SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-K/A
Amendment No. 2
______________________
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
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 (I.R.S. Employer Identification No.)
of Incorporation or Organization)
315 Park Avenue South
New York, New York 10010
(212) 460-1900
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Shares, par value $1 per share New York Stock Exchange
Pacific Exchange, Inc.
7-3/4% Senior Notes due August 15, 2013 New York Stock Exchange
8-1/4% Senior Subordinated Notes due New York Stock Exchange
June 15, 2005
7-7/8% Senior Subordinated Notes due New York Stock Exchange
October 15, 2006
Securities registered pursuant to Section 12(g) of the Act:
None.
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [x].
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [x] No [_]
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at June 30, 2002 (computed by reference to the
last reported closing sale price of the Common Shares on the New York Stock
Exchange on such date): $1,114,008,000.
On March 25, 2003, the registrant had outstanding 59,617,292 Common Shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant's definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 in connection with the
2003 annual meeting of shareholders of the registrant are incorporated by
reference into Part III of this Report.
EXPLANATORY NOTE
This Report on Form 10-K/A amends and restates in its entirety Item 15 of the
Annual Report on Form 10-K of Leucadia National Corporation (the "Company") for
the fiscal year ended December 31, 2002:
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
-------- -----------------------------------------------------------------
(a)(1)(2) Financial Statements and Schedules.
Report of Independent Accountants............................................................F-1
Financial Statements:
Consolidated Balance Sheets at December 31, 2002 and 2001..................................F-2
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and
2000....................................................................................F-3
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and
2000....................................................................................F-4
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2002, 2001 and 2000........................................................F-6
Notes to Consolidated Financial Statements.................................................F-7
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts............................................F-36
(3) Executive Compensation Plans and Arrangements.
----------------------------------------------
1999 Stock Option Plan (filed as Annex A to the Company's Proxy
Statement dated April 9, 1999 (the "1999 Proxy Statement")).
Amended and Restated Shareholders Agreement dated as of December 16,
1997 among the Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (the "1997 10-K")).
Leucadia National Corporation Senior Executive Annual Incentive
Bonus Plan (filed as Annex D to the Company's Proxy Statement dated
October 3, 1997 (the "1997 Proxy Statement")).
Employment Agreement made as of December 28, 1993 by and between the
Company and Ian M. Cumming (filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 (the "1993 10-K")).
Amendment, dated as of May 5, 1999, to the Employment Agreement made
as of December 28, 1993 by and between the Company and Ian M.
Cumming (filed as Exhibit 10.19 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 2001 (the "2001
10-K")).
Employment Agreement made as of December 28, 1993 by and between the
Company and Joseph S. Steinberg (filed as Exhibit 10.18 to the 1993
10-K).
Amendment, dated as of May 5, 1999, to the Employment Agreement made
as of December 28, 1993 by and between the Company and Joseph S.
Steinberg (filed as Exhibit 10.21 to the 2001 10-K).
Deferred Compensation Agreement between the Company and Joseph S.
Steinberg dated December 8, 1998 (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (the "1998 10-K")).
Deferred Compensation Agreement between the Company and Joseph S.
Steinberg dated as of December 30, 1999 (filed as Exhibit 10.16 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (the "1999 10-K")).
Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of January 10, 2000 (filed as Exhibit 10.17 to
the 1999 10-K).
Deferred Compensation Agreement between the Company and Thomas E.
Mara dated as of January 10, 2000 (filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (the "2000 10-K")).
Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 29, 2000 (filed as Exhibit 10.18 to
the 2000 10-K).
Leucadia National Corporation Senior Executive Warrant Plan (filed
as Annex B to the 1999 Proxy Statement).
Deferred Compensation Agreement between the Company and Thomas E.
Mara dated as of December 20, 2001 (filed as Exhibit 10.28 to the
2001 10-K).
Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 27, 2001 (filed as Exhibit 10.29 to
the 2001 10-K).
Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 16, 2002 (filed as Exhibit 10.42 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002).
(b) Reports on Form 8-K.
