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Section 1: 8-K (JEFFERIES FINANCIAL GROUP SECOND QUARTER 2019 8-K)

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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): July 3, 2019

JEFFERIES FINANCIAL GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)

NEW YORK
(State or Other Jurisdiction of Incorporation)

1-5721
(Commission File Number)
13-2615557
(I.R.S. Employer Identification No.)
 
 
520 Madison Avenue
New York, New York
(Address of Principal Executive Offices)

10022
(Zip Code)

212-460-1900
(Registrant's Telephone Number, Including Area Code)

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:

|_| 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: o

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. o







Item 2.02. Results of Operations and Financial Condition

On July 3, 2019, we issued a press release announcing financial results for the quarter and year ended May 31, 2019.  A copy of the press release is attached hereto as Exhibit 99 and is incorporated herein by reference.

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 of 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:

Exhibit No.    Description

99        Press Release issued by Jefferies Financial Group Inc. on July 3, 2019



































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.




Date: July 3, 2019




JEFFERIES FINANCIAL GROUP INC.
 
 
 
 
By:
/s/ Teresa S. Gendron
Name:
Teresa S. Gendron
Title:
Vice President and Chief Financial Officer





































EXHIBIT INDEX


Exhibit No.        Exhibit

99            Press Release dated July 3, 2019




(Back To Top)

Section 2: EX-99 (EXHIBIT 99 JFG PRESS RELEASE JULY 3, 2019)

Exhibit


FOR IMMEDIATE RELEASE                                 July 3, 2019



Jefferies Announces Second Quarter 2019 Financial Results

New York, New York, July 3, 2019--Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and six month periods ended May 31, 2019.

Highlights for the three months ended May 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $671 million, or $2.14 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $126 million1, or $0.41 per diluted share1 
Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $155 million and net earnings of $110 million
Total Net Revenues of $902 million
Investment Banking Net Revenues of $448 million
Total Equities and Fixed Income Net Revenues of $379 million
Asset Management Revenues (before Allocated net interest2) of $53 million
Merchant Banking pre-tax income of $51 million, reflecting strong performance from National Beef and Vitesse, offset by mark-to-market unrealized decreases in the values of several of our investments in public companies
Repurchase of 7.8 million shares for $150 million, or an average price of $19.33 per share
$336 million (based on July 2 closing stock price) remaining to be purchased under previously authorized share buyback
Jefferies Financial Group had parent company liquidity of $1.3 billion at May 31, 2019

Highlights for the six months ended May 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $716 million, or $2.25 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $171 million1, or $0.54 per diluted share1 
Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $218 million and net earnings of $156 million
Total Net Revenues of $1,588 million
Investment Banking Net Revenues of $726 million, below-normal due to the impact of market conditions in December and the shutdown of the U.S. Government in December and January
Total Equities and Fixed Income Net Revenues of $751 million
Asset Management Revenues (before Allocated net interest2) of $92 million
Merchant Banking pre-tax income of $71 million, reflecting strong performance from National Beef and Vitesse, offset by mark-to-market unrealized decreases in the values of several of our investments in public companies
Repurchase of 17.4 million shares for $344 million, or an average price of $19.86 per share

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

"Jefferies Group, our financial services business, produced solid and promising performance in the second quarter in Investment Banking, Capital Markets and Asset Management. Overall Investment Banking results returned to more normal levels, although our Investment Banking advisory revenues were held back by the lag effect resulting from capital markets conditions in December and the U.S. government shutdown in December and January.  We continue to take market share in our Equities business and posted solid results in our Fixed Income business on the back of strength in our credit businesses.  Good results for the second quarter and first half of the year in our Asset

1



Management business suggest we are making continued progress toward building this business. Return on equity for Jefferies Group was 7.1% and return on tangible equity3 was 10.2%.

"In the third quarter, we believe Investment Banking will continue to deliver solid results (subject to market conditions), as our transaction backlog is robust and we are seeing positive trends in both the M&A and leveraged finance markets. Additionally, we are optimistic regarding the increasing productivity of managing directors we hired during the last several years.  In particular, we are expecting Investment Banking revenue growth in both the U.S. and Europe from a large number of our recently hired coverage managing directors in our Industrials, Technology and Consumer groups, as they continue to gain traction. We currently have 865 investment banking professionals globally, of which 212 are managing directors. The quality of our brand, human capital and market position has never been stronger.
 
