Annual Report (10-k)

PART II

Item 5 .	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .

Our common shares are traded on the NYSE under the symbol LUK.  The following table sets forth, for the calendar periods indicated, the high and low sales price per common share on the consolidated transaction reporting system, as reported by the Bloomberg Professional Service provided by Bloomberg L.P.

	Common Share
	High				Low
2015
First Quarter	$	24.80			$	21.28
Second Quarter	25.09				22.22
Third Quarter	25.39				19.64
Fourth Quarter	21.29				15.93
2016
First Quarter	$	17.39			$	14.27
Second Quarter	18.22				15.32
Third Quarter	19.49				16.53
Fourth Quarter	24.17				17.87
2017
First Quarter (through February 16, 2017)	$	25.37			$	22.69

As of February 16, 2017 , there were approximately 1,674 record holders of the common shares.

We paid cash dividends of $.0625 per share each quarter during 2016, 2015 and 2014 .  We have indicated our intention to pay dividends currently at the annual rate of $0.25 per common share on a quarterly basis.  The payment of dividends in the future is subject to the discretion of the Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant.

Certain of our subsidiaries have significant NOLs and other tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could result in limitations on the use of our tax attributes, our certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of five percent or more of the common shares and the ability of persons or entities now owning five percent or more of the common shares from acquiring additional common shares.  The restrictions will remain in effect until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) or (c) the beginning of a taxable year to which these tax benefits may no longer be carried forward.

In November 2012, our Board of Directors authorized a share repurchase program pursuant to which we may, from time to time, purchase up to an aggregate of 25,000,000 of our common shares, inclusive of prior authorizations.  During 2016 , we repurchased a total of 3,838,412 shares in the open market pursuant to this program. Separately, during the twelve months ended December 31, 2016 , we repurchased an aggregate of 1,596,602 shares in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans.

There were no unregistered sales of equity securities during the period covered by this report.

23

---

The following table presents information on our purchases of our common shares during the three months ended December 31, 2016 :

	Total Number of Shares Purchased			Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 2016	315,644			$	18.78			—			16,833,607
November 2016	672,019			$	18.72			672,019			16,161,588
December 2016	147,147			$	23.04			—			16,161,588
Total	1,134,810							672,019

Stockholder Return Performance Graph

Set forth below is a graph comparing the cumulative total stockholder return on our common shares against the cumulative total return of the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Financials Index for the period commencing December 31, 2011 to December 31, 2016 .  Index data was furnished by Standard & Poor’s Capital IQ.  The graph assumes that $100 was invested on December 31, 2011 in each of our common stock, the S&P 500 Index and the S&P 500 Financials Index and that all dividends were reinvested.

24

---

Item 6 .	Selected Financial Data .

The following selected financial data have been summarized from our consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report.

	Year Ended December 31,
	2016				2015				2014				2013				2012
	(In thousands, except per share amounts)
SELECTED INCOME STATEMENT DATA: (a)
Net revenues (b)	$	10,062,617			$	10,886,458			$	11,486,485			$	10,425,746			$	9,404,584
Expenses	9,900,785				10,640,203				11,243,790				9,999,202				8,051,204
Income from continuing operations before income taxes	316,430				356,536				381,222				545,585				1,442,029
Income tax provision	122,109				109,947				165,971				136,481				539,464
Income from continuing operations	194,321				246,589				215,251				409,104				902,565
Income (loss) from discontinued operations, including gain (loss) on disposal, net of taxes	—				5,522				(16,226		)		(46,911		)		(37,924		)
Net income attributable to Leucadia National Corporation common shareholders	125,938				279,587				204,306				369,240				854,466
Per share:
Basic earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
Income from continuing operations	$	0.34			$	0.73			$	0.58			$	1.20			$	3.64
Income (loss) from discontinued operations, including gain (loss) on disposal	—				0.01				(0.04		)		(0.13		)		(0.15		)
Net income	$	0.34			$	0.74			$	0.54			$	1.07			$	3.49
Diluted earnings (loss) per common share attributable to Leucadia National Corporation common shareholders:
Income from continuing operations	$	0.34			$	0.73			$	0.58			$	1.20			$	3.59
Income (loss) from discontinued operations, including gain (loss) on disposal	—				0.01				(0.04		)		(0.14		)		(0.15		)
Net income	$	0.34			$	0.74			$	0.54			$	1.06			$	3.44

	At December 31,
	2016				2015				2014				2013				2012
	(In thousands, except per share amounts)
SELECTED BALANCE SHEET DATA: (a)
Total assets	$	45,071,307			$	46,331,184			$	52,614,324			$	47,858,780			$	9,343,881
Long-term debt	7,380,443				7,400,582				8,519,584				8,172,864				1,353,458
Mezzanine equity	461,809				316,633				311,686				366,075				241,649
Shareholders’ equity	10,128,100				10,401,211				10,302,158				10,102,462				6,767,268
Book value per common share	$	28.18			$	28.68			$	28.03			$	27.71			$	27.67
Cash dividends per common share	$	0.25			$	0.25			$	0.25			$	0.25			$	0.25

(a)	Subsidiaries are reflected above as consolidated entities from the date of acquisition.  Jefferies was acquired on March 1, 2013.

(b)	Includes net realized securities gains of $29.5 million, $63.0 million, $30.4 million, $244.0 million and $590.6 million for the years ended December 31, 2016 , 2015 , 2014 , 2013 and 2012 , respectively.

25

---

Item 7 .	Management’s Discussion and Analysis of Financial Condition and Results of Operations .

The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations.  This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following “Cautionary Statement for Forward-Looking Information.”

Cautionary Statement for Forward-Looking Information

Statements included in this report may contain forward-looking statements.  Such statements may relate, but are not limited, to projections of revenues, income or loss, development expenditures, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing.  Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified.  When used in this report, the words “will,” “could,” “estimates,” “expects,” “anticipates,” “believes,” “plans,” “intends” and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties.  Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements.

Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or may materially and adversely affect our actual results include, but are not limited to, those set forth in Item 1A. Risk Factors and elsewhere in this report and in our other public filings with the SEC.

Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof.  Except as may be required by law, we undertake no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events.

26

---

Results of Operations

We focus on long-term value creation and invest in a broad variety of businesses.  The mix of our business and investments change from time to time. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings.  Further, as our investments span a number of industries, each may be impacted by different factors.  For these reasons, our pre-tax income is not predictable or necessarily comparable from period to period.

A summary of results of continuing operations for the year ended December 31, 2016 is as follows (in thousands):

	Jefferies				National Beef				Other Financial Services Businesses and Investments				Other Merchant Banking Businesses and Investments				Corporate and Other				Parent Company Interest				Total
Net revenues	$	2,421,055			$	7,027,243			$	(46,028	)		$	571,757			$	88,590			$	—			$	10,062,617
Expenses:
Cost of sales	—				6,513,768				—				337,039				—				—				6,850,807
Compensation and benefits	1,568,824				39,271				53,569				30,923				37,998				—				1,730,585
Floor brokerage and clearing fees	167,205				—				—				—				—				—				167,205
Interest	—				12,946				33,771				3,105				—				58,881				108,703
Depreciation and amortization	60,206				94,482				13,697				39,589				3,619				—				211,593
Selling, general and other expenses (including provision for doubtful accounts)	581,312				37,754				50,782				129,808				32,236				—				831,892
Total expenses	2,377,547				6,698,221				151,819				540,464				73,853				58,881				9,900,785
Income (loss) from continuing operations before income taxes and income related to associated companies	43,508				329,022				(197,847		)		31,293				14,737				(58,881		)		161,832
Income related to associated companies	—				—				124,508				26,441				3,649				—				154,598
Income (loss) from continuing operations before income taxes	$	43,508			$	329,022			$	(73,339	)		$	57,734			$	18,386			$	(58,881	)		$	316,430

27

---

A summary of results of continuing operations for the year ended December 31, 2015 is as follows (in thousands):

	Jefferies				National Beef				Other Financial Services Businesses and Investments				Other Merchant Banking Businesses and Investments				Corporate and Other				Parent Company Interest				Inter-company Eliminations				Total
Net revenues	$	2,476,133			$	7,402,419			$	524,053			$	426,731			$	78,122			$	—			$	(21,000	)		$	10,886,458
Expenses:
Cost of sales	—				7,347,874				—				329,359				—				—				—				7,677,233
Compensation and benefits	1,467,752				34,781				35,054				24,657				103,221				—				—				1,665,465
Floor brokerage and clearing fees	199,780				—				—				—				—				—				—				199,780
Interest	—				16,633				9,404				2,586				—				87,181				—				115,804
Depreciation and amortization	92,165				89,317				8,176				30,731				3,744				—				—				224,133
Selling, general and other expenses (including provision for doubtful accounts)	597,271				37,729				48,279				79,421				16,088				—				(21,000		)		757,788
Total expenses	2,356,968				7,526,334				100,913				466,754				123,053				87,181				(21,000		)		10,640,203
Income (loss) from continuing operations before income taxes and income related to associated companies	119,165				(123,915		)		423,140				(40,023		)		(44,931		)		(87,181		)		—				246,255
Income related to associated companies	—				—				81,688				27,957				636				—				—				110,281
Income (loss) from continuing operations before income taxes	$	119,165			$	(123,915	)		$	504,828			$	(12,066	)		$	(44,295	)		$	(87,181	)		$	—			$	356,536

28

---

A summary of results of continuing operations for the year ended December 31, 2014 is as follows (in thousands):

	Jefferies				National Beef				Other Financial Services Businesses and Investments				Other Merchant Banking Businesses and Investments				Corporate and Other				Parent Company Interest				Total
Net revenues	$	2,986,325			$	7,832,424			$	68,241			$	538,775			$	60,720			$	—			$	11,486,485
Expenses:
Cost of sales	—				7,708,007				—				316,279				—				—				8,024,286
Compensation and benefits	1,697,533				38,660				12,530				21,917				71,034				—				1,841,674
Floor brokerage and clearing fees	215,329				—				—				—				—				—				215,329
Interest	—				15,136				4,350				1,554				—				99,895				120,935
Depreciation and amortization	78,566				85,305				4,266				12,229				5,627				—				185,993
Selling, general and other expenses (including provision for doubtful accounts)	636,501				25,619				12,377				53,460				127,616				—				855,573
Total expenses	2,627,929				7,872,727				33,523				405,439				204,277				99,895				11,243,790
Income (loss) from continuing operations before income taxes and income related to associated companies	358,396				(40,303		)		34,718				133,336				(143,557		)		(99,895		)		242,695
Income related to associated companies	—				—				104,337				33,361				829				—				138,527
Income (loss) from continuing operations before income taxes	$	358,396			$	(40,303	)		$	139,055			$	166,697			$	(142,728	)		$	(99,895	)		$	381,222

29

---

Jefferies

Jefferies was acquired on March 1, 2013 and is reflected in our consolidated financial statements utilizing a one month lag; Jefferies fiscal year ends on November 30 ^th and its fiscal quarters end one month prior to our reporting periods.  A summary of results of operations for Jefferies included in the years ended December 31, 2016, 2015 and 2014 is as follows (in thousands):

	2016				2015				2014
Net revenues	$	2,421,055			$	2,476,133			$	2,986,325
Expenses:
Compensation and benefits	1,568,824				1,467,752				1,697,533
Floor brokerage and clearing fees	167,205				199,780				215,329
Depreciation and amortization	60,206				92,165				78,566
Provision for doubtful accounts	7,365				(396		)		55,355
Selling, general and other expenses	573,947				597,667				581,146
Total expenses	2,377,547				2,356,968				2,627,929
Income before income taxes	$	43,508			$	119,165			$	358,396

Jefferies comprises many business units, with many interactions and much integration among them.  Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services.  Jefferies business, by its nature, does not produce predictable or necessarily recurring revenues or earnings.  Jefferies results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and its own activities and positions.

On April 9, 2015, Jefferies entered into an agreement to transfer certain of the client activities of its Jefferies Bache business to Société Générale S.A. During the second quarter of 2016, Jefferies completed the exit of the Futures business. Net revenues globally from this business activity, which are included within Jefferies fixed income results, and expenses directly related to the Bache business, which are included within non-interest expenses, were $80.2 million and $214.8 million, respectively, in 2015 and $202.8 million and $296.3 million, respectively, in 2014. There were no meaningful revenues or expenses from the Bache business for 2016. Total expenses for 2015 include costs of $73.1 million, on a pre-tax basis, related to the exit of the Bache business. These costs consist primarily of severance, retention and benefit payments for employees, incremental amortization of outstanding restricted stock and cash awards, contract termination costs and incremental amortization expense of capitalized software expected to no longer be used subsequent to the wind-down of the business. For further information, refer to Note 31 in our consolidated financial statements.

