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Section 1: 8-K (JEFFERIES FINANCIAL GROUP 3RD QTR. 2019 FORM 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): September 26, 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 September 26, 2019, we issued a press release announcing financial results for the quarter and year ended August 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 September 26, 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: September 26, 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 September 26, 2019




(Back To Top)

Section 2: EX-99 (EXHIBIT 99 JFG PRESS RELEASE SEPTEMBER 26, 2019)

Exhibit


FOR IMMEDIATE RELEASE                                 September 26, 2019



Jefferies Announces Third Quarter 2019 Financial Results

New York, New York, September 26, 2019--Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and nine month periods ended August 31, 2019.

Highlights for the three months ended August 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $48 million, or $0.15 per diluted share, reflecting solid results at Jefferies Group and certain of our merchant banking investments, offset by a non-cash fair value reduction of $146 million to our investment in The We Company (we invested $9 million in We, have received $31 million in cash and continue to own approximately 0.8% of We's fully diluted shares)
Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $83 million and net earnings of $65 million
Total Net Revenues of $777 million
Investment Banking Net Revenues of $403 million
Total Equities and Fixed Income Net Revenues of $342 million
Asset Management Revenues (before Allocated net interest1) of $29 million
Merchant Banking pre-tax loss of $43 million, reflecting strong performance by National Beef and a gain related to the purchase of the remaining interest in HomeFed, more than offset by the $146 million fair value adjustment to our investment in We
Return of capital through a special dividend of Spectrum Brands Common Stock, valued at approximately $450 million at announcement on September 16, 2019; approximately $330 million remaining to be purchased under previously authorized share buyback
Jefferies Financial Group had parent company liquidity of $1.4 billion at August 31, 2019

Highlights for the nine months ended August 31, 2019:
Net income attributable to Jefferies Financial Group common shareholders of $764 million, or $2.41 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $219 million2, or $0.70 per diluted share2 
Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of $301 million and net earnings of $221 million
Total Net Revenues of $2,365 million
Investment Banking Net Revenues of $1,129 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 $1,092 million
Asset Management Revenues (before Allocated net interest1) of $121 million
Merchant Banking pre-tax income of $28 million, reflecting strong performance from National Beef and Vitesse, and the gain related to the HomeFed transaction, offset by fair value adjustments to both our investment in We and some of our mark-to-market investments in public companies
Return of excess capital, including announced special dividend of Spectrum Brands common stock, share repurchases and cash dividends, totaling approximately $900 million; share repurchases during the nine months totaled 17.7 million shares for $352 million, or an average price of $19.87 per share

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

"2019 is proving to be a year of solid progress on our strategy of simplifying Jefferies Financial Group to focus on Investment Banking, Capital Markets and Asset Management, reducing our share count and returning capital to our shareholders. The recently announced distribution of our Spectrum Brands position aligns directly with our strategy.

1




"So far this fiscal year, we have repurchased 17.7 million Jefferies shares for $352 million, or an average of $19.87 per share.  Since April 1, 2018, we have repurchased an aggregate of 67.7 million shares at an average price of $22.07 per share. Combining share buybacks and dividends paid from April 1, 2018 through August 31, 2019 with the announced special dividend of Spectrum Brands common stock, we are returning to our shareholders an aggregate of $2.2 billion, or 21% of our common shareholders’ equity (28% of our tangible equity3) as of the beginning of this period. Even after this return of value to our shareholders and continuing investment in our business, we ended the third quarter with parent company liquidity of $1.4 billion. We are currently authorized to repurchase up to an additional $330 million (based on September 25 closing stock price) worth of shares.

"Jefferies Group's third quarter revenues of $777 million reflect solid performances in Investment Banking, with revenues of $403 million, and in Sales and Trading where revenues were $342 million, although market volatility in August impacted activity levels in both the primary and secondary markets.

"Investment Banking Advisory revenues for the quarter were $213 million, an increase of 19% versus the second quarter and 14% versus last year’s third quarter. Our Investment Banking results reflect lower new issue transaction levels during the period versus the second quarter of this year and the third quarter of last year. Our fourth quarter Investment Banking backlog is very solid.

"Our Equities Sales and Trading business enjoyed another strong quarter, with revenues of $193 million. Prime Brokerage, Electronic Trading and our High Touch Cash businesses performed well during the quarter. Fixed Income Sales and Trading volumes were quite strong during June and July, but downward moves in interest rates during August reduced volumes for much of the last month of our fiscal quarter. More normal secondary activity levels have prevailed in the first few weeks of September.   

