Toggle SGML Header (+)


Section 1: 8-K (8-K)

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): January 10, 2019

 

 

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 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, January 10, 2019, we and our parent, Jefferies Financial Group Inc., issued a joint press release announcing financial results for our quarter and fiscal year ended November 30, 2018. A copy of the press release is attached hereto as Exhibit 99.

The information provided in this Item 2.02, including Exhibit 99, is intended to be “furnished” and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act or the Exchange Act, except as expressly set forth by specific reference in such a filing.

 

Item 9.01.

Financial Statements and Exhibits

The following exhibit is furnished with this report:

 

Number

  

Exhibit

99    January 10, 2019 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: January 10, 2019    

/s/ Roland T. Kelly

    Roland T. Kelly
    Associate General Counsel
(Back To Top)

Section 2: EX-99 (EX-99)

EX-99

Exhibit 99

 

FOR IMMEDIATE RELEASE    January 10, 2019

Jefferies Announces 2018 Financial Results

New York, New York, January 10, 2019—Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the two and eleven month periods ended November 30, 2018, and the results of its principal operating subsidiary, Jefferies Group LLC, for the three and twelve month periods ended November 30, 2018. During the fourth quarter, Jefferies Financial Group changed its fiscal year end from December 31 to November 30, the same as Jefferies Group LLC, and thereby eliminated the financial reporting lag for Jefferies Group LLC, its largest subsidiary. Jefferies Financial Group’s two and eleven month results include three and twelve month results, respectively, for Jefferies Group LLC, and two and eleven month results, respectively, for the balance of Jefferies Financial Group.

Highlights for Jefferies Financial Group for the eleven months ended November 30, 2018:

 

   

Net income attributable to Jefferies Financial Group common shareholders of $1.0 billion, or $2.90 per diluted share

 

   

Pre-tax income from continuing and discontinued operations of $1.3 billion

 

   

Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $410 million

 

   

Merchant Banking pre-tax income from continuing and discontinued operations of $1.1 billion, including pre-tax gains of $873 million and $222 million from the sales of 48% of National Beef and Garcadia, respectively, and an unrealized mark-to-market write-down of $419 million on our investment in Spectrum Brands (NYSE: SPB)

 

   

Total income taxes from continuing and discontinued operations of $296 million, substantially all of which was offset by historic net operating loss carryforwards; at November 30, 2018, we continue to have approximately $1.1 billion in U.S. federal net operating loss carryforwards that may be used to offset future income tax liabilities

 

   

Dividends paid of $0.45 per share

 

   

Repurchase of 50 million shares, representing 13% of our fully diluted shares outstanding at the beginning of the year, for $1.1 billion, or an average price of $22.86 per share; when the share buyback is combined with dividends paid in the eleven month period of 2018, we returned to our shareholders an aggregate of $1.3 billion, or 17% of our tangible common shareholders’ equity1 at the beginning of the year

 

   

Additional $500 million share repurchase authorization approved today by the Board of Directors

 

   

Fully diluted tangible equity per share2 increased by 22% from $20.48 at the beginning of the fiscal year to $24.90 at November 30

 

   

Even after the $1.3 billion we returned to shareholders and our $400 million of investments to expand Vitesse Energy Finance and Leucadia Asset Management, Jefferies Financial Group ended fiscal 2018 with an increase of $300 million in parent company liquidity, which now totals $1.6 billion

Highlights for Jefferies Financial Group for the two months ended November 30, 2018:

 

   

Net loss attributable to Jefferies Financial Group common shareholders of $20 million, or $0.06 per diluted share, including an unrealized mark-to-market write-down of $190 million on our investment in Spectrum Brands

 

   

Pre-tax loss of $52 million

 

   

Jefferies Group pre-tax income of $78 million

 

   

Merchant Banking pre-tax loss of $109 million, as a result of the unrealized write-down of $190 million on Spectrum Brands and a $62 million reduction in the carrying value of the equity portion of our investment in FXCM, partially offset by an unrealized write-up of $71 million on our investment in WeWork (historical cost of $9 million; our valuation is based upon the valuation implied by the most recent round of financing, but materially discounted due to structural considerations)

 

1


   

Repurchase of 23.9 million shares for $512 million, or an average price of $21.44 per share

Highlights for Jefferies Group LLC for the twelve months ended November 30, 2018:

 

   

Total Net Revenues of $3.2 billion

 

   

Investment Banking Net Revenues of $1.9 billion (record advisory and equity capital markets fees)

 

   

Total Equities and Fixed Income Net Revenues of $1.2 billion

 

   

Earnings Before Income Taxes of $410 million

 

   

Net Earnings of $159 million after Provisional Charge related to the Tax Cuts and Jobs Act (the “Tax Act”) of $165 million, $113 million of which is non-cash; without this charge, Jefferies Group would have reported Adjusted Net Earnings of $324 million3, 4