As more fully described in our discussion of Critical Accounting Estimates, Goodwill, Jefferies recognized goodwill impairment losses of $54.0 million in its stand-alone financial statements for 2014 based on an evaluation performed on the basis of its reporting units.  In accordance with U.S. GAAP, we have not recognized these losses on a consolidated basis.

The discussion below is presented on a detailed product and expense basis.  Net revenues presented for equity and fixed income businesses include allocations of interest income and interest expense as Jefferies assesses the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective sales and trading activities, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs.

30

---

The following provides a summary of net revenues by source included in the years ended December 31, 2016, 2015 and 2014 (in thousands):

	2016				2015				2014
Equities	$	553,169			$	757,764			$	690,793
Fixed income	642,982				271,947				751,848
Total sales and trading	1,196,151				1,029,711				1,442,641
Investment banking:
Capital markets:
Equities	235,207				408,474				339,683
Debt	304,576				397,979				627,536
Advisory	654,190				632,354				559,418
Total investment banking	1,193,973				1,438,807				1,526,637
Other	30,931				7,615				17,047
Total net revenues	$	2,421,055			$	2,476,133			$	2,986,325

Net Revenues

Net revenues for 2016 were impacted by an extremely volatile bear market environment during the first three months of the year, with meaningful improvement over the rest of the year. Net revenues for the first quarter of 2016 declined $292.7 million or 49.5% in comparison to the first quarter of 2015. The decrease in total net revenues for 2016 primarily reflects lower net revenues in investment banking and equities, partially offset by increased revenues in fixed income. Net revenues for 2016 included investment income from managed funds of $4.7 million, compared with investment losses from managed funds of $23.8 million in 2015, primarily due to lower valuations in the energy and shipping sectors in 2015.

Net revenues for 2015 reflect the impact of challenging market conditions throughout the year on Jefferies fixed income business, partially offset by increased revenues in Jefferies equities business. Almost all of Jefferies fixed income credit businesses were impacted by lower levels of liquidity due to the expectations of interest rate increases by the Federal Reserve and deterioration in the global energy and distressed markets.

Net revenues for 2014 reflect record investment banking revenues, partially offset by lower revenue due to challenging trading environments in Jefferies fixed income business, particularly in the fourth quarter of 2014.  Jefferies core equities business performed relatively well during 2014. 

Equities Net Revenues

Equities net revenues include equity commissions, equity security principal trading and investments (including Jefferies investments in KCG Holdings, Inc. ("KCG") and other equity securities) and net interest revenue generated by its equities sales and trading, prime services and wealth management business relating to cash equities, electronic trading, equity derivatives, convertible securities, prime brokerage, securities finance and alternative investment strategies.  Equities net revenues include Jefferies share of the net earnings of its joint venture investments in Jefferies Finance, LLC and Jefferies LoanCore, LLC, which are accounted for under the equity method. Equities net revenues also include Jefferies investment in HRG, prior to its sale to Leucadia in March 2014, at fair market value.

Total equities net revenues were $553.2 million for 2016 compared with $757.8 million in 2015. Results for 2016 includes a net loss of $17.9 million from Jefferies investment in two equity positions, including KCG, as compared to gains of $49.2 million in 2015 from these two equity positions. In addition, equities net revenues for 2015 included significant gains on additional securities positions, which were not repeated during 2016. Equities commission revenues gained slightly with improved market share across various product and client segments. Commissions in Jefferies cash equities and equity derivatives businesses held firm, while global electronic trading commissions gained from increased volumes and client market share. In Jefferies global electronic trading business, Jefferies has market leading customized algorithms in over 40 countries. European equities commissions increased due to improved market share, while commissions in Jefferies Asia Pacific cash equities business declined because of a challenging

31

---

market environment. Jefferies global cash businesses were among the highest market share gainers compared with Jefferies peers and, in the U.S. and U.K., Jefferies platform remains in the top 10.

Equities trading revenues were solid across most of Jefferies equities sales and trading businesses in 2016. Trading revenues from client market making improved in Jefferies U.S. and European cash equities businesses. Equity derivatives trading revenues declined due to a difficult volatility trading climate and convertibles trading revenues declined driven by weakness in the energy sector during 2016. In addition, certain strategic investments gained from exposures to energy, volatility, financial and currency markets.

Equities net revenues during 2016 included a net loss of $9.3 million from Jefferies share of Jefferies Finance, primarily due to the mark down of certain loans held for sale during the first part of 2016, compared with net revenues of $41.4 million in 2015. Net revenues from Jefferies share of Jefferies LoanCore also decreased during 2016 as compared to 2015 due to a decrease in loan closings and syndications.

Total equities net revenues were $757.8 million for 2015, compared with $690.8 million in 2014. Results in 2015 include a net gain of $49.1 million from Jefferies investment in KCG compared with a loss of $14.7 million from Jefferies investment in KCG and a gain of $19.9 million from Jefferies investment in HRG in 2014.

Strong revenues in 2015, as a result of increased trading volumes, from Jefferies electronic trading platform contributed to higher commissions revenues. Total equities net revenues also include higher revenues from the Asia Pacific cash equities business and net mark-to-market gains from equity investments, as well as growth from Jefferies wealth management platform. This was partially offset by lower revenues from equity block trading results from Jefferies cash equities business and lower commissions in Jefferies European cash equities business.

Equities net revenues from the Jefferies LoanCore joint venture during 2015 include higher revenues from an increase in loan closings and securitizations by the joint venture over 2014. Equities net revenues from the Jefferies Finance joint venture during 2015 include lower revenues as a result of syndicate costs associated with the sell down of commitments, as well as reserves taken on certain loans held for investment as compared with 2014.

Fixed Income Net Revenues

Fixed income net revenues include commissions, principal transactions and net interest revenue generated by Jefferies fixed income sales and trading businesses from investment grade corporate bonds, mortgage- and asset-backed securities, government and agency securities, interest rate derivatives, municipal bonds, emerging markets debt, high yield and distressed securities, bank loans, foreign exchange and commodities trading activities.

Jefferies recorded higher revenues in 2016 as compared to 2015 due to improved trading conditions across most core businesses, partially offset by lower revenues in its international rates business due to lower trading volumes. 2015 included $80.2 million of net revenues globally from the Bache business activity. There were no meaningful revenues from the Bache business during 2016, as Jefferies completed the exit of the Bache business during the second quarter of 2016. Excluding revenues from the Bache business activity, revenues increased $451.2 million.

Revenues in Jefferies leveraged credit business were strong on increased trading volumes within high yield and distressed, as a result of an improved credit environment, as well as strategic growth in the business, compared with mark-to-market write-downs in 2015. Results in Jefferies emerging markets business throughout 2016 were higher as compared to 2015 due to an upgraded sales and trading team and increased levels of volatility and improved market conditions. Revenues in 2016 from Jefferies corporates businesses increased as compared to 2015 due to increased client activity and higher demand for new issuances and higher yielding investments. Jefferies mortgages businesses were positively impacted by increased demand for spread products compared with the negative impact of market volatility as credit spreads tightened for these asset classes and expectations of future rate increases in 2015. The municipal securities business performed well during 2016 as improved trading activity was driven by market technicals compared with net outflows in 2015. Volatility during 2016 due to fluctuating expectations as to future Federal Reserve interest rate increases contributed to increased revenues in Jefferies U.S. rates business as compared to the prior year.

Jefferies recorded lower revenues during the 2015 period as compared to 2014, primarily due to tighter trading conditions across most core businesses and losses in Jefferies high yield distressed sales and trading business and international mortgages business, partially offset by higher revenues in its U.S. and International rates businesses, as well as its U.S. investment grade corporate credit business. 2015 included $80.2 million of net revenues globally from the Bache business activity compared with $202.8 million in 2014. Excluding revenues from the Bache business activity, revenues decreased $357.3 million.

32

---

The higher revenues in Jefferies U.S. and International rates businesses, as well as its U.S. investment grade corporate credit business, resulted from higher transaction volumes in 2015 as compared to 2014, as volatility caused attractive yields and interest in new issuances. However, that same volatility negatively impacted the municipal securities business as prices declined and the sector experienced overall net cash outflows. Most of Jefferies credit fixed income businesses were negatively impacted during 2015 by periods of extreme volatility and market conditions, as investors focused on liquidity, resulting in periods of low trading volume during the year. In addition, results in Jefferies distressed trading businesses in 2015 were negatively impacted by its position in the energy sector and led to mark-to-market write-downs in its inventory and results in its emerging markets business were lower due to slower growth in the emerging markets during 2015 as compared to 2014. Jefferies mortgages business was also negatively impacted in 2015 by market volatility as credit spreads tightened for these asset classes and expectations of future rate increases resulted in lower trading volumes and revenues.

Investment Banking Revenues

Jefferies provides a full range of capital markets and financial advisory services to its clients across most industry sectors in the Americas, Europe and Asia.  Capital markets revenues include underwriting and placement revenues related to corporate debt, municipal bonds, mortgage- and asset-backed securities and equity and equity-linked securities.  Advisory revenues consist primarily of advisory and transaction fees generated in connection with merger, acquisition and restructuring transactions.

Total investment banking revenues were $1,194.0 million for 2016, 17.0% lower than 2015. Lower investment banking results were attributable to lower new issue equity and leveraged finance capital markets revenues. This was primarily as a result of the capital markets slowdown, which began in the second half of 2015 and continued for much of 2016. From equity and debt capital raising activities, Jefferies generated $235.2 million and $304.6 million in revenues, respectively, for 2016, a decrease of 42.4% and 23.5%, respectively, from 2015.

Jefferies reduced capital markets activity for 2016 was partially offset by record advisory revenues. Specifically, Jefferies advisory revenues for 2016 increased 3.5% compared to 2015, primarily through an increase in the number of merger, acquisition and restructuring transactions, including closing a record number of merger and acquisition transactions in excess of $1 billion.

Jefferies investment banking results benefited both from a record fourth quarter of advisory fees in 2016, with Jefferies merger, acquisition and restructuring and recapitalization businesses showing continued momentum, and from improvement in capital markets activity, which began in the late summer of 2016, leading to an increase in new issue transaction volume.

During 2015, Jefferies generated $1,438.8 million in investment banking revenues, $87.8 million lower than 2014, reflecting lower debt capital market revenues, partially offset by record equities capital markets and advisory revenues. Overall, capital markets revenues for 2015 decreased 16.6% from 2014, primarily due to significantly lower transaction volume in the leveraged finance market. From equity and debt capital raising activities, Jefferies generated $408.5 million and $398.0 million in revenues, respectively, in 2015, an increase of 20.3% and a decrease of 36.6%, respectively, from 2014. Record advisory revenues of $632.4 million for 2015, an increase of 12.5%, were primarily due to higher transaction volume.

Compensation and Benefits

Compensation and benefits expense consists of salaries, benefits, cash bonuses, commissions, annual cash compensation awards, and the amortization of certain non-annual share-based and cash compensation awards to employees.  Cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards.  Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded in the year of the award.

Included within Compensation and benefits expense are share-based amortization expense for senior executive awards granted in September 2012 and February 2016, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting.  Such senior executive awards contain market and performance conditions and are being amortized over their respective future service periods. Compensation expense related to the amortization of share-based and cash-based awards amounted to $287.3 million, $307.7 million and $283.3 million for 2016, 2015 and 2014 , respectively.   Compensation and benefits as a percentage of Net revenues was 64.8%, 59.3% and 56.8% for 2016, 2015 and 2014 , respectively.

Compensation and benefits expense directly related to Jefferies Bache business was $87.7 million and $98.6 million for 2015 and 2014, respectively, and was not meaningful for 2016. Included within Compensation and benefits expense for the Bache business

33

---

for 2015 are severance, retention and related benefits costs of $38.2 million, incurred as part of decisions surrounding the exit of this business.

Non-Compensation Expenses

Non-compensation expenses include floor brokerage and clearing fees, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs.  All of these expenses, other than floor brokerage and clearing fees, bad debt provision and depreciation and amortization expense, are included within Selling, general and other expenses in the Consolidated Statements of Operations.

