SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-5721 LEUCADIA NATIONAL CORPORATION (Exact name of registrant as specified in its Charter) New York 13-2615557 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 315 Park Avenue South, New York, New York 10010-3607 (Address of principal executive offices) (Zip Code) (212) 460-1900 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES NO --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, at November 8, 1995: 60,122,974 (after giving effect to the stock split described herein).
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. <TABLE> <CAPTION> LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS September 30, 1995 and December 31, 1994 (Dollars in thousands, except par value) SEPTEMBER 30, December 31, 1995 1994 ---- ---- (Unaudited) <S> <C> <C> ASSETS Investments: Available for sale (aggregate cost of $2,490,223 and $2,396,288) $ 2,515,390 $ 2,331,288 Trading securities (aggregate cost of $30,807 and $53,312) 31,760 52,231 Held to maturity (aggregate fair value of $61,011 and $52,820) 60,752 54,586 Policyholder loans 17,764 17,943 Other long-term investments, including accrued interest income 68,204 56,347 ---------------- --------------- Total investments 2,693,870 2,512,395 Cash and cash equivalents 428,261 252,495 Reinsurance receivable, net 270,205 310,682 Trade, notes and other receivables, net 527,061 463,981 Prepaids and other assets 254,857 245,476 Property, equipment and leasehold improvements, net 112,414 110,887 Deferred policy acquisition costs 90,797 74,536 Deferred income taxes 112,016 144,631 Separate and variable accounts 466,495 420,398 Investments in associated companies 179,643 138,565 ---------------- --------------- Total $ 5,135,619 $ 4,674,046 ================ =============== LIABILITIES Customer banking deposits $ 199,733 $ 179,888 Trade payables and expense accruals 264,243 189,280 Other liabilities 112,125 106,046 Income taxes payable 37,422 39,491 Policy reserves 1,961,124 1,964,730 Unearned premiums 464,194 413,546 Separate and variable accounts 466,315 419,355 Liability for unredeemed trading stamps 36,642 42,433 Debt, including current maturities 525,757 425,848 ---------------- --------------- Total liabilities 4,067,555 3,780,617 ---------------- --------------- Minority interest 9,910 11,614 ---------------- --------------- SHAREHOLDERS' EQUITY Common shares, par value $1 per share, authorized 150,000,000 shares; 60,105,374 and 56,100,074 shares issued and outstanding, after deducting 54,319,654 and 54,305,016 shares held in treasury 60,105 56,100 Additional paid-in capital 159,516 98,175 Net unrealized gain (loss) on investments 14,226 (41,309) Retained earnings 824,307 768,849 ---------------- --------------- Total shareholders' equity 1,058,154 881,815 ---------------- --------------- Total $ 5,135,619 $ 4,674,046 ================ =============== <FN> See notes to interim consolidated financial statements. </TABLE> 2 NYFS04...:\30\76830\0001\6678\FRMN095V.110
<TABLE> <CAPTION> LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the periods ended September 30, 1995 and 1994 (Unaudited) For the Three For the Nine Month Period Ended Month Period Ended September 30, September 30, ----------------------- ------------------------ 1995 1994 1995 1994 ---- ---- ---- ---- (In thousands, except per share amounts) <S> <C> <C> <C> <C> REVENUES: Insurance revenues and commissions $ 250,155 $ 231,920 $ 727,677 $ 673,719 Manufacturing 42,428 45,935 131,234 139,316 Trading stamps 4,435 4,844 13,607 14,886 Finance 13,512 12,202 40,292 32,732 Investment and other income 68,670 55,326 204,063 162,465 Net securities gains (losses) 11,787 (2,764) 11,559 (13,887) ------------- ------------ ---------------- -------------- 390,987 347,463 1,128,432 1,009,231 ------------- ------------ ---------------- -------------- EXPENSES: Provision for insurance losses and policy benefits 214,442 182,164 619,507 544,029 Amortization of deferred acquisition costs 25,981 19,415 73,344 58,844 Cost of goods sold: Manufacturing 31,571 34,151 100,783 100,042 Trading stamps 1,025 (189) 3,318 (273) Interest 14,318 11,071 38,723 32,546 Salaries 22,272 22,212 65,885 64,563 Selling, general and other expenses 52,339 49,751 149,821 138,971 Minority interest 36 342 345 806 ------------- ------------ ---------------- -------------- 361,984 318,917 1,051,726 939,528 ------------- ------------ ---------------- -------------- Income before income taxes 29,003 28,546 76,706 69,703 ------------- ------------ ---------------- -------------- Income taxes: Current (4,202) 174 144 8,297 Deferred 11,479 7,128 21,104 13,595 ------------- ------------ ---------------- -------------- 7,277 7,302 21,248 21,892 ------------- ------------ ---------------- -------------- Net income $ 21,726 $ 21,244 $ 55,458 $ 47,811 ============= ============ ================ ============== Earnings per common and dilutive common equivalent share $.37 $.37 $.94 $.82 ==== ==== ==== ==== Fully diluted earnings per common share $.36 $.36 $.93 $.82 ==== ==== ==== ==== <FN> See notes to interim consolidated financial statements. </TABLE> 3
