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Empresas y finanzas

Jefferies Reports Fiscal Second Quarter 2013 Financial Results


    Jefferies Group LLC today announced financial results for its fiscal second quarter 2013.

    Highlights for the three months ended May 31, 2013:

    • Net revenues of $646 million
    • Net earnings of $42 million
    • Investment banking net revenues of $277 million
    • Trading revenues of $359 million

    Richard B. Handler, Chairman and Chief Executive Officer of Jefferies, commented: “Our results reflect improved performance in our core equity sales and trading business, and the continued durability of our investment banking efforts. By contrast, there was a significant slowdown in fixed income activity during March and April, that offset better fixed income results in May. Concerns about the tapering of the Federal Reserve´s Quantitative Easing programs led to subdued fixed income secondary volumes and opportunities, particularly when compared to our exceptionally strong first quarter performance. There were no meaningful trading losses during the quarter and the fixed income trading environment can best be characterized as ´tepid and cautious´. Our investment in Knight Capital was marked down by $6 million, reflecting the change in the Knight stock price in the second quarter. Second quarter investment banking performance was respectable and momentum appears to be building for our third and fourth quarters, as our backlog is strong and improving.”

    Peregrine C. Broadbent, Chief Financial Officer of Jefferies commented: “As the table below shows, every balance sheet, capital, liquidity and other risk metric continues to demonstrate our prudent risk management philosophy. At period end our gross leverage ratio, excluding the impact of the Leucadia purchase accounting, was 9.51 times equity and Level 3 assets were $502 million and remain at about 3% of inventory. Without Knight, there was 1 day where a trading loss occurred during the quarter.”

        Successor
    May 31, 2013   Predecessor
    February 28, 2013
    • Total assets, excluding goodwill and intangibles1
      $ 37.0 billion   $ 37.4 billion
    • Tangible member´s/common shareholders´ equity1
      $ 3.17 billion   $ 2.95 billion
    • Liquidity buffer1
     

    $ 5.2 billion

     

    $ 4.7 billion

    • Level 3 assets
      $ 502 million   $ 565 million
    • Average VaR2
      $ 8.77 million   $ 9.27 million
    • Average VaR excluding Knight Capital holdings2
      $ 5.77 million   $ 5.99 million

    1 This represents a non-GAAP measure. Refer to the Financial Highlights table on page 5 and related footnotes.
    2 This measure is reflected on a period basis.

    On March 1, 2013, Jefferies Group, Inc. (the “Predecessor Company”), in connection with our merger with Leucadia National Corporation (“Leucadia”), converted into a limited liability company, Jefferies Group LLC (the ”Successor Company”) and became a wholly-owned subsidiary of Leucadia. The acquisition method of accounting, which involves recording all of our assets and liabilities at their fair values on the merger date, has been pushed down to form a new accounting basis for the Successor Company.

    Our revenues, expenses and net earnings for the second quarter of 2013 are impacted by the following acquisition accounting related items:

    • Revenues include an additional $27 million of positive net interest income due to the amortization of premiums arising upon adjusting our long-term debt to fair value and the assumption of our mandatorily redeemable convertible preferred stock by Leucadia.
    • Non Compensation expenses include the following items for an additional cost of $17 million. Rent expense includes additional costs of $2 million upon recognizing existing leases at their current market value. Other expenses include $6 million of incremental amortization expense associated with intangible assets and internally developed software recognized at the merger date and $9 million in merger-related investment banking and filing fees.3
    • As required by GAAP, compensation expense includes $5 million of additional amortization cost related to the acquisition-related write-up of the cost of outstanding share-based awards which had future service requirements at the merger date -- they were written up from their initial grant date fair value to the merger date (March 1) share value.

    Rent expense for the three months ended May 31, 2013 includes a $7 million charge associated with relocating certain London office space.

    The above items have the effect of increasing income tax expense by $1 million. Without the impact of these items, our effective tax would have been 36.1% or 2.2% lower.

