þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 156,164 | $ | 237,503 | ||||
Investments |
379,851 | 366,464 | ||||||
Trade, notes and other receivables, net |
85,034 | 138,363 | ||||||
Prepaids and other current assets |
124,337 | 124,308 | ||||||
Total current assets |
745,386 | 866,638 | ||||||
Non-current investments ($180,575 and $164,675 collateralizing
current liabilities) |
1,644,136 | 1,028,012 | ||||||
Notes and other receivables, net |
78,779 | 17,756 | ||||||
Intangible assets, net and goodwill |
81,042 | 84,848 | ||||||
Deferred tax asset, net |
7,583 | 40,235 | ||||||
Other assets |
534,373 | 619,790 | ||||||
Property, equipment and leasehold improvements, net |
518,847 | 534,640 | ||||||
Investments in associated companies ($1,482,669 and $933,057 measured
using fair value option) |
2,443,463 | 2,006,574 | ||||||
Total |
$ | 6,053,609 | $ | 5,198,493 | ||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Trade payables and expense accruals |
$ | 183,561 | $ | 205,870 | ||||
Deferred revenue |
96,556 | 98,453 | ||||||
Other current liabilities |
11,459 | 9,880 | ||||||
Debt due within one year |
276,184 | 248,713 | ||||||
Total current liabilities |
567,760 | 562,916 | ||||||
Other non-current liabilities |
106,772 | 107,443 | ||||||
Long-term debt |
1,674,945 | 1,832,743 | ||||||
Total liabilities |
2,349,477 | 2,503,102 | ||||||
Commitments and contingencies |
||||||||
Equity |
||||||||
Common shares, par value $1 per share, authorized 600,000,000 shares;
243,695,655 and 238,498,598 shares issued and outstanding, after deducting
46,888,660 shares held in treasury |
243,696 | 238,499 | ||||||
Additional paid-in capital |
1,531,310 | 1,413,595 | ||||||
Accumulated other comprehensive income (loss) |
586,319 | (29,280 | ) | |||||
Retained earnings |
1,324,999 | 1,053,983 | ||||||
Total Leucadia National Corporation shareholders equity |
3,686,324 | 2,676,797 | ||||||
Noncontrolling interest |
17,808 | 18,594 | ||||||
Total equity |
3,704,132 | 2,695,391 | ||||||
Total |
$ | 6,053,609 | $ | 5,198,493 | ||||
2
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and Other Income: |
||||||||||||||||
Manufacturing |
$ | 57,043 | $ | 98,308 | $ | 108,654 | $ | 183,455 | ||||||||
Telecommunications |
114,226 | 108,889 | 232,987 | 228,314 | ||||||||||||
Property management and service fees |
35,296 | 38,784 | 63,547 | 78,340 | ||||||||||||
Gaming entertainment |
26,063 | 28,712 | 52,719 | 56,054 | ||||||||||||
Investment and other income |
55,246 | 43,816 | 106,593 | 88,913 | ||||||||||||
Net securities gains (losses) |
(3,551 | ) | 19,045 | (29,834 | ) | 27,327 | ||||||||||
284,323 | 337,554 | 534,666 | 662,403 | |||||||||||||
Expenses: |
||||||||||||||||
Cost of sales: |
||||||||||||||||
Manufacturing |
47,225 | 82,290 | 92,555 | 156,543 | ||||||||||||
Telecommunications |
96,182 | 93,895 | 199,674 | 200,009 | ||||||||||||
Direct operating expenses: |
||||||||||||||||
Property management and services |
26,256 | 30,469 | 50,803 | 57,888 | ||||||||||||
Gaming entertainment |
19,604 | 23,980 | 39,251 | 48,568 | ||||||||||||
Interest |
32,384 | 36,543 | 65,771 | 72,325 | ||||||||||||
Salaries and incentive compensation |
27,006 | 22,483 | 47,705 | 44,997 | ||||||||||||
Depreciation and amortization |
15,457 | 13,491 | 30,734 | 24,937 | ||||||||||||
Selling, general and other expenses |
150,738 | 70,053 | 220,185 | 125,744 | ||||||||||||
414,852 | 373,204 | 746,678 | 731,011 | |||||||||||||
Loss before income taxes and income (losses)
related to associated companies |
(130,529 | ) | (35,650 | ) | (212,012 | ) | (68,608 | ) | ||||||||
Income taxes |
29,127 | (247,711 | ) | 4,823 | (259,061 | ) | ||||||||||
Income (loss) before income (losses) related to
associated companies |
(159,656 | ) | 212,061 | (216,835 | ) | 190,453 | ||||||||||
Income (losses) related to associated companies, net of taxes |
570,640 | (25,235 | ) | 487,686 | (99,616 | ) | ||||||||||
Net income |
410,984 | 186,826 | 270,851 | 90,837 | ||||||||||||
Net (income) loss attributable to the noncontrolling interest |
39 | (48 | ) | 165 | 117 | |||||||||||
Net income attributable to Leucadia National
Corporation common shareholders |
$ | 411,023 | $ | 186,778 | $ | 271,016 | $ | 90,954 | ||||||||
Basic net earnings per common share attributable
to Leucadia National Corporation common shareholders |
$ | 1.70 | $ | .81 | $ | 1.13 | $ | .40 | ||||||||
Diluted net earnings per common share attributable
to Leucadia National Corporation common shareholders |
$ | 1.67 | $ | .76 | $ | 1.11 | $ | .39 | ||||||||
3
2009 | 2008 | |||||||
Net cash flows from operating activities: |
||||||||
Net income |
$ | 270,851 | $ | 90,837 | ||||
Adjustments to reconcile net income to net cash provided by (used for) operations: |
||||||||
Deferred income taxes |
9,527 | (317,842 | ) | |||||
Depreciation and amortization of property, equipment and leasehold improvements |
29,736 | 27,184 | ||||||
Other amortization |
12,716 | 6,195 | ||||||
Share-based compensation |
5,540 | 4,975 | ||||||
Excess tax benefit from exercise of stock options |
(14 | ) | (1,711 | ) | ||||
Provision for doubtful accounts |
805 | 210 | ||||||
Net securities (gains) losses |
29,834 | (27,327 | ) | |||||
(Income) losses related to associated companies |
(500,423 | ) | 154,746 | |||||
Distributions from associated companies |
28,082 | 50,703 | ||||||
Net (gains) losses related to real estate, property and equipment, and other assets |
55,073 | (24,841 | ) | |||||
Income related to Fortescues Pilbara project |
(30,472 | ) | | |||||
Gain on buyback of debt |
(5,978 | ) | | |||||
Loss on debt conversion |
25,008 | | ||||||
Investments classified as trading, net |
(1,130 | ) | 60,056 | |||||
Net change in: |
||||||||
Restricted cash |
(20,557 | ) | (22,722 | ) | ||||
Trade, notes and other receivables |
10,432 | (3,688 | ) | |||||
Prepaids and other assets |
11,104 | (3,741 | ) | |||||
Trade payables and expense accruals |
(4,265 | ) | 11,864 | |||||
Other liabilities |
1,024 | (384 | ) | |||||
Deferred revenue |
(1,897 | ) | 11,134 | |||||
Income taxes payable |
12,919 | (1,087 | ) | |||||
Other |
(218 | ) | (4,081 | ) | ||||
Net cash provided by (used for) operating activities |
(62,303 | ) | 10,480 | |||||
Net cash flows from investing activities: |
||||||||
Acquisition of property, equipment and leasehold improvements |
(13,351 | ) | (38,554 | ) | ||||
Acquisitions of and capital expenditures for real estate investments |
(6,397 | ) | (75,602 | ) | ||||
Proceeds from disposals of real estate, property and equipment, and other assets |
2,519 | 4,739 | ||||||
Settlement of lawsuit |
9,500 | | ||||||
Collection of Premier Entertainment Biloxi, LLCs insurance proceeds |
| 11,089 | ||||||
Advances on notes and other receivables |
(130 | ) | (12,905 | ) | ||||
Collections on notes, loans and other receivables |
14,397 | 19,058 | ||||||
Investments in associated companies |
(43,916 | ) | (865,763 | ) | ||||
Capital distributions from associated companies |
66,195 | 88,342 | ||||||
Purchases of investments (other than short-term) |
(1,305,028 | ) | (2,855,953 | ) | ||||
Proceeds from maturities of investments |
141,959 | 150,543 | ||||||
Proceeds from sales of investments |
1,155,778 | 3,157,250 | ||||||
Other |
(35 | ) | (1,505 | ) | ||||
Net cash provided by (used for) investing activities |
21,491 | (419,261 | ) | |||||
4
2009 | 2008 | |||||||
Net cash flows from financing activities: |
||||||||
Issuance of debt, net of issuance costs |
20,193 | 78,662 | ||||||
Reduction of debt |
(33,411 | ) | (3,839 | ) | ||||
Premium paid on debt conversion |
(25,008 | ) | | |||||
Issuance of common shares |
175 | 105,030 | ||||||
Purchase of common shares for treasury |
| (122 | ) | |||||
Excess tax benefit from exercise of stock options |
14 | 1,711 | ||||||
Other |
(2,539 | ) | 7,003 | |||||
Net cash provided by (used for) financing activities |
(40,576 | ) | 188,445 | |||||
Effect of foreign exchange rate changes on cash |
49 | 16 | ||||||
Net decrease in cash and cash equivalents |
(81,339 | ) | (220,320 | ) | ||||
Cash and cash equivalents at January 1, |
237,503 | 456,970 | ||||||
Cash and cash equivalents at June 30, |
$ | 156,164 | $ | 236,650 | ||||
5
Leucadia National Corporation Common Shareholders | ||||||||||||||||||||||||||||
Common | Accumulated | |||||||||||||||||||||||||||
Shares | Additional | Other | ||||||||||||||||||||||||||
$1 Par | Paid-In | Comprehensive | Retained | Noncontrolling | ||||||||||||||||||||||||
Value | Capital | Income (Loss) | Earnings | Subtotal | Interest | Total | ||||||||||||||||||||||
Balance, January 1, 2008 |
$ | 222,574 | $ | 783,145 | $ | 975,365 | $ | 3,589,408 | $ | 5,570,492 | $ | 20,974 | $ | 5,591,466 | ||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net change in unrealized gain (loss) on
investments, net of taxes of $472,638 |
826,426 | 826,426 | 826,426 | |||||||||||||||||||||||||
Net change in unrealized foreign
exchange gain (loss), net of taxes
of $4,088 |
7,148 | 7,148 | 7,148 | |||||||||||||||||||||||||
Net change in unrealized gain (loss)
on derivative instruments, net of
taxes
of $65 |
113 | 113 | 113 | |||||||||||||||||||||||||
Net change in pension liability and
postretirement benefits, net of taxes
of $137 |
240 | 240 | 240 | |||||||||||||||||||||||||
Net income |
90,954 | 90,954 | (117 | ) | 90,837 | |||||||||||||||||||||||
Comprehensive income |
924,881 | (117 | ) | 924,764 | ||||||||||||||||||||||||
Contributions from noncontrolling
interests |
9,221 | 9,221 | ||||||||||||||||||||||||||
Distributions to noncontolling interests |
(10,159 | ) | (10,159 | ) | ||||||||||||||||||||||||
Share-based compensation expense |
4,975 | 4,975 | 4,975 | |||||||||||||||||||||||||
Sale of common shares to Jefferies
Group, Inc. |
10,000 | 488,269 | 498,269 | 498,269 | ||||||||||||||||||||||||
Exercise of options to purchase common
shares, including excess tax benefit |
258 | 6,462 | 6,720 | 6,720 | ||||||||||||||||||||||||
Purchase of common shares for treasury |
(2 | ) | (120 | ) | (122 | ) | (122 | ) | ||||||||||||||||||||
Balance, June 30, 2008 |
$ | 232,830 | $ | 1,282,731 | $ | 1,809,292 | $ | 3,680,362 | $ | 7,005,215 | $ | 19,919 | $ | 7,025,134 | ||||||||||||||
Balance, January 1, 2009 |
$ | 238,499 | $ | 1,413,595 | $ | (29,280 | ) | $ | 1,053,983 | $ | 2,676,797 | $ | 18,594 | $ | 2,695,391 | |||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net change in unrealized gain (loss) on
investments, net of taxes of $23,105 |
613,244 | 613,244 | 613,244 | |||||||||||||||||||||||||
Net change in unrealized foreign
exchange gain (loss), net of taxes
of $10 |
723 | 723 | 723 | |||||||||||||||||||||||||
Net change in unrealized gain (loss) on
derivative instruments, net of taxes
of $8 |
562 | 562 | 562 | |||||||||||||||||||||||||
Net change in pension liability and
postretirement benefits, net of taxes
of $15 |
1,070 | 1,070 | 1,070 | |||||||||||||||||||||||||
Net income |
271,016 | 271,016 | (165 | ) | 270,851 | |||||||||||||||||||||||
Comprehensive income |
886,615 | (165 | ) | 886,450 | ||||||||||||||||||||||||
Contributions from noncontrolling
interests |
232 | 232 | ||||||||||||||||||||||||||
Distributions to noncontrolling interests |
(2,771 | ) | (2,771 | ) | ||||||||||||||||||||||||
