-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAJAnztR2pRSqeEqMqS42o2Wv7WmgYaHQwKHBUnlUl0E44/9QnQVce5oE9ir0+PE NIKP0O3Z6hzi+hfOivzrTQ== 0000096223-03-000094.txt : 20030813 0000096223-03-000094.hdr.sgml : 20030813 20030813155345 ACCESSION NUMBER: 0000096223-03-000094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LEUCADIA NATIONAL CORP CENTRAL INDEX KEY: 0000096223 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 132615557 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05721 FILM NUMBER: 03841236 BUSINESS ADDRESS: STREET 1: 315 PARK AVE S CITY: NEW YORK STATE: NY ZIP: 10010 BUSINESS PHONE: 2124601900 MAIL ADDRESS: STREET 1: 315 PARK AVENUE SOUTH CITY: NEW YORK STATE: NY ZIP: 10010 FORMER COMPANY: FORMER CONFORMED NAME: TALCOTT NATIONAL CORP DATE OF NAME CHANGE: 19800603 10-Q 1 lnc2ndqtr03.txt LEUCADIA NATIONAL CORPORATION 2ND QTR. 03 10-Q 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, 2003 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 ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES X NO ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, at August 5, 2003: 59,636,692. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2003 and December 31, 2002 (Dollars in thousands, except par value)
June 30, December 31, 2003 2002 ---------- ----------- (Unaudited) Assets Investments: Available for sale (aggregate cost of $541,915 and $484,571) $ 698,634 $ 569,861 Trading securities (aggregate cost of $66,125 and $49,888) 71,973 48,036 Held to maturity (aggregate fair value of $454 and $766) 454 768 Other investments, including accrued interest income 8,815 6,206 ---------- ---------- Total investments 779,876 624,871 Cash and cash equivalents 497,314 418,600 Trade, notes and other receivables, net 406,241 407,422 Prepaids and other assets 222,635 187,046 Property, equipment and leasehold improvements, net 167,307 166,207 Investments in associated companies: WilTel Communications Group, Inc. 284,121 340,551 Other associated companies 359,920 397,081 ---------- ---------- Total $2,717,414 $2,541,778 ========== ========== Liabilities Customer banking deposits $ 253,098 $ 392,904 Trade payables and expense accruals 91,220 77,394 Other liabilities 124,193 140,586 Income taxes payable 62,975 38,231 Deferred tax liability 42,917 16,556 Debt, including current maturities 448,382 233,073 ---------- ---------- Total liabilities 1,022,785 898,744 ---------- ---------- Commitments and contingencies Minority interest 10,650 10,309 ---------- ---------- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debt securities of the Company 98,200 98,200 ---------- ---------- Shareholders' Equity Series A Non-Voting Convertible Preferred Stock -- 47,507 Common shares, par value $1 per share, authorized 150,000,000 shares; 59,636,692 and 58,268,572 shares issued and outstanding, after deducting 58,867,179 and 60,213,299 shares held in treasury 59,637 58,269 Additional paid-in capital 200,860 154,260 Accumulated other comprehensive income 105,187 56,025 Retained earnings 1,220,095 1,218,464 ---------- ---------- Total shareholders' equity 1,585,779 1,534,525 ---------- ---------- Total $2,717,414 $2,541,778 ========== ==========
See notes to interim consolidated financial statements. 2 LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations For the periods ended June 30, 2003 and 2002 (In thousands, except per share amounts) (Unaudited)
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, ---------------------- ----------------------- 2003 2002 2003 2002 --------- --------- --------- --------- Revenues: Manufacturing $ 14,078 $ 13,915 $ 26,225 $ 26,303 Wireless messaging revenues 20,092 -- 20,092 -- Finance 14,734 23,002 31,878 47,706 Investment and other income 40,645 36,692 65,948 66,173 Net securities gains (losses) (2,091) (3,292) 214 (12,298) --------- --------- --------- --------- 87,458 70,317 144,357 127,884 --------- --------- --------- --------- Expenses: Manufacturing cost of goods sold 10,201 9,140 19,150 17,432 Wireless messaging network operating expenses 9,964 -- 9,964 -- Interest 7,473 8,922 14,272 17,510 Salaries 10,406 9,660 19,478 20,228 Selling, general and other expenses 34,474 35,439 70,754 76,338 --------- --------- --------- --------- 72,518 63,161 133,618 131,508 --------- --------- --------- --------- Income (loss) from continuing operations before income taxes, minority expense of trust preferred securities and equity in income (losses) of associated companies 14,940 7,156 10,739 (3,624) Income taxes 2,493 2,632 1,007 (987) --------- --------- --------- --------- Income (loss) from continuing operations before minority expense of trust preferred securities and equity in income (losses) of associated companies 12,447 4,524 9,732 (2,637) Minority expense of trust preferred securities, net of taxes (1,380) (1,380) (2,761) (2,761) Equity in income (losses) of associated companies, net of taxes 2,542 16,285 (7,148) 36,130 --------- --------- --------- --------- Income (loss) from continuing operations 13,609 19,429 (177) 30,732 Income from discontinued operations, net of taxes of $1,859 and $2,571, respectively for 2002 1,808 3,140 1,808 4,580 Gain on disposal of discontinued operations, net of taxes of $2,430 -- 4,512 -- 4,512 --------- --------- --------- --------- Net income $ 15,417 $ 27,081 $ 1,631 $ 39,824 ========= ========= ========= ========= Basic earnings (loss) per common share: Income (loss) from continuing operations $ .23 $ .35 $ -- $ .56 Income from discontinued operations .03 .06 .03 .08 Gain on disposal of discontinued operations -- .08 -- .08 --------- --------- --------- --------- Net income $ .26 $ .49 $ .03 $ .72 ========= ========= ========= ========= Diluted earnings (loss) per common share: Income (loss) from continuing operations $ .23 $ .35 $ -- $ .56 Income from discontinued operations .03 .06 .03 .08 Gain on disposal of discontinued operations -- .08 -- .08 --------- --------- --------- --------- Net income $ .26 $ .49 $ .03 $ .72 ========= ========= ========= =========
