<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 1-5721
LEUCADIA NATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
New York 13-2615557
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
315 Park Avenue South, New York, New York 10010-3607
(Address of principal executive offices) (Zip Code)
(212) 460-1900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES NO
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, at May 6, 1996: 60,270,772.
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Dollars in thousands, except par value)
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of $2,537,972 and $2,618,363) $2,538,862 $2,664,471
Trading securities (aggregate cost of $57,570 and $52,153) 58,299 55,702
Held to maturity (aggregate fair value of $63,464 and $65,416) 64,240 64,546
Policyholder loans 17,975 17,768
Other investments, including accrued interest income 84,832 77,994
---------- ----------
Total investments 2,764,208 2,880,481
Cash and cash equivalents 290,150 266,158
Reinsurance receivable, net 274,394 261,267
Trade, notes and other receivables, net 538,261 497,753
Prepaids and other assets 248,963 238,306
Property, equipment and leasehold improvements, net 110,395 111,374
Deferred policy acquisition costs 99,975 92,144
Deferred income taxes 114,297 103,466
Separate and variable accounts 494,132 472,837
Investments in associated companies 185,382 184,088
---------- ----------
Total $5,120,157 $5,107,874
========== ==========
LIABILITIES
Customer banking deposits $ 210,114 $ 203,061
Trade payables and expense accruals 200,191 209,362
Other liabilities 166,668 134,772
Income taxes payable 41,797 39,596
Policy reserves 1,947,639 1,971,080
Unearned premiums 457,678 434,773
Separate and variable accounts 494,132 472,837
Debt, including current maturities 493,890 520,862
---------- ----------
Total liabilities 4,012,109 3,986,343
---------- ----------
Minority interest 9,333 10,040
---------- ----------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share, authorized 150,000,000 shares; 60,251,006
and 60,163,824 shares issued and outstanding, after deducting
54,328,640 and 54,319,654 shares held in treasury 60,251 60,164
Additional paid-in capital 160,464 159,914
Net unrealized gain on investments 1,072 30,086
Retained earnings 876,928 861,327
---------- ----------
Total shareholders' equity 1,098,715 1,111,491
---------- ----------
Total $5,120,157 $5,107,874
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
-2-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(In thousands, except per share amounts)
<S> <C> <C>
REVENUES:
Insurance revenues and commissions $251,885 $234,960
Manufacturing 38,377 45,164
Finance 13,311 13,150
Investment and other income 72,639 67,002
Net securities gains 8,294 412
-------- --------
384,506 360,688
-------- --------
EXPENSES:
Provision for insurance losses and policy benefits 213,975 196,828
Amortization of deferred policy acquisition costs 27,657 23,153
Manufacturing cost of goods sold 28,364 34,261
Interest 13,895 11,797
Salaries 22,549 21,525
Selling, general and other expenses 54,988 49,702
-------- --------
361,428 337,266
-------- --------
Income before income taxes 23,078 23,422
-------- --------
Income taxes:
Current 2,487 1,076
Deferred 4,990 6,023
-------- --------
7,477 7,099
-------- --------
Net income $ 15,601 $ 16,323
======== ========
Earnings per common and dilutive common equivalent share $ .26 $ .28
===== =====
Fully diluted earnings per common share $ .26 $ .28
===== =====
</TABLE>
See notes to interim consolidated financial statements.
-3-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
(Thousands of dollars)
<S> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,601 $ 16,323
Adjustments to reconcile net income to net cash (used for) provided by operations:
Provision for deferred income taxes 4,990 6,023
Depreciation and amortization of property, equipment and leasehold improvements 4,567 4,459
Other amortization 29,073 23,301
Provision for doubtful accounts 4,630 2,615
Net securities (gains) (8,294) (412)
Equity in losses of associated companies 378 105
Purchases of investments classified as trading (93,509) (11,820)
Proceeds from sales of investments classified as trading 89,681 21,098
Deferred policy acquisition costs incurred and deferred (35,488) (33,844)
Net change in:
Reinsurance receivable (13,301) 9,128
Trade, notes and other receivables (60,007) (49,244)
Prepaids and other assets (12,012) (10,211)
Trade payables and expense accruals (4,559) (14,976)
Other liabilities 31,829 27,386
Income taxes payable 2,201 2,375
Policy reserves (21,226) 1,126
Unearned premiums 22,905 27,627
Other (1,969) 700
-------- --------
Net cash (used for) provided by operating activities (44,510) 21,759
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate, property, equipment and leasehold improvements (9,257) (11,408)
Proceeds from disposals of real estate, property and equipment 9,962 2,803
Advances on loan receivables (34,093) (41,837)
Principal collections on loan receivables 40,307 33,582
Purchases of investments (other than short-term) (730,094) (246,622)
Proceeds from maturities of investments 196,242 107,550
Proceeds from sales of investments 617,950 171,824
-------- --------
Net cash provided by investing activities 91,017 15,892
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings 439 1,125
Net change in customer banking deposits 7,073 12,023
Net change in policyholder account balances (2,215) (5,735)
Issuance of long-term debt, net of issuance costs -- 2,720
Reduction of long-term debt (27,812) (298)
-------- --------
Net cash (used for) provided by financing activities (22,515) 9,835
-------- --------
Net increase in cash and cash equivalents 23,992 47,486
Cash and cash equivalents at January 1, 266,158 252,495
-------- --------
Cash and cash equivalents at March 31, $290,150 $299,981
======== ========
</TABLE>
See notes to interim consolidated financial statements.