"In Equities, we are realizing market share gains globally driven by our innovative electronic trading capabilities. We are also experiencing strong momentum in our prime services platform, with continued opportunity to grow our market share with emerging hedge fund managers.  In addition, we are currently working to expand our Equities footprint by hiring additional capable research, sales and trading professionals, particularly in Japan, Hong Kong and Australia. 
 
"In Fixed Income, we continue to heighten our focus and effort. We have just elevated Rob Lynn to become our Global Head of Fixed Income Sales and asked Jon Bass to lead our Fixed Income Senior Relationship coverage of our priority and focus clients.  With Fred Jallot joining Jefferies earlier this year as Head of European Fixed Income in London, we are seeking to align more closely our European Fixed Income effort with our U.S. business, emphasizing the high yield, distressed and emerging markets areas, as well as structured credit.  We recently combined our macro businesses across Fixed Income and Equities into a Cross Asset Macro unit under the leadership of Pete Seccia. Layla Royer and Andrew Lynch will co-lead the Macro distribution effort.
 
"Solid returns in our Asset Management businesses during the second quarter were driven by our two multi-manager platforms (Weiss and Schonfeld), as well as our European long-short and our energy-focused strategies.  We announced the launch of an investment platform with Craig Schortzmann and Sean Gallary to acquire stakes in general partners of hedge funds and private equity firms.  During the period, we also partnered with Ross Berger, an experienced executive, to launch a trade finance asset manager, and are onboarding this week an experienced team in energy and energy-related ESG strategies.  We also continued to add to our Asset Management marketing efforts, hiring a new Head of EMEA and a Head of Consultant Relations.  Over the first six months of this fiscal year, Asset Management generated revenues of $92 million (before allocated net interest2) on our allocated capital of about $1 billion. We believe that these results represent a solid foundation on which we can continue to build and that our long-term opportunity is driven by the combination of excellent investment management capability, strong marketing, and a high quality and scalable operating platform. 

"Our Merchant Banking portfolio had a carrying value of $3.4 billion at May 31, 2019. We estimate its fair market value4 at May 31, 2019 was $4.4 billion, or $1.0 billion more than its carrying value. We are focused on driving higher the return on tangible equity in our core business, as well as continuing to re-deploy capital and cash flow from operations and our merchant banking portfolio into businesses yielding more consistent earnings streams.

"During the second quarter, we repurchased 7.8 million shares for $150 million, or an average price of $19.33 per share. So far this fiscal year, we have repurchased 17.4 million Jefferies shares for $344 million, or an average of $19.86 per share.  Since January 1, 2018, we have repurchased an aggregate of 67 million shares at an average price of $22.08 per share. Combining share buybacks with the dividends paid from January 1, 2018 through May 31, 2019, we returned to our shareholders an aggregate of $1.7 billion, or 17% of our common shareholders’ equity (23% of our tangible equity5) as of the beginning of this seventeen month period.  Our number of common shares outstanding declined by 18% from 356 million at January 1, 2018 to 291 million at May 31, 2019. Our fully diluted shares outstanding6 declined by 16% from 373 million at January 1, 2018 to 312 million at May 31, 2019. Even after these buybacks and continuing investment in our business, we ended the second quarter with parent company liquidity of $1.3 billion.   

2




"We will consider repurchasing our shares whenever our stock price is at an attractive discount to intrinsic value, always keeping in mind our relationship with our bondholders and rating agencies. We are pleased to have been recently upgraded by Moody's. We are currently authorized to repurchase up to an additional $336 million (based on July 2 closing stock price) worth of shares, including the shares that were used to purchase the remaining 30% interest in HomeFed, which closed on July 1.

"During the second quarter, in connection with the closing of our corporate available for sale portfolio, we realized a non-cash tax benefit of $545 million. This tax benefit was generated primarily through activity during 2008-2010 and since then has remained an unrealized balance within equity until the liquidation of the portfolio. This realization did not impact total equity, as the increase in retained earnings was offset by a corresponding decrease in accumulated other comprehensive income."


* * * *

Amounts herein pertaining to May 31, 2019 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission ("SEC"). More information on our results of operations for the three and six month periods ended May 31, 2019 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC. Jefferies expects to file its Form 10-Q on or about July 9, 2019.