<TABLE> <CAPTION> LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 1995 and 1994 (Unaudited) 1995 1994 ---- ---- (Thousands of dollars) <S> <C> <C> NET CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 55,458 $ 47,811 Adjustments to reconcile net income to net cash provided by operations: Provision for deferred income taxes 21,104 13,595 Depreciation and amortization of property, equipment and leasehold improvements 13,241 12,627 Other amortization 72,844 65,404 Provision for doubtful accounts 11,515 9,964 Net securities (gains) losses (11,559) 13,887 Equity in losses of associated companies 1,552 5,585 (Gain) related to El Salvador Government bonds receivable -- (8,458) Purchases of investments classified as trading (97,894) (100,506) Proceeds from sales of investments classified as trading 124,337 93,327 Deferred policy acquisition costs incurred and deferred (89,605) (75,927) Net change in: Reinsurance receivable 40,335 132,507 Trade, notes and other receivables (48,597) (42,181) Prepaids and other assets (14,297) (17,501) Trade payables and expense accruals (24,611) 21,742 Other liabilities (2,636) (7,295) Income taxes (2,069) (1,272) Policy reserves 9,850 (113,808) Unearned premiums 50,648 48,936 Other (1,631) 2,042 --------------- --------------- Net cash provided by operating activities 107,985 100,479 --------------- --------------- NET CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of real estate, property, equipment and leasehold improvements (43,821) (69,624) Proceeds from disposals of real estate, property and equipment 16,112 6,529 Advances on loan receivables (118,702) (133,810) Investment in MK Gold Company in 1995 and Caja and HSD Venture in 1994 (22,474) (88,144) Principal collections on loan receivables 93,727 88,942 Purchases of investments (other than short-term) (1,176,314) (876,256) Proceeds from maturities of investments 450,783 282,032 Proceeds from sales of investments 720,242 672,265 --------------- --------------- Net cash used for investing activities (80,447) (118,066) --------------- --------------- NET CASH FLOWS FROM FINANCING ACTIVITIES: Net change in credit agreement and other short-term borrowings 115 279 Net change in customer banking deposits 19,539 (7,550) Net change in policyholder account balances (13,456) (14,239) Issuance of long-term debt, net of issuance costs 101,390 50,000 Reduction of long-term debt (3,096) (26,342) Sale of common shares and exercise of warrants, net of expenses 43,736 -- --------------- --------------- Net cash provided by financing activities 148,228 2,148 --------------- --------------- Net increase (decrease) in cash and cash equivalents 175,766 (15,439) Cash and cash equivalents at January 1, 252,495 291,414 --------------- --------------- Cash and cash equivalents at September 30, $ 428,261 $ 275,975 =============== =============== <FN> See notes to interim consolidated financial statements. </TABLE> 4
<TABLE> <CAPTION> LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the nine months ended September 30, 1995 and 1994 (Unaudited) Net Common Unrealized Shares Additional Gain $1 Par Paid-In (Loss) on Retained Value Capital Investments Earnings Total ----- ------- ----------- -------- ----- (Thousands of dollars) <S> <C> <C> <C> <C> <C> BALANCE, JANUARY 1, 1994 $ 55,794 $ 97,116 $ 49,912 $ 705,034 $ 907,856 Exercise of options to purchase common shares 236 1,023 1,259 Purchase of stock for treasury (14) (267) (281) Net change in unrealized gain (loss) on investments (70,809) (70,809) Net income 47,811 47,811 ------------ ------------ ------------- ------------- ---------------- BALANCE, SEPTEMBER 30, 1994 $ 56,016 $ 97,872 $ (20,897) $ 752,845 $ 885,836 ============ ============ ============= ============= ================ BALANCE, JANUARY 1, 1995 $ 56,100 $ 98,175 $ (41,309) $ 768,849 $ 881,815 Exercise of options to purchase common shares 368 1,912 2,280 Purchase of stock for treasury (29) (698) (727) Exercise of warrants to purchase common shares (net of expenses) and related income tax benefit 3,188 47,736 50,924 Issuance of common shares, net of underwriting discounts 478 12,391 12,869 Net change in unrealized gain (loss) on investments 55,535 55,535 Net income 55,458 55,458 ------------ ------------ ------------- ------------- ---------------- BALANCE, SEPTEMBER 30, 1995 $ 60,105 $ 159,516 $ 14,226 $ 824,307 $ 1,058,154 ============ ============ ============= ============= ================ <FN> See notes to interim consolidated financial statements. </TABLE> 5
