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- Quarterly Report (10-Q)

Date : 05/04/2012 @ 4:11PM
Source : Edgar (US Regulatory)
Stock : Leucadia National Corp. (LUK)
Quote : 22.68  -0.04 (-0.18%) @ 12:29PM
Leucadia share price Chart

- Quarterly Report (10-Q)





SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
__________

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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
(State or other jurisdiction of
13-2615557
(I.R.S. Employer
incorporation or organization)
Identification Number)
   
315 Park Avenue South, New York, New York
(Address of principal executive offices)
10010-3607
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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   o
Non-accelerated filer     o
(Do not check if a smaller reporting company)
Smaller reporting company   o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES          ____                        NO                 X   

APPLICABLE ONLY TO CORPORATE ISSUERS:  Indicate the number of shares outstanding of each of the issuer’s classes of common stock, at April 26, 2012: 244,582,588.


 
 

 


PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements.

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2012 and December 31, 2011
(Dollars in thousands, except par value)
(Unaudited)

   
March 31,
   
December 31,
 
   
2012
   
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 205,291     $ 168,490  
Investments
    125,480       150,135  
Trade, notes and other receivables, net
    332,170       369,123  
Inventory
    355,736       354,578  
Current deferred tax asset
    44,046       144,281  
Prepaids and other current assets
    62,707       66,872  
Total current assets
    1,125,430       1,253,479  
Non-current investments ($416,771 and $432,768 collateralizing repurchase
               
agreements)
    1,759,427       2,226,875  
Intangible assets, net and goodwill
    865,864       876,589  
Deferred tax asset, net
    1,411,758       1,440,605  
Other assets
    404,144       420,157  
Property, equipment and leasehold improvements, net
    1,043,313       1,053,689  
Investments in associated companies ($1,566,553 and $1,198,029 measured
               
  using fair value option)
    2,376,701       1,991,795  
                 
Total
  $ 8,986,637     $ 9,263,189  
                 
LIABILITIES
               
Current liabilities:
               
Trade payables and expense accruals
  $ 315,333     $ 386,544  
Other current liabilities
    44,116       42,976  
Securities sold under agreements to repurchase
    403,461       417,479  
Debt due within one year
    39,257       30,133  
Total current liabilities
    802,167       877,132  
Other non-current liabilities
    96,378       96,316  
Long-term debt
    1,425,187       1,875,571  
Total liabilities
    2,323,732       2,849,019  
                 
Commitments and contingencies
               
                 
Redeemable noncontrolling interests in subsidiary
    232,709       235,909  
                 
EQUITY
               
Common shares, par value $1 per share, authorized 600,000,000
               
shares; 244,582,588 shares issued and outstanding,
               
after deducting 47,006,711 shares held in treasury
    244,583       244,583  
Additional paid-in capital
    1,573,932       1,570,684  
Accumulated other comprehensive income
    671,579       912,421  
Retained earnings
    3,937,585       3,446,708  
Total Leucadia National Corporation shareholders’ equity
    6,427,679       6,174,396  
Noncontrolling interest
    2,517       3,865  
Total equity
    6,430,196       6,178,261  
                 
Total
  $ 8,986,637     $ 9,263,189  

See notes to interim consolidated financial statements.

 
2

 

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the three months ended March 31, 2012 and 2011
(In thousands, except per share amounts)
(Unaudited)

   
2012
   
2011
 
             
Revenues and Other Income:
           
Beef processing services
  $ 1,790,555     $  
Manufacturing
    61,710       63,765  
Oil and gas drilling services
    37,322       30,872  
Gaming entertainment
    32,069       30,776  
Investment and other income
    77,696       156,318  
Net securities gains
    424,936       2,303  
      2,424,288       284,034  
Expenses:
               
Cost of sales:
               
   Beef processing services
    1,772,219        
   Manufacturing
    50,943       54,253  
Direct operating expenses:
               
   Oil and gas drilling services
    29,183       21,271  
   Gaming entertainment
    22,390       21,469  
Interest
    28,868       28,977  
Salaries and incentive compensation
    46,490       16,236  
Depreciation and amortization
    39,496       17,762  
Selling, general and other expenses
    76,254       44,536  
      2,065,843       204,504  
Income from continuing operations before income taxes and
               
   income (losses) related to associated companies
    358,445       79,530  
Income taxes
    133,517       39,053  
Income from continuing operations before income (losses)
               
  related to associated companies
    224,928       40,477  
Income (losses) related to associated companies, net of income tax
               
provision (benefit) of $139,369 and $(16,124)
    262,539       (28,048 )
Income from continuing operations
    487,467       12,429  
Loss from discontinued operations, net of income tax provision
               