See notes to interim consolidated financial statements. 3 LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows For the six months ended June 30, 2003 and 2002 (In thousands) (Unaudited)
2003 2002 --------- --------- Net cash flows from operating activities: Net income $ 1,631 $ 39,824 Adjustments to reconcile net income to net cash provided by (used for) operations: Provision (benefit) for deferred income taxes (2,248) 4,299 Depreciation and amortization of property, equipment and leasehold improvements 10,277 9,350 Other amortization 82 (474) Provision for doubtful accounts 5,500 11,440 Net securities (gains) losses (214) 12,298 Equity in (income) losses of associated companies 7,148 (36,130) Distributions from associated companies 22,129 36,470 Gain on disposal of real estate, property and equipment, and other assets (13,950) (11,859) Gain on disposal of discontinued operations -- (4,512) Investments classified as trading, net (9,446) 56,177 Net change in: Trade and other receivables (6,072) 3,676 Prepaids and other assets (11,677) 546 Trade payables and expense accruals (13,468) (2,065) Other liabilities (1,996) (106) Income taxes payable 1,734 (44,246) Other (376) 1,489 Net change in net assets of discontinued operations -- (5,384) --------- --------- Net cash provided by (used for) operating activities (10,946) 70,793 --------- --------- Net cash flows from investing activities: Acquisition of real estate, property and equipment, and other assets (15,271) (19,789) Proceeds from disposals of real estate, property and equipment, and other assets 13,829 44,875 Proceeds from sale of discontinued operations -- 66,241 Cash acquired upon acquisition of WebLink 21,459 -- Advances on loan receivables (2,966) (48,381) Principal collections on loan receivables 73,674 93,734 Advances on notes receivables (400) (650) Collections on notes receivables 13,214 74 Investments in associated companies (11,390) (1,506) Purchases of investments (other than short-term) (520,385) (478,784) Proceeds from maturities of investments 140,405 324,449 Proceeds from sales of investments 307,446 69,333 --------- --------- Net cash provided by investing activities 19,615 49,596 --------- --------- Net cash flows from financing activities: Net change in customer banking deposits (138,697) (7,794) Issuance of long-term debt, net of issuance costs 211,049 6,145 Reduction of long-term debt (2,548) (8,163) Purchase of common shares for treasury (61) (98) --------- --------- Net cash provided by (used for) financing activities 69,743 (9,910) --------- --------- Effect of foreign exchange rate changes on cash 302 152 --------- --------- Net increase in cash and cash equivalents 78,714 110,631 Cash and cash equivalents at January 1, 418,600 373,222 --------- --------- Cash and cash equivalents at June 30, $ 497,314 $ 483,853 ========= =========
4 See notes to interim consolidated financial statements. LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Shareholders' Equity For the six months ended June 30, 2003 and 2002 (In thousands, except par value) (Unaudited)
Series A Non-Voting Common Accumulated Convertible Shares Additional Other Preferred $1 Par Paid-In Comprehensive Retained Stock Value Capital Income (Loss) Earnings Total ---------- -------- ---------- ------------- -------- -------- Balance, January 1, 2002 $ -- $ 55,318 $ 54,791 $ 14,662 $1,070,682 $1,195,453 ---------- Comprehensive income: Net change in unrealized gain (loss) on investments 4,315 4,315 Net change in unrealized foreign exchange gain (loss) 14,209 14,209 Net change in unrealized gain (loss) on derivative instruments (961) (961) Net income 39,824 39,824 ---------- Comprehensive income 57,387 ---------- Exercise of options to purchase common shares 29 615 644 Purchase of stock for treasury (3) (95) (98) -------- -------- -------- -------- ---------- ---------- Balance, June 30, 2002 $ -- $ 55,344 $ 55,311 $ 32,225 $1,110,506 $1,253,386 ======== ======== ======== ======== ========== ========== Balance, January 1, 2003 $ 47,507 $ 58,269 $154,260 $ 56,025 $1,218,464 $1,534,525 ---------- Comprehensive income: Net change in unrealized gain (loss) on investments 45,435 45,435 Net change in unrealized foreign exchange gain (loss) 4,468 4,468 Net change in unrealized gain (loss) on derivative instruments (741) (741) Net income 1,631 1,631 ---------- Comprehensive income 50,793 ---------- Conversion of convertible preferred shares into common shares (47,507) 1,348 46,159 -- Exercise of options to purchase common shares 22 500 522 Purchase of stock for treasury (2) (59) (61) -------- -------- -------- -------- ---------- ---------- Balance, June 30, 2003 $ -- $ 59,637 $200,860 $105,187 $1,220,095 $1,585,779 ======== ======== ======== ======== ========== ==========
See notes to interim consolidated financial statements. 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, 2002, which are included in the Company's Annual Report filed on Form 10-K for such year (the "2002 10-K"). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 2002 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 2003 presentation. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), establishes a fair value method for accounting for stock-based compensation plans, either through recognition in the statements of operations or disclosure. As permitted, the Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized in the statements of operations for its stock-based compensation plans. Had compensation cost for the Company's stock option plans been recorded in the statements of operations consistent with the provisions of SFAS 123, the Company's net income would not have been materially different from that reported. 2. Certain information concerning the Company's segments for the six and three month periods ended June 30, 2003 and 2002 is presented in the following table. Prior period amounts have been reclassified to exclude equity in income (losses) of associated companies from these captions.