--------------------
The Company filed current reports on Form 8-K dated October 15, 2002,
October 16, 2002 and December 24, 2002 which set forth information under
Item 5. Other Events and Item 7. Financial Statements and Exhibits.
The Company filed current reports on Form 8-K dated November 27, 2002
which set forth information under Item 2. Acquisition or Disposition of
Assets, Item 5. Other Events and Item 7. Financial Statements and
Exhibits.
(c) Exhibits.
--------
3.1 Restated Certificate of Incorporation (filed as Exhibit 5.1 to the
Company's Current Report on Form 8-K dated July 14, 1993).*
3.2 Certificate of Amendment of the Certificate of Incorporation dated
as of December 23, 2002.
3.3 Amended and Restated By-laws as amended through February 23, 1999
(filed as Exhibit 3.2 to the 1998 10-K).*
---------------------------
* Incorporated by reference.
4.1 The Company undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with respect to
long-term debt not filed herewith.
10.1 1999 Stock Option Plan (filed as Annex A to the 1999 Proxy
Statement).*
10.2 Articles and Agreement of General Partnership, effective as of April
15, 1985, of Jordan/Zalaznick Capital Company (filed as Exhibit
10.20 to the Company's Registration Statement No. 33-00606).*
10.3 Operating Agreement of The Jordan Company LLC, dated as of July 23,
1998 (filed as Exhibit 10.3 to the 1998 10-K).*
10.4 Leucadia National Corporation Senior Executive Warrant Plan (filed
as Annex B to the 1999 Proxy Statement).*
10.5 Amended and Restated Shareholders Agreement dated as of December 16,
1997 among the Company, Ian M. Cumming and Joseph S. Steinberg
(filed as Exhibit 10.4 to the 1997 10-K).*
10.6 Deferred Compensation Agreement between the Company and Joseph S.
Steinberg dated December 8, 1998 (filed as Exhibit 10.6 to the 1998
10-K).*
10.7 Form of Amended and Restated Revolving Credit Agreement dated as of
June 27, 2000 between the Company, Fleet National Bank as
Administrative Agent, The Chase Manhattan Bank, as Syndication
Agent, and the Banks signatory thereto, with Fleet Boston Robertson
Stephens, Inc., as Arranger (filed as Exhibit 10.9 to the 2000
10-K).*
10.8 Form of First Amendment, dated as of August 10, 2001, to Amended and
Restated Revolving Credit Agreement dated as of June 27, 2000
between the Company, Fleet National Bank as Administrative Agent,
The Chase Manhattan Bank, as Syndication Agent, and the Banks
signatory thereto, with Fleet Boston Robertson Stephens, Inc., as
Arranger (filed as Exhibit 10.8 to the 2001 10-K).*
10.9 Purchase Agreement among Conseco, Inc., the Company, Charter
National Life Insurance Company, Colonial Penn Group, Inc., Colonial
Penn Holdings, Inc., Leucadia Financial Corporation, Intramerica
Life Insurance Company, Colonial Penn Franklin Insurance Company and
Colonial Penn Insurance Company dated as of April 30, 1997 (filed as
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1997).*
10.10 Purchase Agreement among General Electric Capital Corporation, the
Company, Charter National Life Insurance Company, Colonial Penn
Group Inc. and Colonial Penn Holdings, Inc. dated as of June 30,
1997 (filed as Annex A to the 1997 Proxy Statement).*
10.11 Purchase Agreement by and among Allstate Life Insurance Company,
Allstate Life Insurance Company of New York, Charter National Life
Insurance Company, Intramerica Life Insurance Company and the
Company, dated February 11, 1998 (filed as Exhibit 10.16 to the 1997
10-K).*
10.12 Leucadia National Corporation Senior Executive Annual Incentive
Bonus Plan (filed as Annex D to the 1997 Proxy Statement).*
---------------------------
* Incorporated by reference.
