SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2008
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number 1-5721
LEUCADIA NATIONAL CORPORATION
(Exact name of registrant as specified in its Charter)
New York 13-2615557
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
315 Park Avenue South, New York, New York 10010-3607
(Address of principal executive offices) (Zip Code)
(212) 460-1900
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------- ------
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X Accelerated filer
----- -----
Non-accelerated filer Smaller reporting company
----- -----
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES NO X
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APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, at May 1, 2008: 232,706,864.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2008 and December 31, 2007
(Dollars in thousands, except par value)
(Unaudited)
March 31, December 31,
2008 2007
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 258,092 $ 456,970
Investments 367,819 983,199
Trade, notes and other receivables, net 125,294 133,765
Prepaids and other current assets 183,860 146,199
----------- -----------
Total current assets 935,065 1,720,133
Non-current investments 2,877,777 2,776,521
Notes and other receivables, net 20,036 16,388
Intangible assets, net and goodwill 77,557 79,506
Deferred tax asset, net 1,216,660 1,113,925
Other assets 570,738 544,432
Property, equipment and leasehold improvements, net 502,668 512,804
Investments in associated companies ($295,418 measured using
fair value option at March 31, 2008) 1,729,445 1,362,913
----------- -----------
Total $ 7,929,946 $ 8,126,622
=========== ===========
LIABILITIES
Current liabilities:
Trade payables and expense accruals $ 206,323 $ 229,560
Deferred revenue 87,628 86,993
Other current liabilities 11,520 10,992
Debt due within one year 153,689 132,405
----------- -----------
Total current liabilities 459,160 459,950
Other non-current liabilities 72,794 71,061
Long-term debt 2,029,128 2,004,145
----------- -----------
Total liabilities 2,561,082 2,535,156
----------- -----------
Commitments and contingencies
Minority interest 21,364 20,974
----------- -----------
SHAREHOLDERS' EQUITY
Common shares, par value $1 per share, authorized 600,000,000 shares;
222,610,840 and 222,574,440 shares issued and outstanding, after deducting
56,886,204 shares held in treasury 222,611 222,574
Additional paid-in capital 786,387 783,145
Accumulated other comprehensive income 844,918 975,365
Retained earnings 3,493,584 3,589,408
----------- -----------
Total shareholders' equity 5,347,500 5,570,492
----------- -----------
Total $ 7,929,946 $ 8,126,622
=========== ===========
See notes to interim consolidated financial statements.
2
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 2008 and 2007
(In thousands, except per share amounts)
(Unaudited)
2008 2007
-------- ---------
Revenues and Other Income:
Manufacturing $ 85,147 $ 96,594
Telecommunications 119,425 32,771
Property management and service fees 39,556 --
Gaming entertainment 27,342 --
Investment and other income 45,097 51,899
Net securities gains 8,282 15,921
--------- ---------
324,849 197,185
--------- ---------
Expenses:
Cost of sales:
Manufacturing 74,253 80,747
Telecommunications 106,114 27,607
Direct operating expenses:
Property management and services 27,419 --
Gaming entertainment 24,588 --
Interest 35,782 20,076
Salaries and incentive compensation 22,514 19,140
Depreciation and amortization 11,446 6,180
Selling, general and other expenses 55,526 52,231
--------- ---------
357,642 205,981
--------- ---------
Loss from continuing operations before income taxes and
income (loss) related to associated companies (32,793) (8,796)
Income taxes (11,350) (3,732)
--------- ---------
Loss from continuing operations before income (loss)
related to associated companies (21,443) (5,064)
Income (loss) related to associated companies, net of taxes (74,381) 12,925
--------- ---------
Income (loss) from continuing operations (95,824) 7,861
Income from discontinued operations, net of taxes -- 222
Gain on disposal of discontinued operations, net of taxes -- 291
--------- ---------
Net income (loss) $ (95,824) $ 8,374
========= =========
Basic earnings (loss) per common share:
Income (loss) from continuing operations $ (.43) $ .04
Income from discontinued operations -- --
Gain on disposal of discontinued operations -- --
------ -----
Net income (loss) $ (.43) $ .04
====== =====
Diluted earnings (loss) per common share:
Income (loss) from continuing operations $ (.43) $ .04
Income from discontinued operations -- --
Gain on disposal of discontinued operations -- --
------ -----
Net income (loss) $ (.43) $ .04
====== =====
See notes to interim consolidated financial statements.
3
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 2008 and 2007
(In thousands)
(Unaudited)
2008 2007
----------- ----------
Net cash flows from operating activities:
Net income (loss) $ (95,824) $ 8,374
Adjustments to reconcile net income (loss) to net cash provided by (used for) operations:
Deferred income tax provision (benefit) (52,533) 4,666
Depreciation and amortization of property, equipment and leasehold improvements 12,756 7,862
Other amortization 2,750 (1,463)
Share-based compensation 2,481 3,384
Excess tax benefit from exercise of stock options (182) (554)
Provision for doubtful accounts (95) (69)
Net securities gains (8,282) (15,921)
(Income) loss related to associated companies 113,752 (22,451)
Distributions from associated companies 11,612 26,866
Net gains related to real estate, property and equipment, and other assets (14,533) (1,835)
Gain on disposal of discontinued operations -- (505)
Investments classified as trading, net 29,163 39,097
Net change in:
Restricted cash (9,725) (3,987)
Trade, notes and other receivables 173 (2,967)
Prepaids and other assets (3,387) (3,792)
Trade payables and expense accruals (32,830) (6,291)
Other liabilities (658) 915
Deferred revenue 635 349
Income taxes payable (1,249) (4,201)
Other (87) (1,151)
----------- ----------
Net cash provided by (used for) operating activities (46,063) 26,326
----------- ----------
Net cash flows from investing activities:
Acquisition of property, equipment and leasehold improvements (11,047) (9,330)
Acquisitions of and capital expenditures for real estate investments (34,340) (9,973)
Proceeds from disposals of real estate, property and equipment, and other assets 1,848 13,392
Acquisitions, net of cash acquired -- (87,814)
Collection of Premier Entertainment Biloxi, LLC's insurance proceeds 11,089 --
Net change in restricted cash 395 (10,000)
Advances on notes and other receivables (6,754) (6,126)
Collections on notes, loan and other receivables 9,407 8,742
Investments in associated companies (411,589) (156,428)
Capital distributions from associated companies 33,348 2,950
Purchases of investments (other than short-term) (1,827,228) (463,030)
Proceeds from maturities of investments 56,458 166,668
Proceeds from sales of investments 1,973,171 436,833
Other 270 384
----------- ----------
Net cash used for investing activities (204,972) (113,732)
----------- ----------
Net cash flows from financing activities:
Issuance of debt, net of issuance costs 47,913 494,704
Reduction of debt (1,834) (780)
Issuance of common shares 616 3,840
Excess tax benefit from exercise of stock options 182 554
Other 5,217 2,317
----------- ----------
Net cash provided by financing activities 52,094 500,635
----------- ----------
Effect of foreign exchange rate changes on cash 63 10
----------- ----------
Net increase (decrease) in cash and cash equivalents (198,878) 413,239
Cash and cash equivalents at January 1, 456,970 287,199
----------- ----------
Cash and cash equivalents at March 31, $ 258,092 $ 700,438
=========== ==========
See notes to interim consolidated financial statements.
4
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
For the three months ended March 31, 2008 and 2007
(In thousands, except par value)
(Unaudited)
Common Accumulated
Shares Additional Other
$1 Par Paid-In Comprehensive Retained
Value Capital Income (Loss) Earnings Total
--------- --------- ----------- ----------- ---------
Balance, January 1, 2007 $ 216,351 $ 520,892 $ (4,726) $ 3,160,758 $3,893,275
----------
Comprehensive income:
Net change in unrealized gain (loss) on
investments, net of taxes of $61,997 109,264 109,264
Net change in unrealized foreign exchange
gain (loss), net of taxes of $263 462 462
Net change in unrealized gain (loss) on
derivative instruments, net of taxes of $50 87 87
Net change in minimum pension liability and
postretirement benefits, net of taxes of $167 293 293
Net income 8,374 8,374
----------
Comprehensive income 118,480
----------
Share-based compensation expense 3,384 3,384
Exercise of options to purchase common shares,
including excess tax benefit 232 4,162 4,394
Purchase of common shares for treasury (3) (99) (102)
--------- --------- ---------- ----------- ----------
Balance, March 31, 2007 $ 216,580 $ 528,339 $ 105,380 $ 3,169,132 $4,019,431
========= ========= ========== =========== ==========
Balance, January 1, 2008 $ 222,574 $ 783,145 $ 975,365 $ 3,589,408 $5,570,492
----------
Comprehensive loss:
Net change in unrealized gain (loss) on
investments, net of taxes of $78,599 (137,433) (137,433)
Net change in unrealized foreign exchange
gain (loss), net of taxes of $4,012 7,013 7,013
Net change in unrealized gain (loss) on
derivative instruments, net of taxes of $84 (147) (147)
Net change in pension liability and
postretirement benefits, net of taxes of $69 120 120
Net loss (95,824) (95,824)
----------
Comprehensive loss (226,271)
----------
Share-based compensation expense 2,481 2,481
Exercise of options to purchase common shares,
including excess tax benefit 37 761 798
--------- --------- ---------- ----------- ----------
Balance, March 31, 2008 $ 222,611 $ 786,387 $ 844,918 $ 3,493,584 $5,347,500
========= ========= ========== =========== ==========
See notes to interim consolidated financial statements.