    Also, the compensation and revenue items above had the effect of reducing the compensation ratio from 59.6% to 57.8%. Our total headcount at May 31, 2013, was 3,785, down slightly from three months before and consistent with our goals of driving operating leverage through growth in our market share, coupled with cost containment. Our total headcount has remained relatively constant since our Bache acquisition in July 2011.

    In addition, the three months ended May 31, 2013 is the final period that will reflect third party interests in our High Yield Joint Venture. Mandatorily redeemable preferred interests were redeemed on April 1, 2013 and the interest on mandatorily redeemable preferred interests from the beginning of the quarter until redemption date was $3.4 million. This line item will be eliminated going forward. Non-controlling interests in Jefferies High Yield Holdings LLC were redeemed on March 1, 2013. Our second quarter includes 100% of the results of our high yield business subsequent to these redemptions, but for the aforementioned interest expense.

    The financial tables attached should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended February 28, 2013 and our Annual Report on Form 10-K for the year ended November 30, 2012.

    Jefferies, the global investment banking firm focused on serving clients for over 50 years, is a leader in providing insight, expertise and execution to investors, companies and governments. The firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income, foreign exchange, futures and commodities, and also select asset and wealth management strategies, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding company.

    3 It was recently determined that pre-tax non-compensation expenses for the first quarter ended 28 February 2013, were overstated by $8.5 million. Professional services expense should have been $24.1 million not $32.6 million, as previously reported. The professional service fees related to the Leucadia merger were incorrectly accrued for in the quarter ended February 28, 2013, and not on March 1, 2013 when the transaction was completed. This had the effect of understating net income by approximately $5.3 million for the three month period ended February 28, 2013 and we have revised first quarter earnings to $80.1 million accordingly. We evaluated the effects of this error and concluded that it is not material to the previously issued Quarterly Report on Form 10Q for the three month period ended February 28, 2013. Nevertheless, we revised our consolidated net income for the three month period ended February 28, 2013 (below) to correct for the effect of this error and appropriately reflected the $8.5 million of professional service fees as an expense in the three month period ended May 31, 2013. We will reflect this revision in future filings. The adjustment had an inconsequential impact on the Statement of Financial Condition as of February 28, 2013.

    JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in Thousands) (Unaudited)       Successor   Predecessor     Three Months Ended   Three Months Ended   Three Months Ended    

    May 31, 2013

      February 28, 2013 (1)   May 31, 2012               Revenues:             Commissions   $ 146,848   $ 131,083   $ 121,796 Principal transactions     138,506     300,278     215,962 Investment banking     277,134     288,278     296,963 Asset management fees and

    investment income from managed funds

        10,527     10,883     1,898 Interest income     258,665     249,277     271,602 Other revenues     26,245     27,004     37,851 Total revenues     857,925     1,006,803     946,072 Interest expense     211,463     203,416     235,041 Net revenues     646,462     803,387     711,031 Interest on mandatorily redeemable preferred interests of

    consolidated subsidiaries

        3,368     10,961     4,456 Net revenues, less mandatorily redeemable preferred

    interests

        643,094     792,426     706,575               Non-interest expenses:             Compensation and benefits     373,880     474,217     423,541               - Non-compensation expenses:             Floor brokerage and clearing fees     32,991     30,998     32,921 Technology and communications     63,839     59,878     60,329 Occupancy and equipment rental     32,225     24,309     24,940 Business development     22,732     24,927     22,379 Professional services     29,519     24,135     17,296 Other     18,720     14,475     18,587 Total non-compensation expenses     200,026     178,722     176,452 Total non-interest expenses     573,906     652,939     599,993 Earnings before income taxes     69,188     139,487     106,582 Income tax expense     26,477     48,645     38,203 Net earnings     42,711     90,842     68,379 Net earnings attributable to noncontrolling interests     738     10,704     4,881 Net earnings attributable to Jefferies Group LLC/ common shareholders   $ 41,973   $ 80,138   $ 63,498               Compensation and benefits / Net revenues     57.8%     59.0%     59.6%               Effective tax rate     38.3%     34.9%     35.8%

