it to charge competitive rates. Since acquisition of the
Colonial Penn P&C Group in 1991, the Company has substantially reduced
the Group's marketing expenses, which the Company did not believe were
justified by prior operating results, and also refined its marketing
efforts. This strategy has resulted in a decrease in policies in
force; however, the rate of decline has slowed in each year since
acquisition. The Company believes that new business generated in 1995
will exceed lapsed premiums, although there can be no assurance that
this will be achieved.
In recent years, the Colonial Penn P&C Group has acquired blocks
of private passenger automobile assigned risk business from other
insurance companies. In addition to the premiums paid by
policyholders, the Group also receives fee income from the insurance
company from which the business was acquired. The Group's low expense
ratio enables it to offer competitive rates for this business. The
Colonial Penn P&C Group currently has contracts in force covering
approximately $100,000,000 of annualized written premium.
Net earned premiums for the Colonial Penn P&C Group for the year
ended December 31, 1994 were concentrated in the states listed below:
<TABLE>
<CAPTION>
Percentage of Net
Earned Premiums
-----------------
State Automobile (1) Homeowners
----- -------------- ----------
<S> <C> <C>
California (2) 19% 15%
Florida 17 26
New York 13 11
Connecticut 7 4
Arizona 7 6
Pennsylvania 4 6
All others 33 32
--- ---
Total 100% 100%
=== ===
<FN>
--------------
(1) Excludes net earned premiums related to acquired assigned risk business
described above and mandatory assumed risk business, which generally
relates to the amount of writings in the applicable state.
(2) For a discussion of the impact of legislation relating to California
property and casualty operations, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
</TABLE>
Prior to the Company's acquisition of Colonial Penn, CPI wrote as
primary insurer or as a reinsurer a variety of diverse commercial
property and casualty insurance business known as "Special Risks."
The nature of most of this insurance, which was not written after
1988, involves exposures which can be expected to develop over a
relatively long period of time before a definitive determination of
ultimate losses and loss adjustment expenses can be established and
the relevant reinsurance collected. Although losses with respect to
this block of business are particularly difficult to predict
accurately, the Company believes, based in part upon a
5 <PAGE>
<PAGE>
recently completed independent actuarial review, that it has recorded
adequate reserves as of December 31, 1994 ($63,700,000, before
reinsurance).
The Empire Group
The Empire Group provides personal insurance coverage to
automobile owners and homeowners and commercial insurance for
residential real estate, restaurants, retail establishments, taxicabs
(both medallion and radio-controlled) and several types of service
contractors.
For the years ended December 31, 1994, 1993 and 1992, net earned
premiums and commissions for the Empire Group were $299,200,000,
$259,400,000 and $243,100,000, respectively. Substantially all of the
Empire Group policies are written in New York for a one-year period.
The Empire Group is licensed in New York to write all lines of
insurance that may be written by a property and casualty insurer,
except residual value, credit, unemployment, animal and marine
protection and indemnity insurance and ocean marine insurance.
As is true with the Company's other insurance subsidiaries, the
Empire Group's marketing strategy emphasizes profitability rather than
volume. The voluntary business of the Empire Group is produced
through general agents, local agents and insurance brokers, who are
compensated for their services by payment of commissions on the
premiums they generate. There are five general agents, one of which
is owned by Empire, and approximately 396 local agents and insurance
brokers presently acting under agreements with the Empire Group.
These agents and brokers also represent other competing insurance
companies.
Like the Colonial Penn P&C Group, the Empire Group also has
acquired blocks of private passenger automobile and commercial
automobile assigned risk business from other insurance companies. The
Empire Group currently has contracts in force covering approximately
$100,000,000 of annualized written premiums. In addition, the Empire
Group receives a fee as a "servicing carrier," providing
administrative services, including claims processing, underwriting and
collection activities, for the New York Public Automobile Pool. This
latter arrangement does not involve the assumption of any material
underwriting risk by the Empire Group.
Losses and Loss Adjustment Expenses
Liabilities for unpaid losses, which are not discounted (except
for certain workers' compensation liabilities), and loss adjustment
expenses ("LAE") are determined using case-basis evaluations,
statistical analyses and estimates for salvage and subrogation
recoverable and represent estimates of the ultimate claim costs of all
unpaid losses and LAE. Liabilities include a provision for losses
which have occurred but have not yet been reported. These estimates
are subject to the effect of trends in future claim severity and
frequency experience. Adjustments to such estimates are made from
time to time due to changes in loss experience and are reflected in
current earnings.
The Company's property and casualty insurance subsidiaries rely
upon standard actuarial ultimate loss projection techniques to obtain
estimates of liabilities for losses and LAE. These projections
include the extrapolation of both losses paid and incurred by business
line and accident year and implicitly consider the impact of inflation
and claims settlement patterns upon ultimate claim costs based upon
historical patterns. In addition, methods based upon average loss
costs, reported claim counts and pure premiums are reviewed in order
to obtain a consistent range of estimates for setting the reserve
levels. For further input, loss reserve committees periodically
review changes in operations in pertinent areas including underwriting
standards, product mix, claims management and legal climate.
6<PAGE>
<PAGE>
In the following table, the liability for losses and LAE of the
Company's property and casualty insurance subsidiaries are reconciled
for each of the three years ended December 31, 1994. Included therein
are current year data and prior year development.
RECONCILIATION OF LIABILITY FOR LOSSES AND
LOSS ADJUSTMENT EXPENSES
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Net liability for losses
and LAE at
beginning of year (a) $ 889,082 $ 904,326 $938,384
---------- ---------- --------
Provision for losses and
LAE for claims occurring
in the current year 679,377 624,048 619,691
Decrease in estimated
losses and LAE for
claims occurring in
prior years (71,484) (84,382) (41,912)
---------- ---------- --------
Total incurred losses
and LAE 607,893 539,666 577,779
---------- ---------- --------
Reclassification of
uncollectible
reinsurance reserves
due to commutations-
prior years 15,528 - -
---------- ---------- --------
Losses and LAE payments for
claims occurring during:
Current year 259,295 236,369 239,055
Prior years 329,303 318,541 372,782
---------- ---------- --------
588,598 554,910 611,837
---------- ---------- --------
923,905 889,082 904,326
Reserve deducted above for
reinsurance not considered
collectible 26,547 41,065 34,273
---------- ---------- --------
950,452 930,147 938,599
Reinsurance
recoverable (b) 117,566 121,721 -
---------- ---------- --------
Liability for losses and
LAE at end of year as
reported in financial
statements $1,068,018 $1,051,868 $938,599
========== ========== ========
<FN>
-------------
(a) The liability for losses and LAE at January 1, 1992 excludes
approximately $41,998,000 of reinsurance not considered collectible.
(b) For 1992, liability for losses and LAE is shown net of reinsurance
recoverable.
</TABLE>
7<PAGE>
<PAGE>
The Company's property and casualty insurance subsidiaries'
liability for losses and LAE as of December 31, 1994 was $933,033,000
determined in accordance with SAP and $1,068,018,000 determined in
accordance with GAAP. The difference principally relates to
liabilities assumed by reinsurers, which are not deducted from GAAP
liabilities ($144,113,000), reduced by $4,035,000, net, included in
accounts other than property and casualty loss reserves for GAAP and
$5,093,000 for salvage and subrogation.
The tables below present the development of balance sheet
liabilities from 1984 through 1994 and include periods prior to
acquisition for the Empire Group and the Colonial Penn P&C Group.
Because of substantial differences in the development of reserves of
the Empire Group and the Colonial Penn P&C Group, loss and LAE
development data is presented separately for each group. The
liability line at the top of each table indicates the estimated
liability for unpaid losses and LAE recorded as of the dates
indicated. The middle section of the table shows the re-estimated
amount of the previously recorded liability based on experience as of
the end of each succeeding year. As more information becomes
available and claims are settled, the estimated liabilities are
adjusted upward or downward with the effect of decreasing or
increasing net income at the time of adjustment. The lower section of
the table shows the cumulative amount paid with respect to the
previously recorded liability as of the end of each succeeding year.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the
initial 1984 liability estimate indicated on the Empire Group table
($156,434,000) has been re-estimated during the course of the
succeeding ten years, resulting in a re-estimated liability at
December 31, 1994 of $140,989,000, or a redundancy of $15,445,000. If
the re-estimated liability exceeded the liability initially
established, a cumulative deficiency would be indicated. The
cumulative deficiencies reflected in the Colonial Penn P&C Group table
are for periods prior to the Company's acquisition of that Group. The
Company believes that the Colonial Penn P&C Group's conservatism and
improved claims management procedures since acquisition in 1991 have
contributed significantly to the creation of the redundancies included
in its table below.
In evaluating this information, it should be noted that each
amount shown for "cumulative redundancy (deficiency)" includes the
effects of all changes in amounts for prior periods. For example, the
amount of the redundancy (deficiency) related to losses settled in
1988, but incurred in 1984, will be included in the cumulative
redundancy (deficiency) amount for 1984, 1985, 1986 and 1987. This
table is not intended to and does not present accident or policy year
loss and LAE development data. Conditions and trends that have
affected development of the liability in the past may not necessarily
occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on these tables.
8<PAGE>
<PAGE>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT (THE EMPIRE GROUP)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for
Unpaid Losses and
Loss Adjustment
Expenses $156,434 $165,713 $182,133 $206,709 $222,814 $235,223 $251,401 $280,679 $322,516 $353,917 $406,695
Liability
Re-estimated
as of:
One Year Later $142,474 $160,728 $180,975 $198,384 $213,671 $227,832 $249,492 $280,020 $321,954 $344,156 $ -
Two Years Later 144,504 162,962 175,305 194,530 206,088 217,432 245,141 277,866 324,262
Three Years Later 143,635 156,870 170,152 188,843 198,500 212,649 243,849 284,052
Four Years Later 139,113 157,001 168,574 184,564 194,324 211,859 247,314
Five Years Later 139,441 155,413 165,717 181,990 196,070 211,952
Six Years Later 139,584 154,045 164,487 183,015 196,646
Seven Years Later 139,435 154,151 166,266 183,082
Eight Years Later 139,741 155,727 165,953
Nine Years Later 141,054 155,411
Ten Years Later 140,989
Cumulative
Redundancy
(Deficiency) $ 15,445 $ 10,302 $ 16,180 $ 23,627 $ 26,168 $ 23,271 $ 4,087 $ (3,373) $ (1,746) $ 9,761 $ -
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Cumulative Amount
of Liability
Paid Through:
One Year Later $ 44,056 $ 51,795 $ 54,359 $ 60,446 $ 64,140 $ 65,822 $ 78,954 $ 89,559 $113,226 $116,986 $ -
Two Years Later 74,265 83,249 88,770 97,627 101,206 109,479 126,908 150,043 182,250
Three Years Later 95,527 106,348 114,322 123,092 131,705 140,916 167,330 197,848
Four Years Later 110,368 123,275 130,433 142,910 152,330 166,023 196,099
Five Years Later 120,479 132,618 141,346 155,786 168,117 182,001
Six Years Later 126,094 139,276 149,079 164,213 178,095
Seven Years Later 130,015 143,926 153,681 170,215
Eight Years Later 132,600 146,840 157,332
Nine Years Later 134,881 149,645
Ten Years Later 137,100
Gross Liability -
End of Year $391,829 $451,442
Reinsurance 37,912 44,747
-------- --------
Net Liability -
End of Year as
Shown Above $353,917 $406,695
======== ========
Gross Re-estimated
Liability - Latest $393,045
Re-estimated
Reinsurance - Latest 48,889
--------
Net Re-estimated
Liability - Latest $344,156
========
Gross Cumulative
Deficiency $ (1,216)
========
</TABLE>
9<PAGE>
<PAGE>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT
(THE COLONIAL PENN P&C GROUP)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------------------------------
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for
Unpaid Losses and
Loss Adjustment
Expenses $215,200 $217,000 $324,700 $386,200 $ 410,500 $ 448,800 $626,300 $657,700 $581,810 $535,165 $517,210
Liability
Re-estimated
as of:
One Year Later $193,200 $236,500 $352,600 $389,900 $ 445,600 $ 555,900 $659,800 $616,400 $497,994 $473,442 $ -
Two Years Later 198,800 245,900 340,600 409,000 506,800 588,600 619,600 574,000 463,885
Three Years Later 203,500 241,600 338,700 443,700 535,600 563,800 614,000 555,800
Four Years Later 200,000 248,100 359,400 467,300 522,800 565,800 605,900
Five Years Later 197,100 231,200 384,000 459,400 526,700 562,900
Six Years Later 193,500 257,600 375,700 464,700 526,200
Seven Years Later 199,200 250,800 381,300 465,300
Eight Years Later 201,100 255,900 384,900
Nine Years Later 202,900 261,700
Ten Years Later 206,900
Cumulative
Redundancy
(Deficiency) $ 8,300 $(44,700) $(60,200) $(79,100)$(115,700) $(114,100)$ 20,400 $101,900 $117,925 $ 61,723 $ -
======== ======== ======== ======== ========= ========= ======== ======== ======== ======== ========
Cumulative Amount
of Liability
Paid Through:
One Year Later $105,500 $126,200 $177,100 $207,700 $ 243,300 $ 258,500 $279,300 $283,200 $205,200 $212,317 $ -
Two Years Later 156,600 178,500 249,800 304,000 353,300 387,500 432,500 390,100 317,492
Three Years Later 177,500 208,600 288,700 356,800 419,900 467,500 492,900 461,000
Four Years Later 187,600 227,600 313,700 393,100 462,200 496,400 536,500
Five Years Later 195,600 213,100 332,700 416,800 476,400 523,400
Six Years Later 187,000 223,000 343,600 425,500 496,900
Seven Years Later 190,800 227,800 349,200 441,800
Eight Years Later 192,700 231,100 366,000
Nine Years Later 194,400 245,800
Ten Years Later 203,200
Gross Liability -
End of Year $660,039 $616,576
Reinsurance 124,874 99,366
-------- --------
Net Liability -
End of Year as
Shown Above $535,165 $517,210
======== ========
Gross Re-estimated
Liability - Latest $592,052
Re-estimated
Reinsurance - Latest 118,610
--------
Net Re-estimated
Liability - Latest $473,442
========
Gross Cumulative
Redundancy $ 67,987
========
</TABLE>
10<PAGE>
<PAGE>
LIFE INSURANCE
The principal life insurance products offered during the three
year period ended December 31, 1994 were "Graded Benefit Life" and
variable annuity products. The Company profitably increased sales of
these products in 1994 and continues to explore the development of
other new products for its niche markets. Through its various
subsidiaries, the Company is licensed in all 50 states, the District
of Columbia, Puerto Rico, Guam and the U.S. Virgin Islands and
generally sells its products throughout most of the United States.
Total direct life insurance in force as of December 31, 1994 was $2.3
billion.
The following table reflects premium receipts on variable annuity
and other investment oriented products and premiums earned on other
life and health insurance products. Variable annuity and other
investment oriented product premium receipts are not recorded as
revenue under GAAP but are recorded in a manner similar to a deposit,
and are included below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Graded Benefit Life $113,678 $109,838 $109,552
Variable Annuity 98,557 81,484 58,207
Other Investment
Oriented Products 9,523 6,828 9,828
Agent-sold Medicare
Supplement Products (1) 35,967 47,364 62,724
Other Health Products 16,225 18,992 22,367
Other 2,629 495 1,847
-------- -------- --------
Total (2) $276,579 $265,001 $264,525
======== ======== ========
<FN>
------------------
(1) Effective December 31, 1992, the Company ceased marketing Medicare
Supplement products through agents.
(2) Excludes premium receipts (refunds) in 1993 and 1992 of ($1,655,000) and
$28,745,000, respectively, on reinsurance of certain ordinary life
policies and group life and health insurance contracts underwritten by
other insurance companies and assumed by the life insurance
subsidiaries.
</TABLE>
Life and Health Insurance Products
Graded Benefit Life. "Graded Benefit Life" is a guaranteed-issue
product. These modified-benefit, whole life policies are offered on
an individual basis primarily to persons age 50 to 80, principally in
face amounts of $350 to $10,000, without medical examination or
evidence of insurability. Premiums are paid as frequently as monthly.
Benefits paid are less than the face amount of the policy during the
first two years, except in cases of accidental death. Graded Benefit
Life is marketed using direct response marketing techniques. New
policyholder leads are generated primarily from television
advertisements. The Company intends to continue to concentrate its
marketing efforts towards soliciting new policyholders where the cost
is justified, upgrading existing policyholders' policy packages and
obtaining referrals from existing policyholders.
Investment Oriented Products. The principal investment oriented
product offered is a no-load variable annuity ("VA") product. The VA
product is marketed as an investment vehicle to individuals seeking to
defer,
11<PAGE>
<PAGE>
for federal income tax purposes, the annual increase in their account
balance. Premiums from this VA product either are invested at the
policyholders' election in unaffiliated mutual funds where the
policyholder bears the entire investment risk or in a fixed account
where the funds earn interest at rates determined by the Company. The
Company's VA product is currently marketed in conjunction with
Scudder, Stevens and Clark, a mutual fund manager.
Medicare Supplement Products. In 1992, the Company decided to
discontinue actively marketing Medicare supplement products due to
increased competition in this market. The increased competition
resulted from federal and state regulation that mandated
standardization of such products. The Company does continue to offer,
on a profitable basis, renewals of its non-standardized products to
existing policyholders. The Company expects its renewals of these
products will continue to decline in the future.
INSURANCE OPERATIONS - GENERAL
Investments
Investment activities represent a significant part of the
Company's insurance related revenues and profitability. Investments
are managed by the Company's investment advisors under the direction
of, and upon consultation with, the Company's several investment
committees.
The Company's insurance subsidiaries have a diversified
investment portfolio of securities, substantially all of which are
rated "investment grade" by Moody's and/or S&P or issued or guaranteed
by the U.S. Treasury or by governmental agencies. The Company's
insurance subsidiaries do not generally invest in less than
"investment grade" or "non-rated" securities, real estate or
mortgages, although from time to time they may make such investments
in amounts not expected to be material. In the recent rising interest
rate environment, the Company's primary goal has been to preserve
investment capital.
The composition of the Company's insurance subsidiaries'
investment portfolio as of December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
PROPERTY AND CASUALTY LIFE AND HEALTH
--------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Bonds and notes:
U.S. Government and agencies 73% 75% 77% 75%
Rated investment grade 23 22 16 19
Non rated - other - - 1 1
Rated less than investment grade 1 - 1 -
Policyholder loans - - 2 2
Equity securities 1 1 1 1
Other, principally accrued interest 2 2 2 2
--- --- --- ---
Total 100% 100% 100% 100%
Estimated average yield to maturity === === === ===
of bonds and notes (a) 6.5% 6.2% 6.2% 6.2%
Estimated average remaining life of bonds
and notes (a) 3.5 yrs. 4.5 yrs. 3.9 yrs. 5.1 yrs.
Carrying value of investment portfolio $1,603,083 $1,650,085 $772,137 $779,739
Market value of investment portfolio $1,602,242 $1,651,411 $771,553 $780,867
<FN>
-----------------
(a) Excludes trading securities, which are not significant.
</TABLE>
12<PAGE>
<PAGE>
Reinsurance
Reinsurance is obtained for investment oriented products for face
amounts in excess of $500,000 per life. The life insurance
subsidiaries generally do not obtain reinsurance for the Graded
Benefit Life products because these policies generally have a low face
amount. The Colonial Penn P&C Group obtained reinsurance for casualty
risks in excess of $2,000,000 in 1994 and 1993, although most Colonial
Penn P&C Group automobile policies do not have policy limits in excess
of $100,000 per risk and $300,000 per accident. The Empire Group's
maximum retained limit for workers' compensation was $500,000 from
July 1, 1992 through December 31, 1994 and $200,000 from January 1,
1992 through June 30, 1992; for other property and casualty lines, the
Empire Group's maximum retained limit was $225,000 for 1994 and 1993
and $175,000 for 1992.
Additionally, the Company's property and casualty insurance
subsidiaries have entered into certain excess of loss and catastrophe
treaties to protect against certain losses. The Colonial Penn P&C
Group's retention of lower level losses in such treaties was
$11,000,000 in 1994 and 1993, and $4,000,000 in 1992. Although the
Group has completed its 1995 reinsurance program at acceptable upper
loss limits, it was unable to obtain 1994 levels of deductibility at
reasonable cost. Accordingly, the Group's retention of lower level
losses was increased to $15,000,000. The Empire Group's retention of
lower level losses in such treaties was $3,000,000 for 1994 and 1993,
and $1,750,000 for 1992. The Company has not experienced any material
losses to date in 1995, including losses relating to recent storm damage
in California.
Although reinsurance does not legally discharge an insurer from
its primary liability for the full amount of the policy liability, it
does make the assuming reinsurer liable to the insurer to the extent
of the reinsurance ceded. The Company's reinsurance generally has
been placed with certain of the largest reinsurance companies,
including (with their respective Best ratings) General Reinsurance
Corporation (A++), Lincoln National Life Insurance Co. (A+) and Munich
American Reinsurance Company (A++), each of which the Company believes
to be financially capable of meeting its respective obligations.
However, to the extent that any reinsuring company is unable to meet
its obligations, the Company's insurance subsidiaries would be liable
for the reinsured risks. The Company has established reserves, which
the Company believes are adequate, for any nonrecoverable reinsurance.
Competition
The insurance industry is a highly competitive industry, in which
many of the Company's competitors have substantially greater financial
resources, larger sales forces, more widespread agency and broker
relationships, and more diversified lines of insurance coverage.
Additionally, certain competitors market their products with
endorsements from affinity groups, while the Company's products are
for the most part unendorsed, which may give such other companies a
competitive advantage. Congress is considering changes to federal
banking laws, certain of which could result in banks being able to
offer insurance products in direct competition with the Company. The
Company is unable to determine what effect, if any, such changes may
have on the Company's operations.
VA products are subject to regulation both as insurance policies
and as securities. The Company expects sales of its no-load VA
product to be cyclical, generally following the securities markets.
