SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2000
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 August 4, 2000: 55,296,728.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Available for sale (aggregate cost of $1,013,803 and $945,227) $ 1,049,855 $ 944,667
Trading securities (aggregate cost of $167,617 and $138,679) 165,241 168,285
Held to maturity (aggregate fair value of $20,219 and $23,983) 20,607 24,403
Other investments, including accrued interest income 33,639 33,138
---------- -----------
Total investments 1,269,342 1,170,493
Cash and cash equivalents 137,346 296,058
Reinsurance receivables, net 35,598 38,086
Trade, notes and other receivables, net 995,480 876,411
Prepaids and other assets 406,850 418,447
Property, equipment and leasehold improvements, net 188,908 184,850
Deferred policy acquisition costs 12,986 11,845
Investments in associated companies 177,658 74,037
----------- -----------
Total $ 3,224,168 $ 3,070,227
=========== ===========
LIABILITIES
Customer banking deposits $ 417,495 $ 329,301
Trade payables and expense accruals 264,417 292,677
Other liabilities 82,418 79,076
Income taxes payable 117,447 113,391
Deferred tax liability 52,380 30,423
Policy reserves 373,148 443,042
Unearned premiums 66,427 61,916
Debt, including current maturities 587,153 483,309
----------- -----------
Total liabilities 1,960,885 1,833,135
----------- -----------
Minority interest 16,370 16,904
----------- -----------
Company-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely subordinated debt securities of the Company 98,200 98,200
----------- -----------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share, authorized 150,000,000 shares;
55,296,728 and 56,801,728 shares issued and outstanding, after
deducting 63,116,263 and 61,611,263 shares held in treasury 55,297 56,802
Additional paid-in capital 54,340 84,929
Accumulated other comprehensive income (loss) 14,140 (9,578)
Retained earnings 1,024,936 989,835
----------- -----------
Total shareholders' equity 1,148,713 1,121,988
----------- -----------
Total $ 3,224,168 $ 3,070,227
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
-1-
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
For the periods ended June 30, 2000 and 1999
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Insurance revenues and commissions $ 28,208 $ 38,658 $ 56,174 $ 85,402
Manufacturing 17,477 16,487 35,072 30,337
Finance 20,841 10,663 39,142 20,453
Investment and other income 59,501 68,025 119,919 299,640
Equity in income (losses) of associated companies 6,526 (514) 9,835 (3,590)
Net securities gains 4,382 6,078 33,748 5,740
--------- --------- --------- ---------
136,935 139,397 293,890 437,982
--------- --------- --------- ---------
EXPENSES:
Provision for insurance losses and policy benefits 26,063 35,535 51,662 75,177
Amortization of deferred policy acquisition costs 7,079 8,301 13,015 18,534
Manufacturing cost of goods sold 10,492 10,030 21,439 19,067
Interest 15,143 14,217 28,297 27,906
Salaries 15,461 10,626 30,685 21,142
Selling, general and other expenses 46,985 34,827 91,797 70,855
--------- --------- --------- ---------
121,223 113,536 236,895 232,681
--------- --------- --------- ---------
Income from continuing operations before income taxes, minority expense
of trust preferred securities and extraordinary gain (loss) 15,712 25,861 56,995 205,301
--------- --------- --------- ---------
Income taxes:
Current 4,073 184 13,545 20,054
Deferred 731 8,979 6,150 18,954
--------- --------- --------- ---------
4,804 9,163 19,695 39,008
--------- --------- --------- ---------
Income from continuing operations before minority expense of
trust preferred securities and extraordinary gain (loss) 10,908 16,698 37,300 166,293
Minority expense of trust preferred securities, net of taxes 1,380 1,380 2,761 2,761
--------- --------- --------- ---------
Income from continuing operations before extraordinary gain (loss) 9,528 15,318 34,539 163,532
Income from discontinued operations, net of taxes -- 518 -- 8,619
--------- --------- --------- ---------
Income before extraordinary gain (loss) 9,528 15,836 34,539 172,151
Extraordinary gain (loss) from early extinguishment of debt,
net of income tax expense (benefit) of $316 and $(1,394) -- (2,588) 562 (2,588)
--------- --------- --------- ---------
Net income $ 9,528 $ 13,248 $ 35,101 $ 169,563
========= ========= ========= =========
Basic earnings (loss) per common share:
Income from continuing operations before extraordinary gain (loss) $ .17 $ .25 $ .62 $ 2.69
Income from discontinued operations -- .01 -- .14
Extraordinary gain (loss) -- (.04) .01 (.04)
--------- --------- --------- ---------
Net income $ .17 $ .22 $ .63 $ 2.79
========= ========= ========= =========
Diluted earnings (loss) per common share:
Income from continuing operations before extraordinary gain (loss) $ .17 $ .25 $ .62 $ 2.69
Income from discontinued operations -- .01 -- .14
Extraordinary gain (loss) -- (.04) .01 (.04)
--------- --------- --------- ---------
Net income $ .17 $ .22 $ .63 $ 2.79
========= ========= ========= =========
</TABLE>
See notes to interim consolidated financial statements.