Highlights for Jefferies Group LLC for the three months ended November 30, 2018:

 

   

Total Net Revenues of $762 million

 

   

Investment Banking Net Revenues of $522 million

 

   

Total Equities and Fixed Income Net Revenues of $251 million

 

   

Earnings Before Income Taxes of $78 million

 

   

Net Earnings of $62 million

Rich Handler, our CEO, and Brian Friedman, our President, said:

“In our fiscal year ended November 30, 2018, Jefferies Financial Group recorded net income attributable to common shareholders of $1.0 billion, or $2.90 per diluted share, and paid $0.45 per share in dividends. Fully diluted tangible equity per share2 increased by 22% from $20.48 at the beginning of the fiscal year to $24.90 at November 30.

“We recorded net revenues at Jefferies Group of almost $3.2 billion, pre-tax income of $410 million and adjusted return on tangible equity of 8.7%3. A solid first half of the year was offset by a slower second half, particularly a lighter than expected fourth quarter as the market turmoil dampened our trading results, as well as our performance in asset management.

“Jefferies Group’s fourth quarter results reflect continued strong performance in Investment Banking. Our Investment Banking revenues for the fourth quarter were $522 million, compared to $452 million for the third quarter.

“Over the last several years, our strategic priority has been to build further our fee-based and non-capital intensive Investment Banking platform. In 2016, our Investment Banking net revenues were $1.1 billion and represented 45% of our overall Jefferies Group net revenues. In 2018, our Investment Banking net revenues were $1.8 billion (on a comparable basis, excluding the impact of recent revenue recognition rule changes) and represented 58% of our overall Jefferies Group net revenues5. In 2018, we achieved record Advisory revenues of more than $800 million, record Equity Capital Markets revenue of more than $450 million and a strong performance in Leverage Finance.

“Jefferies Finance, our corporate lending 50/50 joint venture with Mass Mutual, ended the year in a strong position in terms of risk exposure, having successfully syndicated all deals we brought to market during the year. Our commitments outstanding at year end were all of good quality, with terms consistent with current market conditions, and should be fully syndicated readily in the near-term. We remain vigilant in our underwriting process, while continuing to serve our clients and maintain our market position.

“Our Sales and Trading results were weaker than recent periods as a result of the challenging environment, which persisted for much of the quarter. Equities revenues for the quarter were $164 million, versus $181 million for the same period last year. Fixed Income revenues were $87 million for the current quarter, compared to $101 million

 

2


for last year’s fourth quarter. Investors’ risk appetite and activity levels fell during October and November, and negatively impacted our business. Notwithstanding this more subdued recent quarter, throughout 2018, our client-oriented Sales and Trading flow businesses continued to take market share, and invest in technology and talent. Noteworthy strong performances included: Global Electronic Equity Trading, Leveraged Credit and Prime Brokerage.

“As mentioned, we transferred our 50% interest in Berkadia and our Leucadia Asset Management (“LAM”) seed investments into Jefferies Group as of October 1, 2018 to amalgamate our primary financial services operating businesses into one platform. Berkadia continues to perform well. Jefferies Group’s share of Berkadia’s net profits for the two months was $20 million, which was reported through the ‘Other’ line within Jefferies Group’s Capital Markets segment. This was offset by negative revenues of $34 million for the quarter in Asset Management, reflecting weak investment performance due to the significant declines in the equity markets and net interest expense associated with the capital utilized in LAM.

“Jefferies Group’s quarter end gross assets have remained at approximately $40 billion since the balance sheet de-leveraging and de-risking we undertook in late 2015 and early 2016. During the fourth quarter of 2015, we reduced our risk (as measured by average VaR) by 40% to $10 million. Average VaR for the fourth quarter of 2018 was also $10 million, after including the impact of adding the LAM interests. Maintaining these consistently lower levels of risk and balance sheet for the last few years has helped limit the downside during times of market stress.

“Consistent with the theme of conservative risk levels, it’s worth noting that Jefferies Group’s tangible leverage has declined to 9.0 times from 10.4 times in the third quarter 2018 due to retained earnings and the infusion of equity capital to support the Berkadia and asset management transfer. Excess liquidity remains at close to historic highs, with cash and highly liquid unencumbered securities representing 16.0% of total assets. Level 3 assets were $337 million at November 30, 2018 and remain at historic lows, representing only 7.7% of tangible equity and 2.1% of inventory. We have steadily reduced Level 3 assets since the end of 2015 when they were $542 million, or 15.1% of tangible equity and 3.3% of inventory.