The attractiveness of VA products as an investment vehicle is closely
linked to the tax status of such products. Typically, increases in
account values of VA products are not taxed until distributed in the
form of either surrenders or annuity payments. The taxable portion of
distributions is taxed as ordinary income.
13<PAGE>
<PAGE>
The property and casualty insurance industry has historically
been cyclical in nature, with periods of less intense price competi-
tion and high underwriting standards generating significant profits,
followed by periods of increased price competition and lower under-
writing standards resulting in reduced profitability or loss. Price
competition has been significant in recent years. The cyclicality and
competitive nature of the property and casualty insurance business
historically have contributed to significant industry-wide quarter-to-
quarter and year-to-year fluctuations in underwriting results and net
income. Its profitability is affected by many factors, including rate
competition, severity and frequency of claims (including catastrophe
losses), interest rates, state regulation, court decisions and
judicial climate, all of which are outside the Company's control.
Government Regulation
Insurance companies are subject to detailed regulation and
supervision in the states in which they transact business. Such
regulation pertains to matters such as approving policy forms and
various premium rates, minimum reserves and loss ratio requirements,
the type and amount of investments, minimum capital and surplus
requirements, granting and revoking licenses to transact business,
levels of operations and regulating trade practices. The majority of
the Company's property and casualty insurance operations are in states
requiring prior approval by regulators before proposed rates may be
implemented. Certain states have indicated that they may change the
bases (e.g., age, sex and geographic location) on which rates
traditionally have been established. Rates proposed for life
insurance generally become effective immediately upon filing.
Insurance companies are required to file detailed annual reports with
the supervisory agencies in each of the states in which they do
business, and are subject to examination by such agencies at any time.
Increased regulation of insurance companies at the state level and new
regulation at the federal level is possible, although the Company
cannot predict the nature or extent of any such regulation or what
impact it would have on the Company's operations.
The National Association of Insurance Commissioners ("NAIC") has
adopted model laws incorporating the concept of a "risk based capital"
("RBC") requirement for insurance companies. Generally, the RBC
formula is designed to measure the adequacy of an insurer's statutory
capital in relation to the risks inherent in its business. The RBC
formula is used by the states as an early warning tool to identify
weakly capitalized companies for the purpose of initiating regulatory
action. Each of the Company's insurance subsidiaries' RBC ratio as of
December 31, 1994 substantially exceeded minimum requirements.
The NAIC also has adopted various ratios for insurance companies
which, in addition to the RBC ratio, are designed to serve as a tool
to assist state regulators in discovering potential weakly capitalized
companies or companies with unusual trends. Generally, insurance
companies having three or more of such ratios outside their "normal"
range may be designated as requiring regulatory attention. Charter
had four "other than normal" NAIC ratios for the year ended December
31, 1994, three of which related to either the 1993 reinsurance of a
block of life insurance business described under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" or Charter's investment in its insurance subsidiaries.
The Company believes that there are no underlying problems or
weaknesses at Charter and that it is unlikely that material adverse
regulatory action will be taken.
On November 8, 1988, California voters passed Proposition 103, an
insurance initiative that requires, among other things, a 20% rollback
in insurance rates for policies written or renewed during the twelve
month period beginning November 8, 1988. In November 1994, the
Colonial Penn P&C Group received an order requiring it to refund
$35,300,000, plus $21,700,000 of interest as its rollback obligation.
The Colonial Penn P&C Group disagrees with the calculation of the
assessment. The Company is in discussions with the California
Department of Insurance and has filed a request for a formal hearing
should informal discussions fail
14<PAGE>
<PAGE>
to come to a satisfactory conclusion. The Company believes that the
ultimate resolution of this matter will not have a material adverse
effect on the Company's financial condition or results of operations
and will not exceed reserves established in prior years.
The Company's insurance subsidiaries are members of state
insurance funds which provide certain protection to policyholders of
insolvent insurers doing business in those states. Due to
insolvencies of certain insurers in recent years, the Company's
insurance subsidiaries have been assessed certain amounts which have
not been material and are likely to be assessed additional amounts by
state insurance funds. The Company believes that it has provided for
all anticipated assessments and that any additional assessments will
not have a material adverse effect on the Company's financial
condition or results of operations.
BANKING AND LENDING
The Company's banking and lending operations primarily are
conducted through American Investment Bank, N.A. ("AIB"), its national
bank subsidiary, American Investment Financial ("AIF"), an industrial
loan corporation, and Transportation Capital Corp. ("TCC"), a small
business investment company. AIB and AIF take money market and other
non-demand deposits that are eligible for insurance provided by the
FDIC. At December 31, 1994, AIB and AIF had deposits of $179,888,000
compared to $173,365,000 at December 31, 1993. AIB and AIF currently
have several deposit-taking and lending facilities in the Salt Lake
City area. TCC makes collateralized loans to operators of medallion
taxicabs and limousines.
At December 31, 1994, the Company's consolidated banking and
lending operations had outstanding loans (net of unearned finance
charges) of $264,196,000 compared to $205,744,000 at December 31,
1993. At December 31, 1994, 49% were loans to individuals generally
collateralized by automobiles; 22% were unsecured loans to individuals
acquired from others in connection with investments in limited
partnerships; 23% were unsecured loans to executives and
professionals; 4% were loans to small business concerns collateralized
principally by taxicab medallions and other personal property; and 2%
were instalment loans to consumers, substantially all of which were
collateralized by real or personal property.
It is the Company's policy to charge to income an allowance for
losses which, based upon management's analysis of numerous factors,
including current economic trends, aging of the loan portfolio and
historical loss experience, is deemed adequate to cover reasonably
expected losses on outstanding loans. At December 31, 1994, the
allowance for loan losses for the Company's entire loan portfolio was
$12,308,000 or 4.7% of the net outstanding loans, compared to
$8,341,000 or 4.1% of net outstanding loans at December 31, 1993.
The funds generated by the deposits are primarily used to make
instalment loans, including collateralized personal automobile loans
to individuals who have difficulty in obtaining credit. These
automobile loans are made at interest rates above those charged to
individuals with good credit histories. In determining which
individuals qualify for these loans, the Company takes into account a
number of highly selective criteria with respect to the individual as
well as the collateral to attempt to minimize the number of defaults.
Additionally, the Company closely monitors these loans and takes
prompt possession of the collateral in the event of a default. For
the three year period ended December 31, 1994, the Company generated
$182,448,000 of these loans ($101,000,000 during 1994). At December
31, 1994, the allowance for loan losses for this portfolio was
$7,771,000 or 6% of net outstanding loans; actual loss experience has
been 1.7% per year of average outstanding loans. The Company is
satisfied with the results of this loan portfolio and believes that
there is an opportunity for continued growth in this niche market.
15<PAGE>
<PAGE>
The Company's lending operations compete with banks, savings and
loan associations, credit unions, credit card issuers and consumer
finance companies, many of which are able to offer financial services
on very competitive terms. Additionally, substantial national
financial services networks have been formed by major brokerage firms,
insurance companies, retailers and bank holding companies. Some
competitors have substantial local market positions; others are part
of large, diversified organizations.
The Company's principal lending operations are subject to
detailed supervision by state authorities, as well as federal
regulation pursuant to the Federal Consumer Credit Protection Act and
regulations promulgated by the Federal Trade Commission. The
Company's banking operations are subject to federal and state
regulation and supervision by, among others, the Office of the
Comptroller of the Currency (the "OCC"), the FDIC and the State of
Utah. AIB's primary federal regulator is the OCC, while the primary
federal regulator for AIF is the FDIC.
The Competitive Equality Banking Act of 1987 ("CEBA") places
certain restrictions on the operations and growth of AIB and restricts
further acquisitions of banks and savings institutions by the Company.
CEBA does not restrict the growth of AIF as currently operated.
TRADING STAMPS
The Company's trading stamp business is conducted by The Sperry
and Hutchinson Company, Inc. ("S&H"). S&H distributes Green Stamps to
retailers under license agreements that give the retailer an exclusive
franchise for a particular category of retail establishment in a
particular geographic area. Customers of participating retailers
receive Green Stamps when they purchase goods and services.
Since 1969, when annual sales for the trading stamp industry as a
whole peaked, sales for both the industry and S&H have been declining.
The Company expects that this declining trend in trading stamp sales
will continue. The Company has attempted, but has not succeeded in,
developing new uses for its trading stamp business.
When trading stamps are sold, S&H receives cash and accrues as a
liability the estimated obligation to deliver merchandise and/or cash
associated with those stamps. Demands for redemption generally occur
over a considerable period of time. The loss of customers usually
results in an acceleration of redemptions and requires the expenditure
of available funds to provide the merchandise and/or cash required for
such redemptions.
The Company's trading stamp business competes with other
incentive companies and other forms of promotional and merchandising
techniques. Retail establishments, for example, frequently utilize
store coupons, special advertising programs, games, extra services and
related programs.
MANUFACTURING
The Company's manufacturing operations consist primarily of the
manufacture of bathroom vanities and related products for the "do-it-
yourself" market, and padding, absorbent, erosion control and
proprietary plastic netting products for various industrial and
agricultural markets.
Bathroom vanities and related products are sold through
manufacturers' representatives, primarily to home improvement centers.
Principally due to operating inefficiencies and pricing pressures,
this division has not operated profitability in recent years. In
1994, the Company commenced a restructuring program to
16<PAGE>
<PAGE>
reevaluate and reduce its existing product lines, to review the
manufacturing process and to reduce overhead. The Company is unable
to predict if this division's restructuring efforts will result in a
return to profitability.
The fibers and plastics divisions manufacture and market padding,
absorbent and erosion control products, which may be reinforced with
plastic netting, for the furniture, automotive, erosion control and
maintenance industries and thermoplastic netting used for a variety of
purposes including, among other things, construction, packaging,
agriculture, carpet backing and filtration.
The manufacturing operations are subject to a high degree of
competition, generally on the basis of price, service and quality.
Additionally, these manufacturing operations are dependent on cyclical
industries, including the construction and automobile industries.
Through its various manufacturing divisions, the Company holds patents
on certain improvements to the basic manufacturing processes and on
applications thereof. The Company believes that the expiration of
these patents, individually or in the aggregate, is unlikely to have a
material effect on manufacturing operations.
OTHER OPERATIONS AND INVESTMENTS
The Company also owns non-controlling equity interests
representing more than 5% of the outstanding capital stock of each of
the following domestic public companies at December 31, 1994: Carmike
Cinemas, Inc. ("Carmike") (approximately 8% of Class A shares), Jones
Plumbing Systems, Inc. ("Jones") (approximately 21%), Jordan
Industries, Inc. ("JII") (approximately 11%) and Olympus Capital
Corporation (approximately 17%).
In April 1994, the Company acquired a 30% interest in Caja de
Ahorro y Seguro S.A. ("Caja") from the government of Argentina for a
preliminary purchase price 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 preliminary purchase price is subject to adjustment
based upon the reduction in Caja's net assets from December 31, 1993
to the acquisition date. Amounts included in the Company's results of
operations for Caja since acquisition have not been material.
A subsidiary of the Company is a partner in The Jordan Company
and Jordan/Zalaznick Capital Company. These partnerships each
specialize in structuring leveraged buyouts in which the partners are
given the opportunity to become equity participants. John W. Jordan
II, a director of the Company, is the managing partner of the two
partnerships. Since 1982, the Company has invested an aggregate of
$29,147,000 in these partnerships and related companies and, through
December 31, 1994, has received approximately $69,728,000 (consisting
of cash, interest bearing notes and other receivables) relating to the
disposition of investments and management and other fees. At December
31, 1994, through these partnerships, the Company had interests in an
aggregate of 16 companies (the "Jordan Associated Companies"), which
are carried in the Company's consolidated financial statements at
$12,270,000. The Jordan Associated Companies include JII, Carmike and
Jones.
Certain subsidiaries of the Company remain under the control of
the Wisconsin Insurance Commissioner as a result of rehabilitation or
liquidation proceedings initiated prior to their acquisition by the
Company. The Company believes only two of these subsidiaries have any
residual value to the Company. The Company estimates that the fair
value of the net tangible assets of these subsidiaries is
approximately $34,000,000 in excess of their recorded carrying value
at December 31, 1994. Although the Company expects to receive these
assets, the Company is unable to predict when these subsidiaries will
be returned to its control.
17<PAGE>
<PAGE>
In 1994, the Company expanded its real estate investments by
acquiring a 615,000 square foot office building located near Grand
Central Terminal in New York City, and two luxury residential
condominium towers in downtown San Diego, California. The New York
City office building, which was purchased for $50,800,000, has 355,000
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 San Diego towers were
acquired for $42,000,000 through the Company's acquisition of HSD
Venture. HSD Venture, a California general partnership that had been
in reorganization proceedings under chapter 11 of the Bankruptcy Code,
is the developer and owner of the towers, which include 202
residential units, 180 of which are for sale, and 42,000 square feet
of retail space.
For further information about the Company's business, reference
is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in this report.
Item 2. Properties.
------ ----------
Through its various subsidiaries, the Company owns and utilizes
in its operations the following significant properties: two office
buildings located in Valley Forge, Pennsylvania used by the Colonial
Penn P&C Group (totaling approximately 198,700 sq. ft.), one of which
is located on land leased from a third party; two offices in Salt Lake
City, Utah used for corporate and banking and lending activities
(totaling approximately 77,000 sq. ft.); and an office building in
Philadelphia, Pennsylvania used by the life insurance companies
(approximately 127,000 sq. ft.). In addition, subsidiaries of the
Company own nine facilities (totaling approximately 1,208,000 sq. ft.)
primarily used for manufacturing and storage located in Georgia, New
Jersey, New York, North Carolina, Pennsylvania, Wisconsin and Canada.
The Company and its subsidiaries lease numerous manufacturing,
warehousing, office and headquarters facilities. The facilities vary
in size and have leases expiring at various times, subject, in certain
instances, to renewal options. See Notes to Consolidated Financial
Statements.
18<PAGE>
<PAGE>
Item 3. Legal Proceedings.
------ -----------------
PHLCORP MERGER
As previously disclosed, in connection with the 1992 merger of
Phlcorp, Inc. ("Phlcorp"), (then a 63.1% owned public subsidiary of
the Company), with and into a wholly owned subsidiary of the Company
(the "Phlcorp Merger"), two actions were filed by minority
shareholders of Phlcorp in the Supreme Court of the State of New York,
County of New York. The parties entered into a memorandum of
understanding to settle the matter on terms not material to the
Company, subject to plaintiffs' conducting confirmatory discovery and
the court's approval of the settlement. Discovery has been completed
and the parties have entered into a stipulation of settlement, subject
to court approval, which dismisses these actions with prejudice.
Defendants believe that the material allegations of these
complaints are without merit and, if not settled, intend to defend
these actions vigorously.
PINNACLE LITIGATION
On May 11, 1994, a shareholder of the Company 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. (C.A. No. 94 Civ. 3496).
---- -------------------------------------
Plaintiff alleges that the New York Business Corporation Law (the
"BCL") prohibited the Company from issuing warrants to Ian Cumming and
Joseph Steinberg, Chairman and President, respectively, of the
Company, for the purchase of common shares of the Company. Plaintiff
also alleges that the Company's 1990 Proxy Statement, which sought
approval of a merger of Marks Investing Company into the Company, was
false and misleading because it did not disclose that, under the BCL,
common shares of the Company owned by the partnership that was the
principal shareholder of the Company could not be voted on the merger.
The complaint alleges claims for violations of the Racketeer Influence
and Corrupt Organizations Act, Section 14(a) of the Securities
Exchange Act of 1934 and state law claims for waste, breach of
fiduciary duty and fraud and seeks monetary damages in an unspecified
amount. Defendants have moved to dismiss the complaint. Briefing on
the motion to dismiss is complete and the motion is currently
scheduled to be argued on June 23, 1995. The Court has stayed all
discovery in the action pending resolution of defendants' motion to
dismiss.
OTHER PROCEEDINGS
In addition to the foregoing, the Company and its subsidiaries
are parties to legal proceedings that are considered to be either
ordinary, routine litigation incidental to their business or not
material to the Company's consolidated financial position.
The Company does not believe that any of the foregoing actions
will have a material adverse effect on its consolidated financial
position or consolidated results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
------ ---------------------------------------------------
Not applicable.
19<PAGE>
<PAGE>
Item 10. Executive Officers of the Registrant.
------- ------------------------------------
All executive officers of the Company are elected at the
organizational meeting of the Board of Directors of the Company held
annually and serve at the pleasure of the Board of Directors. As of
March 16, 1995, the executive officers of the Company, their ages, the
positions held by them and the periods during which they have served
in such positions were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH LEUCADIA OFFICE HELD SINCE
---- --- ---------------------- -----------------
<S> <C> <S> <C>
Ian M. Cumming 54 Chairman of the Board June 1978
Joseph S. Steinberg 51 President January 1979
Thomas E. Mara 49 Executive Vice President May 1980;
and Treasurer January 1993
Lawrence S. Hershfield 38 Executive Vice President July 1993
Joseph A. Orlando 39 Vice President and January 1994;
Comptroller March 1994
Paul J. Borden 46 Vice President August 1988
Mark Hornstein 47 Vice President July 1983
Ruth Klindtworth 60 Secretary and Vice President- February 1976;
Corporate Administrator January 1990
David K. Sherman 29 Vice President August 1992
</TABLE>
Mr. Cumming has served as a director and Chairman of the Board of
the Company since June 1978. In addition, he has served as a director
of Allcity since February 1988. Mr. Cumming has also been a director
of Skywest, Inc., a Utah-based regional air carrier, since June 1986.
Mr. Steinberg has served as a director of the Company since
December 1978 and as President of the Company since January 1979. In
addition, he has served as a director of Allcity since February 1988
and as a director of JII since June 1988.
Mr. Mara joined the Company in April 1977 and was elected Vice
President of the Company in May 1977. He has served as Executive Vice
President of the Company since May 1980 and as Treasurer of the
Company since January 1993. Mr. Mara also served as Treasurer of the
Company from April 1981 to April 1985. In addition, he has served as
a director of Allcity since October 1994.
Mr. Hershfield has served as Executive Vice President of the
Company since July 1993 and prior thereto served as Vice President of
the Company since April 1990. From 1981 to April 1990, he served in a
variety of executive positions with a former public subsidiary of the
Company, including President.
Mr. Orlando, a certified public accountant, has served as
Comptroller of the Company since March 1994 and as Vice President of
the Company since January 1994. Mr. Orlando previously served in a
variety of capacities with the Company and its subsidiaries since
1987, including Chairman of S&H.
Mr. Borden joined the Company as Vice President in August 1988
and has served in a variety of other capacities with the Company and
its subsidiaries.
Mr. Hornstein joined the Company as Vice President in July 1983
and has served in a variety of other capacities with the Company and
its subsidiaries.
20<PAGE>
<PAGE>
Ms. Klindtworth has been employed by the Company since July 1960
and was appointed Assistant Secretary in May 1973. She has served as
Secretary of the Company since February 1976, as Vice President-
Corporate Administrator of the Company since January 1990 and prior
thereto had served as Assistant Vice President-Corporate Administrator
of the Company since February 1979.
Mr. Sherman has served as Vice President of the Company since
August 1992. For the five years prior, he served in a variety of
capacities with the Company and its subsidiaries.
21<PAGE>
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
------ -------------------------------------------------
Stockholder Matters.
-------------------
(a) Market Information.
------------------
The common shares of the Company (the "Common Shares") are traded
on the New York Stock Exchange and Pacific Stock Exchange under the
symbol LUK. The following table sets forth, for the calendar periods
indicated, the high and low sales price per Common Share on the
consolidated transaction reporting system, as reported by the Dow
Jones Historical Stock Quote Reporter Service. On January 8, 1993,
the Company effected a two-for-one stock split of the Common Shares in
the form of a 100% stock dividend (the "Stock Split"). The dividend
was paid to shareholders of record immediately following the close of
business on December 31, 1992. Per share amounts set forth in this
Report have been adjusted to reflect the Stock Split.
<TABLE>
<CAPTION>
COMMON SHARE
------------
HIGH LOW
---- ---
<S> <C> <C>
1993
----
First Quarter $51.25 $38.63
Second Quarter 43.75 36.00
Third Quarter 47.75 39.25
Fourth Quarter 44.50 38.75
1994
----
First Quarter $43.63 $38.25
Second Quarter 38.88 35.50
Third Quarter 37.63 34.63
Fourth Quarter 46.25 36.13
1995
----
First Quarter (through March 16, 1995) $48.63 $42.88
</TABLE>
(b) Holders.
-------
As of March 16, 1995, there were approximately 5,803 record
holders of the Common Shares.
(c) Dividends.
---------
The Company paid dividends of $.25 per Common Share on December
30, 1994 and December 15, 1993. The payment of dividends in the
future is subject to the discretion of the Board of Directors and will
depend upon general business conditions, legal and contractual
restrictions on the payment of dividends and other factors that the
Board of Directors may deem to be relevant.
In connection with the declaration of dividends or the making of
distributions on, or the purchase, redemption or other acquisition of
Common Shares, the Company is required to comply with certain
restrictions contained in certain of its debt instruments.
22<PAGE>
<PAGE>
Item 6. Selected Financial Data.