Change in interest in consolidated
subsidiary |
(1,918 | ) | (1,918 | ) | 1,918 | | ||||||||||||||||||||||
Share-based compensation expense |
5,540 | 5,540 | 5,540 | |||||||||||||||||||||||||
Issuance of common shares for debt
conversion |
5,186 | 113,915 | 119,101 | 119,101 | ||||||||||||||||||||||||
Exercise of options to purchase common
shares, including excess tax benefit |
11 | 178 | 189 | 189 | ||||||||||||||||||||||||
Balance, June 30, 2009 |
$ | 243,696 | $ | 1,531,310 | $ | 586,319 | $ | 1,324,999 | $ | 3,686,324 | $ | 17,808 | $ | 3,704,132 | ||||||||||||||
6
1. | Significant Accounting Policies |
The unaudited interim consolidated financial statements, which reflect all adjustments (consisting of normal recurring items or items discussed herein) 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 Companys audited consolidated financial statements for the year ended December 31, 2008, which are included in the Companys Annual Report filed on Form 10-K, as amended, for such year (the 2008 10-K). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 2008 was extracted from the audited annual financial statements and does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP) for annual financial statements. |
As of January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). SFAS 160 materially changes the accounting and reporting for minority interests in the future, and requires retrospective application of its presentation and disclosure requirements for all periods presented. Minority interests have been reclassified as noncontrolling interests and included as a component of net worth; previously minority interests were separately classified on the consolidated balance sheet and not included as a component of consolidated net worth. |
Effective January 1, 2009, the Company adopted Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161 requires enhanced disclosures about an entitys derivative and hedging activities, including the objectives and strategies for using derivatives, disclosures about fair value amounts of, and gains and losses on, derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. Adoption of SFAS 161 did not have any impact on the Companys consolidated financial statements other than expanded disclosures. |
Effective April 1, 2009, the Company adopted FASB Staff Position FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments (FSP 115-2). FSP 115-2 amends existing requirements for when an other than temporary impairment in a debt security must be recognized, and requires that any impairment loss recognized be separated into the amount representing the credit loss and the amount related to all other factors. The difference between the present value of cash flows expected to be collected from the issuer and the amortized cost basis is considered to be the credit loss. Impairment charges related to credit losses are recognized in earnings while impairment charges related to non-credit losses are recognized in other comprehensive income. FSP 115-2 also has additional disclosure requirements. The adoption of FSP 115-2 did not have a material impact on the Companys consolidated financial statements other than expanded disclosures; as of June 30, 2009, the Company has not recorded any portion of other than temporary impairments as a non-credit loss in other comprehensive income. |
Effective June 30, 2009, the Company adopted Statement of Financial Accounting Standards No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. Adoption of SFAS 165 did not have any impact on the Companys consolidated financial statements other than expanded disclosure. |
In June 2009, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 166, Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140 (SFAS 166). SFAS 166, which is effective for fiscal years beginning after November 15, 2009, eliminates the concept of a qualifying special-purpose entity, establishes specific conditions that must be met for transfers of portions of financial assets to be eligible for sale accounting, clarifies and amends the derecognition criteria for a transfer to be accounted for as a sale, changes the amount of recognized gain/loss on a transfer accounted for as a sale under certain circumstances, and requires enhanced disclosures. The |
7
Company does not expect that the adoption of SFAS 166 will have a material impact on its consolidated financial statements. |
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which is effective for fiscal years beginning after November 15, 2009. SFAS 167 requires an enterprise to qualitatively determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity (VIE), which would result in the enterprise being the primary beneficiary of the VIE. This determination of the primary beneficiary is based upon the enterprise that has both the power to direct the activities of a VIE that most significantly impact the VIEs economic performance, and has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. SFAS 167 also requires ongoing reassessment of whether an enterprise is the primary beneficiary of a VIE and enhanced disclosures. The Company is currently evaluating the impact of adopting SFAS 167 on its consolidated financial statements. |
2. | Impairment of Long-Lived Assets |
In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate, in managements judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on managements estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. |
One of the Companys subsidiaries (MB1) in the real estate segment is the owner and developer of a mixed use real estate project located in Myrtle Beach, South Carolina. The project is comprised of a retail center with approximately 345,000 square feet of retail space, 41,000 square feet of office space and 195 residential apartment rental units. The retail center is approximately 90% leased and the office space is approximately 25% leased. Certain of the apartment units are allocated for long-term rental (114 units) and are substantially leased; the remaining apartment units are marketed as vacation rentals. The acquisition and construction costs were funded by capital contributed by the Company and nonrecourse indebtedness with a balance of $100,400,000 at June 30, 2009, that is collateralized by the real estate. If MB1 is unable to make debt service or principal payments on the loan the Company is under no obligation to make those payments. |
Current economic conditions have adversely impacted the majority of the retail tenants at the retail center. Over 20 retail tenants have requested reductions in rent payments that are currently being negotiated; certain tenants are not paying the full amount of rent due while their leases are being renegotiated. During the second quarter of 2009, MB1 was unable to make scheduled payments under its interest rate swap agreement and received several default notices under its bank loan. These events constituted a change in circumstances that caused the Company to evaluate whether the carrying amount of MB1s real estate asset was recoverable. Based on the assumptions discussed below the Company concluded that the carrying amount was not recoverable; accordingly, the Company recorded an impairment charge of $67,800,000 for the three and six month periods ended June 30, 2009. At June 30, 2009, the fair value and new carrying value of MB1s real estate was $71,300,000. |
The Company prepared cash flow models and utilized a discounted cash flow technique to determine the fair value of MB1s real estate. Although the retail center has a remaining useful life of 38 years, the Company prepared cash flow models assuming it would operate the retail center over periods of 7, 10 or 20 years and then sell the retail center at the end of those periods. The most significant assumptions in the Companys cash flow models were the discount rate (11%) and the capitalization rate used to estimate the selling price of the retail center (9%). The Company assumed that requested reductions in rent would abate through 2012 before returning to pre-abatement levels. Projected net cash flow before debt service included assumptions for vacancies, rent renewal rates, expense increases and allowances for tenant improvements for new tenants. The Company also prepared an additional model that assumed the bank lenders foreclose on their loan when |
8
it comes due in October 2009 and take title to MB1s real estate. Although the Company would not receive any cash flow in the event the lenders foreclose, since the Companys debt obligation of $100,400,000 would be fully discharged, the Companys impairment loss would be limited to the excess of the book value of the real estate over the debt obligation. The Company calculated the fair value of MB1s real estate by probability-weighting the present values of the various possible outcomes. |
The cash flow projections assume some recovery in the local and national economy over the next few years. If economic conditions do not improve and the bank lenders do not foreclose, it is possible that MB1 will have to continue to provide rent reductions for its properties which could result in further impairment charges to the carrying value of the real estate. At June 30, 2009, the carrying value of MB1s real estate is less than the amount of non-recourse debt on the property. The Company does not currently intend to contribute additional capital to MB1 so that it may pay off its bank loan when it comes due in October 2009. If MB1s bank lenders foreclose when the loan comes due in October 2009, the Company would record a gain equal to the excess of the loan balance over the then book value of the real estate. |
In addition to the MB1 impairment discussed above, the Company recorded impairment losses on long-lived assets aggregating $1,000,000 during the first quarter of 2009; none were recorded during the 2008 periods. Idaho Timber discontinued remanufacturing of dimension lumber at one of its plants and as a result evaluated for impairment the plants long-lived assets, comprised of buildings, machinery and equipment, and customer relationships intangibles. The carrying values of long-lived assets held and used and intangible assets were written down to fair values of $1,100,000 and $900,000, respectively. The fair values were determined using the present value of expected future cash flows. |
Current economic conditions have adversely affected most of the Companys operations and investments. A worsening of current economic conditions or a prolonged recession could cause a decline in estimated future cash flows expected to be generated by the Companys operations and investments. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in property and equipment (for example, manufacturing, gaming entertainment and certain associated company investments), impairment charges would have to be recorded. |
3. | Segment Information |
The primary measure of segment operating results and profitability used by the Company is income (loss) from continuing operations before income taxes and income (losses) related to associated companies. Certain information concerning the Companys segments for the three and six month periods ended June 30, 2009 and 2008 is presented in the following table. |