-4-
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<PAGE>
<TABLE>
<CAPTION>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the three months ended March 31, 1996 and 1995
(Unaudited)
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-In (Loss) on Retained
Value Capital Investments Earnings Total
---------- ----------- ----------- ----------- ----------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 56,100 $ 98,175 $ (41,309) $ 768,849 $ 881,815
Exercise of options to purchase
common shares 202 781 983
Purchase of stock for treasury (20) (450) (470)
Net change in unrealized gain (loss)
on investments 30,190 30,190
Net income 16,323 16,323
---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1995 $ 56,282 $ 98,506 $ (11,119) $ 785,172 $ 928,841
========== ========== ========== ========== ==========
BALANCE, JANUARY 1, 1996 $ 60,164 $ 159,914 $ 30,086 $ 861,327 $1,111,491
Exercise of options to purchase
common shares 96 749 845
Purchase of stock for treasury (9) (199) (208)
Net change in unrealized gain (loss)
on investments (29,014) (29,014)
Net income 15,601 15,601
---------- ---------- ---------- ---------- ----------
BALANCE, MARCH 31, 1996 $ 60,251 $ 160,464 $ 1,072 $ 876,928 $1,098,715
========== ========== ========== ========== ==========
</TABLE>
See notes to interim consolidated financial statements.
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<PAGE>
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited interim consolidated financial statements, which reflect
all adjustments (consisting only of normal recurring items) that
management believes necessary to present fairly results of interim
operations, should be read in conjunction with the Notes to Consolidated
Financial Statements (including the Summary of Significant Accounting
Policies) included in the Company's audited consolidated financial
statements for the year ended December 31, 1995, which are included in
the Company's Annual Report filed on Form 10-K for such year (the "1995
10-K"). Results of operations for interim periods are not necessarily
indicative of annual results of operations. The consolidated balance
sheet at December 31, 1995 was extracted from the audited annual
financial statements and does not include all disclosures required by
generally accepted accounting principles for annual financial statements.
Certain amounts for prior periods have been reclassified to be consistent
with the 1996 presentation.
2. Earnings per common and dilutive common equivalent share were calculated
by dividing net income by the sum of the weighted average number of
common shares outstanding and the incremental weighted average number of
shares issuable upon exercise of outstanding options and warrants for the
periods they were outstanding. The number of shares used to calculate
primary earnings per share amounts was 60,586,000 for 1996 and 58,590,000
for 1995.
Fully diluted earnings per share was calculated as described above and,
for 1995, also assumes the outstanding 5 1/4% Convertible Subordinated
Debentures due 2003 had been converted into Common Shares and earnings
increased for the interest on such debentures, net of the income tax
effect. Conversion was not assumed for the 1996 period since the effect
of such assumed conversion would have been to increase earnings per
share. The number of shares used to calculate fully diluted earnings per
share was 60,586,000 for 1996 and 62,069,000 for 1995.
3. Cash paid (received) for interest and income taxes (net of refunds) was
$14,092,000 and $287,000, respectively, for the three month period ended
March 31, 1996 and $14,474,000 and ($1,299,000), respectively, for the
three month period ended March 31, 1995.
-6-
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INTERIM OPERATIONS.
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the 1995
10-K.
LIQUIDITY AND CAPITAL RESOURCES
During each of the three month periods ended March 31, 1996 and 1995, the
Company operated profitably and, in 1995, net cash was provided from operations.