(benefit) of $(129) and $(863)
    (232 )     (1,722 )
Gain on disposal of discontinued operations, net of income tax
               
provision of $0 and $0
    –           79  
Net income
    487,235       10,786  
Net (income) attributable to the noncontrolling interest
    (202 )     (279 )
Net loss attributable to the redeemable noncontrolling interest
    3,844       –   
Net income attributable to Leucadia National Corporation
               
  common shareholders
  $ 490,877     $ 10,507  




(continued)





See notes to interim consolidated financial statements.

 
3

 


LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (continued)
For the three months ended March 31, 2012 and 2011
(In thousands, except per share amounts)
(Unaudited)

   
2012
   
2011
 
             
Basic earnings (loss) per common share attributable
           
   to Leucadia National Corporation common shareholders:
           
   Income from continuing operations
  $ 2.01     $ .05  
   Loss from discontinued operations
          (.01 )
   Gain on disposal of discontinued operations
     –          –  
Net income
  $ 2.01     $ .04  
                 
Diluted earnings (loss) per common share attributable
               
   to Leucadia National Corporation common shareholders:
               
   Income from continuing operations
  $ 1.97     $ .05  
   Loss from discontinued operations
          (.01 )
   Gain on disposal of discontinued operations
     –          –  
Net income
  $ 1.97     $ .04  
                 
Amounts attributable to Leucadia National Corporation
               
   common shareholders:
               
   Income from continuing operations, net of taxes
  $ 491,109     $ 12,150  
   Loss from discontinued operations, net of taxes
    (232 )     (1,722 )
   Gain on disposal of discontinued operations, net of taxes
     –        79  
Net income
  $ 490,877     $ 10,507  



















See notes to interim consolidated financial statements.


 
4

 

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
For the three months ended March 31, 2012 and 2011
(In thousands)
(Unaudited)

   
2012
   
2011
 
             
Net income
  $ 487,235     $ 10,786  
Other comprehensive income (loss):
               
Net unrealized holding gains (losses) on investments arising during
               
   the period, net of income tax provision (benefit) of $(9,201) and $(37,592)
    (16,571 )     (67,707 )
Less: reclassification adjustment for net (gains) losses included in net income,
               
   net of income tax provision (benefit) of $123,791 and $(773)
    (222,964 )     1,391  
Net change in unrealized holding gains (losses) on investments,
               
   net of income tax provision (benefit) of $(132,992) and $(36,819)
    (239,535 )     (66,316 )
                 
Net unrealized foreign exchange gains (losses) arising during the period,
               
   net of income tax provision (benefit) of $(1,070) and $698
    (1,927 )     1,258  
Less: reclassification adjustment for foreign exchange gains (losses)
               
   included in net income, net of income tax provision (benefit) of $0 and $0
     –         –   
Net change in unrealized foreign exchange gains (losses),
               
   net of income tax provision (benefit) of $(1,070) and $698
    (1,927 )     1,258  
                 
Net unrealized gains (losses) on derivatives arising during the period,
               
   net of income tax provision (benefit) of $(89) and $0
    (160 )      
Less: reclassification adjustment for derivative gains (losses)
               
   included in net income, net of income tax provision (benefit) of $0 and $0
     –         –   
Net change in unrealized derivative gains (losses), net of income tax
               
   provision (benefit) of $(89) and $0
    (160 )      –   
                 
Net pension and postretirement gain (loss) arising during the period,
               
   net of income tax provision (benefit) of $0 and $0
           
Less: amortization of actuarial net loss included in net periodic
               
   pension cost, net of income tax provision (benefit) of $433 and $(1)
    780        –   
Net change in pension liability and postretirement benefits,
               
    net of income tax provision (benefit) of $433 and $(1)
    780        –   
                 
Other comprehensive (loss), net of income taxes
    (240,842 )     (65,058 )
                 
Comprehensive income (loss)
    246,393       (54,272 )
                 
Comprehensive (income) attributable to the noncontrolling interest
    (202 )     (279 )
                 
Comprehensive loss attributable to the redeemable noncontrolling interest
    3,844        –   
                 
Comprehensive income (loss) attributable to Leucadia National Corporation
               
  common shareholders
  $ 250,035     $ (54,551 )







See notes to interim consolidated financial statements.