In 2016, non-compensation expenses decreased 9.1% compared to 2015. The decrease in 2016 was due to the exiting of the Bache business, which in 2015 generated $127.2 million of non-compensation expenses, including accelerated amortization expense of $19.7 million related to capitalized software, $11.2 million in contract termination costs and professional services costs of approximately $2.5 million in connection with Jefferies actions in exiting the Bache business. There were no meaningful non-compensation expenses related to the Bache business in 2016. This reduction in 2016 was partially offset by higher technology and communications expenses, excluding the Bache business, and higher professional services expenses, excluding the Bache business. Technology and communications expenses, excluding the Bache business, increased due to higher costs associated with the development of the various trading systems and projects associated with corporate support infrastructure. In both years, Jefferies continued to incur legal and consulting fees as part of implementing various regulatory requirements. During 2015, Jefferies also released $4.4 million in reserves related to the resolution of bankruptcy claims against Lehman Brothers Holdings, Inc.

In 2015, non-compensation expenses were 4.4% lower compared to 2014. The decline is primarily related to bad debt expenses recognized in 2014 and lower Bache expenses. During the fourth quarter of 2014, Jefferies recognized a bad debt provision, which primarily related to a receivable of $52.3 million from a client to which Jefferies provided futures clearing and execution services, which declared bankruptcy. Non-compensation expenses for 2014 also includes approximately $7.6 million in impairment losses related to customer relationship intangible assets within the Bache business and Jefferies International Asset Management business. Non-compensation expenses associated directly with the activities of the Bache business were $127.2 million and $197.7 million for 2015 and 2014, respectively.

National Beef

A summary of results of operations for National Beef for the three years in the period ended December 31, 2016 is as follows (in thousands):

	2016				2015				2014
Net revenues	$	7,027,243			$	7,402,419			$	7,832,424
Expenses:
Cost of sales	6,513,768				7,347,874				7,708,007
Compensation and benefits	39,271				34,781				38,660
Interest	12,946				16,633				15,136
Depreciation and amortization	94,482				89,317				85,305
Selling, general and other expenses	37,754				37,729				25,619
Total expenses	6,698,221				7,526,334				7,872,727
Income (loss) before income taxes	$	329,022			$	(123,915	)		$	(40,303	)

National Beef’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products coupled with its overall volume.  National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces.  National Beef’s profitability typically fluctuates seasonally with relatively higher margins in the spring and summer months and during times of ample cattle availability.

34

---

Revenues in 2016 decreased about 5% in comparison to 2015, due to lower average selling prices for beef and beef by-products, partially offset by an increase in the number of cattle processed. Revenues in 2015 decreased about 5% in comparison to 2014, due to lower sales volume, as fewer cattle were processed, and lower average selling prices for beef and beef by-products. Additionally, during 2015, decreases to revenues of $52.9 million were recorded as a result of National Beef's use of derivatives in its hedging activity. For 2016, cost of sales declined 11% as compared to 2015, due to a decrease in the price of fed cattle, partially offset by an increase in volume. For 2015, cost of sales declined 5% as compared to 2014, due to fewer cattle processed, and a decrease in the price of cattle. 

For 2016, the combined effects of increased margin per head and an increase in volume led to record high profitability. For 2015, the combined effects of both lower volumes and tighter margins due to the relative price of cattle compared to the selling price of beef and beef by-products impacted margins leading to reduced profitability compared to 2014. Selling, general and other expenses in 2015 included a $4.7 million impairment charge in connection with National Beef’s decision to close its Brawley, California beef processing plant. Also in connection with closing the Brawley facility, National Beef recognized $6.9 million of costs including employee separation and retention, systems decommissioning and various other expenses in 2014.  Of these amounts, $4.6 million related to employee separation, which is included in Compensation and benefits, and the various other costs are included in Selling, general and other expenses. 

Corporate and Other Results

A summary of results of operations for corporate and other for the three years in the period ended December 31, 2016 is as follows (in thousands):

	2016				2015				2014
Net revenues	$	88,590			$	78,122			$	60,720
Expenses:
Corporate compensation and benefits	35,009				52,385				61,736
WilTel pension	2,989				50,836				9,298
Depreciation and amortization	3,619				3,744				5,627
Selling, general and other expenses	32,236				16,088				127,616
Total expenses	73,853				123,053				204,277
Income (loss) before income taxes and income related to associated companies	14,737				(44,931		)		(143,557		)
Income related to associated companies	3,649				636				829
Pre-tax income (loss) from continuing operations	$	18,386			$	(44,295	)		$	(142,728	)

Net revenues of corporate and other primarily include realized and unrealized securities gains and interest income for investments which are held at the holding company. Revenues for 2016 include a $65.6 million increase in a trading asset which is held at fair value. Revenues for 2015 include a net realized securities gain related to a recovery of $35.0 million of an investment in a non-public security that was sold and had been written off in prior years. Revenues for 2014 consist primarily of interest income and a number of smaller securities gains.

For the years ended December 31, 2016, 2015 and 2014 , corporate compensation and benefits includes accrued incentive bonus expense of $7.6 million, $17.4 million and $13.9 million, respectively. Share-based compensation expense was $9.7 million, $14.6 million and $26.3 million in 2016, 2015 and 2014 , respectively.

Pursuant to the agreement to sell one of our former subsidiaries, WilTel Communications Group, LLC, the responsibility for WilTel’s defined benefit pension plan was retained by us.  WilTel pension expense in 2015 includes a non-cash pension settlement charge of $40.7 million related to a voluntary lump sum offer to participants of the legacy plan. See Note 20 to our consolidated financial statements for further information.

Selling, general and other expenses for the 2015 period reflects the recovery of $20.1 million in insurance payments in respect of previously expensed legal fees. Selling, general and other expenses for 2014 include a charge relating to the agreement to settle certain litigation related to the Jefferies acquisition for an aggregate payment of $70.0 million plus legal fees.

35

---

Other Financial Services Businesses and Investments

A summary of results of operations for other financial services businesses and investments for the three years in the period ended December 31, 2016 is as follows (in thousands):

	2016				2015				2014
Net revenues	$	(46,028	)		$	524,053			$	68,241
Expenses:
Compensation and benefits	53,569				35,054				12,530
Interest	33,771				9,404				4,350
Depreciation and amortization	13,697				8,176				4,266
Selling, general and other expenses	50,782				48,279				12,377
Total expenses	151,819				100,913				33,523
Income (loss) before income taxes and income related to associated companies	(197,847		)		423,140				34,718
Income related to associated companies	124,508				81,688				104,337
Pre-tax income (loss) from continuing operations	$	(73,339	)		$	504,828			$	139,055

Our other financial services businesses and investments include the consolidated results of certain Leucadia Asset Management fund managers, the returns on our investments in these funds, the consolidated results of Foursight Capital and Chrome Capital (vehicle finance), our share of the income of Berkadia, the results of our investment in FXCM and our share of the income of HomeFed.

In January 2015, we entered into a credit agreement with FXCM, for a $300 million two-year senior secured term loan with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and our right to require a sale of FXCM beginning in January 2018.  FXCM is an online provider of foreign exchange trading and related services.  We accounted for our loan and rights at fair value.  During 2016 and 2015, we recognized $(54.6) million and $491.3 million, respectively, of gains (losses) from our term loan and related rights. This includes the component related to interest income, which is recorded within Principal transactions revenues.

As more fully discussed in Note 4 to our consolidated financial statements, on September 1, 2016, we, FXCM Inc. and FXCM Holdings entered into an agreement that amended the terms of our loan and associated rights. Among other changes, the amendments extended the maturity of the term loan by one year to January 2018 and gave Leucadia a 49.9% common membership interest in FXCM. We gained the ability to significantly influence FXCM through the amendments and as a result, we now account for our equity interest in FXCM under the equity method of accounting. During 2016, we recognized income related to associated companies of $1.9 million related to our common membership interest in FXCM. Given recent events, including changes in leadership within FXCM, and planned divestitures, it is difficult to anticipate whether future pre-tax income will be more or less volatile.

Excluding the FXCM revenues in 2016 and 2015 discussed above, the net revenues in other financial services businesses and investments reflect revenues of $8.6 million in 2016, $32.7 million in 2015 and $68.2 million in 2014. The year-over-year decrease in 2016 compared to 2015 primarily reflects losses on investments recorded at market value related to the Leucadia Asset Management businesses partially offset by growth in our vehicle finance businesses and at our 54 Madison real estate fund. The year-over-year decrease in 2015 compared to 2014 primarily reflects losses on investments recorded at market value related to the Leucadia Asset Management businesses partially offset by growth in our vehicle finance businesses.

All expense categories were impacted by the growth of our Leucadia Asset Management businesses and vehicle finance businesses in 2016 and 2015 as compared to the prior years. Selling, general and other expenses for 2015 also include $21.0 million of investment banking and advisory fees paid to Jefferies in connection with our entering into the agreement with FXCM, and which Jefferies recognized in net revenues.  These intercompany fees have been eliminated in our consolidated results.

For the years ended December 31, 2016, 2015 and 2014 , income related to associated companies attributable to Berkadia was $94.2 million, $78.1 million and $101.2 million, respectively. Berkadia's results were impacted by reversals of mortgage service rights

36

---

impairments of $35.9 million in 2016, and investment gains of $15.4 million in 2015 and $69.8 million in 2014, of which we then recorded our applicable share. As our share of profits from Berkadia are primarily taxed at the Leucadia level, the income discussed above is pre-tax. Income related to associated companies attributable to HomeFed was $23.9 million, $3.6 million and $3.2 million for the years ended December 31, 2016, 2015 and 2014 , respectively. The increase in 2016 primarily reflects a reversal of HomeFed's deferred tax valuation allowance in 2016 as HomeFed concluded that it was more likely than not that they would have future taxable income sufficient to realize their net deferred tax asset.

Other Merchant Banking Businesses and Investments

A summary of results for other merchant banking businesses and investments for the three years in the period ended December 31, 2016 is as follows (in thousands):

	2016				2015				2014
Net revenues	$	571,757			$	426,731			$	538,775
Expenses:
Cost of sales	337,039				329,359				316,279
Compensation and benefits	30,923				24,657				21,917
Interest	3,105				2,586				1,554
Depreciation and amortization	39,589				30,731				12,229
Selling, general and other expenses	129,808				79,421				53,460
Total expenses	540,464				466,754				405,439
Income (loss) before income taxes and income related to associated companies	31,293				(40,023		)		133,336
Income related to associated companies	26,441				27,957				33,361
Pre-tax income (loss) from continuing operations	$	57,734			$	(12,066	)		$	166,697

Our other merchant banking operations include the consolidated results of Vitesse and Juneau (oil and gas exploration and development) and Conwed and Idaho Timber (manufacturing companies).  It also includes our equity investments in Garcadia (automobile dealerships), Linkem (fixed wireless broadband services in Italy) and Golden Queen (a gold and silver mining project), as well as our ownership of HRG shares, which is accounted for at fair value, and impacts our results through its mark-to-market adjustment reflected within net revenues. Other merchant banking operations also includes our real estate operations, substantially all of which were sold to HomeFed during March 2014 in exchange for HomeFed common shares. 

Net revenues include principal transactions related to unrealized gains (losses) of $93.2 million, $(28.0) million and $99.3 million for the years ended December 31, 2016, 2015 and 2014 , respectively, from the change in value of our investment in HRG.

We classify HRG as a trading asset for which the fair value option was elected and we reflect mark-to-market adjustments through Principal transactions revenues. In addition, net revenues for 2014 include a $22.7 million gain on the sale of an equity interest for cash proceeds of $33.0 million.

For the years ended December 31, 2016, 2015 and 2014 , net revenues for manufacturing were $415.8 million, $392.1 million and $380.5 million, respectively.  Net revenues for the years ended December 31, 2016, 2015 and 2014 for our oil and gas exploration and development businesses were $53.5 million, $54.1 million and $19.9 million, respectively. As discussed further in Note 4 to our consolidated financial statements, Vitesse uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Net unrealized gains (losses) of $(11.8) million and $7.4 million were recorded related to these options in 2016 and 2015, respectively.