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


3



 
 
 
 
1
Jefferies Financial Group adjusted net income, a non-GAAP measure, is defined as Jefferies Financial Group's net income less AOCI nonrecurring tax benefit. Jefferies Financial Group adjusted diluted earnings per share, a non-GAAP measure, is defined as Jefferies Financial Group's diluted earnings per share less AOCI non-recurring tax benefit. Refer to schedule on page 15 for reconciliation to U.S. GAAP amounts.
2
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity, which allocation is consistent with Jefferies Group LLC's policy of allocating such items to its business lines. Refer to Jefferies Group LLC's summary of Net Revenues by Source on pages 10 and 11.
3
Return on tangible equity, a non-GAAP financial measure, equals Jefferies Group LLC's second quarter of 2019 annualized net earnings divided by tangible Jefferies Group LLC member's equity (a non-GAAP financial measure). Tangible Jefferies Group LLC member's equity of $4,326 million at February 28, 2019 is a non-GAAP measure and equals Jefferies Group LLC member's equity of $6,151 million less goodwill and identifiable intangible assets of $1,826 million.
4
The estimated fair value of our merchant banking portfolio is a non-GAAP measure and equals our merchant banking carrying value plus estimated fair value adjustments. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
5
Tangible equity of $7,643 million at December 31, 2017 is a non-GAAP measure and equals Jefferies Financial Group's common shareholders' equity of $10,106 million less Intangible assets, net and goodwill of $2,463 million.
6
Fully diluted shares outstanding, a non-GAAP measure, is defined as common shares outstanding plus restricted stock units and other diluted shares. Refer to schedule on page 15 for reconciliation to U.S. GAAP amounts.


4



Summary for Jefferies Financial Group Inc. and Subsidiaries
(In thousands, except per share amounts)
(Unaudited)


 
For the Three Months Ended
 
For the Six Months Ended
May 31,
2019
 
June 30,
2018
 
May 31,
2019
 
June 30,
2018
 
 
 
 
 
 
 
 
Net revenues
$
1,101,657

 
$
911,159

 
$
1,930,100

 
$
1,806,594

 
 
 
 
 
 
 
 
Income from continuing operations before income taxes and income related to associated companies
$
161,309

 
$
4,162

 
$
183,313

 
$
9,825

Income related to associated companies
22,170

 
33,353

 
49,483

 
65,453

Income from continuing operations before income taxes
183,479

 
37,515

 
232,796

 
75,278

Income tax provision (benefit)
(488,797
)
 
9,598

 
(486,495
)
 
(38,831
)
Income from continuing operations
672,276

 
27,917

 
719,291

 
114,109

Income from discontinued operations, net of income tax provision of $0, $31,111, $0 and $47,045

 
77,106

 

 
130,063

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

 
643,921

 

 
643,921

Net income
672,276

 
748,944

 
719,291

 
888,093

Net (income) loss attributable to the noncontrolling interests
191

 
(136
)
 
(875
)
 
1,208

Net income attributable to the redeemable noncontrolling interests
(427
)
 
(22,108
)
 
(289
)
 
(36,904
)
Preferred stock dividends
(1,276
)
 
(1,171
)
 
(2,552
)
 
(2,343
)
Net income attributable to Jefferies Financial Group Inc. common shareholders
$
670,764

 
$
725,529

 
$
715,575

 
$
850,054

 
 
 
 
 
 
 
 
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
2.17

 
$
0.08

 
$
2.29

 
$
0.31

Income from discontinued operations

 
0.15

 

 
0.26

Gain on disposal of discontinued operations

 
1.82

 

 
1.79

Net income
$
2.17

 
$
2.05

 
$
2.29

 
$
2.36

 
 
 
 
 
 
 
 
Number of shares in calculation
307,010

 
352,049

 
311,108

 
359,237

 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
2.14

 
$
0.08

 
$
2.25

 
$
0.31

Income from discontinued operations

 
0.15

 

 
0.25

Gain on disposal of discontinued operations

 
1.80

 

 
1.77

Net income
$
2.14

 
$
2.03

 
$
2.25

 
$
2.33

 
 
 
 
 
 
 
 
Number of shares in calculation
312,527

 
356,075

 
317,736

 
362,685


5



A summary of results for the three months ended May 31, 2019 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
901,851

 
$
187,324

 
$
8,974

 
$

 
$
3,508

 
$
1,101,657

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
477,885

 
19,914

 
12,761

 

 

 
510,560

Cost of sales

 
80,415

 

 

 

