EX-99 5 ex99-2.txt EXHIBIT 99.2 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following unaudited pro forma consolidated financial statements reflect the acquisition of all of the outstanding shares of WilTel common stock not owned by Leucadia pursuant to the offer and merger. The execution of the Merger Agreement on August 21, 2003 created a measurement date for accounting purposes enabling Leucadia to determine the value of the Leucadia common shares to be issued. Leucadia averaged the closing prices of its common shares for the five-business day period commencing two days before and ending two days after the Merger Agreement was executed. That average, $37.90 per share, was used to calculate the aggregate value of the shares issued for purposes of the unaudited pro forma consolidated financial statements that follow, and will also be used to determine the actual cost of the acquisition. 1 Leucadia National Corporation and Subsidiaries Unaudited Pro Forma Consolidated Balance Sheet September 30, 2003 (In thousands) Percentage of WilTel Acquired 100%
Pro Forma Pro Forma As Leucadia WilTel Adjustments Adjusted -------- ------ ----------- -------- Assets Investments $1,052,510 $0 $0 $1,052,510 Cash and cash equivalents 195,028 215,313 (2,000)(a) 408,341 Trade, notes and other receivables, net 317,723 233,088 0 550,811 Prepaids, other assets and deferred charges, net 289,493 114,378 0 403,871 Property, plant, equipment and leasehold improvements, net 221,053 1,252,852 88,399 (b) 1,562,304 Investments in associated companies, net 695,486 0 (288,392)(c) 407,094 ---------- ---------- --------- ---------- Total $2,771,293 $1,815,631 ($201,993) $4,384,931 ========== ========== ========= ========== Liabilities Customer banking deposits $184,200 $0 $0 $184,200 Trade payables and expense accruals 107,460 386,200 0 493,660 Deferred income 0 206,228 0 206,228 Other liabilities 81,700 136,276 0 217,976 Income taxes payable 24,899 0 0 24,899 Deferred tax liability 98,473 0 (44,900)(d) 53,573 Debt, including current maturities 613,573 507,004 0 1,120,577 ---------- ---------- --------- ---------- Total liabilities 1,110,305 1,235,708 (44,900) 2,301,113 ---------- ---------- --------- ---------- Commitments and contingencies Minority interest 12,063 0 12,063 ---------- ---------- --------- ---------- Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debt securities of the Company 0 0 ---------- ---------- --------- ---------- Shareholders' Equity Common stock 59,655 500 (500)(e) 70,812 11,157 (f) Additional paid-in capital 201,318 749,500 (749,500)(e) 612,991 411,673 (f) Accumulated other comprehensive income 111,767 0 (e) 111,767 Retained earnings (Accumulated deficit) 1,276,185 (170,077) 170,077 (e) 1,276,185 ---------- ---------- --------- ---------- Total shareholders' equity 1,648,925 579,923 (157,093) 2,071,755 ---------- ---------- --------- ---------- Total $2,771,293 $1,815,631 ($201,993) $4,384,931 ========== ========== ========= ========== BV per share 27.64 11.60 29.26 Equivalent pro forma 12.41
2 Leucadia National Corporation and Subsidiaries Unaudited Pro Forma Consolidated Statement of Operations For the nine months ended September 30, 2003 (In thousands, except per share amounts)
Historical Leucadia WilTel Nine Months Nine Months Ended Ended September 30, September 30, Pro Forma Pro Forma 2003 2003 Adjustments As Adjusted --------------------------------------- ----------- Revenues: Manufacturing $40,794 $40,794 Wireless messaging revenues 45,509 45,509 Finance 44,673 44,673 Telecommunications $971,824 971,824 Investment and other income 114,561 59,946 (o) 174,507 Net securities gains (losses) 546 546 --------------------------------------- --------- 246,083 1,031,770 0 1,277,853 --------------------------------------- --------- Expenses: Manufacturing cost of sales 29,331 29,331 Wireless messaging network operating expenses 24,449 24,449 Telecommunications cost of sales 789,306 789,306 Depreciation and amortization 15,174 186,322 4,420 (i) 205,916 Asset impairments and restructuring charges 0 Reorganization items, net 0 Interest 26,188 31,070 57,258 Selling, general and other expenses 144,898 136,454 281,352 --------------------------------------- --------- 240,040 1,143,152 4,420 1,387,612 --------------------------------------- --------- Income (loss) from continuing operations before income taxes, minority interest and equity in income (losses) of associated companies 6,043 (111,382) (4,420) (109,759) Income