-2-
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
(In thousands)
<S> <C> <C> >
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,101 $ 169,563
Adjustments to reconcile net income to net cash provided by (used for) operations:
Extraordinary (gain) loss, net of taxes (562) 2,588
Provision for deferred income taxes 6,150 18,954
Depreciation and amortization of property, equipment and leasehold improvements 9,401 7,186
Other amortization 15,034 15,599
Provision for doubtful accounts 14,157 5,730
Net securities (gains) (33,748) (5,740)
Equity in (income) losses of associated companies (9,835) 3,590
(Gain) on disposal of real estate, property and equipment (22,304) (26,457)
(Gain) on sales of PIB, Caja and S&H in 1999 -- (169,063)
Investments classified as trading, net (10,247) (11,925)
Deferred policy acquisition costs incurred and deferred (14,156) (15,598)
Net change in:
Reinsurance receivables 2,488 324
Trade, notes and other receivables (11,083) 10,181
Prepaids and other assets 4,055 19,820
Net assets of discontinued operations -- 20,399
Trade payables and expense accruals (28,913) 17,616
Other liabilities (2,279) (6,655)
Income taxes payable 4,056 37,263
Policy reserves (69,894) (55,614)
Unearned premiums 4,511 (16,051)
Other 6,263 11,791
---------- -----------
Net cash provided by (used for) operating activities (101,805) 33,501
---------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate, property, equipment and leasehold improvements (36,425) (91,927)
Proceeds from disposals of real estate, property and equipment 48,814 101,616
Proceeds from sales of PIB, Caja and S&H in 1999 -- 165,851
Advances on loan receivables (167,155) (77,650)
Principal collections on loan receivables 70,838 45,264
Advances on notes receivables (30,450) --
Collections on notes receivables 3,897 4,233
Investments in associated companies (107,520) (18,290)
Distributions from associated companies 13,943 5,782
Purchases of investments (other than short-term) (632,702) (1,198,217)
Proceeds from maturities of investments 39,473 848,508
Proceeds from sales of investments 581,160 979,704
----------- -----------
Net cash provided by (used for) investing activities (216,127) 764,874
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term borrowings 30,350 80,202
Net change in customer banking deposits 85,694 29,488
Issuance of long-term debt 100,000 --
Reduction of long-term debt (17,734) (200,247)
Purchase of common shares for treasury (32,094) (64,463)
Dividends paid -- (722,178)
----------- -----------
Net cash provided by (used for) financing activities 166,216 (877,198)
----------- -----------
Effect of foreign exchange rate changes on cash (6,996) (7,804)
----------- -----------
Net (decrease) in cash and cash equivalents (158,712) (86,627)
Cash and cash equivalents at January 1, 296,058 459,690
----------- -----------
Cash and cash equivalents at June 30, $ 137,346 $ 373,063
=========== ===========
</TABLE>
See notes to interim consolidated financial statements.