 
80,415

Floor brokerage and clearing fees
62,474

 

 

 

 
(2,087
)
 
60,387

Interest expense

 
8,372

 

 
14,766

 

 
23,138

Depreciation and amortization
18,968

 
16,951

 
867

 

 

 
36,786

Selling, general and other expenses
187,386

 
32,618

 
9,231

 

 
(173
)
 
229,062

Total expenses
746,713

 
158,270

 
22,859

 
14,766

 
(2,260
)
 
940,348

Income (loss) from continuing operations before income taxes and income related to associated companies
155,138

 
29,054

 
(13,885
)
 
(14,766
)
 
5,768

 
161,309

Income related to associated companies

 
22,170

 

 

 

 
22,170

Income (loss) from continuing operations before income taxes
$
155,138

 
$
51,224

 
$
(13,885
)
 
$
(14,766
)
 
$
5,768

 
183,479

Income tax benefit from continuing operations
 
 
 
 
 
 
 
 
 
 
(488,797
)
Net income
 
 
 
 
 
 
 
 
 
 
$
672,276


A summary of results for the three months ended June 30, 2018 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
822,557

 
$
86,417

 
$
2,994

 
$

 
$
(809
)
 
$
911,159

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
444,094

 
20,101

 
14,320

 

 

 
478,515

Cost of sales

 
90,690

 

 

 

 
90,690

Floor brokerage and clearing fees
46,244

 

 

 

 
(1,198
)
 
45,046

Interest expense

 
9,529

 

 
14,750

 

 
24,279

Depreciation and amortization
17,288

 
13,740

 
877

 

 

 
31,905

Selling, general and other expenses
193,066

 
35,768

 
9,012

 

 
(1,284
)
 
236,562

Total expenses
700,692

 
169,828

 
24,209

 
14,750

 
(2,482
)
 
906,997

Income (loss) from continuing operations before income taxes and income related to associated companies
121,865

 
(83,411
)
 
(21,215
)
 
(14,750
)
 
1,673

 
4,162

Income related to associated companies

 
33,353

 

 

 

 
33,353

Income (loss) from continuing operations before income taxes
$
121,865

 
$
(50,058
)
 
$
(21,215
)
 
$
(14,750
)
 
$
1,673

 
37,515

Income tax provision from continuing operations
 
 
 
 
 
 
 
 
 
 
9,598

Income from discontinued operations, net of income tax provision
 
 
 
 
 
 
 
 
 
 
77,106

Gain on disposal of discontinued operations, net of income tax provision
 
 
 
 
 
 
 
 
 
 
643,921

Net income
 
 
 
 
 
 
 
 
 
 
$
748,944


6



A summary of results for the six months ended May 31, 2019 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
1,587,569

 
$
323,662

 
$
13,167

 
$

 
$
5,702

 
$
1,930,100

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
849,570

 
40,300

 
30,282

 

 

 
920,152

Cost of sales

 
147,336

 

 

 

 
147,336

Floor brokerage and clearing fees
114,451

 

 

 

 
(2,196
)
 
112,255

Interest expense

 
16,628

 

 
29,528

 

 
46,156

Depreciation and amortization
36,630

 
32,368

 
1,722

 

 

 
70,720

Selling, general and other expenses
369,195

 
65,184

 
16,391

 

 
(602
)
 
450,168

Total expenses
1,369,846

 
301,816

 
48,395

 
29,528

 
(2,798
)
 
1,746,787

Income (loss) from continuing operations before income taxes and income related to associated companies
217,723

 
21,846

 
(35,228
)
 
(29,528
)
 
8,500

 
183,313

Income related to associated companies

 
49,483

 

 

 

 
49,483

Income (loss) from continuing operations before income taxes
$
217,723

 
$
71,329

 
$
(35,228
)
 
$
(29,528
)
 
$
8,500

 
232,796

Income tax benefit from continuing operations
 
 
 
 
 
 
 
 
 
 
(486,495
)
Net income
 
 
 
 
 
 
 
 
 
 
$
719,291


A summary of results for the six months ended June 30, 2018 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
1,643,803

 
$
160,318

 
$
6,061

 
$

 
$
(3,588
)
 
$
1,806,594

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
899,727

 
40,043

 
29,277

 

 
(873
)
 
968,174

Cost of sales

 
172,625

 

 

 

 
172,625

Floor brokerage and clearing fees
90,063

 

 

 