For the three month period ended March 31, 1996, net cash was used for
operations, principally to settle the Proposition 103 liability described below
and to reinsure a block of single premium deferred annuity business.
During the first quarter of 1996, the Company did not utilize its bank credit
agreement facilities, except for certain minor amounts borrowed to meet daily
cash requirements.
In December 1995, the Company entered into an agreement with the California
Department of Insurance to settle its Proposition 103 liability for $17,700,000.
The settlement did not exceed reserves established in prior years.
The Company paid the settlement amount during the first quarter of 1996.
In April 1996, the Company formed a joint venture (the "JV") with PepsiCo, Inc.
whereby the JV will be the exclusive bottler and distributor of PepsiCo
beverages in a large portion of central and eastern Russia, Kyrgyzstan and
Kazakhstan. The JV will be capitalized with equity contributions of
approximately $79,000,000 by the Company and $26,500,000 by PepsiCo. The
Company's equity contributions will be made in stages over the next several
months to meet the JV's needs. In addition, the Company expects that the JV will
borrow funds from third party lenders to finance working capital needs and
capital expenditures, including construction of bottling plants and distribution
centers.
The Company will have a 75% economic interest in the JV and PepsiCo will own the
remaining 25%. Under the terms of the joint venture agreement, the Company and
PepsiCo have equal voting rights over all significant aspects of the JV's
operations. Accordingly, since the Company does not control the JV despite its
larger economic interest, the Company will account for its share of the JV's
operating results under the equity method of accounting. During the period that
the JV is building production and distribution capacity and market share, the
Company believes the JV is likely to experience operating losses.
During 1996, the Company sold certain "available for sale" securities and
invested the proceeds in securities with longer duration. As more fully
described in the 1995 10-K, securities classified as "available for sale" are
carried at fair value with unrealized gains and losses reflected as a separate
component of shareholders' equity, net of taxes. Principally as a result of
increases in market interest rates during 1996, the unrealized gain on
investments at the end of 1995 decreased to an unrealized gain of $1,072,000 as
of March 31, 1996. While this has resulted in a decrease in shareholders' equity
and book value per share, it had no effect on results of operations or cash
flows.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1995
Earned premium revenues of the Colonial Penn P&C Group were $126,697,000 and
$115,167,000 for the three month periods ended March 31, 1996 and 1995,
respectively. The increase in earned premiums principally resulted from growth
in voluntary automobile business. Earned premiums from voluntary automobile
policies were 6.4% higher during the first quarter of 1996 as compared to the
first quarter of 1995, and voluntary automobile policies in force at March 31,
1996 increased 1.1% from December 31, 1995. The premium growth reflects the
Group's continued ability to generate new business that exceeds lapsed business,
a trend that began during the first quarter of 1995.
-7-
<PAGE>
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INTERIM OPERATIONS, CONTINUED.
Earned premium revenues and commissions of the Empire Group were $84,537,000 and
$77,721,000 for the three month periods ended March 31, 1996 and 1995,
respectively. The increase in earned premiums principally relates to higher
premium rates charged on certain lines of business, including additional
premiums related to increased minimum automobile liability coverage required by
New York State in 1996. The Empire Group is continuing its program, which began
in the fourth quarter of 1995, of raising prices to cover increased loss costs
in certain lines of business and reducing volume in business lines that have not
been profitable.
The Company's loss ratios for its property and casualty operations were as
follows:
1996 1995
---- ----
Loss Ratio:
GAAP 86.0% 84.5%
SAP 82.7% 84.1%
Expense Ratio:
GAAP 18.3% 16.9%
SAP 16.6% 16.1%
Combined Ratio:
GAAP 104.3% 101.4%
SAP 99.3% 100.2%
The combined ratios reflect less favorable claims experience due to severe
winter storms and greater aggregate catastrophe losses estimated at
approximately $3,000,000 and $700,000 for the three month periods ended March
31, 1996 and 1995, respectively. Additionally, the combined ratios of the
Colonial Penn P&C Group increased as a result of a retroactive adjustment to its
New Jersey automobile pool involuntary assignment and conservative loss
reserving policies on new voluntary automobile business, offset in part by a
favorable settlement of a special risk claim. The combined ratios of the Empire
Group also reflect an unusually high assessment from the New York State workers'
compensation fund, severance benefits for certain employees and a reduction in
the estimate of fees earned as a servicing carrier for the New York Public
Automobile Pool and assigned risk business. The difference between the SAP and
GAAP combined ratios during 1996 principally reflects an adjustment to SAP
reinsurance reserves and accounting for certain expenses which are treated
differently under SAP and GAAP.