5
LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
1. The unaudited interim consolidated financial statements, which reflect all
adjustments (consisting 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 Company's audited consolidated
financial statements for the year ended December 31, 2007, which are
included in the Company's Annual Report filed on Form 10-K, as amended, for
such year (the "2007 10-K"). Results of operations for interim periods are
not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 2007 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.
Effective January 1, 2008 (except as described below), the Company adopted
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements" ("SFAS 157"), and 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"). SFAS 157 defines fair value, establishes a framework for measuring
fair value, establishes a hierarchy that prioritizes inputs to valuation
techniques and expands disclosures about fair value measurements. The fair
value hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1), the next
priority to inputs that don't qualify as a Level 1 inputs but are
nonetheless observable, either directly or indirectly, for the particular
asset or liability (Level 2), and the lowest priority to unobservable
inputs (Level 3). The Company elected to defer the effectiveness of SFAS
157 for one year only with respect to nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The adoption of SFAS 157 did not have
any impact on the Company's consolidated financial statements other than
expanded disclosures; however, fair value measurements for new assets or
liabilities and fair value measurements for existing nonfinancial assets
and nonfinancial liabilities may be materially different under SFAS 157.
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. SFAS 159 identifies eligible items for which the
fair value option may be elected, specifies election dates for eligible
items (including all eligible items held as of January 1, 2008) and also
permits the election of the fair value option on an
instrument-by-instrument basis subject to certain exceptions. The Company
did not elect the fair value option as of January 1, 2008 for any eligible
items. However, for eligible items for which the accounting treatment
changes, or that are acquired or entered into after SFAS 159 was adopted or
otherwise become subject to a new election date, the Company intends to
make an assessment at such time as to whether to elect the fair value
option.
In February 2008, the Company elected the fair value option for one of its
associated company investments, rather than apply the equity method of
accounting. Unrealized gains and losses from this investment are reflected
as a component of income (loss) related to associated companies in the
consolidated statement of operations. Dividends, if any, declared on this
investment will be recognized as a component of income (loss) related to
associated companies on the ex-dividend date. See Note 14 for information
concerning this investment.
In March 2008, the Financial Accounting Standards Board ("FASB") issued
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, which is effective for fiscal
years beginning after November 15, 2008, requires enhanced disclosures
about an entity's 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. The Company is currently evaluating the impact of adopting SFAS
161 on its consolidated financial statements.
6
In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 141R, "Business Combinations" ("SFAS 141R") and Statement of
Financial Accounting Standards No. 160, "Noncontrolling Interests in
Consolidated Financial Statements" ("SFAS 160"). SFAS 141R will change how
business combinations are accounted for and will impact financial
statements both on the acquisition date and in subsequent periods. SFAS 160
will change the accounting and reporting for minority interests, which will
be recharacterized as noncontrolling interests and classified as a
component of stockholders' equity. SFAS 141R and SFAS 160 are effective for
fiscal years beginning after December 15, 2008. The Company is currently
evaluating the impact of adopting SFAS 141R and SFAS 160 on its
consolidated financial statements, but expects they will have a material
impact on the accounting for future acquisitions and noncontrolling
interests.
Certain amounts for prior periods have been reclassified to be consistent
with the 2008 presentation.
2. Results of operations for the Company's segments are reflected from the
date of acquisition, which was March 2007 for the telecommunications
business conducted by the Company's 75% owned subsidiary STi Prepaid, LLC
("STi Prepaid"), and June 2007 for the property management and services
business conducted by ResortQuest International, Inc. ("ResortQuest"). As
more fully discussed in the 2007 10-K, the gaming entertainment business
conducted by Premier Entertainment Biloxi, LLC ("Premier") has been
reflected as a consolidated subsidiary since its emergence from bankruptcy
in August 2007; for earlier 2007 periods Premier was classified as an
investment in an associated company. The primary measure of segment
operating results and profitability used by the Company is income (loss)
from continuing operations before income taxes and income (loss) related to
associated companies.
Certain information concerning the Company's segments for the three month
periods ended March 31, 2008 and 2007 is presented in the following table.
2008 2007
--------- ----------
(In thousands)
Revenues and other income (a):
Manufacturing:
Idaho Timber $ 58,470 $ 72,517
Conwed Plastics 26,739 24,178
Telecommunications 119,684 32,844
Property Management and Services 39,700 --
Gaming Entertainment (b) 39,531 --
Domestic Real Estate (713) 4,294
Medical Product Development 274 271
Other Operations 15,473 10,555
Corporate 25,691 52,526
---------- ----------
Total consolidated revenues and other income $ 324,849 $ 197,185
========== ==========
Loss from continuing operations before income taxes and income (loss)
related to associated companies:
Manufacturing:
Idaho Timber $ (979) $ 4,229
Conwed Plastics 3,873 3,364
Telecommunications 3,187 2,905
Property Management and Services 4,283 --
Gaming Entertainment 9,395 --
Domestic Real Estate (4,775) (1,497)
Medical Product Development (7,401) (8,367)
Other Operations (c) (3,101) (5,010)
Corporate (37,275) (4,420)
---------- ----------
Total consolidated loss from continuing
operations before income taxes and income
(loss) related to associated companies $ (32,793) $ (8,796)
========== ==========
7
(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 on the Company's consolidated statements of operations.
(b) For the three month period ended March 31, 2008, the gaming
entertainment segment's 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 minority
interest. In prior periods, the Company recorded 100% of the losses
from this segment after cumulative loss allocations to the minority
interest had reduced the minority interest liability to zero. Since
the minority interest liability remains at zero after considering the
capital contributions, the entire capital contribution was recorded as
income, effectively reimbursing the Company for a portion of the
minority interest losses that were not previously allocated to them.
(c) Other operations includes pre-tax losses of $4,800,000 and $3,400,000
for the periods ended March 31, 2008 and 2007, respectively, for
investigation and evaluation of various energy related projects. There
were no material operating revenues associated with these activities.
For the three month periods ended March 31, 2008 and 2007, income (loss)
from continuing operations has been reduced by depreciation and
amortization expenses of $16,600,000 and $10,700,000, respectively; such
amounts are primarily comprised of Corporate ($3,600,000 and $2,900,000,
respectively), manufacturing ($4,400,000 and $4,600,000, respectively),
gaming entertainment ($4,200,000 in 2008), domestic real estate ($600,000
and $900,000, respectively), property management and services ($1,300,000
in 2008) and other operations ($2,100,000 and $2,100,000, respectively).
Depreciation and amortization expenses for other segments are not material.
For the three month periods ended March 31, 2008 and 2007, income (loss)
from continuing operations has been reduced by interest expense of
$35,800,000 and $20,100,000, respectively; such amounts are primarily
comprised of Corporate ($35,400,000 and $20,100,000, respectively) and
gaming entertainment ($400,000 in 2008). Interest expense for other
segments is not material.
3. The following tables provide summarized data with respect to significant
investments in associated companies accounted for under the equity method
of accounting for the periods the investments were owned by the Company.
The information is provided for those investments whose relative
significance to the Company 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, 2008 (in thousands).
March 31, March 31,
2008 2007
--------- --------
Pershing Square IV, L.P. ("Pershing Square"):
Total revenues $ (47,200) $ --
Loss from continuing operations before extraordinary items (49,100) --
Net loss (49,100) --
The Company's equity in net loss (5,000) --
HFH ShortPLUS Fund, L.P. ("Shortplus"):
Total revenues $ 40,500 $ --
Income from continuing operations before extraordinary items 35,200 --
Net income 35,200 --
The Company's equity in net income 8,500 --
In March 2008, the Company increased its equity investment in the common
shares of IFIS Limited ("IFIS"), a private Argentine company, from
approximately 3% to 26% for an additional cash investment of $83,900,000.