“Overall, Jefferies Group’s competitive position and brand strengthened further over the course of the year. Several of our primary competitors continue to experience challenges, which may lead to further industry consolidation and create additional market share growth opportunities. We therefore believe Jefferies Group is poised for acceleration in our performance on the back of our continued investment in growing and developing our entire platform and, in particular, our investment banking effort, which represented 60% of Jefferies Group’s 2018 net revenues. While our prospects are always subject to market forces, we continue to be focused on revenue growth and margin expansion across our business lines.

“Our Merchant Banking fourth quarter results reflect continued strong performance from National Beef and Vitesse. Increased supply of cattle for National Beef was coupled with strong demand for beef, leading to a positive sales and margin environment. We recorded pre-tax income of $27 million for the two month period in respect of National Beef. Vitesse’s April 2018 acquisition of non-operated assets has increased production; however, the majority of its pre-tax income of $36 million for the two month period represents the positive impact of our oil hedge portfolio.

“Our fourth quarter results were negatively impacted by a $190 million mark-to-market decrease in the value of our investment in Spectrum Brands, which is in the midst of a transformation involving significant management, operational and strategic changes. As a result of these changes, Spectrum Brands will consist of a narrower portfolio of business units and should achieve better results with a stronger balance sheet.

“We also recorded an impairment charge related to the equity component of our investment in FXCM, which is based on updated expectations that have been impacted by the recently revised regulations of the European Securities Market Authority and dampened operating results. Through November 30, 2018, we have received a cumulative $350 million in principal, interest and fees from our initial $279 million investment in FXCM, and continue to hold $68 million of principal balance outstanding on our loan, earning a coupon of 20.5%, and $75 million of equity value in the underlying business. Our fourth quarter results also include a $71 million positive fair value adjustment for our investment in WeWork. Our historical cost of this investment is $9 million, we have realized $13 million in cash to date and this valuation adjustment is based upon the valuation implied by the most recent round of financing, but materially discounted due to structural considerations.

 

3


“We believe we are well positioned for 2019 and we thank all Jefferies’ shareholders, bondholders and employee partners for their continued support.”

Jefferies Financial Group is releasing today the Annual Letter from our CEO and President. We expect to file our Form 10-K on or about January 28, 2019.

* * * *

Amounts herein pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Transition Report on Form 10-K with the Securities and Exchange Commission (“SEC”). More information on our results of operations for the two and eleven month periods ended November 30, 2018 will be provided upon filing our Transition Report on Form 10-K with the SEC.

This press 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 and statements that are not historical facts. These forward-looking statements are usually preceded by the words “should,” “expect,” “intend,” “may,” “will,” or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC.

Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s).

For further information, please contact:

Teresa S. Gendron

Chief Financial Officer

Jefferies Financial Group Inc.

Tel. (212) 460-1932

Peregrine C. Broadbent

Chief Financial Officer

Jefferies Group LLC

Tel. (212) 284-2338

 

4


 

1 

Tangible common shareholders’ equity of $7,643 million at December 31, 2017 is a non-GAAP measure and equals Jefferies Financial Group common shareholders’ equity of $10,106 million less Intangible assets, net and goodwill of $2,463 million. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods.

2 

Fully diluted tangible equity per share, a non-GAAP measure, is defined as tangible common shareholders’ equity divided by fully diluted shares outstanding. Tangible common shareholders’ equity, a non-GAAP measure, is defined as Jefferies Financial Group common shareholders’ equity less Intangible assets, net and goodwill. Fully diluted outstanding shares, a non-GAAP measure, is defined as Jefferies Financial Group shares outstanding plus restricted stock units and other shares that have not been issued yet. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. Refer to schedule on page 11 for reconciliation to U.S. GAAP amounts.

3

Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the year ended November 30, 2018 provides meaningful information to investors as it enables investors to evaluate Jefferies Group LLC results excluding the impact of the provisional tax charge resulting from the Tax Act. Jefferies Group LLC’s Adjusted Net Earnings for the year ended November 30, 2018 of $324 million results in an 8.7% return on tangible equity (a non-GAAP financial measure), based on the twelve months ended November 30, 2018 Jefferies Group LLC adjusted net earnings divided by adjusted tangible Jefferies Group LLC member’s equity at November 30, 2017 of $3,716 million. Adjusted tangible Jefferies Group LLC member’s equity is calculated as tangible Jefferies Group LLC member’s equity (a non-GAAP financial measure) of $3,916 million at November 30, 2017 reduced by the $200 million distribution to Jefferies Financial Group, which was paid on January 31, 2018. Refer to the schedule on page 14 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.

4 

As a result of Jefferies Financial Group’s previous fiscal year end being December 31, the charge recorded by Jefferies Group LLC related to the Tax Act was included in Jefferies Financial Group’s consolidated results during 2017, and therefore excluded from Jefferies Financial Group’s 2018 financial results.