10.13 Stock Purchase Agreement by and between the Company and Allstate
Life Insurance Company dated as of December 18, 1998 (filed as
Exhibit 10.14 to the 1998 10-K).*
10.14 Deferred Compensation Agreement between the Company and Joseph S.
Steinberg dated as of December 30, 1999 (filed as Exhibit 10.16 to
the 1999 10-K).*
10.15 Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of January 10, 2000 (filed as Exhibit 10.17 to
the 1999 10-K).*
10.16 Deferred Compensation Agreement between the Company and Thomas E.
Mara dated as of January 10, 2000 (filed as Exhibit 10.17 to the
2000 10-K).*
10.17 Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 29, 2000 (filed as Exhibit 10.18 to
the 2000 10-K).*
10.18 Employment Agreement made as of December 28, 1993 by and between the
Company and Ian M. Cumming (filed as Exhibit 10.17 to the 1993
10-K).*
10.19 Amendment, dated as of May 5, 1999, to the Employment Agreement made
as of December 28, 1993 by and between the Company and Ian M.
Cumming (filed as Exhibit 10.19 to the 2001 10-K).*
10.20 Employment Agreement made as of December 28, 1993 by and between the
Company and Joseph S. Steinberg (filed as Exhibit 10.18 to the 1993
10-K).*
10.21 Amendment, dated as of May 5, 1999, to the Employment Agreement made
as of December 28, 1993 by and between the Company and Joseph S.
Steinberg (filed as Exhibit 10.21 to the 2001 10-K).*
10.22 Commitment Letter dated February 26, 2001 among the Company,
Berkshire Hathaway Inc., Berkadia LLC, The FINOVA Group Inc. and
FINOVA Capital Corporation (filed as Exhibit 10.19 to the 2000
10-K).*
10.23 Management Services Agreement dated as of February 26, 2001 among
The FINOVA Group Inc., the Company and Leucadia International
Corporation (filed as Exhibit 10.20 to the 2000 10-K).*
10.24 Leucadia National Corporation Guaranty to Fleet Securities, Inc., as
administrative agent, and the lenders from time to time party to the
Fleet Facility, dated as of August 21, 2001 (filed as Exhibit 4 to
the Schedule 13D filed with the SEC on August 28, 2001 in respect of
Company Common Stock by Berkshire Hathaway Inc. et al. (the
"Berkshire Schedule 13D")).*
10.25 Berkadia Management LLC Operating Agreement, dated August 21, 2001,
by and between BH Finance LLC and WMAC Investment Corporation (filed
as Exhibit 8 to the Berkshire Schedule 13D).*
10.26 Voting Agreement, dated August 21, 2001, by and among Berkadia LLC,
Berkshire Hathaway Inc., the Company and The FINOVA Group Inc.
(filed as Exhibit 10.J to the Company's Current Report on Form 8-K
dated August 27, 2001).*
---------------------------
* Incorporated by reference.
10.27 First Amended and Restated Berkadia LLC Operating Agreement, dated
August 21, 2001, by and among BHF Berkadia Member Inc., WMAC
Investment Corporation and Berkadia Management LLC (filed as Exhibit
11 to the Berkshire Schedule 13D).*
10.28 Deferred Compensation Agreement between the Company and Thomas E.
Mara dated as of December 20, 2001 (filed as Exhibit 10.28 to the
2001 10-K).*
10.29 Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 27, 2001 (filed as Exhibit 10.29 to
the 2001 10-K).*
10.30 Settlement Agreement dated as of July 26, 2002, by and among The
Williams Companies Inc. ("TWC"), Williams Communications Group, Inc.