At March 31, 2008, the Company's aggregate investment in IFIS was
classified as an investment in an associated company of $86,300,000 and is
accounted for under the equity method of accounting. At December 31, 2007,
the Company's investment in IFIS was classified as a non-current investment
and was carried at cost. The Company's share of IFIS's net income for the
period ended March 31, 2008 was not material.
8
IFIS owns a variety of investments, and its largest investment is
approximately 34% of the outstanding common shares of Cresud Sociedad
Anonima Comercial, Inmobiliaria, Financiera y Agropecuaria ("Cresud").
Cresud is an Argentine agricultural company involved in a range of
activities including crop production, cattle raising and milk production.
Cresud's common shares trade on the Buenos Aires Stock Exchange (Symbol:
CRES); in the U.S., Cresud trades as American Depository Shares or ADSs
(each of which represents ten common shares) on the NASDAQ Global Select
Market (Symbol: CRESY). Cresud is also indirectly engaged in the Argentine
real estate business through its approximate 34% interest in IRSA
Inversiones y Representaciones Sociedad Anonima ("IRSA"), a company engaged
in a variety of real estate activities in Argentina including ownership of
residential properties, office buildings, shopping centers and luxury
hotels. IRSA's common shares also trade on the Buenos Aires Stock Exchange
(Symbol: IRSA); in the U.S., IRSA trades as ADSs on the New York Stock
Exchange ("NYSE") (Symbol: IRS).
The Company also acquired a direct equity interest in Cresud for an
aggregate cash investment of $54,300,000. The Company owns 3,364,174 Cresud
ADSs, representing approximately 6.7% of Cresud's outstanding common
shares, and currently exercisable warrants to purchase 11,213,914 Cresud
common shares (or 1,121,391 Cresud ADSs) at an exercise price of $1.68 per
share. The warrants expire on May 22, 2015 and are exercisable during a six
day period from and including the 17th to the 22nd day of each February,
May, September and November. The Company's direct investment in Cresud is
classified as a non-current available for sale investment and carried at
fair value.
4. A summary of investments at March 31, 2008 and December 31, 2007 is as
follows (in thousands):
March 31, 2008 December 31, 2007
-------------------------------- -------------------------------
Carrying Value Carrying Value
Amortized and Estimated Amortized and Estimated
Cost Fair Value Cost Fair Value
--------- -------------- ---------- ------------
Current Investments:
Investments available for sale $ 298,113 $ 298,873 $ 897,470 $ 899,053
Trading securities 28,389 60,133 47,180 71,618
Other investments, including accrued interest income 8,813 8,813 12,528 12,528
----------- ---------- ----------- -----------
Total current investments $ 335,315 $ 367,819 $ 957,178 $ 983,199
=========== =========== =========== ===========
Non-current Investments:
Investments available for sale $ 1,255,048 $ 2,706,499 $ 951,988 $ 2,618,648
Other investments 171,278 171,278 157,873 157,873
----------- ----------- ----------- -----------
Total non-current investments $ 1,426,326 $ 2,877,777 $ 1,109,861 $ 2,776,521
=========== =========== =========== ===========
Non-current available for sale investments include 277,986,000 common
shares of Fortescue Metals Group Ltd ("Fortescue"), representing
approximately 9.9% of the outstanding Fortescue common stock. Fortescue is
a publicly traded company on the Australian Stock Exchange (Symbol: FMG),
and the shares acquired 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
$1,652,400,000 and $1,824,700,000 at March 31, 2008 and December 31, 2007,
respectively.
Non-current other 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 and carrying
value of $78,000,000 at March 31, 2008 and December 31, 2007. As more fully
discussed in the 2007 10-K, the Inmet shares are restricted and may not be
sold until August 2009 or earlier under certain specified circumstances.
The Inmet shares will be carried at the initially recorded value (unless
there is an other than temporary impairment) until one year prior to the
termination of the transfer restrictions. At March 31, 2008, the market
value of the Inmet shares is $409,600,000.
9
5. A summary of intangible assets, net and goodwill at March 31, 2008 and
December 31, 2007 is as follows (in thousands):
March 31, December 31,
2008 2007
----------- ----------
Intangibles:
Customer relationships, net of accumulated amortization of $21,521 and $19,472 $ 50,697 $ 52,362
Licenses, net of accumulated amortization of $516 and $361 11,372 11,527
Trademarks and tradename, net of accumulated amortization of $456 and $403 1,866 1,886
Patents, net of accumulated amortization of $493 and $453 1,867 1,907
Other, net of accumulated amortization of $2,117 and $2,048 3,604 3,673
Goodwill 8,151 8,151
-------- --------
$ 77,557 $ 79,506
======== ========
Amortization expense on intangible assets was $2,400,000 and $2,100,000 for
the three month periods ended March 31, 2008 and 2007, respectively. The
estimated aggregate future amortization expense for the intangible assets
for each of the next five years is as follows (in thousands): 2008 (for the
remaining nine months) - $6,900; 2009 - $8,900; 2010 - $8,500; 2011 -
$8,100; and 2012 - $7,800.
All of the goodwill in the above table relates to Conwed Plastics.
6. A summary of accumulated other comprehensive income (loss), net of taxes at
March 31, 2008 and December 31, 2007 is as follows (in thousands):
March 31, December 31,
2008 2007
---------- -----------
Net unrealized gains on investments $ 860,245 $ 997,678
Net unrealized foreign exchange gains 14,017 7,004
Net unrealized losses on derivative instruments (1,211) (1,064)
Net minimum pension liability (28,882) (29,023)
Net postretirement benefit 749 770
---------- ----------
$ 844,918 $ 975,365
========== ==========
7. Investment and other income includes changes in the fair values of
derivative financial instruments of $(4,700,000) and $(100,000) for the
three month periods ended March 31, 2008 and 2007, respectively.
8. Pension expense charged to operations for the three month periods ended
March 31, 2008 and 2007 related to defined benefit pension plans included
the following components (in thousands):
2008 2007
-------- --------
Interest cost $ 3,096 $ 2,956
Expected return on plan assets (2,667) (2,667)
Actuarial loss 168 412
Amortization of prior service cost 1 1
------- -------
Net pension expense $ 598 $ 702
======= =======
The Company did not make any contributions to its defined benefit pension
plans during the first quarter of 2008.
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 month
periods ended March 31, 2008 and 2007.
10
9. For the three months ended March 31, 2008 and 2007, salaries and incentive
compensation expense included $2,500,000 and $3,400,000, respectively, for
share-based compensation expense relating to grants previously made under
the Company's senior executive warrant plan and fixed stock option plan. No
grants were made during the 2008 period.
10. The aggregate amount of unrecognized tax benefits reflected in the
Company's consolidated balance sheet was $12,800,000 (including $3,400,000
for interest); if recognized, such amounts would lower the Company's
effective tax rate. Unrecognized tax benefits were not materially different
at December 31, 2007. Over the next twelve months, the Company believes it
is reasonably possible that the aggregate amount of unrecognized tax
benefits will decrease by an additional $3,500,000 upon the expiration of
the statute of limitations. The statute of limitations with respect to the
Company's federal income tax returns has expired for all years through
2001. The Company's New York State and New York City income tax returns are
currently being audited for the 2003 to 2005 period.
11. Basic earnings (loss) per share amounts are calculated by dividing net
income (loss) by the sum of the weighted average number of common shares
outstanding. To determine diluted earnings (loss) per share, the weighted
average number of common shares is adjusted for the incremental weighted
average number of shares issuable upon exercise of outstanding options and
warrants, unless the effect is antidilutive. In addition, the calculations
of diluted earnings (loss) per share assume the 3 3/4% Convertible Notes
are converted into common shares and earnings increased for the interest on
such notes, net of the income tax effect, unless the effect is
antidilutive. The number of shares used to calculate basic earnings (loss)
per share amounts was 222,584,000 and 216,409,000 for the three month
periods ended March 31, 2008 and 2007, respectively. The number of shares
used to calculate diluted earnings (loss) per share amounts was 222,584,000
and 216,779,000 for the three month periods ended March 31, 2008 and 2007,
respectively. The denominator for dilutive per share computations for the
three month period ended March 31, 2007 reflects the effect of dilutive
options. For the three month period ended March 31, 2008, 1,506,000 options
and warrants were not included in the computation of diluted loss per share
as the effect was antidilutive. For the three month periods ended March 31,
2008 and 2007, the 3 3/4% Convertible Notes, which are convertible into
15,239,490 common shares, were not included in the computation of diluted
earnings (loss) per share as the effect was antidilutive.
12. Cash paid for interest and income taxes (net of refunds) was $61,000,000
and $3,100,000, respectively, for the three month period ended March 31,
2008 and $25,300,000 and $5,700,000, respectively, for the three month
period ended March 31, 2007.
