Leucadia National Corporation Announces Second Quarter 2017 Results

|Business Wire|About: LUK

NEW YORK--(BUSINESS WIRE)-- Leucadia National Corporation (LUK) today announced its financial results for the three and six month periods ended June 30, 2017. Income before income taxes was $124.7 million and net income attributable to Leucadia National Corporation common shareholders was $58.2 million, or $0.16 per diluted share for the three month period. Income before income taxes was $522.8 million and net income attributable to Leucadia National Corporation common shareholders was $339.6 million, or $0.91 per diluted share for the six month period. During the second quarter, the stock price of HRG Group reversed a portion of its earlier 2017 gains, resulting in an unrealized mark-to-market decrease in value of $75.0 million for the quarter and bringing the year-to-date net increase in value to $100.2 million. The effective tax rate of 41% for the second quarter includes a $9 million charge to revalue state and local deferred tax assets related to recent legislation. The effective tax rate of 30% for the six month period also includes a $32 million benefit (previously reported) resulting from the repatriation of Jefferies earnings from certain of its foreign subsidiaries, along with their associated foreign tax credits.

Rich Handler, CEO of Leucadia, and Brian Friedman, President of Leucadia, said: "We are pleased with Leucadia's second quarter results, reflecting a solid quarter for Jefferies, as previously reported, continued good results at National Beef and progress across Leucadia."

During the second quarter, Leucadia repurchased a total of 1.2 million common shares at an average price of $25.26 per share. Under the current authorization, including share acquisitions this quarter, we have repurchased a total of 10.0 million shares over the past three years at an average price of $20.00 per share. Leucadia currently has 15.0 million remaining shares authorized for repurchase.

In addition, the Company announced today that its Board of Directors has declared a quarterly cash dividend equal to $0.10 per Leucadia common share payable on September 29, 2017 to record holders of Leucadia common shares on September 18, 2017. This reflects a 60 percent increase over Leucadia's historical rate of $0.0625 per Leucadia common share.

Financial Services Businesses

As previously reported, Jefferies second quarter results reflected solid results, with net revenues of $781.7 million. Investment Banking benefited from an improved environment for debt and equity new issuance. Jefferies core equity sales and trading business enjoyed a solid quarter as well and, despite quiet market activity and low volatility, its global cash equity businesses continued to gain market share. Fixed Income results were impacted by lower volumes and reduced volatility which prevailed throughout much of the quarter. The sale of KCG, in which Jefferies held a 24% equity interest, to Virtu Financial closed last week.

Momentum within Berkadia’s debt origination and investment sales divisions has continued and strengthened in 2017. Berkadia originated $9.3 billion in new financing so far this year, up 12% over 2016, and the company heads into the third quarter with a strong pipeline of new deals. Investment sales for the first half of the year are also up 3% over 2016, with slightly improved margins as well. Berkadia continues to be well positioned to provide value to commercial real estate owners throughout the current refinancing wave. We recorded income from associated companies related to Berkadia of $16.2 million and $33.1 million for the three and six month periods ended June 30, 2017.

We are pleased with the development of Leucadia Asset Management ("LAM"). We expect that the favorable investment returns and growth in AUM that we experienced in the first six months will continue, enabling LAM to take a meaningful place within our financial services portfolio.

FXCM has restructured and stabilized its business following its exit from U.S. operations in February. We have nearly recovered the full amount of cash we invested in FXCM in 2015 and still have $122.1 million of principal balance outstanding on our loan earning a coupon of 20.5%, the maximum allowed under the credit agreement. In May, FXCM agreed to sell its non-core interest in FastMatch to Euronext for approximately $55.6 million, with a portion held in escrow and subject to certain future adjustments including a share of a $10 million earn-out if certain performance targets of FastMatch are met. 100% of the proceeds from this sale will be used to pay down our loan, while the remaining balance is expected to be paid from additional non-core asset sales and operating cash flow.

HomeFed (HOFD) held its grand opening in June for its 948 Escaya home community, its first village at Otay Ranch, with 21 single family detached model homes on display. Production construction has commenced, with the first home closings anticipated during the fourth quarter of 2017. HomeFed's results for the second quarter include a tax benefit of $13 million related to the favorable resolution of a tax item. We recorded income from associated companies related to HomeFed of $9.3 million during the second quarter.

Foursight Capital, our auto finance platform, continues to grow. Its servicing portfolio is now $476 million and it has completed its fourth securitization, AAA rated, during the quarter.

Merchant Banking Businesses

Beef demand and cattle supply continued to create favorable margin conditions for National Beef during the quarter. National Beef generated pre-tax income of $78.4 million for the second quarter and $135.5 million year-to-date.