The increase in total expenses in 2016 and 2015 as compared to the prior year, primarily reflects higher costs for our oil and gas exploration and development businesses. For the years ended December 31, 2016, 2015 and 2014 , Selling, general and other expenses for manufacturing were $9.2 million, $8.6 million and $8.5 million, respectively.  Selling, general and other expenses for our oil and gas exploration and development businesses were $109.1 million, $49.8 million and $15.7 million in 2016, 2015 and 2014 , respectively. The increase is primarily due to impairment charges totaling $63.8 million and $20.3 million recorded in 2016 and 2015, respectively, for the write-down of Juneau oil field assets to fair value. The 2016 impairment charge primarily

37

---

related to decisions made by Juneau in the third quarter to curtail development of its southern acreage in the East Eagle Ford and its Houston County acreage. A $55.0 million impairment charge was then recorded for the difference between the carrying value of that acreage and the estimated net realizable value. Selling, general and other expenses for our oil and gas exploration and development businesses for 2016 also includes the write-down of certain Juneau leases that will not benefit our business going forward, increased exploration costs and the loss on sale of an associated company.

Depreciation and amortization for the oil and gas exploration and development businesses were $30.4 million, $25.1 million and $3.9 million in 2016, 2015 and 2014 , respectively. The significant increase in 2016 and 2015 is due to increased production and additional wells compared to 2014.

For the years ended December 31, 2016, 2015 and 2014 , pre-tax profits for manufacturing were $39.8 million, $31.1 million and $31.7 million, respectively.  Pre-tax losses for the oil and gas exploration and development businesses were $90.8 million, $31.9 million and $0.8 million for 2016, 2015 and 2014 , respectively.  Pre-tax losses for the Oregon LNG project were $2.1 million, $7.5 million and $6.8 million for 2016, 2015 and 2014 , respectively.

Income related to associated companies primarily relates to our investments in Linkem and Garcadia.  For the years ended December 31, 2016, 2015 and 2014 , losses related to Linkem were $22.9 million, $15.6 million and $14.6 million, respectively, and income related to Garcadia was $52.3 million, $53.2 million and $49.4 million, respectively.

Parent Company Interest

Parent company interest totaled $58.9 million for 2016, $87.2 million for 2015 and $99.9 million for 2014.  The decline in interest expense in 2016 as compared to 2015 and 2015 as compared to 2014 is primarily due to the repayment of our 8.125% Senior Notes in September 2015.  

Income Taxes

For the year ended December 31, 2016, our provision for income taxes was $122.1 million, representing an effective tax rate of about 39%.  Our 2016 provision was increased by a $24.9 million charge related to previously issued stock awards, which increased our effective rate by 8%. The majority of the awards expired unexercised during the first quarter of 2016. The tax deductions associated with the remainder of the awards was less than the compensation cost recognized for financial reporting purposes.

For the year ended December 31, 2015, our provision for income taxes was $109.9 million, representing an effective tax rate of about 31%.  Our 2015 provision was reduced by $10.7 million, lowering our effective rate by 3%, related to benefits recorded for certain state and local net operating loss carryforwards, which are more likely than not to be realized in the future.

For the year ended December 31, 2014, our provision for income taxes was $166.0 million, representing an effective tax rate of about 44%.  Our 2014 provision was higher by $24.5 million, increasing our effective rate by 6%, related to a charge recorded to settle the litigation concerning the Jefferies acquisition, which was nondeductible.  Our 2014 provision includes an offsetting benefit of $22.2 million, or 6%, for the reduction of the valuation allowance with respect to certain net operating loss carryovers, which we now believe are more likely than not to be utilized before they expire. 

38

---

Discontinued Operations

Our loss from discontinued operations, net of tax and our gain (loss) on disposal from discontinued operations, net of tax include the impact of a number of changes in the mix of our businesses and investments.  During the three years ended December 31, 2016 , discontinued operations included the Lake Charles clean energy project, which we decided in September 2014 to discontinue further development, and Premier Entertainment Biloxi LLC ("Premier"), through which we had conducted our gaming entertainment operations, which was sold in July 2014..

Our loss from discontinued operations, net of income tax totaled $17.9 million in 2014.  Our 2014 loss consisted primarily of $25.4 million in losses related to our Lake Charles clean energy project, offset by income of about $6.1 million from Premier.  Our income from discontinued operations in 2016 and 2015 was not significant.

Our gain on disposal from discontinued operations, net of tax totaled $5.1 million in 2015 and $1.7 million in 2014.  Gain on disposal of discontinued operations for 2015 primarily relates to additional consideration received related to the 2012 sale of our small Caribbean-based telecommunications provider and a reversal of a legal reserve.  

For further information, see Note 29 to our consolidated financial statements.

Selected Balance Sheet Data

In addition to preparing our Consolidated Statements of Financial Condition in accordance with U.S. GAAP, we also review the tangible capital associated with each of our businesses and investments, which is a non-GAAP presentation and may not be comparable to similar non-GAAP presentations used by other companies. We believe that this information is useful to investors as it allows them to view our businesses and investments through the eyes of management while facilitating a comparison across historical periods. We define tangible capital as Total Leucadia National Corporation shareholders' equity less Intangible assets, net and goodwill.

39

---

The tables below reconcile tangible capital to our U.S. GAAP balance sheet (in thousands):

	December 31, 2016
	Jefferies				National Beef				Other Financial Services Businesses and Investments (1)				Other Merchant Banking Businesses and Investments				Corporate liquidity and other assets, net of Corporate liabilities				Inter-company Eliminations				Total
Assets
Cash and cash equivalents	$	3,529,457			$	37,702			$	41,165			$	45,151			$	154,083			$	—			$	3,807,558
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations	857,337				—				—				—				—				—				857,337
Financial instruments owned	13,809,512				1,906				188,976				761,249				524,643				—				15,286,286
Investments in managed funds	186,508				—				301,171				—				27,639				—				515,318
Loans to and investments in associated companies	653,872				—				985,780				451,117				34,329				—				2,125,098
Securities borrowed	7,743,562				—				—				—				—				—				7,743,562
Securities purchased under agreements to resell	3,862,488				—				—				—				—				—				3,862,488
Receivables	3,163,171				179,313				938,254				47,761				96,679				—				4,425,178
Property, equipment and leasehold improvements, net	265,553				385,599				4,551				31,351				22,188				—				709,242
Intangible assets, net and goodwill	1,903,335				599,794				10,549				—				—				—				2,513,678
Deferred tax asset, net	337,580				—				—				—				1,124,235				—				1,461,815
Assets held for sale	—				—				—				128,083				—				—				128,083
Other assets	679,721				294,003				117,274				563,905				63,442				(82,681		)		1,635,664
Total Assets	36,992,096				1,498,317				2,587,720				2,028,617				2,047,238				(82,681		)		45,071,307
Liabilities
Long-term debt (2)	5,483,331				276,341				545,528				87,352				987,891				—				7,380,443
Other liabilities	26,090,308				270,184				351,505				64,315				231,775				(82,681		)		26,925,406
Total liabilities	31,573,639				546,525				897,033				151,667				1,219,666				(82,681		)		34,305,849
Redeemable noncontrolling interests	—				321,962				551				14,296				—				—				336,809
Mandatorily redeemable convertible preferred shares	—				—				—				—				125,000				—				125,000
Noncontrolling interests	651				—				141,847				33,051				—				—				175,549
Total Leucadia National Corporation shareholders' equity	$	5,417,806			$	629,830			$	1,548,289			$	1,829,603			$	702,572			$	—			$	10,128,100
Reconciliation to Tangible Capital
Total Leucadia National Corporation shareholders' equity	$	5,417,806			$	629,830			$	1,548,289			$	1,829,603			$	702,572			$	—			$	10,128,100
Less: Intangible assets, net and goodwill	(1,903,335		)		(599,794		)		(10,549		)		—				—				—				(2,513,678		)
Tangible Capital, a non-GAAP measure	$	3,514,471			$	30,036			$	1,537,740			$	1,829,603			$	702,572			$	—			$	7,614,422

(1) Other financial services businesses and investments excludes $89.1 million December 31, 2016 of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate liquidity and other assets, net of Corporate liabilities.

(2) Long-term debt within Other financial services businesses and investments of $545.5 million at December 31, 2016 , includes $406.0 million for 54 Madison, $97.1 million for Foursight Capital and $42.4 million for Chrome Capital. Long-term debt within Other merchant banking businesses and investments of $87.4 million at December 31, 2016 , includes $55.7 million for our real estate associated with the Garcadia investment and $31.7 million for Vitesse.

40

---

	December 31, 2015
	Jefferies				National Beef				Other Financial Services Businesses and Investments (1)				Other Merchant Banking Businesses and Investments				Corporate liquidity and other assets, net of Corporate liabilities				Inter-company Eliminations				Total
Assets
Cash and cash equivalents	$	3,510,163			$	17,814			$	22,203			$	30,940			$	57,528			$	—			$	3,638,648
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations	751,084				—				—				—				—				—				751,084
Financial instruments owned	16,559,116				891				647,936				639,253				653,249				—				18,500,445
Investments in managed funds	85,775				—				488,940				—				55,317				(26,312		)		603,720
Loans to and investments in associated companies	825,908				—				466,364				441,970				23,127				—				1,757,369
Securities borrowed	6,975,136				—				—				—				—				—				6,975,136
Securities purchased under agreements to resell	3,854,746				—				—				—				—				—				3,854,746
Receivables	3,023,899				208,107				463,545				51,558				83,858				—				3,830,967
Property, equipment and leasehold improvements, net	243,486				394,506				11,479				46,894				25,510				—				721,875
Intangible assets, net and goodwill	1,938,582				645,049				2,336				62,395				—				—				2,648,362
Deferred tax asset, net	320,198				—				—				—				1,255,170				—				1,575,368
Other assets	519,693				247,882				88,987				680,926				59,387				(123,411		)		1,473,464
Total Assets	38,607,786				1,514,249				2,191,790				1,953,936				2,213,146				(149,723		)		46,331,184
Liabilities
Long-term debt (2)	5,640,722				439,299				258,350				75,389				986,822				—				7,400,582
Other liabilities	27,408,213				194,918				216,537				116,702				335,120				(123,411		)		28,148,079
Total liabilities	33,048,935				634,217				474,887				192,091				1,321,942				(123,411		)		35,548,661
Redeemable noncontrolling interests	—				189,358				—				2,275				—				—				191,633
Mandatorily redeemable convertible preferred shares	—				—				—				—				125,000				—				125,000
Noncontrolling interests	27,468				—				14,998				48,525				—				(26,312		)		64,679
Total Leucadia National Corporation shareholders' equity	$	5,531,383			$	690,674			$	1,701,905			$	1,711,045			$	766,204			$	—			$	10,401,211
Reconciliation to Tangible Capital
Total Leucadia National Corporation shareholders' equity	$	5,531,383			$	690,674			$	1,701,905			$	1,711,045			$	766,204			$	—			$	10,401,211
Less: Intangible assets, net and goodwill	(1,938,582		)		(645,049		)		(2,336		)		(62,395		)		—				—				(2,648,362		)
Tangible Capital, a non-GAAP measure	$	3,592,801			$	45,625			$	1,699,569			$	1,648,650			$	766,204			$	—			$	7,752,849

(1) Other financial services businesses and investments excludes $366.3 million at December 31, 2015 of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate liquidity and other assets, net of Corporate liabilities.

(2) Long-term debt within Other financial services businesses and investments of $258.4 million at December 31, 2015 , includes $116.2 million for 54 Madison, $109.5 million for Foursight Capital and $32.6 million for Chrome Capital. Long-term debt within Other merchant banking businesses and investments of $75.4 million at December 31, 2015 , includes $57.8 million for our real estate associated with the Garcadia investment and $17.6 million for Vitesse.