13. Debt due within one year includes $145,800,000 and $125,000,000 as of March
31, 2008 and December 31, 2007, respectively, relating to repurchase
agreements. At March 31, 2008, these fixed rate repurchase agreements have
a weighted average interest rate of approximately 3.0%, mature in May 2008
and are secured by non-current investments with a carrying value of
$156,200,000.
14. As of March 31, 2008, the Company had acquired approximately 25.6% of the
outstanding voting securities of AmeriCredit Corp. ("ACF"), a company
listed on the NYSE (Symbol: ACF), for aggregate cash consideration of
$373,900,000 ($70,100,000 was invested as of December 31, 2007). ACF is an
independent auto finance company that is in the business of purchasing and
servicing automobile sales finance contracts, predominantly to consumers
who are typically unable to obtain financing from other sources. ACF has
historically funded its auto lending activities through the transfer of
loans in securitization transactions. At March 31, 2008, the Company's
investment in ACF is carried at fair value of $295,400,000, with an
unrealized loss of $78,500,000 included in income (loss) related to
associated companies in the consolidated statement of operations. At
December 31, 2007, the Company's investment in ACF was classified as
non-current investments and carried at fair value of $71,500,000.
The Company's investment in ACF is one of the eligible items for which the
fair value option identified in SFAS 159 can be elected, commencing on the
date the Company acquired the right to vote 20% of the ACF common stock and
the investment became subject to the equity method of accounting. If ACF
were accounted for under the equity method, the Company would have to
record its share of ACF's results of operations employing a quarterly
reporting lag because of ACF's own public reporting requirements. In
addition, electing the fair value option for ACF eliminates some of the
uncertainty involved with impairment considerations, since the quoted
market price for ACF common shares provides a readily determinable fair
value at each balance sheet date. For these reasons the Company elected the
fair value option for its investment in ACF.
11
The relative significance of ACF to the Company could result in the Company
including separate audited financial statements for ACF in its Annual
Report on Form 10-K for the year ended December 31, 2008. The following
table provides summarized data with respect to ACF for the three months
ended March 31, 2008 (in thousands):
Total revenues $ 638,700
Income from continuing operations before extraordinary items 38,200
Net income 38,200
The Company's investment in HomeFed Corporation ("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.
HomeFed's 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 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 Company did not elect the fair value option during the first quarter of
2008 for any other eligible item identified in SFAS 159.
15. Aggregate information concerning assets and liabilities at March 31, 2008
that are measured at fair value on a recurring basis is presented below
(dollars in thousands):
Fair Value Measurements Using (e)
-----------------------------------------
Quoted Prices in
Active Markets for
Identical Assets or Significant Other
Total Fair Value Liabilities Observable Inputs
Measurements (Level 1) (Level 2)
------------ ------------------ -----------------
Investments classified as current assets:
Investments available for sale $ 298,873 $ 298,873 $ --
Trading securities (a) 49,100 5,474 43,626
----------- ----------- ----------
347,973 304,347 43,626
----------- ----------- ----------
Non-current investments:
Investments available for sale 2,657,883 2,123,322 534,561
----------- ----------- ----------
Investments in associated companies (b) 295,418 295,418 --
----------- ----------- ----------
Total $ 3,301,274 $ 2,723,087 $ 578,187
=========== =========== ==========
Other current liabilities (c) $ 5,699 $ 5,699 $ --
Other non-current liabilities (d) 13,161 -- 13,161
----------- ----------- ----------
Total $ 18,860 $ 5,699 $ 13,161
=========== =========== ==========
(a) During the period ended March 31, 2008, changes in fair value of $7,300,000
are reflected in net securities gains in the consolidated statement of
operations.
(b) During the period ended March 31, 2008, a change in fair value of
$78,500,000 is reflected in income (loss) related to associated companies
in the consolidated statement of operations. This is the change in fair
value of ACF, the only eligible item identified in SFAS 159 for which the
Company has elected the fair value option.
(c) During the period ended March 31, 2008, a change in fair value of $100,000
is reflected in net securities gains in the consolidated statement of
operations.
12
(d) Comprised of currency swap and interest rate swap derivative financial
instruments. During the period ended March 31, 2008, a change in fair value
of $4,700,000 is reflected in investment and other income in the
consolidated statement of operations.
(e) At March 31, 2008, the Company did not have material fair value
measurements using unobservable inputs (Level 3).
16. In April 2008, the Company sold to Jefferies Group, Inc. ("Jefferies")
10,000,000 of the Company's common shares, and received 26,585,310 shares
of common stock of Jefferies and $100,021,000 in cash. In addition, the
Company entered into a standstill agreement, pursuant to which for the two
year period ending April 21, 2010, the Company agreed, subject to certain
provisions, to limit its investment in Jefferies to not more than 30% of
the outstanding Jefferies common shares and to not sell its investment, and
received the right to nominate two directors to the board of directors of
Jefferies. Jefferies also agreed to enter into a registration rights
agreement covering all of the Jefferies shares of common stock owned by the
Company, and the Company agreed to register the Company's common shares
owned by Jefferies. Jefferies, a company listed on the NYSE (Symbol: JEF),
is a full-service global investment bank and institutional securities firm
serving companies and their investors.
The Jefferies shares acquired in April 2008, when added to the 4,265,800
shares of Jefferies common stock acquired by the Company during the first
quarter of 2008 for $74,226,000, together with the Company's representation
on the Jefferies board of directors, enables the Company to qualify to use
the equity method of accounting for this investment. The Company's
investment in Jefferies is one of the eligible items for which the fair
value option identified in SFAS 159 can be elected, commencing on the date
the investment became subject to the equity method of accounting, and the
Company has elected the fair value option for this investment. The
Company's rationale for electing the fair value option for Jefferies is the
same as its rationale for its investment in ACF discussed above.
As of May 8, 2008, including additional shares acquired in open market
purchases after March 31, 2008, the Company owned an aggregate of
43,955,578 Jefferies common shares (27.5% of the outstanding Jefferies
common stock) for an aggregate cost of $710,900,000, with an aggregate fair
value of $810,500,000.
17. In April 2008, the Lake Charles Harbor & Terminal District of Lake Charles,
Louisiana sold $1,000,000,000 in tax exempt bonds which will support the
development of a $1,600,000,000 petroleum coke gasification plant project
currently being developed by the Company's wholly-owned subsidiary, Lake
Charles Cogeneration LLC ("LCC"). The Lake Charles Cogeneration project is
a new chemical manufacturing project planning to use quench gasification
technology to produce energy products from low grade solid fuel sources
such as petroleum coke. The primary products to be produced by the Lake
Charles Cogeneration project will be substitute natural gas and hydrogen.
LCC does not currently have access to the bond proceeds, which are
currently being held in an escrow account by the bond trustee, and it will
not have access to the bond proceeds until certain conditions are
satisfied. The Company is not obligated to make equity contributions to LCC
to fund a portion of the project's costs until it completes its
investigation and the project is approved by the Company's board of
directors. 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 remarketed for a longer term and
the proceeds will be released to LCC to use for the payment of development
and construction costs for the project. The expected date for construction
commencement is March 2009, with commercial operation of the plant to begin
in 2012. Once LCC begins to draw down on the bond proceeds, any amounts
drawn will be recorded as long-term indebtedness of LCC.
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Interim Operations.
The following should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the 2007
10-K.
Liquidity and Capital Resources
In addition to cash and cash equivalents, the Company also considers investments
classified as current assets and investments classified as non-current assets on
the face of its consolidated balance sheet as being generally available to meet
its liquidity needs. Securities classified as current and non-current
investments are not as liquid as cash and cash equivalents, but they are
generally easily convertible into cash within a short period of time. As of
March 31, 2008, the sum of these amounts aggregated $3,503,700,000. However,
since $590,000,000 of this amount is pledged as collateral pursuant to various
agreements, represents investments in non-public securities or is held by
subsidiaries that are party to agreements which restrict the Company's ability
to use the funds for other purposes (including the Inmet shares), the Company
does not consider those amounts to be available to meet the Parent's liquidity
needs. The $2,913,700,000 that is available is comprised of cash and short-term
bonds and notes of the U.S. Government and its agencies, U.S.
Government-Sponsored Enterprises and other publicly traded debt and equity
securities (including the Company's $1,652,400,000 investment in Fortescue
common shares). The investment income realized from the Parent's cash, cash
equivalents and marketable securities is used to meet the Parent company's
short-term recurring cash requirements, which are principally the payment of
interest on its debt and corporate overhead expenses.