------ -----------------------
The following selected financial data have been summarized from
the Company's consolidated financial statements and are qualified in
their entirety by reference to, and should be read in conjunction
with, such consolidated financial statements and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED INCOME STATEMENT DATA: (a)
Revenues $1,384,385 $1,408,058 $1,573,015 $1,086,748 $674,914
Net securities gains (losses) (12,004) 51,923 51,778 50,391 (1,525)
Interest expense (b) 44,003 39,465 38,507 36,925 34,604
Insurance losses, policy benefits and
amortization of deferred acquisition costs 819,010 789,752 896,673 558,127 232,986
Income from continuing operations
before income taxes and cumulative
effects of changes in accounting
principles 100,318 176,868 143,553 95,030 78,938
Income from continuing operations
before cumulative effects of changes
in accounting principles 70,836 116,259 130,607 94,830 65,010
(Loss) from discontinued operations
less applicable income taxes - - - - (17,670)
Income before cumulative effects of
changes in accounting principles 70,836 116,259 130,607 94,830 47,340
Cumulative effects of changes in
accounting principles - 129,195 - - -
Net income 70,836 245,454 130,607 94,830 47,340
Per share:
Primary earnings (loss) per common and dilutive
common equivalent share:
Continuing operations before
cumulative effects of changes
in accounting principles $2.43 $3.97 $5.35 $4.00 $2.68
Discontinued operations - - - - (.73)
Cumulative effects of changes in
accounting principles - 4.41 - - -
----- ----- ----- ----- -----
Net income $2.43 $8.38 $5.35 $4.00 $1.95
===== ===== ===== ===== =====
Fully diluted earnings (loss) per common
share:
Continuing operations before
cumulative effects of changes
in accounting principles $2.41 $3.89 $5.33 $3.97 $2.68
Discontinued operations - - - - (.73)
Cumulative effects of changes in
accounting principles - 4.20 - - -
----- ----- ----- ----- -----
Net income $2.41 $8.09 $5.33 $3.97 $1.95
===== ===== ===== ===== =====
--------------------------------
Footnotes on following page.
23<PAGE>
<PAGE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA: (a)
Cash and investments $2,764,890 $2,989,384 $3,371,624 $3,627,542 $1,741,273
Total assets 4,674,046 4,689,272 4,330,580 4,590,096 2,406,438
Debt, including current maturities 425,848 401,335 225,588 220,728 208,458
Customer banking deposits 179,888 173,365 186,339 194,862 176,366
Common shareholders' equity 881,815 907,856 618,161 365,495 268,567
Book value per common share $31.44 $32.54 $22.12 $15.89 $11.82
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED INFORMATION ON PROPERTY AND CASUALTY
INSURANCE OPERATIONS (Unaudited): (a)(c)
GAAP Combined Ratio 99.1% 96.9% 101.7% 102.1% 105.2%
SAP Combined Ratio 98.8% 93.7% 102.8% 103.3% 100.8%
Industry SAP Combined Ratio (d) N/A 106.9% 115.7% 108.8% 109.5%
Premium to Surplus Ratio (e) 1.9x 1.6x 2.0x 2.2x 1.4x
<FN>
-------------------------
(a) Data includes acquired companies from date of acquisition.
(b) Includes interest on customer banking deposits.
(c) Certain accident and health insurance business, which is included in the statutory results of operations of the
property and casualty insurance segment and is reflected in the SAP Combined Ratio, is reported in the life insurance
segment for financial reporting purposes and therefore is not included in the GAAP Combined Ratios reflected herein.
The Combined Ratio does not reflect the effect of investment income. For 1993, the difference in the treatment of
costs for GAAP and SAP purposes was a principal reason for the difference between the GAAP Combined Ratio and the SAP
Combined Ratio. For 1992, the results of certain accident and health insurance business had a non-recurring income
item which reduced the SAP Combined Ratio. In addition, in 1992 certain income credits were recognized only for GAAP
purposes.
(d) Source: Best's Aggregates & Averages, Property/Casualty, 1994 Edition. Industry Combined Ratios may not be fully
comparable as a result of, among other things, differences in geographical concentration and in the mix of property
and casualty insurance products.
(e) Premium to Surplus Ratio was calculated by dividing statutory property and casualty insurance premiums written by
statutory capital at the end of the year.
</TABLE>
24<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.
-------------------------
The purpose of this section is to discuss and analyze the
Company's consolidated financial condition, liquidity and capital
resources and results of operations. This analysis should be read in
conjunction with the consolidated financial statements and related
notes which appear elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
Parent Company Liquidity. Leucadia National Corporation (the
------------------------
"Parent") is a holding company whose assets principally consist of the
stock of its several direct subsidiaries. Additionally, the Parent
continuously evaluates its existing operations and investigates
possible acquisitions of new businesses and dispositions of businesses
in order to maximize its ultimate economic value to shareholders.
Accordingly, while the Parent does not have any material arrangement,
commitment or understanding with respect thereto, further
acquisitions, divestitures, investments and changes in capital
structure are possible. Its principal sources of funds are its
available cash resources, bank borrowings, public financings,
repayment of subsidiary advances, funds distributed from its
subsidiaries as tax sharing payments, management and other fees, and
borrowings and dividends from its regulated and non-regulated
subsidiaries. It has no substantial recurring cash requirements other
than payment of interest and principal on its debt, tax payments and
corporate overhead expenses.
The Parent maintains the principal borrowings for the Company and
its non-banking subsidiaries and has provided working capital to
certain of its subsidiaries. These borrowings have primarily been
made on an unsecured basis from banks through various credit agreement
facilities and term loans, and through public financings. During the
year ended December 31, 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. These
agreements were renewed during 1994 to expire in June 1997. In June
1994, the Parent entered into a $50,000,000 five-year term loan
agreement with certain of its bank lenders. The term loan and the bank
credit agreement facilities bear interest based on the prime rate or
LIBOR. The Company is exposed to interest rate risk related to its
variable rate borrowings. The Company has entered into interest rate
swap and interest rate option agreements to reduce the impact of
changes in interest rates on its variable rate debt. Counterparties
to these agreements are major financial institutions, which the
Company believes are able to fulfill their obligations; however, if
they are not, the Company believes that any losses would not be
material.
There are no restrictions on distributions from the non-regulated
subsidiaries and therefore all cash available to these subsidiaries is
available to the Parent for general corporate purposes, including
acquisitions. The Parent and its non-regulated subsidiaries had
aggregate cash and temporary investments of approximately $63,500,000
at December 31, 1994. Based on discussions with commercial and
investment bankers, the Company believes that it has the ability to
raise additional funds under acceptable conditions for use in its
existing businesses or for appropriate investment opportunities.
Since 1993, the Company's senior debt obligations have been rated as
"investment grade" by Moody's, S&P and Duff & Phelps Inc. Ratings
issued by bond rating agencies are subject to change at any time.
At December 31, 1994, a maximum of approximately $38,200,000 was
available to the Parent as dividends from the regulated subsidiaries
without regulatory approval. Additional amounts may be available to
the Parent in the form of loans or cash advances from regulated
subsidiaries, although no amounts were outstanding at December 31,
1994 or borrowed to date in 1995. The Parent also receives tax
sharing payments from subsidiaries included in its consolidated income
tax return, including certain regulated subsidiaries. Because of the
tax loss carryforwards available to the Parent and certain
subsidiaries, together with current interest deductions and corporate
expenses, the amount paid by the Parent for income taxes is
substantially less
25<PAGE>
<PAGE>
than tax sharing payments received from its subsidiaries. In
addition, the Parent receives payments from the regulated and
non-regulated entities for services provided by the Parent. Payments
from regulated subsidiaries for dividends, tax sharing payments, other
services and purchases of assets totaled $105,400,000 and $101,000,000
during the years ended December 31, 1994 and 1993, respectively.
Consolidated Liquidity. During each of the three years in the
----------------------
period ended December 31, 1994, the Company operated profitably and in
the year ended December 31, 1994, net cash was provided from
operations. For the years ended December 31, 1993 and 1992, in spite
of increased earnings, net cash was used for operations, principally
as a result of payments made in connection with reinsurance
transactions.
In April 1994, the Company acquired a 30% interest in Caja from
the government of Argentina for a preliminary purchase price of
approximately $46,000,000, including costs. The preliminary purchase
price is subject to adjustment based upon the reduction in Caja's net
assets from December 31, 1993 to the acquisition date. 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 have increased its operating efficiency since
acquisition, although there can be no assurance that this will
continue. Amounts included in the Company's results of operations for
Caja since acquisition have not been material.
Recent economic instability in Mexico has affected several Latin
American countries and has caused a withdrawal of foreign funds
invested in publicly traded Argentine government and corporate
securities, a contraction in the money supply and significantly higher
interest rates in Argentina. Although Argentina's economic policies
appear sound, and the recently announced multi-billion dollar
international loan package for Argentina should aid its economic
program, if the liquidity crisis does not improve, the Company's
investment in Caja could suffer. In addition, the Company's
investment is subject to the foreign currency exchange risk of a
devaluation of the Argentine peso against the United States dollar,
although the Argentine government has indicated that a devaluation is
not being considered.
During 1994, the Company invested approximately $25,000,000 in
the Russian privatization program. Through this program, the Company
acquired equity interests in various companies through auctions
conducted by the Russian government. Investing in the emerging
markets of Russia is subject to foreign exchange risk, political risk
and uncertainty concerning the government's ability to succeed in its
program to convert to a market economy, all of which are beyond the
Company's control. Given these uncertainties, the Company is
accounting for these investments under the cost recovery method.
These investments have a balance of approximately $19,600,000 at
December 31, 1994.
In May 1994, the Company acquired a 615,000 square foot office
building located near Grand Central Terminal in New York City for
approximately $50,800,000. The building has approximately 355,000
square feet of contiguous space available for occupancy. After
certain improvements to the building are completed, the Company
intends to lease the available space to third parties. Should lease
rates not be deemed adequate, the Company may use some of the
available space for its operations.
In July 1994, the Company acquired HSD Venture, a California
general partnership which was 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 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.
26<PAGE>
<PAGE>
The funds for the investments described above were provided from
general corporate funds available to the Parent company.
The investment portfolios of the Company's insurance subsidiaries
are principally fixed maturity investments rated "investment grade" or
U.S. governmental agency issued or guaranteed obligations, although
limited investments in "non rated" or rated less than "investment
grade" securities have been made from time to time. The investment
strategy of the insurance subsidiaries has been to maintain a high
quality portfolio of publicly traded, fixed income securities with a
relatively short duration. Principally as a result of increases in
market interest rates during 1994, the unrealized gain on investments
at the end of 1993 of approximately $49,912,000 (net of taxes) became
an unrealized loss of approximately $41,309,000 (net of taxes) as of
December 31, 1994. While this has resulted in a reduction in
shareholders' equity, it had no effect on results of operations or
cash flows. The estimated average yield to maturity of bonds and
notes in the Company's investment portfolio was higher at December 31,
1994 than at the end of the preceding year.
During the three years ended December 31, 1994, the property and
casualty insurance industry suffered unprecedented losses from natural
disasters, including the Northridge, California earthquake and winter
storms in 1994, winter storm and fire related losses in 1993 and
Hurricane Andrew in 1992. The Company's insurance subsidiaries also
suffered certain of such losses, although as described below in
"Results of Operations," their catastrophe reinsurance programs
substantially reduced the economic losses in 1994 and 1992. As a
result of the industry's losses, the Company has seen a notable
decrease in the availability of reinsurance at reasonable rates,
particularly at low levels of deductibility. Although the reinsurance
programs have been completed at acceptable upper loss limits (albeit
at a somewhat increased cost), the insurance subsidiaries have been
unable to maintain previous levels of deductibility at reasonable
cost. Accordingly, in 1995, the Company raised its retention of lower
level losses from $11,000,000 to $15,000,000. In spite of the natural
disasters, the Company did not incur losses in excess of its maximum
reinsurance during the last three years. Further, the Company has not
experienced any material losses to date in 1995, including losses
relating to recent storm damage in California.
On November 8, 1988, California voters passed Proposition 103, an
insurance initiative that requires, among other things, a 20% rollback
in insurance rates for policies written or renewed during the twelve
month period beginning November 8, 1988. In November 1994, the
Colonial Penn P&C Group received an order requiring it to refund
$35,300,000, plus $21,700,000 of interest as its rollback obligation.
The Colonial Penn P&C Group disagrees with the calculation of the
assessment. The Company is in discussions with the California
Department of Insurance and has filed a request for a formal hearing
should informal discussions fail to come to a satisfactory conclusion.
The Company believes that the ultimate resolution of this matter will
not have a material adverse effect on the Company's financial
condition or results of operations and will not exceed reserves
established in prior years.
In recent years there has been significant uncertainty with
respect to potential additional assessments from the New Jersey
insurance pool for high-risk drivers. During 1994, there were
significant legislative and other developments which resolved the
uncertainty. In February 1994, the Colonial Penn P&C Group paid
approximately $5,300,000, which had been reserved for in prior years,
representing its share of the losses of this insurance pool.
The NAIC has adopted a model law incorporating the concept of a
risk based capital ("RBC") requirement for insurance companies.
Generally, RBC is designed to measure the adequacy of an insurer's
statutory capital in relation to the risks inherent in the business.
The RBC formula is used by the states as an early warning tool to
identify weakly capitalized companies for the purpose of initiating
regulatory action. Each
27<PAGE>
<PAGE>
of the Company's insurance subsidiaries' RBC ratio as of December 31,
1994 substantially exceeded the minimum requirements.
Based on its experience since 1988 in providing collateralized
automobile loans to individuals with poor credit histories, during
1993 the Company concluded that there were excellent opportunities for
successful expansion of this business. Accordingly, on a controlled
basis, the Company, increased its investment in these loans. The
Company's investment in these loans was $129,512,000, $73,321,000 and
$47,890,000 at December 31, 1994, 1993 and 1992, respectively. The
Company expects to further increase its investment in these loans in
1995.
The government of El Salvador and representatives of the Company
had previously reached agreement as to the amount to be paid for the
assets of an electric utility in El Salvador in which the Company had
an interest. Pursuant to such agreement, on March 30, 1993, 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. As a result of
receiving required prepayments and the subsequent sale of the bonds in
the first quarter of 1994, the Company reported a pre-tax gain of
$8,458,000.
In the fourth quarter of 1994, the Company sold its remaining
interest in Bolivian Power Company Limited ("Bolivian Power") to an
unaffiliated party for cash of approximately $18,000,000. The Company
recorded a pre-tax gain of approximately $14,500,000.
The Company's liability for unredeemed trading stamps is
estimated based on the cost of merchandise, cash and related
redemption service expenses required to redeem the trading stamps
which are expected to be presented for redemption in the future. The
Company periodically reviews the appropriateness of the estimated
redemption rates based upon recent experience, statistical evaluations
and other relevant factors. The most recent statistical studies of
trading stamp redemptions have indicated that the recorded liability
for unredeemed trading stamps is in excess of the amount that
ultimately will be required to redeem trading stamps outstanding. The
amount of this excess may be different than indicated by these
studies. Accordingly, the Company has been amortizing the aggregate
apparent excess over a five year period. Based upon the most recent
studies, the unamortized apparent excess was approximately $5,358,000
at December 31, 1994 and $17,067,000 at December 31, 1993. The
Company will continue to monitor current redemptions and estimates of
ultimate redemptions.
The Company is to receive, without additional consideration, the
residual interest in two subsidiaries that remain under the control of
the Wisconsin Insurance Commissioner; however the timing of receipt of
these assets is uncertain. The Company estimates that the fair value
of the net tangible assets of these subsidiaries was approximately
$34,000,000 in excess of their carrying amount at December 31, 1994.
The underlying assets of these subsidiaries are principally invested
in high quality, interest bearing securities.
The Company and certain of its subsidiaries, including Phlcorp
and its subsidiaries, have substantial loss carryforwards and other
tax attributes (as more fully discussed in the Notes to Consolidated
Financial Statements). The amount and availability of tax loss
carryforwards are subject to certain qualifications, limitations and
uncertainties, including, with respect to Phlcorp and its
subsidiaries, tax sharing payments pursuant to a tax settlement
agreement with the Internal Revenue Service and the Department of
Justice. In order to reduce the possibility that certain changes in
ownership could impose limitations on the use of these carryforwards,
which could reduce their value to the Company, the Company's
certificate of incorporation contains provisions which generally
restrict the ability of a person or entity from accumulating at least
five percent of the Common Shares and the ability of persons or
entities now owning at least five percent of the
28<PAGE>
<PAGE>
Common Shares from acquiring additional Common Shares. The Company
has recognized as an asset (net of reserves) certain of the benefits
of such loss carryforwards and other tax attributes. However, the
amount of the asset recognized only reflects the minimum Phlcorp tax
loss carryforwards and is based, in part, on certain proposed
regulations affecting the use of Phlcorp's tax loss carryforwards. As
described in the Notes to the Consolidated Financial Statements,
significant additional amounts may be available under certain
circumstances.
Results of Operations
---------------------
The Company's most significant operations are its insurance
businesses, where it is a specialty markets provider of property and
casualty and life insurance to its niche markets. For the year ended
December 31, 1994, the Company's insurance segments contributed 79% of
total revenues and, at December 31, 1994, constituted 78% of total
assets.
Earned premium revenues and commissions of the property and
casualty insurance operations of the Empire Group were approximately
$299,200,000 in 1994, $259,400,000 in 1993 and $243,100,000 in 1992.
The increase in 1994 principally resulted from growth in policies in
force, while the increase in 1993 was attributable to a combination of
increased premium rates and increased insurance in force.
Earned premium revenues of the Colonial Penn P&C Group were
approximately $447,200,000 in 1994, $452,600,000 in 1993 and
$456,000,000 in 1992. The decline in earned premiums principally
reflects 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. The Company's current
marketing efforts have resulted in new business, which to some degree
has offset the normal attrition of existing business. Additionally,
the rate of decline in policies in force has slowed in each year since
acquisition of the Colonial Penn P&C Group. The Company believes that
new business generated in 1995 will exceed lapsed business, although
there can be no assurance that this will be achieved. Earned premiums
in 1994 and 1993 also reflect an increase, as compared to the prior
year, resulting from acquired blocks of automobile assigned risk
business from other insurance companies.
The Company's property and casualty insurance operations combined
ratios as determined under GAAP and SAP were as follows:
<TABLE>
<CAPTION>
Year Ended December 31, GAAP SAP
----------------------- ---- ---
<S> <C> <C>
1994 99.1% 98.8%
1993 96.9% 93.7%
1992 101.7% 102.8%
</TABLE>
The provision for insurance losses and policy benefits includes
natural catastrophe losses, net of reinsurance recoveries, estimated
at approximately $18,300,000, $10,900,000 and $12,300,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. The 1994
losses include approximately $11,700,000 related to the Northridge,
California earthquake and the 1992 losses include approximately
$6,000,000 related to Hurricane Andrew.
In addition to higher catastrophe losses, the combined ratio for
1994 increased as compared to 1993 principally due to settlements in
1993 of Colonial Penn P&C Group prior years claims at amounts less
than provided. The Company believes this experience reflects its
improved underwriting procedures, emphasis on mature adult insureds,
prior rate increases and improved claims handling and settlement
practices. Although Colonial Penn's loss experience continued to
develop favorably in 1994, the Company believes that as a result
29<PAGE>
<PAGE>
of the reduction in claims outstanding, there will be a reduced
positive effect on future results of operations from claim
settlements, in spite of providing loss reserves on current operations
at conservative levels. The increase in the 1994 combined ratio was
partially offset by increased fee income related to acquired blocks of
automobile assigned risk business. Loss experience for 1992 included
a $3,000,000 retroactive assessment for a workers' compensation fund
applicable to the Empire Group.
Premium revenue receipts on IOP products of the life insurance
subsidiaries (which are not reflected as revenues) were approximately
$108,080,000 in 1994, $88,312,000 in 1993 and $68,035,000 in 1992.
The principal IOP product sold during the three year period ended
December 31, 1994 was a variable annuity product marketed directly to
consumers.
Earned premium revenues of the life and health insurance
operations were approximately $172,400,000 for 1994, $181,800,000 for
1993 and $233,700,000 for 1992. The decline in earned premium
revenues reflect the run-off of the agent sold Medicare supplement
business, which the Company ceased marketing at December 31, 1992 due
to inadequate profitability. In addition, the Company terminated
certain assumed life and health reinsurance contracts which had
revenues of approximately $28,750,000 for 1992 and minimal
profitability.
During 1992 the Company concluded that it would be able to
generate significant new premiums for its Graded Benefit Life business
at acquisition cost levels that result in adequate profitability.
Accordingly, the Company increased its marketing efforts with respect
to this product. Earned premiums for this product were $113,700,000,
$109,800,000 and $109,600,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
Insurance losses, policy benefits and amortization of deferred
acquisition costs of the life and health insurance operations were
$138,300,000, $179,100,000 and $261,300,000 for the years ended
December 31, 1994, 1993 and 1992, respectively. The decrease reflects
the run-off of the agent sold Medicare supplement business and also
reflects improved loss experience in this business during 1994. In
addition, due to expectations of decreased or inadequate future
profitability of its Single Premium Deferred Annuity ("SPDA") and
Single Premium Whole Life ("SPWL") products, in 1992 and 1993 the
Company sold blocks of such business or otherwise made permitted
exchanges, which substantially reduced the amount of remaining
policies. The SPWL business was reinsured in 1993, resulting in a net
pre-tax gain of approximately $16,700,000. Such net pre-tax gain
consisted of net security gains on 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
"Insurance losses, policy benefits and amortization of deferred
acquisition costs."
During 1993, the Company reinvested proceeds from sales of
certain securities at the lower prevailing interest rates. Since
these reinvestment rates were, in certain instances, lower than had
previously been expected on certain fixed rate annuity policies, the
Company recorded an additional provision for insurance losses in the
amount of $6,800,000.
Principally starting in the fourth quarter of 1992, the Company
realized security gains and reinsured or exchanged a substantial
portion of its SPDA business. The Company also reinvested proceeds
from security sales at prevailing interest rates lower than had been
expected on certain fixed income products. In connection with these
transactions, the Company recorded an additional provision for
insurance losses and policy benefits of approximately $13,900,000,
principally from the elimination of deferred policy acquisition costs.
In addition, as a result of the termination of certain reinsurance
agreements in 1992, the provision for insurance
30<PAGE>
<PAGE>
losses and policy benefits was reduced by approximately $6,200,000,
representing amounts that were no longer required.
Although manufacturing revenues in 1994 were higher than in each
of 1993 and 1992, gross profit declined significantly, principally at
the bathroom vanities division. This division has experienced
manufacturing inefficiencies during the last three years that, in
combination with pricing pressures and provisions for obsolete
inventory, have resulted in operating losses. During 1994, the
Company commenced a restructuring program of this division to
reevaluate and reduce existing product lines, to review the
manufacturing process and to reduce overhead. The Company is unable
to predict if this division's restructuring efforts will result in a
return to profitability.