 
(2,841
)
 
87,222

Interest expense

 
16,281

 

 
29,496

 

 
45,777

Depreciation and amortization
33,654

 
24,664

 
1,747

 

 

 
60,065

Selling, general and other expenses
375,756

 
71,473

 
17,777

 

 
(2,100
)
 
462,906

Total expenses
1,399,200

 
325,086

 
48,801

 
29,496

 
(5,814
)
 
1,796,769

Income (loss) from continuing operations before income taxes and income related to associated companies
244,603

 
(164,768
)
 
(42,740
)
 
(29,496
)
 
2,226

 
9,825

Income related to associated companies

 
65,453

 

 

 

 
65,453

Income (loss) from continuing operations before income taxes
$
244,603

 
$
(99,315
)
 
$
(42,740
)
 
$
(29,496
)
 
$
2,226

 
75,278

Income tax benefit from continuing operations
 
 
 
 
 
 
 
 
 
 
(38,831
)
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
 
 
 
 
 
 
 
 
 
 
$
888,093



7



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 February 28, 2019 and Annual Report on Form 10-K for the year ended November 30, 2018. Amounts herein pertaining to May 31, 2019 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended May 31, 2019.

 
Jefferies Group LLC and Subsidiaries
 
Consolidated Statements of Earnings
 
(Amounts in Thousands)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
May 31, 2019
 
February 28, 2019
 
May 31, 2018
Revenues:
 
 
 
 
 
Commissions and other fees
$
159,773

 
$
147,326

 
$
158,104

Principal transactions
248,831

 
234,298

 
137,802

Investment banking
430,087

 
285,596

 
500,297

Asset management fees
4,550

 
6,669

 
6,016

Interest
418,451

 
360,975

 
307,327

Other
52,801

 
20,008

 
47,263

Total revenues
1,314,493

 
1,054,872

 
1,156,809

Interest expense
412,642

 
369,154

 
334,252

Net revenues
901,851

 
685,718

 
822,557

 
 
 
 
 
 
 
Non-interest expenses:
 
 
 
 
 
Compensation and benefits
477,885

 
371,685

 
444,094

 
 
 
 
 
 
 
Non-compensation expenses:
 
 
 
 
 
Floor brokerage and clearing fees
62,474

 
51,977

 
46,244

Technology and communications
81,645

 
79,170

 
76,381

Occupancy and equipment rental
29,748

 
28,539

 
24,993

Business development
36,349

 
30,555

 
42,393

Professional services
38,066

 
36,927

 
35,991

Underwriting costs
12,823

 
8,575

 
13,029

Other
7,723

 
15,705

 
17,567

Total non-compensation expenses
268,828

 
251,448

 
256,598

Total non-interest expenses
746,713

 
623,133

 
700,692

Earnings before income taxes
155,138

 
62,585

 
121,865

Income tax expense
45,319

 
16,220

 
23,857

Net earnings
109,819

 
46,365

 
98,008

Net earnings (loss) attributable to noncontrolling interests
(101
)
 
384

 
4

Net earnings attributable to Jefferies Group LLC
$
109,920

 
$
45,981

 
$
98,004

 
 
 
 
 
 
 
Pre-tax operating margin
17.2
%
 
9.1
%
 
14.8
%
Effective tax rate
29.2
%
 
25.9
%
 
19.6
%

8



 
Jefferies Group LLC and Subsidiaries
 
Consolidated Statements of Earnings
 
(Amounts in Thousands)
 
(Unaudited)
 
 
 
 
 
 
 
Six Months Ended
 
 
May 31, 2019
 
May 31, 2018
Revenues:
 
 
 
Commissions and other fees
$
307,099

 
$
306,006

Principal transactions
483,129

 
355,275

Investment banking
715,683

 
940,288

Asset management fees
11,219

 
10,946

Interest
779,426

 
565,143

Other
72,809

 
65,746

Total revenues
2,369,365

 
2,243,404

Interest expense
781,796

 
599,601

Net revenues
1,587,569

 
1,643,803

 
 
 
 
 
Non-interest expenses:
 
 
 
Compensation and benefits
849,570

 
899,727

 
 
 
 
 
Non-compensation expenses:
 
 
 
