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Section 1: 8-K (JEFFERIES GROUP LLC 8-K)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): September 20, 2016

Jefferies Group LLC

(Exact name of registrant as specified in its charter)

Delaware

1-14947

95-4719745

(State or other jurisdiction of
incorporation)

(Commission File Number)

(IRS Employer Identification
No.)


520 Madison Ave., New York, New York

10022

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code: 212-284-2550

 

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



Item 2.02.  Results of Operations and Financial Condition

On September 20, 2016, we issued a press release announcing financial results for the quarter ended August 31, 2016.  A copy of the press release is attached hereto as Exhibit 99.

Item 9.01.  Financial Statements and Exhibits

The following exhibit is furnished with this report:

Number              Exhibit

99                        September 20, 2016 press release.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Jefferies Group LLC

 
 
Date:

September 20, 2016

/s/ Roland T. Kelly

Roland T. Kelly

Assistant Secretary

 



EXHIBIT INDEX

Exhibit No.

Description

 

99

September 20, 2016 press release.

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Section 2: EX-99 (EXHIBIT 99)

Exhibit 99

Jefferies Reports Fiscal Third Quarter 2016 Financial Results

NEW YORK--(BUSINESS WIRE)--September 20, 2016--Jefferies Group LLC today announced financial results for its fiscal third quarter 2016.

Highlights for the three months ended August 31, 2016:

Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: “We are pleased to report quarterly revenues well above those for the same period last year and consistent with our recent second quarter, excluding the impact of the markup last quarter in two listed equity positions, which had no meaningful impact on our third quarter results. Aside from a volatile two week period following the unexpected outcome of the UK ‘Brexit’ referendum in June, fixed income and equity secondary market conditions remained reasonably steady for much of the third quarter. However, new issue activity continued to be slow industry-wide for most of the period.

Our equity net revenues were $148 million, compared to $224 million for the second quarter and $203 million for the third quarter of last year. Two listed equity block positions, including KCG, that were marked up by $60 million in the second quarter, generated only about $2 million of further net total mark ups during the third quarter. The same two positions, as well as two additional securities positions that had an immaterial impact on the third quarter results, were marked up by a net total of $66 million in the third quarter of last year.

Fixed Income net revenues were $195 million, compared to $238 million for the second quarter and up significantly from the poor year-ago quarter of negative $18 million. Our sales and trading credit businesses, including mortgages, corporates, leveraged credit and our recently enhanced emerging markets business, continued to perform well.

Investment banking net revenues were $295 million and reflect solid advisory revenues, but a slower new issuance environment. Our backlog for the fourth quarter represents the highest level of backlog we have experienced this year. We have continued to expand into new sub-sectors and geographies, as well as enhance existing coverage.

Our average daily VaR for the third quarter was $6.62 million, versus $8.25 million for the second quarter. The quarter-over-quarter decrease reflects both a reduction in risk, as well as lower asset price volatility. Average daily VaR for the third quarter was the lowest we have recorded since the fourth quarter of 2010."

The attached financial tables should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended May 31, 2016 and our Annual Report on Form 10-K for the year ended November 30, 2015. Amounts herein pertaining to August 31, 2016 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2016.

This 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 results and performance, including our future market share and expected financial results. It is possible that the actual results may differ materially from the anticipated results indicated in these forward-looking statements. Please refer to our most recent Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.

Jefferies, the world's only independent full-service global investment banking firm focused on serving clients for over 50 years, is a leader in providing insight, expertise and execution to investors, companies and governments. Our firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income and foreign exchange, as well as wealth management, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding company.


 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
           
Quarter Ended
August 31, 2016 May 31, 2016 August 31, 2015
 
Revenues:
Commissions and other fees $ 152,044 $ 146,157 $ 172,284
Principal transactions 167,483 318,180 (50,297 )
Investment banking 294,930 253,046 389,820

Asset management fees and investment
 income from managed funds

15,877 4,336 4,182
Interest income 213,716 220,175 230,805
Other revenues 19,791   (4,977 ) 34,329  
Total revenues 863,841 936,917 781,123
Interest expense 209,391   217,509   202,195  
Net revenues 654,450   719,408   578,928  
 
