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Section 1: 8-K (JEFFERIES FINANCIAL GROUP INC. 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 21, 2018

JEFFERIES FINANCIAL GROUP INC.

(Exact name of registrant as specified in its charter)

New York

1-5721

13-2615557

(State or other jurisdiction of
incorporation)

(Commission File Number)

(IRS Employer Identification
No.)


520 Madison Avenue, New York, New York

10022

(Address of principal executive offices)

(Zip Code)


Registrant’s telephone number, including area code: 212-460-1900

 

(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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.


Item 2.02.  Results of Operations and Financial Condition

On September 21, 2018, our wholly-owned subsidiary Jefferies Group LLC issued a press release announcing financial results for its fiscal quarter ended August 31, 2018.  A copy of the press release is attached hereto as Exhibit 99 and is incorporated herein by reference.



Item 9.01.  Financial Statements and Exhibits

The following exhibit is furnished with this report:

Number              Exhibit

99                        Press Release issued by Jefferies Group LLC on September 21, 2018



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 FINANCIAL GROUP INC.

 
 
Date:

September 21, 2018

/s/ Roland T. Kelly

Roland T. Kelly

Assistant Secretary and

Associate General Counsel



EXHIBIT INDEX

Exhibit No.

Exhibit

 

99

Press Release issued by Jefferies Group LLC on September 21, 2018

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Section 2: EX-99 (EXHIBIT 99)

Exhibit 99

Jefferies Group LLC Reports Fiscal Third Quarter 2018 Financial Results

NEW YORK--(BUSINESS WIRE)--September 21, 2018--Jefferies Group LLC, a wholly-owned subsidiary of Jefferies Financial Group Inc. (NYSE: JEF), today announced financial results for its fiscal third quarter 2018.

Highlights for the three months ended August 31, 2018:

Highlights for the nine months ended August 31, 2018:

Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: "Our third quarter revenues of $778 million reflect solid performances in Investment Banking, with revenues of $452 million, and in sales and trading where revenues grew to $310 million. The usual summer slow-down appeared to impact activity levels in both the primary and secondary debt markets."

"Our Investment Banking results reflect lower Leverage Finance transaction levels during the period versus the second quarter of this year and the third quarter of last year. Advisory activity levels were also more muted during the period. Equity Capital markets revenues for the quarter were $139 million, an increase of 29% versus the second quarter and 62% versus last year’s third quarter. Compared to this year’s second quarter, we increased our market share and improved our market rankings in both our new issues businesses, as well as our advisory business. Our fourth quarter investment banking backlog is higher than that of any recent periods, and reflects the investments we have made to broaden and deepen our team and capabilities."

"Our Equities Sales and Trading business enjoyed another solid quarter, with revenues of $171 million. We continue to add clients to the platform, particularly in Prime Brokerage and Electronic Trading. Fixed Income Sales and Trading volumes were light during the period, particularly in our international rates business. Fixed Income revenues were $140 million, up 17% from the second quarter, despite lower levels of client engagement. Our Emerging Markets business continued to perform well during the period, despite the challenging environment."

As mentioned before, we expect our going forward tax rate to be about 27%. The higher effective tax rate for this quarter of 31% reflects this run rate plus the impact of certain discrete items related to our non-U.S. subsidiaries planning for the Tax Act.

The attached financial tables should be read in conjunction with our Quarterly Report on Form 10-Q for the quarter ended May 31, 2018 and our Annual Report on Form 10-K for the year ended November 30, 2017. Amounts herein pertaining to August 31, 2018 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 quarter ended August 31, 2018.


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 Group LLC, 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, advisory, sales and trading, research and wealth management services across all products in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Jefferies Financial Group Inc. (NYSE: JEF), a diversified financial services company.

_____________________

 
¹ Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the comparable results of the nine months ended August 31, 2017 provides meaningful information to investors as it enables investors to evaluate our results, excluding the gain on our equity investment in KCG Holdings Inc., which was sold in July 2017. Refer to the Supplemental Schedule on page 5 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
² Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the first nine months of 2018 provides meaningful information to investors as it enables investors to evaluate our results excluding the impact of the provisional tax charge resulting from the Tax Act. Refer to the Supplemental Schedule on page 5 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
     
Quarter Ended
August 31, 2018 May 31, 2018 August 31, 2017
 
Revenues:
Commissions and other fees $ 155,539 $ 158,104 $ 139,082
Principal transactions (1) 143,308 137,802 186,408
Investment banking 465,326 500,297 475,702
Asset management fees (1) 5,184 6,016 4,272
Interest 305,347 307,327 230,496
Other 13,581   47,263   12,371  
Total revenues 1,088,285 1,156,809 1,048,331
Interest expense 310,670   334,252   247,639  
Net revenues 777,615   822,557   800,692  
 