As of March 31, 2008, the Company had acquired approximately 25.6% of the
outstanding voting securities of ACF, a company listed on the NYSE, for
aggregate cash consideration of $373,900,000 ($70,100,000 was invested as of
December 31, 2007). ACF is an independent auto finance company that is in the
business of purchasing and servicing automobile sales finance contracts,
predominantly to consumers who are typically unable to obtain financing from
other sources. ACF has historically funded its auto lending activities through
the transfer of loans in securitization transactions. The Company has entered
into a standstill agreement with ACF for the two year period ending March 3,
2010, pursuant to which the Company has agreed not to sell its shares if the
buyer would own more than 4.9% of the outstanding shares, unless the buyer
agreed to be bound by terms of the standstill agreement, and to not increase its
ownership interest to more than 30% of the outstanding ACF common shares. ACF
also entered into a registration rights agreement covering all of the common
shares owned by the Company. At March 31, 2008, the Company's investment in ACF
is carried at fair value of $295,400,000; the investment in ACF is the only
eligible item for which the Company elected the fair value option described in
SFAS 159.
In March 2008, the Company increased its equity investment in the common shares
of IFIS, a private Argentine company, from approximately 3% to 26% for an
additional cash investment of $83,900,000. At March 31, 2008, the Company's
aggregate investment in IFIS was classified as an investment in an associated
company of $86,300,000 and is accounted for under the equity method of
accounting. IFIS owns a variety of investments, and its largest investment is
approximately 34% of the outstanding common shares of Cresud, an Argentine
agricultural company involved in a range of activities including crop
production, cattle raising and milk production. Cresud's common shares trade on
the Buenos Aires Stock Exchange (Symbol: CRES); in the U.S., Cresud trades as
American Depository Shares or ADSs (each of which represents ten common shares)
on the NASDAQ Global Select Market (Symbol: CRESY). Cresud is also indirectly
engaged in the Argentine real estate business through its approximate 34%
interest in IRSA, a company engaged in a variety of real estate activities in
Argentina including ownership of residential properties, office buildings,
shopping centers and luxury hotels. IRSA's common shares also trade on the
Buenos Aires Stock Exchange (Symbol: IRSA); in the U.S., IRSA trades as ADSs on
the NYSE (Symbol: IRS).
The Company also acquired a direct equity interest in Cresud for an aggregate
cash investment of $54,300,000. The Company owns 3,364,174 Cresud ADSs,
representing approximately 6.7% of Cresud's outstanding common shares, and
currently exercisable warrants to purchase 11,213,914 Cresud common shares (or
1,121,391 Cresud ADSs) at an exercise price of $1.68 per share. The Company's
direct investment in Cresud is classified as a non-current available for sale
investment and carried at fair value.
14
In April 2008, the Company sold to Jefferies 10,000,000 of the Company's common
shares, and received 26,585,310 shares of common stock of Jefferies and
$100,021,000 in cash. In addition, the Company entered into a standstill
agreement, pursuant to which for the two year period ending April 21, 2010, the
Company agreed, subject to certain provisions, to limit its investment in
Jefferies to not more than 30% of the outstanding Jefferies common shares and to
not sell its investment, and received the right to nominate two directors to the
board of directors of Jefferies. Jefferies, a company listed on the NYSE
(Symbol: JEF), is a full-service global investment bank and institutional
securities firm serving companies and their investors. Jefferies also agreed to
enter into a registration rights agreement covering all of the common shares
owned by the Company.
The Jefferies shares acquired in April 2008, when added to the 4,265,800 shares
of Jefferies common stock acquired by the Company during the first quarter of
2008 for $74,226,000, together with the Company's representation on the
Jefferies board of directors, enables the Company to qualify to use the equity
method of accounting for this investment. The Company's investment in Jefferies
is one of the eligible items for which the fair value option identified in SFAS
159 can be elected, commencing on the date the investment became subject to the
equity method of accounting, and the Company has elected the fair value option
for this investment. As of May 8, 2008, including additional shares acquired in
open market purchases after March 31, 2008, the Company owned an aggregate of
43,955,578 Jefferies common shares (27.5% of the outstanding Jefferies common
stock) for an aggregate cost of $710,900,000, with an aggregate fair value of
$810,500,000.
As more fully described in the 2007 10-K, during 2007 the Company and Jefferies
formed Jefferies High Yield Holdings, LLC ("JHYH"), a newly formed entity, and
the Company and Jefferies each committed to invest $600,000,000. The Company has
invested $350,000,000 in JHYH and is currently committed to an additional
investment of $250,000,000, subject to Jefferies prior request. Any request for
additional capital contributions from the Company will now require the consent
of the Company's designees to the Jefferies board.
As discussed above, in April 2008, the Lake Charles Harbor & Terminal District
of Lake Charles, Louisiana sold $1,000,000,000 in tax exempt bonds which will
support the development of a $1,600,000,000 petroleum coke gasification plant
project currently being developed by the Company's wholly-owned subsidiary, Lake
Charles Cogeneration LLC ("LCC"). LCC does not currently have access to the bond
proceeds, which are currently being held in an escrow account by the bond
trustee, and it will not have access to the bond proceeds until certain
conditions are satisfied. The Company is not obligated to make equity
contributions to LCC to fund a portion of the project's costs until it completes
its investigation and the project is approved by the Company's board of
directors. 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 remarketed for a longer term and the
proceeds will be released to LCC to use for the payment of development and
construction costs for the project. The expected date for construction
commencement is March 2009, with commercial operation of the plant to begin in
2012. Once LCC begins to draw down on the bond proceeds, any amounts drawn will
be recorded as long-term indebtedness of LCC.
Consolidated Statements of Cash Flows
Net cash of $46,100,000 was used for operating activities in the three month
period ended March 31, 2008 as compared to $26,300,000 of net cash provided by
operating activities in the three month period ended March 31, 2007. The change
reflects decreased distributions of earnings from associated companies and
increased interest expense payments. The change in operating cash flows also
reflects decreased funds generated from activity in the trading portfolio. Funds
used for operating activities during 2008 include the results of companies
acquired during 2007, STi Prepaid and ResortQuest, and the results of Premier
following its reconsolidation in the third quarter of 2007. STi Prepaid's
telecommunications operations generated funds from operating activities of
$5,200,000 and $6,600,000 during the 2008 and 2007 periods, respectively, the
Company's property management and services segment generated funds of $2,900,000
in 2008 and Premier generated funds of $5,200,000 in 2008. For 2008, funds used
by the Company's manufacturing segments were $7,700,000 as compared to
$2,900,000 in the 2007 period, principally reflecting reduced profitability at
Idaho Timber. Funds used by Sangart, Inc. ("Sangart"), a development stage
company, increased to $6,900,000 during the 2008 period from $5,100,000 during
the 2007 period. In 2008, distributions from associated companies principally
include earnings distributed by JHYH ($4,300,000) and Goober Drilling, LLC
("Goober Drilling") ($4,500,000). In 2007, distributions from associated
companies principally include earnings distributed by Jefferies Partners
Opportunity Fund II, LLC ("JPOF II") ($26,200,000).
15
Net cash flows used for investing activities were $205,000,000 in the first
quarter of 2008 and $113,700,000 in the first quarter of 2007. During 2007,
acquisitions, net of cash acquired, principally include assets acquired by STi
Prepaid ($84,600,000). Investments in associated companies include IFIS
($83,900,000) and ACF ($303,800,000) in 2008 and Goober Drilling, ($25,000,000),
Highland Opportunity Fund L.P. ("Highland Opportunity") ($74,000,000), Shortplus
($25,000,000), Cobre Las Cruces, S.A. ("CLC") ($4,000,000) and others
($28,400,000) in 2007. Capital distributions from associated companies
principally include $17,300,000 from Safe Harbor Domestic Partners L.P. ("Safe
Harbor"), $9,000,000 from Goober Drilling and $7,000,000 from EagleRock Capital
Partners (QP), LP ("EagleRock") in the 2008 period.
Net cash provided by financing activities was $52,100,000 in the first quarter
of 2008 and $500,600,000 in the first quarter of 2007. Issuance of long-term
debt for the 2007 period reflects the issuance of $500,000,000 principal amount
of the Company's 7 1/8% Notes and for the 2008 and 2007 periods reflects the
increase in repurchase agreements of $20,800,000 and $4,700,000, respectively.
Issuance of common shares for the three month periods ended March 31, 2008 and
2007 principally reflects the exercise of employee stock options.
Critical Accounting Estimates
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires the Company to make estimates and assumptions that affect the reported
amounts in the financial statements and disclosures of contingent assets and
liabilities. On an on-going basis, the Company evaluates all of these estimates
and assumptions. The following areas have been identified as critical accounting
estimates because they have the potential to have a material impact on the
Company's financial statements, and because they are based on assumptions which
are used in the accounting records to reflect, at a specific point in time,
events whose ultimate outcome won't be known until a later date. Actual results
could differ from these estimates.
