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Section 1: 8-K (8-K)

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 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))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

4.850% Senior Notes Due 2027

 

JEF /27A

 

New York Stock Exchange

5.125% Senior Notes Due 2023

 

JEF /23

 

New York Stock Exchange

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

Emerging growth company:  

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

 

 


Item 2.02. Results of Operations and Financial Condition

On September 26, 2019, our parent company, Jefferies Financial Group Inc., issued a press release containing financial results for our quarter ended August 30, 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

   

September 26, 2019 press release.

         
 

104

   

Cover Page Interactive Data File (embedded within the Inline XBRL document)


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: September 26, 2019

 

 

/s/ Roland T. Kelly

 

 

Roland T. Kelly

 

 

Associate General Counsel

(Back To Top)

Section 2: EX-99.1 (EX-99.1)

EX-99.1

Exhibit 99

 

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 with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC.

 

2


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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