("WCG"), CG Austria, Inc., the official committee of unsecured
creditors and the Company (filed as Exhibit 99.2 to the Current
Report on Form 8-K of WCG dated July 31, 2002 (the "WCG July 31,
2002 8-K")).*
10.31 Investment Agreement, dated as of July 26, 2002, by and among the
Company, WCG and, for purposes of Section 7.4 only, Williams
Communications, LLC ("WCL") (filed as Exhibit 99.4 to the WCG July
31, 2002 8-K).*
10.32 First Amendment, made as of September 30, 2002, to the Investment
Agreement, dated as of July 26, 2002, by and among the Company, WCG
and WCL (filed as Exhibit 99.4 to the Current Report on Form 8-K of
WCG dated October 24, 2002 (the "WilTel October 24, 2002 8-K")).*
10.33 Second Amendment, made as of October 15, 2002, to the Investment
Agreement, dated as of July 26, 2002, as amended on September 30,
2002, by and among the Company, WCG and WCL (filed as Exhibit 99.5
to the WilTel October 24, 2002 8-K).*
10.34 Purchase and Sale Agreement, dated as of July 26, 2002, by and
between TWC and the Company (filed as Exhibit 99.5 to the Company's
Current Report on Form 8-K dated July 31, 2002).*
10.35 Amendment, made as of October 15, 2002, to the Purchase and Sale
Agreement, dated as of July 26, 2002, by and among the Company and
TWC (filed as Exhibit 99.2 to the WilTel October 24, 2002 8-K).*
10.36 Escrow Agreement, dated as of October 15, 2002, among the Company,
TWC, WilTel and The Bank of New York, as Escrow Agent (filed as
Exhibit 99.3 to the WilTel October 24, 2002 8-K).*
10.37 Share Purchase Agreement, dated April 17, 2002 between LUK Fidei
L.L.C. and Hampton Trust PLC (previously filed).
10.38 Reiterative Share Purchase Agreement, dated June 4, 2002, among
Savits AB Private, Hampton Trust Holding (Europe) SA, John C. Jones
and Herald Century Consolidated SA (previously filed).
10.39 Stock Purchase Agreement, dated as of October 21, 2002, between
HomeFed Corporation ("HomeFed") and the Company (filed as Exhibit
10.1 to the Current Report on Form 8-K of HomeFed dated October 22,
2002).
---------------------------
* Incorporated by reference.
10.40 Second Amended and Restated Berkadia LLC Operating Agreement, dated
December 2, 2002, by and among BH Finance LLC and WMAC Investment
Corporation (previously filed).
10.41 Subscription Agreement made and entered into as of December 23, 2002
by and among the Company and each of the entities named in Schedule
I thereto (previously filed).
10.42 Deferred Compensation Agreement between the Company and Mark
Hornstein dated as of December 26, 2002 (previously filed).
21 Subsidiaries of the registrant (previously filed).
23.1 Consent of PricewaterhouseCoopers LLP with respect to the
incorporation by reference into the Company's Registration Statement
on Form S-8 (File No. 2-84303), Form S-8 and S-3 (File No. 33-6054),
Form S-8 and S-3 (File No. 33-26434), Form S-8 and S-3 (File No.
33-30277), Form S-8 (File No. 33-61682), Form S-8 (File No.
33-61718), Form S-8 (File No. 333-51494) and Form S-4 (File No.
333-86018) (previously filed).
23.2 Independent Auditors' Consent from PricewaterhouseCoopers, with
respect to the inclusion in this Annual Report on Form 10-K the
financial statements of Olympus Re Holdings, Ltd. and with respect
to the incorporation by reference in the Company's Registration
Statements on Form S-8 (No. 2-84303), Form S-8 and S-3 (No.
33-6054), Form S-8 and S-3 (No. 33-26434), Form S-8 and S-3 (No.
33-30277), Form S-8 (No. 33-61682), Form S-8 (No. 33-61718), Form
S-8 (No. 333-51494) and Form S-4 (No. 333-86018) (previously filed).
23.3 Consent of independent auditors from Ernst & Young LLP with respect
to the inclusion in this Annual Report on Form 10-K of the financial
statements of Berkadia LLC and with respect to the incorporation by
reference in the Company's Registration Statements on Form S-8 (No.
2-84303), Form S-8 and S-3 (No. 33-6054), Form S-8 and S-3 (No.
33-26434), Form S-8 and S-3 (No. 33-30277), Form S-8 (No. 33-61682),
Form S-8 (No. 33-61718), Form S-8 (No. 333-51494) and Form S-4 (No.
333-86018) (previously filed).
23.4 Consent of independent auditors from Ernst & Young LLP with respect
to the inclusion in this Annual Report on Form 10-K of the financial
statements of The FINOVA Group Inc. and with respect to the
incorporation by reference in the Company's Registration Statements
on Form S-8 (No. 2-84303), Form S-8 and S-3 (No. 33-6054), Form S-8
and S-3 (No. 33-26434), Form S-8 and S-3 (No. 33-30277), Form S-8
(No. 33-61682), Form S-8 (No. 33-61718), Form S-8 (No. 333-51494)
and Form S-4 (No. 333-86018) (previously filed).