 
5

 


LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the three months ended March 31, 2012 and 2011
(In thousands)
(Unaudited)

   
2012
   
2011
 
             
Net cash flows from operating activities:
           
Net income
  $ 487,235     $ 10,786  
Adjustments to reconcile net income to net cash used for operations:
               
  Deferred income tax provision
    263,133       18,072  
  Depreciation and amortization of property, equipment and leasehold improvements
    26,247       16,735  
  Other amortization
    23,894       7,052  
  Share-based compensation
    3,892       1,024  
  Excess tax benefit from exercise of stock options
          (15 )
  Provision for doubtful accounts
    2,484       233  
  Net securities gains
    (424,936 )     (2,303 )
  (Income) losses related to associated companies
    (401,908 )     44,172  
  Distributions from associated companies
    10,660       13,150  
  Net (gains) related to real estate, property and equipment, and other assets
    (4,352 )     (85,699 )
  Income related to Fortescue’s Pilbara project, net of proceeds received
    62,812       43,587  
  Gain on disposal of discontinued operations
          (79 )
  Change in estimated litigation reserve
          (2,241 )
  Net change in:
               
Trade, notes and other receivables
    (28,591 )     (13,363 )
Inventory
    (1,432 )     (2,514 )
Prepaids and other assets
    4,574       522  
Trade payables and expense accruals
    (71,947 )     (55,936 )
Other liabilities
    11,092       (4,382 )
Income taxes payable
    (5,128 )     (8,201 )
Other
    (416 )     1,625  
Net cash used for operating activities
    (42,687 )     (17,775 )
                 
Net cash flows from investing activities:
               
Acquisition of property, equipment and leasehold improvements
    (18,575 )     (4,052 )
Acquisitions of and capital expenditures for real estate investments
    (1,248 )     (4,452 )
Proceeds from disposals of real estate, property and equipment, and other assets
    1,979       15,811  
Net change in restricted cash
    4,676       (187 )
Proceeds from (payments related to) disposal of discontinued operations, net of
               
  expenses and cash of operations sold
    (384 )     951  
Advances on notes and other receivables
    (451 )     (2,366 )
Collections on notes, loans and other receivables
    6,068       4,957  
Investments in associated companies
    (498 )     (890 )
Capital distributions and loan repayment from associated companies
    8,886       4,858  
Purchases of investments (other than short-term)
    (558,688 )     (395,591 )
Proceeds from maturities of investments
    75,162       145,151  
Proceeds from sales of investments
    1,022,731       54,223  
Other
    –        2,066  
Net cash provided by (used for) investing activities
    539,658       (179,521 )

(continued)



See notes to interim consolidated financial statements.

 
6

 

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
For the three months ended March 31, 2012 and 2011
(In thousands)
(Unaudited)

   
2012
   
2011
 
             
Net cash flows from financing activities:
           
Issuance of debt, net of issuance costs
  $ 70,433     $ 145,066  
Reduction of debt
    (525,940 )     (73,156 )
Issuance of common shares
          1,340  
Excess tax benefit from exercise of stock options
          15  
Other
    (4,663 )     (3,377 )
Net cash provided by (used for) financing activities
    (460,170 )     69,888  
Net increase (decrease) in cash and cash equivalents
    36,801       (127,408 )
Cash and cash equivalents at January 1,
    168,490       441,340  
Cash and cash equivalents at March 31,
  $ 205,291     $ 313,932  
                 
Supplemental disclosures of cash flow information:
               
Cash paid during the year for :
               
Interest
  $ 56,466     $ 55,472  
Income tax payments, net
  $ 14,941     $ 12,214  



































See notes to interim consolidated financial statements.

 
7

 

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
For the three months ended March 31, 2012 and 2011
(In thousands, except par value)
(Unaudited)


   
Leucadia National Corporation Common Shareholders
             
   
Common
         
Accumulated
                         
   
Shares
   
Additional
   
Other
                         
   
$1 Par
   
Paid-In
   
Comprehensive
   
Retained
         
Noncontrolling
       
   
Value
   
Capital
   
Income
   
Earnings
   
Subtotal
   
Interest
   
Total
 
                                           
Balance, January 1, 2011
  $ 243,808     $ 1,542,964     $ 1,687,363     $ 3,482,623     $ 6,956,758     $ 6,623     $ 6,963,381  
Net income
                            10,507       10,507       279       10,786  
Other comprehensive loss, net of taxes
                    (65,058 )             (65,058 )             (65,058 )
Contributions from noncontrolling interests
                                            190       190  
Distributions to noncontrolling interests
                                            (3,567 )     (3,567 )
Change in interest in consolidated subsidiary
            (1,912 )                     (1,912 )     1,912        
Share-based compensation expense
            1,024                       1,024               1,024  
Exercise of warrants to purchase common
                                                       
shares
    523       (523 )                                    
Exercise of options to purchase common
                                                       
shares, including excess tax benefit
    48       1,307                       1,355               1,355  
                                                         