Income Taxes - The Company records a valuation allowance to reduce its deferred
tax asset to the amount that is more likely than not to be realized. If in the
future the Company were to determine that it would be able to realize its
deferred tax asset in excess of its net recorded amount, an adjustment would
increase income in such period or, if such determination were made in connection
with an acquisition, an adjustment would be made in connection with the
allocation of the purchase price to acquired assets and liabilities. If in the
future the Company were to determine that it would not be able to realize all or
part of its deferred tax asset, an adjustment would be charged to income in such
period. The determination of the amount of the valuation allowance required is
based, in significant part, upon the Company's projection of future taxable
income at any point in time. The Company also records reserves for contingent
tax liabilities based on the Company's assessment of the probability of
successfully sustaining its tax filing positions.
The Company's conclusion that a portion of the deferred tax asset is more likely
than not to be realized is strongly influenced by its historical ability to
generate significant amounts of taxable income and its projections of future
taxable income, and also takes into consideration unrealized gains in its
investment portfolio. The Company's estimate of future taxable income considers
all available evidence, both positive and negative, about its current operations
and investments, includes an aggregation of individual projections for each
material operation and investment, estimates apportionment factors for state and
local taxing jurisdictions and includes all future years that the Company
estimated it would have available net operating losses. The Company believes
that its estimate of future taxable income is reasonable but inherently
uncertain, and if its current or future operations and investments generate
taxable income greater than the projected amounts, further adjustments to reduce
the valuation allowance are possible. Conversely, if the Company realizes
unforeseen material losses in the future, or its ability to generate future
taxable income necessary to realize a portion of the deferred tax asset is
materially reduced, additions to the valuation allowance could be recorded. At
March 31, 2008, the balance of the deferred valuation allowance was
approximately $299,800,000.
16
Impairment of Long-Lived Assets - In accordance with 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 management's 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
management's 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. The Company did not recognize any
impairment losses on long-lived assets during the three month periods ended
March 31, 2008 and 2007.
Impairment of Securities - Investments with an impairment in value considered to
be other than temporary are written down to estimated fair value. The
write-downs are included in net securities gains in the consolidated statements
of operations. The Company evaluates its investments for impairment on a
quarterly basis.
The Company's determination of whether a security is other than temporarily
impaired incorporates both quantitative and qualitative information; GAAP
requires the exercise of judgment in making this assessment, rather than the
application of fixed mathematical criteria. The Company considers a number of
factors including, but not limited to, the length of time and the 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 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. The Company's assessment involves a high degree of judgment and
accordingly, actual results may differ materially from the Company's estimates
and judgments. The Company recorded impairment charges for securities of
$6,700,000 and $100,000 for the three month periods ended March 31, 2008 and
2007, respectively.
Business Combinations - At acquisition, the Company allocates the cost of a
business acquisition to the specific tangible and intangible assets acquired and
liabilities assumed based upon their relative fair values. Significant judgments
and estimates are often made to determine these allocated values, and may
include the use of appraisals, consider market quotes for similar transactions,
employ discounted cash flow techniques or consider other information the Company
believes relevant. The finalization of the purchase price allocation will
typically take a number of months to complete, and if final values are
materially different from initially recorded amounts adjustments are recorded.
Any excess of the cost of a business acquisition over the fair values of the net
assets and liabilities acquired is recorded as goodwill, which is not amortized
to expense. Recorded goodwill of a reporting unit is required to be tested for
impairment on an annual basis, and between annual testing dates if events or
circumstances change that would more likely than not reduce the fair value of a
reporting unit below its net book value.
Subsequent to the finalization of the purchase price allocation, any adjustments
to the recorded values of acquired assets and liabilities would be reflected in
the Company's consolidated statement of operations. Once final, the Company is
not permitted to revise the allocation of the original purchase price, even if
subsequent events or circumstances prove the Company's original judgments and
estimates to be incorrect. In addition, long-lived assets like property and
equipment, amortizable intangibles and goodwill may be deemed to be impaired in
the future resulting in the recognition of an impairment loss; however, under
GAAP the methods, assumptions and results of an impairment review are not the
same for all long-lived assets. The assumptions and judgments made by the
Company when recording business combinations will have an impact on reported
results of operations for many years into the future.
Use of Fair Value Estimates - Substantially all of the Company's investment
portfolio is classified as either available for sale or as trading securities,
both of which are carried at estimated fair value in the Company's consolidated
balance sheet. The Company's investment in ACF is also carried at fair value and
is classified as an investment in an associated company. The estimated fair
values are principally based on publicly quoted market prices, which can rise or
fall in reaction to a wide variety of factors or events, and as such are subject
to market-related risks and uncertainties. The Company also invests in limited
partnerships or limited liability companies which are accounted for under the
equity method of accounting. These investees hold investments in publicly and
non-publicly traded securities, and as such are also subject to market-related
risks and uncertainties and the risks inherent in estimating the fair values of
such securities. Since changes in the fair value of all of these investments are
recognized in the Company's consolidated balance sheet, and with respect to
trading securities, securities owned by certain equity method investees and the
Company's investment in ACF, also in the Company's consolidated statement of
operations, the Company is exposed to volatility in securities markets.
17
Contingencies - The Company accrues for contingent losses when the contingent
loss is probable and the amount of loss can be reasonably estimated. Estimates
of the likelihood that a loss will be incurred and of contingent loss amounts
normally require significant judgment by management, can be highly subjective
and are subject to material change with the passage of time as more information
becomes available. As of March 31, 2008, the Company's accrual for contingent
losses was not material.
Results of Operations
Three Months Ended March 31, 2008 Compared to the Three Months Ended
March 31, 2007
General
Substantially all of the Company's operating businesses sell products or
services that are impacted by general economic conditions in the U.S. and to a
lesser extent internationally. Poor general economic conditions can reduce the
demand for products or services sold by the Company's operating subsidiaries
and/or result in reduced pricing for products or services. Troubled industry
sectors, like the residential real estate market, can have an adverse direct
impact not only on the Company's real estate and property management and
services segments, but also can have an adverse indirect impact on some of the
Company's other operating segments, including manufacturing and gaming
entertainment. The discussions below and in the 2007 10-K concerning revenue and
profitability by segment consider current economic conditions and the impact
such conditions have on each segment; however, should general economic
conditions worsen and/or if the country experiences a recession, the Company
believes that all of its businesses would be more adversely impacted than
currently anticipated.
The Company does not have any operating businesses that are participants in the
sub-prime real estate lending sector, though a tightening in consumer lending
standards has and will have a direct or indirect negative impact on certain of
the Company's operations. The Company's investment portfolio includes
mortgage-backed securities of $368,600,000 at March 31, 2008; however,
substantially all of these securities are rated investment grade and issued by
United States Government agencies or U.S. Government-Sponsored Enterprises. The
Company has also invested in certain investment partnerships (classified as
investments in associated companies) that invest in securities whose values are
directly affected by the sub-prime lending crisis. The Company's exposure to
changes in their values is limited to the net book value of its investment in
such partnerships. At March 31, 2008, the aggregate book value of the Company's
investments in such partnerships was approximately $129,100,000.
As more fully discussed above, SFAS 159 permits the Company to measure many
financial instruments and certain other items at fair value, with unrealized
gains and losses reported in the consolidated statement of operations. Although
the Company has only elected the fair value option for one eligible item during
the first quarter of 2008, the investment in ACF, the volatility in the market
price of ACF's common stock, combined with the size of the Company's ownership
interest, has significantly increased the volatility of the Company's earnings.
The Company may also experience significant volatility in future periods from
its investment in ACF and/or from new items for which the fair value option may
be elected, such as its investment in Jefferies during the second quarter of
2008. During the first quarter of 2008, the Company recognized an unrealized
loss of $78,500,000 related to its investment in ACF.
Manufacturing - Idaho Timber
Revenues and other income for Idaho Timber for the three months ended March 31,
2008 and 2007 were $58,500,000 and $72,500,000, respectively; gross profits were
$2,700,000 and $9,000,000, respectively; salaries and incentive compensation
expenses were $1,800,000 and $2,300,000, respectively; depreciation and
amortization expenses were $1,100,000 and $1,200,000, respectively; and pre-tax
income (loss) were $(1,000,000) and $4,200,000, respectively.
18
Idaho Timber's revenues for the first quarter of 2008 continued to reflect the
weak demand resulting from reductions in housing starts and the abundant supply
of high-grade lumber in the marketplace. Shipment volume and average selling
prices in 2008 decreased approximately 13% and approximately 7%, respectively,
as compared to the first quarter of 2007. Revenues for the first quarter of 2008
also declined approximately 4% as compared to the fourth quarter of 2007,
primarily due to lower shipment volume. Idaho Timber expects that the abundance
of existing homes available for sale in the market will continue to negatively
impact housing starts and Idaho Timber's revenues during 2008. Until housing
starts begin to increase, dimension lumber shipping volume may remain flat or
could decline further.
