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2009 Leucadia (LUK) Annual Meeting

Disclaimer: These notes were taken in real time at the Leucadia Annual Meeting in New York, NY on
Monday, May11th, 2009 without the use of a recorder. The goal was to get the gist of the questions and as
much of the answer as possible. Please excuse any mistakes or omissions.

Speakers: Chairman Ian Cumming, President Joe Steinberg, Director Jeff Keil, CFO Joseph Orlando (if
the speaker is not listed then he/she was not identified)

1. Introductory remarks
a. Cumming:
i. Aside from what is printed in the SEC filings and the annual report, the
company has nothing to say and will open the floor up for questions
2. Q&A
a. Q1: If it is true that LUK’s competitive advantage is having Steinberg and
Cumming as leaders, how should investors think about where the next level of
management comes from? Please talk about the succession plan.
i. Cumming:
1. They have been working for 10 years on a succession plan
a. It is a topic of discussion at every board meeting
b. They think they have a couple of people in mind who can
assume at least a part of the management role
2. Previously they had just focused on putting investments in place
a. Believe they were not as cognizant as they should have been
on buying durable companies that would keep them cash flow
positive
i. For the next two years they will focus on buying
companies with durable underpinnings
1. It is easier to run durable companies so this
has to be a strategy tied to their succession
plan
3. Said he is 68 now and is signed through 2015
a. Said he hopes to sign another long term contract then
ii. Steinberg:
1. Their company has accomplished one important thing
a. If he and Cumming dropped dead one day the company has
management below that would allow it to go on and be in
good shape
2. Steinberg and Cumming do not fly together as mandated by the Board
3. Replacing whatever investment acumen he and Cumming have is a
high priority for them
a. They are working on it but they don’t know exactly how they
are going to solve it yet
b. Believes this is the most serious issue at LUK today
b. Q2: Can you talk about the Jeffries (JEF) compensation structure a little bit?
i. Cumming
1. We don’t know exactly what people are getting paid there
a. But, Steinberg and Cumming are both on the Board of JEF
now
i. They are trying to stop JEF from seriously diluting
shareholders when they hire new people
ii. Have recently convinced the management team to go
out into the market and buy stock if they use stock as
a way to attract employees to JEF
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1. Now that this requires an actual expenditure

and liquidity the company has started to
think more about compensation
iii. Are concerned that over-energetic 28 years were
making way more than they were worth and of course
are concerned about compensation
c. Q3: In terms of AmeriCredit (ACF), can you talk about why they liked the business
and what they see in the future of that business?
i. Cumming:
1. They have made 4 large investments recently and they feel like they
bought too soon on all of them
a. However, all but ACF are in the money right now
2. They previously had owned a subprime auto lender
a. Were forced to sell it when the pricing got too low to
compensate them for the risk
i. So they are knowledgeable and comfortable with the
business
3. Believe that there are going to be cars in this world
a. Aside from in NY where it is impossible to drive, most people
have to drive to work
i. Poor people will need cars too
4. Based on today’s margins, ACF would be doing incredibly well
a. The problem is that there is no credit as the securitization
market has dried up
b. Said that they have been in the Fed’s offices multiples times
trying to figure out how to use TALF to get an economically
prudent deal done
i. The Fed has been trying to get liquidity and investors
back into the securitization markets but ACF has had
no luck with TALF
5. They are currently shrinking the business
a. Trying to get the capacity within the company’s net worth
i. Even suggested the old fashioned idea of not lending
more money than they had and not levering up at all
1. Joked that the management team was
horrified
b. Will make money and grow as credit grows
6. Have learned major lessons regarding this experience
a. Believe that 10-15 years from now banks will have forgotten
about these past troubles, want to get back into this business
and hopefully ACF could be sold to the banks before they
drive pricing down enough that ACF can’t be profitable and
has to be liquidated
7. Claim that ACF has done $58B in securitizations and no one has lost a
penny yet
ii. Steinberg:
1. Going forward, there should also be less competition from non-banks
a. ACF will not be as big as company as before
b. However, Chrysler credit and GMAC are wounded and are not
supplying credit
c. The car companies are basically out of the subprime space
now
2. ACF will finance itself in the future but will not be as highly levered
3. The goal is to maintain the book value of the company, which is about
$15 per share now
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a. This will allow them to wait and fight another day