-3-
<PAGE>
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Accumulated
Shares Additional Other
$1 Par Paid-In Comprehensive Retained
Value Capital Income (Loss) Earnings Total
---------- ----------- -------------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $61,985 $205,227 $ (771) $1,586,718 $1,853,159
----------
Comprehensive income:
Net change in unrealized gain (loss)
on investments 3,345 3,345
Net change in unrealized foreign
exchange gain (loss) (2,261) (2,261)
Net income 169,563 169,563
----------
Comprehensive income 170,647
----------
Purchase of stock for treasury (2,301) (62,162) (64,463)
Dividends (722,178) (722,178)
------- -------- --------- ---------- ----------
Balance, June 30, 1999 $59,684 $143,065 $ 313 $1,034,103 $1,237,165
======= ======== ========= ========== ==========
Balance, January 1, 2000 $56,802 $ 84,929 $ (9,578) $ 989,835 $1,121,988
----------
Comprehensive income:
Net change in unrealized gain (loss) 26,736 26,736
on investments
Net change in unrealized foreign
exchange gain (loss) (3,018) (3,018)
Net income 35,101 35,101
----------
Comprehensive income 58,819
----------
Purchase of stock for treasury (1,505) (30,589) (32,094)
------- -------- --------- ---------- ----------
Balance, June 30, 2000 $55,297 $ 54,340 $ 14,140 $1,024,936 $1,148,713
======= ======== ========= ========== ==========
</TABLE>
See notes to interim consolidated financial statements.
-4-
<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, 1999, which are included in the Company's Annual Report filed
on Form 10-K for such year (the "1999 10-K"). Results of operations for
interim periods are not necessarily indicative of annual results of
operations. The consolidated balance sheet at December 31, 1999 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 2000 presentation.
2. Certain information concerning the Company's segments for the six and three
month periods ended June 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
For the Three Month For the Six Month
Period Ended June 30, Period Ended June 30,
--------------------- ---------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Property and casualty insurance $ 38,033 $ 47,675 $ 75,354 $ 107,549
Banking and lending 25,496 11,860 48,628 22,813
Foreign real estate 8,408 22,946 15,439 35,694
Manufacturing 17,477 16,488 35,074 30,338
Other operations (a) 24,406 11,822 50,309 193,408
--------- --------- --------- ---------
Total revenue for reportable segments 113,820 110,791 224,804 389,802
Equity in associated companies 6,526 (514) 9,835 (3,590)
Corporate (b) 16,589 29,120 59,251 51,770
--------- --------- --------- ---------
Total consolidated revenues $ 136,935 $ 139,397 $ 293,890 $ 437,982
========= ========= ========= =========
Income (loss) from continuing operations before income taxes, minority
expense of trust preferred securities and extraordinary gain (loss):
Property and casualty insurance $ (3,056) $ (4,675) $ (4,520) $ (2,963)
Banking and lending 3,109 3,108 4,654 5,845
Foreign real estate 2,518 15,084 3,285 18,158
Manufacturing 3,783 3,394 6,899 5,097
Other operations (a) 9,639 4,368 21,385 177,255
--------- --------- --------- ---------
Total income from continuing operations before income taxes,
minority expense of trust preferred securities and extraordinary
gain (loss) for reportable segments 15,993 21,279 31,703 203,392
Equity in associated companies 6,526 (514) 9,835 (3,590)
Corporate (b) (6,807) 5,096 15,457 5,499
--------- --------- --------- ---------
Total consolidated income from continuing operations before
income axes, minority expense of trust preferred securities
and extraordinary gain (loss) $ 15,712 $ 25,861 $ 56,995 $ 205,301
========= ========= ========= =========
</TABLE>
-5-
<PAGE>
Notes to Interim Consolidated Financial Statements, continued
(a) Includes pre-tax gains on sale of Caja de Ahorro y Seguro S.A.("Caja")
($120,793,000), The Sperry and Hutchinson Company, Inc. ("S&H")
($18,725,000) and Pepsi International Bottlers ("PIB") ($29,545,000)
for the six month period ended June 30, 1999, as more fully discussed
in the 1999 10-K.
