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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549


FORM 8‑K

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


Date of report (Date of earliest event reported):  July 3, 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 Ave., New York, New York 
10022
(Address of principal executive offices) 
(Zip Code)


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


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


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

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

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

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

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

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 July 3, 2019, our parent company, Jefferies Financial Group Inc., issued a press release containing financial results for our quarter 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 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
July 3, 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: July 3, 2019
/s/ Roland T. Kelly
   Roland T. Kelly
   Associate General Counsel
 


 
INDEX TO EXHIBITS

Exhibit No.
 Description
   
99
July 3, 2019 press release.

(Back To Top)

Section 2: EX-99 (EXHIBIT 99)

Exhibit 99

Jefferies Announces Second Quarter 2019 Financial Results

NEW YORK--(BUSINESS WIRE)--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 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.

"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).


 

 

 

 

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.


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

 


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

 


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

 


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

%


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").


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.


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.


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

 


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.

 


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


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

 

 

Contacts

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

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