10-Q 1 0001.txt 10-Q FOR PERIOD ENDED 06/30/00 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. 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)
June 30, December 31, 2000 1999 -------------- ----------- (Unaudited) 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 =========== ===========
See notes to interim consolidated financial statements. -1- 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)
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- --------- 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 ========= ========= ========= =========
See notes to interim consolidated financial statements. -2- LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended June 30, 2000 and 1999 (Unaudited)
2000 1999 ---- ---- (In thousands) > 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 =========== ===========
See notes to interim consolidated financial statements. -3- LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity For the six months ended June 30, 2000 and 1999 (Unaudited)
Common Accumulated Shares Additional Other $1 Par Paid-In Comprehensive Retained Value Capital Income (Loss) Earnings Total ---------- ----------- -------------- -------- ----- (In thousands) 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 ======= ======== ========= ========== ==========
See notes to interim consolidated financial statements. -4- 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):
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, --------------------- --------------------- 2000 1999 2000 1999 ---- ---- ---- ---- 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 ========= ========= ========= =========
-5- 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- 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- 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- 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:
Three Months Ended Six Months Ended June 30, June 30, ---------------------- -------------------- 2000 1999 2000 1999 ----- ---- ---- ---- 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%
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- 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. -10- 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- 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- 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) -13- 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.