41

---

The table below presents our tangible capital by significant business and investment (in thousands):

	Tangible Capital as of
	December 31, 2016				December 31, 2015
Jefferies	$	3,514,471			$	3,592,801
National Beef	30,036				45,625
Other Financial Services Businesses and Investments:
Leucadia Asset Management (1)	483,687				560,251
FXCM	500,758				625,689
HomeFed	269,421				241,368
Berkadia	184,443				190,986
Foursight Capital and Chrome Capital	100,516				81,275
Other	(1,085		)		—
Total Other Financial Services Businesses and Investments	1,537,740				1,699,569
Other Merchant Banking Businesses and Investments:
HRG	725,096				631,896
Vitesse	309,837				278,833
Juneau	159,182				179,972
Garcadia	206,760				189,356
Linkem	154,000				150,149
Golden Queen	78,474				80,604
Idaho Timber	76,551				73,057
Conwed	100,649				42,915
Other	19,054				21,868
Total Other Merchant Banking Businesses and Investments	1,829,603				1,648,650
Corporate liquidity and other assets, net of all Corporate liabilities including long-term debt	702,572				766,204
Total Tangible Capital (2)	$	7,614,422			$	7,752,849

(1) Leucadia Asset Management does not include $89.1 million and $366.3 million at December 31, 2016 and 2015 , respectively, of liquid marketable securities that are available for sale immediately. These liquid marketable securities are included in Corporate liquidity and other assets, net of all Corporate liabilities including long-term debt.

(2) Tangible Capital, a non-GAAP measure, is defined as Leucadia National Corporation shareholders' equity less Intangible assets, net and goodwill. See reconciliation of Tangible Capital to Leucadia National Corporation shareholders' equity in the tables above.

Liquidity and Capital Resources

Parent Company Liquidity

We are a holding company whose assets principally consist of the stock or membership interests of direct subsidiaries, cash and cash equivalents and other non-controlling investments in debt and equity securities.  We continuously evaluate the retention and disposition of our existing operations and investments and investigate possible acquisitions of new businesses in order to maximize shareholder value.  Accordingly, further acquisitions, divestitures, investments and changes in capital structure are possible.  Our principal sources of funds are available cash resources, liquid investments, public and private capital market transactions, repayment of subsidiary advances, funds distributed from subsidiaries as tax sharing payments, management and other fees, and dividends from subsidiaries, as well as dispositions of existing businesses and investments.

In addition to cash and cash equivalents, we have certain other investments that are easily convertible into cash within a relatively short period of time.  These are classified as trading assets, available for sale securities, and investments in managed funds.  Together these total $543.5 million at December 31, 2016 , primarily comprised of cash and short-term bonds and notes of the U.S. Government and its agencies, and other publicly traded debt and equity securities.  Our available liquidity, and the investment

42

---

income realized from cash, cash equivalents and marketable securities is used to meet our short-term recurring cash requirements, which are principally the payment of interest on our debt, dividends and corporate overhead expenses.

The parent company’s primary long-term cash requirement is to make principal payments on its long-term debt ($1.0 billion principal outstanding as of December 31, 2016 ), of which $750.0 million is due in 2023 and $250.0 million in 2043.  Historically, we have used our available liquidity to make acquisitions of new businesses and other investments, but, except as disclosed in this report, the timing of any future investments and the costs thereof cannot be predicted.

From time to time in the past, we have accessed public and private credit markets and raised capital in underwritten bond financings.  The funds raised have been used by us for general corporate purposes, including for our existing businesses and new investment opportunities.  Our senior debt obligations are rated Ba1 by Moody’s Investors Services and BBB- by Standard and Poor’s and Fitch Ratings.  Ratings issued by bond rating agencies are subject to change at any time.

During 2016, we received $114.0 million from the redemption of Leucadia Asset Management's investment in Topwater Capital; assets under management were replaced by Jefferies investment in Topwater Capital of $114.0 million. In 2016, we received $201.4 million in distributions from National Beef.

During the year ended December 31, 2016 , we invested a net $63.0 million in 54 Madison, which was primarily used to fund real estate projects. In 2016, we purchased $33.3 million of additional Linkem convertible preferred equity and we also invested $98.8 million in add on investments in our oil and gas subsidiaries.

During 2015, we invested $279.0 million in FXCM, structured as a two-year term loan and rights to receive a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events. As more fully discussed in Note 4 to our consolidated financial statements, on September 1, 2016, we, FXCM Inc. and FXCM Holdings entered into an agreement that amended the terms of our loan and associated rights. We received $72.1 million of principal and interest from FXCM during the year ended December 31, 2016 and $144.7 million principal, interest and fees during the year ended December 31, 2015.

During the year ended December 31, 2016 , we purchased a total of 5,435,014 of our common shares for $95.0 million, at an average price per share of $17.48. The Board of Directors has authorized the purchase of up to 25,000,000 common shares, which may be made from time to time in the open market, through block trades or otherwise. As of December 31, 2016 , 16,161,588 common shares remain authorized for repurchase.

During the year ended December 31, 2016 , we paid four quarterly dividends of $0.0625 per share which aggregated $91.3 million.  The payment of dividends in the future is subject to the discretion of the Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that the Board of Directors may deem to be relevant.

In February 2009, the Board of Directors authorized, from time to time, the purchase of our outstanding debt securities through cash purchases in open market transactions, privately negotiated transactions or otherwise.  Such repurchases, if any, depend upon prevailing market conditions, our liquidity requirements and other factors; such purchases may be commenced or suspended at any time without notice.

At December 31, 2016 , we had outstanding 359,425,061 common shares and 14,650,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 374,075,061 outstanding common shares if all awards become outstanding common shares). The 14,650,000 share-based awards include the target number of shares under the senior executive award plan, which is more fully discussed in Note 18.

We and certain of our subsidiaries have federal income tax net operating loss carryforwards (“NOLs”) of approximately $3.4 billion (net deferred tax asset of $1.1 billion) at December 31, 2016 and other tax attributes.  The amount and availability of the NOLs and other tax attributes are subject to certain qualifications, limitations and uncertainties.  In order to reduce the possibility that certain changes in ownership could impose limitations on the use of the NOLs, our certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of five percent or more of the common shares and the ability of persons or entities now owning five percent or more of the common shares from acquiring additional common shares.  The restrictions will remain in effect until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) or (c) the beginning of a taxable year to which certain tax benefits may no longer be carried forward.  For more information about the NOLs and other tax attributes, see Note 21 to our consolidated financial statements.

43

---

Concentration, Liquidity and Leverage Targets

In connection with presentations made to credit rating agencies with respect to the Jefferies acquisition, we advised the agencies that we would target specific concentration, leverage and liquidity principles, expressed in the form of certain ratios and percentages, although there is no legal requirement to do so.

Concentration Target: As a diversification measure, we limit cash investments such that our single largest investment does not exceed 20% of equity excluding Jefferies, and that our next largest investment does not exceed 10% of equity excluding Jefferies, in each case measured at the time the investment was made. National Beef is our largest investment and HRG is our next largest investment.

Liquidity Target: We hold a liquidity reserve calculated as a minimum of twenty-four months of corporate expenses (excluding non-cash components), parent company interest, and dividends.  Maturities of parent company debt within the upcoming year are also included in the target; however, our next maturity is during 2023 so there is no current inclusion.  

Leverage Target: We target a maximum parent debt to stressed equity ratio of .50, with stressed equity defined as equity (excluding Jefferies) assuming the loss of our two largest investments.

These thresholds and calculations of the actual ratios and percentages are detailed below at December 31, 2016 (dollars in thousands):

Total Leucadia National Corporation shareholders' equity	$	10,128,100
Less, investment in Jefferies	(5,417,806		)
Equity excluding Jefferies	4,710,294
Less, our two largest investments:
National Beef	(629,830		)
HRG, at cost	(475,600		)
Equity in a stressed scenario	3,604,864
Less, net deferred tax asset excluding Jefferies amount	(1,124,235		)
Equity in a stressed scenario less net deferred tax asset	$	2,480,629
Balance sheet amounts:
Available liquidity	$	543,525
Parent company debt (see Note 16 to our Consolidated financial statements)	$	987,891
Ratio of parent company debt to stressed equity:
Maximum	0.50			x
Actual, equity in a stressed scenario	0.27			x
Actual, equity in a stressed scenario excluding net deferred tax asset	0.40			x
Liquidity reserve:
Minimum	$	426,000
Actual	$	543,525

Consolidated Statements of Cash Flows

As discussed above, we have historically relied on our available liquidity to meet short-term and long-term needs, and to make acquisitions of new businesses and investments.  Except as otherwise disclosed herein, our operating businesses do not generally require significant funds to support their operating activities, and we do not depend on positive cash flow from our operating segments to meet our liquidity needs.  The mix of our operating businesses and investments can change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict but which often have a significant impact on our Consolidated Statements of Cash Flows in any one period.  Further, the timing and amounts of distributions from investments in associated companies may be outside our control.  As a result, reported cash flows from operating, investing and financing activities do not generally follow any particular pattern or trend, and reported results in the most recent period should not be expected to recur in any subsequent period.

44

---

Net cash of $608.8 million was provided by operating activities in 2016 and net cash of $761.8 million in 2015 and $987.2 million in 2014 was used for operating activities. 

•	Jefferies used funds of $132.1 million, $294.5 million and $276.6 million during 2016, 2015 and 2014.  Included in these amounts are distributions received from associated companies of $38.2 million during 2016, $76.7 million during 2015 and $54.0 million during 2014.

•	National Beef generated funds of $484.8 million and $76.5 million during 2016 and 2015, respectively, and used funds of $55.0 million during 2014.

•

Within our Other Financial Services Businesses and Investments, cash of $50.0 million, $325.0 million and $345.1 million was used during 2016, 2015 and 2014 to make additional investments in the Leucadia Asset Management platform. Additionally, during 2016, cash of $257.0 million was generated from our trading portfolio and $170.0 million from our investments in managed funds related to our Leucadia Asset Management platform. We received distributions from Berkadia, an associated company, of $99.9 million during 2016, $89.4 million during 2015 and $72.9 million during 2014. Cash used for operating activities also includes net cash used of $119.8 million in 2016, $140.2 million in 2015 and $110.1 million in 2014 relating to automobile installment contracts, which is reflected in the net change in other receivables.

•

Within our Other Merchant Banking Businesses and Investments, manufacturing generated funds of $35.4 million in 2016, $31.2 million in 2015 and $27.1 million in 2014. In 2014, $317.5 million was used to acquire our investment in HRG. We received distributions from Garcadia, an associated company, of $51.4 million during 2016, $57.3 million during 2015 and $46.0 million during 2014. Net losses related to real estate, property and equipment, and other assets include impairment charges of $65.7 million in 2016 and $27.7 million in 2015, primarily related to Juneau.

•	Our cash used for operating activities also reflects the use of $7.3 million during 2015 and $40.7 million during 2014 by our discontinued operations. Additionally, during 2015, we paid $80.4 million in connection with legal settlements. The change in operating cash flows also reflects lower interest payments in 2016 as compared to 2015 and 2014.

Net cash of $639.7 million was used for investing activities in 2016 and net cash of $781.2 million in 2015 and $449.1 million in 2014 was provided by investing activities. 

•

Acquisitions of property, equipment and leasehold improvements, and other assets related to Jefferies include $103.3 million in 2016, $68.8 million in 2015 and $113.0 million in 2014. Jefferies made loans to and investments in associated companies of $538.2 million during 2016, $1,438.7 million during 2015 and $2,786.4 million during 2014. Jefferies received capital distributions and loan repayments from its associated companies of $689.2 million during 2016, $1,384.9 million during 2015 and $2,750.6 million during 2014.

•	Acquisitions of property, equipment and leasehold improvements, and other assets related to National Beef include $62.0 million in 2016, $48.6 million in 2015 and $48.2 million in 2014.

  

•

Within our Other Financial Services Businesses and Investments, acquisitions of property, equipment and leasehold improvements, and other assets were $48.6 million in 2016, $53.0 million in 2015 and $19.8 million in 2014. Advances on notes, loans and other receivables in 2015 include the investment in FXCM ($279.0 million). Collections on notes, loans and other receivables during 2016 include $24.6 million related to real estate projects in 54 Madison and $72.1 million related to FXCM. Collections on notes, loans and other receivables during 2015 primarily relate to FXCM. Loans to and investments in associated companies include $153.5 million to 54 Madison during 2016, of which $90.7 million of that was contributed from noncontrolling interests.

•

Within our Other Merchant Banking Businesses and Investments, acquisitions of property, equipment and leasehold improvements, and other assets reflect primarily activity in our oil and gas businesses. They totaled $104.5 million in 2016, $113.4 million in 2015 and $408.8 million in 2014. Collections on notes, loans and other receivables during 2016 include $21.2 million related to our oil and gas businesses. Loans to and investments in associated companies during 2016 include $22.5 million for Garcadia and $33.3 million for Linkem. During 2015, these include $12.5 million, including $0.4 million contributed from the noncontrolling interest, to Golden Queen and $21.2 million to Linkem. During 2014 payments included those to Golden Queen of $105.0 million, including $34.1 million contributed from the noncontrolling interest, Garcadia of $48.3 million and Linkem of $18.4 million. We also received capital distributions and loan repayments from Garcadia of $10.2 million in 2016, $2.8 million in 2015 and $3.8 million in 2014.