(b) Includes a pre-tax gain of approximately $24,600,000 on the sale of
Jordan Telecommunication Products, Inc. for the six month period ended
June 30, 2000.
3. In January 2000, the Company sold its 10% equity interest in Jordan
Telecommunication Products, Inc. for $27,000,000. The Company recorded a
pre-tax gain of approximately $24,600,000 in the six month period ended
June 30, 2000. Further consideration of approximately $7,500,000 may be
received upon the favorable resolution of certain contingencies.
4. The Company repurchased 1,505,000 Common Shares for an aggregate cost of
approximately $32,094,000 from January 1, 2000 through August 4, 2000. The
Company is currently authorized to repurchase an additional 4,495,000
Common Shares, after considering all repurchases through August 4, 2000.
Such purchases may be made from time to time in the open market, through
block trades or otherwise. Depending on market conditions and other
factors, such purchases may be commenced or suspended at any time without
prior notice.
5. During the six months ended June 30, 2000, Compagnie Fonciere FIDEI
("Fidei"), the Company's foreign real estate subsidiary, repurchased
approximately $10,200,000 (approximately 10,700,000 Euros) principal amount
of its Euro denominated debt and recognized an extraordinary gain on its
extinguishment of $562,000, net of taxes.
6. In June 2000, the Company replaced its $100,000,000 unsecured bank credit
facility with a new unsecured bank credit facility of $152,500,000, which
bears interest based on the Eurocurrency Rate or the prime rate and matures
in June 2003. As of June 30, 2000, $100,000,000 was borrowed under this
bank credit facility.
7. During the second quarter of 2000, pursuant to shareholder approval,
warrants to purchase 400,000 Common Shares were issued to each of the
Company's Chairman and President. The warrants are exercisable through May
15, 2005 at an exercise price of $23.95 per Common Share (105% of the
closing price of a Common Share on the date of grant). In addition,
pursuant to a shareholder approved stock option plan, the Company granted
409,250 options to certain employees and non-employee directors at the fair
market value of the underlying stock at the date of grant (a weighted
average price of $22.64 per share).
8. Net unrealized gains (losses) on investments were $24,181,000 and
($2,555,000) at June 30, 2000 and December 31, 1999, respectively. Net
unrealized foreign exchange losses were $10,041,000 and $7,023,000 at June
30, 2000 and December 31, 1999, respectively.
9. Results of discontinued operations include revenues of $13,561,000 and
$1,095,000 for the six and three month periods ended June 30, 1999,
respectively, and income before income taxes of $13,282,000 and $801,000
for the six and three month periods ended June 30, 1999, respectively.
Results for the six month period ended June 30, 1999 include the
recognition of a pre-tax gain of approximately $10,300,000, as a result of
the partial conversion to assumption reinsurance of a prior reinsurance
transaction for which the gain was previously deferred.
-6-
<PAGE>
Notes to Interim Consolidated Financial Statements, continued
10. Earnings (loss) per share amounts were calculated by dividing net income by
the sum of the weighted average number of common shares outstanding and,
for diluted earnings (loss) per share, 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 basic earnings (loss) per share amounts was 55,728,000 and
60,744,000 for the six month periods ended June 30, 2000 and 1999,
respectively, and 55,297,000 and 60,020,000 for the three month periods
ended June 30, 2000 and 1999, respectively. The number of shares used to
calculate diluted earnings (loss) per share amounts was 55,735,000 and
60,771,000 for the six month periods ended June 30, 2000 and 1999,
respectively, and 55,311,000 and 60,020,000 for the three month periods
ended June 30, 2000 and 1999, respectively.
11. Cash paid for interest and income taxes (net of refunds) was $25,472,000
and $8,002,000, respectively, for the six month period ended June 30, 2000
and $28,780,000 and $(15,682,000), respectively, for the six month period
ended June 30, 1999.
12. In June 1999, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133 ("SFAS 133")", which will be effective for fiscal years beginning after
June 15, 2000. The Company is reviewing the impact of the implementation of
SFAS 133 on the Company's financial position and results of operations.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations.
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the 1999
10-K.