23.5 Independent Auditors' Consent from KPMG LLP, with respect to the
inclusion in this Annual Report on Form 10-K of the financial
statements of Jefferies Partners Opportunity Fund II, LLC for the
year ended December 31, 2002 and with respect to the incorporation
by reference in the Company's Registration Statements (No. 2-84303)
on Form S-8, (No. 33-6054) on Form S-8 and S-3, (No. 33-26434) on
Form S-8 and S-3, (No. 33-30277) on Form S-8 and S-3, (No. 33-61682)
on Form S-8, (No. 33-61718) on Form S-8, (No. 333-51494) on Form S-8
and (No. 333-86018) on form S-4 (filed herewith)
23.6 Independent Auditors' Consent from KPMG LLP, with respect to the
inclusion through incorporation by reference in this Annual Report
on Form 10-K of the financial statements of Jefferies Partners
Opportunity Fund II, LLC for the two years ended December 31, 2001
and the period from May 20, 1999 through December 31, 1999 and with
respect to the incorporation by reference in the Company's
Registration Statements (No. 2-84303) on Form S-8, (No. 33-6054) on
Form S-8 and S-3, (No. 33-26434) on Form S-8 and S-3, (No. 33-30277)
on Form S-8 and S-3, (No. 33-61682) on Form S-8, (No. 33-61718) on
Form S-8, (No. 333-51494) on Form S-8 and (No. 333-86018) on Form
S-4 (filed herewith).
31.1 Certification of Chairman of the Board and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
---------------------------
* Incorporated by reference.
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.
(d) Financial statement schedules.
(1) Berkadia LLC financial statements as of December 31, 2002 and 2001
and for the year ended December 31, 2002 and for the period from
inception, February 26, 2001, to December 31, 2001 (previously
filed).
(2) Olympus Re Holdings, Ltd. combined financial statements as of
December 31, 2002 and 2001 and for the year ended December 31, 2002
and for the period from date of incorporation, December 3, 2001 to
December 31, 2001 (previously filed).
(3) The FINOVA Group Inc. and subsidiaries consolidated financial
statements as of December 31, 2002 and 2001 and for the years ended
December 31, 2002, 2001 and 2000 (filed with The FINOVA Group Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,
2002).*
(4) Jefferies Partners Opportunity Fund II, LLC financial statements as
of December 31, 2002 and for the year ended December 31, 2002
(provided herewith) and as of December 31, 2001 and for the years
ended December 31, 2001 and 2000 (filed with the 2001 10-K*).
---------------------------
* Incorporated by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
September 9, 2003 By: /s/ Barbara L. Lowenthal
----------------------------
Barbara L. Lowenthal
Vice President and Comptroller
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
(SEC Identification No. 8-51771)
Financial Statements and Supplementary Information
December 31, 2002
(With Independent Auditors' Report Thereon
and Supplemental Report on Internal Control)
These financial statements and schedule should be deemed
confidential pursuant to Subparagraph (e)(3) of Rule 17a-5.
A statement of financial condition bound separately has been
filed with the Securities and Exchange Commission
simultaneously herewith as a public document.
Independent Auditors' Report
The Members
Jefferies Partners Opportunity Fund II, LLC:
We have audited the accompanying statement of financial condition of Jefferies
Partners Opportunity Fund II, LLC (the "Fund") as of December 31, 2002, and the
related statements of earnings, changes in members' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferies Partners Opportunity
Fund II, LLC as of December 31, 2002, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The information contained in the schedule is
presented for purposes of additional analysis and is not a required part of the
financial statements, but is supplementary information required by Rule 17a-5
under the Securities Exchange Act of 1934. Such information has been subjected
to the auditing procedures applied in our audit of the financial statements and,
in our opinion, is fairly stated, in all material respects, in relation to the
financial statements taken as a whole.