Earned premium revenues of the life and health insurance operations were
$40,651,000 and $42,072,000 for the three month periods ended March 31, 1996 and
1995, respectively. Premium revenues and provision for insurance losses and
policy benefits of the life and health operations reflect the continued run-off
of the agent sold Medicare supplement business, which had less favorable loss
experience in 1996, partially offset by the growth of the Graded Benefit Life
product. The operating results of this segment also reflect increased
amortization of deferred policy acquisition costs and increased expenses related
to exploring new products.
Manufacturing revenues and gross profit decreased in 1996 principally due to the
sale in the third quarter of 1995 of a division that manufactured office
furnishing systems, the closing of a factory and discontinuance of certain
product lines in 1995 at the fibers division and generally reduced demand at
other divisions. The gross margin percent and pre-tax results for this segment
improved in 1996 as compared to 1995 primarily due to manufacturing efficiencies
and reduced overhead at the bathroom vanities division.
-8-
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF INTERIM OPERATIONS, CONTINUED.
Finance revenues and operating profits reflect the level of consumer instalment
loans. Such loans approximated $265,580,000 at March 31, 1996 and $278,391,000
at December 31, 1995. The decrease in operating profit applicable to this
segment in 1996 as compared to 1995 principally reflects greater losses on
automobile loans and increased interest expense on customer banking deposits.
The Company has continued to experience increased competition in its automobile
lending business resulting in reduced volume and increased loan losses. The
Company has recently tightened its underwriting standards in an effort to
improve its loan loss experience, and further reductions in loan volumes are
expected.
Investment and other income increased in 1996 compared to 1995 reflecting higher
investment yields and increased gains from sales of real estate properties.
Higher interest expense in 1996 as compared to 1995 principally reflects the
increased level of outstanding public debt. Interest expense also reflects the
level of deposits at the Company's banking and industrial loan subsidiaries and
an increase in interest rates related to those deposits.
The increase in selling, general and other expenses in 1996 as compared to 1995
principally reflects increased operating expenses of real estate properties,
expenses relating to certain investment activities, including exploring
investment opportunities in Russia, increased provisions for bad debts and
recognition of $1,300,000 of excess trading stamp liability in 1995.
The 1995 provision for income taxes reflects a reduction for the favorable
resolution of a state tax matter.
The number of shares used to calculate primary earnings per share amounts was
60,586,000 for 1996 and 58,590,000 for 1995. The number of shares used to
calculate fully diluted earnings per share amounts was 60,586,000 for 1996 and
62,069,000 for 1995. The increase in the number of shares utilized in
calculating per share amounts principally relates to the exercise of previously
granted warrants to the Company's Chairman and President, the selling of such
shares in an underwritten public offering and the exercise by the underwriters
of an over allotment option, all of which occurred in September 1995. In
addition, for fully diluted per share amounts, the 5 1/4% Convertible
Subordinated Debentures due 2003 were not assumed to have been converted in 1996
since the effect of such assumed conversion would have been to increase earnings
per share.
-9-
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) EXHIBITS.
27 Financial Data Schedule.
B) REPORTS ON FORM 8-K.
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEUCADIA NATIONAL CORPORATION
(Registrant)
Date: May 10, 1996 By /s/ Barbara L. Lowenthal
---------------------------
Barbara L. Lowenthal
Vice President and Comptroller
(Principal Accounting Officer)
Date: May 10, 1996 By /s/ Joseph A. Orlando
---------------------------
Joseph A. Orlando
Vice President and Chief
Financial Officer
(Principal Financial Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------ ----------- ----------
27 Financial Data Schedule.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-Q and is qualified in
its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Mar-31-1996
<CASH> 290,150
<SECURITIES> 2,764,208
<RECEIVABLES> 812,655
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 110,395
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,120,157
<CURRENT-LIABILITIES> 0
<BONDS> 493,890
0
0
<COMMON> 60,251
<OTHER-SE> 1,038,464
<TOTAL-LIABILITY-AND-EQUITY> 5,120,157
<SALES> 38,377
<TOTAL-REVENUES> 384,506
<CGS> 28,364
<TOTAL-COSTS> 269,996
<OTHER-EXPENSES> 77,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,895
<INCOME-PRETAX> 23,078
<INCOME-TAX> 7,477
<INCOME-CONTINUING> 15,601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,601
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