Liquidity and Capital Resources
During each of the six month periods ended June 30, 2000 and 1999, the Company
operated profitably. For the six month period ended June 30, 2000, net cash was
used for operations principally as a result of a decrease in premiums written
and the payment of claims at the Empire Group. For the six month period ended
June 30, 1999, net cash was provided by operations.
As of June 30, 2000, the Company's readily available cash, cash equivalents and
marketable securities, excluding those amounts held by its regulated
subsidiaries and the Company's investment in Fidelity National Financial, Inc.
("FNF"), totaled $285,300,000. Additional sources of liquidity as of June 30,
2000 include $157,300,000 of cash and marketable securities collateralizing
letters of credit and $114,700,000 of cash, cash equivalents and marketable
securities held by Fidei. In addition, the book value of the principal amount of
promissory notes from Conseco, Inc., which are fully collateralized by
non-cancelable letters of credit (the "Conseco Notes"), was $250,000,000 at June
30, 2000. The Company has entered into a total return swap agreement with one of
its banks pursuant to which it sold $100,000,000 principal amount of the Conseco
Notes. Under the agreement, the Company has an obligation to repurchase the same
principal amount of the Conseco Notes upon maturity, which is January 3, 2003,
or earlier under certain limited circumstances. The Company has not reduced the
carrying amount of the Conseco Notes and has recorded this transaction as a
collateralized borrowing in the amount of $100,000,000.
In June 2000, the Company replaced its $100,000,000 unsecured bank credit
facility with a new unsecured bank credit facility of $152,500,000, which bears
interest based on the Eurocurrency Rate or the prime rate and matures in June
2003. As of June 30, 2000, $100,000,000 was borrowed under this bank credit
facility.
As of June 30, 2000, the Company acquired almost 10% of the common stock of FNF,
a publicly traded title insurance holding company, for approximately
$89,000,000.
In January 2000, the Company sold its 10% equity interest in Jordan
Telecommunication Products, Inc. for $27,000,000. The Company recorded a pre-tax
gain of approximately $24,600,000 in the six month period ended June 30, 2000,
which is reflected in net securities gains. Further consideration of
approximately $7,500,000 may be received upon the favorable resolution of
certain contingencies.
During the six month period ended June 30, 2000, the Company invested
$100,000,000 in the equity of a limited liability company (the "LLC"). The LLC
is managed and controlled by a third party investment manager and invests in
high yield securities. The Company may redeem its interest in the LLC annually
beginning on December 31, 2001, or otherwise in certain specified circumstances.
For the six and three month periods ended June 30, 2000, the Company recorded
$7,682,000 and $5,225,000, respectively, of income from this investment under
the equity method of accounting.
In December 1999, the Company's Board of Directors increased to 6,000,000 the
maximum number of its Common Shares that the Company is authorized to purchase.
Such purchases may be made from time to time in the open market, through block
trades or otherwise. Depending on market conditions and other factors, such
purchases may be commenced or suspended at any time without prior notice. During
the six month period ended June 30, 2000, the Company repurchased 1,505,000
Common Shares for an aggregate cost of approximately $32,094,000.
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued
Results of Operations
The 2000 Periods Compared to the 1999 Periods
Net earned premium revenues of the Empire Group were $56,174,000 and $85,402,000
for the six month periods ended June 30, 2000 and 1999, respectively, and
$28,208,000 and $38,658,000 for the three month periods ended June 30, 2000 and
1999, respectively. While earned premiums declined in almost all lines of
business, the most significant reductions were in assigned risk automobile,
voluntary private passenger automobile, commercial package policies, homeowners
and workers' compensation. As discussed in the 1999 10-K, as a result of poor
operating results, the Empire Group is no longer entering into new assigned risk
contracts. Effective January 1, 2000, all policy renewal obligations have been
assigned to another insurance company. However, the Empire Group remains liable
for the claim settlement costs for assigned risk claims that occurred during the
policy term. The decline in voluntary private passenger automobile resulted from
tighter underwriting standards, increased competition and the Empire Group's
decision to no longer accept new policies from those agents who historically
have had poor underwriting results. The Empire Group's termination of certain
unprofitable agents has also adversely affected premium volume in other lines of
business.