45

---

•

Our net cash provided by (used for) investing activities also includes the impact of acquisitions of property, equipment and leasehold improvements, and other assets within our discontinued operations of $9.4 million during 2014. Proceeds from disposal of discontinued operations, net of expenses and cash of operations sold in 2015 relates to additional consideration received in connection with the 2012 sale of our small Caribbean-based telecommunications provider and, in 2014, in connection with the sale of Premier.

Net cash of $230.9 million in 2016 and $917.8 million in 2014 was provided by financing activities and $652.0 million in 2015 was used for financing activities. 

•

Issuance of debt includes $299.8 million in 2016 and $681.2 million in 2014 related to Jefferies. Repayment of debt includes $373.2 million in 2016, $670.0 million in 2015 and $280.0 million in 2014 related to Jefferies. Net change in bank overdrafts of $46.5 million in 2016 related to Jefferies. Net proceeds from other secured financings include payments of $7.3 million during 2016 and proceeds of $157.1 million during 2015 and $371.1 million during 2014 related to Jefferies.

•	Issuance of debt for National Beef includes $135.1 million in 2014 of borrowings under its bank credit facility. National Beef reflects repayments of debt of $163.7 million in 2016, $51.7 million in 2015 and $32.8 million in 2014.

•

Within our Other Financial Services Businesses and Investments, borrowings include $705.4 million in 2016, $341.8 million in 2015 and $125.5 million in 2014. Their repayments of debt includes $422.5 million in 2016, $127.3 million in 2015 and $117.8 million in 2014. Net proceeds from other secured financings include proceeds of $124.0 million during 2016, $48.1 million during 2015 and $99.3 million during 2014 related to our Other Financial Services Businesses and Investments. Contributions from noncontrolling interests include $144.8 million during 2016 related to 54 Madison and $13.9 million in 2015 related to Leucadia Asset Management.

•	Borrowings by our Other Merchant Banking Businesses and Investments include $14.9 million in 2016, $21.5 million in 2015 and $60.8 million in 2014. Their repayments of debt includes $8.8 million in 2015. Contributions from noncontrolling interests include $34.1 million related to Golden Queen in 2014.

•	At the holding company level, we include repayments of debt during 2015 of $458.6 million on the maturity of our 8.125% Senior Notes. Purchases of common shares for treasury relate to shares received from participants in our stock compensation plans and the buyback of our common shares in the open market of $66.3 million in 2016, $89.2 million in 2015 and $15.2 million in 2014.

As shown below, at December 31, 2016 , our contractual obligations totaled $11,702.3 million.

						Expected Maturity Date (in millions)
Contractual Obligations		Total				2017				2018				2019 and 2020				2021 and 2022				After 2022
Indebtedness		$	7,170.7			$	420.7			$	1,172.2			$	1,627.4			$	799.0			$	3,151.4
Estimated interest expense on debt		3,161.9				391.8				345.9				537.0				387.9				1,499.3
Cattle commitments		103.8				103.8				—				—				—				—
Operating leases, net of  sublease income		928.2				86.0				83.5				131.8				111.3				515.6
Other		337.7				126.0				61.8				81.4				54.7				13.8
Total Contractual Obligations		$	11,702.3			$	1,128.3			$	1,663.4			$	2,377.6			$	1,352.9			$	5,180.1

Amounts related to our U.S. pension obligations ($77.9 million) are not included in the above table as the timing of payments is uncertain; however, we do expect to make $11.8 million of contributions to these plans in 2017.  For further information, see Note 20 in our consolidated financial statements.  In addition, the above amounts do not include liabilities for unrecognized tax benefits as the timing of payments, if any, is uncertain.  Such amounts aggregated $196.5 million at December 31, 2016 ; for more information, see Note 21 in our consolidated financial statements.

46

---

Our U.S. pension obligations relate to frozen defined benefit pension plans, principally the defined benefit plan of WilTel Communications Group, LLC, our former telecommunications subsidiary.  When we sold WilTel in 2005, its defined benefit pension plan was not transferred in connection with the sale.  At December 31, 2016 , we had recorded a liability of $69.2 million in our Consolidated Statement of Financial Condition for WilTel’s unfunded defined benefit pension plan obligation.  This amount represents the difference between the present value of amounts owed to former employees of WilTel (referred to as the projected benefit obligation) and the market value of plan assets set aside in segregated trust accounts.  Since the benefits in this plan have been frozen, future changes to the unfunded benefit obligation are expected to principally result from benefit payments, changes in the market value of plan assets, differences between actuarial assumptions and actual experience and interest rates.

Calculations of pension expense and projected benefit obligations are prepared by actuaries based on assumptions provided by management.  These assumptions are reviewed on an annual basis, including assumptions about discount rates, interest credit rates and expected long-term rates of return on plan assets.  The timing of expected future benefit payments was used in conjunction with the Citigroup Pension Discount Curve to develop a discount rate for the WilTel plan that is representative of the high quality corporate bond market.  Holding all other assumptions constant, a 0.25% change in the discount rate would affect pension expense in 2017 by $0.2 million and the benefit obligation by $5.9 million, of which $4.5 million relates to the WilTel plan.

The deferred losses in accumulated other comprehensive income (loss) have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations ($58.9 million at December 31, 2016 ).  These deferred amounts primarily result from differences between the actual and assumed return on plan assets and changes in actuarial assumptions, including changes in discount rates and changes in interest credit rates.  They are amortized to expense if they exceed 10% of the greater of the projected benefit obligation or the market value of plan assets as of the beginning of the year.  The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into pension expense in 2017 is $2.2 million.

The assumed long-term rates of return on plan assets are based on the investment objectives of the plans, which are more fully discussed in Note 20 in our consolidated financial statements.

Jefferies Liquidity

General

The Chief Financial Officer and Global Treasurer of Jefferies are responsible for developing and implementing liquidity, funding and capital management strategies for the Jefferies businesses.  These policies are determined by the nature and needs of day to day business operations, business opportunities, regulatory obligations, and liquidity requirements.

The actual levels of capital, total assets, and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long-term and short-term funding.  Jefferies has historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity.  The liquid nature of these assets provides flexibility in financing and managing Jefferies business.

A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis.  As a part of this balance sheet review process, capital is allocated to all assets and gross and adjusted balance sheet limits are established.  This process ensures that the allocation of capital and costs of capital are incorporated into business decisions.  The goals of this process are to protect the Jefferies platform, enable the businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.

The overall securities inventory is continually monitored by Jefferies, including the inventory turnover rate, which confirms the liquidity of overall assets. In connection with the government and agency fixed income business and Jefferies role as a primary dealer in these markets, a sizable portion of its securities inventory is comprised of U.S. government and agency securities and other G-7 government securities. For further detail on Jefferies outstanding sovereign exposure, refer to Quantitative and Qualitative Disclosures about Market Risk below.

At December 31, 2016 , our Consolidated Statement of Financial Condition includes Jefferies Level 3 trading assets that are approximately 3% of total trading assets.

Securities financing assets and liabilities include both financing for financial instruments trading activity and matched book transactions.  Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. 

47

---

The following table presents Jefferies period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (in millions):

	Year Ended December 31, 2016				Year Ended December 31, 2015
Securities purchased under agreements to resell:
Period end	$	3,862			$	3,855
Month end average	5,265				5,719
Maximum month end	7,001				7,577
Securities sold under agreements to repurchase:
Period end	$	6,792			$	9,967
Month end average	11,410				14,011
Maximum month end	16,620				18,629

Fluctuations in the balance of Jefferies repurchase agreements from period to period and intraperiod are dependent on business activity in those periods.  Additionally, the fluctuations in the balances of Jefferies securities purchased under agreements to resell are influenced in any given period by its clients’ balances and desires to execute collateralized financing arrangements via the repurchase market or via other financing products.  Average balances and period end balances will fluctuate based on market and liquidity conditions and Jefferies considers the fluctuations intraperiod to be typical for the repurchase market.

Liquidity Management

The key objectives of Jefferies liquidity management framework are to support the successful execution of its business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress.  The liquidity management policies are designed to mitigate the potential risk that adequate financing may not be accessible to service financial obligations without material franchise or business impact.

The principal elements of Jefferies liquidity management framework are the Contingency Funding Plan, the Cash Capital Policy and the assessment of Maximum Liquidity Outflow.

Contingency Funding Plan .  The Jefferies Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period.  This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:

•	repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;

•	maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;

•	higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;

•	liquidity outflows related to possible credit downgrade

•	lower availability of secured funding;

•	client cash withdrawals;

•	the anticipated funding of outstanding investment and loan commitments; and

•	certain accrued expenses and other liabilities and fixed costs.

Cash Capital Policy .  A cash capital model is maintained that measures long-term funding sources against requirements.  Sources of cash capital include equity and the noncurrent portion of long-term borrowings.  Uses of cash capital include the following:

48

---

•	illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;

•	a portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and

•	drawdowns of unfunded commitments.

To ensure that Jefferies does not need to liquidate inventory in the event of a funding crises, Jefferies seeks to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies maintains.

Maximum Liquidity Outflow.  Jefferies businesses are diverse, and liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment.  During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change.  As a result of Jefferies policy to ensure it has sufficient funds to cover estimates of what may be needed in a liquidity crisis, Jefferies holds more cash and unencumbered securities and has greater long-term debt balances than the businesses would otherwise require.  As part of this estimation process, Jefferies calculates a Maximum Liquidity Outflow that could be experienced in a liquidity crisis.  Maximum Liquidity Outflow is based on a scenario that includes both market-wide stress and firm-specific stress.

Based on the sources and uses of liquidity calculated under the Maximum Liquidity Outflow scenarios Jefferies determines, based on its calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and considers any adjustments that may be necessary to Jefferies inventory balances and cash holdings.  Jefferies has sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow.

Sources of Liquidity

Within Jefferies, the following are financial instruments that are cash and cash equivalents or are deemed by Jefferies management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time, as reflected in our Consolidated Statements of Financial Condition (in thousands):

	December 31, 2016				Average Balance  Fourth Quarter 2016 (1)				December 31, 2015
Cash and cash equivalents:
Cash in banks	$	905,391			$	866,598			$	973,796
Certificate of deposit	25,000				25,000				75,000
Money market investments	2,599,066				1,535,870				2,461,367
Total cash and cash equivalents	3,529,457				2,427,468				3,510,163
Other sources of liquidity:
Debt securities owned and securities purchased under agreements to  resell (2)	1,455,398				1,234,599				1,265,840
Other (3)(4)	318,646				604,424				163,890
Total other sources	1,774,044				1,839,023				1,429,730
Total cash and cash equivalents and other liquidity sources	$	5,303,501			$	4,266,491			$	4,939,893

(1)	Average balances are calculated based on weekly balances.

(2)

Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.

49

---

(3)	Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts.

(4)	Other sources of liquidity has been reduced by $141.2 million from what was previously disclosed, to reflect adjustments for certain securities that have subsequently been identified to have been encumbered.

In addition to the cash balances and liquidity pool presented above, the majority of trading assets and liabilities are actively traded and readily marketable.  Repurchase financing can be readily obtained for approximately 75.4% of Jefferies inventory at haircuts of 10% or less, which reflects the liquidity of the inventory.  In addition, as a matter of Jefferies policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets.  Additionally, certain of Jefferies trading assets primarily consisting of bank loans, consumer loans and investments are predominantly funded by Jefferies long-term capital.  Under Jefferies cash capital policy, capital allocation levels are modeled that are more stringent than the haircuts used in the market for secured funding; and surplus capital is maintained at these more stringent levels. Jefferies continually assesses the liquidity of its inventory based on the level at which Jefferies could obtain financing in the marketplace for a given asset.  Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less.  The following summarizes Jefferies trading assets by asset class that are considered to be of a liquid nature and the amount of such assets that have not been pledged as collateral as reflected in the Consolidated Statements of Financial Condition (in thousands):

	December 31, 2016								December 31, 2015
	Liquid Financial  Instruments				Unencumbered Liquid Financial  Instruments (2)				Liquid Financial  Instruments				Unencumbered Liquid Financial  Instruments (2)
Corporate equity securities	$	1,815,819			$	280,733			$	1,881,419			$	268,664
Corporate debt securities	1,818,150				—				1,999,162				89,230
U.S. Government, agency and municipal securities	3,157,737				600,456				2,987,784				317,518
Other sovereign obligations	2,258,035				854,942				2,444,339				1,026,842
Agency mortgage-backed securities (1)	1,090,391				—				3,371,680				—
Loans and other receivables	274,842				—				—				—
	$	10,414,974			$	1,736,131			$	12,684,384			$	1,702,254

(1)	Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae.  These securities include pass-through securities, securities backed by adjustable rate mortgages (“ARMs”), collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.