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, --------------------- --------------------- 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) Revenues: Banking and lending $ 16,720 $ 24,723 $ 37,188 $ 53,400 Domestic real estate 16,104 17,063 26,226 25,442 Manufacturing 14,437 13,931 26,603 26,339 Wireless messaging 20,128 -- 20,128 -- Other operations 8,105 10,723 15,175 18,301 Corporate (a) 11,964 3,877 19,037 4,402 --------- --------- --------- --------- Total consolidated revenues $ 87,458 $ 70,317 $ 144,357 $ 127,884 ========= ========= ========= ========= Income (loss) from continuing operations before income taxes, minority expense of trust preferred securities and equity in income (losses) of associated companies: Banking and lending $ 7,080 $ 6,445 $ 11,920 $ 10,510 Domestic real estate 7,158 8,854 8,690 9,097 Manufacturing 1,515 2,064 1,777 3,294 Wireless messaging 3,182 -- 3,182 -- Other operations (51) 2,514 (1,125) 2,806 Corporate (a) (3,944) (12,721) (13,705) (29,331) --------- --------- --------- --------- Total consolidated income (loss) from continuing operations before income taxes, minority expense of trust preferred securities and equity in income (losses) of associated companies $ 14,940 $ 7,156 $ 10,739 $ (3,624) ========= ========= ========= =========
(a) Includes a provision of $5,100,000 and $2,400,000 for the six and three month periods ended June 30, 2003, respectively, to write down the Company's investments in certain available for sale securities and its investment in a non-public security, and for the six and three month periods ended June 30, 2002, a provision of $19,700,000 and $14,700,000, respectively, to write down the Company's investments in certain available for sale securities and its equity in a non-public fund. 6 Notes to Interim Consolidated Financial Statements, continued 3. The Company accounts for its investment in Berkadia under the equity method of accounting. At June 30, 2003, the book value of the Company's equity investment in Berkadia was negative $48,400,000, which is included in other liabilities in the consolidated balance sheet. As more fully described in the 2002 10-K, the negative carrying amount results from Berkadia's distribution of loan related fees received and the Company's recognition in 2001 of its share of The FINOVA Group Inc.'s ("FINOVA") non-cash losses recorded by Berkadia, partially offset by the Company's share of Berkadia's income related to Berkadia's loan to FINOVA. The Company has guaranteed 10% of Berkadia's debt and, although the Company has no cash investment in Berkadia, it records its share of any losses recorded by Berkadia up to the amount of the guarantee. The total amount of the Company's guarantee was $120,000,000 as of August 5, 2003. For the six and three month periods ended June 30, 2003 and 2002, the Company's equity in the income of Berkadia consists of the following (in thousands):
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, --------------------- --------------------- 2003 2002 2003 2002 ----- ----- ---- ---- Net interest spread on the Berkadia loan - 10% of total $ 1,100 $ 1,500 $ 2,400 $ 3,600 Amortization of Berkadia loan discount related to cash fees - 50% of total 1,300 5,100 9,700 12,200 Amortization of Berkadia loan discount related to FINOVA stock - 50% of total 2,100 8,100 15,200 19,300 ------- ------- ------- ------- Equity in income of associated companies - Berkadia $ 4,500 $14,700 $27,300 $35,100 ======= ======= ======= =======
The pace of actual and anticipated principal payments on the Berkadia Loan has slowed, resulting in a reduction in the amortization of the discount on the Berkadia Loan. 4. As more fully discussed in the Company's 2002 10-K, the Company owns 47.4% of the outstanding common shares of WilTel Communications Group, Inc. ("WilTel"). For the six and three month periods ended June 30, 2003, the Company recorded $57,100,000 and $22,300,000, respectively, of pre-tax losses from its investment in WilTel under the equity method of accounting. The Company has not recorded a related deferred tax benefit, as its ability to use the capital loss to reduce taxes due on capital gains in the future is uncertain. On August 12, 2003, the Company and WilTel announced an agreement in principle whereby WilTel will become a wholly owned subsidiary of the Company. The Company and WilTel intend to enter into a merger agreement that provides for a first-step exchange offer pursuant to which tendering WilTel stockholders will receive .4242 of a Leucadia common share for each share of WilTel common stock to be followed by a back-end merger for the same consideration as offered in the exchange offer. At this exchange ratio, if all of the publicly held WilTel shares are acquired by the Company, Leucadia would issue 11,156,460 common shares and the former public stockholders of WilTel would own approximately 15.8% of Leucadia. In addition, in the exchange offer and merger WilTel stockholders will receive contingent sale rights which entitle WilTel stockholders to additional Leucadia common shares if the Company sells substantially all of WilTel's assets prior to October 15, 2004 (which we have no plans to do) and the net proceeds exceed the price paid pursuant to this transaction. Consummation of this transaction is subject to the negotiation and execution of a definitive agreement, certain regulatory approvals and a non-waivable condition that the holders of at least a majority of the WilTel shares that are not beneficially owned by the Company and its affiliates have tendered and not withdrawn their shares in the exchange offer, as well as other customary conditions. 7 Notes to Interim Consolidated Financial Statements, continued 5. The following tables provide summarized data with respect to significant investments in Associated Companies accounted for under the equity method of accounting for the periods the investments were owned by the Company. The information is provided for those investments whose relative significance to the Company is expected to result in the Company including separate audited financial statements for such investments in its Annual Report on Form 10-K for the year ended December 31, 2003 (in thousands).
