Exclusive: Leucadia to take $500 million Q4 charge due to new US Tax Act

Tax Cuts and Jobs Act impact

LeapRate Exclusive… LeapRate has learned via regulatory filings that Leucadia National Corp. (NYSE:LUK) is planning a take a charge to earnings in the neighborhood of $450-500 million when it reports its fourth quarter 2017 results.

The culprit? The newly-passed US Tax Cuts and Jobs Act.

Leucadia National CorpOn December 22, 2017, the Tax Cuts and Jobs Act was enacted in the United States, viewed as a major legislative triumph for President Donald Trump and House Speaker Paul Ryan. The Tax Act presents one of the most comprehensive changes in the U.S. corporate income tax since 1986 and certain provisions are highly complex in their application.

The Tax Act revises the U.S. Corporate income tax by, among other things, lowering the basic corporate income tax rate from 35% to 21%, which will benefit most profitable US companies such as Leucadia over the long run. However some provisions of the Act will cause some near-term pain for companies such as Leucadia and its Jefferies LLC investment banking subsidiary – especially for companies which earn a good portion of their profits outside the US.

Leucadia is also the effective majority shareholder and has the major economic interest in Retail FX broker FXCM Group.

The Tax Act also adopts a territorial income tax system, and imposes a toll charge on the unremitted earnings of foreign subsidiaries. Leucadia stated that it is currently evaluating the impact that the Tax Act will have on both its Consolidated Statements of Financial Condition and Consolidated Statements of Operations. At this time, based on information currently available, Leucadia filed that it anticipates that its results for the fourth quarter of 2017 will reflect a charge in the approximate range of $450-$500 million.

This planned charge represents the impact of the Tax Act on the consolidated results of Leucadia, including the portion related to Jefferies LLC. Because Jefferies’ fiscal year ends on November 30th, the impact of the Tax Act on their separately filed financial statements will be reflected in their first quarter results ending February 28, 2018. The charge consists of both the revaluation of our deferred tax assets and a toll charge of about $30 million on the deemed repatriation of net unremitted foreign earnings relating to Jefferies and Linkem. The company noted that the decrease in the carrying value of Leucadia’s deferred tax asset, in addition to being non-cash, has no meaningful economic significance because it does not alter the amount of future taxable income that will be sheltered.

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