Balance, March 31, 2011
  $ 244,379     $ 1,542,860     $ 1,622,305     $ 3,493,130     $ 6,902,674     $ 5,437     $ 6,908,111  
                                                         
                                                         
Balance, January 1, 2012
  $ 244,583     $ 1,570,684     $ 912,421     $ 3,446,708     $ 6,174,396     $ 3,865     $ 6,178,261  
Net income
                            490,877       490,877       202       491,079  
Other comprehensive loss, net of taxes
                    (240,842 )             (240,842 )             (240,842 )
Contributions from noncontrolling interests
                                            26       26  
Distributions to noncontrolling interests
                                            (1,576 )     (1,576 )
Change in fair value of redeemable
                                                       
noncontrolling interests
            (644 )                     (644 )             (644 )
Share-based compensation expense
            3,892                       3,892               3,892  
                                                         
Balance, March 31, 2012
  $ 244,583     $ 1,573,932     $ 671,579     $ 3,937,585     $ 6,427,679     $ 2,517     $ 6,430,196  











See notes to interim consolidated financial statements.

 
8

 

LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements

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 fairly state 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, 2011, which are included in the Company’s Annual Report filed on Form 10-K for such year (the “2011 10-K”).  Results of operations for interim periods are not necessarily indicative of annual results of operations.  The consolidated balance sheet at December 31, 2011 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, 2012, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance with respect to the improvement of the comparability of fair value measurements presented and disclosed in financial statements issued in accordance with GAAP and International Financial Reporting Standards.  The amendment includes requirements for measuring fair value and for disclosing information about fair value measurements, but does not require additional fair value measurements and is not intended to establish valuation standards or affect valuation practices outside of financial reporting.  The guidance did not have a significant impact on the Company’s consolidated financial statements.

Effective January 1, 2012, the Company adopted new FASB guidance on the presentation of comprehensive income.  This amendment eliminated the previous option to report other comprehensive income and its components in the statement of changes in equity; instead, it requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  This amendment was applied retrospectively.  Adoption of this amendment changed the presentation of the Company’s consolidated financial statements but did not have any impact on its consolidated financial position, results of operations or cash flows.

Effective January 1, 2012, the Company adopted new FASB guidance with respect to the simplification of how entities test for goodwill impairment. This amendment permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance did not have a significant impact on the Company’s consolidated financial statements.

Certain amounts for prior periods have been reclassified to be consistent with the 2012 presentation.

2.  
Acquisitions

As more fully discussed in the 2011 10-K, the Company acquired a controlling interest in National Beef Packing Company, LLC (“National Beef”) in December 2011.  Unaudited pro forma operating results for the Company for the three month period ended March 31, 2011, assuming the acquisition had occurred as of January 1, 2010 are as follows (in thousands, except per share amounts):

Revenues and other income
  $ 1,936,880  
Net income attributable to Leucadia National Corporation
       
  common shareholders
  $ 36,202  
Basic earnings per common share attributable to Leucadia National
       
  Corporation common shareholders
  $ .15  
Diluted earnings per common share attributable to Leucadia National
       
  Corporation common shareholders
  $ .15  

 
9

 


Pro forma adjustments principally reflect an increase to depreciation and amortization expenses related to the fair value of property and equipment and amortizable intangible assets.  The unaudited pro forma data is not indicative of future results of operations or what would have resulted if the acquisition had actually occurred as of January 1, 2010.

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.  Associated companies are not considered to be a reportable segment, but are reflected in the table below under income (loss) from continuing operations before income taxes.  Certain information concerning the Company’s segments for the three month periods ended March 31, 2012 and 2011 is presented in the following table (in thousands).