Trading stamps revenues declined in each of the last three years
principally due to the loss of business of certain customers. The
Company believes that the historical decline in usage of trading
stamps will continue. The Company provided the liability for
unredeemed trading stamps based on the estimate that approximately 75%
of stamps sold in each of the last three years ultimately will be
redeemed. In early 1993, the Company contributed the net assets of
its motivation services business to a new joint venture formed with an
unrelated motivation services company in exchange for a 45% equity
interest in the joint venture. The joint venture is recorded on the
equity basis of accounting. Results of operations of the motivation
services business have not been material.
Finance revenues reflect the level of consumer instalment loans,
which increased during 1994 as discussed above. The operating profit
applicable to this segment increased in 1993 as compared to 1992 due
to the 1992 sale of certain consumer loan development offices which
had operated at a loss.
Investment and other income was substantially unchanged in 1994
as compared to 1993 and lower in both years as compared to 1992.
Investment and other income reflects the lower level of investments
due to the disposition of the SPWL and SPDA business and lower
interest rates in both 1994 and 1993. Other income in 1994 includes
$8,458,000 related to the disposition of the El Salvador government
bonds receivable and $14,500,000 related to the sale of the Company's
remaining shares in Bolivian Power. Other income in 1993 includes a
$12,981,000 gain from the sale of a portion of the investment in
Bolivian Power and other income in 1992 includes a $12,128,000 gain
from sale of certain consumer loan development offices.
Net securities gains (losses) were ($12,004,000), $51,923,000 and
$51,778,000 for the years ended December 31, 1994, 1993 and 1992,
respectively. Realized security losses during 1994 principally
reflected the Company's strategy to further shorten the duration of
its investment portfolio during a time of rising interest rates.
Security gains in 1993 and 1992 were realized, in part, to effect the
reinsurance and transfer of the SPWL and SPDA businesses described
above. The decision to exit these businesses also resulted in write-
downs of deferred policy acquisition costs and additional provisions
for policyholder benefits, which do not reduce security gains but do
reduce pre-tax income. As described above, in 1993, reserves for
policyholder benefits were also increased for certain fixed rate
annuity policies because the proceeds from security sales were
reinvested at rates lower than previously expected. Net securities
gains (losses) include provisions for write-downs of investments of
$3,126,000, $2,000,000 and $20,041,000 for the years ended December
31, 1994, 1993 and 1992, respectively.
Higher interest expense in each of 1994 and 1993 compared to the
prior year principally reflects the increased level of borrowings
outstanding. Interest expense also reflects the level of deposits at
AIB and AIF. Generally, interest rates on deposits are lower than on
other available funds. Interest expense on deposits was approximately
$8,304,000 in 1994, $9,001,000 in 1993 and $11,954,000 in 1992.
31<PAGE>
<PAGE>
The provisions for income taxes for 1994 and 1993 were calculated
under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes", which does not reflect the benefit from utilization
of tax loss carryforwards. The provision for income taxes for 1992
has been reduced for the benefit from utilization of tax loss
carryforwards. The provision for income taxes for 1994 and 1993 is
below the expected normal corporate income tax rate principally
because of a reduction in the valuation allowance applicable to the
deferred tax asset due to the resolution of certain contingencies. In
addition, the provision for income taxes for 1993 was reduced by
approximately $4,215,000 as a result of changes in federal income tax
rates.
The provision for income taxes for 1992 principally consists of
state income taxes, the federal alternative minimum income tax and
federal income taxes applicable to the life insurance subsidiaries
which cannot utilize the Company's tax loss carryforwards. As noted
above, the tax provision for 1992 also reflects the benefit from
utilization of tax loss carryforwards.
The number of shares used to calculate primary earnings per share
was 29,101,000, 29,270,000 and 24,435,000 for 1994, 1993 and 1992,
respectively. The number of shares used to calculate fully diluted
earnings per share was 30,857,000, 30,743,000 and 24,516,000 for 1994,
1993 and 1992, respectively. The increase in 1994 and 1993 as
compared to 1992 was principally caused by the acquisition of the
minority interest in Phlcorp and, with respect to fully diluted per
share amounts, the effect of the assumed conversion of the Company's
5 1/4% Convertible Subordinated Debentures.
Item 8. Financial Statements and Supplementary Data.
------ -------------------------------------------
Financial Statements and supplementary data required by this Item
8 are set forth at the pages indicated in Item 14(a) below.
Item 9. Disagreements on Accounting and Financial Disclosure.
------ ----------------------------------------------------
Not applicable.
32<PAGE>
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
------- --------------------------------------------------
The information to be included under the caption "Nominees for
Election as Directors" in the Company's definitive proxy statement to
be filed with the Commission pursuant to Regulation 14A of the 1934
Act in connection with the 1995 annual meeting of shareholders of the
Company (the "Proxy Statement") is incorporated herein by reference.
In addition, reference is made to Item 10 in Part I of this Report.
Item 11. Executive Compensation.
------- ----------------------
The information to be included under the caption "Executive
Compensation" in the Proxy Statement is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and
------- ---------------------------------------------------
Management.
----------
The information to be included under the caption "Present
Beneficial Ownership of Common Shares" in the Proxy Statement is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
------- ----------------------------------------------
The information to be included under the caption "Executive
Compensation - Certain Relationships and Related Transactions" in the
Proxy Statement is incorporated herein by reference.
33<PAGE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
------- ------------------------------------------------------------
8-K.
---
(a)(1)(2) Financial Statements and Schedules.
----------------------------------
Report of Independent Certified Public
Accountants . . . . . . . . . . . . . . . F-1
Financial Statements:
Consolidated Balance Sheets at
December 31, 1994 and 1993 . . . . . . . . F-2
Consolidated Statements of Income
for the years ended December 31,
1994, 1993 and 1992 . . . . . . . . . . . F-3
Consolidated Statements of Cash
Flows for the years ended
December 31, 1994, 1993 and 1992 . . . . . F-4
Consolidated Statements of Changes
in Shareholders' Equity for the
years ended December 31, 1994, 1993
and 1992 . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial
Statements . . . . . . . . . . . . . . . . F-7
Financial Statement Schedules:
Schedule II - Condensed Financial
Information of Registrant . . . . . . . . F-34
Schedule III - Supplementary
Insurance Information . . . . . . . . . . F-38
Schedule IV - Schedule of
Reinsurance . . . . . . . . . . . . . . . F-39
Schedule V - Valuation and
Qualifying Accounts . . . . . . . . . . . F-40
Schedule VI - Schedule of Supplemental
Information for Property and
Casualty Insurance Underwriters . . . . . F-41
34<PAGE>
<PAGE>
(3) Executive Compensation Plans and Arrangements.
---------------------------------------------
1982 Stock Option Plan, as amended August 28, 1991
(filed as Annex B to the Company's Proxy Statement
dated July 21, 1992).
1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).
Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Ian M. Cumming (filed as Exhibit
10.14 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1983 (the "1983
10-K")).
Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Joseph S. Steinberg (filed as
Exhibit 10.15 to the Company's 1983 10-K).
Agreement dated as of August 1, 1988 among the Company,
Ian M. Cumming and Joseph S. Steinberg (filed as
Exhibit 10.6 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991 (the
"1991 10-K")).
Agreement dated as of January 10, 1992 between Ian M.
Cumming, certain other persons listed on Schedule A
thereto and the Company (filed as Exhibit 10.7 to the
Company's 1991 10-K).
Agreement dated as of January 10, 1992 between Joseph
S. Steinberg, certain other persons listed on
Schedule A thereto and the Company (filed as Exhibit
10.8 to the Company's 1991 10-K).
Agreement between Leucadia, Inc. and Ian M. Cumming,
dated as of December 28, 1992 (filed as Exhibit
10.12(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 (the
"1992 10-K")).
Escrow and Security Agreement by and among Leucadia,
Inc., Ian M. Cumming and Weil, Gotshal & Manges, as
escrow agent, dated as of December 28, 1992 (filed as
Exhibit 10.12(b) to the 1992 10-K).
Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed as
Exhibit 10.13(a) to the 1992 10-K).
Escrow and Security Agreement by and among Leucadia,
Inc., Joseph S. Steinberg and Weil, Gotshal & Manges,
as escrow agent, dated as of December 28, 1992 (filed
as Exhibit 10.13(b) to the 1992 10-K).
Agreement made as of December 28, 1993 by and between
the Company and Ian M. Cumming (filed as Exhibit
10.17 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 (the "1993
10-K").
Agreement made as of December 28, 1993 by and between
the Company and Joseph S. Steinberg (filed as Exhibit
10.18 to the 1993 10-K).
Agreement between the Company and Ian M. Cumming dated
as of December 28, 1993 (filed as Exhibit 10.19(a) to
the 1993 10-K).
Escrow and Security Agreement by and among the Company,
Ian M. Cumming and Weil, Gotshal & Manges, as escrow
agent, dated as of December 28, 1993 (filed as
Exhibit 10.19(b) to the 1993 10-K).
Agreement between the Company and Joseph S. Steinberg,
dated as of December 28, 1993 (filed as Exhibit
10.20(a) to the 1993 10-K).
Escrow and Security Agreement by and among the Company,
Joseph S. Steinberg and Weil, Gotshal & Manges, as
escrow agent, dated as of December 28, 1993 (filed as
Exhibit 10.20(b) to the 1993 10-K).
35<PAGE>
<PAGE>
(b) Reports on Form 8-K.
-------------------
Not applicable.
(c) Exhibits.
--------
3.1 Restated Certificate of Incorporation (filed as
Exhibit 5.1 to the Company's Current Report on Form
8-K dated July 14, 1993).*
3.2 By-laws (as amended) filed as Exhibit 4.5 to the
Company's Registration Statement No. 33-57054).*
4.1 The Company undertakes to furnish the Securities
and Exchange Commission, upon request, a copy of
all instruments with respect to long-term debt not
filed herewith.
10.1 1982 Stock Option Plan, as amended August 28, 1991
(filed as Annex B to the Company's Proxy Statement
dated July 21, 1992).*
10.2 1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).*
10.3(a) Restated Articles and Agreement of General
Partnership, effective as of February 1, 1982, of
The Jordan Company (filed as Exhibit 10.3(d) to the
Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1986).*
10.3(b) Amendments dated as of December 31, 1989 and
December 1, 1990 to the Partnership Agreement
referred to in 10.3(a) above (filed as Exhibit
10.2(b) to the Company's 1991 10-K).*
10.3(c) Amendment dated as of December 17, 1992 to the
Partnership Agreement referred to in 10.3(a) above
(filed as Exhibit 10.3(c) to the 1992 10-K).*
10.3(d) Articles and Agreement of General Partnership,
effective as of April 15, 1985, of Jordan/Zalaznick
Capital Company (filed as Exhibit 10.20 to the
Company's Registration Statement No. 33-00606).*
10.4 Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Ian M. Cumming (filed as Exhibit
10.14 to the 1983 10-K).*
10.5 Agreement made as of March 12, 1984 by and between
Leucadia, Inc. and Joseph S. Steinberg (filed as
Exhibit 10.15 to the 1983 10-K).*
___________________
* Incorporated by reference.
36<PAGE>
<PAGE>
10.6 Stock Purchase and Sale Agreement dated as of April
5, 1991, by and between FPL Group Capital Inc. and
the Company (filed as Exhibit B to the Company's
Current Report on Form 8-K dated August 23, 1991).*
10.7 Agreement dated as of August 1, 1988 among the
Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.6 to the Company's 1991 10-
K).*
10.8 Agreement dated as of January 10, 1992 between Ian
M. Cumming, certain other persons listed on
Schedule A thereto and the Company (filed as
Exhibit 10.7 to the Company's 1991 10-K).*
10.9 Agreement dated as of January 10, 1992 between
Joseph S. Steinberg, certain other persons listed
on Schedule A thereto and the Company (filed as
Exhibit 10.8 to the Company's 1991 10-K).*
10.10(a) Agreement dated April 23, 1992 between AIC
Financial Services, Inc. (an Alabama corporation),
AIC Financial Services (a Mississippi corporation)
and AIC Financial Services (a South Carolina
corporation) (collectively, "Seller") and Norwest
Financial Resources, Inc. (filed as Exhibit
10.10(a) to the 1992 10-K).*
10.10(b) Purchase Agreement between A.I.C. Financial
Services, Inc., American Investment Bank, N.A.,
American Investment Financial and Terracor II d/b/a
AIC Financial Fund, Seller, and Associates
Financial Services Company, Inc., Buyer, dated
November 5, 1992 (filed as Exhibit 10.10(b) to the
Company's Registration Statement No. 33-55120).*
10.11(a) Agreement and Plan of Merger, dated as of October
22, 1992, by and among the Company, Phlcorp
Acquisition Company and PHLCORP, Inc. (filed as
Exhibit 5.2 to the Company's Current Report on Form
8-K dated October 22, 1992).*
10.11(b) Amendment dated December 10, 1992, to the Merger
Agreement referred to in 10.11(a) above (filed as
Exhibit 5.2 to the Company's Current Report on Form
8-K dated December 14, 1992).*
10.12(a) Agreement between Leucadia, Inc. and Ian M.
Cumming, dated as of December 28, 1992 (filed as
Exhibit 10.12(a) to the 1992 10-K).*
10.12(b) Escrow and Security Agreement by and among
Leucadia, Inc., Ian M. Cumming and Weil, Gotshal &
Manges, as escrow agent, dated as of December 28,
1992 (filed as Exhibit 10.12(b) to the 1992 10-K).*
10.13(a) Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed as
Exhibit 10.13(a) to the 1992 10-K).*
___________________
* Incorporated by reference.
37<PAGE>
<PAGE>
10.13(b) Escrow and Security Agreement by and among
Leucadia, Inc., Joseph S. Steinberg and Weil,
Gotshal & Manges, as escrow agent, dated as of
December 28, 1992 (filed as Exhibit 10.13(b) to the
1992 10-K).*
10.14 Settlement Agreement between Baldwin-United
Corporation and the United States dated August 27,
1985 concerning tax issues (filed as Exhibit 10.14
to the 1992 10-K).*
10.15 Acquisition Agreement, dated as of December 18,
1992, by and between Provident Mutual Life and
Annuity Company of America and Colonial Penn
Annuity and Life Insurance Company (filed as
Exhibit 10.15 to the 1992 10-K).*
10.16 Reinsurance Agreement, dated as of December 31,
1991, by and between Colonial Penn Insurance
Company and American International Insurance
Company (filed as Exhibit 10.16 to the 1992 10-K).*
10.17 Agreement made as of December 28, 1993 by and
between the Company and Ian M. Cumming (filed as
Exhibit 10.17 to the 1993 10-K).*
10.18 Agreement made as of December 28, 1993 by and
between the Company and Joseph S. Steinberg (filed
as Exhibit 10.18 to the 1993 10-K).*
10.19(a) Agreement between the Company and Ian M. Cumming,
dated as of December 28, 1993 (filed as Exhibit
10.19(a) to the 1993 10-K).*
10.19(b) Escrow and Security Agreement by and among the
Company, Ian M. Cumming and Weil, Gotshal & Manges,
as escrow agent, dated as of December 28, 1993
(filed as Exhibit 10.19(b) to the 1993 10-K).*
10.20(a) Agreement between the Company and Joseph S.
Steinberg, dated as of December 28, 1993 (filed as
Exhibit 10.20(a) to the 1993 10-K).*
10.20(b) Escrow and Security Agreement by and among the
Company, Joseph S. Steinberg and Weil, Gotshal &
Manges, as escrow agent, dated as of December 28,
1993 (filed as Exhibit 10.20(b) to the 1993 10-K).*
21 Subsidiaries of the registrant.
23 Consent of independent certified public accountants
with respect to the incorporation by reference into
the Company's Registration Statements on Form S-8
(File No. 2-84303), Form S-8 and S-3 (File No. 33-
6054), Form S-8 and S-3 (File No. 33-26434), Form
S-8 and S-3 (File No. 33-30277), Form S-8 (File No.
33-61680) and Form S-8 (File No. 33-61718).
___________________
* Incorporated by reference.
38<PAGE>
<PAGE>
27 Financial Data Schedule.
28 Schedule P of the 1994 Annual Statement to
Insurance Departments of the Colonial Penn
Insurance Company and Affiliated Property/Casualty
Insurers and the Empire Insurance Company,
Principal Insurer.
39<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 24, 1995 By: /s/ Joseph A. Orlando
--------------------------------
Joseph A. Orlando
Vice President and Comptroller
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities indicated, on the date
set forth above.
Signature Title
--------- -----
/s/ Ian M. Cumming Chairman of the Board
------------------------------ (Principal Executive Officer)
Ian M. Cumming
/s/ Joseph S. Steinberg President and Director
------------------------------ (Principal Executive Officer)
Joseph S. Steinberg
/s/ Joseph A. Orlando Vice President and Comptroller
------------------------------ (Principal Financial and
Joseph A. Orlando Accounting Officer)
/s/ Paul M. Dougan Director
------------------------------
Paul M. Dougan
/s/ Lawrence D. Glaubinger Director
------------------------------
Lawrence D. Glaubinger
/s/ James E. Jordan Director
------------------------------
James E. Jordan
/s/ John W. Jordan II Director
------------------------------
John W. Jordan II
/s/ Jesse Clyde Nichols, III Director
------------------------------
Jesse Clyde Nichols, III
40<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of Leucadia National Corporation:
We have audited the consolidated financial statements and the
financial statement schedules of LEUCADIA NATIONAL CORPORATION and
SUBSIDIARIES listed in Item 14(a) of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedules based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of LEUCADIA NATIONAL CORPORATION and SUBSIDIARIES as of December 31,
1994 and 1993, and the consolidated results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in the notes to the consolidated financial statements, in
1993, the Company changed its method of accounting for Income Taxes,
Postretirement Benefits Other Than Pensions, Postemployment Benefits,
Re-insurance of Short-Duration and Long-Duration Contracts, Multiple-
Year Retrospectively Rated Contracts, and Certain Investments in Debt
and Capital Securities, all as set forth in various pronouncements of
the Financial Accounting Standards Board and the Emerging Issues Task
Force.
COOPERS & LYBRAND L.L.P.