    (1) Our consolidated net income for the three months ended February 28, 2013 reflects an adjustment of $5.3 million, after tax, to correct for the effect of an overstatement of professional service fees of $8.5 million relating to the Leucadia merger. We evaluated the effects of this error and concluded that it is not material to the previously issued Quarterly Report on Form 10Q for the three month period ended February 28, 2013. Nevertheless, we revised our consolidated net income for the three month period ended February 28, 2013 to correct for the effect of this error and appropriately reflected the $8.5 million of professional service fees as an expense in the three month period ended May 31, 2013.

    JEFFERIES GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL INFORMATION (Amounts in Thousands, Except Other Data) (Unaudited)                     Quarter Ended     Successor   Predecessor       May 31,   February 28,   May 31,     2013   2013   2012

    Revenues by Source

                  Equities   $ 145,525     $ 167,354     $ 119,570   Fixed Income     213,276       336,872       292,600   Other     -       -       -   Total     358,801       504,226       412,170                   Equity     53,564       61,380       55,623   Debt     133,714       140,672       132,429   Capital markets     187,278       202,052       188,052   Advisory     89,856       86,226       108,911   Investment banking     277,134       288,278       296,963                  

    Asset management fees and investment loss from managed funds:

                  Asset management fees     11,332       11,083       7,979   Investment loss from managed funds     (805 )     (200 )     (6,081 ) Total     10,527       10,883       1,898   Net revenues     646,462       803,387       711,031   Interest on mandatorily redeemable preferred interests of consolidated subsidiaries     3,368       10,961       4,456   Net revenues, less mandatorily redeemable preferred interests   $ 643,094     $ 792,426     $ 706,575                  

    Other Data

                  Number of trading days     64       60       64                   Average firmwide VaR (in millions) (1)   $ 8.77     $ 9.27     $ 8.83   Average firmwide VaR excluding Knight Capital (in millions) (1)   $ 5.77     $ 5.99     N/a  

    (1) VaR is the potential loss in value of our 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 our Annual Report on Form 10-K for the year ended November 30, 2012.

    JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in Millions, Except Where Noted) (Unaudited)       Quarter Ended     Successor   Predecessor     May 31,   February 28,   May 31,     2013   2013 (A)   2012              

    Results:

                Net earnings attributable to Jefferies Group LLC / common shareholders (in thousands)   $ 41,973   $ 80,138   $ 63,498 Pretax operating margin     10.8%     17.6%     15.1% Effective tax rate     38.3%     34.9%     35.8%              

    Financial position:

                Total assets (1)   $ 38,934   $ 37,800   $ 35,717 Average total assets for quarter (1)   $ 47,151   $ 45,418   $ 43,849 Average total assets less goodwill and intangible assets for quarter (1)   $ 45,161   $ 45,039   $ 43,467               Cash and cash equivalents (1)   $ 3,403   $ 3,018   $ 2,358 Cash and cash equivalents and other sources of liquidity (1) (2)   $ 5,187   $ 4,726   $ 3,379 Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)     13.3%     12.5%     9.5% Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)     14.0%     12.6%     9.6%               Financial instruments owned (1)   $ 15,270   $ 16,414   $ 15,018 Goodwill and intangible assets (1)   $ 1,982   $ 380   $ 381               Total equity (including noncontrolling interests)   $ 5,191   $ 3,688   $ 3,641 Total member´s / common stockholders´ equity   $ 5,154   $ 3,332   $ 3,310 Tangible member´s / common stockholders´ equity (3)   $ 3,172   $ 2,952   $ 2,929              

    Level 3 financial instruments:

