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Jefferies Reports Record Quarterly Net Income


    Jefferies Group LLC today announced financial results for its fiscal first quarter 2014.

    Highlights for the three months ended February 28, 2014:

    • Net revenues of $899 million
    • Net earnings of $112 million
    • Investment banking net revenues of $414 million
    • Equities net revenues of $189 million
    • Fixed Income net revenues of $286 million

    Richard B. Handler, Chairman and Chief Executive Officer of Jefferies, commented: “We are pleased with our strong results for the first quarter, which include record net earnings of $112 million for the period. Our results reflect another strong performance in investment banking, with revenues in excess of $400 million for the second successive quarter, and a solid performance in both equities and fixed income. Our combined equities and FICC revenues were $475 million. Excluding the impact of Knight Capital and Harbinger Group, sales and trading revenues were $488 million, a 19% increase versus the fourth quarter on a comparable basis. Our investment banking business continued to benefit from strong equities and leveraged finance new issues markets. Our holdings of shares of Knight Capital and Harbinger Group were both marked down in the first quarter by $13 million in aggregate, compared to a total mark-up of $110 million in the fourth quarter of last year, the impact of which was recorded in our equities revenues.”

    The financial tables attached should be read in connection with our Annual Report on Form 10-K for the year ended November 30, 2013.

    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, as well as wealth management, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE:LUK), a diversified holding company.

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF EARNINGS
    (Amounts in Thousands)
    (Unaudited)                                 Successor     Predecessor       Quarter Ended     Quarter Ended     Quarter Ended       February 28, 2014     November 30, 2013     February 28, 2013                           Revenues:                         Commissions     $ 162,063     $ 156,435     $ 146,240 Principal transactions       238,363       289,430       300,278 Investment banking       414,320       417,044       288,278

    Asset management fees and investment
      income from managed funds

     

          9,957       12,017       10,883 Interest income       249,268       224,911       249,277 Other revenues       23,069      

    39,320

          27,004

    Total revenues

          1,097,040       1,139,157      

    1,021,960

    Interest expense       198,012       188,609       203,416 Net revenues       899,028       950,548       818,544

    Interest on mandatorily redeemable preferred interests of
      consolidated subsidiaries

     

          -       -       10,961

    Net revenues, less interest on mandatorily redeemable preferred

      interests of consolidated subsidiaries

          899,028       950,548       807,583                           Non-interest expenses:                         Compensation and benefits       507,899       546,257       474,217                           Non-compensation expenses:                         Floor brokerage and clearing fees       49,513       52,706       46,155 Technology and communications       64,306       67,578       59,878 Occupancy and equipment rental       27,017       28,271       24,309 Business development       26,476       22,759       24,927 Professional services       24,304       18,014       24,135 Other       17,244       39,303       14,475 Total non-compensation expenses       208,860       228,631       193,879 Total non-interest expenses       716,759       774,888       668,096 Earnings before income taxes       182,269       175,660       139,487 Income tax expense       66,877       61,186       48,645 Net earnings       115,392       114,474       90,842 Net earnings attributable to noncontrolling interests       2,960       4,531       10,704

    Net earnings attributable to Jefferies Group LLC/ common
      shareholders

        $ 112,432     $ 109,943     $ 80,138

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL INFORMATION (Amounts in Thousands, Except Other Data) (Unaudited)                           Successor     Predecessor       Quarter Ended     Quarter Ended     Quarter Ended       February 28, 2014     November 30, 2013     February 28, 2013

    Revenues by Source

                      Equities     $ 188,823     $ 289,727     $ 167,354   Fixed income       285,928       227,136       352,029   Other       -       4,624       -   Total       474,751       521,487       519,383                                           Equity       94,738       118,348       61,380   Debt       173,038       162,031       140,672   Capital markets       267,776       280,379       202,052   Advisory       146,544       136,665       86,226   Investment banking       414,320       417,044       288,278                      

    Asset management fees and investment income (loss)

      from managed funds:

                Asset management fees       9,446       5,563       11,083   Investment income (loss) from managed funds       511       6,454       (200 ) Total       9,957       12,017       10,883   Net revenues       899,028       950,548       818,544   Interest on mandatorily redeemable preferred interests of consolidated subsidiaries       -       -       10,961   Net revenues, less mandatorily redeemable preferred interests of consolidated subsidiaries     $ 899,028     $ 950,548     $ 807,583                      

    Other Data

                      Number of trading days       61       63       60                       Average firmwide VaR (in millions) (A)     $ 16.27     $ 12.61     $ 9.27   Average firmwide VaR excluding Knight Capital (in millions) (A)     $ 12.64     $ 10.37     $ 5.99   Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (in millions) (A)     $ 9.23     $ 7.32     $ 5.99                      

    (A) VaR estimates 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 calcuation 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, 2013.