d. Q4: In the past you had been hesitant to say that the stock was overvalued. What
would you say about it now?
i. Cumming:
1. Will not comment directly on the stock price
2. But he did say that he is very comfortable with their 4 big investments
a. 2 financial service companies and 2 mines
i. Believe that when the market comes back these
investments will outperform
e. Q5: Can you talk about Fortescue Metals (FMG) and the dilution that could happen
there? Can you also talk about the Cresud investment in Argentina?
i. Steinberg:
1. The newspaper reports on FMG are true
a. They have the ambition to double their output
i. This will require a major investment and this means
they will need to raise money in order to make that
investment
a. The Chinese will likely provide the
money
b. WSJ Article from 5/11/09: Hunan
Valin Iron & Steel Group
executives said China's sovereign-
wealth fund may help finance
expansion at Fortescue Metals
Group Ltd. through debt rather than
stock purchases, as the Chinese
steel group became the Australian
iron-ore miner's second-biggest
shareholder.
b. They have a lot of work to do to get what they already have up
and running efficiently and without delays
c. It is a long term process
ii. Cumming:
1. Believe the fundamentals are good for the company
a. TV and the internet have shrunk the world
i. There are millions of people who watch TV and see
the wealth that exists in much of the rest of the world
1. Are going to want to taste that wealth
themselves
ii. This should help this mine prosper as there will be
further demand for iron ore
iii. Steinberg:
1. Have a small investment in Cresud agricultural company in Argentina
a. Not really focusing on it right now
b. Has a great portfolio of assets but the fundamentals right now
in Argentina are terrible
i. Will hit the wall again soon
ii. Not very optimistic
f. Q6: Can you discuss the cash available for acquisitions and whether or not you
would be interested in looking for cheap assets tied to commercial real estate?
i. Cumming:
1. Until the company has a big fat infrastructure that consists of durable
companies they will certainly not speculate on commercial real estate
assets
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a. Do not have the luxury or the desire to pursue hit or miss

assets
2. Have $500M in cash right now on the balance sheet
a. Will not go a penny below $500M unless they can buy
companies that they feel are durable
g. Q7: How is LUK positioned for a decline in the US dollar and/or inflation?
i. Keil:
1. LUK is well positioned to protect against either of those through its
borrowings in US dollars and investments in commodity/hard assets
companies
h. Q8: Why do they use Baldwin subsidiary to make certain investments?
i. Orlando:
1. It is basically a tax structure decision
a. Allows them to use NOLs
i. Q9: Can NOLs be used as financing vehicles (like a John Malone spinoff) to
purchase assets?
i. Steinberg:
1. Definitely going to try to do this going forward
a. The NOLs provide them with an advantage as an acquirer
ii. Cumming:
1. Have more flexibility in terms of what they can pay as a result of the
NOLs
j. Q10: Since they are now claiming that they are focus on buying better businesses, is
that different from buying cheap business? What is the difference?
i. Cumming:
1. Nothing has really changed
a. They have never paid too much (based on their own
assessment of value) and never will
2. Have seen the prices that people want coming down slowly over time
a. Can use the NOLs to take advantage of opportunities
k. Q11: Can you talk about the prospects for Sangart? How do you know if the
additional investment was throwing good money after bad?
i. Cumming:
1. They have no idea if they threw good money after bad
2. Still have to go through Stage II and Stage III trials on Hemospan
a. From Sangart website regarding Hemospan: Sangart’s lead
product, MP4, is designed to effectively target oxygen
delivery to tissues that are insufficiently oxygenated. Because
of the critical role oxygenation plays in the human body, MP4
has the potential to improve outcomes in a wide variety of
surgical and medical conditions.
b. Results so far have been very positive
i. Over 1000 people have used Hemospan and no one
has died
1. But, the FDA and potential buyers are
terrified because other companies that tried
to develop similar drugs ended up killing
people
a. Therefore no one is offering to buy
Sangart
ii. Believe it would be a gift to humanity if they can get
it to work
1. Seems to be working now
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l. Q12: Buffett said that there would consequences of the Fed’s quantitative easing
and recent government interventions. What is better protection, buying hard assets
or great businesses like Buffett does?
i. Cumming:
1. Buffett is smarter than they are so they will certainly not contradict
anything he says
2. But they do have a copper and iron ore mine that could prosper as a
result of a decline in the dollar and inflation
m. Q13: Does durable (when it comes to the companies they are looking to buy) mean
that they will have to give up potential upside?
i. Cumming:
1. They are just looking for companies with a solid future
a. Examples: food companies, cheese companies, manufacturers
of things such as bearings
2. Looking for companies like their plastics company (Conwed Plastics)
a. Even in the crash their revenues are only down 15-20%
3. Have a drilling company (Goober Drilling) that should be stable and
durable
a. Will lose money in 2009 on a net income basis but not on an
EBITDA basis
ii. Steinberg:
1. The mistake they made was putting money with third party managers
(Wintergreen and Pershing Square)
a. They now realize this is foolish and they will not do it again
b. They expect to have all their money back from the 3rd party
managers in 6 months
i. Say they are near the end of this
c. The Pershing Square investment was a huge mistake
i. Claimed they have lost almost everything
d. The Wintergreen investment was more complicated but they
felt the need to get the money back
n. Q14: Have the prices of stacked rigs come down enough for LUK to want to buy
more?
i. Cumming:
1. No, have not come down enough
a. Want to get all of their rigs signed up before they look into
buying any new rigs
o. Q15: Do they care to comment on the Moody’s downgrade?
i. Cumming:
1. Moody’s downgraded LUK?
a. Who cares: they pay not attention to them
b. They will probably upgrade LUK at some point and
downgrade LUK at another point
c. No one should pay any attention to Moody’s
i. They have missed almost everything and have been
late at each turn
p. Q16: Can you talk about the NOL accounting rules? Why does it matter if they are
inane?
i. Cumming:
1. Brief background on the NOLs
a. Had a large NOL on the balance sheet
b. Auditors determined that it was not likely to be used
i. Therefore LUK had to take it off the balance sheet
and recognized a huge loss that impacted net income
significantly
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1. However this is a non-cash loss