Raw material cost per thousand board feet was largely unchanged in the first
quarter of 2008 as compared to the first and fourth quarters in 2007. Reduced
availability of low-grade lumber due to sawmills shifting production to other
products and the continued export of low-grade lumber caused the price of
low-grade lumber to remain relatively stable. The difference between Idaho
Timber's selling price and raw material cost per thousand board feet (spread) is
closely monitored, and the rate of change in pricing and cost is typically not
the same. Spreads declined for the first quarter of 2008 as compared to the
first and fourth quarters of 2007.
Manufacturing - Conwed Plastics
Pre-tax income for Conwed Plastics was $3,900,000 and $3,400,000 for the three
months ended March 31, 2008 and 2007, respectively. Its manufacturing revenues
and other income were $26,700,000 and $24,200,000 and gross profits were
$8,200,000 and $6,800,000 for the three months ended March 31, 2008 and 2007,
respectively. Revenues increased in 2008 as compared to 2007 primarily in the
packaging market, largely due to acquisitions made in 2007, and in various
markets in Europe due to an acquisition in 2007, new customers and the impact of
foreign exchange. However, Conwed Plastics' revenues in 2008 continued to be
adversely impacted in those markets related to the housing industry.
Raw material costs increased approximately 29% in the first quarter of 2008 as
compared to the same period in 2007. The primary raw material in Conwed
Plastics' products is a polypropylene resin, which is a byproduct of the oil
refining process, whose price tends to fluctuate with the price of oil. Although
raw material costs increased, the gross margin was greater in the first quarter
of 2008 as compared to the same period in 2007, primarily due to product mix,
increased sales volume and higher selling prices. Pre-tax results for 2008 also
reflect $200,000 of higher salaries and incentive compensation expense as
compared to the 2007 period, principally due to increased headcount.
Telecommunications
The telecommunications business of STi Prepaid has been consolidated by the
Company since March 2007. For the first quarter of 2008 and for the period from
the asset acquisition through March 31, 2007, STi Prepaid's telecommunications
revenues and other income were $119,700,000 and $32,800,000, respectively;
telecommunications cost of sales were $106,100,000 and $27,600,000,
respectively; salaries and incentive compensation expenses were $2,100,000 and
$400,000, respectively; selling, general and other expenses were $8,000,000 and
$1,800,000, respectively; and pre-tax income was $3,200,000 and $2,900,000,
respectively.
Telecommunications revenues for the first quarter of 2008 increased
approximately 13% as compared to the fourth quarter of 2007 principally due to
increased carrier wholesale service business. Although STi Prepaid believes that
its carrier wholesale service business will continue to grow, it does not expect
that the rate of growth will continue at this pace. Gross margins for the 2008
period declined approximately 13% as compared to the fourth quarter of 2007
primarily due to new prepaid calling card launches that began in December of
2007 and continued throughout the first quarter. In addition, the decline in
gross margin reflects the growth in the carrier wholesale service business,
which has lower gross margins than the prepaid calling card business.
19
Property Management and Services
The property management and services operations of ResortQuest have been
consolidated by the Company since June 2007. For the first quarter of 2008,
property management and services revenues and other income were $39,700,000,
direct operating expenses were $27,400,000, salaries and incentive compensation
expenses were $1,400,000, depreciation and amortization expenses were
$1,300,000, selling, general and other expenses were $5,300,000 and pre-tax
income was $4,300,000.
ResortQuest's business is seasonal; the first quarter typically has greater
revenues and profits as ski areas reach their peak season, and 2008 also
benefited from earlier than usual religious and school holidays. ResortQuest's
revenues and pre-tax results for the first quarter of 2008 reflect average daily
rates and occupancy percentages that were greater than those for the comparable
pre-acquisition period. Nevertheless, the vacation rental component of the
property management business could be negatively impacted during 2008 by poor
economic conditions in the U.S., including the impact of higher fuel prices and
less disposable income. In 2008, ResortQuest recorded net real estate brokerage
revenues of $4,800,000 upon the completion of certain large development
projects. As more fully discussed in the 2007 10-K, the real estate brokerage
business has been and will continue to be negatively impacted by the depressed
real estate market.
Gaming Entertainment
As more fully discussed in the 2007 10-K, Premier was accounted for as a
consolidated subsidiary when acquired during 2006; however, while in bankruptcy
proceedings from September 19, 2006 to emergence on August 10, 2007, Premier was
accounted for under the equity method of accounting. Premier's casino and hotel
operations opened to the public on June 30, 2007; prior to opening, Premier's
activities principally consisted of rebuilding and repairing the hotel and
casino facilities that were severely damaged by Hurricane Katrina, and its
bankruptcy proceedings.
For the first quarter of 2008, Premier's revenues and other income were
$39,500,000 and its pre-tax income was $9,400,000. Revenues and other income
include a $7,300,000 gain from the settlement and collection of Premier's
remaining insurance claim relating to Hurricane Katrina and $4,700,000 resulting
from capital contributions from the minority interest. In prior periods, the
Company recorded 100% of the losses after cumulative loss allocations to the
minority interest had reduced the minority interest liability to zero. Since the
minority interest liability remains at zero after considering the capital
contributions, the entire capital contribution was recorded as income,
effectively reimbursing the Company for a portion of the minority interest
losses that were not previously allocated to them. Premier's results for the
2008 period also include direct operating expenses of $24,600,000, interest
expense of $400,000, salaries and incentive compensation expenses of $800,000,
depreciation and amortization expenses of $4,200,000, and selling, general and
other expenses of $100,000.
Premier's gaming entertainment revenues for the first quarter of 2008 increased
approximately 16% as compared to the fourth quarter of 2007. This increase is
primarily due to seasonality in the Gulf Coast gaming market as well as
increased market share. The Hard Rock Biloxi is still in the early stages of
establishing its customer database and instituting customer loyalty programs and
has not yet achieved a market share of the local gaming market commensurate with
the size of its facility and the gaming choices it offers.
The Company's share of Premier's net loss under the equity method of accounting
was $6,900,000 for the first quarter of 2007.
Domestic Real Estate
Pre-tax losses for the domestic real estate segment were $4,800,000 and
$1,500,000 for the three months ended March 31, 2008 and 2007, respectively.
Real estate revenues and other income for the three month period ended March 31,
2008 include $3,500,000 of charges related to the accounting for the
mark-to-market value of an interest rate derivative relating to the Myrtle Beach
project's debt obligation.
Pre-tax results for the domestic real estate segment are largely dependent upon
the performance of the segment's operating properties, the current status of the
Company's real estate development projects and non-recurring gains or losses
recognized when real estate assets are sold. Accordingly, pre-tax results for
this segment for any particular period are not predictable and do not follow any
consistent pattern or trend.
20
Medical Product Development
Pre-tax losses (net of minority interest) for Sangart for the three month
periods ended March 31, 2008 and 2007 were $7,400,000 and $8,400,000,
respectively. Sangart's losses for 2008 and 2007 reflect research and
development costs (which are included in selling, general and other expenses in
the consolidated statement of operations) of $4,300,000 and $5,900,000,
respectively, and salaries and incentive compensation expenses of $2,700,000 and
$2,000,000, respectively. As more fully discussed in the 2007 10-K, in the first
quarter of 2007, the Company expensed acquired research and development of
$4,100,000 in connection with its increased investment in Sangart. The increase
in salaries and incentive compensation in 2008 as compared to 2007 was due to
increased headcount in connection with the Phase III trials.
Sangart is a development stage company that does not have any revenues from
product sales. It is currently conducting two Phase III clinical trials in
Europe for its lead product candidate, Hemospan(R), data from which is expected
to become available in the second half of 2008. If these trials are successful
it will then seek approval with the appropriate regulatory authorities to market
its product. Sangart also recently completed a smaller Phase II clinical trial
in the U.S., data from which is still being compiled. Until such time, if ever,
that Sangart obtains regulatory approval for Hemospan, the Company will report
losses from this segment. U.S. or foreign regulatory agencies could also require
Sangart to perform more clinical trials, which could be both expensive and time
consuming. The Company expects to invest up to an additional $48,500,000 in 2008
upon its exercise of existing warrants which will continue to fund Sangart's
research and development costs and which will be expensed by the Company over
time. The Company is unable to predict with certainty when, if ever, it will
report operating profits for this segment.