On May 24, HRG's majority owned subsidiary, Fidelity & Guaranty Life (FGL), announced that it entered into a definitive merger agreement under which CF Corporation will acquire FGL for $31.10 per share. The transaction is expected to close in the fourth quarter of 2017. This will significantly simplify HRG, which continues its strategic review process.

Garcadia’s 2017 results have been impacted by lower industry-wide sales trends and a few underperforming stores. Management has addressed these issues and is putting extra emphasis on managing costs in light of the current environment. Distributions from Garcadia were $24.7 million during the first half of the year.

Linkem, our fixed wireless broadband provider in Italy, ended the quarter with 455,000 customers, up 13% from year-end. Linkem ended the quarter with 2,127 base stations, 98% of which are LTE enabled, covering over 60% of Italian households, including 19 of the 20 largest cities in Italy. Linkem expects to achieve its target to cover 80% of the population in the next few years and is well positioned to capitalize on its standing as the fastest growing broadband provider in Italy.

Vitesse anticipates production to exceed 4,000 boe/day in late 2017 as most of the 31 gross drilled but uncompleted wells Vitesse acquired in late 2016 are expected to be completed and flowing to sales by year end. Over 80% of Vitesse's production for 2017 has been hedged at prices around $50/bbl. JETX has transitioned from an operated to a non-operating strategy under the guidance of the Vitesse management team. JETX owns 14,000 acres in the Eastern Eagle Ford ("EEF") in Brazos & Grimes Counties Texas, and it also retains smaller acreage in Houston County. In late 2016 JETX entered into a development joint venture with Lonestar Resources (LONE) to develop Lonestar's and JETX's pooled EEF acreage. In June, Lonestar announced that its Wildcat B#1H well had production averaging 2,123 boe/day for the first 30 days. JETX has a 50% interest in the well which is among the best wells ever drilled in the EEF.

Idaho Timber generated increased revenues and pre-tax income, as improved volumes were combined with a generally positive margin environment. In addition, efforts to lower costs and increase throughput in the sawmill division yielded enhanced margins.

Golden Queen Mining Company continues to ramp up its mining and processing activities. During the quarter, a total of 12.6 thousand ounces of gold and 51.9 thousand ounces of silver were produced. Higher utilization rates, increased tonnage from the mine and reduced downtime in the processing plants are reflective of efforts to bring the operations to capacity.

* * * *

More information on the Company’s results of operations for the three and six months ended June 30, 2017 will be provided upon filing of the Company’s Form 10-Q with the Securities and Exchange Commission.

This press release contains “forward looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements about our future and statements that are not historical facts. These forward looking statements are usually preceded by the words “should,” “expect,” “intend,” “may,” “will,” or similar expressions. Forward looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward looking statements also include statements pertaining to our strategies for future development of our business and products. Forward looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward looking statements is contained in reports we file with the SEC. You should read and interpret any forward looking statement together with reports we file with the SEC.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s).

SUMMARY FOR LEUCADIA NATIONAL CORPORATION AND SUBSIDIARIES

(In thousands, except per share amounts)

(Unaudited)

 
 

For the Three Months Ended

 

For the Six Months Ended

June 30,

June 30,

2017

 

2016

2017

 

2016

 
Net revenues $ 2,732,380   $ 2,625,358   $ 5,600,362   $ 4,640,464  
 
Income (loss) before income taxes and income (loss) related to associated companies $ 110,578 $ 87,572 $ 637,249 $ (234,443 )
 
Income (loss) related to associated companies 14,104   51,890   (114,470 ) 71,942  
 
Income (loss) before income taxes 124,682 139,462 522,779 (162,501 )
 
Income tax provision (benefit) 50,620   68,850   154,794   (14,511 )
 
Net income (loss) 74,062 70,612 367,985 (147,990 )
 
Net loss attributable to the noncontrolling interests 1,446 760 1,969 1,812
 
Net income attributable to the redeemable noncontrolling interests (16,300 ) (13,068 ) (28,322 ) (17,382 )
 
Preferred stock dividends (1,015 ) (1,015 ) (2,031 ) (2,031 )
 
Net income (loss) attributable to Leucadia National Corporation common shareholders $ 58,193   $ 57,289   $ 339,601   $ (165,591 )
 
Basic earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
Net income (loss) $ 0.16   $ 0.15   $ 0.92   $ (0.44 )
 
Number of shares in calculation 369,212   372,556   369,206   372,448  
 
Diluted earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
Net income (loss) $ 0.16   $ 0.15   $ 0.91   $ (0.44 )
 
Number of shares in calculation 371,552   372,556   375,684   372,448  
 

A summary of results for the three months ended June 30, 2017 and 2016 is as follows (in thousands):

     

Other

 

Other

     

Financial

Merchant

Services

Banking

Businesses

Businesses

Parent

National

and

and

Corporate

Company

Jefferies

Beef

Investments

Investments

and Other

Interest

Total

2017

Net revenues $ 781,672   $ 1,875,519   $ 59,340   $ 13,513   $ 2,336   $   $

2,732,380

 