June 30, 2003 ----------- Investment in WilTel: Total revenues $ 611,500 Loss from continuing operations before extraordinary items $(119,900) Net loss $(119,900) The Company's equity in net loss $ (57,100)
June 30, June 30, 2003 2002 ----------- --------- Investment in Berkadia: Total revenues $ 80,500 $ 138,900 Income from continuing operations before extraordinary items $ 68,100 $ 99,400 Net income $ 68,100 $ 99,400 The Company's equity in net income $ 27,300 $ 35,100 Investment in Olympus Re Holdings, Ltd.: Total revenues $ 209,900 $ 88,000 Income from continuing operations before extraordinary items $ 90,100 $ 46,200 Net income $ 90,100 $ 46,200 The Company's equity in net income $ 22,500 $ 9,400
In June 2003, the Company sold 567,574 common shares of Olympus Re to Olympus Re for total proceeds of $79,500,000, which were received in July 2003. The Company recognized a $1,500,000 gain on the sale which is reflected in other income. The shares were tendered to Olympus Re as part of a tender offer available to all of its shareholders. After completion of the tender, the Company's interest in Olympus Re declined from 25% to 16.1%. The Company will continue to account for this investment under the equity method of accounting based upon the Company's ability to exercise significant influence. 6. In December 2002, the Company completed a private placement of approximately $150,000,000 of equity securities, based on a common share price of $35.25, to mutual fund clients of Franklin Mutual Advisers, LLC, including the funds comprising the Franklin Mutual Series Funds. The private placement included 2,907,599 common shares and newly authorized Series A Non-Voting Convertible Preferred Stock that were mandatorily convertible into 1,347,720 common shares within 90 days of issuance. Such shares were converted into common shares in March 2003. 7. In June 2003, the Company sold $200,000,000 principal amount of its newly authorized 7% Senior Notes due 2013 in a private placement at 99.612% of the principal amount. On July 15, 2003, the Company filed a registration statement with the Securities and Exchange Commission pursuant to which each holder of privately placed senior notes will have the opportunity to exchange those notes for registered 7% Senior Notes due 2013 having substantially identical terms. The registration statement has not yet been declared effective. In August 2003, the Company sold $25,000,000 principal amount of its newly authorized 7% Senior Notes due 2013 in a private placement at 99.612% of the principal amount. 8 Notes to Interim Consolidated Financial Statements, continued 8. A summary of accumulated other comprehensive income (loss) at June 30, 2003 and December 31, 2002 is as follows (in thousands):
June 30, December 31, 2003 2002 ---- ------- Net unrealized gains on investments $ 103,447 $ 58,012 Net unrealized foreign exchange gains (losses) 4,231 (237) Net unrealized losses on derivative instruments (2,491) (1,750) --------- -------- $ 105,187 $ 56,025 ========= ========
9. Included in investment and other income is income (charges) of $700,000 and $(900,000), for the six and three month periods ended June 30, 2003, respectively, and charges of $1,000,000 and $3,700,000 for the six and three month periods ended June 30, 2002, respectively, as a result of accounting for its derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133 ("SFAS 133"). 10. Per share amounts were calculated by dividing net income (loss) 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 59,624,000 and 55,328,000 for the six month periods ended June 30, 2003 and 2002, respectively, and 59,630,000 and 55,336,000 for the three month periods ended June 30, 2003 and 2002, respectively. The number of shares used to calculate diluted earnings (loss) per share amounts was 59,624,000 and 55,642,000 for the six month periods ended June 30, 2003 and 2002, respectively, and 60,069,000 and 55,694,000 for the three month periods ended June 30, 2003 and 2002, respectively. For the six month period ended June 30, 2003, options and warrants to purchase approximately 407,000 weighted average shares of common stock were outstanding but were not included in the computation of diluted earnings (loss) per share, as those options and warrants were antidilutive. Due to the nature of their rights and their nominal liquidation value, the Series A Non-Voting Convertible Preferred Shares are treated as common shares and are included in the weighted average share calculations for basic and diluted per share computations for 2003. 11. Cash paid for interest and income taxes (net of refunds) was $14,200,000 and $3,300,000, respectively, for the six month period ended June 30, 2003 and $17,800,000 and $37,300,000, respectively, for the six month period ended June 30, 2002. 12. In December 2002, the Company entered into an agreement to purchase certain debt and equity securities of WebLink Wireless, Inc. ("WebLink"), for an aggregate purchase price of $19,000,000. WebLink, a privately held company, is in the wireless messaging industry, providing wireless data services and traditional paging services. Pursuant to the agreement, the Company acquired outstanding secured notes of WebLink with a principal amount of $36,500,000 (representing 94% of the total outstanding debt). In April 2003, upon receipt of approval from the FCC, the Company acquired approximately 80% of the outstanding common stock of WebLink. The Company has consolidated WebLink's financial condition and results of operations from the date FCC approval was received. 13. In April 2003, the Company entered into an agreement with a third party (the "Seller") to acquire certain businesses of Integrated Health Services, Inc. ("IHS"), a company undergoing reorganization proceedings under chapter 11 of the Bankruptcy Code. The businesses to be acquired are primarily engaged in the provision of physical, occupational, speech and respiratory therapy services, and are operated by subsidiaries of Symphony Health Services, Inc. ("Symphony"). The purchase price is approximately $50,000,000, including expenses, and is subject to certain working capital and other adjustments. Closing of the transaction is subject to acquisition by the Seller of the Symphony businesses from IHS, which is expected to close during the third quarter of 2003. 