   
2012
   
2011
 
Revenues and other income:
           
Beef Processing Services
  $ 1,791,979     $  
Manufacturing:
               
Idaho Timber
    41,129       40,240  
Conwed Plastics
    20,598       23,569  
Oil and Gas Drilling Services
    39,027       32,084  
Gaming Entertainment
    32,073       30,782  
Domestic Real Estate
    3,421       85,383  
Medical Product Development
    74       91  
Other Operations
    18,965       16,107  
Corporate
    477,022       55,778  
Total consolidated revenues and other income
  $ 2,424,288     $ 284,034  
                 
Income (loss) from continuing operations before
               
  income taxes:
               
Beef Processing Services
  $ (17,597 )   $  
Manufacturing:
               
Idaho Timber
    2,368       16  
Conwed Plastics
    2,447       3,290  
Oil and Gas Drilling Services
    2,053       3,571  
Gaming Entertainment
    4,263       5,796  
Domestic Real Estate
    (1,109 )     81,317  
Medical Product Development
    (10,053 )     (3,994 )
Other Operations
    (2,101 )     (6,571 )
Income (losses) related to associated companies
    401,908       (44,172 )
Corporate
    378,174       (3,895 )
Total consolidated income from continuing
               
  operations before income taxes
  $ 760,353     $ 35,358  
                 
Depreciation and amortization expenses:
               
Beef Processing Services
  $ 20,308     $  
Manufacturing:
               
Idaho Timber
    1,328       1,321  
Conwed Plastics
    1,335       1,796  
Oil and Gas Drilling Services
    5,203       5,293  
Gaming Entertainment
    4,245       4,244  
Domestic Real Estate
    875       903  
Medical Product Development
    210       209  
Other Operations
    2,792       1,928  
Corporate
    5,982       4,851  
Total consolidated depreciation and amortization expense
  $ 42,278     $ 20,545  

 
10

 


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) in the Company’s consolidated statements of operations.  In 2012, corporate securities gains include a gain of $417,887,000 resulting from the sale of a portion of the Company’s investment in the common shares of Fortescue Metals Group Ltd (“Fortescue”).  In 2011, other income for the domestic real estate segment includes a gain on forgiveness of debt of $81,848,000.

Other operations includes pre-tax losses of $5,871,000 and $7,781,000 for the three month periods ended March 31, 2012 and 2011, respectively, for the investigation and evaluation of various energy related projects.  There were no significant operating revenues associated with these activities; however, other income for the 2011 period includes $1,990,000 with respect to government grants to reimburse the Company for certain of its prior expenditures, which were fully expensed as incurred.

Depreciation and amortization expenses for the manufacturing and other operations segments include amounts classified as cost of sales.

For 2012, interest expense was primarily comprised of beef processing services ($3,016,000) and corporate ($25,829,000).  For 2011, interest expense was primarily comprised of corporate; interest expense for other segments was not significant.

4.
Investments in Associated Companies

 
A summary of investments in associated companies at March 31, 2012 and December 31, 2011 is as follows:

   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(In thousands)
 
Investments in associated companies accounted for
           
  under the equity method of accounting:
           
Jefferies High Yield Holdings, LLC (“JHYH”)
  $ 332,956     $ 323,262  
Berkadia Commercial Mortgage LLC (“Berkadia”)
    206,144       193,496  
Garcadia
    75,318       72,303  
Linkem S.p.A. (“Linkem”)
    79,188       86,332  
HomeFed Corporation (“HomeFed”)
    47,378       47,493  
Brooklyn Renaissance Plaza
    32,372       31,931  
Other
    36,792       38,949  
  Total accounted for under the equity method of accounting
    810,148       793,766  
                 
Investments in associated companies carried at fair value:
               
  Jefferies Group, Inc. (“Jefferies”)
    1,092,834       797,583  
  Mueller Industries, Inc. (“Mueller”)
    473,719       400,446  
  Total accounted for at fair value
    1,566,553       1,198,029  
                 
Total investments in associated companies
  $ 2,376,701     $ 1,991,795  

 
11

 


Income (losses) related to associated companies includes the following for the three month periods ended March 31, 2012 and 2011:

   
2012
   
2011
 
   
(In thousands)
 
             
Jefferies
  $ 299,601     $ (79,702 )
Mueller
    74,315        
JHYH
    9,694       14,928  
Berkadia
    11,820       14,659  
Garcadia
    8,094       4,295  
Linkem
    (4,190 )      
HomeFed
    (115 )     (18 )
Brooklyn Renaissance Plaza
    441       643  
Other
    2,248       1,023  
Income (losses) related to associated companies
               
  before income taxes
    401,908       (44,172 )
Income tax provision (benefit)
    139,369       (16,124 )
Income (losses) related to associated companies,
               
  net of taxes
  $ 262,539     $ (28,048 )

Investments accounted for under the equity method of accounting are initially recorded at their original cost and subsequently increased for the Company's share of the investees’ earnings, decreased for the Company's share of the investees’ losses, reduced for dividends received and impairment charges recorded, if any, and increased for any additional investment of capital.