9
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenues and other income (a): |
||||||||||||||||
Manufacturing: |
||||||||||||||||
Idaho Timber |
$ | 35,994 | $ | 69,285 | $ | 67,646 | $ | 127,755 | ||||||||
Conwed Plastics |
21,278 | 29,051 | 41,351 | 55,790 | ||||||||||||
Telecommunications |
114,230 | 109,045 | 233,025 | 228,729 | ||||||||||||
Property Management and Services |
35,305 | 38,885 | 63,569 | 78,585 | ||||||||||||
Gaming Entertainment (b) |
26,093 | 28,821 | 52,774 | 68,352 | ||||||||||||
Domestic Real Estate |
4,519 | 7,303 | 8,576 | 6,590 | ||||||||||||
Medical Product Development |
30 | 131 | 5,072 | 405 | ||||||||||||
Other Operations |
12,116 | 12,998 | 24,749 | 28,471 | ||||||||||||
Corporate |
34,758 | 42,035 | 37,904 | 67,726 | ||||||||||||
Total consolidated revenues and other
income |
$ | 284,323 | $ | 337,554 | $ | 534,666 | $ | 662,403 | ||||||||
Income (loss) before income taxes and income
(losses) related to associated companies: |
||||||||||||||||
Manufacturing: |
||||||||||||||||
Idaho Timber |
$ | (1,098 | ) | $ | 3,488 | $ | (5,321 | ) | $ | 2,509 | ||||||
Conwed Plastics |
4,408 | 4,426 | 7,150 | 8,299 | ||||||||||||
Telecommunications |
2,671 | 3,904 | 1,362 | 7,091 | ||||||||||||
Property Management and Services |
3,203 | 632 | (200 | ) | 4,915 | |||||||||||
Gaming Entertainment |
1,165 | (629 | ) | 2,530 | 8,766 | |||||||||||
Domestic Real Estate (c) |
(71,004 | ) | (875 | ) | (76,582 | ) | (5,721 | ) | ||||||||
Medical Product Development |
(6,742 | ) | (9,856 | ) | (8,697 | ) | (18,389 | ) | ||||||||
Other Operations (d) |
(6,506 | ) | (12,711 | ) | (22,399 | ) | (15,341 | ) | ||||||||
Corporate |
(56,626 | ) | (24,029 | ) | (109,855 | ) | (60,737 | ) | ||||||||
Total consolidated loss before income taxes
and income (losses) related to associated companies |
$ | (130,529 | ) | $ | (35,650 | ) | $ | (212,012 | ) | $ | (68,608 | ) | ||||
(a) | Revenues and other income for each segment include amounts for services rendered and products sold, as well as segment reported amounts classified as investment and other income and net securities gains (losses) on the Companys consolidated statements of operations. | |
(b) | For the six month 2008 period, the gaming entertainment segments revenues and other income includes a $7,300,000 gain from the settlement of an insurance claim and $4,700,000 resulting from capital contributions from the noncontrolling interest. In prior periods, the Company recorded 100% of the losses from this segment after cumulative loss allocations to the noncontrolling interest (classified as minority interest prior to the adoption of SFAS 160) had reduced the noncontrolling interest to zero. Since the noncontrolling interest remained at zero after considering the capital contributions, the entire capital contribution was recorded as income, effectively reimbursing the Company for a portion of the noncontrolling interest losses that were not previously allocated to the noncontrolling interest. | |
(c) | For the 2009 periods, includes impairment charges of $67,800,000 relating to certain real estate; see Note 2 for further information. | |
(d) | Other operations includes pre-tax losses of $4,300,000 and $9,500,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $13,100,000 and $14,400,000 for the six month periods ended June 30, 2009 and 2008, respectively, for investigation and evaluation of various energy related projects. There were no material operating revenues associated with these activities. |
10
For the three months ended June 30, 2009 and 2008, results include depreciation and amortization expenses of $19,300,000 and $17,400,000, respectively; such amounts are primarily comprised of Corporate ($4,300,000 and $2,800,000, respectively), manufacturing ($4,200,000 and $4,400,000, respectively, including amounts classified as cost of sales), gaming entertainment ($4,100,000 and $4,200,000, respectively), domestic real estate ($2,400,000 and $2,200,000, respectively), property management and services ($900,000 and $1,400,000, respectively), telecommunications ($1,000,000 and $300,000, respectively) and other operations ($2,200,000 and $2,000,000, respectively, including amounts classified as cost of sales). For the six months ended June 30, 2009 and 2008, results include depreciation and amortization expenses of $38,500,000 and $32,900,000, respectively; such amounts are primarily comprised of Corporate ($8,200,000 and $5,200,000, respectively), manufacturing ($8,400,000 and $8,800,000, respectively, including amounts classified as cost of sales), gaming entertainment ($8,300,000 and $8,400,000, respectively), domestic real estate ($4,700,000 and $2,900,000, respectively), property management and services ($1,900,000 and $2,700,000, respectively), telecommunications ($1,900,000 and $500,000, respectively) and other operations ($4,700,000 and $4,000,000, respectively, including amounts classified as cost of sales). Depreciation and amortization expenses for other segments are not material. |
For the three months ended June 30, 2009 and 2008, results include interest expense of $32,400,000 and $36,500,000, respectively; such amounts are primarily comprised of Corporate ($31,600,000 and $35,100,000, respectively) and domestic real estate ($700,000 and $1,200,000, respectively). For the six months ended June 30, 2009 and 2008, results include interest expense of $65,800,000 and $72,300,000, respectively; such amounts are primarily comprised of Corporate ($64,200,000 and $70,500,000, respectively) and domestic real estate ($1,300,000 and $1,200,000, respectively). Interest expense for other segments is not material. |
4. | Investments in Associated Companies |
A summary of investments in associated companies at June 30, 2009 and December 31, 2008 is as follows: |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(In thousands) | ||||||||
Investments in associated companies accounted for
under the equity method of accounting (a): |
||||||||
Jefferies High Yield Holdings, LLC (JHYH) |
$ | 287,947 | $ | 280,923 | ||||
Goober Drilling, LLC |
215,781 | 252,362 | ||||||
Cobre Las Cruces, S.A. (CLC) |
204,497 | 165,227 | ||||||
Garcadia |
37,760 | 72,135 | ||||||
HomeFed Corporation |
43,803 | 44,093 | ||||||
Wintergreen Partners Fund, L.P. |
43,973 | 42,895 | ||||||
Pershing Square IV, L.P. (Pershing Square) |
25,220 | 36,731 | ||||||
HFH ShortPLUS Fund L.P. (Shortplus) |
229 | 39,942 | ||||||
IFIS Limited (IFIS) |
| 14,590 | ||||||
Brooklyn Renaissance Plaza |
29,037 | 31,217 | ||||||
Other |
72,547 | 93,402 | ||||||
Total accounted for under the equity method of accounting |
960,794 | 1,073,517 | ||||||
Investments in associated companies carried at fair value (b): |
||||||||
Jefferies Group, Inc. (Jefferies) |
1,036,326 | 683,111 | ||||||
AmeriCredit Corp. (ACF) |
446,343 | 249,946 | ||||||
Total accounted for at fair value |
1,482,669 | 933,057 | ||||||
Total investments in associated companies |
$ | 2,443,463 | $ | 2,006,574 | ||||
(a) | Investments accounted for under the equity method of accounting are initially recorded at their original cost and subsequently increased for the Companys share of the investees earnings, decreased for the Companys share of the investees losses, reduced for dividends received and impairment charges recorded, if any, and increased for any additional investment of capital. |
11
(b) | As more fully discussed in the 2008 10-K, during 2008 the Company elected to account for its investments in Jefferies and ACF at fair value commencing on the dates these investments became subject to the equity method of accounting. The original cost for the Jefferies shares was $794,400,000 and the original cost for the ACF shares was $406,700,000. |
At December 31, 2008, the Company had a 26% interest in the common shares of IFIS, a private Argentine company, which was classified as an investment in an associated company and accounted for under the equity method of accounting. In January 2009, IFIS raised a significant amount of new equity in a rights offering in which the Company did not participate. As a result, the Companys ownership interest in IFIS was reduced to 8% and the Company no longer applies the equity method of accounting for this investment. At June 30, 2009, the Companys investment in IFIS was classified as a non-current investment. |
For the three and six month periods ending June 30, 2009, the Companys equity in losses of Garcadia includes impairment charges for goodwill and other intangible assets aggregating $32,300,000. Garcadias automobile dealerships have been adversely impacted by general economic conditions, and the bankruptcy filings by two of the three largest U.S. automobile manufacturers was a change in circumstances that caused Garcadia to evaluate the recoverability of its goodwill and other intangible assets. Garcadia prepared discounted cash flow projections for each of its dealerships and concluded that the carrying amount of its goodwill and other intangible assets was impaired. Garcadias cash flow projections assume that new car sales at their foreign car dealerships remain flat with 2009 sale levels through 2011 and project growth thereafter. Cash flow projections at dealerships that sell domestic cars are projected to continue to decline through 2012 or 2013 with projected growth thereafter. None of Garcadias automobile dealerships are currently expected to close as a result of the restructuring of the U.S. automobile manufacturers. However, if new vehicle sales at Garcadias automobile dealerships are less than projected amounts or dealerships are closed, further impairment charges are likely. |
The Company owns approximately 25% of the outstanding voting securities of ACF, a company listed on the New York Stock Exchange (NYSE) (Symbol: ACF). ACF is an independent auto finance company that is in the business of purchasing and servicing automobile sales finance contracts, historically to consumers who are typically unable to obtain financing from other sources. Income (losses) related to associated companies include unrealized gains (losses) resulting from changes in the fair value of ACF of $253,300,000 and $(46,900,000) for the three month periods ended June 30, 2009 and 2008, respectively, and $195,000,000 and $(125,400,000) for the six month periods ended June 30, 2009 and 2008, respectively. |
The Company owns approximately 28% of the outstanding voting securities of Jefferies, a company listed on the NYSE (Symbol: JEF). Jefferies is a full-service global investment bank and institutional securities firm serving companies and their investors. Income (losses) related to associated companies include unrealized gains resulting from changes in the fair value of Jefferies of $365,800,000 and $22,800,000 for the three months ended June 30, 2009 and 2008, respectively, and $353,200,000 and $22,800,000 for the six month periods ended June 30, 2009 and 2008, respectively. |
Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an amendment of FASB Statement No. 115 (SFAS 159), permits entities to choose to measure many financial instruments and certain other items at fair value (the fair value option) and to report unrealized gains and losses on items for which the fair value option is elected in earnings. The Companys investments in ACF and Jefferies are the only eligible items for which the fair value option identified in SFAS 159 was elected, commencing on the date the investments became subject to the equity method of accounting. If these investments were accounted for under the equity method, the Company would have to record its share of their results of operations employing a quarterly reporting lag because of the investees public reporting requirements. In addition, electing the fair value option eliminates some of the uncertainty involved with impairment considerations, since quoted market prices for these investments provides a readily determinable fair value at each balance sheet date. The Companys investment in HomeFed is the only other investment in an associated company that is also a publicly traded company but for which the Company did not elect the fair value option. HomeFeds common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the National |
12
Association of Securities Dealers OTC Bulletin Board Service; however, trading volume is minimal. For these reasons the Company did not elect the fair value option for HomeFed. |
The following tables provide summarized data with respect to significant investments in associated companies for the periods the investments were owned by the Company. The information is provided for those investments whose current relative significance to the Company could 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, 2009 (in thousands). |
June 30, | June 30, | |||||||
2009 | 2008 | |||||||
ACF: |
||||||||
Total revenues |
$ | 950,300 | $ | 1,237,200 | ||||
Income (loss) from continuing operations before extraordinary items |
41,100 | (112,000 | ) | |||||
Net income
(loss) |
41,100 | (112,000 | ) | |||||
Jefferies: |
||||||||
Total revenues |
$ | 1,073,500 | $ | 980,500 | ||||
Income (loss) from continuing operations before extraordinary items |
100,200 | (64,900 | ) | |||||
Net income (loss) |
100,200 | (64,900 | ) |
The amounts reflected as income (losses) related to associated companies in the consolidated statements of operations are net of income tax provisions (benefits) of $47,997,000 and $(15,759,000) for the three month periods ended June 30, 2009 and 2008, respectively, and $12,737,000 and $(55,130,000) for the six month periods ended June 30, 2009 and 2008, respectively. |
5. | Investments |
A summary of investments classified as current assets at June 30, 2009 and December 31, 2008 is as follows (in thousands): |
June 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying Value | Carrying Value | |||||||||||||||
Amortized | and Estimated | Amortized | and Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Investments available for sale |
$ | 375,602 | $ | 376,771 | $ | 360,814 | $ | 362,628 | ||||||||
Other investments, including
accrued interest income |
3,210 | 3,080 | 3,966 | 3,836 | ||||||||||||
Total current investments |
$ | 378,812 | $ | 379,851 | $ | 364,780 | $ | 366,464 | ||||||||
The amortized cost, gross unrealized gains and losses and estimated fair value of available for sale investments classified as current assets at June 30, 2009 and December 31, 2008 are as follows (in thousands): |
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Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
June 30, 2009 |
||||||||||||||||
Bonds and notes: |
||||||||||||||||
United States Government and agencies |
$ | 332,109 | $ | 219 | $ | 1 | $ | 332,327 | ||||||||
U.S. Government-Sponsored Enterprises |
31,923 | 25 | | 31,948 | ||||||||||||
All other corporates |
11,570 | 955 | 29 | 12,496 | ||||||||||||
Total fixed maturities |
$ | 375,602 | $ | 1,199 | $ | 30 | $ | 376,771 | ||||||||
December 31, 2008 |
||||||||||||||||
Bonds and notes: |
||||||||||||||||
United States Government and agencies |
$ | 251,895 | $ | 925 | $ | | $ | 252,820 | ||||||||
U.S. Government-Sponsored Enterprises |
72,273 | 46 | | 72,319 | ||||||||||||
All other corporates |
36,646 | 1,263 | 420 | 37,489 | ||||||||||||
Total fixed maturities |
$ | 360,814 | $ | 2,234 | $ | 420 | $ | 362,628 | ||||||||
A summary of non-current investments at June 30, 2009 and December 31, 2008 is as follows (in thousands): |
June 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying Value | Carrying Value | |||||||||||||||
Amortized | and Estimated | Amortized | and Estimated | |||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Investments available for sale |
$ | 696,995 | $ | 1,469,802 | $ | 723,222 | $ | 859,122 | ||||||||
Other investments |
174,246 | 174,334 | 168,890 | 168,890 | ||||||||||||
Total non-current investments |
$ | 871,241 | $ | 1,644,136 | $ | 892,112 | $ | 1,028,012 | ||||||||
Non-current available for sale investments include 5,600,000 common shares of Inmet Mining Corporation (Inmet), a Canadian-based global mining company traded on the Toronto Stock Exchange (Symbol: IMN), which have a cost of $78,000,000 and carrying values of $205,600,000 and $90,000,000 at June 30, 2009 and December 31, 2008, respectively. Although the Inmet shares have registration rights, they may not be sold until August 2009. In June 2009, the Companys interest was reduced to 10% upon the closing of Inmets underwritten public offering of 7,825,000 newly issued common shares. |
In August 2006, pursuant to a subscription agreement with Fortescue Metals Group Ltd (Fortescue) and its subsidiary, FMG Chichester Pty Ltd (FMG), the Company invested an aggregate of $408,000,000, including expenses, in Fortescues Pilbara iron ore and infrastructure project in Western Australia. In exchange for its cash investment, the Company received 264,000,000 common shares of Fortescue and a $100,000,000 note of FMG that matures in August 2019. In July 2007, Fortescue sold new common shares in an underwritten public offering to raise additional capital for its mining project and to fund future growth. In connection with this offering, the Company exercised its pre-emptive rights to maintain its ownership position and acquired an additional 13,986,000 common shares of Fortescue for $44,200,000. In April 2009, the Companys interest was reduced to 9% upon the closing of a transaction in which Fortescue sold 260,000,000 new common shares to Hunan Valin Iron & Steel Company Ltd, a Chinese company. Non-current available for sale investments includes 277,986,000 common shares of Fortescue, representing approximately 9% of the outstanding Fortescue common stock at June 30, 2009. Fortescue is a publicly traded company listed on the Australian Stock Exchange (Symbol: FMG), and the shares held by the Company may be sold without restriction on the Australian Stock Exchange or in accordance with applicable securities laws. The Fortescue shares have a cost of $246,300,000 and market values of $849,600,000 and $377,000,000 at June 30, 2009 and December 31, 2008, respectively. |
Interest on the FMG note is calculated as 4% of the revenue, net of government royalties, invoiced from the iron ore produced from the projects Cloud Break and Christmas Creek areas, which commenced production in May 2008. The note is unsecured and subordinate to the projects senior secured debt. Interest is payable semi-annually within 30 days of June 30th and December 31st of each year; however, cash interest payments |
14
on the note are currently being deferred by FMG due to covenants contained in the projects senior secured debt. Any interest payment that is deferred earns simple interest at an annual rate of 9.5%. The Company recorded interest on the FMG note of $17,000,000 and $4,900,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $30,500,000 and $4,900,000 for the six month periods ended June 30, 2009 and 2008, respectively; the aggregate accrued interest receivable balance was $70,900,000 at June 30, 2009. For accounting purposes, the Company allocated its initial Fortescue investment to the common shares acquired (based on the market value at acquisition), a 13 year zero-coupon note and a prepaid mining interest. The prepaid mining interest was initially classified with other non-current assets and is being amortized to expense as the 4% of revenue is earned. Depreciation and amortization expense includes prepaid mining interest amortization of $1,500,000 and $300,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $2,700,000 and $300,000 for the six month periods ended June 30, 2009 and 2008, respectively; the prepaid mining interest balance was $178,900,000 and $181,600,000 at June 30, 2009 and December 31, 2008, respectively. |
At June 30, 2009 and December 31, 2008, other non-current investments include investments in private equity funds where the Companys voting interest isnt large enough to apply the equity method of accounting ($55,900,000 and $52,100,000, respectively), a portfolio of non-agency mortgage backed bond securitizations where the underlying assets are various individual mortgage loans ($24,200,000 and $43,200,000, respectively), the zero coupon note payable by FMG discussed above ($30,400,000 and $28,700,000, respectively), a stock interest in Light and Power Holdings, Ltd., the electric utility in Barbados (LPH), ($18,800,000 in both periods), the investment in IFIS discussed above ($11,200,000 and $0, respectively) and various other non-publicly traded interests in equity and debt securities ($33,900,000 and $26,200,000, respectively). The investments in bond securitizations are acquisitions of impaired loans, generally at a significant discount to face amounts. The Company estimates the future cash flows for the securitization interests to determine the accretable yield; increases in estimated cash flows are accounted for as a yield adjustment on a prospective basis but decreases in estimated cash flows below amortized cost are recognized as impairments. Contractual cash flows in excess of estimated cash flows are not part of the accretable yield. The market for these securities is highly illiquid and they rarely trade. On a regular basis the Company re-estimates future cash flows and records impairment charges if appropriate. The remaining other investments are accounted for under the cost method of accounting, reduced for impairment charges when appropriate. |
The amortized cost, gross unrealized gains and losses and estimated fair value of non-current investments classified as available for sale at June 30, 2009 and December 31, 2008 are as follows (in thousands): |
15
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
June 30, 2009 |
||||||||||||||||
Bonds and notes: |
||||||||||||||||
United States Government and agencies |
$ | 402 | $ | 10 | $ | | $ | 412 | ||||||||
U.S. Government-Sponsored Enterprises |
316,554 | 2,753 | 345 | 318,962 | ||||||||||||
All other corporates |
36 | 127 | | 163 | ||||||||||||
Total fixed maturities |
316,992 | 2,890 | 345 | 319,537 | ||||||||||||
Equity securities: |
||||||||||||||||
Common stocks: |
||||||||||||||||
Banks, trusts and insurance companies |
16,340 | 14,809 | | 31,149 | ||||||||||||
Industrial, miscellaneous and all other |
363,663 | 756,005 | 552 | 1,119,116 | ||||||||||||
Total equity securities |