"Our third quarter merchant banking results reflect strong performance by National Beef. While grilling season typically makes third quarter results stronger, the third quarter of 2019 represents the best quarter for National Beef since our initial investment. Our previously announced closing of the purchase of the remaining interest in HomeFed generated a gain of $72 million related to the write-up of our existing ownership interest to its estimated fair value on the acquisition date. Our third quarter results also include an adjustment to reduce the estimated fair value of our investment in We by $146 million. This is based on an estimate of value as of August 31, 2019, using available market information at that time, including a significant discount due to uncertainty regarding the timing and pricing of We's IPO. As the facts at We become clearer, further adjustments may be made in future periods."

* * * *

Amounts herein pertaining to August 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 nine month periods ended August 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 October 8, 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

2



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

 
 
 
 
1
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 9 and 10.
2
Jefferies Financial Group adjusted net income, a non-GAAP measure, is defined as Jefferies Financial Group's net income less accumulated other comprehensive income 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 accumulated other comprehensive income non-recurring tax benefit. Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.
3
Tangible equity of $7,808 million at March 31, 2018 is a non-GAAP measure and equals Jefferies Financial Group's common shareholders' equity of $10,259 million less Intangible assets, net and goodwill of $2,451 million.


3



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


 
For the Three Months Ended
 
For the Nine Months Ended
August 31,
2019
 
September 30,
2018
 
August 31,
2019
 
September 30,
2018
 
 
 
 
 
 
 
 
Net revenues
$
856,778

 
$
1,150,846

 
$
2,786,878

 
$
2,957,440

 
 
 
 
 
 
 
 
Income (loss) from continuing operations before income taxes and income related to associated companies
$
(59,020
)
 
$
253,825

 
$
124,293

 
$
263,650

Income related to associated companies
72,283

 
18,867

 
121,766

 
84,320

Income from continuing operations before income taxes
13,263

 
272,692

 
246,059

 
347,970

Income tax provision (benefit)
(36,131
)
 
90,391

 
(522,626
)
 
51,560

Income from continuing operations
49,394

 
182,301

 
768,685

 
296,410

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

 

 

 
130,063

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

 

 

 
643,921

Net income
49,394

 
182,301

 
768,685

 
1,070,394

Net (income) loss attributable to the noncontrolling interests
116

 
12,000

 
(759
)
 
13,208

Net (income) loss attributable to the redeemable noncontrolling interests
242

 
(390
)
 
(47
)
 
(37,294
)
Preferred stock dividends
(1,275
)
 
(1,276
)
 
(3,827
)
 
(3,619
)
Net income attributable to Jefferies Financial Group Inc. common shareholders
$
48,477

 
$
192,635

 
$
764,052

 
$
1,042,689

 
 
 
 
 
 
 
 
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
0.16

 
$
0.56

 
$
2.44

 
$
0.86

Income from discontinued operations

 

 

 
0.26

Gain on disposal of discontinued operations

 

 

 
1.82

Net income
$
0.16

 
$
0.56

 
$
2.44

 
$
2.94

 
 
 
 
 
 
 
 
Number of shares in calculation
310,288

 
341,434

 
310,838

 
353,300

 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
 
 
 
 
 
 
 
Income from continuing operations
$
0.15

 
$
0.55

 
$
2.41

 
$
0.85

Income from discontinued operations

 

 

 
0.26

Gain on disposal of discontinued operations

 

 

 
1.80

Net income
$
0.15

 
$
0.55

 
$
2.41

 
$
2.91

 
 
 
 
 
 
 
 
Number of shares in calculation
311,897

 
350,307

 
317,181

 
357,169


4



A summary of results for the three months ended August 31, 2019 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
777,159

 
$
75,497

 
$
8,967

 
$

 
$
(4,845
)
 
$
856,778

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
411,936

 
23,496

 
11,450

 

 

 
446,882

Cost of sales

 
85,773

 

 

 

 
85,773

Floor brokerage and clearing fees
54,247

 

 

 

 
(3,389
)
 
50,858

Interest expense

 
8,893

 

 
14,770

 

 
23,663

Depreciation and amortization
21,170

 
17,880

 
830

 

 

 
39,880

Selling, general and other expenses
206,731

 
54,683

 
8,466

 

 
(1,138
)
 