New York, New York
March 17, 1995
F-1<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
------
Investments:
Available for sale (aggregate cost of
$2,396,288 and $2,447,180) $2,331,288 $2,524,493
Trading securities (aggregate cost of
$53,312 and $40,578) 52,231 41,984
Held to maturity (aggregate fair value
of $52,820 and $77,243) 54,586 74,796
Policyholder loans 17,943 18,138
Other investments, including accrued interest income 56,347 38,559
---------- ----------
Total investments 2,512,395 2,697,970
Cash and cash equivalents 252,495 291,414
Reinsurance receivable, net 310,682 462,671
Trade, notes and other receivables, net 463,981 390,394
Prepaids and other assets 245,476 161,441
Property, equipment and leasehold
improvements, net 110,887 99,741
Deferred policy acquisition costs 74,536 55,410
Deferred income taxes 144,631 114,001
Separate and variable accounts 420,398 335,357
Investments in associated companies 138,565 80,873
---------- ----------
Total $4,674,046 $4,689,272
========== ==========
LIABILITIES
-----------
Customer banking deposits $ 179,888 $ 173,365
Trade payables and expense accruals 189,280 164,533
Other liabilities 106,046 110,396
Income taxes payable 39,491 40,378
Policy reserves 1,964,730 2,105,408
Unearned premiums 413,546 380,260
Separate and variable accounts 419,355 334,636
Liability for unredeemed trading stamps 42,433 58,541
Debt, including current maturities 425,848 401,335
---------- ----------
Total liabilities 3,780,617 3,768,852
---------- ----------
Minority interest 11,614 12,564
---------- ----------
SHAREHOLDERS' EQUITY
--------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 28,050,037
and 27,897,023 shares issued and outstanding,
after deducting 30,272,650 and 30,260,664
shares held in treasury 28,050 27,897
Additional paid-in capital 126,225 125,013
Net unrealized gain (loss) on investments (41,309) 49,912
Retained earnings 768,849 705,034
---------- ----------
Total shareholders' equity 881,815 907,856
---------- ----------
Total $4,674,046 $4,689,272
========== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-2<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Insurance revenues and commissions $ 918,886 $ 893,850 $ 932,943
Manufacturing 180,050 173,638 168,687
Trading stamps 19,489 23,827 29,339
Motivation services - - 63,336
Finance 45,835 33,587 39,580
Investment and other income 232,129 231,233 287,352
Net securities gains (losses) (12,004) 51,923 51,778
---------- ---------- ----------
1,384,385 1,408,058 1,573,015
---------- ---------- ----------
Expenses:
Insurance losses, policy benefits
and amortization of deferred
acquisition costs 819,010 789,752 896,673
Insurance commissions 5,364 6,609 13,327
Cost of goods sold:
Manufacturing 137,507 122,815 119,742
Trading stamps (529) 1,252 1,421
Motivation services - - 46,653
Interest 44,003 39,465 38,507
Salaries 87,650 83,179 97,758
Selling, general and other expenses 189,879 185,713 191,886
Minority interest 1,183 2,405 23,495
---------- ---------- ----------
1,284,067 1,231,190 1,429,462
---------- ---------- ----------
Income before income taxes and
cumulative effects of changes
in accounting principles 100,318 176,868 143,553
---------- ---------- ----------
Income taxes:
Current 9,085 25,355 25,838
Deferred 20,397 35,254 (12,892)
---------- ---------- ----------
29,482 60,609 12,946
---------- ---------- ----------
Income before cumulative effects of
changes in accounting principles 70,836 116,259 130,607
Cumulative effects of changes in
accounting principles - 129,195 -
---------- ---------- ----------
Net income $ 70,836 $ 245,454 $ 130,607
========== ========== ==========
Earnings per common and dilutive common
equivalent share:
Income before cumulative effects of
changes in accounting principles $2.43 $3.97 $5.35
Cumulative effects of changes in
accounting principles - 4.41 -
----- ----- -----
Net income $2.43 $8.38 $5.35
===== ===== =====
Fully diluted earnings per common share:
Income before cumulative effects of
changes in accounting principles $2.41 $3.89 $5.33
Cumulative effects of changes in
accounting principles - 4.20 -
----- ----- -----
Net income $2.41 $8.09 $5.33
===== ===== =====
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-3<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from operating activities:
----------------------------------------
Net income $ 70,836 $ 245,454 $ 130,607
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Cumulative effects of changes in accounting
principles - (129,195) -
Provision (benefit) for deferred income taxes 20,397 35,254 (12,892)
Depreciation and amortization of property,
equipment and leasehold improvements 17,075 16,378 16,825
Other amortization 88,485 113,450 78,395
Provision for doubtful accounts 10,579 12,432 9,437
Net securities (gains) losses 12,004 (51,923) (51,778)
(Gain) on reinsurance transaction with John
Hancock (exclusive of security gains and
write-off of deferred policy acquisition costs) - (19,456) -
(Gain) on sale of loan development offices - - (12,128)
Equity in loss of associated companies 5,176 2,064 1,891
(Gains) related to foreign power companies (22,948) (13,111) -
Purchases of investments classified as trading (132,752) (77,333) -
Proceeds from sales of investments classified
as trading 119,042 38,118 -
Deferred policy acquisition costs incurred and
deferred (100,506) (81,746) (77,448)
Cash related to reinsurance transaction with
John Hancock - (510,698) -
Net change in:
Reinsurance receivable 154,788 46,603 -
Trade, notes and other receivables (23,661) (55,439) 2,412
Prepaids and other assets (23,488) (49,183) (27,902)
Trade payables and expense accruals (the
decrease in 1992 principally relates to a
prior reinsurance transaction) 35,973 44,663 (101,508)
Other liabilities (6,177) (3,954) (12,584)
Income taxes (1,844) 8,195 16,780
Policy reserves (123,376) (56,327) (8,850)
Unearned premiums 33,286 35,020 31,007
Liability for unredeemed trading stamps (16,108) (16,423) (19,095)
Minority interest 1,183 2,405 23,495
Other 1,572 1,831 (981)
---------- ---------- ----------
Net cash provided by (used for)
operating activities 119,536 (462,921) (14,317)
---------- ---------- ----------
Net cash flows from investing activities:
----------------------------------------
Acquisition of real estate, property,
equipment and leasehold improvements (122,122) (19,368) (27,351)
Proceeds from disposals of property,
equipment and leasehold improvements 7,741 5,760 7,034
Investment in Caja (45,711) - -
Advances on loan receivables (182,289) (132,324) (114,168)
Principal collections on loan receivables 118,484 95,535 108,912
Proceeds from sales of instalment loan
receivables - - 78,096
Purchases of investments (other than short-
term) (1,251,643) (1,582,856) (2,650,517)
Proceeds from maturities of investments 425,582 471,440 642,723
Proceeds from sales of investments 888,474 1,193,141 2,447,450
---------- ---------- ----------
Net cash provided by (used for)
investing activities (161,484) 31,328 492,179
---------- ---------- ----------
(continued)
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from financing activities:
----------------------------------------
Net change in credit agreement and other
short-term borrowings $ (582) $ (5,678) $ (79,893)
Net change in customer banking deposits 6,346 (12,817) (8,117)
Net change in policyholder account balances (17,302) (95,554) (220,888)
Issuance of long-term debt, net of issuance
costs 50,000 194,157 130,640
Reduction of long-term debt (27,940) (18,237) (63,433)
Purchase of warrants to acquire common shares - - (14,700)
Purchase of common shares for treasury (472) (2,492) (2,850)
Dividends paid (7,021) (6,971) (5,589)
---------- ---------- ----------
Net cash provided by (used for)
financing activities 3,029 52,408 (264,830)
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (38,919) (379,185) 213,032
Cash and cash equivalents at January 1, 291,414 670,599 457,567
---------- ---------- ----------
Cash and cash equivalents at December 31, $ 252,495 $ 291,414 $ 670,599
========== ========== ==========
Supplemental disclosures of cash flow
-------------------------------------
information:
-----------
Cash paid during the year for:
Interest $43,137 $34,574 $39,745
Income tax payments, net of refunds $10,731 $17,025 $10,316
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Net
Common Unrealized
Shares Additional Gain (Loss)
$1 Par Paid-in On Retained
Value Capital Investments Earnings Total
------- ---------- ----------- -------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $23,006 $ 682 $ 274 $341,533 $365,495
Exercise of options to
purchase common shares 641 4,879 5,520
Acquisition of PHLCORP, Inc.
minority interest 4,408 135,535 139,943
Net change in unrealized gain
(loss) on investments (265) (265)
Purchase of stock for treasury (110) (2,740) (2,850)
Purchase of warrants to acquire
common shares (14,700) (14,700)
Dividend ($.20 per Common Share) (5,589) (5,589)
Net income 130,607 130,607
------- -------- -------- -------- --------
Balance, December 31, 1992 27,945 123,656 9 466,551 618,161
Exercise of options to
purchase common shares 235 2,100 2,335
Net change in unrealized gain
(loss) on investments 49,903 49,903
Purchase of stock for treasury (283) (10,503) (10,786)
Income tax benefit related to
warrant and option transactions
(primarily recognized upon
adoption of SFAS 109) 9,760 9,760
Dividend ($.25 per Common Share) (6,971) (6,971)
Net income 245,454 245,454
------- -------- -------- -------- --------
Balance, December 31, 1993 27,897 125,013 49,912 705,034 907,856
Exercise of options to
purchase common shares 165 1,672 1,837
Net change in unrealized gain
(loss) on investments (91,221) (91,221)
Purchase of stock for treasury (12) (460) (472)
Dividend ($.25 per Common Share) (7,021) (7,021)
Net income 70,836 70,836
------- -------- -------- -------- --------
Balance, December 31, 1994 $28,050 $126,225 $(41,309) $768,849 $881,815
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-6<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
-------------------------------
(a) Consolidation Policy: The consolidated financial statements
--------------------
include the accounts of the Company and all majority-owned
subsidiaries. The Company has certain legal subsidiaries (the "WMAC
Companies") which are under the control of the Wisconsin Insurance
Commissioner (the "Commissioner"). These companies are not
consolidated while under the control of the Commissioner.
Investments in entities in which the Company owns less than 50% of the
voting interest and has the ability to exercise significant influence
are accounted for on the equity method of accounting. Amounts related
to such companies have not been material.
Certain amounts for prior periods have been reclassified to be
consistent with the 1994 presentation.
(b) Statement of Cash Flows: The Company considers short-term
-----------------------
investments, which have maturities of less than three months at the
time of acquisition, to be cash equivalents. Cash and cash
equivalents include short-term investments of $200,232,000 and
$247,583,000 at December 31, 1994 and 1993, respectively.
On December 31, 1992, the Company acquired the minority interest in
Phlcorp, Inc. ("Phlcorp") for approximately 4,408,000 of the Company's
Common Shares, which were recorded at an aggregate cost of
approximately $142,927,000. The cost of the acquisition was
principally allocated to investments in associated companies
(approximately $11,022,000), amounts related to the WMAC Companies
(approximately $16,847,000), excess of purchase price over net assets
acquired (approximately $22,277,000) and to eliminate the minority
interest in Phlcorp (approximately $92,819,000).
On June 1, 1993, the Company received 224,175 of the Company's Common
Shares (valued at $8,294,000) in settlement of a zero coupon note due
from John W. Jordan II, a director of the Company and a significant
shareholder. The value of the shares received, which was based on the
market price on the date of the transaction, was equal to the maturity
value of the note.
(c) Investments: Effective as of December 31, 1993, the Company
-----------
adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"). The adoption of SFAS 115 resulted in an increase in
reported shareholders' equity of approximately $49,500,000 at December
31, 1993.
At acquisition, marketable debt and equity securities are designated
as either i) held to maturity, which are carried at amortized cost,
ii) trading, which are carried at estimated fair value with unrealized
gains and losses reflected in results of operations, or iii) available
for sale, which are carried at estimated fair value with unrealized
gains and losses reflected as a separate component of shareholders'
equity, net of taxes. Held to maturity investments are made with the
intention of holding such securities to maturity, which the Company
has the ability to do. Estimated fair values are principally based on
quoted market prices.
F-7
<PAGE>
<PAGE>
1. Significant Accounting Policies, continued:
-------------------------------
Investments with an impairment in value considered to be other than
temporary are written down to estimated net realizable values. The
writedowns are included in "Net securities gains (losses)" in the
Consolidated Statements of Income. The cost of securities sold is
based on average cost.
While the adoption of SFAS 115 did not have, and is not expected to
have, a material effect on results of operations, the Company believes
SFAS 115 is likely to result in substantial fluctuations in
shareholders' equity, as occurred in 1994. During 1994, principally
as a result of increases in market interest rates, the unrealized gain
on investments reported in shareholders' equity at December 31, 1993
of $49,912,000 (net of taxes) became an unrealized loss of $41,309,000
(net of taxes) as of December 31, 1994.
The Company's investments in Russian equity securities (approximately
$19,600,000 as of December 31, 1994), none of which is held by its
insurance or banking subsidiaries, do not have readily determinable
fair values as defined by SFAS 115. Given the uncertainties inherent
in investing in the emerging markets of Russia, the Company is
accounting for these investments under the cost recovery method,
whereby all receipts are applied to reduce the investment. These
investments are included in "Other investments" in the Consolidated
Balance Sheets.
(d) Property, Equipment and Leasehold Improvements: Property,
----------------------------------------------
equipment and leasehold improvements are stated at cost, net of
accumulated depreciation and amortization (approximately $87,067,000
and $73,640,000 at December 31, 1994 and 1993, respectively).
Depreciation and amortization are provided principally on the
straight-line method over the estimated useful lives of the assets or,
if less, the term of the underlying lease.
(e) Income Recognition from Insurance Operations: Premiums on
--------------------------------------------
property and casualty and health insurance products are recognized as
revenues over the term of the policy using the monthly pro rata basis.
The life insurance subsidiaries have sold various investment oriented
insurance products (collectively the "IOP products"), including single
premium whole life ("SPWL") products, a variable life ("VL") product,
a variable annuity ("VA") product and a single premium deferred
annuity ("SPDA") product. The principal IOP product offered during
the three year period ended December 31, 1994 was a VA product. IOP
product premiums are reflected in a manner similar to a deposit;
revenues reflect only mortality charges and other amounts assessed
against the holder of the insurance policies and annuity contracts.
Other life premiums are recognized as revenues over the premium paying
period.
Premiums for the VA and VL products are directed by the policyholder
to be invested in a unit trust solely for the benefit and risk of the
policyholder. Policyholders' accounts are charged for the cost of
insurance provided, administrative and certain other charges. The
amount included in the balance sheet liability caption "Separate and
variable accounts" represents the current value of the policyholders'
funds.
F-8<PAGE>
<PAGE>
1. Significant Accounting Policies, continued:
-------------------------------
(f) Policy Acquisition Costs: Policy acquisition costs principally
------------------------
consist of direct response marketing costs, commissions, premium taxes
and other underwriting expenses (net of reinsurance allowances). If
recoverability of such costs from future premiums and related
investment income is not anticipated, the amounts not considered
recoverable are charged to operations. Deferred policy acquisition
costs also have been charged to operations in connection with
dispositions of blocks of business or reinvestment of proceeds from
security sales at prevailing lower interest rates.
Policy acquisition costs applicable to the property and casualty
insurance operations are deferred and amortized ratably over the terms
of the related policies. Policy acquisition costs applicable to IOP
products are deferred and amortized as a level percentage of the
present value of expected gross profits over the estimated life of
each policy. Policy acquisition costs applicable to other life
insurance products are amortized over the expected premium paying
period of the policies.
(g) Reinsurance: In the normal course of business, the Company seeks
-----------
to reduce the loss that may arise from catastrophes and to limit
losses from large exposures by reinsuring certain levels of risk with
other insurance enterprises. The Company has also entered into
reinsurance transactions in connection with dispositions of blocks of
businesses. Reinsurance contracts do not necessarily relieve the
Company from its obligations to policyholders.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS
113"). Under SFAS 113 reinsurance recoverables are reported as assets
rather than the previously accepted practice of netting such amounts
against related liabilities. Appropriate provisions are made for
uncollectible reinsurance receivables. Premiums earned and other
underwriting expenses are stated net of reinsurance in the
Consolidated Statements of Income. The adoption of SFAS 113 had no
material effect on results of operations.
(h) Policy Reserves and Unearned Premiums: Policy reserves and
-------------------------------------
unearned premiums for life, health and traditional annuity policies
are computed on a net level premium method based upon standard and
Company developed tables with provision for adverse deviation and
estimated withdrawals. Liabilities for unpaid losses and loss
adjustment expenses applicable to the property and casualty insurance
operations are determined using case basis evaluations, statistical
analyses for losses incurred but not reported and estimates for
salvage and subrogation recoverable and represent estimates of
ultimate claim costs and loss adjustment expenses.
Effective as of January 1, 1993, the Company adopted 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"), which specifies the
accounting for certain retrospectively rated reinsurance agreements.
F-9
<PAGE>
<PAGE>
1. Significant Accounting Policies, continued:
-------------------------------
As a result of the adoption of EITF 93-6, the Company reduced its policy
reserves at January 1, 1993 by approximately $14,654,000 and recorded
a credit of approximately $9,672,000 (net of income taxes of
$4,982,000) which is included in the caption "Cumulative effects of
changes in accounting principles." If the accounting specified by
EITF 93-6 had been in effect in 1992, the effect on results of
continuing operations would not have been material.
(i) Trading Stamp Revenue and Liability for Unredeemed Trading Stamps:
-----------------------------------------------------------------
The Company records trading stamp revenues and provides for the cost
of redemptions at the time trading stamps are sold to licensees. A
liability for unredeemed trading stamps is estimated based upon the
cost of merchandise, cash and related redemption service expenses
required to redeem the trading stamps which are expected to be
presented for redemption in the future. The Company periodically
reviews the appropriateness of the estimated redemption rates based
upon recent experience, statistical evaluations and other relevant
factors. 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. The amount of the excess may be
different than indicated by these studies. 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 $11,700,000,
$11,900,000 and $14,100,000 for the years ended December 31, 1994,
1993 and 1992, respectively. Based on the latest studies, the
unamortized apparent excess at December 31, 1994 was approximately
$5,358,000. The Company provided the liability for unredeemed trading
stamps based on the estimate that approximately 75% of stamps sold in
each of the three years ended December 31, 1994 ultimately will be
redeemed.
(j) Pension, Postemployment and Postretirement Costs: The Company has
------------------------------------------------
non-contributory trusteed pension plans covering certain employees,
which generally provide retirement benefits based on salary and length
of service. The plans are funded in amounts sufficient to satisfy
minimum ERISA funding requirements.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("SFAS 106") and
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"), which require
accruals for benefits that previously had been expensed as incurred.
The Company does not expect SFAS 106 and SFAS 112 to have a material
effect on results of operations.
(k) Income Taxes: The Company provides for income taxes using the
------------
liability method. Effective as of January 1, 1993, the Company
adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under the liability
method, deferred income taxes are provided at the statutorily enacted
rates for differences between the tax and accounting bases of
substantially all assets and
F-10
<PAGE>
<PAGE>
1. Significant Accounting Policies, continued:
-------------------------------
liabilities and for carryforwards. A valuation allowance is provided
if deferred tax assets are not considered more likely than not to be
realized.
Prior to adoption of SFAS 109, the benefit from utilization of tax
loss carryforwards and future deductions was only recognized when
utilized and under certain other limited circumstances. Under SFAS
109, the future benefit of certain tax loss carryforwards and future
deductions is recorded as an asset and the provisions for income taxes
for periods ending after December 31, 1992 are not reduced for the
benefit from utilization of tax loss carryforwards. Accordingly,
provisions for income taxes for 1994 and 1993 are not comparable to
the 1992 provision.
(l) Derivative Financial Instruments: The Company has entered into
--------------------------------
interest rate swap and interest rate option agreements to reduce the
impact of changes in interest rates on its variable rate debt. The
difference between the amounts paid and received is accrued as an
adjustment to interest expense over the term of the agreements. The
premiums paid for interest rate option agreements are included in
other assets and are amortized to expense over the term of the
agreements. The Company does not have material derivative financial
instruments for trading purposes.
(m) Translation of Foreign Currency: Foreign currency denominated
-------------------------------
investments which are not subject to hedging agreements and currency
rate swap agreements not meeting the accounting requirements for
hedges, are converted into U.S. dollars at exchange rates in effect at
the end of the period. Resulting net exchange gains or losses were
not material.
2. Acquisitions:
------------
The Company is a partner in The Jordan Company and Jordan/Zalaznick
Capital Company, private investment firms whose principal activity is
structuring leveraged buy-outs in which the partners are given the
opportunity to become equity participants. John W. Jordan II, a
director of the Company and a significant shareholder, is a Managing
Partner of both firms. Since 1982, through such partnerships, the
Company acquired interests in several companies (the "Jordan
Associated Companies"), principally engaged in various aspects of
manufacturing and distribution. The Company currently accounts for
its interests in fifteen of the Jordan Associated Companies on the
cost method of accounting and one company, which is not material, on
the equity method of accounting. The investments acquired as a result
of the partnership interests are considered Associated Companies.
Prior to December 31, 1992, the Company owned approximately 63% of
Phlcorp's common shares. On December 31, 1992, pursuant to a merger
agreement, Phlcorp merged with a subsidiary of the Company and became
a wholly owned subsidiary. Pursuant to the terms of the merger, the
Company issued 4,408,000 of the Company's Common Shares, which were
recorded at approximately $142,927,000.
F-11
<PAGE>
<PAGE>
2. Acquisitions, continued:
------------
The following table provides certain unaudited consolidated pro forma
results of operations data for the year ended December 31, 1992
assuming the acquisition of the minority interest in Phlcorp had
occurred on January 1, 1992. (Amounts are in thousands, except per
share amounts.)
<TABLE>
<CAPTION>
<S> <C>
Revenues $1,573,015
Income before income taxes $ 163,417
Income taxes $ 12,946
Net income $ 150,471
Per share:
Primary $5.22
Fully diluted $5.20
</TABLE>
Such pro forma data should not necessarily be considered indicative of
future results of operations or the results of operations that would
have resulted if the acquisition had actually occurred on January 1,
1992.
In April 1994, the Company acquired a 30% interest in Caja de Ahorro y
Seguro S.A. ("Caja") from the government of Argentina for a
preliminary purchase price 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 preliminary purchase price is subject to adjustment
based upon the reduction in Caja's net assets from December 31, 1993
to the acquisition date.
The difference between the Company's investment in Caja and its share
of Caja's underlying net tangible assets is being amortized over 20
years. Since acquisition, the Company's equity in the earnings of
Caja has not been material. The Company's investment in Caja is
included in the caption "Investments in associated companies."
In May 1994, the Company acquired a 615,000 square foot office
building located near Grand Central Terminal in New York City for
approximately $50,800,000. The building has approximately 355,000
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 investment is included in
other assets.
In July 1994, the Company acquired HSD Venture, a California general
partnership which was 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
residential units, of which approximately 180 are available for sale,
and approximately 42,000 square feet of retail space. The real estate
investment is included in other assets.
3. Investments in Associated Companies:
-----------------------------------
The Company owns or held part interests in the following foreign power
companies: Compania de Alumbrado Electrico de San Salvador, S.A.
("CAESS"), Compania Boliviana de Energia Electrica, S.A. - Bolivian
F-12
<PAGE>
<PAGE>
3. Investments in Associated Companies, continued:
-----------------------------------
Power Company Limited ("Bolivian Power") and, through the Canadian
International Power Company Limited Liquidating Trust, The Barbados
Light and Power Company Limited.
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. The Company has recognized the gain on the cash basis.
During 1994, the Company disposed of the remaining bonds and reported
a pre-tax gain of approximately $8,458,000, which is included in the
caption "Investment and other income." Gains recognized in 1993 were
not significant.
During 1993, the Company sold 750,000 shares of Bolivian Power common
stock in an underwritten public offering and realized a pre-tax gain
of approximately $12,981,000. During 1994, the Company sold its
remaining interest in Bolivian Power to an unaffiliated party and
realized a pre-tax gain of approximately $14,500,000. The gains are
reflected in the caption, "Investment and other income."
The Company believes that it ultimately will receive the stock of two
of the WMAC Companies; however, the timing of such receipt is
uncertain. The Company estimates that the fair value of the net
tangible assets yet to be received is approximately $34,000,000 in
excess of their recorded cost at December 31, 1994.
4. Insurance Operations:
--------------------
Premiums received on IOP products were approximately $108,080,000,
$88,312,000 and $68,035,000 for the years ended December 31, 1994,
1993 and 1992, respectively.
The changes in deferred policy acquisition costs were as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Balance, January 1, $ 55,410 $ 78,895 $ 82,982
-------- --------- --------
Additions 100,506 81,746 77,448
-------- --------- --------
Included in insurance losses,
policy benefits and amortization
of deferred acquisition costs:
Provided in connection with
disposition and/or transfers
of business - (29,748) (9,130)
Provided in connection with
sales of securities - - (2,100)
Other amortization (81,380) (71,702) (70,305)
-------- --------- --------
(81,380) (101,450) (81,535)
-------- --------- --------
Adoption of SFAS 109 - (3,781) -
-------- --------- --------
Balance, December 31, $ 74,536 $ 55,410 $ 78,895
======== ========= ========
</TABLE>
On June 23, 1993, the Company reinsured substantially all of its
existing SPWL business with a subsidiary of John Hancock Mutual Life
Insurance Company ("John Hancock"). In connection with the
transaction, the
F-13
<PAGE>
<PAGE>
4. Insurance Operations, continued:
--------------------
Company realized a net pre-tax gain of approximately $16,700,000
during 1993. Such net pre-tax gain consists of net security gains on
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 "Insurance losses,
policy benefits and amortization of deferred acquisition costs." 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. At December 31, 1994,
reinsurance receivables, net includes approximately $179,452,000 due
from John Hancock. During 1994, the Company was legally relieved of
approximately $157,818,000 of SPWL policy liabilities.