5 

Adjusted financial measures are non-GAAP financial measures. Management believes such measure for the year ended November 30, 2018 provides meaningful information to investors as it enables investors to evaluate Jefferies Group LLC results excluding the impact of the increase in Investment banking revenues, as a result of the new revenue standard, which was adopted on December 1, 2017 (see “Impact of Adopting Revenue Recognition Guidance” in Part I, Item 2 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018). Refer to the schedule on page 14 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.

 

5


Summary for Jefferies Financial Group Inc. and Subsidiaries

(In thousands, except per share amounts)

(Unaudited)

 

     Two Months
Ended
November 30,
2018
     Three Months
Ended
December 31,
2017
     Eleven
Months Ended
November 30,
2018
     Twelve Months
Ended
December 31,
2017
 

Net revenues

   $ 806,594      $ 1,056,835      $ 3,764,034      $ 4,077,445  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations before income taxes and income (loss) related to associated companies

   $ (24,573    $ 184,191      $ 239,077      $ 681,403  

Income (loss) related to associated companies

     (27,297      9,512        57,023        (74,901
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations before income taxes

     (51,870      193,703        296,100        606,502  

Income tax provision (benefit)

     (32,552      515,088        19,008        642,286  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from continuing operations

     (19,318      (321,385      277,092        (35,784

Income from discontinued operations, net of income tax provision of $0, $27,825, $47,045 and $118,681

     —          69,480        130,063        288,631  

Gain on disposal of discontinued operations, net of income tax provision $0, $0, $229,553 and $0

     —          —          643,921        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     (19,318      (251,905      1,051,076        252,847  

Net (income) loss attributable to the noncontrolling interests

     (233      1,514        12,975        3,455  

Net (income) loss attributable to the redeemable noncontrolling interests

     31        (20,038      (37,263      (84,576

Preferred stock dividends

     (851      (1,172      (4,470      (4,375
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) attributable to Jefferies Financial Group Inc. common shareholders

   $ (20,371    $ (271,601    $ 1,022,318      $ 167,351  
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders:

           

Income (loss) from continuing operations

   $ (0.06    $ (0.88    $ 0.82      $ (0.10

Income from discontinued operations

     —          0.14        0.27        0.55  

Gain on disposal of discontinued operations

     —          —          1.84        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ (0.06    $ (0.74    $ 2.93      $ 0.45  
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of shares in calculation

     329,101        366,000        347,261        368,197  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders:

           

Income (loss) from continuing operations

   $ (0.06    $ (0.88    $ 0.81      $ (0.10

Income from discontinued operations

     —          0.14        0.26        0.55  

Gain on disposal of discontinued operations

     —          —          1.83        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ (0.06    $ (0.74    $ 2.90      $ 0.45  
  

 

 

    

 

 

    

 

 

    

 

 

 

Number of shares in calculation

     329,101        366,000        351,275        370,701  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

6


A summary of results for the two months ended November 30, 2018 is as follows (in thousands):

 

     Jefferies
Group
     Merchant
Banking
    Corporate     Parent
Company
Interest
    Consolidation
Adjustments
    Total  

Net revenues

   $ 761,958      $ 42,204     $ 7,525     $ —       $ (5,093   $ 806,594  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

             

Compensation and benefits

     408,504        17,662       7,177       —         —         433,343  

Cost of sales

     —          49,570       —         —         —         49,570  

Floor brokerage and clearing fees

     53,260        —         —         —         (842     52,418  

Interest expense

     —          4,796       —         9,839       —         14,635  

Depreciation and amortization

     17,467        9,920       570       —         —         27,957  

Selling, general and other expenses

     204,764        41,688       7,811       —         (1,019     253,244  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     683,995        123,636       15,558       9,839       (1,861     831,167  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and loss related to associated companies

     77,963        (81,432     (8,033     (9,839     (3,232     (24,573

Loss related to associated companies

     —          (27,297     —         —         —         (27,297
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 77,963      $ (108,729   $ (8,033   $ (9,839   $ (3,232     (51,870
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

Income tax benefit from continuing operations

                (32,552
             

 

 

 

Net loss

              $ (19,318
             

 

 

 

 

7


A summary of results for the three months ended December 31, 2017 is as follows (in thousands):

 

                         Parent              
     Jefferies      Merchant            Company     Consolidation        
     Group      Banking      Corporate     Interest     Adjustments     Total  

Net revenues

   $ 822,610      $ 230,570      $ 2,049     $ —       $ 1,606     $ 1,056,835  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

              

Compensation and benefits

     455,469        14,587        11,633       —         873       482,562  

Cost of sales

     —          70,118        —         —         —         70,118  

Floor brokerage and clearing fees

     41,257        —          —         —         104       41,361  

Interest expense

     —          9,698        —         14,742       —         24,440  

Depreciation and amortization

     15,791        11,604        871       —         —         28,266  

Selling, general and other expenses

     167,813        49,274        9,835       —         (1,025     225,897  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     680,330        155,281        22,339       14,742       (48     872,644  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and income related to associated companies