In accordance with GAAP, the Company is allowed to choose, at specified election dates, to measure many financial instruments and certain other items at fair value (the “fair value option”) that would not otherwise be required to be measured at fair value.  If the fair value option is elected for a particular financial instrument or other item, the Company is required to report unrealized gains and losses on those items in earnings.  The Company’s investments Jefferies and Mueller are the only eligible items for which the fair value option was elected, commencing on the date the investments became subject to the equity method of accounting.  The Company believes accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provide an objectively determined fair value at each balance sheet date.  In addition, electing the fair value option eliminates the uncertainty involved with impairment considerations.  The Company’s 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.  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.

As of March 31, 2012, the Company owns 58,006,024 common shares of Jefferies representing approximately 28.2% of the outstanding common shares of Jefferies.  Jefferies, a company listed on the New York Stock Exchange (“NYSE”) (Symbol: JEF), is a full-service global investment bank and institutional securities firm serving companies and their investors.

As of March 31, 2012, the Company owns 10,422,859 common shares of Mueller, representing approximately 27.3% of the outstanding common shares of Mueller, a company listed on the NYSE (Symbol: MLI).  Mueller is a leading manufacturer of copper, brass, plastic, and aluminum products.

As more fully discussed in the 2011 10-K, the Company has agreed to reimburse Berkshire Hathaway Inc. for up to one-half of any losses incurred under a $2,500,000,000 surety policy securing outstanding commercial paper issued by an affiliate of Berkadia.  As of March 31, 2012, the aggregate amount of commercial paper outstanding was $2,470,000,000.

 
12

 


The following tables provide summarized data with respect to significant investments in associated companies.  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, 2012.  The information for Jefferies is for the three month periods ended February 29, 2012 and February 28, 2011.

   
2012
   
2011
 
   
(In thousands)
 
             
Jefferies:
           
Total revenues
  $ 1,006,800     $ 966,700  
Income from continuing operations before extraordinary items
    77,100       87,300  
Net income
    77,100       87,300  
                 
JHYH:
               
Total revenues
  $ 56,900     $ 73,000  
Income from continuing operations before extraordinary items
    36,400       47,800  
Net income
    36,400       47,800  
                 
Berkadia:
               
Total revenues
  $ 95,800     $ 85,600  
Income from continuing operations before extraordinary items
    25,900       19,200  
Net income
    25,900       19,200  

Under GAAP, JHYH is considered a variable interest entity that is consolidated by Jefferies, since Jefferies is the primary beneficiary.  The Company owns less than half of JHYH’s capital, including its indirect interest through its investment in Jefferies and will not absorb a majority of its expected losses or receive a majority of its expected residual returns.  The Company has not provided any guarantees, nor is it contingently liable for any of JHYH’s liabilities, all of which are non-recourse to the Company.  The Company’s maximum exposure to loss as a result of its investment in JHYH is limited to the book value of its investment plus any additional capital it decides to invest.

5.
Investments

A summary of investments classified as current assets at March 31, 2012 and December 31, 2011 is as follows (in thousands):

   
March 31, 2012
   
December 31, 2011
 
         
Carrying Value
         
Carrying Value
 
   
Amortized
   
and Estimated
   
Amortized
   
And Estimated
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
Investments available for sale
  $ 121,421     $ 121,440     $ 146,594     $ 145,977  
Other investments, including accrued interest income
    3,977       4,040       4,113       4,158  
Total current investments
  $ 125,398     $ 125,480     $ 150,707     $ 150,135  

The amortized cost, gross unrealized gains and losses and estimated fair value of available for sale investments classified as current assets at March 31, 2012 and December 31, 2011 are as follows (in thousands):

 
13

 


         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
March 31, 2012
                       
Bonds and notes:
                       
U.S. Government and agencies
  $ 116,928     $ 7     $ 6     $ 116,929  
All other corporates
    4,160       18        –        4,178  
Total fixed maturities
    121,088       25       6       121,107  
                                 
Other investments
    333        –         –        333  
Total current available for sale investments
  $ 121,421     $ 25     $ 6     $ 121,440  
                                 
December 31, 2011
                               
Bonds and notes:
                               
U.S. Government and agencies
  $ 139,940     $ 13     $ 1     $ 139,952  
All other corporates
    5,649       70        –        5,719  
Total fixed maturities
    145,589       83       1       145,671  
                                 