9 Notes to Interim Consolidated Financial Statements, continued 14. In connection with the 1997 sale of the property and casualty insurance business of the Colonial Penn Insurance Company, the Company provided the purchaser with a bank issued $100,000,000 non-cancelable letter of credit to collateralize certain indemnification obligations. In May 2003, the Company was released from its indemnification obligation (without any payment) and the letter of credit was returned and cancelled. Accordingly, the bank released cash and marketable securities of $167,100,000, which had been left on deposit to collateralize the letter of credit. In an unrelated matter, the Company also settled certain other tax payment responsibilities during the second quarter of 2003 with the purchaser of Colonial Penn Insurance Company. Income from discontinued operations for the 2003 periods consists of a payment from the purchaser to reimburse the Company for tax payments previously made. 15. In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"), which is effective for financial instruments entered into and modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. As a result of the implementation of SFAS 150, the Company will classify its trust issued preferred securities as liabilities in the third quarter of 2003. In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"), which addresses consolidation of variable interest entities, which are entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 may be applied prospectively with a cumulative effect adjustment as of the date on which it is first applied or by restating previously issued financial statements with a cumulative effect adjustment as of the beginning of the first year restated. The Company is currently reviewing the impact of the implementation of FIN 46, which may result in the consolidation of certain entities that are not currently consolidated. 10 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 2002 10-K. Liquidity and Capital Resources For the six month period ended June 30, 2003, net cash was used for operations principally as a result of an increase in the Company's investment in the trading portfolio, lower investment income on corporate investments, and payment of corporate interest and overhead expenses. For the six month period ended June 30, 2002, net cash was provided by operations principally as a result of a reduction to the Company's investment in the trading portfolio and distributions from associated companies partially offset by the payment of income taxes. As of June 30, 2003, the Company's readily available cash, cash equivalents and marketable securities, excluding those amounts held by its regulated subsidiaries, totaled $1,115,200,000. This amount is comprised of cash and short-term bonds and notes of the United States Government and its agencies of $687,500,000 (62%), the equity investment in White Mountains Insurance Group, Ltd. of $148,100,000 (13%) (which can be sold privately or otherwise in compliance with the securities laws and is subject to a registration rights agreement) and other publicly traded debt and equity securities aggregating $279,600,000 (25%). As a result of principal payments by FINOVA to Berkadia, as of August 5, 2003, the Company's guarantee of Berkadia's financing has been reduced to $120,000,000. In December 2002, the Company completed a private placement of approximately $150,000,000 of equity securities, based on a common share price of $35.25, to mutual fund clients of Franklin Mutual Advisers, LLC, including the funds comprising the Franklin Mutual Series Funds. The private placement included 2,907,599 common shares and newly authorized Series A Non-Voting Convertible Preferred Stock that were mandatorily convertible into 1,347,720 common shares within 90 days of issuance. Such shares were converted into common shares in March 2003. In June 2003, the Company sold $200,000,000 principal amount of its newly authorized 7% Senior Notes due 2013 in a private placement at 99.612% of the principal amount. The net cash proceeds from the sale of the notes will be used for general corporate purposes. On July 15, 2003, the Company filed a registration statement with the Securities and Exchange Commission pursuant to which each holder of privately placed senior notes will have the opportunity to exchange those notes for registered 7% Senior Notes due 2013 having substantially identical terms. The registration statement has not yet been declared effective. In August 2003, the Company sold $25,000,000 principal amount of its newly authorized 7% Senior Notes due 2013 in a private placement at 99.612% of the principal amount. The Company's consolidated banking and lending operations had outstanding loans (net of unearned finance charges) of $284,400,000 and $373,600,000 at June 30, 2003 and December 31, 2002, respectively. At June 30, 2003, 51% were loans to individuals generally collateralized by automobiles; 42% were loans to consumers, substantially all of which were collateralized by real or personal property; 4% were loans to small businesses; and 3% were unsecured loans. The banking and lending segment is no longer making consumer loans and is in the process of liquidating its remaining portfolio. These loans were primarily funded by deposits generated by the Company's deposit-taking facilities and by brokers. The Company intends to use the cash flows generated from its loan portfolios to retire these deposits as they mature, which the Company expects will be substantially complete by the end of 2005. The Company's customer banking deposits totaled $253,100,000 and $392,900,000 as of June 30, 2003 and December 31, 2002, respectively. As disclosed in the 2002 10-K, the Company's national bank subsidiary, American Investment Bank, ("AIB") stopped originating new subprime automobile loans in September 2001, and the Company's banking and lending segment ceased originating all other consumer loans in January 2003. The FDIC and Office of the Comptroller of the Currency ("OCC") have supported these actions taken with respect to the sub-prime portfolio. However, effective February 2003, AIB entered into a formal agreement with the OCC, agreeing to develop a written 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, continued. strategic plan subject to prior OCC approval for the continued operations of AIB, to continue to maintain certain risk-weighted capital levels, to obtain prior approval before paying any dividends, to provide certain monthly reports and to comply with certain other criteria. In May 2003, the OCC approved AIB's strategic plan. AIB will also be unable to accept brokered deposits during the period the agreement remains in effect. In the event AIB fails to comply with the agreement, the OCC would have the authority to assert formal charges and seek other statutory remedies and AIB may also be subject to civil monetary penalties. AIB is complying with the agreement and, given that it has ceased all lending activities, the agreement is not expected to have a significant impact on its operations. However, no assurance can be given that other regulatory actions will not be taken. In April 2003, the Company entered into an agreement with a third party (the "Seller") to acquire certain businesses of Integrated Health Services, Inc. ("IHS"), a company undergoing reorganization proceedings under Chapter 11 of the Bankruptcy Code. The businesses to be acquired are primarily engaged in the provision of physical, occupational, speech and respiratory therapy services, and are operated by subsidiaries of Symphony Health Services, Inc. ("Symphony"). The purchase price is approximately $50,000,000, including expenses, and is subject to certain working capital and other adjustments. Closing of the transaction is subject to acquisition by the Seller of the Symphony businesses from IHS, which is expected to close during the third quarter of 2003. In June 2003, the Company sold 567,574 common shares of Olympus Re to Olympus Re for total proceeds of $79,500,000, which were received in July 2003. The shares were tendered to Olympus Re as part of a tender offer available to all of its shareholders. After