Floor brokerage and clearing fees
114,451

 
90,063

Technology and communications
160,815

 
145,458

Occupancy and equipment rental
58,287

 
49,584

Business development
66,904

 
84,500

Professional services
74,993

 
66,399

Underwriting costs
21,398

 
27,304

Other
23,428

 
36,165

Total non-compensation expenses
520,276

 
499,473

Total non-interest expenses
1,369,846

 
1,399,200

Earnings before income taxes
217,723

 
244,603

Income tax expense
61,539

 
207,414

Net earnings
156,184

 
37,189

Net earnings attributable to noncontrolling interests
283

 
3

Net earnings attributable to Jefferies Group LLC
$
155,901

 
$
37,186

 
 
 
 
 
Pre-tax operating margin
13.7
%
 
14.9
%
Effective tax rate (1)
28.3
%
 
84.8
%
 
 
 
 
 
(1)
The effective tax rate for the three months ended May 31, 2018 includes an estimated provisional tax charge of approximately $160 million as a result of the Tax Cuts and Jobs Act ("Tax Act").

9



Jefferies Group LLC and Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Other Data)
(Unaudited)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
May 31, 2019
 
February 28, 2019
 
May 31, 2018
Net Revenues by Source:
 
 
 
 
 
Equities
$
206,083

 
$
174,539

 
$
175,083

Fixed income
173,253

 
196,759

 
119,987

Total sales and trading
379,336

 
371,298

 
295,070

 
 
 
 
 
 
 
Equity
108,022

 
51,337

 
107,553

Debt
151,511

 
53,777

 
175,762

Capital markets
259,533

 
105,114

 
283,315

Advisory
178,554

 
180,482

 
216,982

Other investment banking
9,634

 
(7,642
)
 
6,065

Total investment banking
447,721

 
277,954

 
506,362

 
 
 
 
 
 
 
Other
32,218

 
8,995

 
9,861

 
 
 
 
 
 
 
Total Capital Markets (1) (2)
859,275

 
658,247

 
811,293

 
 
 
 
 
 
 
Asset management fees
4,550

 
6,669

 
6,016

Investment return (3) (4)
48,075

 
32,412

 
13,892

Allocated net interest (3) (5)
(10,049
)
 
(11,610
)
 
(8,644
)
Total Asset Management
42,576

 
27,471

 
11,264

 
 
 
 
 
 
 
Net Revenues
$
901,851

 
$
685,718

 
$
822,557

 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
Number of trading days
64

 
59

 
64

Number of trading loss days
4

 
9

 
9

 
 
 
 
 
 
 
Average firmwide VaR (in millions) (6) (7)
$
8.70

 
$
9.06

 
$
6.78

 
 
 
 
 
 
 
(1)
Includes net interest revenue (expense) of $16.4 million, $4.6 million and ($18.8) million for the quarters ended May 31, 2019, February 28, 2019 and May 31, 2018, respectively.
(2)
Allocated net interest is not separately disaggregated in presenting our Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Capital Markets internal performance measurement.
(3)
Beginning with the first quarter of 2019, Net revenues attributed to the Investment return in Jefferies Group LLC's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside Jefferies Group LLC. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to Jefferies Group LLC's credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(4)
Includes net interest revenue (expense) of ($0.6) million, ($1.2) million and $0.6 million for the quarters ended May 31, 2019, February 28, 2019 and May 31, 2018, respectively.
(5)
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity (refer to page 12).
(6)
The quarters ended May 31, 2019 and February 28, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.
(7)
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. 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, 2018.

10



Jefferies Group LLC and Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Other Data)
(Unaudited)
 
 
 
 
 
 
 
Six Months Ended
 
 
May 31, 2019
 
May 31, 2018
Net Revenues by Source:
 
 
 
Equities
$
380,622

 
$
330,860

Fixed income
370,012

 
333,040

Total sales and trading
750,634

 
663,900

 
 
 
 
 
Equity
159,359

 
187,393

Debt
205,288

 
344,756

Capital markets
364,647

 
532,149

Advisory
359,036

 
408,139

Other investment banking
1,992

 
(153
)
Total investment banking
725,675

 
940,135

 
 
 
 
 
Other
41,213

 
17,958

 
 
 
 
 
Total Capital Markets (1) (2)
1,517,522

 
1,621,993

 
 
 
 
 
Asset management fees
11,219

 
10,946

Investment return (3) (4)
80,487

 
26,271

Allocated net interest (3) (5)
(21,659
)
 
(15,407
)
Total Asset Management
70,047

 
21,810

 
 
 
 