Non-interest expenses:
Compensation and benefits 376,438 415,316 336,499
 
Non-compensation expenses:
Floor brokerage and clearing fees 40,189 43,591 45,307
Technology and communications 64,512 66,499 89,378
Occupancy and equipment rental 24,987 24,926 25,967
Business development 20,259 22,587 30,527
Professional services 29,761 29,526 24,684
Other 17,582   14,366   19,473  
Total non-compensation expenses 197,290   201,495   235,336  
Total non-interest expenses 573,728   616,811   571,835  
Earnings before income taxes 80,722 102,597 7,093
Income tax expense 39,564   48,655   4,609  
Net earnings 41,158 53,942 2,484
Net earnings (loss) attributable to noncontrolling interests (11 ) 44   427  
Net earnings attributable to Jefferies Group LLC $ 41,169   $ 53,898   $ 2,057  
 
Pretax operating margin 12.3 % 14.3 % 1.2 %
Effective tax rate 49.0 % 47.4 % 65.0 %
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
       
Nine Months Ended
August 31, 2016 August 31, 2015
 
Revenues:
Commissions and other fees $ 454,025 $ 512,714
Principal transactions 382,290 211,142
Investment banking 778,906 1,066,077
Asset management fees and investment
income (loss) from managed funds
29,743 (5 )
Interest income 655,836 700,227
Other revenues (6,937 ) 82,810  
Total revenues 2,293,863 2,572,965
Interest expense 621,018   610,811  
Net revenues 1,672,845   1,962,154  
 
Non-interest expenses:
Compensation and benefits 1,141,497 1,182,484
 
Non-compensation expenses:
Floor brokerage and clearing fees 124,259 159,100
Technology and communications 196,000 234,126
Occupancy and equipment rental 74,498 74,571
Business development 67,700 78,865
Professional services 82,799 76,359
Other 52,649   51,960  
Total non-compensation expenses 597,905   674,981  
Total non-interest expenses 1,739,402   1,857,465  
Earnings (loss) before income taxes (66,557 ) 104,689
Income tax expense 5,112   29,470  
Net earnings (loss) (71,669 ) 75,219
Net earnings attributable to noncontrolling interests 77   1,647  
Net earnings (loss) attributable to Jefferies Group LLC $ (71,746 ) $ 73,572  
 
Pretax operating margin (4.0 )% 5.3 %
Effective tax rate (7.7 )% 28.2 %
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
         
Quarter Ended
August 31, 2016 May 31, 2016 August 31, 2015

Revenues by Source

Equities $ 148,308 $ 223,540 $ 203,077
Fixed income (1) 195,335   238,486   (18,151 )
Total sales and trading 343,643   462,026   184,926  
 
Equity 68,218 60,905 127,051
Debt 72,473   46,124   113,928  
Capital markets 140,691 107,029 240,979
Advisory 154,239   146,017   148,841  
Total investment banking 294,930   253,046   389,820  
 
Asset management fees and investment income (losses)
from managed funds:
Asset management fees 7,610 6,964 7,067
Investment income (losses) from managed funds 8,267   (2,628 ) (2,885 )
Total 15,877   4,336   4,182  
Net revenues $ 654,450   $ 719,408   $ 578,928  
 

Other Data

Number of trading days 65 64 65
Number of trading loss days 8 2 21
Number of trading loss days excluding KCG 4 1 18
 
Average firmwide VaR (in millions) (2) $ 6.62 $ 8.25 $ 13.77
Average firmwide VaR excluding KCG (in millions) (2) $ 4.48 $ 6.04 $ 12.16
 
(1)   The results for the quarter ended August 31, 2015 include $4.3 million of negative revenues globally from the Bache business. At May 31, 2016, we have transferred all of our client accounts to Société Générale S.A. and other brokers and completed the exit of the Bache business.
(2) VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2015.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
         
Nine Months Ended
August 31, 2016 August 31, 2015

Revenues by Source

Equities $ 373,593 $ 634,754
Fixed income (1) 490,603   261,328  
Total sales and trading 864,196   896,082  
 
Equity 173,122 314,927
Debt 175,870   329,474  
Capital markets 348,992 644,401
Advisory 429,914   421,676  
Total investment banking 778,906   1,066,077  
 
Asset management fees and investment income (losses) from managed funds:
Asset management fees 25,779 25,955
Investment income (losses) from managed funds 3,964   (25,960 )
Total 29,743   (5 )
Net revenues $ 1,672,845   $ 1,962,154  
 

Other Data

Number of trading days 190 189
Number of trading loss days 27 42
Number of trading loss days excluding KCG 17 32
 