completion of the tender, the Company's interest in Olympus Re declined from 25% to 16.1%. As more fully discussed in the Company's 2002 10-K, the Company owns 47.4% of the outstanding common shares of WilTel Communications Group, Inc. ("WilTel"). For the six and three month periods ended June 30, 2003, the Company recorded $57,100,000 and $22,300,000, respectively, of pre-tax losses from its investment in WilTel under the equity method of accounting. The Company has not recorded a related deferred tax benefit, as its ability to use the capital loss to reduce taxes due on capital gains in the future is uncertain. On August 12, 2003, the Company and WilTel announced an agreement in principle whereby WilTel will become a wholly owned subsidiary of the Company. The Company and WilTel intend to enter into a merger agreement that provides for a first-step exchange offer pursuant to which tendering WilTel stockholders will receive .4242 of a Leucadia common share for each share of WilTel common stock to be followed by a back-end merger for the same consideration as offered in the exchange offer. At this exchange ratio, if all of the publicly held WilTel shares are acquired by the Company, Leucadia would issue 11,156,460 common shares and the former public stockholders of WilTel would own approximately 15.8% of Leucadia. In addition, in the exchange offer and merger WilTel stockholders will receive contingent sale rights which entitle WilTel stockholders to additional Leucadia common shares if the Company sells substantially all of WilTel's assets prior to October 15, 2004 (which we have no plans to do) and the net proceeds exceed the price paid pursuant to this transaction. Consummation of this transaction is subject to the negotiation and execution of a definitive agreement, certain regulatory approvals and a non-waivable condition that the holders of at least a majority of the WilTel shares that are not beneficially owned by the Company and its affiliates have tendered and not withdrawn their shares in the exchange offer, as well as other customary conditions. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, continued. Results of Operations The 2003 Periods Compared to the 2002 Periods Finance revenues, which reflect the level and mix of consumer instalment loans, decreased in the six and three month periods ended June 30, 2003 as compared to the similar periods in 2002 due to fewer average loans outstanding. Average loans outstanding were $325,400,000 and $288,600,000 for the six and three month periods ended June 30, 2003, respectively, as compared to $474,300,000 and $457,800,000, respectively, during the six and three month periods ended June 30, 2002. This decline was primarily due to the Company's decision in September 2001 to stop originating subprime automobile loans. Although finance revenues decreased in the 2003 periods as compared to the same periods in 2002, pre-tax results for the six and three month periods ended June 30, 2003 increased primarily due to a reduction in interest expense, resulting from reduced customer banking deposits and lower interest rates thereon, of $4,600,000 and $2,300,000, respectively, a decline in the provision for loan losses of $6,200,000 and $3,400,000, respectively, and lower salaries expense and operating and other costs resulting from the segment's restructuring efforts. In the six and three month periods ended June 30, 2003, the banking and lending segment's provision for loan losses decreased as compared to the same periods in 2002 primarily due to the decline in loans outstanding and lower net charge-offs. At June 30, 2003, the allowance for loan losses for the Company's entire loan portfolio was $24,800,000 or 8.7% of the net outstanding loans, as compared to $31,800,000 or 8.5% of the net outstanding loans at December 31, 2002. The Company believes its loss experience reflects the difficulties experienced by subprime borrowers in the current economy. The Company's remaining consumer lending programs have primarily consisted of marine, recreational vehicle, motorcycle and elective surgery loans. Due to economic conditions, portfolio performance and the relatively small size of these loan portfolios and target markets, in January 2003 the Company stopped originating all consumer loans. The Company is considering its alternatives for its banking and lending operations, which could include selling or liquidating some or all of its loan portfolios, and outsourcing certain functions. Pre-tax results for the banking and lending segment include income (charges) of $2,300,000 and $1,300,000 for the six month periods ended June 30, 2003 and 2002, respectively, and $600,000 and $(500,000) for the three month periods ended June 30, 2003 and 2002, respectively, resulting from mark-to-market changes on its interest rate swaps. The Company uses interest rate swaps to manage the impact of interest rate changes on its customer banking deposits. Although the Company believes that these derivative financial instruments serve as economic hedges, they do not meet certain effectiveness criteria under SFAS 133 and, therefore, are not accounted for as hedges. Revenues from domestic real estate modestly changed in the 2003 periods as compared to the 2002 periods as increased revenues from the Company's Hawaiian hotel were tempered by lower gains from property sales and for the six month 2003 period, lower rent income, largely due to the sale of two shopping centers during 2002. The decline in pre-tax income for the 2003 periods results from the changes in revenues as well as greater operating and other costs principally related to the Hawaiian hotel. Manufacturing revenues were largely unchanged for the six and three month periods ended June 30, 2003 as compared to the same periods in 2002 as declines principally in the carpet padding and agricultural markets were largely offset by increases in the construction and consumer products markets. Gross profit and pre-tax results for the 2003 periods declined as compared to the 2002 periods primarily due to higher raw material costs. In April 2003, upon receipt of approval from the FCC, the Company acquired approximately 80% of the outstanding common stock of WebLink Wireless, Inc. ("WebLink"), a private company engaged in the wireless messaging industry. The Company has consolidated WebLink's financial condition and results of operations from the date FCC approval was received. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, continued. The wireless messaging industry has been in decline for the last several years, with units in service for traditional paging services experiencing steady declines and growth in telemetry applications and 2-way messaging not meeting expectations. WebLink has continued to experience erosion in revenues since the Company's acquisition; however, cost reduction programs have enabled the company to maintain profitability. While there appears to be a base level of demand for products offered by WebLink and its competitors, it does not appear to be sufficient to support all of the industry's participants, and the Company believes that an industry consolidation is likely. From the date of acquisition through June 30, 2003, WebLink's revenues totaled $20,100,000, gross profit was $10,100,000 or 50.4% and pre-tax income was $3,200,000. Investment and other income increased in the 2003 periods principally due to $4,900,000 relating to the favorable resolution of value added tax assessments, greater income related to accounting for the market values of the Company's derivative financial instruments and the gain on sale of Olympus Re, as discussed above. These increases were partially offset by lower revenues from the Company's winery operations, lower foreign exchange gains and for the six month 2003 period, by a reduction in investment income. Equity in income (losses) of associated companies includes the following (in thousands):