Other investments
    1,005        –        699       306  
Total current available for sale investments
  $ 146,594     $ 83     $ 700     $ 145,977  

A summary of non-current investments at March 31, 2012 and December 31, 2011 is as follows (in thousands):

   
March 31, 2012
   
December 31, 2011
 
         
Carrying Value
         
Carrying Value
 
   
Amortized
   
and Estimated
   
Amortized
   
And Estimated
 
   
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
Investments available for sale:
                       
   Fortescue
  $ 27,100     $ 183,853     $ 115,703     $ 569,256  
   Inmet Mining Corporation (“Inmet”)
    504,006       623,603       504,006       708,193  
   Other investments available for sale
    725,145       779,063       724,664       776,444  
Other investments:
                               
   Private equity funds
    84,530       84,530       85,528       85,528  
   FMG Chichester Pty Ltd (“FMG”)
                               
     zero coupon note component
    42,019       42,019       40,801       40,801  
   Other non-publicly traded investments
    46,421       46,359       46,947       46,653  
     Total non-current investments
  $ 1,429,221     $ 1,759,427     $ 1,517,649     $ 2,226,875  
 
At March 31, 2012, the Company owns 30,586,000 common shares of Fortescue, a publicly traded company listed on the Australian Stock Exchange (Symbol: FMG).  As more fully discussed in the 2011 10-K, the Company’s investment in Fortescue also includes a $100,000,000 unsecured note of FMG that matures in August 2019 (the “FMG Note”).  Interest on the FMG Note is calculated as 4% of the revenue, net of government royalties, invoiced from the iron ore produced from the project’s Cloud Break and Christmas Creek areas, which commenced production in May 2008.  Interest is payable semi-annually within thirty days of June 30 th and December 31 st of each year.  The Company accounts for the FMG Note as two components: a thirteen year zero-coupon note and a prepaid mining interest.  The zero-coupon note component of this investment is accounted for as a loan-like instrument, with income being recognized as the note is accreted up to its face value.  The prepaid mining interest, which is being amortized to expense as the revenue is earned (using the units of production method), is classified as other current and non-current assets with an aggregate balance of $149,626,000 and $152,521,000 at March 31, 2012 and December 31, 2011, respectively.  Amounts recognized in the consolidated statements of operations related to the FMG Note are as follows (in thousands):

 
14

 

 

   
March 31,
   
March 31,
 
   
2012
   
2011
 
             
Classified as investment and other income:
           
Interest income on FMG Note
  $ 45,069     $ 37,413  
Interest accreted on zero-coupon note component
  $ 1,218     $ 1,083  
                 
Amortization expense on prepaid mining interest
  $ 2,895     $ 2,116  

The aggregate book values of the various components of the FMG Note, net of accrued withholding taxes on interest, totaled $231,772,000 and $290,415,000 at March 31, 2012 and December 31, 2011, respectively.

In August 2010, the Company was advised that Fortescue is asserting that FMG is entitled to issue additional notes identical to the FMG Note in an unlimited amount.  Fortescue further claims that any interest to be paid on additional notes can dilute, on a pro rata basis, the Company’s entitlement to the above stated interest of 4% of net revenue.  The Company does not believe that FMG has the right to issue additional notes which affect the Company’s interest or that the interpretation by Fortescue of the terms of the FMG Note, as currently claimed by Fortescue, reflects the agreement between the parties.

In September 2010, the Company filed a Writ of Summons against Fortescue, FMG and Fortescue’s then Chief Executive Officer in the Supreme Court of Western Australia.  The Writ of Summons seeks, among other things, an injunction restraining the issuance of any additional notes identical to the FMG Note and damages.  If the litigation is ultimately determined adversely to the Company and additional notes are issued, the Company’s future cash flows from the FMG Note and future results of operations would be significantly and adversely affected to the extent of the dilution resulting from the issuance of such additional notes.  In addition, the Company would have to evaluate whether the prepaid mining interest had become impaired.  The amount of the impairment, if any, would depend upon the amount of new notes issued and the resulting dilution, plus the Company’s projection of future interest payable on the FMG Note.
 
At March 31, 2012, the Company owns 11,042,413 common shares of Inmet, representing approximately 15.9% of Inmet’s outstanding shares.  Inmet is a Canadian-based global mining company traded on the Toronto Stock Exchange (Symbol: IMN).  The Inmet shares have registration rights and may be sold without restriction in accordance with applicable securities laws.