(2)	Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.

In addition to being able to be readily financed at modest haircut levels, it is estimated that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated.  There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.

Sources of Funding

Secured Financing

Readily available secured funding is used to finance Jefferies financial instruments inventory.  The ability of Jefferies to support increases in total assets is largely a function of the ability to obtain short and intermediate term secured funding, primarily through securities financing transactions.  Repurchase or reverse repurchase agreements (collectively "repos"), respectively, are used to finance a portion of long inventory and cover a portion of short inventory through pledging and borrowing securities.  Approximately 75.7% of Jefferies cash and non-cash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations.  Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly repo participants contract with the central clearing corporation and not one another individually.  Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants.  The comparatively large proportion of Jefferies total repo

50

---

activity that is eligible for central clearing reflects the high quality and liquid composition of its trading inventory.  For those asset classes not eligible for central clearinghouse financing, bi-lateral financings are sought on an extended term basis and the tenor of Jefferies repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets Jefferies is financing. Weighted average maturity of repurchase agreements for non-clearing corporation eligible funded inventory is approximately 3 months. 

Jefferies ability to finance inventory via central clearinghouses and bi-lateral arrangements is augmented by Jefferies ability to draw bank loans on an uncommitted basis under various banking arrangements.  As of December 31, 2016 , short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities, structured notes and a demand loan margin financing facility, totaled $525.8 million.  Interest under the bank lines is generally at a spread over the federal funds rate.  Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities.  Average daily short-term borrowings for Jefferies for 2016 and 2015 were $399.6 million and $65.3 million, respectively.

Jefferies short-term borrowings include the following facilities:

•

Demand Loan Facility . On February 19, 2016, Jefferies entered into a demand loan margin financing facility (“Demand Loan Facility”) in a maximum principal amount of $25.0 million to satisfy certain of its margin obligations. Interest is based on an annual rate equal to the weighted average LIBOR as defined in the Demand Loan Facility agreement plus 150 basis points. The Demand Loan Facility was terminated during the fourth quarter of 2016.

•

Secured Revolving Loan Facility. On October 29, 2015, Jefferies entered into a secured revolving loan facility (“First Secured Revolving Loan Facility”) whereby the lender agrees to make available a revolving loan facility in a maximum principal amount of $50.0 million in U.S. dollars to purchase eligible receivables that meet certain requirements as defined in the First Secured Revolving Loan Facility agreement. Interest is based on an annual rate equal to the lesser of the LIBOR rate plus three and three-quarters percent or the maximum rate as defined in the First Secured Revolving Loan Facility agreement. On December 14, 2015, Jefferies entered into a second secured revolving loan facility ("Second Revolving Loan Facility", and together with the First Secured Revolving Loan Facility, "Secured Revolving Loan Facilities") whereby the lender agrees to make available a revolving loan facility in a maximum principal amount of $50.0 million in U.S. dollars to purchase eligible receivables that meet certain requirements as defined in the Second Secured Revolving Loan Facility agreement. Interest is based on an annual rate equal to the lesser of the LIBOR rate plus four and one-quarter percent or the maximum rate as defined in the Second Secured Revolving Loan Facility agreement.

•

Intraday Credit Facility. The Bank of New York Mellon agrees to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $250.0 million in U.S. dollars. The Intraday Credit Facility contains a financial covenant, which includes a minimum regulatory net capital requirement. Interest is based on the higher of the Federal funds effective rate plus 0.5% or the prime rate. At December 31, 2016 , Jefferies was in compliance

with all debt covenants under the Intraday Credit Facility.

In addition to the above financing arrangements, Jefferies issues notes backed by eligible collateral under a master repurchase agreement. The outstanding amount of the notes issued under the program was $718.0 million in aggregate, which is presented within Other secured financings in the Consolidated Statement of Financial Condition at December 31, 2016 .  Of the $718.0 million aggregate notes, $60.0 million matured in December 2016, $170.0 million matures in May 2018 (redeemable at the option of the noteholders as of November 30, 2016), $218.3 million matures in February 2017, and $201.6 million matures in May 2017, all bearing interest at a spread over one month LIBOR. The remaining $68.1 million matured in January 2017, and bore interest at a spread over three month LIBOR. 

Long-Term Debt

Jefferies long-term debt reflected in the Consolidated Statement of Financial Condition at December 31, 2016 is $5.5 billion.  Jefferies long-term debt has a weighted average maturity of 7 years.  Jefferies next scheduled maturity is the $800.0 million principal amount of 5.125% Senior Notes that mature in April 2018.

51

---

Jefferies long-term debt ratings are as follows:

	Rating	Outlook
Moody’s Investors Service	Baa3	Stable
Standard and Poor’s	BBB-	Stable
Fitch Ratings	BBB-	Stable

Jefferies access to external financings to finance its day to day operations, as well as the cost of that financing, is dependent upon various factors, including its debt ratings.  Jefferies current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share and competitive position in the markets in which it operates.  Deteriorations in any of these factors could impact Jefferies credit ratings.  While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on its business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by Jefferies.

In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, Jefferies may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade.  The amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of Jefferies long-term credit rating below investment grade was $51.4 million.  For certain foreign clearing organizations credit rating is only one of several factors employed in determining collateral that could be called.  The above represents management’s best estimate for additional collateral to be called in the event of credit rating downgrade.  The impact of additional collateral requirements is considered in Jefferies Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above.

Ratings issued by credit rating agencies are subject to change at any time.

Net Capital

Jefferies operates broker-dealers registered with the SEC and member firms of FINRA.  Jefferies LLC and Jefferies Execution are subject to the Securities and Exchange Commission Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and have elected to calculate minimum capital requirements under the alternative method as permitted by Rule 15c3-1 in calculating net capital. Jefferies, as a dually registered U.S. broker-dealer and FCM, is subject to Rule 1.17 of the CFTC which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

Jefferies LLC and Jefferies Execution’s net capital and excess net capital were as follows (in thousands):

	Net Capital				Excess Net Capital
Jefferies LLC	$	1,467,729			$	1,398,748
Jefferies Execution	8,260				8,010

FINRA is the designated self-regulatory organization ("DSRO") for Jefferies U.S. broker-dealers and the NFA is the DSRO for Jefferies as an FCM.

Certain other U.S. and non-U.S. subsidiaries of Jefferies are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the U.K.  The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was signed into law on July 21, 2010.  The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants.  While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized.  Jefferies expects that these provisions will result in modifications to the regulatory

52

---

capital requirements of some of its entities, and will result in some of its other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014.

The regulatory capital requirements referred to above may restrict Jefferies ability to withdraw capital from its regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.

Off-Balance Sheet Arrangements

As shown below, at December 31, 2016 , our commitments and guarantees, substantially all of which related to Jefferies, totaled $29,130.0 million.

						Expected Maturity Date (in millions)
Commitments and Guarantees		Total				2017				2018				2019 and 2020				2021 and 2022				After 2022
Equity commitments		$	470.8			$	192.4			$	22.1			$	13.0			$	—			$	243.3
Loan commitments		447.8				315.3				16.9				71.6				44.0				—
Underwriting commitments		349.4				349.4				—				—				—				—
Forward starting reverse repos		4,668.7				4,668.7				—				—				—				—
Forward starting repos		2,539.2				2,539.2				—				—				—				—
Other unfunded commitments		88.8				—				37.0				4.8				33.8				13.2
Derivative contracts (1):
Non-credit related		20,080.8				18,838.6				820.4				—				—				421.8
Credit related		437.6				—				52.2				24.6				360.8				—
Standby letters of credit		46.9				45.8				—				—				—				1.1
Total Commitments and Guarantees		$	29,130.0			$	26,949.4			$	948.6			$	114.0			$	438.6			$	679.4

(1) Certain of Jefferies derivative contracts meet the definition of a guarantee and are therefore included in the above table. For additional information on commitments, see Note 25 in our consolidated financial statements.

We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $2.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia.  As of December 31, 2016 , the aggregate amount of commercial paper outstanding was $1.47 billion.  This commitment is not included in the table above as the timing of payments, if any, is uncertain.

In the normal course of business Jefferies and certain other subsidiaries engage in other off-balance sheet arrangements, including derivative contracts.  Neither derivatives’ notional amounts nor underlying instrument values are reflected as assets or liabilities in the Consolidated Statements of Financial Condition.  Rather, the fair value of derivative contracts are reported in the Consolidated Statements of Financial Condition as Trading assets – Derivative contracts or Trading Liabilities – Derivative contracts as applicable.  Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement.  For additional information about our accounting policies and our derivative activities see Notes 2, 4 and 5 in our consolidated financial statements.

We are routinely involved with variable interest entities (“VIEs”) in the normal course of business. At December 31, 2016 , we did not have any commitments to purchase assets from our VIEs.  For additional information regarding VIEs, see Notes 7 and 9 in our consolidated financial statements.

53

---

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires us to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes.  Actual results could significantly differ from those estimates.  We believe that the following discussion addresses our most critical accounting policies, which are those that are important to the presentation of our financial condition and results of operations and require our most difficult, subjective and complex judgments.  

Income Taxes – We record a valuation allowance to reduce our net deferred tax asset to the net amount that is more likely than not to be realized.  If in the future we determine that it is more likely than not that we will be able to realize our net deferred tax asset in excess of our net recorded amount, an adjustment to increase the net deferred tax asset would increase income in such period.  If in the future we were to determine that we would not be able to realize all or part of its recorded net deferred tax asset, an adjustment to decrease the net deferred tax asset would be charged to income in such period.  We are required to consider all available evidence, both positive and negative, and to weigh the evidence when determining whether a valuation allowance is required and the amount of such valuation allowance.  Generally, greater weight is required to be placed on objectively verifiable evidence when making this assessment, in particular on recent historical operating results.

Our estimate of future taxable income considers all available evidence, both positive and negative, about our operating businesses and investments, includes an aggregation of individual projections for each significant operating business and investment, estimated apportionment factors for state and local taxing jurisdictions and includes all future years that we estimate we will have available NOLs. As discussed further in Note 21, Federal NOLs begin to expire in 2022, with a substantial amount expiring between 2022 and 2025.  We believe that our estimate of future taxable income is reasonable but inherently uncertain, and if our current or future operations and investments generate taxable income different than the projected amounts, further adjustments to the valuation allowance are possible.  The current balance of the deferred tax valuation allowance principally reserves for NOLs of certain subsidiaries that are not available to offset income generated by other members of the consolidated tax return group.

We also record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions.  Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and if so estimating the amount.  If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which could be significant to our Consolidated Statement of Financial Condition or results of operations.

Fair Value of Financial Instruments – Trading assets and trading liabilities are recorded at fair value, either as required by accounting pronouncements or through the fair value option election.  Trading assets and trading liabilities include Jefferies trading activities and financial instruments of other consolidated entities that are accounted for through the fair value option election.  Gains and losses on trading assets and trading liabilities are recognized in our Consolidated Statements of Operations.  Available for sale securities are reflected at fair value, with unrealized gains and losses reflected as a separate component of equity, net of taxes.  When sold, realized gains and losses on available for sale securities are reflected in the caption Net realized securities gains.  Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).

In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.  Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:

Level 1:         Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2:        Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments fair values for which have been derived using model inputs that are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed.

54

---

Level 3:            Instruments that have little to no pricing observability as of the reported date.  These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability.  The availability of observable inputs can vary for different products.  We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity.  The valuation of financial instruments classified in Level 3 of the fair value hierarchy involves the greatest amount of management judgment.