 
Net Revenues
$
1,587,569

 
$
1,643,803

 
 
 
 
 
Other Data:
 
 
 
Number of trading days
123

 
124

Number of trading loss days
13

 
16

 
 
 
 
 
Average firmwide VaR (in millions) (6) (7)
$
8.87

 
$
6.55

 
 
 
 
 
(1)
Includes net interest revenue (expense) of $21.0 million and ($18.1) million for the six months ended May 31, 2019 and 2018, respectively.
(2)
Allocated net interest is not separately disaggregated in presenting our Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Capital Markets internal performance measurement.
(3)
Beginning with the first quarter of 2019, Net revenues attributed to the Investment return in Jefferies Group LLC's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside Jefferies Group LLC. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to Jefferies Group LLC's credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(4)
Includes net interest expense of $1.7 million and $0.9 million for the six months ended May 31, 2019 and 2018, respectively.
(5)
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity (refer to page 12).
(6)
The six months ended May 31, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.
(7)
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. 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, 2018.

11



Jefferies Group LLC and Subsidiaries
Financial Highlights
(Amounts in Millions, Except Where Noted)
(Unaudited)
 
 
 
 
 
 
 
Quarter Ended
 
May 31, 
 2019
 
February 28, 2019
 
May 31, 
 2018
Financial position:
 
 
 
 
 
Total assets (1)
$
42,818

 
$
43,134

 
$
41,123

Average total assets for the period (1)
$
53,675

 
$
52,934

 
$
49,496

Average total assets less goodwill and intangible assets for the period (1)
$
51,851

 
$
51,109

 
$
47,654

 
 
 
 
 
 
Cash and cash equivalents (1)
$
4,213

 
$
4,132

 
$
4,580

Cash and cash equivalents and other sources of liquidity (1) (2)
$
5,701

 
$
5,691

 
$
5,881

Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)
13.3
%
 
13.2
%
 
14.3
%
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)
13.9
%
 
13.8
%
 
15.0
%
 
 
 
 
 
 
Financial instruments owned (1)
$
16,096

 
$
16,900

 
$
15,706

Goodwill and intangible assets (1)
$
1,818

 
$
1,826

 
$
1,835

 
 
 
 
 
 
Total equity (including noncontrolling interests) (1)
$
6,179

 
$
6,157

 
$
5,544

Total Jefferies Group LLC member's equity (1)
$
6,173

 
$
6,151

 
$
5,543

Tangible Jefferies Group LLC member's equity (1) (3)
$
4,355

 
$
4,326

 
$
3,708

 
 
 
 
 
 
Level 3 financial instruments:
 
 
 
 
 
Level 3 financial instruments owned (1) (4) (5)
$
367

 
$
395

 
$
337

Level 3 financial instruments owned - % total assets (1) (4)
0.9
%
 
0.9
%
 
0.8
%
Level 3 financial instruments owned - % total financial instruments (1) (4)
2.3
%
 
2.3
%
 
2.1
%
Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (4)
8.4
%
 
9.1
%
 
9.1
%
 
 
 
 
 
 
Other data and financial ratios:
 
 
 
 
 
Total long-term capital (1) (6)
$
11,444

 
$
11,899

 
$
11,971

Leverage ratio (1) (7)
6.9

 
7.0

 
7.4

Tangible gross leverage ratio (1) (8)
9.4

 
9.5

 
10.6

 
 
 
 
 
 
Number of trading days
64

 
59

 
64

Number of trading loss days
4

 
9

 
9

Average firmwide VaR (5) (9)
$
8.70

 
$
9.06

 
$
6.78

 
 
 
 
 
 
Number of employees, at period end
3,656

 
3,613

 
3,438













12



Jefferies Group LLC and Subsidiaries
Financial Highlights - Footnotes
 
 
 
 
 
 
 
 
(1)
Amounts pertaining to May 31, 2019 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended May 31, 2019.

(2)
At May 31, 2019, 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 $1,175 million, in aggregate, and $313 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 February 28, 2019 were $1,194 million and $365 million, respectively, and at May 31, 2018, were $940 million and $361 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 quarters ended May 31, 2019 and February 28, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

(6)
At May 31, 2019, February 28, 2019 and May 31, 2018, total long-term capital includes Jefferies Group LLC's long-term debt of $5,265 million, $5,742 million and $6,428 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. 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, 2018.