268,742

Total expenses
694,084

 
190,725

 
20,746

 
14,770

 
(4,527
)
 
915,798

Income (loss) from continuing operations before income taxes and income related to associated companies
83,075

 
(115,228
)
 
(11,779
)
 
(14,770
)
 
(318
)
 
(59,020
)
Income related to associated companies

 
72,283

 

 

 

 
72,283

Income (loss) from continuing operations before income taxes
$
83,075

 
$
(42,945
)
 
$
(11,779
)
 
$
(14,770
)
 
$
(318
)
 
13,263

Income tax benefit from continuing operations
 
 
 
 
 
 
 
 
 
 
(36,131
)
Net income
 
 
 
 
 
 
 
 
 
 
$
49,394


A summary of results for the three months ended September 30, 2018 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
777,615

 
$
369,309

 
$
8,714

 
$

 
$
(4,792
)
 
$
1,150,846

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
428,033

 
19,464

 
13,768

 

 

 
461,265

Cost of sales

 
84,876

 

 

 

 
84,876

Floor brokerage and clearing fees
45,745

 

 

 

 
(1,175
)
 
44,570

Interest expense

 
14,082

 

 
14,755

 

 
28,837

Depreciation and amortization
17,175

 
14,268

 
852

 

 

 
32,295

Selling, general and other expenses
199,561

 
36,954

 
9,461

 

 
(798
)
 
245,178

Total expenses
690,514

 
169,644

 
24,081

 
14,755

 
(1,973
)
 
897,021

Income (loss) from continuing operations before income taxes and income related to associated companies
87,101

 
199,665

 
(15,367
)
 
(14,755
)
 
(2,819
)
 
253,825

Income related to associated companies

 
18,867

 

 

 

 
18,867

Income (loss) from continuing operations before income taxes
$
87,101

 
$
218,532

 
$
(15,367
)
 
$
(14,755
)
 
$
(2,819
)
 
272,692

Income tax provision from continuing operations
 
 
 
 
 
 
 
 
 
 
90,391

Net income
 
 
 
 
 
 
 
 
 
 
$
182,301


5



A summary of results for the nine months ended August 31, 2019 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
2,364,728

 
$
399,159

 
$
22,134

 
$

 
$
857

 
$
2,786,878

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
1,261,506

 
63,796

 
41,732

 

 

 
1,367,034

Cost of sales

 
233,109

 

 

 

 
233,109

Floor brokerage and clearing fees
168,698

 

 

 

 
(5,585
)
 
163,113

Interest expense

 
25,521

 

 
44,298

 

 
69,819

Depreciation and amortization
57,800

 
50,248

 
2,552

 

 

 
110,600

Selling, general and other expenses
575,926

 
119,867

 
24,857

 

 
(1,740
)
 
718,910

Total expenses
2,063,930

 
492,541

 
69,141

 
44,298

 
(7,325
)
 
2,662,585

Income (loss) from continuing operations before income taxes and income related to associated companies
300,798

 
(93,382
)
 
(47,007
)
 
(44,298
)
 
8,182

 
124,293

Income related to associated companies

 
121,766

 

 

 

 
121,766

Income (loss) from continuing operations before income taxes
$
300,798

 
$
28,384

 
$
(47,007
)
 
$
(44,298
)
 
$
8,182

 
246,059

Income tax benefit from continuing operations
 
 
 
 
 
 
 
 
 
 
(522,626
)
Net income
 
 
 
 
 
 
 
 
 
 
$
768,685


A summary of results for the nine months ended September 30, 2018 is as follows (in thousands):
 
Jefferies Group
 
Merchant Banking
 
Corporate
 
Parent Company Interest
 
Consolidation Adjustments
 
Total
Net revenues
$
2,421,418

 
$
529,627

 
$
14,775

 
$

 
$
(8,380
)
 
$
2,957,440

 
 
 
 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
 
 
 
Compensation and benefits
1,327,760

 
59,507

 
43,045

 

 
(873
)
 
1,429,439

Cost of sales

 
257,501

 

 

 

 
257,501

Floor brokerage and clearing fees
135,808

 

 

 

 
(4,016
)
 
131,792

Interest expense

 
30,363

 

 
44,251

 

 
74,614

Depreciation and amortization
50,829

 
38,932

 
2,599

 

 

 
92,360

Selling, general and other expenses
575,317

 
108,427

 
27,238

 