Recently, the Journal of the American Medical Association published an analysis
which purportedly linked past studies of hemoglobin-based oxygen carriers
manufactured by five companies to an increased incidence of deaths and heart
attacks. Data from an earlier Phase II trial of Hemospan was included in that
analysis, even though none of the heart attacks or deaths reported were judged
by the physician investigators to have been caused by Hemospan. Results from
that same Phase II trial were later reviewed by regulators and ethics committees
in six European countries, who agreed that Hemospan's earlier clinical studies
presented an acceptable safety profile and as a result granted approval for
Phase III trials to proceed.
Corporate and Other Operations
Investment and other income decreased in the three month 2008 period as compared
to the same period in 2007. Investment income declined $12,000,000 in 2008
principally due to lower interest rates on a lower amount of fixed income
securities. Investment and other income for the 2007 period includes the receipt
of escrowed proceeds from the sale of an associated company in 2006 of
$10,200,000 that had not been previously recognized. Other income reflects
increases in 2008, as compared to the first quarter of 2007, in foreign exchange
gains of $1,900,000, winery revenues of $1,500,000 and income from purchased
delinquent credit card receivables of $4,100,000. Investment and other income
also reflects charges of $1,200,000 and $100,000 for the 2008 and 2007 periods,
respectively, related to the accounting for mark-to-market values of Corporate
derivatives.
Net securities gains for Corporate and Other Operations aggregated $8,300,000
and $15,900,000 for the three month periods ended March 31, 2008 and 2007,
respectively. The Company's net securities gains largely reflect realized gains
from the sale of publicly traded debt and equity securities that had been
classified as Corporate available for sale securities and unrealized gains on
trading securities. Net securities gains for the 2008 and 2007 periods include
provisions of $6,700,000 and $100,000, respectively, to write down the Company's
investments in certain available for sale securities. The write down of the
securities resulted from a decline in market value determined to be other than
temporary.
The increase in interest expense during the three months ended March 31, 2008 as
compared to the same period in 2007 primarily reflects interest expense relating
to the 7 1/8% Senior Notes issued in March 2007 and the 8 1/8% Senior Notes
issued in September 2007. Interest expense for the 2008 period also reflects
decreased interest expense related to the fixed rate repurchase agreements.
21
Salaries and incentive compensation expense declined in the three month period
ended March 31, 2008 as compared to the same period in 2007. Salaries and
incentive compensation expense included $2,500,000 and $3,400,000 for the three
month periods ended March 31, 2008 and 2007, respectively, relating to grants
made under the Company's senior executive warrant plan and fixed stock option
plan. Share-based compensation expense in 2007 included the accelerated vesting
of stock options of an officer of the Company who resigned.
The decrease in selling, general and other expenses of $5,500,000 in the three
month period ended March 31, 2008 as compared to the same period in 2007
primarily reflects a charge of $7,500,000 recorded in 2007 for the settlement of
litigation related to MK Resources Company, and decreased legal fees, including
those incurred in connection with that litigation. Selling, general and other
expenses (largely professional fees and other costs) related to the
investigation of energy projects were $4,300,000 and $2,800,000 for the three
month periods ended March 31, 2008 and 2007, respectively.
For the three month periods ended March 31, 2008 and 2007, the Company's
effective income tax rates are different than the federal statutory rate
primarily due to state income taxes.
Associated Companies
Income (losses) related to associated companies for the three month periods
ended March 31, 2008 and 2007 includes the following (in thousands):
2008 2007
---------- ----------
ACF $ (78,500) $ --
Pershing Square (5,000) --
EagleRock (4,100) 6,400
Premier -- (6,900)
JHYH (21,000) --
JPOF II -- 2,900
HomeFed (400) 200
Safe Harbor -- 4,400
Wintergreen Partners Fund L.P. (5,800) 2,900
Highland Opportunity (16,300) 1,500
Shortplus 8,500 5,300
RCG Ambrose, L.P. (1,200) --
Goober Drilling 6,400 2,700
CLC 3,900 (100)
Other (300) 3,100
--------- --------
Income (loss) related to associated companies
before income taxes (113,800) 22,400
Income tax (expense) benefit 39,400 (9,500)
--------- --------
Income (loss) related to associated companies
net of taxes $ (74,400) $ 12,900
========= ========
As discussed above, the Company elected the fair value option described in SFAS
159 for its investment in ACF, resulting in the recognition of an unrealized
loss for the difference between the market value and the cost of the investment.
Discontinued Operations
WilTel Communications Group, LLC
Gain on disposal of discontinued operations for the 2007 period reflects the
resolution of a sale-related contingency related to WilTel, which was sold in
the fourth quarter of 2005.
22
Cautionary Statement for Forward-Looking Information
Statements included in this Report may contain forward-looking statements. Such
statements may relate, but are not limited, to projections of revenues, income
or loss, development expenditures, plans for growth and future operations,
competition and regulation, as well as assumptions relating to the foregoing.
Such forward-looking statements are made pursuant to the safe-harbor provisions
of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in this Report, the
words "estimates," "expects," "anticipates," "believes," "plans," "intends" and
variations of such words and similar expressions are intended to identify
forward-looking statements that involve risks and uncertainties. Future events
and actual results could differ materially from those set forth in, contemplated
by or underlying the forward-looking statements.
Factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted or may materially and adversely
affect the Company's actual results include but are not limited to the
following: potential acquisitions and dispositions of our operations and
investments could change our risk profile; dependence on certain key personnel;
economic downturns; changes in the U.S. housing market; changes in
telecommunications laws and regulations; risks associated with the increased
volatility in raw material prices and the availability of key raw materials;
declines in the prices of base metals (primarily iron ore and copper);
compliance with government laws and regulations; changes in mortgage interest
rate levels or changes in consumer lending practices; a decrease in consumer
spending or general increases in the cost of living; proper functioning of our
information systems; intense competition in the operation of our businesses; our
ability to generate sufficient taxable income to fully realize our deferred tax
asset; weather related conditions and significant natural disasters, including
hurricanes, tornadoes, windstorms, earthquakes and hailstorms; our ability to
insure certain risks economically; reduction or cessation of dividend payments
on our common shares. For additional information see Part I, Item 1A. Risk
Factors in the 2007 10-K and Part II, Item 1A. Risk Factors contained herein.
Undue reliance should not be placed on these forward-looking statements, which
are applicable only as of the date hereof. The Company undertakes no obligation
to revise or update these forward-looking statements to reflect events or
circumstances that arise after the date of this Report or to reflect the
occurrence of unanticipated events.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information required under this Item is contained in Item 7A of the Company's
Annual Report on Form 10-K for the year ended December 31, 2007, and is
incorporated by reference herein.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
(a) The Company's management evaluated, with the participation of the Company's
principal executive and principal financial officers, the effectiveness of
the Company's disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), as of March 31, 2008. Based on their
evaluation, the Company's principal executive and principal financial
officers concluded that the Company's disclosure controls and procedures
were effective as of March 31, 2008.
Changes in internal control over financial reporting
(b) The Company has not yet completed its evaluation of the internal controls
over financial reporting at STi Prepaid or ResortQuest, which were acquired
by the Company during 2007. Except for changes that result relating to
these entities, there has been no change in the Company's internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under
the Exchange Act) that occurred during the Company's fiscal quarter ended
March 31, 2008, that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
23
Part II - OTHER INFORMATION
Item 1A. Risk Factors.
The Company is adding to its risk factors the items listed below.
The Company has a substantial investment in Jefferies, a full-service global
investment bank and institutional securities firm. Adverse changes in the
financial markets, credit markets and the economy in general can have an adverse
impact on Jefferies' operating results, which could cause the value of our
investment to decline.
The Company has a significant investment in IFIS and its affiliate, Cresud,
which has substantial operations in Argentina and in other Latin American
countries. The business of IFIS and Cresud is dependent upon the economic
conditions prevailing in Argentina and other Latin American countries in which
it operates; if economic conditions there deteriorate, it could have an adverse
impact on the business of Cresud, which could cause the value of our investments
in Cresud and IFIS to decline.
Item 6. Exhibits.
10.1 Share Forward Transaction Agreement, dated January 11, 2008
(incorporated herein by reference to Exhibit 1 to the Schedule
13D dated January 10, 2008 of Leucadia National Corporation with
respect to AmeriCredit Corp.).
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.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEUCADIA NATIONAL CORPORATION
(Registrant)
Date: May 9, 2008
By:/s/ Barbara L. Lowenthal
----------------------------
Barbara L. Lowenthal
Vice President and Comptroller
(Chief Accounting Officer)
25
Exhibit Index
10.1 Share Forward Transaction Agreement, dated January 11, 2008
(incorporated herein by reference to Exhibit 1 to the Schedule
13D dated January 10, 2008 of Leucadia National Corporation with
respect to AmeriCredit Corp.).
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.
26