     142,280        75,289        (20,290     (14,742     1,654       184,191  

Income related to associated companies

     —          9,512        —         —         —         9,512  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 142,280      $ 84,801      $ (20,290   $ (14,742   $ 1,654       193,703  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

Income tax provision from continuing operations

                 515,088  

Income from discontinued operations, net of income tax provision

                 69,480  
              

 

 

 

Net loss

               $ (251,905
              

 

 

 

 

8


A summary of results for the eleven months ended November 30, 2018 is as follows (in thousands):

 

                        Parent              
     Jefferies      Merchant           Company     Consolidation        
     Group      Banking     Corporate     Interest     Adjustments     Total  

Net revenues

   $ 3,183,376      $ 571,831     $ 22,300     $ —       $ (13,473   $ 3,764,034  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

             

Compensation and benefits

     1,736,264        77,169       50,222       —         (873     1,862,782  

Cost of sales

     —          307,071       —         —         —         307,071  

Floor brokerage and clearing fees

     189,068        —         —         —         (4,858     184,210  

Interest expense

     —          35,159       —         54,090       —         89,249  

Depreciation and amortization

     68,296        48,852       3,169       —         —         120,317  

Selling, general and other expenses

     780,081        150,115       35,049       —         (3,917     961,328  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     2,773,709        618,366       88,440       54,090       (9,648     3,524,957  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and income related to associated companies

     409,667        (46,535     (66,140     (54,090     (3,825     239,077  

Income related to associated companies

     —          57,023       —         —         —         57,023  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 409,667      $ 10,488     $ (66,140   $ (54,090   $ (3,825     296,100  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

Income tax provision from continuing operations

                19,008  

Income from discontinued operations, net of income tax provision

                130,063  

Gain on disposal of discontinued operations, net of income tax provision

                643,921  
             

 

 

 

Net income

              $ 1,051,076  
             

 

 

 

 

9


A summary of results for the twelve months ended December 31, 2017 is as follows (in thousands):

 

                        Parent              
     Jefferies      Merchant           Company     Consolidation        
     Group      Banking     Corporate     Interest     Adjustments     Total  

Net revenues

   $ 3,198,109      $ 876,180     $ 6,306     $ —       $ (3,150   $ 4,077,445  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

             

Compensation and benefits

     1,829,096        73,811       46,655       —         1,373       1,950,935  

Cost of sales

     —          280,952       —         —         —         280,952  

Floor brokerage and clearing fees

     179,478        —         —         —         (4,972     174,506  

Interest expense

     —          42,259       —         58,943       —         101,202  

Depreciation and amortization

     62,668        44,257       3,470       —         —         110,395  

Selling, general and other expenses

     621,943        131,627       34,983       —         (10,501     778,052  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     2,693,185        572,906       85,108       58,943       (14,100     3,396,042  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes and loss related to associated companies

     504,924        303,274       (78,802     (58,943     10,950       681,403  

Loss related to associated companies

     —          (74,901     —         —         —         (74,901
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 504,924      $ 228,373     $ (78,802   $ (58,943   $ 10,950       606,502  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

Income tax provision from continuing operations

                642,286  

Income from discontinued operations, net of income tax provision

                288,631  
             

 

 

 

Net income

              $ 252,847  
             

 

 

 

 

10


Jefferies Financial Group Inc.

Non-GAAP Reconciliations

The following tables reconcile Jefferies Financial Group non-GAAP measures to their respective U.S. GAAP measures. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP.

Tangible Common Shareholders’ Equity GAAP Reconciliation

Reconciliation of Jefferies Financial Group common shareholders’ equity to tangible common shareholders’ equity (a non-GAAP measure) (dollars in millions):

 

     November 30, 2018      December 31, 2017  

Jefferies Financial Group common shareholders’ equity (GAAP)

   $ 10,061      $ 10,106  

Less: Intangible assets, net and goodwill

     (1,890      (2,463
  

 

 

    

 

 

 

Jefferies Financial Group tangible common shareholders’ equity (non-GAAP)

   $ 8,171      $ 7,643  
  

 

 

    

 

 

 

Fully Diluted Shares Outstanding GAAP Reconciliation

Reconciliation of Jefferies Financial Group shares outstanding to fully diluted shares outstanding (a non-GAAP measure) (shares in thousands):

 

     November 30, 2018      December 31, 2017  

Jefferies Financial Group shares outstanding (GAAP)

     307,515        356,227  

Restricted stock units

     19,779        16,000  

Other

     878        887  
  

 

 

    

 

 

 

Jefferies Financial Group fully diluted shares outstanding (non-GAAP)

     328,172        373,114  
  

 

 

    

 

 

 

Note: Fully diluted shares exclude shares for options, preferred shares and, at December 31, 2017, convertible debt. The convertible debt was redeemed in early 2018. Fully diluted shares include the target number of shares under the senior executive award plan.