/s/ KPMG LLP
January 24, 2003, except as to Note 8
of the notes to the financial statements,
which is as of February 14, 2003.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Statement of Financial Condition
December 31, 2002
Assets
Cash and cash equivalents $ 51,922,332
Receivable from affiliated brokers and dealers 8,674,598
Securities owned 106,371,906
Other assets 1,505,781
Total assets $168,474,617
Liabilities and Members' Equity
Securities sold, not yet purchased $ 1,907,586
Payable to affiliated brokers and dealers 16,274,366
Payable to Jefferies & Company, Inc. 540,078
Accrued expenses and other liabilities 102,347
Total liabilities 18,824,377
Members' equity:
Members' capital, net 126,255,099
Retained earnings 23,395,141
Total members' equity 149,650,240
Total liabilities and members' equity $168,474,617
See accompanying notes to financial statements.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Statement of Earnings
Year ended December 31, 2002
Revenues:
Principal transactions (net of direct trading expenses) $17,644,923
Interest 6,917,318
Total revenues 24,562,241
Expenses:
General and administrative 1,070,544
Management fee 1,046,280
Interest 655,445
Total expenses 2,772,269
Net earnings $21,789,972
See accompanying notes to financial statements.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Statement of Changes in Members' Equity
Year ended December 31, 2002
Total
Members' Retained members'
capital, net earnings equity
Balance, December 31, 2001 $ 126,255,099 42,067,489 168,322,588
Distributions -- (40,462,320) (40,462,320)
Net earnings -- 21,789,972 21,789,972
Balance, December 31, 2002 $ 126,255,099 23,395,141 149,650,240
See accompanying notes to financial statements.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Statement of Cash Flows
Year ended December 31, 2002
Cash flows from operating activities:
Net earnings $ 21,789,972
Changes in assets and liabilities:
Amortization of financing costs 107,644
Decrease in receivable from affiliated brokers and dealers 3,475,010
Decrease in securities owned 18,702,934
Decrease in other assets 277,550
Increase in securities sold, not yet purchased 255,298
Decrease in payable to affiliated brokers and dealers (1,619,104)
Decrease in payable to Jefferies & Company, Inc. (361,781)
Increase in accrued expenses and other liabilities 12,185
20,849,736
Net cash provided by operating activities 42,639,708
Cash flows from financing activities:
Proceeds from bank loans 16,400,000
Repayment of bank loans (16,400,000)
Distributions (40,462,320)
Net cash used in financing activities (40,462,320)
Net increase in cash and cash equivalents 2,177,388
Cash and cash equivalents at beginning of year 49,744,944
Cash and cash equivalents at end of year $ 51,922,332
Supplemental disclosures of cash flow information - Cash paid
during the year for interest $ 719,280
See accompanying notes to financial statements.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Notes to Financial Statements
December 31, 2002
(1) Summary of Significant Accounting Policies
Jefferies Partners Opportunity Fund II, LLC (the "Fund") is a Delaware limited
liability company. The Fund commenced operations on January 19, 2000. The
investment objective of the Fund is to generate returns for its members by
making, holding, and disposing of a diverse portfolio of primarily below
investment grade debt and equity investments. The Fund was established to offer
members the opportunity to participate in the trading, investment, and brokerage
activities of the High Yield Department of Jefferies & Company, Inc.
("Jefferies"). The Fund employs a trading and investment strategy substantially
similar to that historically employed by Jefferies' High Yield Department. The
Fund acquires, actively manages, and trades a diverse portfolio of primarily
non-investment grade investments consisting of the following three asset groups:
High Yield Debt, Special Situation Investments, and, to a lesser extent, Bank
Loans. The Fund has appointed Jefferies to serve as manager to the Fund (the
"Manager"). The Fund participates in the trading and investment activities of
the High Yield Department on a pari passu basis with Jefferies. To permit such
participation, the Fund has been registered as a broker dealer under the
Securities Exchange Act of 1934 and with the National Association of Securities
Dealers.
The Fund will be in effect until January 18, 2007, unless extended for up to
three successive one-year terms by the vote of the Manager and a majority of the
member interests.