During 1993 and 1992, the Company sold, at gains, substantial amounts
of investments, including dispositions in connection with the transfer
of blocks of business, and, in certain cases, reinvested proceeds at
prevailing lower interest rates. Since certain of these rates were
lower than had previously been expected on certain fixed rate annuity
policies, the Company provided additional reserves of approximately
$6,800,000 in 1993 and $2,700,000 in 1992. In addition, because of
the lower anticipated investment earnings, the Company also
recalculated deferred policy acquisition costs and provided additional
amounts for amortization of deferred policy acquisition costs of
$2,100,000 in 1992.
The effect of reinsurance on premiums written and earned for the years
ended December 31, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
Premiums Premiums Premiums Premiums
Written Earned Written Earned
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Direct $960,463 $923,131 $930,424 $893,797
Assumed 31,804 32,261 34,102 33,628
Ceded (39,722) (36,506) (33,191) (33,575)
-------- -------- -------- --------
Net $952,545 $918,886 $931,335 $893,850
======== ======== ======== ========
</TABLE>
Recoveries recognized on reinsurance contracts were approximately
$44,300,000 in 1994 and $22,800,000 in 1993.
Reinsurance receivables are net of allowance for doubtful accounts of
approximately $4,046,000 and $83,825,000 at December 31, 1994 and
1993, respectively. The decrease in the allowance from 1993
principally reflects the write-off of reinsurance receivables that had
been fully reserved.
F-14
<PAGE>
<PAGE>
4. Insurance Operations, continued:
--------------------
Net income and statutory surplus as determined in accordance with
statutory accounting principles as reported to the domiciliary state
of the Company's insurance subsidiaries are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
Property and casualty insurance $ 59,048 $ 96,279 $ 51,108
Life insurance $ 14,142 $ (2,951) $ 16,187
<CAPTION>
At December 31,
--------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Statutory surplus:
Property and casualty insurance $425,128 $475,408 $378,816
Life insurance $335,903 $303,986 $234,058
</TABLE>
Certain insurance subsidiaries are owned by other insurance
subsidiaries. In the data above, investments in such subsidiary-owned
insurance companies are reflected in statutory surplus of both the
parent and subsidiary-owned insurance company. As a result, at
December 31, 1994, 1993 and 1992, statutory surplus of approximately
$252,800,000, $246,600,000 and $122,000,000, respectively, related to
property and casualty operations is also included in the statutory
surplus of the life insurance parent and statutory surplus of
approximately $35,900,000, $42,200,000 and $38,000,000, respectively,
related to life operations is also included in the statutory surplus
of the property and casualty insurance parent. The insurance
subsidiaries are subject to regulatory restrictions which limit the
amount of cash and other distributions available to the Company
without regulatory approval. At December 31, 1994, approximately
$21,134,000 could be distributed to the Company without regulatory
approval.
The Colonial Penn property and casualty insurance subsidiaries are
subject to a rate "roll-back" refund on California insurance premiums
for certain pre-acquisition years. In November 1994, Colonial Penn
received an order requiring it to refund $35,300,000, plus $21,700,000
of interest. Colonial Penn disagrees with the calculation of this
assessment. The Company is in discussions with the California
Department of Insurance and has filed a request for a formal hearing
should informal discussions fail to come to a satisfactory conclusion.
The Company believes that the ultimate resolution of this matter will
not have a material adverse effect on the Company's financial
condition or results of operations and will not exceed reserves
established in prior years.
The Company's insurance subsidiaries are contingently liable for
possible assessments under state regulatory requirements pertaining to
potential insolvencies of unaffiliated insurance companies.
Liabilities, which are established based upon regulatory guidance,
have not been material.
For information with respect to the activity in property and casualty
loss reserves, see "Reconciliation of Liability for Losses and Loss
Adjustment Expenses" in Item 1 included elsewhere herein, which is
incorporated by reference into these consolidated financial
statements.
F-15
<PAGE>
<PAGE>
5. Investments:
-----------
The amortized cost, gross unrealized gains and losses and estimated
fair values of investments classified as held to maturity and as
available for sale at December 31, 1994 and 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Held to maturity:
1994
----
Bonds and notes:
United States Government
agencies and authorities $40,300 $117 $1,861 $38,556
States, municipalities
and political subdivisions 818 10 - 828
All other corporates 385 - 40 345
Other fixed maturities 13,083 8 - 13,091
------- ---- ------ -------
$54,586 $135 $1,901 $52,820
======= ==== ====== =======
1993
----
Bonds and notes:
United States Government
agencies and authorities $55,556 $2,470 $61 $57,965
States, municipalities
and political subdivisions 2,175 45 - 2,220
All other corporates 477 - 7 470
Other fixed maturities 16,588 - - 16,588
------- ------ --- -------
$74,796 $2,515 $68 $77,243
======= ====== === =======
Available for sale:
1994
----
Bonds and notes:
United States Government
agencies and authorities $1,866,752 $ 2,241 $71,625 $1,797,368
States, municipalities
and political subdivisions 91,892 63 771 91,184
Foreign governments 3,576 1,838 220 5,194
Public utilities 77,518 123 2,756 74,885
All other corporates 339,478 11,424 10,451 340,451
---------- ------- ------- ----------
Total fixed maturities 2,379,216 15,689 85,823 2,309,082
---------- ------- ------- ----------
Equity securities:
Preferred stocks 39 - - 39
Common Stocks:
Banks, trusts and
insurance companies 10,001 312 1 10,312
Industrial, miscellaneous
and all other 6,507 6,773 1,950 11,330
---------- ------- ------- ----------
Total equity securities 16,547 7,085 1,951 21,681
---------- ------- ------- ----------
Other 525 - - 525
---------- ------- ------- ----------
$2,396,288 $22,774 $87,774 $2,331,288
========== ======= ======= ==========
</TABLE>
F-16
<PAGE>
<PAGE>
5. Investments, continued:
-----------
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Available for sale:
1993
----
Bonds and notes:
United States Government
agencies and authorities $1,924,697 $43,756 $2,806 $1,965,647
States, municipalities
and political subdivisions 68,469 896 70 69,295
Foreign governments 9,726 3,914 15 13,625
Public utilities 117,927 4,769 694 122,002
All other corporates 307,420 21,057 751 327,726
Preferred stock (non-equity) 392 2 26 368
---------- ------- ------ ----------
Total fixed maturities 2,428,631 74,394 4,362 2,498,663
---------- ------- ------ ----------
Equity securities:
Preferred stocks 1,346 89 23 1,412
Common Stocks:
Banks, trusts and
insurance companies 15,570 335 413 15,492
Industrial, miscellaneous
and all other 1,633 7,350 57 8,926
---------- ------- ------ ----------
Total equity securities 18,549 7,774 493 25,830
---------- ------- ------ ----------
$2,447,180 $82,168 $4,855 $2,524,493
========== ======= ====== ==========
</TABLE>
The amortized cost and estimated fair value of investments classified
as held to maturity and as available for sale at December 31, 1994,
by contractual maturity are shown below. Expected maturities are
likely to differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available For Sale
---------------- ------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Due in one year or less $13,110 $13,116 $ 269,286 $ 270,622
Due after one year
through five years 29,339 28,424 1,323,468 1,283,212
Due after five years
through ten years 5,398 4,874 116,099 114,303
Due after ten years 2,118 2,132 124,544 122,829
------- ------- ---------- ----------
49,965 48,546 1,833,397 1,790,966
Mortgage-backed securities 4,621 4,274 545,819 518,116
------- ------- ---------- ----------
$54,586 $52,820 $2,379,216 $2,309,082
======= ======= ========== ==========
</TABLE>
F-17<PAGE>
<PAGE>
5. Investments, continued:
-----------
At December 31, 1994 and 1993 securities with book values aggregating
approximately $39,908,000 and $55,145,000, respectively, were on
deposit with various regulatory authorities.
At December 31, 1994, the Company had common stock equity interests of
5% or more in the following domestic publicly owned non-consolidated
companies, some of which are Associated Companies: Carmike Cinemas,
Inc. (approximately 8% of Class A shares), Jones Plumbing Systems,
Inc. (approximately 21%) and Olympus Capital Corporation
(approximately 17%).
Certain information with respect to trading securities at December 31,
1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
Amortized Estimated Carrying
Cost Fair Value Value
--------- ---------- --------
<S> <C> <C> <C>
1994
----
Fixed maturities-
Corporate bonds and notes $37,478 $37,961 $37,961
Equity securities-
Preferred stocks 13,750 13,532 13,532
Options 2,084 738 738
------- ------- -------
Total trading securities $53,312 $52,231 $52,231
======= ======= =======
1993
----
Fixed maturities-
Corporate bonds and notes $25,029 $26,172 $26,172
Equity securities-
Preferred stocks 13,337 13,901 13,901
Options 2,212 1,911 1,911
------- ------- -------
Total trading securities $40,578 $41,984 $41,984
======= ======= =======
</TABLE>
F-18
<PAGE>
<PAGE>
6. Receivables, Net:
----------------
A summary of trade, notes and other receivables, net at December 31,
1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Instalment loan receivables net of unearned
finance charges of $5,118 and $5,858 (a) $253,089 $187,694
Loans to small business concerns, including
accrued interest 11,107 18,050
Agents' balances and premiums receivable 171,975 154,201
Amount due on sale of securities 6,133 2,513
Trade receivables 28,092 26,258
Service fee receivable 3,653 1,793
Other 8,013 13,411
-------- --------
482,062 403,920
Allowance for doubtful accounts (including
$12,308 and $8,341 applicable to loan
receivables of banking and lending subsidiaries) (18,081) (13,526)
-------- --------
$463,981 $390,394
======== ========
</TABLE>
(a) Contractual maturities of instalment loan receivables at December
31, 1994 were as follows (in thousands): 1995 - $96,912; 1996 -
$64,230; 1997 - $42,997; 1998 - $26,891 and 1999 and thereafter -
$22,059. Experience shows that a substantial portion of such notes will
be repaid or renewed prior to contractual maturity. Accordingly, the
foregoing is not to be regarded as a forecast of future cash
collections.
7. Prepaids and Other Assets:
-------------------------
At December 31, 1994 and 1993, a summary of prepaids and other assets is
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Real estate assets, net $123,423 $ 30,443
Inventories, net 30,974 34,817
Excess of acquisition cost over
net tangible assets acquired 2,369 3,508
Amounts related to the WMAC Companies 24,611 24,051
Balances in risk sharing pools and associations 16,926 27,231
Prepaid reinsurance premium 5,127 2,639
Unamortized debt expense 7,143 8,024
Other 34,903 30,728
-------- --------
$245,476 $161,441
======== ========
</TABLE>
F-19<PAGE>
<PAGE>
8. Trade Payables, Expense Accruals and Other Liabilities:
------------------------------------------------------
A summary of trade payables, expense accruals and other liabilities at
December 31, 1994 and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Trade Payables and Expense Accruals:
Payables related to securities $ 42,614 $ 32,393
Amount due on reinsurance 8,787 11,671
Trade and drafts payable 33,629 35,134
Accrued compensation, severance and other
employee benefits 29,189 17,566
Accrued interest payable 9,253 8,950
Taxes, other than income 22,831 23,152
Provision for servicing carrier claims 17,935 13,159
Other 25,042 22,508
-------- --------
$189,280 $164,533
======== ========
Other Liabilities:
Unearned service fees $ 28,584 $ 12,905
Lease obligations 9,909 12,783
Postretirement and postemployment benefits 25,949 26,947
Premiums received in advance 5,300 6,032
Holdbacks on loans 7,363 7,083
Unclaimed funds and dividends 3,728 4,474
Liability for stock not tendered 3,794 19,977
Other 21,419 20,195
-------- --------
$106,046 $110,396
======== ========
</TABLE>
9. Long-term and Other Indebtedness:
--------------------------------
The principal amount, stated interest rate and maturity of long-term
debt outstanding at December 31, 1994 and 1993 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Senior Notes:
Credit agreements $ - $ -
Term loans with banks 50,000 21,250
7 3/4% Senior Notes due 2013, less debt
discount of $931 and $981 99,069 99,019
Industrial Revenue Bonds (principally with
variable interest) 6,811 8,058
Other 12,710 15,844
-------- --------
168,590 144,171
-------- --------
Subordinated Notes:
10 3/8% Senior Subordinated Notes due 2002,
less debt discount of $699 and $793 124,301 124,207
6% Swiss Franc Bonds due March 10, 1996
("Swiss Franc Bonds") 32,957 32,957
5 1/4% Convertible Subordinated Debentures
due 2003 100,000 100,000
-------- --------
257,258 257,164
-------- --------
$425,848 $401,335
======== ========
</TABLE>
F-20
<PAGE>
<PAGE>
9. Long-term and Other Indebtedness, continued:
--------------------------------
Credit agreements provide for aggregate contractual credit facilities
of $150,000,000 and bear interest based on the prime rate or LIBOR,
plus commitment and other fees. Such credit facilities were renewed
in 1994 and expire in June 1997.
In June 1994, the Company entered into a $50,000,000 five-year term
loan agreement with certain of its bank lenders. The loan bears
interest based on the prime rate or LIBOR.
Approximately $15,665,000 of the manufacturing division's net
property, equipment and leasehold improvements are pledged as
collateral for the Industrial Revenue Bonds; and approximately
$6,493,000 of other assets (primarily property) is pledged for other
indebtedness aggregating approximately $4,264,000.
Interest rate swap and interest rate option agreements are used to
reduce the potential impact of increases in interest rates on term
loans with banks, customer banking deposits and credit agreement
borrowings. Under the interest rate swap agreements, the Company has
agreed with other parties to pay fixed rate interest amounts and
receive variable rate interest amounts calculated by reference to an
agreed notional amount. The variable interest rate portion of the
swaps is a specified LIBOR interest rate. Swaps that expire in 1996
require fixed rate payments of 7.23% on a $50,000,000 notional amount.
Swaps that expire in 1999 require fixed rate payments of 7.33% on a
$25,000,000 notional amount. The weighted average LIBOR rate at
December 31, 1994 is 5.9%. Changes in LIBOR interest rates in the
future will change the amounts to be received under the agreements.
In 1994, the Company purchased an option for $2,564,000 to enter into
an interest rate swap, which is exercisable in August 1996. If
exercised, the Company would be required to make fixed rate payments
of 7.64% in exchange for receiving a LIBOR based variable payment on a
$50,000,000 notional amount for the subsequent eight year term.
Counterparties to interest rate swap agreements are major financial
institutions, which management believes are able to fulfill their
obligations. However, any losses due to default by the counterparties
would be immaterial.
During 1989, the Company entered into long-term hedging transactions
whereby substantially all currency rate risk related to the Swiss
Franc Bonds was eliminated and the cost of which increased the cost of
the issue to approximately 10.4%.
The 5 1/4% Convertible Subordinated Debentures due 2003 are
convertible into Common Shares at $57.50 per Common Share, an
aggregate of 1,739,130 Common Shares, subject to anti-dilution
provisions.
The most restrictive of the Company's debt instruments require
maintenance of minimum Tangible Net Worth and limit Indebtedness, as
defined in the agreements. In addition, the debt instruments contain
limitations on dividends, investments, liens, contingent obligations
and certain other matters. As of January 1, 1995, cash dividends of
approximately $187,800,000 could be paid under the most restrictive
covenants.
F-21
<PAGE>
<PAGE>
9. Long-term and Other Indebtedness, continued:
--------------------------------
The aggregate annual mandatory redemptions of debt during the five year
period ending December 31, 1999 are as follows (in thousands):
1995 - $3,966; 1996 - $35,797; 1997 - $1,580; 1998 - $1,498; and, 1999
- $51,197.
The weighted average interest rate on short-term borrowings (primarily
customer banking deposits) was 5.4% and 4.7% at December 31, 1994 and
1993, respectively.
10. Common Shares, Stock Options, Warrants and Preferred Shares:
-----------------------------------------------------------
The Board of Directors from time to time has authorized acquisitions
of the Company's Common Shares. Pursuant to such authorization,
during the three year period ended December 31, 1994, the Company
acquired 405,195 Common Shares (11,986 shares in 1994, 282,409 shares
in 1993 and 110,800 shares in 1992) at an average price of $34.82 per
Common Share. The Common Shares acquired in 1993, include 224,175
Common Shares acquired from John W. Jordan II.
A summary of activity with respect to the Company's stock options for
the three years ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
Available
Common For
Shares Total Future
Subject Option Option Option
To Option Prices Price Grants
--------- ------ ------ ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1992 1,534,498 $ 4.97-$12.25 $15,049,303 292,984
=======
Granted 46,000 $22.50-$33.50 1,315,000
Exercised (641,130) $ 4.97-$12.25 (5,520,662)
Cancelled (79,700) $ 7.88-$12.25 (916,869)
--------- -----------
Balance at December 31, 1992 859,668 $ 7.88-$33.50 9,926,772 970,000
=======
Granted 176,500 $40.88-$43.00 7,231,938
Exercised (234,896) $ 7.69-$28.50 (2,333,357)
Cancelled (24,800) $ 7.69-$22.50 (363,350)
--------- -----------
Balance at December 31, 1993 776,472 $ 7.69-$43.00 14,462,003 793,500
=======
Granted 13,000 $35.75-$37.00 475,375
Exercised (165,000) $ 7.69-$40.88 (1,837,627)
Cancelled (16,500) $ 9.38-$40.88 (368,388)
--------- -----------
Balance at December 31, 1994 607,972 $ 7.69-$43.00 $12,731,363 787,400
========= =========== =======
</TABLE>
The options were granted under plans that provide for the issuance of
stock options and stock appreciation rights at not less than the fair
market value of the underlying stock at the date the options or rights
are granted. Options granted under these plans generally become
exercisable in five equal annual instalments starting one year from
date of grant. No stock appreciation rights have been granted.
At December 31, 1994 and 1993, options to purchase 276,934 and 221,996
Common Shares, respectively, were exercisable.
In January 1992, the Company redeemed certain Warrants held by the
Company's Chairman and President for an aggregate cash payment of
approximately $14,700,000, which amount was charged to additional
paid-in capital. In January 1992, pursuant to subsequent approval of
the shareholders, warrants to purchase 800,000 Common Shares at
$20.188 per Common Share (the then market value of the Company's
shares) through
F-22<PAGE>
<PAGE>
10. Common Shares, Stock Options, Warrants and Preferred Shares,
-----------------------------------------------------------
continued:
January 10, 1997 were granted to each of the Company's Chairman and
President. The warrants granted in 1992 became exercisable on April
1, 1993.
At December 31, 1994 and 1993, the Company's Common Shares were
reserved as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Stock Options 1,395,372 1,569,972
Warrants 1,600,000 1,600,000
Convertible Debentures 1,739,130 1,739,130
--------- ---------
4,734,502 4,909,102
========= =========
</TABLE>
At December 31, 1994 and 1993, 6,000,000 preferred shares (redeemable
and non-redeemable), par value $1 per share, were authorized.
11. Net Securities Gains (Losses):
-----------------------------
The following summarizes net securities gains (losses) for each of the
three years in the period ended December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Net realized gains (losses) on fixed maturities:
Resulting in additional provision
for policyholder benefits $ - $ 6,800 $ 2,700
Resulting in increase in amortization
of deferred policy acquisition costs - 24,100 11,230
Other (11,246) 19,352 51,797
-------- ------- --------
(11,246) 50,252 65,727
Provision for write-down of fixed
maturity investments (3,126) (2,000) (19,677)
Provision for write-down of equity
investments - - (364)
Net unrealized loss on trading
securities (1,500) (685) -
Net realized gains on equity and other
securities 3,868 4,356 6,092
-------- ------- --------
$(12,004) $51,923 $ 51,778
======== ======= ========
</TABLE>
Proceeds from sales of investments classified as available for sale
were approximately $854,824,000 during 1994. Gross gains and gross
losses of approximately $8,461,000 and $18,446,000, respectively, were
realized on these sales during 1994.
Proceeds from sales of fixed maturity investments were approximately
$1,171,574,000 and $2,421,057,000 during 1993 and 1992, respectively.
Gross gains of approximately $51,839,000 and $70,551,000 and gross
losses of approximately $1,587,000 and $4,824,000 were realized on
those sales during 1993 and 1992, respectively.
F-23
<PAGE>
<PAGE>
12. Other Results of Operations Information:
---------------------------------------
Investment and other income for each of the three years in the period
ended December 31, 1994 consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Interest on short-term investments $ 13,555 $ 14,867 $ 17,750
Interest on fixed maturities 141,279 158,203 213,224
Service fee income 31,608 15,309 12,321
Gain on disposition of the El Salvador
government bonds receivable 8,458 130 -
Gain on sale of Bolivian Power 14,490 12,981 -
Gain on sale of consumer loan development
offices - - 12,128
Other 22,739 29,743 31,929
-------- -------- --------
$232,129 $231,233 $287,352
======== ======== ========
</TABLE>
Taxes, other than income or payroll, included in operations amounted
to approximately $37,310,000 (including $21,330,000 of premium taxes)
for the year ended December 31, 1994, $36,839,000 (including
$21,295,000 of premium taxes) for the year ended December 31, 1993 and
$35,051,000 (including $21,153,000 of premium taxes) for the year
ended December 31, 1992.
Advertising costs amounted to approximately $12,541,000, $10,394,000
and $9,578,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
13. Income Taxes:
------------
The principal components of the deferred tax asset at December 31,
1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Insurance reserves and unearned premiums $ 91,177 $ 83,051
Securities valuation reserves 13,915 7,187
Other accrued liabilities 11,090 26,260
Liability for unredeemed trading stamps 8,960 9,690
State taxes 6,071 6,421
Employee benefits and compensation 7,013 11,496
Unrealized losses (gains) on investments 22,736 (27,091)
Depreciation (4,901) (9,480)
Policy acquisition costs (2,569) 3,097
Tax loss carryforwards, net of tax
sharing payments 45,332 60,310
Other, net (10,133) (7,540)
-------- --------
188,691 163,401
Valuation allowance (44,060) (49,400)
-------- --------
$144,631 $114,001
======== ========
</TABLE>
The valuation allowance principally relates to certain acquired tax
loss carryforwards, the usage of which is subject to certain
limitations and certain other matters which may restrict their
availability, and unrealized capital losses. In addition, the amounts
reflected above are
F-24
<PAGE>
<PAGE>
13. Income Taxes, continued:
------------
based on the minimum tax loss carryforwards of Phlcorp and certain
proposed regulations affecting the use of Phlcorp's tax loss
carryforwards. As described more fully herein, substantial additional
amounts may be available under certain circumstances and as
uncertainties are resolved.