380,003 | 770,814 | 552 | 1,150,265 | ||||||||||||
$ | 696,995 | $ | 773,704 | $ | 897 | $ | 1,469,802 | |||||||||
December 31, 2008 |
||||||||||||||||
Bonds and notes: |
||||||||||||||||
United States Government and agencies |
$ | 11,839 | $ | | $ | 394 | $ | 11,445 | ||||||||
U.S. Government-Sponsored Enterprises |
284,696 | 753 | 3,704 | 281,745 | ||||||||||||
All other corporates |
4,648 | 87 | 234 | 4,501 | ||||||||||||
Total fixed maturities |
301,183 | 840 | 4,332 | 297,691 | ||||||||||||
Equity securities: |
||||||||||||||||
Common stocks: |
||||||||||||||||
Banks, trusts and insurance companies |
13,750 | 2,890 | | 16,640 | ||||||||||||
Industrial, miscellaneous and all other |
408,289 | 143,067 | 6,565 | 544,791 | ||||||||||||
Total equity securities |
422,039 | 145,957 | 6,565 | 561,431 | ||||||||||||
$ | 723,222 | $ | 146,797 | $ | 10,897 | $ | 859,122 | |||||||||
The amortized cost and estimated fair value of non-current investments classified as available for sale at June 30, 2009, by contractual maturity, are shown below. Expected maturities are likely to differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. |
Amortized | Estimated | |||||||
Cost | Fair Value | |||||||
(In thousands) | ||||||||
Due after one year through five years |
$ | 36 | $ | 163 | ||||
Due after five years through ten years |
| | ||||||
Due after ten years |
| | ||||||
36 | 163 | |||||||
Mortgage-backed securities |
316,956 | 319,374 | ||||||
$ | 316,992 | $ | 319,537 | |||||
Net unrealized gains on investments were $637,200,000 and $24,000,000 at June 30, 2009 and December 31, 2008, respectively. Reclassification adjustments included in comprehensive income (loss) for the six month period ended June 30, 2009 are as follows (in thousands): |
16
Net unrealized holding gains arising during the period, net of taxes
of $23,105 |
$ | 605,813 | ||
Less: reclassification adjustment for net losses included in net income,
net of taxes of $0 |
7,431 | |||
Net change in unrealized gains (losses) on investments, net of taxes
of $23,105 |
$ | 613,244 | ||
The following table shows the Companys investments gross unrealized losses and fair value, aggregated by investment category, all of which have been in a continuous unrealized loss position for less than 12 months, at June 30, 2009 (in thousands): |
Unrealized | ||||||||
Description of Securities |
Fair Value | Losses | ||||||
Mortgage-backed securities |
$ | 86,005 | $ | 284 | ||||
United States Government and agencies |
35,484 | 1 | ||||||
Corporate bonds |
746 | 29 | ||||||
Marketable equity securities |
3,775 | 552 | ||||||
Total temporarily impaired securities |
$ | 126,010 | $ | 866 | ||||
The unrealized losses on the mortgage-backed securities were considered to be minor (approximately 0.3%). The unrealized losses on the mortgage-backed securities (all of which are issued by U.S. Government agencies and U.S. Government-Sponsored Enterprises) relate to 24 securities substantially all of which were purchased between 2006 and 2009. The unrealized losses related to the corporate bonds and marketable equity securities are not considered to be an other than temporary impairment. This determination is based on a number of factors including, but not limited to, the length of time and extent to which the fair value has been less than cost, the financial condition and near term prospects of the issuer, the reason for the decline in the fair value, changes in fair value subsequent to the balance sheet date, the ability and intent to hold investments to maturity, and other factors specific to the individual investment. |
At June 30, 2009, the Companys investments which have been in a continuous unrealized loss position for 12 months or longer are comprised of 10 securities which had aggregate gross unrealized losses of approximately $100,000 and an aggregate fair value of approximately $13,400,000. These securities are mortgage-backed securities (all of which are issued by U.S. Government agencies and U.S. Government-Sponsored Enterprises). |
Securities with book values of $8,100,000 at June 30, 2009 and December 31, 2008 collateralized certain swap agreements. |
6. | Inventory |
A summary of inventory (which is included in the caption prepaids and other current assets) at June 30, 2009 and December 31, 2008 is as follows (in thousands): |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Raw materials |
$ | 5,936 | $ | 9,148 | ||||
Work in process |
10,080 | 15,436 | ||||||
Finished goods |
45,966 | 52,319 | ||||||
$ | 61,982 | $ | 76,903 | |||||
17
7. | Intangible Assets, Net and Goodwill |
A summary of intangible assets, net and goodwill at June 30, 2009 and December 31, 2008 is as follows (in thousands): |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Intangibles: |
||||||||
Customer
relationships, net of accumulated amortization of $32,321 and $27,473 |
$ | 50,848 | $ | 55,670 | ||||
Licenses, net of accumulated amortization of $1,403 and $991 |
10,645 | 10,947 | ||||||
Trademarks and tradename, net of accumulated amortization of $841 and $593 |
5,339 | 3,689 | ||||||
Patents, net of accumulated amortization of $691 and $611 |
1,669 | 1,749 | ||||||
Other, net of accumulated amortization of $2,486 and $2,344 |
3,225 | 3,477 | ||||||
Goodwill |
9,316 | 9,316 | ||||||
$ | 81,042 | $ | 84,848 | |||||
Trademarks and tradename increased by $1,900,000 during 2009 due to an acquisition by STi Prepaid during the first quarter; the asset is being amortized on a straight line basis over its estimated useful life of ten years. During the first quarter of 2009, Idaho Timber impaired certain long-lived assets, including $400,000 of customer relationships intangibles; for further information, see Note 2. |
Amortization expense on intangible assets was $2,700,000 and $2,300,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $5,300,000 and $4,700,000 for the six month periods ended June 30, 2009 and 2008, respectively. The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands): 2009 (for the remaining six months) - $5,200; 2010 - $10,200; 2011 - $9,700; 2012 - $9,000; and 2013 - $8,900. |
The goodwill in the above table relates to Conwed Plastics ($8,100,000) and STi Prepaid ($1,200,000). |
8. | Accumulated Other Comprehensive Income (Loss) |
Activity in accumulated other comprehensive income (loss) is reflected in the consolidated statements of equity but not in the consolidated statements of operations. A summary of accumulated other comprehensive income (loss), net of taxes at June 30, 2009 and December 31, 2008 is as follows (in thousands): |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Net unrealized gains on investments |
$ | 637,246 | $ | 24,002 | ||||
Net unrealized foreign exchange gains |
1,145 | 422 | ||||||
Net unrealized gains (losses) on derivative instruments |
442 | (120 | ) | |||||
Net minimum pension liability |
(53,129 | ) | (54,263 | ) | ||||
Net postretirement benefit |
615 | 679 | ||||||
$ | 586,319 | $ | (29,280 | ) | ||||
9. | Derivative Financial Instruments |
The Company reflects its derivative financial instruments in its balance sheet at fair value. The Company has utilized derivative financial instruments to manage the impact of changes in interest rates on certain debt obligations, hedge net investments in foreign subsidiaries and manage foreign currency risk on certain available for sale securities. Although the Company believes that these derivative financial instruments are practical economic hedges of the Companys risks, except for the hedge of the net investment in foreign subsidiaries, they do not meet the effectiveness criteria under GAAP, and therefore are not accounted for as hedges. |
18
At June 30, 2009, the Companys derivative instruments, which are not designated as hedges, are interest rate swap contracts that are included in other non-current liabilities at aggregate fair value of $2,500,000. The total notional amount of these pay fixed/receive variable interest rate swaps was $37,600,000. Investment and other income includes changes in the fair values of derivatives of $900,000 and $4,300,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $1,700,000 and $(400,000) for the six month periods ended June 30, 2009 and 2008, respectively. |
At June 30, 2009, the Companys derivative instrument that is designated as and qualifies as a hedge was not material. |
10. | Pension Plans and Postretirement Benefits |
Pension expense charged to operations for the three and six month periods ended June 30, 2009 and 2008 related to defined benefit pension plans included the following components (in thousands): |
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Interest cost |
$ | 3,107 | $ | 3,096 | $ | 6,213 | $ | 6,192 | ||||||||
Expected return on plan assets |
(1,943 | ) | (2,667 | ) | (3,886 | ) | (5,334 | ) | ||||||||
Actuarial loss |
93 | 168 | 186 | 336 | ||||||||||||
Amortization of prior service cost |
445 | 1 | 891 | 2 | ||||||||||||
Net pension expense |
$ | 1,702 | $ | 598 | $ | 3,404 | $ | 1,196 | ||||||||
The Company did not make any contributions to its defined benefit pension plans during the six month period ended June 30, 2009. |
Several subsidiaries provide certain healthcare and other benefits to certain retired employees under plans which are currently unfunded. The Company pays the cost of postretirement benefits as they are incurred. Amounts charged to expense were not material in each of the three and six month periods ended June 30, 2009 and 2008. |
11. | Share-Based Compensation |
Salaries and incentive compensation expense included $2,800,000 and $2,500,000 for the three month periods ended June 30, 2009 and 2008, respectively, and $5,500,000 and $5,000,000 for the six month periods ended June 30, 2009 and 2008, respectively, for share-based compensation expense relating to grants previously made under the Companys senior executive warrant plan and fixed stock option plan. During the 2009 periods, 12,000 options were granted to non-employee directors under the Companys stock option plan at an exercise price of $24.44 per share, the market price on the grant date. |
12. | Income Taxes |
The aggregate amount of unrecognized tax benefits related to uncertain tax positions reflected in the Companys consolidated balance sheet at June 30, 2009 was $10,800,000 (including $3,100,000 for interest); if recognized, such amounts would lower the Companys effective tax rate. During the second quarter of 2009, the Company reduced its income tax provision by $1,200,000 as a result of the favorable resolution of certain state income tax contingencies. Over the next twelve months, the Company believes it is reasonably possible that the aggregate amount of unrecognized tax benefits related to uncertain tax positions will decrease by approximately $800,000 upon the resolution of certain assessments. The statute of limitations with respect to the Companys federal income tax returns has expired for all years through 2004. The Companys New York State and New York City income tax returns are currently being audited for the 2003 to 2005 period. |
As of June 30, 2009 and December 31, 2008, the Company has a full valuation allowance against its net federal deferred tax asset, including its available net operating loss carryforwards (NOLs). As a result, the |