 

11


The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2018 and its Annual Report on Form 10-K for the year ended November 30, 2017. Amounts herein pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC’s Annual Report on Form 10-K for the year ended November 30, 2018.

Jefferies Group LLC and Subsidiaries

Consolidated Statements of Earnings

(Amounts in Thousands)

(Unaudited)

 

     Quarter Ended  
     November 30,     August 31,     November 30,  
     2018     2018     2017  

Revenues:

      

Commissions and other fees

   $ 173,645     $ 155,539     $ 155,710  

Principal transactions

     25,713       143,308       108,065  

Investment banking

     504,589       465,326       528,699  

Asset management fees

     5,084       5,184       4,122  

Interest

     336,605       305,347       245,278  

Other

     52,307       13,581       39,625  
  

 

 

   

 

 

   

 

 

 

Total revenues

     1,097,943       1,088,285       1,081,499  

Interest expense

     335,985       310,670       258,889  
  

 

 

   

 

 

   

 

 

 

Net revenues

     761,958       777,615       822,610  
  

 

 

   

 

 

   

 

 

 

Non-interest expenses:

      

Compensation and benefits

     408,504       428,033       455,469  

Non-compensation expenses:

      

Floor brokerage and clearing fees

     53,260       45,745       41,257  

Underwriting costs

     16,485       20,528       —    

Technology and communications

     83,320       76,877       73,817  

Occupancy and equipment rental

     25,809       25,559       25,759  

Business development

     39,523       39,733       27,661  

Professional services

     38,170       35,316       31,167  

Other

     18,924       18,723       25,200  
  

 

 

   

 

 

   

 

 

 

Total non-compensation expenses

     275,491       262,481       224,861  
  

 

 

   

 

 

   

 

 

 

Total non-interest expenses

     683,995       690,514       680,330  
  

 

 

   

 

 

   

 

 

 

Earnings before income taxes

     77,963       87,101       142,280  

Income tax expense

     16,313       26,923       52,331  
  

 

 

   

 

 

   

 

 

 

Net earnings

     61,650       60,178       89,949  

Net earnings (loss) attributable to noncontrolling interests

     257       (4     36  
  

 

 

   

 

 

   

 

 

 

Net earnings attributable to Jefferies Group LLC

   $ 61,393     $ 60,182     $ 89,913  
  

 

 

   

 

 

   

 

 

 

Pretax operating margin (1)

     10.2     11.2     17.3

Effective tax rate

     20.9     30.9     36.8

 

(1)

The results in the quarters ended November 30, 2018 and August 31, 2018 include an increase in Investment banking revenues and a corresponding increase in Total non-compensation expenses of $30.6 million and $36.3 million, respectively, as a result of the new revenue standard, which was adopted on December 1, 2017 (see “Impact of Adopting Revenue Recognition Guidance” in Part I, Item 2 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018).

 

12


Jefferies Group LLC and Subsidiaries

Consolidated Statements of Earnings

(Amounts in Thousands)

(Unaudited)

 

     Twelve Months Ended  
     November 30,
2018
    November 30,
2017
 

Revenues:

    

Commissions and other fees

   $ 635,190     $ 593,257  

Principal transactions (1)

     524,296       796,633  

Investment banking

     1,910,203       1,764,285  

Asset management fees (1)

     21,214       20,490  

Interest

     1,207,095       905,601  

Other

     131,634       98,316  
  

 

 

   

 

 

 

Total revenues

     4,429,632       4,178,582  

Interest expense

     1,246,256       980,473  
  

 

 

   

 

 

 

Net revenues

     3,183,376       3,198,109  
  

 

 

   

 

 

 

Non-interest expenses:

    

Compensation and benefits

     1,736,264       1,829,096  

Non-compensation expenses:

    

Floor brokerage and clearing fees

     189,068       179,478  

Underwriting costs

     64,317       —    

Technology and communications

     305,655       279,242  

Occupancy and equipment rental

     100,952       102,904  

Business development

     163,756       99,884  

Professional services

     139,885       114,711  

Other

     73,812       87,870  
  

 

 

   

 

 

 

Total non-compensation expenses

     1,037,445       864,089  
  

 

 

   

 

 

 

Total non-interest expenses

     2,773,709       2,693,185  
  

 

 

   

 

 

 

Earnings before income taxes

     409,667       504,924  

Income tax expense

     250,650       147,340  
  

 

 

   

 

 

 

Net earnings

     159,017       357,584  

Net earnings attributable to noncontrolling interests

     256       86  
  

 

 

   

 

 

 

Net earnings attributable to Jefferies Group LLC

   $ 158,761     $ 357,498  
  

 

 

   

 

 

 

Pretax operating margin (2)

     12.9     15.8

Effective tax rate (3)

     61.2     29.2

 

(1)

Certain reclassifications within revenue line items have been made for the year ended November 30, 2017. Jefferies Group LLC has reorganized the presentation of its gains and losses generated from its capital invested in asset management funds managed by Jefferies Group LLC and its 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 results in the year ended November 30, 2018 include an increase in Investment banking revenues and a corresponding increase in Total non-compensation expenses of $131.8 million, as a result of the new revenue standard, which was adopted on December 1, 2017 (see “Impact of Adopting Revenue Recognition Guidance” in Part I, Item 2 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2018).