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited interim consolidated financial statements, which reflect all adjustments (consisting only of normal recurring items) that management believes necessary to present fairly results of interim operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Summary of Significant Accounting Policies) included in the Company's audited consolidated financial statements for the year ended December 31, 1994, which are included in the Company's Annual Report filed on Form 10-K for such year (the "1994 10-K"). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 1994 was extracted from the audited annual financial statements and does not include all disclosures required by generally accepted accounting principles for annual financial statements. Certain amounts for prior periods have been reclassified to be consistent with the 1995 presentation. In July 1995, the Company declared a two-for-one stock split payable on November 15, 1995 in the form of a 100% stock dividend to shareholders of record on November 1, 1995. The financial statements (and notes thereto) give retroactive effect to the stock split for all periods presented. The Board of Directors of the Company has also stated its current intention to declare and pay a $.25 per common share cash dividend in December 1995 on each common share outstanding (after giving effect to the stock split). Although the Board has not taken any action with respect to the cash dividend, the Board anticipates that, absent the occurrence of a material adverse change to the Company's current business or financial condition, it will authorize the cash dividend during the fourth quarter of 1995. 2. As more fully described in the 1994 10-K, the most recent statistical studies of trading stamp redemptions have indicated that the historical pattern of redemptions has changed and that the recorded liability for unredeemed trading stamps is in excess of the amount that ultimately will be required to redeem trading stamps outstanding. Accordingly, the Company has been amortizing the aggregate apparent excess over a five year period. As a result, cost of goods sold applicable to the trading stamp operations reflects a credit of approximately $4,000,000 and $9,000,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and $1,300,000 and $3,000,000 for the three month periods ended September 30, 1995 and 1994, respectively. Based on the latest studies, the unamortized apparent excess at September 30, 1995 was approximately $1,340,000, exclusive of reserves for redemption service expenses of approximately $24,348,000. Recently, the Company entered into a contract with an independent third party to provide warehousing and certain gift fulfillment services. The Company believes that this agreement will reduce redemption service expenses and may result in a reduction in the reserve required for such costs. 3. During the first quarter of 1994, the Company sold its remaining interest in 6% U.S. dollar denominated El Salvador Government bonds. Including principal payments received prior to the sale, the Company reported a pre-tax gain of approximately $8,458,000, which gain is included in the caption "Investment and other income" for the nine month period ended September 30, 1994. 4. In connection with the settlement of certain litigation during the second quarter of 1995, the Company reported a gain, net of expenses, of approximately $3,800,000. The gain is included in the caption "Investment and other income" for the nine month period ended September 30, 1995. 5. In June 1995, the Company purchased a 46.4% common stock interest in MK Gold Company ("MK Gold") for an aggregate cash purchase price of $22,500,000. In addition, the Company purchased at par all of a lender's interest under a $20,000,000 revolving credit facility with MK Gold, of which approximately $15,000,000 was outstanding. This amount was repaid during the third quarter of 1995. MK Gold, an international gold mining company whose shares are quoted on the Nasdaq National Market System, reported total assets and stockholders' equity of $96,566,000 and $68,288,000, respectively, at March 31, 1995. The Company will account for its investment in MK Gold under the equity method of accounting based on a fiscal period ended three months prior to the end of the Company's reporting period. 6