19
Company did not record any regular federal income tax expense for the six month period ended June 30, 2009. However, the Company has material unrealized security gains reflected in accumulated other comprehensive income and in income (losses) related to associated companies. If these gains were realized, the Company would be able to use its NOLs to fully offset the federal income taxes that would be due, but the Company would have to pay federal minimum taxes. Although the payment of federal minimum taxes generates a minimum tax credit carryover, it would be fully reserved for in the net deferred tax asset valuation allowance. Accordingly, for the six months ended June 30, 2009, the Company recorded provisions for deferred federal minimum taxes payable of $14,800,000 and $5,600,000 in accumulated other comprehensive income and income (losses) related to associated companies, respectively. In addition, income tax expense for the six month period ended June 30, 2009 includes state and foreign income taxes. |
The income tax provisions for the 2008 periods reflect a credit of $222,200,000 as a result of the reversal of a portion of the valuation allowance for the deferred tax asset. The Company adjusted the valuation allowance since it believed it was more likely than not that it would have future taxable income sufficient to realize that portion of the net deferred tax asset. In addition, as a result of the increased projected taxable income in certain state and local taxing jurisdictions, the Company recognized additional state and local net operating loss carryforward benefits of $12,500,000 as a reduction to income tax expense. The 2008 periods also reflect the recognition of previously unrecognized tax benefits of $4,100,000 as a result of the expiration of the applicable statute of limitations. |
13. | Earnings Per Common Share |
Basic and diluted earnings per share amounts were calculated by dividing net income by the weighted average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings per share for the three and six month periods ended June 30, 2009 and 2008 are as follows (in thousands): |
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Numerator for earnings per share: |
||||||||||||||||
Net income
attributable to Leucadia National
Corporation common shareholders for basic
earnings per share |
$ | 411,023 | $ | 186,778 | $ | 271,016 | $ | 90,954 | ||||||||
Interest on 33/4% Convertible Notes |
3,722 | 2,304 | 5,163 | 4,643 | ||||||||||||
Net income
attributable to Leucadia National Corporation common shareholders for diluted
earnings per share |
$ | 414,745 | $ | 189,082 | $ | 276,179 | $ | 95,597 | ||||||||
Denominator for earnings per share: |
||||||||||||||||
Denominator
for basic earnings per share
weighted average shares |
241,095 | 230,235 | 239,982 | 226,952 | ||||||||||||
Stock options (a) |
2 | 608 | 1 | 597 | ||||||||||||
Warrants (b) |
| 1,152 | | 1,039 | ||||||||||||
33/4% Convertible Notes |
7,038 | 15,239 | 8,148 | 15,239 | ||||||||||||
Denominator for diluted earnings per share |
248,135 | 247,234 | 248,131 | 243,827 | ||||||||||||
(a) | Options to purchase 2,266,500 and 2,273,300 weighted average shares of common stock were outstanding during the three and six month periods ended June 30, 2009, respectively, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares. | |
(b) | Warrants to purchase 4,000,000 shares of common stock at $28.515 per share were outstanding during the three and six month periods ended June 30, 2009, but were not included in the computation of diluted earnings per share because the warrants exercise price was greater than the average market price of the common shares. |
20
14. | Supplementary Cash Flow Information |
Cash paid for interest and income taxes (net of refunds) was $67,700,000 and $(4,900,000), respectively, for the six months ended June 30, 2009 and $70,700,000 and $4,700,000, respectively, for the six months ended June 30, 2008. |
During 2009, non-cash financing activities include the issuance of common shares on debt conversion of $119,100,000. During 2008, non-cash investing activities include the issuance of common stock for the acquisition of Jefferies Group, Inc. common shares of $398,200,000. |
15. | Indebtedness |
In February 2009, the Board of Directors authorized the Company, from time to time, to purchase its outstanding debt securities through cash purchases in open market transactions, privately negotiated transactions or otherwise. Such repurchases, if any, depend upon prevailing market conditions, the Companys liquidity requirements and other factors; such purchases may be commenced or suspended at any time without notice. During 2009, the Company repurchased an aggregate $35,600,000 principal amount of its 7% Senior Notes due 2013 and recognized pre-tax gains of $700,000 and $6,000,000 for the three and six month periods ended June 30, 2009, respectively, which are reflected in investment and other income. |
During the second quarter of 2009, the Company issued 5,185,807 common shares upon the conversion of $119,101,000 principal amount of the Companys 33/4% Convertible Senior Subordinated Notes due 2014, pursuant to privately negotiated transactions to induce conversion. The number of common shares issued was in accordance with the terms of the notes; however, the Company paid the former noteholders $25,000,000 in addition to the shares. The additional cash payments were recorded as selling, general and other expenses. |
Debt due within one year includes $168,800,000 and $151,100,000 as of June 30, 2009 and December 31, 2008, respectively, relating to repurchase agreements. At June 30, 2009, these fixed rate repurchase agreements have a weighted average interest rate of approximately 0.5%, mature at various dates through September 2009 and are collateralized by non-current investments with a carrying value of $180,600,000. |
During the second quarter of 2009, the Companys real estate subsidiary MB1 received several notices of default with respect to $100,400,000 of nonrecourse indebtedness that is collateralized by its real estate project. The lenders did not seek to accelerate payment of the debt obligation. The contractual maturity of the debt obligation is October 2009, and as such has been classified as a current liability as of June 30, 2009 and December 31, 2008. If MB1 is unable to make debt service or principal payments on the loan the Company is under no obligation to make those payments. |
In June 2009, the Company terminated its $100,000,000 bank credit facility; no amounts were outstanding under this facility. |
16. | Fair Value |
Aggregate information concerning assets and liabilities at June 30, 2009 and December 31, 2008 that are measured at fair value on a recurring basis is presented below (in thousands): |
21
June 30, 2009 | ||||||||||||
Fair Value Measurements Using | ||||||||||||
Quoted Prices in | ||||||||||||
Active Markets for | ||||||||||||
Total | Identical Assets or | Significant Other | ||||||||||
Fair Value | Liabilities | Observable Inputs | ||||||||||
Measurements | (Level 1) | (Level 2) | ||||||||||
Investments classified as current assets: |
||||||||||||
Investments available for sale: |
||||||||||||
Bonds and notes: |
||||||||||||
United States Government and agencies |
$ | 332,327 | $ | 332,327 | $ | | ||||||
U.S. Government-Sponsored Enterprises |
31,948 | 31,948 | | |||||||||
All other corporates |
12,496 | | 12,496 | |||||||||
Non-current investments: |
||||||||||||
Investments available for sale: |
||||||||||||
Bonds and notes: |
||||||||||||
United States Government and agencies |
412 | | 412 | |||||||||
U.S. Government-Sponsored Enterprises |
318,962 | | 318,962 | |||||||||
All other corporates |
163 | | 163 | |||||||||
Equity securities: |
||||||||||||
Common stocks: |
||||||||||||
Banks, trusts and insurance companies |
31,149 | 31,149 | | |||||||||
Industrial, miscellaneous and all other |
1,119,116 | 1,119,116 | | |||||||||
Investments in associated companies |
1,482,669 | 1,482,669 | | |||||||||
Total |
$ | 3,329,242 | $ | 2,997,209 | $ | 332,033 | ||||||
Other current liabilities |
$ | (2,935 | ) | $ | (2,043 | ) | $ | (892 | ) | |||
Other non-current liabilities |
(2,483 | ) | | (2,483 | ) | |||||||
Total |
$ | (5,418 | ) | $ | (2,043 | ) | $ | (3,375 | ) | |||
December 31, 2008 | ||||||||||||
Fair Value Measurements Using | ||||||||||||
Quoted Prices in | ||||||||||||
Active Markets for | ||||||||||||
Total | Identical Assets or | Significant Other | ||||||||||
Fair Value | Liabilities | Observable Inputs | ||||||||||
Measurements | (Level 1) | (Level 2) | ||||||||||
Investments classified as current assets: |
||||||||||||
Investments available for sale |
$ | 362,628 | $ | 329,317 | $ | 33,311 | ||||||
Non-current investments: |
||||||||||||
Investments available for sale |
859,122 | 564,903 | 294,219 | |||||||||
Investments in associated companies |
933,057 | 933,057 | | |||||||||
Total |
$ | 2,154,807 | $ | 1,827,277 | $ | 327,530 | ||||||
Other current liabilities |
$ | (259 | ) | $ | (259 | ) | $ | | ||||
Other non-current liabilities |
(13,132 | ) | | (13,132 | ) | |||||||
Total |
$ | (13,391 | ) | $ | (259 | ) | $ | (13,132 | ) | |||
The estimated fair values for securities measured using Level 1 inputs are determined using publicly quoted market prices in active markets. The Company has a segregated portfolio of mortgage pass-through certificates issued by U.S. Government agencies (GNMA) and by U.S. Government-Sponsored Enterprises (FHLMC or FNMA) which are carried on the balance sheet at their estimated fair value. Although the markets that these types of securities trade in are generally active, market prices are not always available for the identical security. The fair value of these investments are based on observable market data including benchmark yields, reported trades, issuer spreads, benchmark securities, bids and offers. The Company also has a portfolio of corporate bonds, which are carried on the balance sheet at their estimated fair value. Although these bonds trade in brokered markets, the market for certain bonds is sometimes inactive. The fair values of these investments are based on reported trading prices, bid and ask prices and quotes obtained from independent market makers in the securities. These estimates of fair values are also considered to be Level 2 inputs. |
22
At June 30, 2009 and December 31, 2008, the Company did not have material fair value measurements
using unobservable inputs (Level 3) for assets and liabilities measured at fair value on a recurring basis. |
||
Aggregate information concerning assets and liabilities at June 30, 2009 and December 31, 2008 that are measured at fair value on a nonrecurring basis is presented below (in thousands): |
June 30, 2009 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Total Fair Value | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
Measurements | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Long-lived assets held and used (a) |
$ | 71,300 | $ | | $ | | $ | 71,300 | ||||||||
Other non-current investments (b) |
2,800 | | | 2,800 | ||||||||||||