For the Three Month For the Six Month Period Ended June 30, Period Ended June 30, --------------------- --------------------- 2003 2002 2003 2002 -------- ------- -------- ------- Berkadia $ 4,500 $ 14,700 $ 27,300 $ 35,100 Olympus Re Holdings, Ltd. 10,200 6,500 22,500 9,400 WilTel (22,300) -- (57,100) -- Jefferies Partners Opportunity Fund II, LLC 3,400 3,800 6,900 8,400 Other 20,200 100 20,500 2,700 -------- -------- -------- -------- Pre-Tax 16,000 25,100 20,100 55,600 Income tax expense 13,500 8,800 27,200 19,500 -------- -------- -------- -------- Equity in income (losses), net of taxes $ 2,500 $ 16,300 $ (7,100) $ 36,100 ======== ======== ======== ========
The decrease in income from Berkadia results from a slowing of the pace of actual and anticipated principal payments on the Berkadia Loan to FINOVA, causing a reduction in the amortization of the discount on the Berkadia Loan. The book value of the Company's equity investment in Berkadia was negative $48,400,000 and negative $72,100,000 at June 30, 2003 and December 31, 2002, respectively. The negative carrying amount principally results from Berkadia's distribution of loan related fees received and the Company's recognition in 2001 of its share of FINOVA's losses under the equity method of accounting. This negative carrying amount is being amortized into income over the term of the Berkadia Loan, and effectively represents an unamortized discount on the Berkadia Loan. The Company's investment in Olympus Re was made in December 2001, when Olympus Re commenced its operations as a newly formed Bermuda reinsurance company primarily engaged in the property excess, marine and aviation reinsurance business. The Company's share of its earnings has increased in 2003, reflecting the growth in Olympus Re's premium revenues during its second year of operation. As discussed above, subsequent to a tender offer for its shares in June 2003, the Company's interest in Olympus Re has declined from 25% to 16.1%. 14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, continued. Since its acquisition in the fourth quarter of 2002, the Company has recorded its share of WilTel's losses under the equity method of accounting. As a result of its emergence from bankruptcy proceedings and its continued restructuring of its operations, WilTel has reduced its headcount, operating costs and interest expense. However, despite these cost reductions, the Company believes that WilTel will continue to report losses from continuing operations for the foreseeable future. Even if WilTel is able to generate breakeven cash flow from operations, substantial depreciation and amortization charges will still result in losses from continuing operations over the next several years. The Company will record its 47.4% share of these losses in its statements of operations, and the recognition of these losses could reduce the carrying amount of its investment in WilTel to zero. The Company will not record any further losses in WilTel if and when its investment is reduced to zero, unless the Company has guaranteed any of WilTel's obligations, or otherwise has committed or intends to commit to provide further financial support. The Company has not provided any such guarantees or commitments. The Company has not recorded a deferred tax benefit for its share of the WilTel loss as its ability to use the capital loss to reduce the taxes due on capital gains in the future is uncertain. The remainder of the increase in equity income from associated companies in the 2003 periods includes increased income of $12,200,000 and $13,700,000 for the six and three month periods, respectively, from the Company's investment in a limited partnership that invests primarily in securities and other obligations of highly leveraged, distressed and out of favor companies. In addition, other equity income in associated companies includes $7,100,000 and $7,800,000 for the six and three month periods, respectively, from the Company's equity investment in HomeFed Corporation, as further described in the 2002 10-K. Net securities gains (losses) for the six and three month periods ended June 30, 2003 include a provision of $5,100,000 and $2,400,000, respectively, to write down the Company's investments in certain available for sale securities and its investment in a non-public security, and for the six and three month periods ended June 30, 2002, a provision of $19,700,000 and $14,700,000, respectively, to write down the Company's investments in certain available for sale securities and its equity investment in a non-public fund. The decline in interest expense in the six and three month periods ended June 30, 2003 as compared to the same periods in 2002 primarily reflects lower interest expense at the banking and lending segment due to reduced customer banking deposits and lower interest rates thereon, partially offset by increased interest expense relating to the 7% Senior Notes that the Company issued in June 2003. Salaries expense in the 2003 periods includes $3,500,000 related to WebLink, which became a subsidiary of the Company in April 2003. Salaries expense for the 2003 periods also reflect reductions related to the Company's banking and lending segment, which has ceased lending activity as discussed above, and decreased expenses related to certain executive incentive plans. 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, continued. Selling, general and other expenses in the 2003 periods include amounts related to WebLink since its acquisition of $3,400,000. Selling, general and other expenses also reflect decreases in the 2003 periods primarily due to lower provisions for loan losses and operating and other costs relating to the banking and lending operations. Income taxes for the 2003 periods differ from the expected statutory federal rate principally due to the exclusion of the income related to the favorable resolution of value added tax assessments discussed above. 