The Empire Group's loss ratios were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
2000 1999 2000 1999
----- ---- ---- ----
<S> <C> <C> <C> <C>
Loss Ratio:
GAAP 92.9% 92.4% 92.3% 88.4%
SAP 92.9% 92.4% 92.3% 88.4%
Expense Ratio:
GAAP 51.2% 37.8% 47.7% 36.4%
SAP 55.6% 45.3% 44.4% 38.2%
Combined Ratio:
GAAP 144.1% 130.2% 140.0% 124.8%
SAP 148.5% 137.7% 136.7% 126.6%
</TABLE>
The loss ratios for the 2000 periods increased as compared to the 1999 periods
due to reserve strengthening recorded for 1999 and prior accident years and
outsourcing expenses for claims handling. Although the dollar amount of reserve
strengthening was the same for the 2000 periods as compared to the 1999 periods,
the reduction in earned premiums in 2000 resulted in higher loss ratios on a
percentage basis. The current accident year loss ratios declined from the prior
year due to product mix and the expected benefits to be derived from the Empire
Group's changes to underwriting and claims handling procedures. Expense ratios
for the 2000 periods increased as compared to the 1999 periods due to reduced
service fees, higher severance costs and overhead costs which, although lower,
have not declined proportionally with premiums.
The Empire Group continued its expense reduction program to more closely align
its expenses with its current volume of business. Through June 30, 2000, staff
reductions have resulted in the elimination of 150 job positions, representing
approximately 29% of the December 31, 1999 workforce. In certain instances,
particularly in the claims department, the cost savings from the reductions will
be partially offset by increased outsourcing expenses. The Empire Group will
continue to examine its overhead costs and additional reductions are likely to
occur in 2000.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued
Manufacturing revenues, gross profit and pre-tax results for this segment
increased in the 2000 periods as compared to the 1999 periods, principally due
to strong demand and price increases, which offset higher raw material costs.
Such product demand reflects the continued strong U.S. economy and includes the
introduction of new products in both domestic and international markets.
Finance revenues, which reflect the level and mix of consumer instalment loans,
increased due to greater average loans outstanding. Average loans outstanding
during the six and three month periods ended June 30, 2000 were $370,904,000
and $402,694,000, respectively, as compared to $194,627,000 and $193,880,000,
respectively, during the six and three month periods ended June 30, 1999. This
increase was primarily due to the acquisition in 1999 of Tranex Credit Corp. and
increased new loan originations. Pre-tax results for the six month period ended
June 30, 2000 as compared to the same period in 1999 declined primarily due to
an increase in the provision for loan losses for the larger volume of loans
outstanding and increased interest and salaries expense, as described below. For
the three month period ended June 30, 2000, this decline was offset by increased
investment income.
Investment and other income primarily declined in the six month period ended
June 30, 2000 as compared to the six month period ended June 30, 1999 due to
gains recognized in 1999 from the sale of Caja de Ahorro y Seguro S.A., The
Sperry and Hutchinson Company, Inc. and Pepsi International Bottlers aggregating
$169,063,000, as discussed more fully in the 1999 10-K. Investment and other
income also decreased in the 2000 periods as compared to the same periods in
1999 due to a reduction in investment income, resulting primarily from the
payment of dividends and debt repurchases in 1999 and reduced investment assets
held by the Empire Group, and decreased rent income (due to a smaller base of
remaining real estate properties) and gains from sales of real estate properties
related to Fidei, partially offset by increased gains from sales of various
domestic real estate properties. During the six month period ended June 30,
2000, Fidei sold 16 properties; 72 properties remain at June 30, 2000, all of
which are currently being marketed for sale. Investment and other income in 2000
also reflects revenues relating to MK Gold Company, which the Company began
consolidating in the fourth quarter of 1999.
Interest expense for the 2000 periods reflects increased customer banking
deposits and higher interest rates thereon, partially offset for the six month
period by a reduction in interest related to debt repurchases in 1999.
Salaries expense in the 2000 periods reflects an increase in employees,
primarily at the banking and lending segment.