 
Expenses:
Cost of sales 1,750,569 69,982 1,820,551
Compensation and benefits 450,522 9,832 14,948 4,404 11,867 491,573
Floor brokerage and clearing fees 44,435 44,435
Interest 2,254 9,890 956 14,734 27,834
Depreciation and amortization 15,348 24,459 2,659 7,384 867 50,717
Selling, general and other expenses 148,655   9,980   12,905   7,812   7,340     186,692  
Total expenses 658,960   1,797,094   40,402   90,538   20,074   14,734   2,621,802  
Income (loss) before income taxes and income (loss) related to associated companies 122,712 78,425 18,938 (77,025 ) (17,738 ) (14,734 ) 110,578
Income related to associated companies     10,235   3,389   480     14,104  
Income (loss) before income taxes $ 122,712   $ 78,425   $ 29,173   $ (73,636 ) $ (17,258 ) $ (14,734 ) $ 124,682  
 
 

2016

Net revenues $ 720,930   $ 1,798,634   $ (14,113 ) $ 109,415   $ 10,492   $   $ 2,625,358  
 
Expenses:
Cost of sales 1,690,908 85,462 1,776,370
Compensation and benefits 415,316 9,635 15,929 7,505 9,706 458,091
Floor brokerage and clearing fees 43,591 43,591
Interest 3,796 3,470 721 14,719 22,706
Depreciation and amortization 14,633 22,785 3,369 9,038 944 50,769
Selling, general and other expenses 139,910   8,655   9,560   20,499   7,635     186,259  
Total expenses 613,450   1,735,779   32,328   123,225   18,285   14,719   2,537,786  
Income (loss) before income taxes and income related to associated companies 107,480 62,855 (46,441 ) (13,810 ) (7,793 ) (14,719 ) 87,572
Income related to associated companies     45,322   5,966   602     51,890  
Income (loss) before income taxes $ 107,480   $ 62,855   $ (1,119 ) $ (7,844 ) $ (7,191 ) $ (14,719 ) $ 139,462  
 

A summary of results for the six months ended June 30, 2017 and 2016 is as follows (in thousands):

     

Other

 

Other

     

Financial

Merchant

Services

Banking

Businesses

Businesses

Parent

National

and

and

Corporate

Company

Jefferies

Beef

Investments

Investments

and Other

Interest

Total

2017

Net revenues $ 1,579,058   $ 3,436,975   $ 115,563   $ 458,740   $ 10,026   $   $ 5,600,362  
 
Expenses:
Cost of sales 3,214,407 139,238 3,353,645
Compensation and benefits 911,194 19,144 30,132 9,369 25,917 995,756
Floor brokerage and clearing fees 90,293 90,293
Interest 4,068 19,861 1,825 29,464 55,218
Depreciation and amortization 30,949 46,858 5,564 15,122 1,734 100,227
Selling, general and other expenses 291,640   16,970   27,101   17,066   15,197     367,974  
Total expenses 1,324,076   3,301,447   82,658   182,620   42,848   29,464   4,963,113  
Income (loss) before income taxes and income (loss) related to associated companies 254,982 135,528 32,905 276,120 (32,822 ) (29,464 ) 637,249
Income (loss) related to associated companies     (122,768 ) 7,238   1,060     (114,470 )
Income (loss) before income taxes $ 254,982   $ 135,528   $ (89,863 ) $ 283,358   $ (31,762 ) $ (29,464 ) $ 522,779  
 
 

2016

Net revenues $ 1,021,716   $ 3,433,085   $ (126,080 ) $ 234,395   $ 77,348   $   $ 4,640,464  
 
Expenses:
Cost of sales 3,260,374 164,048 3,424,422
Compensation and benefits 765,435 18,968 29,192 14,749 19,154 847,498
Floor brokerage and clearing fees 84,070 84,070
Interest 7,763 6,392 1,436 29,433 45,024
Depreciation and amortization 29,223 45,411 6,091 17,767 1,887 100,379
Selling, general and other expenses 281,305   16,305   17,980   41,329   16,595     373,514  
Total expenses 1,160,033   3,348,821   59,655   239,329   37,636   29,433   4,874,907  
Income (loss) before income taxes and income related to associated companies (138,317 ) 84,264 (185,735 ) (4,934 ) 39,712 (29,433 ) (234,443 )
Income related to associated companies     58,315   12,794   833     71,942  
Income (loss) before income taxes $ (138,317 ) $ 84,264   $ (127,420 ) $ 7,860   $ 40,545   $ (29,433 ) $ (162,501 )

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Leucadia National Corporation
Laura Ulbrandt, 212-460-1900

Source: Leucadia National Corporation

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