tax (benefit) provision (9,689) 23 9,747 (l) 81 --------------------------------------- --------- Income (loss) from continuing operations before minority interest and equity in income (losses) of associated companies 15,732 (111,405) (14,167) (109,840) Minority expense of trust preferred securities, net of taxes (2,761) (1,487)(l) (4,248) Minority interest in loss of consolidated subsidiary 2,378 0 2,378 Equity in income (losses) of associated companies, net of taxes 42,942 50,881 (l) 150,972 57,149 (m) --------------------------------------- --------- Income (loss) from continuing operations $55,913 ($109,027) $92,376 $39,262 ======================================= ========= Basic loss per common share $0.55 Number of shares used in calculation 59,630 11,156 (n) 70,786 Diluted loss per common share $0.55 Number of shares used in calculation 60,044 11,156 (n) 71,200 Equivalent pro forma Basic loss per common share $0.24 Diluted loss per common share $0.23
3 Leucadia National Corporation and Subsidiaries Unaudited Pro Forma Consolidated Statement of Operations For the year ended December 31, 2002 (In thousands, except per share amounts)
Historical WilTel WilTel Leucadia Ten Months Two Months Year Ended Ended Ended December 31, October 31, December 31, Pro Forma Pro Forma 2002 2002 2002 Adjustments As Adjusted ------------------------------------------------------ ----------- Revenues: Manufacturing $50,744 $50,744 Finance 87,812 87,812 Telecommunications $1,000,007 $191,656 ($6,664)(g) 1,184,999 Investment and other income 140,315 19,756 445 160,516 Net securities gains (losses) (37,066) (37,066) ----------------------------------------------------- ---------- 241,805 1,019,763 192,101 (6,664) 1,447,005 ----------------------------------------------------- ---------- Expenses: Manufacturing cost of sales 33,963 33,963 Telecommunications cost of sales 862,405 171,605 (6,614)(h) 1,027,396 Depreciation and amortization 17,266 460,989 44,294 (231,853)(i) 290,696 Asset impairments and restructuring charges 28,483 8,572 (8,572)(h) 28,483 Reorganization items, net (2,066,032) 2,156,330 (j) 90,298 Interest 33,547 195,602 7,221 (136,481)(k) 99,889 Selling, general and other expenses 198,554 218,621 22,257 439,432 ----------------------------------------------------- ---------- 283,330 (299,932) 253,949 1,772,810 2,010,157 ----------------------------------------------------- ---------- Income (loss) from continuing operations before income taxes, minority interest and equity in income (losses) of associated companies (41,525) 1,319,695 (61,848) (1,779,474) (563,152) Income tax (benefit) provision (144,865) 1,030 3 25,837 (l) (117,995) ----------------------------------------------------- ---------- Income (loss) from continuing operations before minority interest and equity in income (losses) of associated companies 103,340 1,318,665 (61,851) (1,805,311) (445,157) Minority expense of trust preferred securities, net of taxes (5,521) (2,973)(l) (8,494) Minority interest in loss of consolidated subsidiary 12,530 802 0 13,332 Equity in income (losses) of associated companies, net of taxes 54,712 36,700 (l) 104,812 13,400 (m) ----------------------------------------------------- ---------- Income (loss) from continuing operations $152,531 $1,331,195 ($61,049) ($1,758,184) ($335,507) ===================================================== ========== Basic earnings (loss) per common share $2.74 ($5.02) Number of shares used in calculation 55,667 11,156 (n) 66,823 Diluted earnings (loss) per common share $2.72 ($5.02) Number of shares used in calculation 56,016 10,807 (n) 66,823 Equivalent pro forma Basic loss per common share (2.13) Diluted loss per common share (2.13)
4 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The unaudited pro forma consolidated balance sheet as of September 30, 2003 assumes that all of the shares of WilTel common stock not owned by Leucadia are acquired and reflects the adjustments necessary to record the acquisition as though it had occurred on September 30, 2003. The aggregate purchase price of $424,800,000 for the shares of WilTel common stock not already owned by Leucadia consists of $422,800,000 of Leucadia common shares and estimated cash expenses of $2,000,000, as described in the notes below. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2002 and the unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2003 have been prepared assuming the acquisition of WilTel common stock occurred on January 1, 2002 and reflect the effects of certain adjustments to the historical consolidated financial statements that result from the acquisition of WilTel common stock. WilTel emerged from bankruptcy in October 2002 and adopted the provisions of fresh start accounting on October 31, 2002. WilTel's emergence from bankruptcy resulted in a new reporting entity for accounting purposes and, as such, its financial results for periods before and after its emergence are presented separately. At acquisition, under generally accepted accounting principles, Leucadia is required to allocate the purchase price to specific tangible and intangible assets and liabilities based upon their relative fair values. Leucadia will employ independent appraisals and other techniques to determine these fair values. For purposes of the pro forma balance sheet, Leucadia principally utilized the independent appraisals, market quotes, discounted cash flow techniques and comparable sales information utilized by WilTel to prepare their fresh start balance sheet upon emergence from bankruptcy as of October 31, 2002. Leucadia reviewed this information in light of the passage of time since its preparation and the changes in the telecommunications industry to determine whether the information was still in a range of reasonable estimates of fair values for use in the pro forma balance sheet, and concluded that it was. At acquisition, the determination of the actual relative fair values may result in a different allocation than was assumed for the pro forma financial statements. Any such differences are expected to result in an increase or decrease to property, plant and equipment and deferred income, could also result in a different weighted average life used for depreciation and amortization purposes and, as a result, could either increase or decrease the annual amount of actual depreciation and amortization recorded. Accordingly, except for the effects of the pro forma adjustments to property, plant and equipment, the September 30, 2003 historical WilTel balances were assumed to be reasonable estimates of fair values for purposes of the allocation of the purchase price in the pro forma balance sheet. The 'Pro Forma Adjustments' column combines the accounting effects of Leucadia's actual purchases in 2002 with the pro forma accounting effect of the offer to purchase the remaining shares. The principal accounting differences between the actual 2002 purchases and the pro forma 2003 purchase are the amount of excess purchase price over WilTel's historical book value of assets acquired for each transaction, and the related depreciation and amortization expenses reflected, on a pro forma basis, for each transaction. As of September 30, 2003, the amount of the excess was $13,508,000 for the 2002 purchases and $74,891,000, on a pro forma basis, for the 2003 offer to acquire the remaining shares. Each of these amounts is assumed to be amortized as depreciation and amortization expense over an average life of 15 years. In addition, the 2003 offer to purchase the remaining shares will allow Leucadia to recognize WilTel's deferred tax assets in an amount equal to Leucadia's deferred tax liability. The following notes pertain to the unaudited pro forma consolidated financial statements: (a) Represents estimated expenses incurred in connection with the acquisition of WilTel common stock in the offer. (b) Represents the preliminary adjustment to fair value of the assets acquired. The excess of the amount paid to acquire WilTel common stock in the offer over the historical carrying amounts of net assets acquired is assumed allocated to property, plant and equipment. 5 (c) Represents the elimination of the carrying amount of Leucadia's 47.4% interest in WilTel prior to the acquisition. (d) Represents the recognition of net deferred tax assets of WilTel in an amount equal to Leucadia's deferred tax liabilities. Additional deferred tax assets have not been recognized as they are not deemed more likely than not to be realizable. (e) Represents the elimination of the historical stockholders' equity of WilTel. (f) Reflects the issuance of 11,156,460 Leucadia common shares, based on a valuation of $37.90 per share, the average of the closing share prices for the five business day period commencing two days before and ending two days after the Merger Agreement was executed. (g) Represents an adjustment to the historical amortization of WilTel's deferred revenue as a result