December 31, 2008 | ||||||||||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Total Fair Value | Identical Assets | Observable Inputs | Unobservable Inputs | |||||||||||||
Measurements | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Long-lived assets held and used (a) |
$ | 1,400 | $ | | $ | | $ | 1,400 | ||||||||
Other non-current investments (b) |
56,000 | | | 56,000 | ||||||||||||
Long-lived assets held for sale (c) |
2,300 | | 2,300 | |
(a) | During the second quarter of 2009, the Companys real estate subsidiary, MB1, recorded an impairment charge of $67,800,000 and reduced the carrying amount of its real estate to its fair value of $71,300,000 at June 30, 2009. During the first quarter of 2009, Idaho Timber discontinued remanufacturing of dimension lumber at one of its plants, and as a result evaluated for impairment the plants long-lived assets, comprised of buildings, machinery and equipment, and customer relationships intangibles. The carrying values of long-lived assets held and used and intangible assets were written down to fair values of $1,100,000 and $900,000, respectively, resulting in an aggregate impairment charge of $1,000,000. Both impairment charges are included in selling, general and other expenses in the consolidated statements of operations. The fair values were determined using the present value of expected future cash flows; see Note 2 for more information. During the three and six months ended June 30, 2008, the Company did not record any impairment losses on long-lived assets. | |
As of December 31, 2008, the Company evaluated for impairment principally within its other operations segment certain long-lived assets (wine futures contracts) as events or changes in circumstances indicated that the carrying amount for these assets may not have been recoverable. The fair values for these assets were primarily based upon information obtained from market participants concerning sales of bottled wine of other vintages for similar types of wine. | ||
(b) | At June 30, 2009, includes investments aggregating $2,800,000 in non-agency mortgage backed bond securitizations. At December 31, 2008, includes $11,000,000 in non-agency mortgage backed bond securitizations, $44,600,000 of investments in private equity funds and a non-public security. The investments in non-agency mortgage backed bond securitizations are acquisitions of impaired loans, generally at a significant discount to face amounts. The market for these securities is highly illiquid and they rarely trade. The fair values were primarily determined using an income valuation model to calculate the present value of expected future cash flows, which incorporated assumptions regarding potential future rates of delinquency, prepayments, defaults, collateral losses and interest rates. The investments in private equity funds and non-public equity securities are accounted for under the cost method of accounting for which the Company primarily reviewed issuer financial statements to determine |
23
their fair values. The private equity funds account for their underlying investments at fair value, which are principally based on Level 2 or Level 3 inputs. | ||
Included in net securities gains (losses) in the consolidated statement of operations for the three and six months ended June 30, 2009 are impairment charges aggregating $4,200,000 and $26,900,000, respectively ($4,200,000 and $10,300,000, respectively, for non-agency mortgage backed bond securitizations and, for the six month period ended June 30, 2009, $2,200,000 for non-public equity securities and a private equity fund). Included in net securities gains (losses) in the consolidated statement of operations for the three and six months ended June 30, 2008 are impairment charges aggregating $6,600,000 and $13,600,000, respectively (which included $800,000 for a non-public equity security and $300,000 for a non-agency mortgage backed bond securitization for the six month 2008 period). | ||
(c) | Consisted of real estate properties for which the fair values were based on prices for similar assets. |
The following table presents fair value information about certain financial instruments, whether or not recognized on the balance sheet. Fair values are determined as described below. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The fair value amounts presented do not purport to represent and should not be considered representative of the underlying market or franchise value of the Company. The methods and assumptions used to estimate the fair values of each class of the financial instruments described below are as follows: |
(a) | Investments: The fair values of marketable equity securities and fixed maturity securities (which include securities sold not owned) are substantially based on quoted market prices. |
Other non-current investments which do not trade publicly include private equity fund investments where the Companys voting interest isnt large enough to apply the equity method of accounting, a portfolio of non-agency mortgage backed bond securitizations where the underlying assets are various individual mortgage loans, the FMG note, the stock interest in LPH, the stock interest in IFIS and various other non-publicly traded interests in equity and debt securities. For the investments in private equity funds, IFIS and the FMG note the Company has concluded that the carrying amount approximates the fair value of these investments based primarily on reviews of issuer financial statements or statements of net asset value. For the bond securitization portfolio, future cash flows are re-estimated on a regular basis for each security to determine if impairment charges are required; accordingly the Company has concluded that the carrying amount of these securities approximates their fair values. Although LPH trades publicly in Barbados, the volume is too low for the market to be considered active. The fair value of the investment in LPH is also not practicable to estimate because of transfer restrictions and currency exchange restrictions. However, the Company believes the fair value of the investment in LPH is at least equal to its carrying amount, which is reflected in the table below. The fair values of the Companys other non-publicly traded interests in equity and debt securities that are accounted for under the cost method (aggregating $33,900,000 and $26,200,000 at June 30, 2009 and December 31, 2008, respectively) were not practicable to estimate; the fair values were assumed to be at least equal to the carrying amount. For these non-publicly traded interests in equity and debt securities, the Company reviews cash flows and/or other information obtained from investee companies on a regular basis to determine if impairment charges are required. |
(b) | Cash and cash equivalents: For cash equivalents, the carrying amount approximates fair value. |
(c) | Notes receivable: The fair values of variable rate notes receivable are estimated to be the carrying amount. The fair value of fixed rate convertible debt is based on the market value of the common stock that would be received assuming conversion. |
(d) | Long-term and other indebtedness: The fair values of non-variable rate debt are estimated using quoted market prices and estimated rates that would be available to the Company for debt with similar terms. The fair value of variable rate debt is estimated to be the carrying amount. The fair value of the MB1 debt is the value of its collateral. |
24
(e) | Swap agreements: The fair values of the interest rate swap and currency rate swap agreements are based on rates currently available for similar agreements. |
The carrying amounts and estimated fair values of the Companys financial instruments at June 30, 2009 and December 31, 2008 are as follows (in thousands): |
June 30, 2009 | December 31, 2008 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Financial Assets: |
||||||||||||||||
Investments: |
||||||||||||||||
Current |
$ | 379,851 | $ | 379,851 | $ | 366,464 | $ | 366,464 | ||||||||
Non-current |
1,644,136 | 1,644,136 | 1,028,012 | 1,028,012 | ||||||||||||
Cash and cash equivalents |
156,164 | 156,164 | 237,503 | 237,503 | ||||||||||||
Notes receivable: |
||||||||||||||||
Current |
4,103 | 5,303 | 65 | 65 | ||||||||||||
Non-current |
2,218 | 2,218 | 6,100 | 7,129 | ||||||||||||
Financial Liabilities: |
||||||||||||||||
Debt: |
||||||||||||||||
Current |
276,184 | 247,105 | 248,713 | 248,716 | ||||||||||||
Non-current |
1,674,945 | 1,485,601 | 1,832,743 | 1,459,892 | ||||||||||||
Securities sold not owned |
2,043 | 2,043 | 259 | 259 | ||||||||||||
Swap agreements: |
||||||||||||||||
Interest rate swaps |
(2,483 | ) | (2,483 | ) | (11,708 | ) | (11,708 | ) | ||||||||
Foreign currency swaps |
(892 | ) | (892 | ) | (1,424 | ) | (1,424 | ) |
17. | Other |
During the first quarter of 2009, the Company invested an additional $28,500,000 in Sangart, Inc. (Sangart) upon the exercise of its remaining warrants, which increased its ownership interest from approximately 89% to approximately 92%. The acquisition of a portion of the noncontrolling interest was accounted for under SFAS 160, resulting in a change to the noncontrolling interest of $1,900,000. |
As more fully discussed in the 2008 10-K, during 2008, the Lake Charles Harbor and Terminal District of Lake Charles, Louisiana sold $1,000,000,000 in tax exempt bonds to support the development of a $1,600,000,000 petroleum coke gasification plant project by the Companys wholly-owned subsidiary, Lake Charles Cogeneration LLC (LCC). The bond proceeds were initially escrowed and held by the bond trustee; however, during the first quarter of 2009 the bond trustee used the escrowed funds to fully redeem the bonds. Pursuant to LCCs agreements with the local municipality, upon the completion of pending permitting, regulatory approval, design engineering and the satisfaction of certain other conditions of the financing agreements, the bonds will be marketed on a long-term basis and the proceeds will be released to LCC to use for the payment of development and construction costs for the project. |
18. | Subsequent Events |
The Company has evaluated subsequent events through August 7, 2009, the date of issuance of the financial statements. |
In July 2009, two of the Companys prospective gasification projects were selected by the U.S. Department of Energy (DOE) to proceed to detailed due diligence and negotiations of terms and conditions necessary for the DOE to issue conditional commitments for loan guarantees aggregating up to $3,600,000,000. While these commitments represent important milestones in the selection process, the guarantees are subject to detailed and extensive due diligence by the DOE and no assurance can be given that a loan guaranty for either project will ultimately be given. In addition, as disclosed in the 2008 10-K, these projects will require |
25
significant equity investments, which the Company does not presently intend to fund by itself, the procurement of purchase commitments for long-term supplies of feedstock, long-term commitments from purchasers of the output, and significant technological and engineering expertise to implement, and there can be no assurance that the Company will be successful in fully developing either of these projects. The investigation, evaluation, financing and construction of these large scale projects is expected to take years to complete. |