 
(2,898
)
 
708,084

Total expenses
2,089,714

 
494,730

 
72,882

 
44,251

 
(7,787
)
 
2,693,790

Income (loss) from continuing operations before income taxes and income related to associated companies
331,704

 
34,897

 
(58,107
)
 
(44,251
)
 
(593
)
 
263,650

Income related to associated companies

 
84,320

 

 

 

 
84,320

Income (loss) from continuing operations before income taxes
$
331,704

 
$
119,217

 
$
(58,107
)
 
$
(44,251
)
 
$
(593
)
 
347,970

Income tax provision from continuing operations
 
 
 
 
 
 
 
 
 
 
51,560

Income from discontinued operations, net of income tax provision
 
 
 
 
 
 
 
 
 
 
130,063

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

Net income
 
 
 
 
 
 
 
 
 
 
$
1,070,394



6



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 May 31, 2019 and Annual Report on Form 10-K for the year ended November 30, 2018. Amounts herein pertaining to August 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 August 31, 2019.

 
Jefferies Group LLC and Subsidiaries
 
Consolidated Statements of Earnings
 
(Amounts in Thousands)
 
(Unaudited)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
August 31, 2019
 
May 31, 2019
 
August 31, 2018
Revenues:
 
 
 
 
 
Commissions and other fees (1)
$
171,003

 
$
167,698

 
$
162,700

Principal transactions
148,873

 
248,831

 
143,308

Investment banking
412,533

 
430,087

 
465,326

Asset management fees
3,340

 
4,550

 
5,184

Interest
383,596

 
418,451

 
305,347

Other (1)
22,286

 
44,876

 
6,420

Total revenues
1,141,631

 
1,314,493

 
1,088,285

Interest expense
364,472

 
412,642

 
310,670

Net revenues
777,159

 
901,851

 
777,615

 
 
 
 
 
 
 
Non-interest expenses:
 
 
 
 
 
Compensation and benefits
411,936

 
477,885

 
428,033

 
 
 
 
 
 
 
Non-compensation expenses:
 
 
 
 
 
Floor brokerage and clearing fees
54,247

 
62,474

 
45,745

Technology and communications
86,649

 
81,645

 
76,877

Occupancy and equipment rental
29,300

 
29,748

 
25,559

Business development
36,526

 
36,349

 
39,733

Professional services
42,379

 
38,066

 
35,316

Underwriting costs
14,647

 
12,823

 
20,528

Other
18,400

 
7,723

 
18,723

Total non-compensation expenses
282,148

 
268,828

 
262,481

Total non-interest expenses
694,084

 
746,713

 
690,514

Earnings before income taxes
83,075

 
155,138

 
87,101

Income tax expense
18,250

 
45,319

 
26,923

Net earnings
64,825

 
109,819

 
60,178

Net loss attributable to noncontrolling interests
(143
)
 
(101
)
 
(4
)
Net earnings attributable to Jefferies Group LLC
$
64,968

 
$
109,920

 
$
60,182

 
 
 
 
 
 
 
Pre-tax operating margin
10.7
%
 
17.2
%
 
11.2
%
Effective tax rate
22.0
%
 
29.2
%
 
30.9
%
 
 
 
 
 
 
 
(1)
Certain reclassifications within revenue line items have been made for the three month periods ended May 31, 2019 and August 31, 2018. In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in Jefferies Group LLC's Consolidated Statements of Earnings and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation.


7



 
Jefferies Group LLC and Subsidiaries
 
Consolidated Statements of Earnings
 
(Amounts in Thousands)
 
(Unaudited)
 
 
 
 
 
 
 
Nine Months Ended
 
 
August 31, 2019
 
August 31, 2018
Revenues:
 
 
 
Commissions and other fees (1)
$
493,843

 
$
482,194

Principal transactions
632,002

 
498,583

Investment banking
1,128,216

 
1,405,614

Asset management fees
14,559

 
16,130

Interest
1,163,022

 
870,490

Other (1)
79,354

 
58,678

Total revenues
3,510,996

 
3,331,689

Interest expense
1,146,268

 
910,271

Net revenues
2,364,728

 
2,421,418

 
 
 
 
 
Non-interest expenses:
 
 
 
Compensation and benefits
1,261,506

 
1,327,760

 
 
 
 
 
Non-compensation expenses:
 
 
 