of the adjustment to the carrying amount of deferred revenue to reflect its fair value as of the date of acquisition. (h) The adjustment to reduce telecommunications cost of sales by $6,614,000 results from the recognition of a liability for the fair value of unfavorable contracts as of the date of the acquisition assumed in the pro forma financial statements. Cost of sales has been reduced for actual amounts expensed for these contracts during the ten month period ended October 31, 2002; no other amounts were expensed for these contracts for any other period presented. The adjustment to reduce asset impairments and restructuring charges by $8,572,000 substantially reflects the reversal of severance expense recorded by WilTel, which was recognized by Leucadia as a liability in its allocation of the purchase price to the fair value of the acquired liabilities. (i) For both periods presented, represents an increase to depreciation expense ($4,420,000 for 2003 and $6,000,000 for 2002) related to the adjustment to fair value of property, plant and equipment at June 30, 2003, which fair value adjustment is assumed amortized over an average life of 15 years. Property, plant and equipment primarily consists of network equipment (fiber, optronics and capacity IRUs) with depreciable lives of 3-20 years, rights-of-way with depreciable lives of 20 years, buildings and leasehold improvements with depreciable lives of 10-30 years, computer equipment and software with depreciable lives of 2-3 years, general office furniture and fixtures of 5-8 years, and construction in progress. Depreciation expense is computed using the straight-line method. The 2002 period also includes a reduction of $231,853,000 to WilTel's historical depreciation expense, as the historical carrying amount of WilTel's property, plant and equipment as of January 1, 2002 is nearly $3 billion more than the preliminary amount allocated to property, plant and equipment assumed in the pro forma financial statements. Accordingly, depreciation expense was substantially reduced on a pro forma basis since the actual depreciation expense recorded on a much larger asset would not have been recorded on a pro forma basis. (j) Represents the reversal of the gain recognized upon the discharge of WilTel's indebtedness in bankruptcy ($4.3 billion) and the reversal of the net charge recognized upon WilTel's application of fresh start accounting adjustments to the historical carrying amounts of its asset and liabilities ($2.1 billion). (k) Represents the reversal of historical interest expense related to all debt that was converted to equity under WilTel's bankruptcy plan. (l) Represents the reversal of Leucadia's historical federal income tax provision as losses generated by WilTel exceed Leucadia's historical income. Leucadia did not record in its historical financial statements a deferred tax benefit for its share of WilTel's losses, as its ability to utilize these unrealized capital losses to reduce taxes due on capital gains in the future was uncertain. Therefore, no amount of adjustment (l) relates to Leucadia's share of WilTel's losses. The 'Pro Forma As Adjusted' amounts for the line item 'income tax (benefit) provision' for all periods includes amounts for state income and franchise taxes 6 and, for the 2002 period, a reversal of Leucadia tax reserves as a result of the resolution of certain federal income tax contingencies unrelated to the WilTel acquisition. (m) Represents the reversal of Leucadia's recognition of its share of WilTel's losses under the equity method of accounting as a result of the pro forma consolidation. (n) For basic and diluted earnings (loss) per common share, represents the number of shares issued in connection with the acquisition of WilTel common stock pursuant to the offer. In addition, for the year ended December 31, 2002, the pro forma adjustment for diluted earnings (loss) per common share includes a reduction of approximately 349,000 shares issuable pursuant to outstanding Leucadia options, that are included in the historical calculation but not in the pro forma calculation as the result is antidilutive. (o) For the nine months ended September 30, 2003, WilTel's other income includes non-operating and non-recurring gains of $54,400,000. Such gains are attributable to a gain on the sale of a subsidiary ($21,100,000) and gains resulting from the termination of various agreements that released WilTel from previously accrued obligations. 7