The Company believes it is more likely than not that the recorded
deferred tax asset will be realized principally from taxable income
generated by profitable operations.
The provision for income taxes for each of the three years in the
period ended December 31, 1994 was as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
State income taxes (principally
currently payable) $ 6,000 $ 8,562 $ 5,847
Federal income taxes:
Currently payable 2,906 16,793 19,703
Deferred 20,397 35,254 (12,892)
Foreign income taxes (principally
currently payable) 179 - 288
------- ------- --------
$29,482 $60,609 $ 12,946
======= ======= ========
</TABLE>
The table below reconciles expected statutory federal income tax to
actual income tax expense (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Expected federal income tax $35,111 $61,904 $ 48,808
State income taxes, net of federal
income tax benefit 3,900 5,565 3,900
Amortization of excess of acquisition
cost over net tangible assets acquired 1,028 1,154 622
Tax exempt interest (1,144) (155) (101)
Benefit from use of loss carryforwards - - (46,796)
Minority interest 414 842 7,988
Alternative minimum tax - - 2,723
Amounts applicable to prior years taxes
(principally United Kingdom in 1993) - (552) (4,183)
Effects of changes in federal tax rates - (4,215) -
Reduction in valuation allowance (5,340) (4,100) -
Recognition of additional tax benefits (4,450) - -
Other (37) 166 (15)
------- ------- --------
Actual income tax expense $29,482 $60,609 $ 12,946
======= ======= ========
</TABLE>
The provisions for income taxes for 1994 and 1993 were calculated
under SFAS 109. Accordingly, the provisions for 1994 and 1993 are not
comparable to the 1992 provision.
F-25
<PAGE>
<PAGE>
13. Income Taxes, continued:
------------
The valuation allowance applicable to the deferred income tax asset
recorded upon adoption of SFAS 109 gave effect to the possible
unavailability of certain income tax deductions. During 1994 and 1993
certain matters were resolved and the Company reduced the valuation
allowance as reflected in the above reconciliation.
Adoption of SFAS 109 at January 1, 1993 was principally reflected as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tax benefits related to acquired companies
(utilized to eliminate acquired intangibles) $ 35,938
Tax benefits resulting from capital transactions
(credited to paid-in capital) 9,410
Other tax benefits (reflected as the cumulative
effect of a change in accounting principle) 127,152
--------
Benefit of certain tax loss carryforwards and
future deductions (net of valuation allowance)
recognized as an increase in deferred tax assets $172,500
========
</TABLE>
Phlcorp, in connection with its 1986 reorganization, entered into a
tax settlement agreement (the "Tax Settlement Agreement") with the
United States whereby, among other things, Phlcorp agreed that upon
utilization of certain pre-reorganization tax loss carryforwards, it
would pay 25% of any resultant tax savings to the government, subject
to certain limitations. The Tax Settlement Agreement provides that
post-reorganization tax attributes and net operating losses will be
utilized prior to pre-reorganization operating losses in calculating
tax sharing payments. Due to unresolved issues concerning certain
post-reorganization deductions, Phlcorp is unable to state with
certainty the amount of its available carryforwards. However, Phlcorp
believes that it has minimum tax operating loss carryforwards of
between $95,000,000 and $260,000,000 at December 31, 1994. The
expiration dates for Phlcorp's carryforwards will depend on the
outcome of the matters referred to above, although it is unlikely such
carryforwards will begin to expire before 1998.
F-26
<PAGE>
<PAGE>
13. Income Taxes, continued:
------------
At December 31, 1994 the Company had tax loss carryforwards as follows
(in thousands):
<TABLE>
<CAPTION>
Year of Loss
Expiration Carryforwards
---------- -------------
<S> <C>
1996 $ 3,515
1997 463
1998 1,311
1999 433
2000 21
2002 430
2003 17,318
2005 13,437
--------
36,928
Phlcorp minimum amount, as
described above 95,000
--------
Total minimum tax loss carryforwards $131,928
========
</TABLE>
Limitations exist under the tax law which may restrict the utilization
of the Phlcorp carryforwards and the utilization of an aggregate of
approximately $6,471,000 of non-Phlcorp tax loss carryforwards.
Further, certain of the future deductions may only be utilized in the
tax returns of certain life insurance subsidiaries. These limitations
are considered in the determination of the valuation allowance.
Under certain circumstances, the value of the carryforwards available
could be substantially reduced if certain changes in ownership were to
occur. In order to reduce this possibility, the Company's certificate
of incorporation was amended to include certain charter restrictions
which prohibit transfers of the Company's Common Stock under certain
circumstances.
Under prior law, Charter National had accumulated approximately
$15,447,000 of special federal income tax deductions allowed life
insurance companies as of December 31, 1994 and the Colonial Penn life
insurance subsidiaries had accumulated approximately $161,000,000 of
such special deductions. Under certain conditions, such amounts could
become taxable in future periods. Except with respect to amounts
applicable to Colonial Penn's life insurance subsidiaries, for which
the previous owner has assumed such liability contractually, the
Company does not anticipate any transaction occurring which would
cause these amounts to become taxable. In connection with the IRS's
examination of certain pre-acquisition tax returns of the Colonial
Penn life insurance companies, the IRS has asserted that approximately
$93,025,000 of special federal income tax deductions allowed life
insurance companies should have been reflected in taxable income in
1986, resulting in a tax (exclusive of interest and penalties) of
approximately $42,792,000. As noted above, the previous owner is
contractually liable for any such taxes (including interest and
penalties). The previous owner has contested the IRS assessment.
F-27<PAGE>
<PAGE>
14. Cumulative Effects of Changes in Accounting Principles:
------------------------------------------------------
A summary of the amounts included in cumulative effects of changes in
accounting principles and related per share amounts for the year ended
December 31, 1993 is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Per Share
---------
Fully
Amount Primary 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 .31
-------- ----- -----
$129,195 $4.41 $4.20
======== ===== =====
</TABLE>
15. Pension Plans and Other Postemployment and Postretirement Benefits:
------------------------------------------------------------------
Pension expense charged to operations included the following components
(in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost $ 5,529 $ 4,297 $ 4,657
Interest cost 6,596 6,100 5,995
Actual return on plan assets 2,610 (8,662) (4,536)
Net amortization and deferral (8,507) 2,399 (1,870)
------- ------ -------
Net pension expense $ 6,228 $ 4,134 $ 4,246
======= ======= =======
</TABLE>
The funded status of the pension plans at December 31, 1994 and 1993 was
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $69,493 $73,153
Non-vested 1,640 2,005
------- -------
$71,133 $75,158
======= =======
Projected benefit obligation $88,452 $95,849
Plan assets at fair value 85,574 92,577
------- -------
Funded status (2,878) (3,272)
Unrecognized prior service cost 3,354 289
Unrecognized net loss at January 1, 1987 675 709
Unrecognized net (gain) loss from experience
differences and assumption changes (2,343) 4,986
------- -------
Accrued pension asset (liability) $(1,192) $ 2,712
======= =======
</TABLE>
F-28<PAGE>
<PAGE>
15. Pension Plans and Other Postemployment and Postretirement
---------------------------------------------------------
Benefits, continued:
--------
The plans' assets consist primarily of U.S. government and agencies'
bonds. The projected benefit obligation at December 31, 1994 and 1993
was determined using an assumed discount rate of 8.0% and 7.0%,
respectively, and an assumed compensation increase rate of 5.6% and
5.9%, respectively. The assumed long-term rate of return on plan
assets was 7.4% and 7.3% at December 31, 1994 and 1993, respectively.
The Company also has defined contribution pension plans covering
certain employees. Contributions and costs are a percent of each
covered employee's salary. Amounts charged to expense related to such
plans were $3,292,000, $2,066,000 and $2,106,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
Several subsidiaries provide certain health care and other benefits to
certain retired employees. The costs of such benefits prior to
January 1, 1993 were generally expensed as incurred, although
liabilities for benefits were recorded in connection with certain
acquisitions. SFAS 106 and SFAS 112 require companies to accrue the
cost of providing certain postretirement and postemployment benefits
during the employee's period of service. Amounts charged to expense
related to such benefits were $1,762,000 in 1994 (principally
interest), $2,594,000 in 1993 (principally interest) and $1,527,000 in
1992.
The accumulated postretirement benefit obligation at December 31, 1994
and 1993 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Retirees $15,928 $18,154
Fully eligible active plan participants 3,377 3,481
Other active plan participants 1,830 2,067
------- -------
21,135 23,702
Unrecognized prior service cost 503 -
Unrecognized net gain (loss) from experience
differences and assumption changes 820 (1,607)
------- -------
Accrued postretirement benefit liability $22,458 $22,095
======= =======
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 8% and 7% at December 31, 1994 and 1993,
respectively. The assumed health care cost trend rates used in
measuring the accumulated postretirement benefit obligation were
between approximately 8.4% and 15% for 1994 and approximately 8% and
15% for 1993, declining to an ultimate rate of between 5.5% and 8% by
2005.
If the health care cost trend rates were increased by 1%, the
accumulated postretirement obligation as of December 31, 1994 and 1993
would have increased by approximately $1,335,000 and $1,404,000,
respectively. The effect of this change on the aggregate of service
and interest cost for 1994 and 1993 would be immaterial.
F-29
<PAGE>
<PAGE>
16. Commitments:
-----------
The Company and its subsidiaries rent office space and office
equipment under non-cancelable operating leases with terms generally
varying from one to fifteen years. Rental expense (net of sublease
rental income) charged to operations was approximately $16,566,000 in
1994, $17,555,000 in 1993 and $20,791,000 in 1992. Aggregate minimum
annual rentals (exclusive of real estate taxes, maintenance and
certain other charges) and related minimum sublease rentals relating
to facilities under lease in effect at December 31, 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
Future Minimum Minimum Sublease Net
Rental Payments Rental Income Minimum Rentals
--------------- ---------------- ---------------
<S> <C> <C> <C>
1995 $17,932 $4,362 $13,570
1996 10,649 1,172 9,477
1997 6,024 - 6,024
1998 4,531 - 4,531
1999 2,793 - 2,793
Thereafter 1,517 - 1,517
</TABLE>
In connection with the sale of certain subsidiaries, the Company has
made or guaranteed the accuracy of certain representations given to
the acquiror. No material loss is expected in connection with such
matters.
Certain subsidiaries that were formerly under the control of the
Wisconsin Insurance Commissioner have guaranteed the adequacy of
certain other matters. The maximum amount of such contingencies is
approximately $5,000,000 at December 31, 1994. The Company does not
expect a material loss in connection with these guarantees.
The insurance and the banking and lending subsidiaries are limited by
regulatory requirements and agreements in the amount of dividends and
other transfers of funds that are available to the Company.
Principally as a result of such restrictions, the net assets of
subsidiaries which are subject to limitations on transfer of funds to
the Company were approximately $675,300,000 at December 31, 1994.
17. Litigation:
----------
The Company is subject to various litigation which arises in the
course of its business. Based on discussions with counsel, management
is of the opinion that such litigation will have no material adverse
effect on the consolidated financial position of the Company or its
consolidated results of operations.
18. Earnings Per Common Share:
-------------------------
Earnings per common and dilutive common equivalent share was
calculated by dividing net income by the sum of the weighted average
number of Common Shares outstanding and the incremental weighted
average number of Common Shares issuable upon exercise of options and
warrants for the periods they were outstanding. The number of common
and dilutive common equivalent shares used for this calculation was
29,101,000 in 1994, 29,270,000 in 1993 and 24,435,000 in 1992.
F-30
<PAGE>
<PAGE>
18. Earnings Per Common Share, continued:
-------------------------
Fully diluted earnings per share was calculated as described above
except that in 1994 and 1992 the incremental number of shares utilized
the year end market price for the Company's Common Shares, since the
year end market price was above the average for the year. In
addition, in 1994 and 1993, the calculations assume the 5 1/4%
Convertible Subordinated Debentures 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 for this calculation was 30,857,000 in 1994,
30,743,000 in 1993 and 24,516,000 in 1992.
19. Fair Value of Financial Instruments:
-----------------------------------
The following table presents fair value information about certain
financial instruments, whether or not recognized on the balance sheet.
Where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. The
fair value amounts presented do not purport to represent and should
not be considered representative of the underlying "market" or
franchise value of the Company. The methods and assumptions used to
estimate the fair values of each class of the financial instruments
described below are as follows:
(a) Investments: The fair values of marketable equity securities and
fixed maturity securities are substantially based on quoted market
prices, as disclosed in Note 5. It is not practicable to determine
the fair value of policyholder loans since such loans generally have
no stated maturity, are not separately transferable and are often
repaid by reductions to benefits and surrenders.
(b) Cash and cash equivalents: For cash equivalents, the carrying
amount approximates fair value.
(c) Loans receivable of banking and lending subsidiaries: The fair
value of loans receivable of the banking and lending subsidiaries is
estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit
ratings for the same remaining maturities.
(d) El Salvador Government bonds receivable, net of deferred gain:
The fair value of the bonds receivable at December 31, 1993 is based
on estimated market prices.
(e) Separate and variable accounts: Separate and variable accounts
assets and liabilities are carried at market value, which is a
reasonable estimate of fair value.
(f) Investments in associated companies: The fair values of certain
foreign power companies are principally estimated based upon quoted
market prices. The carrying value of the remaining investments in
associated companies approximates fair value.
F-31<PAGE>
<PAGE>
19. Fair Value of Financial Instruments, continued:
-----------------------------------
(g) The WMAC Companies: The fair value of the WMAC Companies is
estimated based upon the Company's assessment of the fair value of
their underlying net tangible assets to be received.
(h) Derivatives: The fair values of derivatives generally reflect
the amounts that the Company would receive or pay to terminate the
interest rate and currency swap contracts.
(i) Customer banking deposits: The fair value of customer banking
deposits is estimated using rates currently offered for deposits of
similar remaining maturities.
(j) Long-term and other indebtedness: The fair values of
non-variable rate debt are estimated using quoted market prices and
estimated rates which would be available to the Company for debt with
similar terms. The fair value of variable rate debt is estimated to
be the carrying amount.
(k) Investment contract reserves: SPDA reserves are carried at
account value, which is a reasonable estimate of fair value. The fair
value of other investment contracts is estimated by discounting the
future payments at rates which would currently be offered for
contracts with similar terms.
The carrying amounts and estimated fair values of the Company's
financial instruments at December 31, 1994 and 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Financial Assets:
Investments:
Practicable to estimate
fair value $2,494,452 $2,492,686 $2,679,832 $2,682,287
Policyholder loans 17,943 - 18,138 -
Cash and cash equivalents 252,495 252,495 291,414 291,414
Loans receivable of banking and
lending subsidiaries, net of
allowance 251,888 262,536 197,403 205,231
El Salvador Government bonds
receivable, net of deferred gain - - 1 8,458
Separate and variable accounts 420,398 420,398 335,357 335,357
Investments in Associated
Companies 138,565 146,469 80,873 101,921
WMAC Companies 24,611 58,573 24,051 56,870
Other assets (derivatives) 2,350 2,235 - -
Financial Liabilities:
Other liabilities (derivatives) - 6,102 - 5,336
Customer banking deposits 179,888 179,275 173,365 174,994
Long-term and other indebtedness 425,848 417,016 401,335 416,986
Investment contract reserves 84,606 86,170 105,398 109,597
Separate and variable accounts 419,355 419,355 334,636 334,636
</TABLE>
F-32
<PAGE>
<PAGE>
20. Segment Information:
-------------------
For information with respect to the Company's business segments, see
"Financial Information about Industry Segments" in Item 1 included
elsewhere herein, which is incorporated by reference into these
consolidated financial statements.
21. Selected Quarterly Financial Data (Unaudited):
---------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
1994:
----
Revenues $336,108 $325,660 $347,463 $375,154
======== ======== ======== ========
Net income $ 14,219 $ 12,348 $ 21,244 $ 23,025
======== ======== ======== ========
Earnings per common and dilutive
common equivalent share $.49 $.42 $.73 $.79
==== ==== ==== ====
Number of shares used in calculation 29,146 29,059 29,028 29,172
====== ====== ====== ======
Earnings per fully diluted common share $.49 $.42 $.72 $.77
==== ==== ==== ====
Number of shares used in calculation 29,146 29,059 30,767 30,981
====== ====== ====== ======
1993:
----
Revenues $360,086 $372,068 $336,086 $339,818
======== ======== ======== ========
Income before cumulative effects
of changes in accounting principles $ 25,852 $ 32,935 $ 32,806 $ 24,666
======== ======== ======== ========
Cumulative effects of changes in
accounting principles $129,195 $ - $ - $ -
======== ======== ======== ========
Net income $155,047 $ 32,935 $ 32,806 $ 24,666
======== ======== ======== ========
Earnings per common and dilutive
common equivalent share:
Income before cumulative effects
of changes in accounting principles $ .88 $1.13 $1.12 $.85
Cumulative effects of changes in
accounting principles 4.37 - - -
----- ----- ----- ----
Net income $5.25 $1.13 $1.12 $.85
===== ===== ===== ====
Number of shares used in calculation 29,514 29,209 29,216 29,145
====== ====== ====== ======
Fully diluted earnings per common share:
Income before cumulative effects
of changes in accounting principles $ .87 $1.09 $1.09 $.83
Cumulative effects of changes in
accounting principles 4.25 - - -
----- ----- ----- ----
Net income $5.12 $1.09 $1.09 $.83
===== ===== ===== ====
Number of shares used in calculation 30,383 30,955 30,955 30,884
====== ====== ====== ======
</TABLE>
In 1994 and 1993, the total of quarterly per share amounts do not
necessarily equal annual per share amounts.
F-33<PAGE>
<PAGE>
SCHEDULE II - Condensed Financial Information of Registrant
LEUCADIA NATIONAL CORPORATION
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
(Thousands of dollars)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents $ 10,275 $ -
Investments 23,270 87,853
Deferred income taxes 144,631 114,001
Miscellaneous receivables and other assets 27,977 31,457
Investments in and advances to/from subsidiaries, net 1,102,586 1,069,096
---------- ----------
$1,308,739 $1,302,407
========== ==========
LIABILITIES
-----------
Accounts payable, expense accruals and income taxes $ 20,339 $ 16,458
Debt, including current maturities 406,585 378,093
---------- ----------
426,924 394,551
---------- ----------
SHAREHOLDERS' EQUITY
--------------------
Common shares, par value $1 per share,
authorized 150,000,000 shares; 28,050,037
and 27,897,023 shares issued and
outstanding, after deducting 30,272,650
and 30,260,664 shares held in treasury 28,050 27,897
Additional paid-in capital 126,225 125,013
Net unrealized gain (loss) on investments (41,309) 49,912
Retained earnings 768,849 705,034
---------- ----------
Total shareholders' equity 881,815 907,856
---------- ----------
$1,308,739 $1,302,407
========== ==========
</TABLE>
See notes to this schedule.
F-34
<PAGE>
<PAGE>
SCHEDULE II - Condensed Financial Information of Registrant,
continued:
LEUCADIA NATIONAL CORPORATION
STATEMENTS OF INCOME
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Investment income, net $ 22,700 $ 23,538 $ 25,852
Net securities losses (2,160) - -
Equity in income of subsidiaries 130,266 155,515 139,605
-------- -------- --------
150,806 179,053 165,457
-------- -------- --------
Interest expense 50,060 38,778 32,609
Other expenses, net 29,910 24,016 2,241
-------- -------- --------
79,970 62,794 34,850
-------- -------- --------
Income before cumulative effects of
changes in accounting principles 70,836 116,259 130,607
Equity in cumulative effects of changes
in accounting principles related to
subsidiaries - 129,195 -
-------- -------- --------
Net income $ 70,836 $245,454 $130,607
======== ======== ========
Earnings per common and dilutive
common equivalent share:
Income before cumulative effects of changes
in accounting principles $2.43 $3.97 $5.35
Cumulative effects of changes in accounting
principles - 4.41 -
----- ----- -----
Net income $2.43 $8.38 $5.35
===== ===== =====
Fully diluted earnings per common share:
Income before cumulative effects of changes
in accounting principles $2.41 $3.89 $5.33
Cumulative effects of changes in accounting
principles - 4.20 -
----- ----- -----
Net income $2.41 $8.09 $5.33
===== ===== =====
</TABLE>
See notes to this schedule.
F-35
<PAGE>
<PAGE>
SCHEDULE II - Condensed Financial Information of Registrant,
continued:
LEUCADIA NATIONAL CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(Thousands of dollars)
<S> <C> <C> <C>
Net cash flows from operating activities:
----------------------------------------
Net income $ 70,836 $ 245,454 $ 130,607
Adjustments to reconcile net income to net
cash provided by (used for) operations:
Depreciation and amortization 1,486 1,066 429
Net securities losses 2,160 - -
Equity in earnings of subsidiaries (excluding
cumulative effects of changes in accounting
principles) (130,266) (155,515) (139,605)
Cumulative effects of changes in accounting
principles related to subsidiaries - (129,195) -
Net change in:
Miscellaneous receivables 221 (215) (257)
Other assets (5,347) (13,095) (3,730)
Investments in and advances to/from
subsidiaries, net (19,051) (22,917) 45,743
Accounts payable, expense accruals
and income taxes 3,881 5,131 (8,070)
Other 1,840 2,263 5,419
--------- --------- ---------
Net cash provided by (used for)
operating activities (74,240) (67,023) 30,536
--------- --------- ---------
Net cash flows from investing activities:
----------------------------------------
Dividends received from subsidiaries 8,422 - 375
Capital contribution to subsidiaries (6,008) (6,008) (40)
Purchase of investments (other than short-term) (8,022) (96,349) -
Proceeds from sales of investments 69,268 - -
--------- --------- ---------
Net cash provided by (used for)
investing activities 63,660 (102,357) 335
--------- --------- ---------
Net cash flows from financing activities:
----------------------------------------
Net change in credit agreement and other
short-term borrowings (402) (1,547) (72,793)
Issuance of long-term debt, net of issuance costs 50,000 194,140 124,063
Reduction of long-term debt (21,250) (13,750) (59,217)
Purchase of warrants to acquire common shares - - (14,700)
Purchase of common shares for treasury (472) (2,492) (2,850)
Dividends paid (7,021) (6,971) (5,589)
--------- --------- ---------
Net cash provided by (used for)
financing activities 20,855 169,380 (31,086)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 10,275 - (215)
Cash and cash equivalents at January 1, - - 215
--------- --------- ---------
Cash and cash equivalents at December 31, $ 10,275 $ - $ -
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $33,512 $23,296 $24,305
Income tax payments, net of refunds $ 5,799 $ 19 $ 4,924
</TABLE>
See notes to this schedule.