The Fund, in connection with its activities as a broker dealer, does not hold
funds or securities for customers. Accordingly, the computation for
determination of reserve requirements pursuant to Rule 15c3-3 has been omitted.
(a) Cash and Cash Equivalents
Cash equivalents consist of money market funds, which are part of the cash
management activities of the Fund, and generally mature within 90 days. At
December 31, 2002, such cash equivalents amounted to $50,687,097.
(b) Fair Value of Financial Instruments
Substantially all of the Fund's financial instruments are carried at fair value
or amounts approximating fair value. Assets, including cash and cash
equivalents, securities borrowed, and certain receivables, are carried at fair
value or contracted amounts which approximate fair value due to the short period
to maturity. Similarly, liabilities, including certain payables, are carried at
amounts approximating fair value. Securities owned and securities sold, not yet
purchased, are valued at quoted market prices, if available. For securities
without quoted prices, the reported fair value is estimated by using various
sources of information, including quoted prices for comparable securities.
(c) Securities Transactions
The Fund records its securities transactions on a trade-date basis.
Securities owned and securities sold, not yet purchased, are valued at market,
and unrealized gains or losses are reflected in revenues from principal
transactions in the statement of earnings.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Notes to Financial Statements
December 31, 2002
(d) Contributions
Capital contributions are recorded net of placement fees. Each member is charged
a one-time placement fee of 1% of gross contributions.
(e) Federal and State Income Taxes
Under current federal and applicable state limited liability company laws and
regulations, limited liability companies are treated as partnerships for tax
reporting purposes and, accordingly, are not subject to income taxes. Therefore,
no provision for income taxes has been made in the Fund's financial statements.
For tax purposes, income or losses are included in the tax returns of the
members.
(f) Allocation of Income and Expense
Income and expense are allocated 100% to the members based on the pro rata share
of their capital contributed to the Fund, until the total allocation equals the
aggregate member preferred return of 8% of contributed capital. All remaining
income and expense are allocated 80% to the members and 20% to the Manager.
(g) Use of Estimates
Management of the Fund has made a number of estimates and assumptions relating
to the reporting of assets and liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses to prepare
these financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) Receivable from, and Payable to, Brokers and Dealers
The following is a summary of the major categories of receivable from, and
payable to, brokers and dealers as of December 31, 2002:
Receivable from brokers and dealers:
Securities borrowed $ 324,780
Other 8,349,818
$ 8,674,598
Payable to brokers and dealers - other $16,274,366
The Fund borrows securities to cover short sales, from which the Fund derives
interest revenue. Receivable from, and payable to, brokers and dealers are with
affiliates. See note 5.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Notes to Financial Statements
December 31, 2002
(3) Securities Owned and Securities Sold, Not Yet Purchased
The following is a summary of the market value of major categories of securities
owned and securities sold, not yet purchased, as of December 31, 2002:
Securities sold,
Securities not yet
owned purchased
Corporate debt securities $ 92,563,394 1,907,586
Corporate equity securities 13,808,512 --
$ 106,371,906 1,907,586
(4) Revolving Credit Facility
In June 2002, the Fund entered into a revolving credit facility agreement to be
used in connection with the Fund's investing activities. At December 31, 2002,
$85,200,000 was available under the terms of the revolving credit facility
agreement. The revolving credit facility expires June 2003, but provides for
annual extensions. Advances under this facility bear interest at lender's
commercial paper rate plus 115 basis points. The Fund incurs a liquidity fee on
the total amount available under the revolving credit facility. For the year
ended December 31, 2002, the Fund was charged a liquidity fee of $323,937, a
program fee of $112,570, and an administrative fee of $2,360, which are included
in interest expense. During the year ended December 31, 2002, the Fund borrowed,
and subsequently repaid, $16,400,000 under the revolving credit facility. For
the year ended December 31, 2002, the Fund was charged interest of $216,578 on
balances borrowed under the revolving credit facility. At December 31, 2002,
there was no outstanding balance under the revolving credit facility.
The Fund incurred costs in securing the revolving credit facility. These costs
have been capitalized and are being amortized over seven years. Net unamortized
costs of $439,548 are included in other assets. Amortization expense of $107,644
is included in general and administrative expenses.