Non-interest expenses:
Compensation and benefits 428,033 444,094 462,933
 
Non-compensation expenses:
Floor brokerage and clearing fees 45,745 46,244 44,869
Underwriting costs 20,528 13,029
Technology and communications 76,877 76,381 72,440
Occupancy and equipment rental 25,559 24,993 27,736
Business development 39,733 42,393 23,125
Professional services 35,316 35,991 25,007
Other 18,723   17,567   22,318  
Total non-compensation expenses 262,481   256,598   215,495  
Total non-interest expenses 690,514   700,692   678,428  
Earnings before income taxes 87,101 121,865 122,264
Income tax expense 26,923   23,857   38,439  
Net earnings 60,178 98,008 83,825
Net earnings (loss) attributable to noncontrolling interests (4 ) 4   10  
Net earnings attributable to Jefferies Group LLC $ 60,182   $ 98,004   $ 83,815  
 
Pre-tax operating margin 11.2 % 14.8 % 15.3 %
Effective tax rate 30.9 % 19.6 % 31.4 %
(1)   Certain reclassifications within revenue line items have been made for the three month period ended August 31, 2017. We have reorganized the presentation of our gains and losses generated from our capital invested in asset management funds managed by us and related parties. This was previously presented as Asset management: Investment income (loss) from investments in managed funds and is now presented within Principal transactions revenues.

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
   
Nine Months Ended
August 31, 2018 August 31, 2017
 
Revenues:
Commissions and other fees $ 461,545 $ 437,547
Principal transactions (1) 498,583 688,568
Investment banking 1,405,614 1,235,586
Asset management fees (1) 16,130 16,368
Interest 870,490 660,323
Other 79,327   58,691  
Total revenues 3,331,689 3,097,083
Interest expense 910,271   721,584  
Net revenues 2,421,418   2,375,499  
 
Non-interest expenses:
Compensation and benefits 1,327,760 1,373,627
 
Non-compensation expenses:
Floor brokerage and clearing fees 135,808 138,221
Underwriting costs 47,832
Technology and communications 222,335 205,425
Occupancy and equipment rental 75,143 77,145
Business development 124,233 72,223
Professional services 101,715 83,544
Other 54,888   62,670  
Total non-compensation expenses 761,954   639,228  
Total non-interest expenses 2,089,714   2,012,855  
Earnings before income taxes 331,704 362,644
Income tax expense 234,337   95,009  
Net earnings 97,367 267,635
Net earnings (loss) attributable to noncontrolling interests (1 ) 50  
Net earnings attributable to Jefferies Group LLC $ 97,368   $ 267,585  
 
Pre-tax operating margin 13.7 % 15.3 %
Effective tax rate (2) 70.6 % 26.2 %
 
(1)   Certain reclassifications within revenue line items have been made for the nine month period ended August 31, 2017. We have reorganized the presentation of our gains and losses generated from our capital invested in asset management funds managed by us and related parties. This was previously presented as Asset management: Investment income (loss) from investments in managed funds and is now presented within Principal transactions revenues.
(2) The effective tax rate for the nine months ended August 31, 2018 includes a provisional tax charge of $160 million as a result of the Tax Act.

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Where Noted)
(Unaudited)
 
Nine Months Ended August 31, 2018
GAAP   Adjustments   Adjusted
 
Net earnings (excluding provisional tax charge) $ 97,367 $ 160,190 $ 257,557
 

Increase in Net revenues (excluding KCG) for the nine months
ended August 31, 2018 compared to the prior year period

1.9%

 

4.2%

 

6.1%

 

 
Nine Months Ended August 31, 2017
GAAP Adjustments Adjusted
 
Net revenues (excluding KCG) $ 2,375,499 $ (93,379 ) $ 2,282,120
 

This presentation of Adjusted financial information is an unaudited non-GAAP financial measure. Adjusted financial information begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the provisional tax charge of $160 million related to the enactment of the Tax Act in the first nine months of 2018. Adjusted financial information also begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the $93 million gain on our equity investment in KCG Holdings Inc., which was sold in July 2017. The Company believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures, are useful to investors as they enable investors to evaluate the Company's results excluding the impact of the provisional tax charge as a result of the enactment of the Tax Act and the gain on the sale of our equity investment in KCG Holdings Inc. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.


JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
       
Quarter Ended
August 31, 2018 May 31, 2018 August 31, 2017

Net Revenues by Source

Equities $ 170,611 $ 175,083 $ 163,009
Fixed income 139,846   119,987   140,167
Total sales and trading 310,457   295,070   303,176
 
Equity 139,220 107,553 86,081
Debt 138,515   175,762   186,261
Capital markets 277,735 283,315 272,342
Advisory 187,591 216,982 203,360
Other investment banking (13,732 ) 6,065   2
Total investment banking 451,594   506,362   475,704
 
Other 9,086 3,830 9,426
     
Total Capital Markets 771,137   805,262   788,306
 
Asset management fees 5,184 6,016 4,180
Investment return 1,294   11,279   8,206
Total Asset Management 6,478 17,295 12,386
     
Net revenues $ 777,615   $ 822,557   $ 800,692
 

Other Data

Number of trading days 65 64 65
Number of trading loss days 11 9 3
 

Average firmwide VaR (in millions) (1)

$ 7.53 $ 6.78 $ 6.51
 
(1)   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, 2017.

JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
     
Nine Months Ended
August 31, 2018 August 31, 2017

Net Revenues by Source

Equities $ 501,471 $ 493,369
Fixed income 472,886   517,219
Total sales and trading 974,357   1,010,588
 
Equity 326,613 222,549
Debt 483,271   474,736
Capital markets 809,884 697,285
Advisory 595,730 538,301
Other investment banking (13,885 ) 7,437
Total investment banking 1,391,729   1,243,023
 
Other 22,714 95,945
   
Total Capital Markets 2,388,800   2,349,556
 
Asset management fees 16,130 15,102
Investment return 16,488   10,841
Total Asset Management 32,618 25,943
   
Net revenues $ 2,421,418   $ 2,375,499
 

Other Data

Number of trading days 189 189
Number of trading loss days 27 9
 
Average firmwide VaR (in millions) (1) $ 6.88 $ 8.63
 
(1)   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, 2017.

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)
   
Quarter Ended
August 31, 2018 May 31, 2018 August 31, 2017
 

Financial position:

Total assets (1) $ 40,572 $ 41,123 $ 39,358
Average total assets for the period (1) $ 48,022 $ 49,496 $ 45,311
Average total assets less goodwill and intangible assets for the period (1) $ 46,189 $ 47,654 $ 43,467
 
Cash and cash equivalents (1) $ 4,813 $ 4,580 $ 4,807
Cash and cash equivalents and other sources of liquidity (1) (2) $ 6,098 $ 5,881 $ 6,191
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 15.0 % 14.3 % 15.7 %

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

15.7 % 15.0 % 16.5 %
 
Financial instruments owned (1) $ 15,196 $ 15,706 $ 14,207
Goodwill and intangible assets (1) $ 1,829 $ 1,835 $ 1,841
 
Total equity (including noncontrolling interests) (1) $ 5,557 $ 5,544 $ 5,655
Total Jefferies Group LLC member's equity (1) $ 5,548 $ 5,543 $ 5,654
Tangible Jefferies Group LLC member's equity (1) (3) $ 3,719 $ 3,708 $ 3,813
 
 

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) $ 311 $ 337 $ 348
Level 3 financial instruments owned - % total assets 0.8 % 0.8 % 0.9 %
Level 3 financial instruments owned - % total financial instruments (1) 2.0 % 2.1 % 2.4 %

Level 3 financial instruments owned - % tangible Jefferies Group LLC member's
equity

8.4 % 9.1 % 9.1 %
 

Other data and financial ratios:

Total long-term capital (1) (5) $ 11,261 $ 11,971 $ 11,038
Leverage ratio (1) (6) 7.3 7.4 7.0
Tangible gross leverage ratio (1) (7) 10.4 10.6 9.8
 
Number of trading days 65 64 65
Number of trading loss days 11 9 3
Average firmwide VaR (8) $ 7.53 $ 6.78 $ 6.51
 
Number of employees, at period end 3,526 3,438 3,438
 

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
   
(1) Amounts pertaining to August 31, 2018 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 three months ended August 31, 2018.
 
(2) At August 31, 2018, 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 $948 million, in aggregate, and $337 million, being the estimated amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged after considering reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at May 31, 2018 were $940 million and $361 million, respectively, and at August 31, 2017, were $1,083 million and $301 million, respectively.
 
(3) Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible 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, 2018, May 31, 2018 and August 31, 2017, total long-term capital includes our long-term debt of $5,703 million, $6,428 million and $5,383 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, as applicable.
 
(6) Leverage ratio equals total assets divided by total equity.
 
(7) Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member's equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.
 
(8) 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, 2017.
 

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

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