Floor brokerage and clearing fees
168,698

 
135,808

Technology and communications
247,464

 
222,335

Occupancy and equipment rental
87,587

 
75,143

Business development
103,430

 
124,233

Professional services
117,372

 
101,715

Underwriting costs
36,045

 
47,832

Other
41,828

 
54,888

Total non-compensation expenses
802,424

 
761,954

Total non-interest expenses
2,063,930

 
2,089,714

Earnings before income taxes
300,798

 
331,704

Income tax expense
79,789

 
234,337

Net earnings
221,009

 
97,367

Net earnings (loss) attributable to noncontrolling interests
140

 
(1
)
Net earnings attributable to Jefferies Group LLC
$
220,869

 
$
97,368

 
 
 
 
 
Pre-tax operating margin
12.7
%
 
13.7
%
Effective tax rate (2)
26.5
%
 
70.6
%
 
 
 
 
 
(1)
Certain reclassifications within revenue line items have been made for the nine month period ended August 31, 2018. In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in Jefferies Group LLC's Consolidated Statements of Earnings and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation.

(2)
The effective tax rate for the nine months ended August 31, 2018 includes an estimated provisional tax charge of approximately $160 million as a result of the Tax Cuts and Jobs Act ("Tax Act").

8



Jefferies Group LLC and Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Other Data)
(Unaudited)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
August 31, 2019
 
May 31, 2019
 
August 31, 2018
Net Revenues by Source:
 
 
 
 
 
Equities
$
193,229

 
$
206,083

 
$
170,611

Fixed income
148,334

 
173,253

 
139,846

Total sales and trading
341,563

 
379,336

 
310,457

 
 
 
 
 
 
 
Equity
97,494

 
108,022

 
139,220

Debt
101,689

 
151,511

 
138,515

Capital markets
199,183

 
259,533

 
277,735

Advisory
213,350

 
178,554

 
187,591

Other investment banking
(9,108
)
 
9,634

 
(13,732
)
Total investment banking
403,425

 
447,721

 
451,594

 
 
 
 
 
 
 
Other
12,374

 
32,218

 
4,910

 
 
 
 
 
 
 
Total Capital Markets (1) (2)
757,362

 
859,275

 
766,961

 
 
 
 
 
 
 
Asset management fees
3,340

 
4,550

 
5,184

Investment return (3) (4)
25,746

 
48,075

 
14,483

Allocated net interest (3) (5)
(9,289
)
 
(10,049
)
 
(9,013
)
Total Asset Management
19,797

 
42,576

 
10,654

 
 
 
 
 
 
 
Net Revenues
$
777,159

 
$
901,851

 
$
777,615

 
 
 
 
 
 
 
Other Data:
 
 
 
 
 
Number of trading days
64

 
64

 
65

Number of trading loss days
10

 
4

 
11

 
 
 
 
 
 
 
Average firmwide VaR (in millions) (6) (7)
$
9.71

 
$
8.70

 
$
7.53

 
 
 
 
 
 
 
(1)
Includes net interest revenue of $30.4 million, $16.4 million and $6.9 million for the quarters ended August 31, 2019, May 31, 2019, and August 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 expense of $2.0 million, $0.6 million and $3.3 million for the quarters ended August 31, 2019, May 31, 2019, and August 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 11).
(6)
The quarters ended August 31, 2019 and 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.

9



Jefferies Group LLC and Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Other Data)
(Unaudited)
 
 
 
 
 
 
 
Nine Months Ended
 
 
August 31, 2019
 
August 31, 2018
Net Revenues by Source:
 
 
 
Equities
$
573,851

 
$
501,471

Fixed income
518,346

 
472,886

Total sales and trading
1,092,197

 
974,357

 
 
 
 
 
Equity
256,853

 
326,613

Debt
306,977

 
483,271

Capital markets
563,830

 
809,884

Advisory
572,386

 
595,730

Other investment banking
(7,116
)
 
(13,885
)
Total investment banking
1,129,100

 
1,391,729

 
 
 
 
 
Other
53,587

 
22,868

 
 
 
 
 
Total Capital Markets (1) (2)
2,274,884

 
2,388,954

 
 
 
 
 
Asset management fees
14,559

 
16,130

Investment return (3) (4)
106,233

 
40,754

Allocated net interest (3) (5)
(30,948
)
 
(24,420
)
Total Asset Management
89,844

 
32,464

 
 
 
 
 
Net Revenues
$
2,364,728

 
$
2,421,418

 
 
 
 
 
Other Data:
 
 
 
Number of trading days
187

 
189

Number of trading loss days
23

 
27

 
 
 
 
 
Average firmwide VaR (in millions) (6) (7)
$
9.16

 
$
6.88

 
 
 
 
 
(1)
Includes net interest revenue (expense) of $51.4 million and ($11.2) million for the nine months ended August 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 $3.7 million and $4.2 million for the nine months ended August 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 11).
(6)
The nine months ended August 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.