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS, continued 6. On May 26, 1995, the Company's Colonial Penn Group property and casualty subsidiaries entered into an agreement with the California Department of Insurance to settle their Proposition 103 rollback refund for approximately $17,000,000, which is substantially less than the Insurance Department's original assessment. The fairness of this settlement was challenged in an administrative proceeding by a California consumer group, that has also challenged the Proposition 103 settlements of other insurance companies. Subsequent to a hearing held in October 1995, the Company and the consumer group reached a preliminary agreement to settle its Proposition 103 liability for an amount not materially different from its original agreement with the California Department of Insurance. The agreement must be approved by the administrative judge who presided at the hearing and the California Department of Insurance. The Company believes that the ultimate resolution of this matter will not have a material adverse affect on the Company's financial condition or results of operations and will not exceed reserves established in prior years. 7. In June 1995, the Company sold $100,000,000 principal amount of its newly authorized 8 1/4% Senior Subordinated Notes due 2005 in an underwritten public offering. A portion of the proceeds was used to repay indebtedness outstanding under the Company's revolving credit agreements incurred in connection with the acquisition of MK Gold. The remaining proceeds were added to working capital. 8. On September 13, 1995, Ian M. Cumming and Joseph S. Steinberg, Chairman of the Board and President of the Company, respectively, and certain members of Mr. Cumming's family exercised previously granted warrants to purchase an aggregate of 3,188,000 common shares and sold such shares in an underwritten public offering. In connection with such public offering, the Company granted the underwriters an over allotment option, which was exercised, for 478,200 common shares. Under the terms of the warrant agreement, the Company was required to pay expenses of the sale, other than underwriting discounts. As a result of the exercise of the warrants and the exercise of the over allotment option, the Company realized aggregate cash proceeds, net of expenses, of $43,736,000. For income tax purposes, the exercise of the warrants will result in the Company receiving a current income tax deduction of approximately $57,305,000. For financial reporting purposes, the benefit of such deduction ($20,057,000) was credited directly to shareholders' equity. 9. Earnings per common and dilutive common equivalent share were calculated by dividing net income by the sum of the weighted average number of common shares outstanding and the incremental weighted average number of shares issuable upon exercise of outstanding options and warrants for the periods they were outstanding. The number of shares used to calculate primary earnings per share amounts was 58,927,000 and 58,153,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and 59,427,000 and 58,055,000 for the three month periods ended September 30, 1995 and 1994, respectively. Fully diluted earnings per share was calculated as described above and also assumes the outstanding 5 1/4% Convertible Subordinated Debentures due 2003 had been converted into common shares and earnings increased for the interest on such debentures, net of the income tax effect. The number of shares used to calculate fully diluted earnings per share was 62,481,000 and 61,631,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and 62,984,000 and 61,533,000 for the three month periods ended September 30, 1995 and 1994, respectively. 10. Cash paid for interest and income taxes (net of refunds) was $37,138,000 and $2,221,000, respectively, for the nine month period ended September 30, 1995 and $32,694,000 and $9,564,000, respectively, for the nine month period ended September 30, 1994. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF INTERIM OPERATIONS. The following should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 1994 10-K. LIQUIDITY AND CAPITAL RESOURCES During each of the nine month periods ended September 30, 1995 and 1994, the Company operated profitably and net cash was provided from operations. During the nine months ended September 30, 1995, the Company used its revolving bank credit agreement facilities to meet daily cash requirements and in connection with the MK Gold transaction. In June 1995, the Company purchased a 46.4% common stock interest in MK Gold for an aggregate cash purchase price of $22,500,000. In addition, the Company purchased at par all of a lender's interest under a $20,000,000 revolving credit facility with MK Gold, of which approximately $15,000,000 was outstanding. This amount was repaid during the third quarter of 1995. In June 1995, the Company sold $100,000,000 principal amount of its newly authorized 8 1/4% Senior Subordinated Notes due 2005 in an underwritten public offering. A portion of the proceeds was used to repay indebtedness outstanding under the Company's revolving credit agreements incurred in connection with the acquisition of MK Gold. The remaining proceeds were added to working capital. During the second quarter of 1995, the Company purchased 2,365,200 common shares of Rockefeller Center Properties, Inc. ("RCP") for approximately $11,130,000, which increased its equity interest in RCP to 2,713,900 shares (7.1%) at an average cost of $4.74 per share. RCP is a real estate investment trust, the principal asset of which is a $1.3 billion collateralized loan to the owners of the land and buildings known as Rockefeller Center in New York City. On November 7, 1995, RCP announced that, subject to shareholder approval, it had accepted an offer from a group led by Goldman, Sachs & Company to buy out the shareholders of RCP at a price of $8.00 per share. The Company is currently reviewing the offer. In July 1995, pursuant to the chapter 11 reorganization plan of HomeFed Corporation ("HFC"), the Company acquired 41.2% of HFC's common stock for a net cash investment of approximately $4,200,000. In addition, the Company entered into a $20 million eight year secured loan with HFC, which is convertible into additional shares of HFC common stock after three years (subject to certain conditions) and which bears interest at the rate of 12% per year. HFC is a public company headquartered in Salt Lake City, Utah, whose subsidiaries develop real property. In July 1995, the Company purchased approximately 52 acres of unimproved land zoned for residential and commercial development in Walton County, Florida, for approximately $13,000,000. The Company plans to make certain improvements to the property, which will be subdivided into approximately 230 lots and sold in phases. On September 13, 1995, Ian M. Cumming and Joseph S. Steinberg, Chairman of the Board and President of the Company, respectively, and certain members of Mr. Cumming's family exercised previously granted warrants to purchase an aggregate of 3,188,000 common shares and sold such shares in an underwritten public offering. In connection with such public offering, the Company granted the underwriters an over allotment option, which was exercised, for 478,200 common shares. Under the terms of the warrant agreement, the Company was required to pay expenses of the sale, other than underwriting discounts. As a result of the exercise of the warrants and the exercise of the over allotment option, the Company realized aggregate cash proceeds, net of expenses of $43,736,000. For income tax purposes, the exercise of the warrants will result in the Company receiving a current income tax deduction of approximately $57,305,000. For financial reporting purposes, the benefit of such deduction ($20,057,000) was credited directly to shareholders' equity. 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF INTERIM OPERATIONS, continued. As more fully described in the 1994 10-K, securities classified as "available for sale" are carried at fair value with unrealized gains and losses reflected as a separate component of shareholders' equity, net of taxes. Principally as a result of decreases in market interest rates during 1995, the unrealized loss on investments at the end of 1994 became an unrealized gain of $14,226,000 as of September 30, 1995. While this has resulted in an increase in shareholders' equity, it had no effect on results of operations or cash flows. RESULTS OF OPERATIONS THE 1995 PERIODS COMPARED TO THE 1994 PERIODS Earned premium revenues of the Colonial Penn P&C Group were approximately $363,757,000 and $327,104,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and $128,568,000 and $112,447,000 for the three month periods ended September 30, 1995 and 1994, respectively. The increase in