26
27
28
29
30
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Publicly traded securities |
$ | | $ | 6,600 | $ | 14,400 | $ | 12,500 | ||||||||
Non-public securities and private equity funds |
| | 2,200 | 800 | ||||||||||||
Non-agency mortgage backed bond securitizations |
4,200 | | 10,300 | 300 | ||||||||||||
Totals |
$ | 4,200 | $ | 6,600 | $ | 26,900 | $ | 13,600 | ||||||||
31
32
33
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Income (loss) before income taxes and income
(losses) related to associated companies: |
||||||||||||||||
Manufacturing: |
||||||||||||||||
Idaho Timber |
$ | (1,098 | ) | $ | 3,488 | $ | (5,321 | ) | $ | 2,509 | ||||||
Conwed Plastics |
4,408 | 4,426 | 7,150 | 8,299 | ||||||||||||
Telecommunications |
2,671 | 3,904 | 1,362 | 7,091 | ||||||||||||
Property Management and Services |
3,203 | 632 | (200 | ) | 4,915 | |||||||||||
Gaming Entertainment |
1,165 | (629 | ) | 2,530 | 8,766 | |||||||||||
Domestic Real Estate |
(71,004 | ) | (875 | ) | (76,582 | ) | (5,721 | ) | ||||||||
Medical Product Development |
(6,742 | ) | (9,856 | ) | (8,697 | ) | (18,389 | ) | ||||||||
Other Operations |
(6,506 | ) | (12,711 | ) | (22,399 | ) | (15,341 | ) | ||||||||
Corporate |
(56,626 | ) | (24,029 | ) | (109,855 | ) | (60,737 | ) | ||||||||
Total consolidated loss before income
taxes and
income (losses) related to associated
companies |
(130,529 | ) | (35,650 | ) | (212,012 | ) | (68,608 | ) | ||||||||
Income (losses) related to associated companies
before income taxes |
618,637 | (40,994 | ) | 500,423 | (154,746 | ) | ||||||||||
Total consolidated income (loss) before
income
taxes |
488,108 | (76,644 | ) | 288,411 | (223,354 | ) | ||||||||||
Income taxes: |
||||||||||||||||
Loss before income (losses) related to associated
companies |
(29,127 | ) | 247,711 | (4,823 | ) | 259,061 | ||||||||||
Associated companies |
(47,997 | ) | 15,759 | (12,737 | ) | 55,130 | ||||||||||
Total income taxes |
(77,124 | ) | 263,470 | (17,560 | ) | 314,191 | ||||||||||
Net income |
$ | 410,984 | $ | 186,826 | $ | 270,851 | $ | 90,837 | ||||||||
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 35,994 | $ | 69,285 | $ | 67,646 | $ | 127,755 | ||||||||
Expenses: |
||||||||||||||||
Cost of sales |
33,752 | 61,860 | 65,362 | 117,557 | ||||||||||||
Salaries and incentive compensation |
1,475 | 1,868 | 2,878 | 3,658 | ||||||||||||
Depreciation and amortization |
1,074 | 1,102 | 2,166 | 2,223 | ||||||||||||
Selling, general and other expenses |
791 | 967 | 2,561 | 1,808 | ||||||||||||
37,092 | 65,797 | 72,967 | 125,246 | |||||||||||||
Income (loss) before income taxes |
$ | (1,098 | ) | $ | 3,488 | $ | (5,321 | ) | $ | 2,509 | ||||||
34
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 21,278 | $ | 29,051 | $ | 41,351 | $ | 55,790 | ||||||||
Expenses: |
||||||||||||||||
Cost of sales |
13,473 | 20,430 | 27,193 | 38,986 | ||||||||||||
Salaries and incentive compensation |
1,717 | 2,215 | 3,463 | 4,237 | ||||||||||||
Depreciation and amortization |
73 | 42 | 145 | 83 | ||||||||||||
Selling, general and other expenses |
1,607 | 1,938 | 3,400 | 4,185 | ||||||||||||
16,870 | 24,625 | 34,201 | 47,491 | |||||||||||||
Income before income taxes |
$ | 4,408 | $ | 4,426 | $ | 7,150 | $ | 8,299 | ||||||||
35
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 114,230 | $ | 109,045 | $ | 233,025 | $ | 228,729 | ||||||||
Expenses: |
||||||||||||||||
Cost of sales |
96,182 | 93,895 | 199,674 | 200,009 | ||||||||||||
Interest |
5 | 22 | 15 | 48 | ||||||||||||
Salaries and incentive compensation |
2,375 | 2,510 | 5,699 | 4,624 | ||||||||||||
Depreciation and amortization |
1,003 | 259 | 1,896 | 465 | ||||||||||||
Selling, general and other expenses |
11,994 | 8,455 | 24,379 | 16,492 | ||||||||||||
111,559 | 105,141 | 231,663 | 221,638 | |||||||||||||
Income before income taxes |
$ | 2,671 | $ | 3,904 | $ | 1,362 | $ | 7,091 | ||||||||
36
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 35,305 | $ | 38,885 | $ | 63,569 | $ | 78,585 | ||||||||
Expenses: |
||||||||||||||||
Direct operating expenses |
26,256 | 30,469 | 50,803 | 57,888 | ||||||||||||
Salaries and incentive compensation |
1,187 | 1,321 | 2,432 | 2,711 | ||||||||||||
Depreciation and amortization |
907 | 1,352 | 1,914 | 2,691 | ||||||||||||
Selling, general and other expenses |
3,752 | 5,111 | 8,620 | 10,380 | ||||||||||||
32,102 | 38,253 | 63,769 | 73,670 | |||||||||||||
Income (loss) before income taxes |
$ | 3,203 | $ | 632 | $ | (200 | ) | $ | 4,915 | |||||||
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 26,093 | $ | 28,821 | $ | 52,774 | $ | 68,352 | ||||||||
Expenses: |
||||||||||||||||
Direct operating expenses |
19,604 | 23,980 | 39,251 | 48,568 | ||||||||||||
Interest |
130 | 159 | 270 | 523 | ||||||||||||
Salaries and incentive compensation |
492 | 468 | 1,008 | 1,307 | ||||||||||||
Depreciation and amortization |
4,135 | 4,210 | 8,290 | 8,381 | ||||||||||||
Selling, general and other expenses |
567 | 633 | 1,425 | 807 | ||||||||||||
24,928 | 29,450 | 50,244 | 59,586 | |||||||||||||
Income (loss) before income taxes |
$ | 1,165 | $ | (629 | ) | $ | 2,530 | $ | 8,766 | |||||||
37
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 4,519 | $ | 7,303 | $ | 8,576 | $ | 6,590 | ||||||||
Expenses: |
||||||||||||||||
Interest |
669 | 1,204 | 1,292 | 1,205 | ||||||||||||
Depreciation and amortization |
2,367 | 2,181 | 4,736 | 2,902 | ||||||||||||
Other operating expenses, including impairment
described below |
72,487 | 4,793 | 79,130 | 8,204 | ||||||||||||
75,523 | 8,178 | 85,158 | 12,311 | |||||||||||||
Loss before income taxes |
$ | (71,004 | ) | $ | (875 | ) | $ | (76,582 | ) | $ | (5,721 | ) | ||||
38
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 30 | $ | 131 | $ | 5,072 | $ | 405 | ||||||||
Expenses: |
||||||||||||||||
Salaries and incentive compensation |
2,399 | 2,751 | 5,015 | 5,406 | ||||||||||||
Depreciation and amortization |
196 | 314 | 390 | 367 | ||||||||||||
Selling, general and other expenses |
4,177 | 6,922 | 8,364 | 13,021 | ||||||||||||
6,772 | 9,987 | 13,769 | 18,794 | |||||||||||||
Loss before income taxes |
$ | (6,742 | ) | $ | (9,856 | ) | $ | (8,697 | ) | $ | (18,389 | ) | ||||
39
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income |
$ | 12,116 | $ | 12,998 | $ | 24,749 | $ | 28,471 | ||||||||
Expenses: |
||||||||||||||||
Interest |
9 | 9 | 18 | 18 | ||||||||||||
Salaries and incentive compensation |
2,111 | 2,807 | 4,331 | 5,534 | ||||||||||||
Depreciation and amortization |
1,430 | 1,098 | 2,998 | 2,428 | ||||||||||||
Selling, general and other expenses |
15,072 | 21,795 | 39,801 | 35,832 | ||||||||||||
18,622 | 25,709 | 47,148 | 43,812 | |||||||||||||
Loss before income taxes |
$ | (6,506 | ) | $ | (12,711 | ) | $ | (22,399 | ) | $ | (15,341 | ) | ||||
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Revenues and other income (including net
securities gains (losses)) |
$ | 34,758 | $ | 42,035 | $ | 37,904 | $ | 67,726 | ||||||||
Expenses: |
||||||||||||||||
Interest |
31,571 | 35,149 | 64,176 | 70,531 | ||||||||||||
Salaries and incentive compensation |
14,862 | 7,421 | 22,108 | 15,323 | ||||||||||||
Depreciation and amortization |
4,272 | 2,780 | 8,199 | 5,244 | ||||||||||||
Selling, general and other expenses |
40,679 | 20,714 | 53,276 | 37,365 | ||||||||||||
91,384 | 66,064 | 147,759 | 128,463 | |||||||||||||
Loss before income taxes |
$ | (56,626 | ) | $ | (24,029 | ) | $ | (109,855 | ) | $ | (60,737 | ) | ||||
40
41
For the Three Month | For the Six Month | |||||||||||||||
Period Ended June 30, | Period Ended June 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
ACF |
$ | 253,312 | $ | (46,948 | ) | $ | 194,977 | $ | (125,444 | ) | ||||||
Pershing Square |
3,488 | (26,922 | ) | (11,511 | ) | (31,895 | ) | |||||||||
Jefferies |
365,847 | 28,382 | 353,215 | 28,382 | ||||||||||||
JHYH |
12,327 | 9,002 | 7,024 | (11,950 | ) | |||||||||||
HomeFed Corporation |
(158 | ) | 196 | (290 | ) | (199 | ) | |||||||||
Wintergreen Partners Fund, L.P. |
6,492 | (6,397 | ) | 1,078 | (12,240 | ) | ||||||||||
Highland Opportunity Fund L.P. |
| (792 | ) | | (17,141 | ) | ||||||||||
Shortplus |
| 1,715 | (397 | ) | 10,259 | |||||||||||
Garcadia |
(30,519 | ) | 2,112 | (28,939 | ) | 4,391 | ||||||||||
EagleRock |
| (5,408 | ) | | (9,515 | ) | ||||||||||
Goober Drilling |
(2,915 | ) | 7,169 | (2,704 | ) | 13,526 | ||||||||||
CLC |
10,919 | 635 | 2,061 | 4,496 | ||||||||||||
Other |
(156 | ) | (3,738 | ) | (14,091 | ) | (7,416 | ) | ||||||||
Income (losses) related to associated companies
before income taxes |
618,637 | (40,994 | ) | 500,423 | (154,746 | ) | ||||||||||
Income taxes |
(47,997 | ) | 15,759 | (12,737 | ) | 55,130 | ||||||||||
Income (losses) related to associated companies,
net of taxes |
$ | 570,640 | $ | (25,235 | ) | $ | 487,686 | $ | (99,616 | ) | ||||||
42
(a) | The Companys management evaluated, with the participation of the Companys principal executive and principal financial officers, the effectiveness of the Companys 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, 2009. Based on their evaluation, the Companys principal executive and principal financial officers concluded that the Companys disclosure controls and procedures were effective as of June 30, 2009. |
43
(b) | There has been no change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Companys fiscal quarter ended June 30, 2009, that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
Number of Shares | ||||||||
For | Withheld | |||||||
Ian M. Cumming |
204,013,447 | 8,640,153 | ||||||
Paul M. Dougan |
210,156,326 | 2,497,274 | ||||||
Alan J. Hirschfield |
211,805,059 | 848,541 | ||||||
James E. Jordan |
210,568,595 | 2,085,005 | ||||||
Jeffrey C. Keil |
201,420,697 | 11,232,903 | ||||||
Jesse Clyde Nichols, III |
210,151,577 | 2,502,023 | ||||||
Michael Sorkin |
211,909,282 | 744,318 | ||||||
Joseph S. Steinberg |
208,128,817 | 4,524,783 |
For |
171,912,251 | |||
Against |
5,269,879 | |||
Abstentions |
5,412,431 | |||
Broker non-votes |
30,059,039 |
For |
210,556,623 | |||
Against |
1,789,257 | |||
Abstentions |
307,720 |
44
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. | |
101
|
Financial statements from the Quarterly Report on Form 10-Q of Leucadia National Corporation for the quarter ended June 30, 2009, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Changes in Shareholders Equity and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
45
LEUCADIA NATIONAL CORPORATION (Registrant) |
||||
Date: August 7, 2009 | ||||
By: | /s/ Barbara L. Lowenthal | |||
Barbara L. Lowenthal | ||||
Vice President and Comptroller (Chief Accounting Officer) |
46
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. | |
101
|
Financial statements from the Quarterly Report on Form 10-Q of Leucadia National Corporation for the quarter ended June 30, 2009, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, (iv) the Consolidated Statements of Changes in Shareholders Equity and (v) the Notes to Consolidated Financial Statements, tagged as blocks of text. |
47