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: o general economic and market conditions, prevailing interest rate levels or foreign currency fluctuations; o reliance on key management personnel; o changes in foreign and domestic laws, regulations and taxes; o changes in competition and pricing environments; o regional or general changes in asset valuation; o the occurrence of significant natural disasters, the inability to reinsure certain risks economically, increased competition in the reinsurance markets, the adequacy of loss and loss adjustment expense reserves; o weather related conditions that may affect the Company's operations or investments; o changes in U.S. real estate markets, including the commercial and vacation markets in Hawaii; o increased competition in the luxury segment of the premium table wine market; o adverse economic, political or environmental developments in Spain that could delay or preclude the issuance of permits necessary to obtain the Company's copper mining rights or could result in increased costs of bringing the project to completion, increased costs in financing the development of the project and decreases in world wide copper prices; o increased competition in the international and domestic plastics market and increased raw material costs; o increased default rates and decreased value of assets pledged to the Company; o further regulatory action by the OCC; o any deterioration in the business and operations of FINOVA, in the ability of FINOVA Capital to repay the Berkadia Loan, further deterioration in the value of the assets pledged by FINOVA and FINOVA Capital in connection with the Berkadia Loan; o deterioration in the business and operations of WilTel and the ability of WilTel to generate operating profits and positive cash flows, WilTel's ability to retain key customers and suppliers, regulatory changes in the telecommunications markets and increased competition from reorganized telecommunication companies; and o changes in the composition of the Company's assets and liabilities through acquisitions or divestitures. 16 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Information required under this Item is contained in Item 7A of the Company's Annual Report on Form 10-K for the year ended December 31, 2002, and is incorporated by reference herein. Item 4. Controls and Procedures. (a) The Company's management evaluated, with the participation of the Company's principal executive and principal financial officers, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of June 30, 2003. Based on their evaluation, the Company's principal executive and principal financial officers concluded that the Company's disclosure controls and procedures were effective as of June 30, 2003. (b) There has been no change in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company's fiscal quarter ended June 30, 2003, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 17 PART II - OTHER INFORMATION Item 5. Submission of Matters to a Vote of Security Holders. The following matters were submitted to a vote of shareholders at the Company's 2003 Annual Meeting of Shareholders held on May 13, 2003. a) Election of directors.
Number of Shares ---------------- For Withheld --- -------- Ian M. Cumming 54,910,988 307,615 Paul M. Dougan 54,900,826 317,777 Lawrence D. Glaubinger 54,912,630 305,973 James E. Jordan 54,913,262 305,341 Jesse Clyde Nichols, III 54,910,802 307,801 Joseph S. Steinberg 54,910,714 307,889
b) Ratification of PricewaterhouseCoopers LLP, as independent auditors for the year ended December 31, 2003. For 53,854,179 Against 1,319,368 Abstentions 45,056 Broker non votes -- c) Approval of the Senior Executive Annual Incentive Bonus Plan. For 53,565,026 Against 1,357,754 Abstentions 295,823 Broker non votes -- Item 6. Exhibits and Reports on Form 8-K. a) Exhibits. 31.1 Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of President pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. b) Reports on Form 8-K. The Company filed current reports on Form 8-K dated May 12, 2003, May 15, 2003, June 3, 2003, June 4, 2003, and June 11, 2003 which set forth information under Item 5. Other Events and Item 7. Financial Statements and Exhibits. 18 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 13, 2003 By: /s/ Barbara L. Lowenthal ---------------------------- Barbara L. Lowenthal Vice President and Comptroller (Chief Accounting Officer) 19 Exhibit Index 31.1 Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.3 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chairman of the Board and Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of President pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.3 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 20 EX-31 3 imc311cert.txt IAN M. CUMMING 31.1 CERTIFICATION Exhibit 31.1 CERTIFICATIONS I, Ian M. Cumming, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Leucadia National Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Ian M. Cumming -------------------------- Ian M. Cumming Chairman of the Board and Chief Executive Officer EX-31 4 jss312cert.txt JOSEPH S. STEINBERG 31.2 CERTIFICATION Exhibit 31.2 CERTIFICATIONS I, Joseph S. Steinberg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Leucadia National Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Joseph S. Steinberg ----------------------- Joseph S. Steinberg President EX-31 5 jaocert313cert.txt JOSEPH A. ORLANDO 31.3 CERTIFICATION Exhibit 31.3 CERTIFICATIONS I, Joseph A. Orlando, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Leucadia National Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2003 By: /s/ Joseph A. Orlando ---------------------- Joseph A. Orlando Chief Financial Officer EX-32 6 imc321cert.txt IAN M. CUMMING 32.1 CERTIFICATION Exhibit 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Ian M. Cumming, as Chairman of the Board and Chief Executive Officer of Leucadia National Corporation (the "Company") certify, pursuant to 18 U.S.C. ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the accompanying Form 10-Q report for the period ending June 30, 2003 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2003 By: /s/ Ian M. Cumming ------------------ Ian M. Cumming Chairman of the Board and Chief Executive Officer A signed original of this written statement required by Section 906 has been provided to Leucadia National Corporation and will be retained by Leucadia National Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 7 jss322cert.txt JOSEPH S. STEINBER 32.2 CERTIFICATION Exhibit 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Joseph S. Steinberg, as President of Leucadia National Corporation (the "Company") certify, pursuant to 18 U.S.C. ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the accompanying Form 10-Q report for the period ending June 30, 2003 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2003 By: /s/ Joseph S. Steinberg ----------------------- Joseph S. Steinberg President A signed original of this written statement required by Section 906 has been provided to Leucadia National Corporation and will be retained by Leucadia National Corporation and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 8 jao322cert.txt JOSEPH A. ORLANDO 32.3 CERTIFICATION Exhibit 32.3 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Joseph A. Orlando, as Chief Financial Officer of Leucadia National Corporation (the "Company") certify, pursuant to 18 U.S.C. ss. 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: (1) the accompanying Form 10-Q report for the period ending June 30, 2003 as filed with the U.S. Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 13, 2003 By: /s/ Joseph A. Orlando ---------------------- Joseph A. Orlando Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Leucadia National Corporation and will be retained by Leucadia National Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----