13



Merchant Banking Net Asset Overview
As of May 31, 2019
 
 
 
 
 
 
($ Millions)
 
 
 
 
 
 
 
 
Book Value
 
Estimated Fair Value (2)
 
Basis for Fair Value Estimate
Investments in Public Companies
 
 
 
 
 
 
  Spectrum Brands
 
$
399

 
$
399

 
Mark-to-market (same for GAAP book value)
  HomeFed
 
337

 
390

 
Mark-to-market (equity method for GAAP book value)
  Other
 
259

 
259

 
Mark-to-market (same for GAAP book value)
Sub-Total
 
995

 
1,048

 
 
 
 
 
 
 
 
 
Investments in Private Companies
 
 
 
 
 
 
  National Beef
 
661

 
903

 
Income approach and market comparable method
  Linkem
 
202

 
600

 
Income approach, market comparable and market transaction method
  Oil and Gas (Vitesse and JETX)
 
636

 
756

 
Income approach, market comparable and market transaction method
  WeWork
 
269

 
269

 
Market transaction method and option pricing theory
  Idaho Timber
 
83

 
165

 
Income approach, market comparable and market transaction method
  Other (1)
 
542

 
660

 
Various
Sub-Total
 
2,393

 
3,353

 
 
Total Merchant Banking Business
 
$
3,388

 
$
4,401

 
 
(1)
Includes FXCM, Foursight, Golden Queen, M Science and various other investments.
(2)
The following table reconciles financial results reported in accordance with U.S. GAAP to non-GAAP financial results. The table above contains non-GAAP financial information to aid investors in viewing our businesses and investments through the eyes of management while facilitating a comparison across historical periods. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in accordance with U.S. GAAP.

Reconciliation of Book Value of Merchant Banking Investments to Estimated Fair Value
($ Millions)
 
 
 
 
 
 
 
 
 
Book Value May 31, 2019
 
Fair Value Adjustments
 
Estimated Fair Value May 31, 2019
 
Investments in Public Companies
 
 
 
 
 
 
 
  Spectrum Brands
 
$
399

 
$

 
$
399

 
  HomeFed
 
337

 
53

 
390

 
  Other
 
259

 

 
259

 
Sub-Total
 
995

 
53

 
1,048

 
 
 
 
 
 
 
 
 
Investments in Private Companies
 
 
 
 
 
 
 
  National Beef
 
661

 
242

 
903

 
  Linkem
 
202

 
398

 
600

 
  Oil and Gas (Vitesse and JETX)
 
636

 
120

 
756

 
  WeWork
 
269

 

 
269

 
  Idaho Timber
 
83

 
82

 
165

 
  Other
 
542

 
118

 
660

 
Sub-Total
 
2,393

 
960

 
3,353

 
Total Merchant Banking Business
 
$
3,388

 
$
1,013

 
$
4,401

 

14




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.

Jefferies Financial Group Net Income and Earnings Per Share GAAP Reconciliation

Reconciliation of Jefferies Financial Group net income to adjusted net income (a non-GAAP measure) and diluted earnings per share to adjusted diluted earnings per share (a non-GAAP measure) (in thousands, except per share amounts):
 
 
Three months ended May 31, 2019
 
Six months ended May 31, 2019
 
 
 
 
 
Jefferies Financial Group net income (GAAP)
 
$
670,764

 
$
715,575

Accumulated other comprehensive income tax benefit
 
(544,583
)
 
(544,583
)
Jefferies Financial Group adjusted net income (non-GAAP)
 
$
126,181

 
$
170,992

 
 
 
 
 
Jefferies Financial Group diluted earnings per share (GAAP)
 
$
2.14

 
$
2.25

Accumulated other comprehensive income tax benefit
 
(1.73
)
 
(1.71
)
Jefferies Financial Group adjusted diluted earnings per share (non-GAAP)
 
$
0.41

 
$
0.54



Jefferies Financial Group Fully Diluted Shares Outstanding GAAP Reconciliation

Reconciliation of Jefferies Financial Group common shares outstanding to fully diluted shares outstanding (a non-GAAP measure) (in thousands of shares):
 
 
May 31, 2019
 
December 31, 2017
 
 
 
 
 
Common shares outstanding (GAAP)
 
290,687

 
356,227

Restricted stock units
 
20,575

 
16,000

Other
 
909

 
887

Fully diluted shares outstanding (Non-GAAP)
 
312,171

 
373,114






15
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