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in Millions, Except Where Noted) (Unaudited)                   Successor   Predecessor     Quarter Ended   Quarter Ended   Quarter Ended     February 28, 2014   November 30, 2013   February 28, 2013              

    Results:

                Net earnings attributable to Jefferies Group LLC / common shareholders (in thousands)   $ 112,432     $ 109,943     $ 80,138   Pretax operating margin     20.3 %     18.5 %     17.3 % Effective tax rate     36.7 %     34.8 %     34.9 %              

    Financial position:

                Total assets (1)   $ 43,440     $ 40,177     $ 37,800   Average total assets for quarter (1)   $ 49,075     $ 46,439     $ 45,418   Average total assets less goodwill and intangible assets for quarter (1)   $ 47,089     $ 44,455     $ 45,039                 Cash and cash equivalents (1)   $ 2,865     $ 3,561     $ 3,018   Cash and cash equivalents and other sources of liquidity (1) (2)   $ 4,467     $ 5,282     $ 4,726   Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)     10.3 %     13.1 %     12.5 % Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)     10.8 %     13.8 %     12.6 %               Financial instruments owned (1)   $ 18,126     $ 16,650     $ 16,414   Goodwill and intangible assets (1)   $ 1,987     $ 1,986     $ 380                 Total equity (including noncontrolling interests)   $ 5,462     $ 5,422     $ 3,688   Total member´s / common stockholders´ equity   $ 5,432     $ 5,305     $ 3,332   Tangible member´s / common stockholders´ equity (3)   $ 3,445     $ 3,318     $ 2,952  

     

               

    Level 3 financial instruments:

                Level 3 financial instruments owned (1) (4)   $ 495     $ 457     $ 505   Level 3 financial instruments owned - % total assets (1)     1.1 %     1.1 %     1.3 % Level 3 financial instruments owned - % total financial instruments owned (1)     2.7 %     2.7 %     3.1 % Level 3 financial instruments owned - % tangible member´s / common stockholders´ equity (1)     14.4 %     13.8 %     17.1 %              

    Other data and financial ratios:

                Total capital (1) (5)   $ 11,219     $ 11,199     $ 9,624   Leverage ratio (1) (6)     8.0       7.4       10.2   Adjusted leverage ratio (1) (7)     10.4       9.5       10.4   Tangible gross leverage ratio (1) (8)     12.0       11.5       12.7   Leverage ratio - excluding merger impacts (1) (9)     10.0       9.3       N/A                 Number of trading days     61       63       60                 Average firmwide VaR (10)   $ 16.27     $ 12.61     $ 9.27   Average firmwide VaR excluding Knight Capital (10)   $ 12.64     $ 10.37     $ 5.99   Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (10)   $ 9.23     $ 7.32     $ 5.99                 Number of employees, at quarter end     3,838       3,797       3,841  

     

    JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS - FOOTNOTES             (1)   Amounts pertaining to February 28, 2014 represent 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 three months ended February 28, 2014.       (2)   As of February 28, 2014, 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 $1,130 million, in aggregate, and $472 million, being the total of the estimated 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. The corresponding amounts included in other sources of liquidity as of November 30, 2013, were $1,317 million and $404 million, and as of February 28, 2013 were $1,132 million and $576 million, respectively.       (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 Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.       (5)   As of February 28, 2014 and November 30, 2013, total capital includes our long-term debt of $5,757 million and $5,777 million, respectively, and total equity. As of February 28, 2013, total capital includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries, in aggregate $5,936 million, and total equity. Long-term debt included in total capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, where applicable.       (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 February 28, 2014, November 30, 2013 and February 28, 2013 adjusted assets were $36,273 million, $32,559 million and $34,343 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) is calculated as follows:                                   February 28,   November 30,                               $ millions   2014   2013                               Total assets   $ 43,440     $ 40,177                                 Goodwill and acquisition accounting fair value adjustments on the merger with Leucadia     (1,957 )     (1,957 )                               Net amortization to date on asset related purchase accounting adjustments     32       27                                 Total assets excluding the impact of the merger   $ 41,515     $ 38,247