(5) Related Party Transactions
Included in members' capital is an investment in the Fund by Jefferies of
$27,159,268. Additionally, Jefferies, in its capacity as Manager, contributed
$1,000 of capital for the right to participate in 20% of the Fund's earnings in
excess of an 8% preferred return paid to the members.
Included in receivable from brokers and dealers is $8,349,818 due from Jefferies
and $324,780 due from Helfant Group, Inc., an affiliate of Jefferies.
Included in interest income is $7,000 received from Helfant Group, Inc. related
to stock borrow transactions.
Included in payable to brokers and dealers is $16,274,366 due to Jefferies.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Notes to Financial Statements
December 31, 2002
Payable to Jefferies of $540,078 is for amounts due for direct trading expenses
and general and administrative expenses. Direct trading expenses of $7,143,763
are net against principal transactions revenue. The Fund reimburses Jefferies
for general and administrative expenses based on the Fund's pro rata portion of
actual charges incurred. Reimbursed expenses of $791,839 are included in general
and administrative expenses.
Jefferies, in its capacity as Manager, receives management fees equal to 1% per
annum of the sum of 100% of the average balance of securities owned and 98% of
the average balance of securities sold, not yet purchased.
(6) Financial Instruments
(a) Off-Balance Sheet Risk
The Fund has contractual commitments arising in the ordinary course of business
for securities sold, not yet purchased. These financial instruments contain
varying degrees of off-balance sheet risk whereby the market values of the
securities underlying the financial instruments may be in excess of, or less
than, the contract amount. The settlement of these transactions is not expected
to have a material effect upon the Fund's financial statements.
(b) Credit Risk
In the normal course of business, the Fund is involved in the execution,
settlement, and financing of various principal securities transactions.
Securities transactions are subject to the risk of counterparty nonperformance.
However, transactions are collateralized by the underlying security, thereby
reducing the associated risk to changes in the market value of the security
through settlement date.
The Fund seeks to control the risk associated with these transactions by
establishing and monitoring collateral and transaction levels daily.
(c) Concentration of Credit Risk
The Fund's activities are executed exclusively with Jefferies. Concentrations of
credit risk can be affected by changes in economic, industry, or geographical
factors. The Fund seeks to control its credit risk and the potential risk
concentration through a variety of reporting and control procedures including
those described in the preceding discussion of credit risk.
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Notes to Financial Statements
December 31, 2002
(7) Net Capital Requirement
The Fund is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital. The Fund has elected to use the alternative method permitted by Rule
15c3-1, which requires that the Fund maintain minimum net capital, as defined,
equal to the greater of $250,000 or 2% of aggregate debit balances arising from
customer transactions, as defined.
At December 31, 2002, the Fund had net capital of $81,313,339, which was
$81,063,339 in excess of required net capital.
(8) Subsequent Events
On February 14, 2003, the Fund made a distribution of income to the Fund members
of $21,789,971.
Schedule
JEFFERIES PARTNERS OPPORTUNITY FUND II, LLC
Computation of Net Capital under Rule 15c3-1(a)(1)(ii)
of the Securities and Exchange Commission
Using the Alternative Net Capital Requirement
December 31, 2002
Net capital:
Total members' equity $149,650,240
Total capital 149,650,240
Deduct:
Nonallowable assets 471,147
Other deductions and/or charges 53,460,824
Total deductions and/or charges 53,931,971
Net capital before haircuts on securities positions 95,718,269
Haircuts on securities:
Trading and investment securities:
Corporate obligations 9,407,304
Other 4,561,839
Undue concentration 435,787
14,404,930
Net capital 81,313,339
Less net capital requirement 250,000
Net capital in excess of requirement $ 81,063,339
Note: The computation of net capital under Rule 15c3-1(a)(1)(ii) as of December
31, 2002, as computed by Jefferies Partners Opportunity Fund II, LLC in its Form
X-17a-5, Part II, filed with NASD Regulation, Inc. on January 24, 2003, does not
differ from the above computation, which is based upon the audited financial
statements.
See accompanying independent auditors' report.