Non-current other non-publicly traded 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 March 31, 2012 and December 31, 2011 are as follows (in thousands):

 
15

 


         
Gross
   
Gross
   
Estimated
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
 
                         
March 31, 2012
                       
Bonds and notes:
                       
U.S. Government and agencies
  $ 10,004     $     $ 18     $ 9,986  
U.S. Government-Sponsored Enterprises
    585,312       14,912       48       600,176  
All other corporates
    81,332       637       1,041       80,928  
Total fixed maturities
    676,648       15,549       1,107       691,090  
                                 
Equity securities:
                               
Common stocks:
                               
Banks, trusts and insurance companies
    22,084       25,939             48,023  
Industrial, miscellaneous and all other
    557,519       289,969       82       847,406  
Total equity securities
    579,603       315,908       82       895,429  
                                 
    $ 1,256,251     $ 331,457     $ 1,189     $ 1,586,519  
                                 
December 31, 2011
                               
Bonds and notes:
                               
U.S. Government-Sponsored Enterprises
  $ 609,617     $ 12,683     $ 109     $ 622,191  
All other corporates
    66,960       636       1,054       66,542  
Total fixed maturities
    676,577       13,319       1,163       688,733  
                                 
Equity securities:
                               
Common stocks:
                               
Banks, trusts and insurance companies
    22,084       28,887             50,971  
Industrial, miscellaneous and all other
    644,717       669,270        299       1,313,688  
Total equity securities
    666,801       698,157       299       1,364,659  
                                 
Other investments
    995        –        494       501  
    $ 1,344,373     $ 711,476     $ 1,956     $ 2,053,893  

The amortized cost and estimated fair value of non-current investments classified as available for sale at March 31, 2012, 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
  $ 30,380     $ 30,611  
Due after five years through ten years
           
Due after ten years
     –        –   
      30,380       30,611  
Mortgage-backed and asset-backed securities
    646,268       660,479  
    $ 676,648     $ 691,090  

At March 31, 2012, the unrealized losses on investments which have been in a continuous unrealized loss position for less than 12 months and for 12 months or longer were not significant.

 
16

 


6.
Inventory

A summary of inventory at March 31, 2012 and December 31, 2011 is as follows (in thousands):

   
March 31,
   
December 31,
 
   
2012
   
2011
 
             
Finished goods
  $ 240,298     $ 233,542  
Work in process
    54,549       49,514  
Raw materials, supplies and other
    60,889       71,522  
    $ 355,736     $ 354,578  

7.
Intangible Assets, Net and Goodwill

A summary of intangible assets, net and goodwill at March 31, 2012 and December 31, 2011 is as follows (in thousands):

   
March 31,
   
December 31,
 
   
2012
   
2011
 
             
Intangibles:
           
Customer and other relationships, net of accumulated amortization of
           
   $49,060 and $41,958
  $ 420,979     $ 426,603  
Trademarks and tradename, net of accumulated amortization of $5,080
               
   and $1,527
    274,485       278,024  
Cattle supply contracts, net of accumulated amortization of $2,393 and $0
    141,207       143,500  
Licenses, net of accumulated amortization of $3,064 and $2,917
    8,934       9,081  
Other, net of accumulated amortization of $5,127 and $5,095
    1,230       1,262  
Goodwill
    19,029       18,119  
    $ 865,864     $ 876,589  

Amortization expense on intangible assets was $13,227,000 and $1,890,000 for the three month periods ended March 31, 2012 and 2011, respectively.  The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands): 2012 (for the remaining nine months) - $39,256; 2013 - $52,305; 2014 - $52,265; 2015 - $49,472; and 2016 - $47,650.

At March 31, 2012 and December 31, 2011, goodwill in the above table related to Conwed Plastics ($8,151,000), the winery operations ($1,053,000) and National Beef ($9,825,000 and $8,915,000, respectively).

8.
Accumulated Other Comprehensive Income

Activity in accumulated other comprehensive income is reflected in the consolidated statements of comprehensive income (loss) and consolidated statements of changes in equity but not in the consolidated statements of operations.  A summary of accumulated other comprehensive income, net of taxes at March 31, 2012 and December 31, 2011 is as follows (in thousands):

 
17

 


   
March 31,
   
December 31,
 
   
2012
   
2011
 
             
Net unrealized gains on investments
  $ 758,616     $ 998,151  
Net unrealized foreign exchange losses
    (5,095 )     (3,168 )
Net unrealized losses on derivative instruments
    (160 )      
Net minimum pension liability
    (82,596 )     (83,537 )
Net postretirement benefit
    814       975  
    $ 671,579