(3)

The effective tax rate for the year ended November 30, 2018 includes a provisional tax charge of $165 million as a result of the Tax Act.

 

13


Jefferies Group LLC and Subsidiaries

Consolidated Adjusted Selected Financial Data

(Amounts in Thousands, Except Where Noted)

(Unaudited)

 

     Twelve Months Ended November 30, 2018  
     GAAP     Adjustments     Adjusted  

Net earnings (excluding provisional tax charge)

   $ 159,017     $ 165,150     $ 324,167  

Investment banking net revenues

   $ 1,913,841     $ (131,789   $ 1,782,052  

Investment banking net revenues - % of Net revenues (excluding impact of adopting revenue recognition guidance)

     60.1     (1.7 )%      58.4

This presentation of Adjusted financial information is an unaudited non-GAAP financial measure. Adjusted financial information for Net earnings begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the provisional tax charge of $165 million related to the enactment of the Tax Act in the year ended November 30, 2018. Adjusted financial information for Investment banking net revenues begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude $132 million due to the impact of adopting revenue recognition guidance in the year ended November 30, 2018. Jefferies Group LLC 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 Jefferies Group LLC’s results excluding the impact of the provisional tax charge as a result of the enactment of the Tax Act and the impact of adopting revenue recognition guidance. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.

 

14


Jefferies Group LLC and Subsidiaries

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

(Unaudited)

 

     Quarter Ended  
     November 30,
2018
    August 31,
2018
    November 30,
2017
 

Net Revenues by Source:

      

Equities

   $ 164,086     $ 170,611     $ 181,055  

Fixed income

     86,826       139,846       101,169  
  

 

 

   

 

 

   

 

 

 

Total sales and trading

     250,912       310,457       282,224  
  

 

 

   

 

 

   

 

 

 

Equity

     127,942       139,220       122,424  

Debt

     152,335       138,515       174,484  
  

 

 

   

 

 

   

 

 

 

Capital markets

     280,277       277,735       296,908  

Advisory

     224,312       187,591       231,791  

Other investment banking

     17,523       (13,732     12,339  
  

 

 

   

 

 

   

 

 

 

Total investment banking

     522,112       451,594       541,038  
  

 

 

   

 

 

   

 

 

 

Other

     22,448       4,910       (1,065
  

 

 

   

 

 

   

 

 

 

Total Capital Markets

     795,472       766,961       822,197  
  

 

 

   

 

 

   

 

 

 

Asset management fees

     5,084       5,184       4,122  

Investment return

     (38,598     5,470       (3,709
  

 

 

   

 

 

   

 

 

 

Total Asset Management

     (33,514     10,654       413  
  

 

 

   

 

 

   

 

 

 

Net Revenues

   $ 761,958     $ 777,615     $ 822,610  
  

 

 

   

 

 

   

 

 

 

Other Data:

      

Number of trading days

     63       65       63  

Number of trading loss days (1)

     18       11       5  

Average firmwide VaR (in millions) (2)

   $ 9.59     $ 7.53     $ 5.29  

 

(1)

The November 30, 2018 period includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

 

(2)

VaR estimates the potential loss in value of Jefferies Group LLC’s trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The quarter ended November 30, 2018 includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. For a further discussion of the calculation of VaR, see “Value-at-Risk” in Part II, Item 7 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Annual Report on Form 10-K for the year ended November 30, 2017.

 

15


Jefferies Group LLC and Subsidiaries

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

(Unaudited)

 

     Twelve Months Ended  
     November 30,
2018
     November 30,
2017
 

Net Revenues by Source:

     

Equities

   $ 665,557      $ 674,424  

Fixed income

     559,712        618,388  
  

 

 

    

 

 

 

Total sales and trading

     1,225,269        1,292,812  
  

 

 

    

 

 

 

Equity

     454,555        344,973  

Debt

     635,606        649,220  
  

 

 

    

 

 

 

Capital markets

     1,090,161        994,193  

Advisory

     820,042        770,092  

Other investment banking

     3,638        19,776  
  

 

 

    

 

 

 

Total investment banking

     1,913,841        1,784,061  
  

 