                Level 3 financial instruments owned (1) (4)   $ 447   $ 505   $ 484 Level 3 financial instruments owned - % total assets (1)     1.1%     1.3%     1.4% Level 3 financial instruments owned - % total financial instruments owned (1)     2.9%     3.1%     3.2% Level 3 financial instruments owned - % tangible member´s / common stockholders´ equity (1)     14.1%     17.1%     16.5%              

    Other data and financial ratios:

                Total capital (1) (5)   $ 11,266   $ 9,624   $ 8,541 Leverage ratio (1) (6)     7.5     10.2     9.8 Adjusted leverage ratio (1) (7)     9.9     10.4     9.1 Tangible gross leverage ratio (1) (8)     11.6     12.7     12.1 Leverage ratio - excluding merger impacts (1) (9)     9.5     N/A     N/A               Number of trading days     64     60     64               Average firmwide VaR (10)   $ 8.77   $ 9.27   $ 8.83 Average firmwide VaR excluding Knight Capital (10)   $ 5.77   $ 5.99     N/A               Number of employees, at quarter end     3,785     3,841     3,809               Compensation and benefits / Net revenues     57.8%     59.0%     59.6%

    (A) Our consolidated net income for the three months ended February 28, 2013 reflects an adjustment of $5.3 million, after tax, to correct for the effect of an overstatement of professional service fees of $8.5 million relating to the Leucadia merger. We evaluated the effects of this error and concluded that it is not material to the previously issued Quarterly Report on Form 10Q for the three month period ended February 28, 2013. Nevertheless, we revised our consolidated net income for the three month period ended February 28, 2013 to correct for the effect of this error and appropriately reflected the $8.5 million of professional service fees as an expense in the three month period ended May 31, 2013.

    Footnotes       (1)   This amount represents a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the period ended May 31, 2013.       (2)   As of May 31, 2013, other sources of liquidity include liquidity maintained by our U.K. broker-dealer pursuant to FCA requirements consisting of high quality sovereign government securities of $266 million, reverse repurchase agreements collateralized by such securities of $955 million; an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged at reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache of $562 million.       (3)   Tangible member´s / common stockholders’ equity (a non-GAAP financial measure) represents total member´s / common stockholders’ equity less goodwill and identifiable intangible assets. We believe that tangible member´s / common stockholders´ equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible member´s / common stockholders´ equity, making these ratios meaningful for investors.       (4)   Level 3 financial instruments represent those financial instruments classified as such under ASC 820, accounted for at fair value and included within Financial instruments owned.       (5)   As of May 31, 2013, total capital includes our long-term debt of $6,151 million and total equity. As of February 28, 2013 and May 31, 2012 total capital includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries and total equity. Long-term debt included in total capital at May 31 and February 28, 2013 and May 31, 2012 is reduced by amounts outstanding under the revolving credit facility.       (6)   Leverage ratio equals total assets divided by total equity.       (7)   Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity, being total equity less goodwill and identifiable intangible assets. Adjusted assets (a non-GAAP financial measure) equals total assets less securities borrowed, securities purchased under agreements to resell, cash and securities segregated, goodwill and identifiable intangibles plus financial instruments sold, not yet purchased (net of derivative liabilities). As of May 31, 2013, February 28, 2013 and May 31, 2012 adjusted assets were $31,642 million, $34,343 million and $29,723 million, respectively. We believe that adjusted assets is a meaningful measure as it excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities.       (8)   Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member´s / common stockholders´ equity. The tangible gross leverage ratio is used by Rating Agencies in assessing our leverage ratio.       (9)   Leverage ratio - excluding merger impacts (a non-GAAP financial measure) equals total assets less the increase in goodwill and asset fair values in acquisition accounting of $1,949 million less amortization of $7.7 million during the current quarter on assets recognized at fair value in acquisition accounting divided by the sum of total equity less $1,302 million, being the increase in equity arising from merger consideration of $1,427 million excluding the $125 million attributable to the assumption of our preferred stock by Leucadia, and less the impact on equity due to amortization of $8.3 million on