The increase in selling, general and other expenses in the 2000 periods as
compared to the 1999 periods principally reflects higher provisions for loan
losses due to the greater volume of loans outstanding, as described above, and
expenses relating to MK Gold Company.
Income tax expense for the six month period ended June 30, 1999 reflects the
utilization of capital loss carryforwards.
The number of shares used to calculate basic earnings (loss) per share amounts
was 55,728,000 and 60,744,000 for the six month periods ended June 30, 2000 and
1999, respectively, and 55,297,000 and 60,020,000 for the three month periods
ended June 30, 2000 and 1999, respectively. The number of shares used to
calculate diluted earnings (loss) per share was 55,735,000 and 60,771,000 for
the six month periods ended June 30, 2000 and 1999, respectively, and 55,311,000
and 60,020,000 for the three month periods ended June 30, 2000 and 1999,
respectively.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations, continued
Cautionary Statement for Forward-Looking Information
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations may contain forward-looking
statements. Such forward-looking statements are made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, capital expenditures, fluctuations in insurance reserves, plans for
growth and future operations, competition and regulation as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, many of which cannot be predicted or quantified. When
used in this Management's Discussion and Analysis of Financial Condition and
Results of Interim Operations, the words "estimates", "expects", "anticipates",
"believes", "plans", "intends" and variations of such words and similar
expressions are intended to identify forward-looking statements that involve
risks and uncertainties. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements. The factors that could cause actual results to
differ materially from those suggested by any such statements include, but are
not limited to, those discussed or identified from time to time in the Company's
public filings, including general economic and market conditions, changes in
foreign and domestic laws, regulations and taxes, changes in competition and
pricing environments, regional or general changes in asset valuation, the
occurrence of significant natural disasters, the inability to reinsure certain
risks economically, the adequacy of loss reserves, prevailing interest rate
levels, weather related conditions that may affect the Company's operations,
adverse environmental developments in Spain that could delay or preclude the
issuance of permits necessary to develop the Company's Spanish mining rights and
changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures. Undue reliance should not be placed on these
forward-looking statements, which are applicable only as of the date hereof. The
Company undertakes no obligation to revise or update these forward-looking
statements to reflect events or circumstances that arise after the date of this
Management's Discussion and Analysis of Financial Condition and Results of
Interim Operations or to reflect the occurrence of unanticipated events.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The following matters were submitted to a vote of shareholders at the
Company's 2000 Annual Meeting of Shareholders held on May 16, 2000.
a) Election of directors.
Number of Shares
--------------------------
For Withheld
---------- ---------
Ian M. Cumming 48,470,442 44,154
Paul M. Dougan 48,469,447 45,149
Lawrence D. Glaubinger 48,470,056 44,540
James E. Jordan 48,470,590 44,006
Jesse Clyde Nichols, III 48,470,486 44,110
Joseph S. Steinberg 48,470,486 44,110
b) Ratification of PricewaterhouseCoopers LLP, as independent
auditors for the year ended December 31, 2000.
For 48,290,514
Against 31,929
Abstentions 192,153
Broker non-votes -
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
10.1 Form of Common Share Purchase Warrant to Subscribe
for and Purchase Common Shares of Leucadia National
Corporation dated May 16, 2000.
27 Financial Data Schedule.
b) Reports on Form 8-K.
The Company filed a current report on Form 8-K dated May 26,
2000, which sets forth information under Item 5. Other Events and
Item 7. Financial Statements and Exhibits.
-12-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEUCADIA NATIONAL CORPORATION
(Registrant)
Date: August 11, 2000 By /s/ Barbara L. Lowenthal
---------------------------
Barbara L. Lowenthal
Vice President and Comptroller
(Chief Accounting Officer)
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<PAGE>
EXHIBIT INDEX
Exhibit Exemption
Number Description Indication
------ ----------- ----------
10.1 Form of Common Share Purchase Warrant
to Subscribe for and Purchase Common
Shares of Leucadia National Corporation
dated May 16, 2000.
27 Financial Data Schedule.