 

    

 

 

 

Other

     45,316        92,987  
  

 

 

    

 

 

 

Total Capital Markets

     3,184,426        3,169,860  
  

 

 

    

 

 

 

Asset management fees

     21,214        19,224  

Investment return

     (22,264      9,025  
  

 

 

    

 

 

 

Total Asset Management

     (1,050      28,249  
  

 

 

    

 

 

 

Net Revenues

   $ 3,183,376      $ 3,198,109  
  

 

 

    

 

 

 

Other Data:

     

Number of trading days

     252        252  

Number of trading loss days (1)

     45        14  

Average firmwide VaR (in millions) (2)

   $ 7.56      $ 7.79  

 

(1)

The November 30, 2018 period includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

(2)

VaR estimates the potential loss in value of Jefferies Group LLC’s trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The twelve months ended November 30, 2018 includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. For a further discussion of the calculation of VaR, see “Value-at-Risk” in Part II, Item 7 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Annual Report on Form 10-K for the year ended November 30, 2017.

 

16


Jefferies Group LLC and Subsidiaries

Financial Highlights

(Amounts in Millions, Except Where Noted)

(Unaudited)

 

     Quarter Ended  
     November 30,
2018
    August 31,
2018
    November 30,
2017
 

Financial position:

            

Total assets (1)

     $ 41,169     $  40,572       $ 39,706  

Average total assets for the period (1)

     $ 49,427     $ 48,022       $ 47,058  

Average total assets less goodwill and intangible assets for the  period (1)

     $ 47,653     $ 46,189       $ 45,215  

Cash and cash equivalents (1)

     $ 5,146     $ 4,813       $ 5,164  

Cash and cash equivalents and other sources of liquidity (1) (2)

     $ 6,604     $ 6,098       $ 6,709  

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

        16.0     15.0        16.9

Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and i

ntangible assets (1) (2)

        16.8     15.7        17.7

Financial instruments owned (1)

     $ 16,400     $ 15,196       $ 14,193  

Goodwill and intangible assets (1)

     $ 1,825     $ 1,829       $ 1,843  

Total equity (including noncontrolling interests) (1)

     $ 6,182     $ 5,557       $ 5,760  

Total Jefferies Group LLC member’s equity (1)

     $ 6,180     $ 5,548       $ 5,759  

Tangible Jefferies Group LLC member’s equity (1) (3)

     $ 4,355     $ 3,719       $ 3,916  

Level 3 financial instruments:

            

Level 3 financial instruments owned (1) (4) (5)

      $ 337     $ 311        $ 328  

Level 3 financial instruments owned - % total assets (1) (4)

        0.8     0.8        0.8

Level 3 financial instruments owned - % total financial instruments (1) (4)

        2.1     2.0        2.3

Level 3 financial instruments owned - % tangible Jefferies Group
LLC member’s equity (1) (4)

        7.7     8.4        8.4

Other data and financial ratios:

            

Total long-term capital (1) (6)

     $ 11,840     $ 11,261       $ 11,162  

Leverage ratio (1) (7)

        6.7       7.3          6.9  

Tangible gross leverage ratio (1) (8)

        9.0       10.4          9.7  

Number of trading days

        63       65          63  

Number of trading loss days (5)

        18       11          5  

Average firmwide VaR (9)

      $ 9.59     $ 7.53        $ 5.29  

Number of employees, at period end

     3,596       3,526       3,450  

 

17


Jefferies Group LLC and Subsidiaries

Financial Highlights - Footnotes

 

(1)

Amounts pertaining to November 30, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC’s Annual Report on Form 10-K for the fiscal year ended November 30, 2018.

(2)

At November 30, 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 $959 million, in aggregate, and $499 million, being the estimated amount of additional secured financing that could be reasonably expected to be obtained from Jefferies Group LLC’s financial instruments that are currently not pledged after considering reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at August 31, 2018 were $948 million and $337 million, respectively, and at November 30, 2017, were $1,031 million and $514 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)

The November 30, 2018 period includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

(6)

At November 30, 2018, August 31, 2018 and November 30, 2017, total long-term capital includes Jefferies Group LLC’s long-term debt of $5,657 million, $5,703 million and $5,403 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.

(7)

Leverage ratio equals total assets divided by total equity.

(8)

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 Jefferies Group LLC’s leverage ratio.

(9)

VaR estimates the potential loss in value of Jefferies Group LLC’s trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. The quarter ended November 30, 2018 includes two months of Jefferies Group LLC’s investments in LAM, which were transferred to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc. For a further discussion of the calculation of VaR, see “Value-at-Risk” in Part II, Item 7 “Management’s Discussion and Analysis” in Jefferies Group LLC’s Annual Report on Form 10-K for the year ended November 30, 2017.

 

18

(Back To Top)