10



Jefferies Group LLC and Subsidiaries
Financial Highlights
(Amounts in Millions, Except Where Noted)
(Unaudited)
 
 
 
 
 
 
 
Quarter Ended
 
August 31, 
 2019
 
May 31, 
 2019
 
August 31, 
 2018
Financial position:
 
 
 
 
 
Total assets (1)
$
43,094

 
$
42,818

 
$
40,572

Average total assets for the period (1)
$
53,097

 
$
53,675

 
$
48,022

Average total assets less goodwill and intangible assets for the period (1)
$
51,281

 
$
51,851

 
$
46,189

 
 
 
 
 
 
Cash and cash equivalents (1)
$
4,665

 
$
4,213

 
$
4,813

Cash and cash equivalents and other sources of liquidity (1) (2)
$
6,074

 
$
5,701

 
$
6,098

Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)
14.1
%
 
13.3
%
 
15.0
%
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)
14.7
%
 
13.9
%
 
15.7
%
 
 
 
 
 
 
Financial instruments owned (1)
$
16,371

 
$
16,096

 
$
15,196

Goodwill and intangible assets (1)
$
1,811

 
$
1,818

 
$
1,829

 
 
 
 
 
 
Total equity (including noncontrolling interests) (1)
$
6,190

 
$
6,179

 
$
5,557

Total Jefferies Group LLC member's equity (1)
$
6,183

 
$
6,173

 
$
5,548

Tangible Jefferies Group LLC member's equity (1) (3)
$
4,372

 
$
4,355

 
$
3,719

 
 
 
 
 
 
Level 3 financial instruments:
 
 
 
 
 
Level 3 financial instruments owned (1) (4) (5)
$
363

 
$
367

 
$
311

Level 3 financial instruments owned - % total assets (1) (4)
0.8
%
 
0.9
%
 
0.8
%
Level 3 financial instruments owned - % total financial instruments (1) (4)
2.2
%
 
2.3
%
 
2.0
%
Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (4)
8.3
%
 
8.4
%
 
8.4
%
 
 
 
 
 
 
Other data and financial ratios:
 
 
 
 
 
Total long-term capital (1) (6)
$
12,219

 
$
11,444

 
$
11,261

Leverage ratio (1) (7)
7.0

 
6.9

 
7.3

Tangible gross leverage ratio (1) (8)
9.4

 
9.4

 
10.4

 
 
 
 
 
 
Number of trading days
64

 
64

 
65

Number of trading loss days
10

 
4

 
11

Average firmwide VaR (5) (9)
$
9.71

 
$
8.70

 
$
7.53

 
 
 
 
 
 
Number of employees, at period end
3,776

 
3,656

 
3,526













11



Jefferies Group LLC and Subsidiaries
Financial Highlights - Footnotes
 
 
 
 
 
 
 
 
(1)
Amounts pertaining to August 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 August 31, 2019.

(2)
At August 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 $1,063 million, in aggregate, and $345 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 May 31, 2019 were $1,175 million and $313 million, respectively, and at August 31, 2018, were $948 million and $337 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 August 31, 2019 and 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.

(6)
At August 31, 2019, May 31, 2019 and August 31, 2018, total long-term capital includes Jefferies Group LLC's long-term debt of $6,030 million, $5,265 million and $5,703 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.





12




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):
 
 
Nine months ended August 31, 2019
 
 
 
Jefferies Financial Group net income (GAAP)
 
$
764,052

Accumulated other comprehensive income tax benefit (1)
 
(544,583
)
Jefferies Financial Group adjusted net income (non-GAAP)
 
$
219,469

 
 
 
Jefferies Financial Group diluted earnings per share (GAAP)
 
$
2.41

Accumulated other comprehensive income tax benefit (1)
 
(1.71
)
Jefferies Financial Group adjusted diluted earnings per share (non-GAAP)
 
$
0.70

 
 
 
(1) During the second quarter of 2019, 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.







13
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