c. The accounting rules are inane and ridiculous
i. If they ever are likely to use the losses then they will
bring it back onto the balance sheet
ii. The NOL only has speculative value
1. Can only use it if they make a profit
a. But they have not paid income tax
in 30 years and suspect they won’t
for another 30
iii. The NOL misleads people who are trying to value the
company
1. Created a huge loss that could fool
unsophisticated people
iv. They prefer to revert to cash thinking
q. Q17: You say you have 4 large investments but how does the smaller investment
decision processes and management work?
i. Cumming:
1. They have an asset management group that focuses on the smaller
investments
a. They report constantly to Steinberg and Cumming
r. Q18: Are they looking more or less outside the US as a result of the crisis?
i. Nothing has changed either way on this front
s. Q19: How does the rest of the world look to you right now? How long do you think
this downturn will last?
i. Cumming:
1. They have no idea how long the downturn will last
2. Do see the private equity guys trying to sell stuff
a. Finally are loosening their prices
i. Believe that as the downturn continues they will see
further pricing pressure
3. They are not good at looking forward
a. Certainly to not have a crystal ball
t. Q20: You keep talking about durable businesses, but isn’t Jeffries (JEF) in a levered
and tough business right now?
i. Cumming:
1. Bought their shares of JEF with LUK shares that were close to $54
a. Thought the price of JEF was attractive
i. In retrospect they believe it was even more attractive
b. Was a financing as well as a cheap asset deal
ii. Steinberg:
1. JEF is not a troubled investment bank
a. Do not have toxic assets
2. Trading is going to be a disproportionate component of earnings going
forward
a. The government needs to borrow a lot of money and JEF
should be in a good position to benefit from that
3. However, they are in a tough business for sure
a. They have applied to be a broker dealer, which is a very
competitive business
4. JEF did not have a near death experience like Goldman Sachs and
Morgan Stanley
a. However, the guys at JEF were paying attention when Bear
Stearns and Lehman went away
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i. They are being more cautious and acting differently

now
u. Q21: In terms of ACF, has there been any attempt to sell securitizations without
breaking it down into tranches?
i. There have been some discussions but nothing made sense financially
v. Q22: How do they decide when to sell an asset?
i. Cumming:
1. The science is in the “in”
a. The poetry is in the “out”
i. Cumming does not use spreadsheet models to
determine when to sell
1. Does have access to people who can use
models and spreadsheets
b. They look at the future earnings stream and discount it back to
determine a value
i. The rate depends on how durable the company is and
how much they love it
ii. If the asset is selling above their estimation of value
then they think about selling it
w. Q23: Can you give us your take on natural gas?
i. Cumming:
1. In Oregon they have a de-liquidation plant
a. They believe they are one year away from having approval
from FERC (Federal Energy Regulatory Commission)
i. Will need a more experienced partner to come in if
they get the approval
ii. Think that after the approval and necessary
investment they will have a saleable asset when they
are up and running
1. Could make 2-3x their investment
2. Long term view on natural gas is $6-7 per Mcf
a. Gas is well below that now
x. Q24: Can you talk about what you are seeing in home prices through your
subsidiaries?
i. In the San Diego market they are seeing foreclosures coming through
1. Things are slowly improving
a. Builders have started to ask about buying lots at distressed
prices
y. You say that you are covering operating expenses with cash reserves, how much
cash burn is going on? How long can you last? What about upcoming debt
maturities?
i. Cumming:
1. If they don’t make an investments then they can last forever and a day
a. Not a likely scenario but if they could not find any
investments they would return cash to shareholders
2. Operating cash flow is not a problem
3. They are working hard to make debt disappear
a. Have been buying back their debt
b. Are looking to de-lever going forward