F-36<PAGE>
<PAGE>
SCHEDULE II - Condensed Financial Information of Registrant,
continued:
LEUCADIA NATIONAL CORPORATION
NOTES TO SCHEDULE
For the years ended December 31, 1994, 1993 and 1992
A. The notes to consolidated financial statements of Leucadia National
Corporation and Subsidiaries are incorporated by reference to this
schedule.
B. The statements of shareholders' equity are the same as those
presented for Leucadia National Corporation and Subsidiaries.
C. Equity in the income of the subsidiaries is after reflecting
income taxes recorded by the subsidiaries. In 1994, 1993 and
1992, there was no provision for income taxes provided by the
parent company. Tax sharing payments received from subsidiaries
were $35,385,000 in 1994, $64,566,000 in 1993 and $38,773,000 in
1992.
D. The deferred income tax assets of $144,631,000 and $114,001,000
at December 31, 1994 and 1993, respectively, have not been allocated
to the individual subsidiaries.
F-37
<PAGE>
<PAGE>
SCHEDULE III - Supplementary Insurance Information
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Insurance
Losses,
Policy
Benefits
and
Separate Amortization
Deferred and Policy of
Policy Future Variable and Net Deferred Other Non-Life
Acquisition Policy Unearned Accounts Contract Premium Investment Acquisition Operating Premiums
Costs Benefits Premiums Liabilities Claims Revenue Income Costs Expenses Written
----------- -------- -------- ----------- -------- ------- ---------- ----------- --------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
----
Life Insurance $32,286 $ 870,910 $ 10,039 $419,355 $ 25,802 $172,445 $ 55,218 $138,324 $ 68,872 $ 49,319
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
Property and Casualty
Insurance:
Automobile 29,741 - 314,145 - 766,276 599,180 70,275 553,916 33,093 629,555
Commercial 10,567 - 54,208 - 263,400 101,394 18,107 77,471 12,302 101,221
Miscellaneous
and personal 1,942 - 35,154 - 38,342 45,867 4,964 49,299 6,220 46,968
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
42,250 - 403,507 - 1,068,018 746,441 93,346 680,686 51,615 777,744
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
$74,536 $ 870,910 $413,546 $419,355 $1,093,820 $918,886 $148,564 $819,010 $120,487 $827,063
======= ========== ======== ======== ========== ======== ======== ======== ======== ========
1993
----
Life Insurance $21,204 $1,023,736 $ 13,035 $334,636 $ 29,804 $181,802 $ 74,443 $179,127 $ 84,239 $ 60,119
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
Property and Casualty
Insurance:
Automobile 22,230 - 254,670 - 762,228 573,037 72,937 488,472 53,214 611,530
Commercial 10,233 - 79,002 - 251,919 91,164 18,364 85,270 10,057 95,389
Miscellaneous
and personal 1,743 - 33,553 - 37,721 47,847 3,637 36,883 7,761 45,844
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
34,206 - 367,225 - 1,051,868 712,048 94,938 610,625 71,032 752,763
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
$55,410 $1,023,736 $380,260 $334,636 $1,081,672 $893,850 $169,381 $789,752 $155,271 $812,882
======= ========== ======== ======== ========== ======== ======== ======== ======== ========
1992
----
Life Insurance $45,700 $1,420,182 $ 19,186 $213,492 $ 31,438 $233,744 $123,217 $261,287 $ 87,160 $114,640
------- ---------- -------- -------- ---------- -------- -------- -------- -------- --------
Property and Casualty
Insurance:
Automobile 21,810 - 241,046 - 701,253 561,673 84,710 503,424 59,715 607,726
Commercial 9,574 - 46,475 - 199,934 86,596 22,797 82,555 8,725 84,015
Miscellaneous
and personal 1,811 - 32,927 - 37,412 50,930 4,419 49,407 7,656 47,592
------- ---------- -------- --------- --------- -------- -------- -------- -------- --------
33,195 - 320,448 - 938,599 699,199 111,926 635,386 76,096 739,333
------- ---------- -------- --------- --------- -------- -------- -------- -------- --------
$78,895 $1,420,182 $339,634 $213,492 $ 970,037 $932,943 $235,143 $896,673 $163,256 $853,973
======= ========== ======== ======== ========== ======== ======== ======== ======== ========
</TABLE>
F-38
<PAGE>
<PAGE>
SCHEDULE IV - Schedule of Reinsurance
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Percentage
of
Ceded Assumed Amount
Direct To Other From Other Net Assumed
Business Companies Companies Amount To Net
-------- --------- ---------- ------ ----------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
1994
----
Life insurance in force $2,285,000 $271,000 $161,000 $2,175,000 7.40%
========== ======== ======== ==========
Premiums:
Life insurance $ 120,761 $ 1,484 $ 1,121 $ 120,398 .93%
Accident and health insurance 53,775 683 6 53,098 .01%
Property and liability
insurance 748,595 34,339 31,134 745,390 4.18%
---------- -------- -------- ----------
Total premiums $ 923,131 $ 36,506 $ 32,261 $ 918,886 3.51%
========== ======== ======== ==========
1993
----
Life insurance in force $2,696,000 $623,000 $192,000 $2,265,000 8.48%
========== ======== ======== ==========
Premiums:
Life insurance $ 118,095 $ 1,084 $ 143 $ 117,154 .12%
Accident and health insurance 68,109 771 (1,735) 65,603 (2.64%)
Property and liability
insurance 707,593 31,720 35,220 711,093 4.95%
---------- -------- -------- ----------
Total premiums $ 893,797 $ 33,575 $ 33,628 $ 893,850 3.76%
========== ======== ======== ==========
1992
----
Life insurance in force $3,540,000 $ 63,000 $189,000 $3,666,000 5.16%
========== ======== ======== ==========
Premiums:
Life insurance $ 117,539 $ (1,762) $ (632) $ 118,669 (.53%)
Accident and health insurance 87,550 822 29,377 116,105 25.30%
Property and liability
insurance 771,213 91,571 18,527 698,169 2.65%
---------- -------- -------- ---------
Total premiums $ 976,302 $ 90,631 $ 47,272 $ 932,943 5.07%
========== ======== ======== ==========
</TABLE>
F-39
<PAGE>
<PAGE>
SCHEDULE V - Valuation and Qualifying Accounts
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Additions Deductions
---------------------------------- ------------------------
Charged
Balance at (Credited) Balance
Beginning to Costs and Sale of at End of
Description of Period Expenses Recoveries Other(a) Write-Offs Receivables Period
----------- --------- ------------ ---------- -------- ---------- ----------- --------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
1994
----
Loan receivables of banking
and lending subsidiaries $ 8,341 $ 7,634 $2,702 $ - $ 6,369 $ - $12,308
Trade, notes and other
receivables 5,185 5,744 1,449 - 6,605 - 5,773
------- ------- ------ ------- ------- ------ -------
Total allowance for
doubtful accounts $13,526 $13,378 $4,151 $ - $12,974 $ - $18,081
======= ======= ====== ======= ======= ====== =======
Reinsurance receivable $83,825 $(2,799) $ - $ - $76,980 (b) $ - $ 4,046
======= ======= ====== ======= ======= ====== =======
1993
----
Loan receivables of banking
and lending subsidiaries $ 6,973 $ 2,364 $1,891 $ - $ 2,887 $ - $ 8,341
Trade, notes and other
receivables 5,094 4,315 1,796 - 6,020 - 5,185
------- ------- ------ ------- ------- ------ -------
Total allowance for
doubtful accounts $12,067 $ 6,679 $3,687 $ - $ 8,907 $ - $13,526
======= ======= ====== ======= ======= ====== =======
Reinsurance receivable $ - $ 5,753 $ - $78,072 $ - $ - $83,825
======= ======= ====== ======= ======= ====== =======
1992
----
Loan receivables of banking
and lending subsidiaries $ 7,704 $ 4,865 $1,420 $ 2,000 $ 5,920 $3,096 $ 6,973
Trade, notes and other
receivables 5,733 4,572 1,304 - 6,515 - 5,094
------- ------- ------ ------- ------- ------ -------
Total allowance for
doubtful accounts $13,437 $ 9,437 $2,724 $ 2,000 $12,435 $3,096 $12,067
======= ======= ====== ======= ======= ====== =======
<FN>
(a) Principally relates to implementation of SFAS 113 in 1993 and acquisition of companies in 1992.
(b) Principally relates to the write-off of fully reserved receivables for unpaid losses.
</TABLE>
F-40
<PAGE>
<PAGE>
SCHEDULE VI - Schedule of Supplemental Information for Property and
Casualty Insurance Underwriters
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
For the years ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Discount, if any, Claims and Claim
Deducted in Reserves Adjustment Expenses Paid Claims
for Unpaid Claims and Incurred Related to: and Claim
Claim Adjustment -------------------- Adjustment
Expenses Current Year Prior Year Expenses
--------------------- ------------ ---------- -----------
(Thousands of dollars)
<S> <C> <C> <C> <C>
1994
----
Automobile $ - $556,736 $(55,771) $483,120
Commercial 276 70,658 (12,822) 59,436
Miscellaneous and personal - 51,983 (6,221) 46,042
---- -------- -------- --------
Total property and casualty $276 $679,377 $(74,814) $588,598
==== ======== ======== ========
1993
----
Automobile $ - $512,832 $(66,571) $464,254
Commercial 271 68,543 (1,679) 53,355
Miscellaneous and personal - 42,657 (9,324) 37,301
---- -------- -------- --------
Total property and casualty $271 $624,032 $(77,574) $554,910
==== ======== ======== ========
1992
----
Automobile $ - $487,240 $(22,849) $513,165
Commercial 151 83,543 (19,063) 58,647
Miscellaneous and personal - 48,908 (2,928) 45,370
---- -------- -------- --------
Total property and casualty $151 $619,691 $(44,840) $617,182
==== ======== ======== ========
</TABLE>
F-41
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------- ----------- -----------
3.1 Restated Certificate of Incorporation (filed as
Exhibit 5.1 to the Company's Current Report on
Form 8-K dated July 14, 1993).*
3.2 By-laws (as amended) (filed as Exhibit 4.5 to
the Company's Registration Statement No. 33-
57054).*
4.1 The Company undertakes to furnish the Securities
and Exchange Commission, upon request, a copy of
all instruments with respect to long-term debt
not filed herewith.
10.1 1982 Stock Option Plan, as amended August 28,
1991 (filed as Annex B to the Company's Proxy
Statement dated July 21, 1992).*
10.2 1992 Stock Option Plan (filed as Annex C to the
Company's Proxy Statement dated July 21, 1992).*
10.3(a) Restated Articles and Agreement of General
Partnership, effective as of February 1, 1982,
of The Jordan Company (filed as Exhibit 10.3(d)
to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986).*
10.3(b) Amendments dated as of December 31, 1989 and
December 1, 1990 to the Partnership Agreement
referred to in 10.3(a) above (filed as Exhibit
10.2(b) to the Company's 1991 10-K).*
10.3(c) Amendment dated as of December 17, 1992 to the
Partnership Agreement referred to in 10.3(a)
above (filed as Exhibit 10.3(c) to the 1992 10-
K).*
10.3(d) Articles and Agreement of General Partnership,
effective as of April 15, 1985, of
Jordan/Zalaznick Capital Company (filed as
Exhibit 10.20 to the Company's Registration
Statement No. 33-00606).*
10.4 Agreement made as of March 12, 1984 by and
between Leucadia, Inc. and Ian M. Cumming (filed
as Exhibit 10.14 to the 1983 10-K).*
10.5 Agreement made as of March 12, 1984 by and
between Leucadia, Inc. and Joseph S. Steinberg
(filed as Exhibit 10.15 to the 1983 10-K).*
10.6 Stock Purchase and Sale Agreement dated as of
April 5, 1991, by and between FPL Group Capital
Inc. and the Company (filed as Exhibit B to the
Company's Current Report on Form 8-K dated
August 23, 1991).*
10.7 Agreement dated as of August 1, 1988 among the
Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.6 to the Company's 1991
10-K).*
-------------------------
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------- ----------- -----------
10.8 Agreement dated as of January 10, 1992 between
Ian M. Cumming, certain other persons listed on
Schedule A thereto and the Company (filed as
Exhibit 10.7 to the Company's 1991 10-K).*
-------------------------
* Incorporated by reference.
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------- ----------- -----------
10.9 Agreement dated as of January 10, 1992 between
Joseph S. Steinberg, certain other persons
listed on Schedule A thereto and the Company
(filed as Exhibit 10.8 to the Company's 1991 10-
K).*
10.10(a) Agreement dated April 23, 1992 between AIC
Financial Services, Inc. (an Alabama
corporation), AIC Financial Services (a
Mississippi corporation) and AIC Financial
Services (a South Carolina corporation)
(collectively, "Seller") and Norwest Financial
Resources, Inc. (filed as Exhibit 10.10(a) to
the 1992 10-K).*
10.10(b) Purchase Agreement between A.I.C. Financial
Services, Inc., American Investment Bank, N.A.,
American Investment Financial and Terracor II
d/b/a AIC Financial Fund, Seller, and Associates
Financial Services Company, Inc., Buyer, dated
November 5, 1992 (filed as Exhibit 10.10(b) to
the Company's Registration Statement No. 33-
55120).*
10.11(a) Agreement and Plan of Merger, dated as of
October 22, 1992, by and among the Company,
Phlcorp Acquisition Company and PHLCORP, Inc.
(filed as Exhibit 5.2 to the Company's Current
Report on Form 8-K dated October 22, 1992).*
10.11(b) Amendment dated December 10, 1992, to the Merger
Agreement referred to in 10.11(a) above (filed
as Exhibit 5.2 to the Company's Current Report
on Form 8-K dated December 14, 1992).*
10.12(a) Agreement between Leucadia, Inc. and Ian M.
Cumming, dated as of December 28, 1992 (filed as
Exhibit 10.12(a) to the 1992 10-K).*
10.12(b) Escrow and Security Agreement by and among
Leucadia, Inc., Ian M. Cumming and Weil, Gotshal
& Manges, as escrow agent, dated as of December
28, 1992 (filed as Exhibit 10.12(b) to the 1992
10-K).*
10.13(a) Agreement between Leucadia, Inc. and Joseph S.
Steinberg, dated as of December 28, 1992 (filed
as Exhibit 10.13(a) to the 1992 10-K).*
10.13(b) Escrow and Security Agreement by and among
Leucadia, Inc., Joseph S. Steinberg and Weil,
Gotshal & Manges, as escrow agent, dated as of
December 28, 1992 (filed as Exhibit 10.13(b) to
the 1992 10-K).*
10.14 Settlement Agreement between Baldwin-United
Corporation and the United States dated August
27, 1985 concerning tax issues (filed as Exhibit
10.14 to the 1992
10-K).*
-------------------------
* Incorporated by reference.
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------- ----------- -----------
10.15 Acquisition Agreement, dated as of December 18,
1992, by and between Provident Mutual Life and
Annuity Company of America and Colonial Penn
Annuity and Life Insurance Company (filed as
Exhibit 10.15 to the 1992 10-K).*
10.16 Reinsurance Agreement, dated as of December 31,
1991, by and between Colonial Penn Insurance
Company and American International Insurance
Company (filed as Exhibit 10.16 to the 1992 10-
K).*
-------------------------
* Incorporated by reference.
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------- ----------- -----------
10.17 Agreement made as of December 28, 1993 by and
between the Company and Ian M. Cumming (filed as
Exhibit 10.17 to the 1993 10-K).*
10.18 Agreement made as of December 28, 1993 by and
between the Company and Joseph S. Steinberg
(filed as Exhibit 10.18 to the 1993 10-K).*
10.19(a) Agreement between the Company and Ian M.
Cumming, dated as of December 28, 1993 (filed as
Exhibit 10.19(a) to the 1993 10-K).*
10.19(b) Escrow and Security Agreement by and among the
Company, Ian M. Cumming and Weil, Gotshal &
Manges, as escrow agent, dated as of December
28, 1993 (filed as Exhibit 10.19(b) to the 1993
10-K).*
10.20(a) Agreement between the Company and Joseph S.
Steinberg, dated as of December 28, 1993 (filed
as Exhibit 10.20(a) to the 1993 10-K).*
10.20(b) Escrow and Security Agreement by and among the
Company, Joseph S. Steinberg and Weil, Gotshal &
Manges, as escrow agent, dated as of December
28, 1993 (filed as Exhibit 10.20(b) to the 1993
10-K).*.
21 Subsidiaries of the registrant.
23 Consent of independent certified public
accountants with respect to the incorporation by
reference into the Company's Registration
Statements on Form S-8 (File No. 2-84303), Form
S-8 and S-3 (File No. 33-6054), Form S-8 and S-3
(File No. 33-26434), Form S-8 and S-3 (File No.
33-30277), Form S-8 (File No. 33-61680) and
Form S-8 (File No. 33-61718).
27 Financial Data Schedule.
28 Schedule P of the 1994 Annual Statement to P
Insurance Departments of the Colonial Penn
Insurance Company and Affiliated Property/
Casualty Insurers and the Empire Insurance
Company, Principal Insurer.
-------------------------
* Incorporated by reference.
<PAGE>
EXHIBIT 21
----------
LEUCADIA NATIONAL CORPORATION
SUBSIDIARIES AS OF DECEMBER 31, 1994
State of
Name Incorporation
---- -------------
Bay Colony Insurance Company California
HSD Venture California
Baldwin Enterprises, Inc. Colorado
330 Mad. Parent Corp. Delaware
AIC Financial Corporation Delaware
American Investment Company Delaware
Bellpet, Inc. Delaware
Colonial Penn Group, Inc. Delaware
Colonial Penn Holdings, Inc. Delaware
Conwed Corporation Delaware
CPAX, Inc. Delaware
CPI Investment, Inc. Delaware
Leucadia Aviation, Inc. Delaware
Leucadia Cellars, Ltd. Delaware
LNC Investments, Inc. Delaware
Neward Corporation Delaware
Rastin Investing Corp. Delaware
RERCO, Inc. Delaware
Pennpark Investors, L.L.C. Illinois
College Life Development Corporation Indiana
Professional Data Management, Inc. Indiana
Charter National Life Insurance Company Missouri
Bayside Casualty Insurance Company New Jersey
The Sperry & Hutchinson Company, Inc. New Jersey
Allcity Insurance Company New York
Empire Insurance Company New York
Centurion Insurance Company New York
Intramerica Life Insurance Company New York
Leucadia, Inc. New York
Leucadia Investors, Inc. New York
Transportation Capital Corp. New York
Colonial Penn Franklin Insurance Company Pennsylvania
Colonial Penn Insurance Company Pennsylvania
Colonial Penn Life Insurance Company Pennsylvania
Phlcorp, Inc. Pennsylvania
American Investment Bank, N.A. United States
American Investment Financial Utah
Leucadia Film Corporation Utah
Leucadia Financial Corporation Utah
Leucadia Properties, Inc. Utah
Silver Mountain Industries, Inc. Utah
Solana Corporation Utah
Telluride Properties Acquisition, Inc. Utah
Terracor II Utah
Colonial Penn Madison Insurance Company Wisconsin
WMAC Investment Corporation Wisconsin
Subsidiaries not included on this list considered in the aggregate as
a single subsidiary would not constitute a significant subsidiary as
of December 31, 1994.
<PAGE>
EXHIBIT 23
----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Leucadia National Corporation on
(i) Form S-8 (File No. 2-84303), (ii) Form S-8 and S-3 (File
No. 33-6054), (iii) Form S-8 and S-3 (File No. 33-26434),
(iv) Form S-8 and Form S-3 (File No. 33-30277), (v) Form S-8
(File No. 33-61680) and (vi) Form S-8 (File No. 33-61718) of
our report dated March 17, 1995, on our audits of the
consolidated financial statements and financial statement
schedules of Leucadia National Corporation and Subsidiaries
as of December 31, 1994 and 1993, and for the years ended
December 31, 1994, 1993 and 1992, which report is included
in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 23, 1995
<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-K and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 252,495
<SECURITIES> 2,512,395
<RECEIVABLES> 774,663
<ALLOWANCES> 22,127
<INVENTORY> 30,974
<CURRENT-ASSETS> 0
<PP&E> 110,887
<DEPRECIATION> 87,067
<TOTAL-ASSETS> 4,674,046
<CURRENT-LIABILITIES> 0
<BONDS> 425,848
0
0
<COMMON> 28,050
<OTHER-SE> 853,765
<TOTAL-LIABILITY-AND-EQUITY> 4,674,046
<SALES> 180,050
<TOTAL-REVENUES> 1,384,385
<CGS> 137,507
<TOTAL-COSTS> 964,151
<OTHER-EXPENSES> 265,334
<LOSS-PROVISION> 10,579
<INTEREST-EXPENSE> 44,003
<INCOME-PRETAX> 100,318
<INCOME-TAX> 29,482
<INCOME-CONTINUING> 70,836
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,836
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.41
</TABLE>