Average firmwide VaR (in millions) (2) $ 7.73 $ 13.29
Average firmwide VaR excluding KCG (in millions) (2) $ 5.72 $ 10.47
 
(1)   The results for the nine months ended August 31, 2015 include $80.6 million of net revenues globally from the Bache business. At May 31, 2016, we have transferred all of our client accounts to Société Générale S.A. and other brokers and completed the exit of the Bache business.
(2) VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2015.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)
           
Quarter Ended
August 31, 2016 May 31, 2016 August 31, 2015
 

Financial position:

Total assets (1) $ 38,128 $ 37,120 $ 42,783
Average total assets for the period (1) $ 42,270 $ 43,549 $ 48,327
Average total assets less goodwill and intangible assets for the period (1) $ 40,408 $ 41,678 $ 46,432
 
Cash and cash equivalents (1) $ 3,159 $ 2,839 $ 3,442
Cash and cash equivalents and other sources of liquidity (1) (2) $ 5,020 $ 4,603 $ 5,151
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 13.2 % 12.4 % 12.0 %

Cash and cash equivalents and other sources of liquidity - % total assets less
goodwill and intangible assets (1) (2)

13.8 % 13.1 % 12.6 %
 
Financial instruments owned (1) $ 14,328 $ 15,119 $ 18,892
Goodwill and intangible assets (1) $ 1,856 $ 1,871 $ 1,891
 
Total equity (including noncontrolling interests) $ 5,324 $ 5,344 $ 5,514
Total member's equity $ 5,319 $ 5,339 $ 5,481
Tangible member's equity (3) $ 3,463 $ 3,468 $ 3,590
 
 

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) $ 437 $ 436 $ 474
Level 3 financial instruments owned - % total assets (1) 1.1 % 1.2 % 1.1 %
Level 3 financial instruments owned - % total financial instruments (1) 3.0 % 2.9 % 2.5 %
Level 3 financial instruments owned - % tangible member's equity (1) 12.6 % 12.6 % 13.2 %
 

Other data and financial ratios:

Total long-term capital (1) (5) $ 10,800 $ 10,729 $ 10,849
Leverage ratio (1) (6) 7.2 6.9 7.8
Adjusted leverage ratio (1) (7) 8.7 9.0 10.3
Tangible gross leverage ratio (1) (8) 10.5 10.2 11.4
 
Number of trading days 65 64 65
Number of trading loss days 8 2 21
Number of trading loss days excluding KCG 4 1 18
Average firmwide VaR (9) $ 6.62 $ 8.25 $ 13.77
Average firmwide VaR excluding KCG (9) $ 4.48 $ 6.04 $ 12.16
 
Number of employees, at period end 3,323 3,279 3,665
 

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
 
(1) Amounts pertaining to August 31, 2016 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2016.
 
(2) At August 31, 2016, other sources of liquidity include high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities of $1,449 million, in aggregate, and $412 million, being the total of the estimated amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged at reasonable financing haircuts. At August 31, 2015 amounts also included additional funds that were available under the committed senior secured revolving credit facility available for the working capital needs of Jefferies Bache. The corresponding amounts included in other sources of liquidity at May 31, 2016 were $1,096 million and $669 million, respectively, and at August 31, 2015, were $1,263 million and $446 million, respectively.
 
(3) Tangible member's equity (a non-GAAP financial measure) represents total member's equity less goodwill and identifiable intangible assets. We believe that tangible member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible member's equity, making these ratios meaningful for investors.
 
(4) Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.
 
(5) At August 31, 2016, May 31, 2016 and August 31, 2015, total long-term capital includes our long-term debt of $5,476 million, $5,385 million and $5,335 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts that are non-recourse to Jefferies Group LLC and the amount of debt maturing in less than one year, where applicable.
 
(6) Leverage ratio equals total assets divided by total equity.
 
(7) Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity, being total equity less goodwill and identifiable intangible assets. Adjusted assets (a non-GAAP financial measure) equals total assets less securities borrowed, securities purchased under agreements to resell, cash and securities segregated, goodwill and identifiable intangibles plus financial instruments sold, not yet purchased (net of derivative liabilities). At August 31, 2016, May 31, 2016 and August 31, 2015, adjusted assets were $30,318 million, $31,173 million and $37,240 million, respectively. We believe that adjusted assets is a meaningful measure as it excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities.
 
(8) Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member's equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
 
(9) VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2015.

CONTACT:
Jefferies Group LLC
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer

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