earned premiums principally resulted from acquired blocks of assigned risk business from other insurance companies and increased premium volume on voluntary automobile policies. Voluntary automobile policies in force at September 30, 1995 were slightly greater than policies in force at December 31, 1994, as new business generated in the 1995 periods exceeded lapsed business. Earned premium revenues and commissions of the property and casualty insurance operations of the Empire Group were approximately $238,069,000 and $216,350,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and $80,727,000 and $76,865,000 for the three month periods ended September 30, 1995 and 1994, respectively. The increase in premium revenue principally resulted from growth of policies in force and rate increases. The Company's loss ratios for its property and casualty operations were as follows: <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, ---------------------------- -------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- <S> <C> <C> <C> <C> Loss Ratio: GAAP 88.5% 78.4% 87.2% 82.0% SAP 85.3% 79.0% 84.5% 81.6% Expense Ratio: GAAP 16.7% 18.3% 16.1% 18.1% SAP 15.5% 17.6% 15.4% 17.0% Combined Ratio: GAAP 105.2% 96.7% 103.3% 100.1% SAP 100.8% 96.6% 99.9% 98.6% </TABLE> The increase in the combined ratios is primarily attributable to the Empire Group, which, principally during the first half of 1995, made additional payments related to 1994 claims (primarily no-fault claims). In addition, during the 1995 periods the Empire Group's reserves were strengthened in workmen's compensation and automobile lines, principally as a result of revised loss development patterns. The loss development may indicate that the new automobile business acquired during recent years will have greater ultimate loss experience than previously expected. Should actual loss development prove to be greater than expected, additional reserve strengthening will occur. The Empire Group will continue to analyze loss development patterns on a quarterly basis and will evaluate the adequacy of its loss reserves. 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF INTERIM OPERATIONS, continued. The loss ratios for the Colonial Penn P&C Group reflect higher losses related to acquired blocks of automobile assigned risk business, which are partially offset by service fee income reflected as a reduction to the expense ratios. The combined ratios reflect aggregate catastrophe losses and related loss adjustment expenses estimated at approximately $2,990,000 for the nine month period ended September 30, 1995 compared with $16,560,000 (including approximately $11,560,000 related to the California earthquake) for the nine month period ended September 30, 1994 (primarily all in the first quarter of 1994). Earned premium revenues of the life and health insurance operations were approximately $125,851,000 and $130,265,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and $40,860,000 and $42,608,000 for the three month periods ended September 30, 1995 and 1994, respectively. Premium revenues and provision for insurance losses and policy benefits of the life and health operations reflect the continued profitable growth of the Graded Benefit Life product. Premium revenues also reflect the run-off of the agent sold Medicare supplement business, which had less favorable loss experience in 1995. Manufacturing revenues decreased in the 1995 periods as compared to the 1994 periods principally due to reduced demand from customers of the bathroom vanities division and a factory fire at the fibers division. This decrease was partially offset by increased sales in the 1995 periods at the plastics division, and increased revenues at the wire and cable divisions for the nine month period ended September 30, 1995. The decrease in manufacturing gross profit in the 1995 periods as compared to the 1994 periods principally reflects the decrease in manufacturing sales, increased raw material costs at most divisions and the fire at the fibers division. In addition, during the third quarter of 1995, the Company sold a division that manufactured office furnishing systems and recognized a loss of approximately $1,100,000. Trading stamp revenues decreased in the 1995 periods compared to the 1994 periods principally due to reduced demand from existing customers. Cost of goods sold applicable to the trading stamp operations reflects amortization of the apparent excess in the liability for unredeemed trading stamps of approximately $4,000,000 and $9,000,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and $1,300,000 and $3,000,000 for the three month periods ended September 30, 1995 and 1994, respectively. Finance revenues reflect the level of consumer instalment loans. As more fully described in the 1994 10-K, based on its experience in providing collateralized automobile loans to individuals with poor credit histories, the Company concluded that there were opportunities for successful expansion of this business. Accordingly, on a controlled basis the Company is increasing its investments in such loans. The Company's actual loss experience has increased during this expansion, which in part reflects additional competition that has recently entered this market. However, actual losses remain less than the 6% reserve maintained on this portfolio. At September 30, 1995 and December 31, 1994, these loans aggregated $135,400,000 and $129,512,000, respectively. Investment and other income increased in the 1995 periods compared to the 1994 periods as a result of higher available interest rates and increased fee income related to acquired blocks of automobile assigned risk business. Investment and other income for the nine month period ended September 30, 1995 includes a gain, net of expenses, of approximately $3,800,000 related to the settlement of certain litigation. Investment and other income for the nine month period ended September 30, 1994 includes approximately $8,458,000 related to the disposition of the El Salvador Government bonds. 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF INTERIM OPERATIONS, continued. Net securities gains (losses) were $11,559,000 and ($13,887,000) for the nine month periods ended September 30, 1995 and 1994, respectively, and $11,787,000 and ($2,764,000) for the three month periods ended September 30, 1995 and 1994, respectively. Principally during the third quarter of 1995, the Company sold its interest in Washington Mutual, Inc. (the successor by merger to Olympus Capital Corporation, in which the Company had a 17% interest) and recorded a gain of $8,152,000. Included in the nine month period ended September 30, 1994 are provisions for write-downs of investments of approximately $3,568,000. Higher interest expense in the 1995 periods as compared to the 1994 periods principally reflects an increased level of borrowings. Interest expense also reflects the level of deposits at the Company's banking and industrial loan subsidiaries and an increase in interest rates related to those deposits. The increase in selling, general and other expenses in the 1995 periods as compared to the 1994 periods principally reflects operating expenses of real estate properties acquired during 1994, increased employee insurance costs, expenses relating to certain investing activities and, for the nine month period ended September 30, 1995, increased provision for bad debts. The real estate properties acquired in 1994 did not generate significant revenues during the 1995 periods. The provision for income taxes in the 1995 periods reflects a reduction for the resolution of certain federal tax contingencies and, for the nine month period ended September 30, 1995, a reduction in the tax provision for the favorable resolution of a state tax matter. The provisions for income taxes in the 1994 periods were reduced to reflect certain tax benefits and foreign tax credits. The number of shares used to calculate primary earnings per share amounts was 58,927,000 and 58,153,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and 59,427,000 and 58,055,000 for the three month periods ended September 30, 1995 and 1994, respectively. The number of shares used to calculate fully diluted earnings per share amounts was 62,481,000 and 61,631,000 for the nine month periods ended September 30, 1995 and 1994, respectively, and 62,984,000 and 61,533,000 for the three month periods ended September 30, 1995 and 1994, respectively. The increase in the number of shares utilized in calculating per share amounts was principally caused by the increase in the market price of the Company's common stock. 11
PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A) EXHIBITS. 27 Financial Data Schedule. B) REPORTS ON FORM 8-K. None 12
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LEUCADIA NATIONAL CORPORATION (Registrant) Date: November 13, 1995 By /s/ Joseph A. Orlando ---------------------------------------- Joseph A. Orlando Vice President and Comptroller (Principal Financial and Accounting Officer) 13
EXHIBIT INDEX Exhibit Exemption Number Description Indication ------ ----------- ---------- 27 Financial Data Schedule. 14