Jefferies Independent Price Verification Group, independent of its trading function, plays an important role in determining that financial instruments are appropriately valued and that fair value measurements are reliable.  This is particularly important where prices or valuations that require inputs are less observable.  In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable.  Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model’s theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks.  In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.

We also engage independent valuation firms to assist management in estimating the fair value of certain of our investments including the fair value of our loan to FXCM. Our estimate of fair value was determined using valuation models with inputs including management's assumptions concerning the amount and timing of expected cash flows, the loan's implied credit rating and effective yield. We also engaged an independent valuation firm to assist management in estimating the fair value of our equity interest in FXCM on September 1, 2016. Our estimate of fair value was determined using valuation models with inputs including management's assumptions concerning the implied total equity value, based primarily on the publicly traded FXCM Inc. stock price; volatility; risk-free rate; and term.

For further information on the fair value definition, Level 1, Level 2, Level 3 and related valuation techniques, see Notes 2 and 4 in our consolidated financial statements.

Impairment of Long-Lived Assets – We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable.  When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group).  The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value.  If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value.

We recorded impairment charges of $71.1 million in 2016, $27.7 million in 2015 and $3.2 million in 2014.  $56.3 million of the 2016 charge related to write-downs of Juneau's unproved oil and gas properties and $7.5 million related to the write-down of Juneau assets held for sale to fair value. In the third quarter of 2016, Juneau curtailed development of its southern acreage in the East Eagle Ford and its Houston County acreage. As a result, an impairment was recorded for the difference between the carrying value and the estimated net realizable value of the acreage. $20.3 million of the 2015 charge related to Juneau's oil and gas properties which were impacted by the decline in oil prices.

Impairment of Equity Method Investments – We evaluate equity method investments for impairment when operating losses or other factors may indicate a decrease in value which is other than temporary.  We consider a variety of factors including economic conditions nationally and in their geographic areas of operation, adverse changes in the industry in which they operate, declines in business prospects, deterioration in earnings, increasing costs of operations and other relevant factors specific to the investee.  Whenever we believe conditions or events indicate that one of these investments might be significantly impaired, we obtain from such investee updated cash flow projections and impairment analyses of the investee assets.  We use this information and, together with discussions with the investee’s management, evaluate if the book value of its investment exceeds its fair value, and if so and the situation is deemed other than temporary, record an impairment charge.

Goodwill – We allocate the acquisition cost of consolidated businesses to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values.  Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant.  Any excess acquisition cost over the fair values

55

---

of the net assets acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies acquisition.

At least annually, and more frequently if warranted, we assess whether goodwill has been impaired at the reporting unit level.  In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not necessary. If we conclude otherwise, we are required to perform the two-step quantitative impairment test. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit's goodwill to the carrying value.

The fair values are based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions.  The methodologies we utilize in estimating fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of mergers and acquisitions of similar businesses and/or projected cash flows.  In addition, as the fair values determined under a market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge.  Adverse market or economic events could result in impairment charges in future periods.

An independent valuation specialist was engaged to assist with the valuation process relating to Jefferies for our annual goodwill impairment test as of August 1, 2016.  The results of this test indicated the fair value of Jefferies was in excess of the carrying value. However, the valuation methodology is sensitive to comparable company multiples and management's forecasts of future profitability, which comes with a level of uncertainty regarding U.S. and global economic conditions, trading volumes and equity and debt capital market transaction levels. The fair value of our reporting units, including Jefferies, is also impacted by our overall market capitalization. If the future were to differ adversely from these assumptions or there was a sustained decline in our market capitalization, the estimated fair value of Jefferies may decline and result in an impairment. 

During the fourth quarter of 2014, Jefferies decided to pursue strategic alternatives for its Futures business and decided to liquidate its International Asset Management business.  In connection with these two events, Jefferies recognized goodwill impairment losses of $54.0 million.  As U.S. GAAP requires that our assessment be performed at our reporting unit level, and the estimated fair value of Jefferies exceeded its carrying value, we did not recognize any impairment losses related to Jefferies.  The $54.0 million impairment loss recorded by Jefferies is a difference between its stand-alone financial statements and the Jefferies results included in our consolidated financial statements.

Intangible Assets – Intangible assets deemed to have finite lives are generally amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows.  Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist.  If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded.

An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances exist indicating an assessment for impairment is necessary.  Impairment exists when the carrying amount exceeds its fair value.  Fair value is determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies acquisition, which consists of exchange and clearing organization membership interests and registrations. Our annual impairment testing date is as of August 1, 2016.

Compensation and Benefits – A portion of Jefferies compensation and benefits represents discretionary bonuses, which are finalized at year end.  In addition to the level of net revenues, Jefferies overall compensation expense in any given year is influenced by prevailing labor markets, revenue mix, profitability, individual and business performance metrics, and use of share-based compensation programs.  We believe the most appropriate way to allocate Jefferies estimated annual total compensation among interim periods is in proportion to projected net revenues earned.  Consequently, during the year we accrue Jefferies compensation and benefits based on annual targeted compensation ratios, taking into account the mix of its revenues and the timing of expense recognition.

56

---

Contingencies   – In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings.  We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.

We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated.  If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual.  The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available.  Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control.  We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period.  For further information, see Note 25 in our consolidated financial statements.

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk .

The following includes “forward-looking statements” that involve risk and uncertainties.  Actual results could differ materially from those projected in the forward-looking statements.  The discussion of risk is presented separately for Jefferies and the balance of our company.  Exclusive of Jefferies, our market risk arises principally from interest rate risk related to our financial instruments owned and equity price risk.

As more fully discussed in Note 4 to our consolidated financial statements, we own approximately 46.6 million common shares of HRG, representing approximately 23% of HRG’s outstanding common shares, which are accounted for under the fair value option and included within Trading Assets at fair value of $725.1 million at December 31, 2016 . Assuming a decline of 10% in market prices, the value of our investment in HRG could decrease by approximately $72.5 million.

The potential for changes in the value of financial instruments is referred to as market risk.  Jefferies market risk generally represents the risk of loss that may result from a change in the value of a financial instrument as a result of fluctuations in interest rates, credit spreads, equity prices, commodity prices and foreign exchange rates, along with the level of volatility.  Interest rate risks result primarily from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads.  Equity price risks result from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices.  Commodity price risks result from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices.  Market risk arises from market making, proprietary trading, underwriting, specialist and investing activities.  Jefferies seeks to manage its exposure to market risk by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives.  Due to imperfections in correlations, gains and losses can occur even for positions that are hedged.  Position limits in trading and inventory accounts are established and monitored on an ongoing basis.  Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and results of the trading groups.

Value-at-Risk

Within Jefferies, Value-at-Risk (VaR) is used as a measurement of market risk using a model that simulates revenue and loss distributions on substantially all financial instruments by applying historical market changes to the current portfolio.  Using the results of this simulation, VaR measures the potential loss in value of our financial instruments over a specified time horizon at a given confidence level.  Jefferies calculates a one-day VaR using a one year look-back period measured at a 95% confidence level.

As with all measures of VaR, the estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future.  Furthermore, the VaR model measures the risk of a current static position over a one-day horizon and might not capture the market risk of positions that cannot be liquidated or offset with hedges in a one-day period.  Published VaR results reflect past trading positions while future risk depends on future positions.

While Jefferies believes the assumptions and inputs in its risk model are reasonable, Jefferies could incur losses greater than the reported VaR because the historical market prices and rates changes may not be an accurate measure of future market events and conditions.  Consequently, this VaR estimate is only one of a number of tools Jefferies uses in its daily risk management activities. During the first quarter of 2016, Jefferies experienced sizable losses given the exceptionally volatile and turbulent market, which were more dramatic than the estimates included in its VaR which are based on historical observations. When comparing the VaR

57

---

numbers to those of other firms, it is important to remember that different methodologies and assumptions could produce significantly different results.

The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for Jefferies overall trading positions using the past 365 days of historical data.  The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories.  Diversification effect equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated.  Since we consolidate Jefferies on a one month lag, all amounts reported are for Jefferies annual fiscal periods.

						Daily VaR (1) Value-at-Risk In Trading Portfolios																Daily VaR (1) Value-at-Risk In Trading Portfolios
(In millions) Risk Categories		VaR at November 30, 2016				Daily VaR for the Year Ended  November 30, 2016												VaR at November 30, 2015				Daily VaR for the Year Ended  November 30, 2015
						Average				High				Low								Average				High				Low
Interest Rates		$	5.82			$	4.96			$	6.99			$	3.43			$	5.01			$	5.84			$	8.06			$	4.19
Equity Prices		6.71				5.42				9.55				2.60				6.69				9.79				13.61				5.39
Currency Rates		0.19				0.41				3.01				0.07				0.30				0.46				3.32				0.12
Commodity Prices		0.51				0.84				2.44				0.31				0.82				0.57				1.62				0.04
Diversification Effect (2)		(4.79		)		(3.72		)		N/A				N/A				(5.09		)		(4.27		)		N/A				N/A
Firmwide		$	8.44			$	7.91			$	11.40			$	4.30			$	7.73			$	12.39			$	17.75			$	6.35

(1)	For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.

(2)	The diversification effect is not applicable for the maximum and minimum VaR values as the Jefferies VaR and VaR values for the four risk categories might have occurred on different days during the period.

Average daily VaR decreased to $7.91 million for the year ended November 30, 2016 from $12.39 million for the year ended November 30, 2015, a 36.2% decrease. The decrease was primarily driven by lower block trading activity and firmwide defensive positioning resulting in lower equity risk and fixed income exposures, partially offset by a lower diversification benefit. In addition, VaR increased from $7.73 million at November 30, 2015 to $8.44 million at November 30, 2016. Excluding the investment in KCG, average VaR decreased to $5.77 million for the year ended November 30, 2016 from $9.97 million in the year ended November 30, 2015.

The primary method used to test the efficacy of the VaR model is to compare actual daily net revenue for those positions included in the VaR calculation with the daily VaR estimate.  This evaluation is performed at various levels of the trading portfolio, from the holding company level down to specific business lines.  For the VaR model, trading related revenue is defined as principal transaction revenue, trading related commissions, revenue from securitization activities and net interest income.  For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days).  During the year ended November 30, 2016, results of the evaluation at the aggregate level demonstrated 3 days when the net trading loss exceeded the 95% one day VaR.

58

---

Certain individual positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk.  Accordingly, Jefferies Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels.  Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels.  The table below presents the potential reduction in net income associated with a 10% stress of or the sensitivity to a 10% stress of the fair value of the positions that are not included in the VaR model at November 30, 2016 (in thousands):

	10% Sensitivity
Private investments	$	20,980
Corporate debt securities in default	5,040
Trade claims	491

Excluding trading losses associated with the daily marking to market of the investment in KCG, there were 21 days with trading losses out of a total of 253 trading days in the year ended November 30, 2016. Including these losses, there were 38 days with trading losses.

Scenario Analysis and Stress Tests

While VaR measures potential losses due to adverse changes in historical market prices and rates, Jefferies uses stress testing to analyze the potential impact of specific events or moderate or extreme market moves on its current portfolio both firm wide and within business segments.  Stress scenarios comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors.  Indicative market changes in Jefferies scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates, changes in the shape of the yield curve and large moves in European markets.  In addition, Jefferies also performs ad hoc stress tests and adds new scenarios as market conditions dictate.  Because Jefferies stress scenarios are meant to reflect market moves that occur over a period of time, its estimates of potential loss assume some level of position reduction for liquid positions.  Unlike Jefferies VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability; rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation.

Stress testing is performed and reported regularly as part of the risk management process.  Stress testing is used to assess Jefferies aggregate risk position as well as for limit setting and risk/reward analysis.

Counterparty Credit Risk and Issuer Country Exposure

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a counterparty’s credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract.   Jefferies is exposed to credit risk as trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations.

It is critical to Jefferies financial soundness and profitability that Jefferies properly and effectively identify, assess, monitor and manage the various credit and counterparty risks inherent in its businesses.  Credit is extended to counterparties in a controlled manner in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction.  All extensions of credit are monitored and managed on a Jefferies enterprise level in order to limit exposure to loss related to credit risk.

Jefferies employs a Credit Risk Framework, which is responsible for identifying credit risks throughout its operating businesses, establishing counterparty limits and managing and monitoring those credit limits.   Jefferies framework includes:

•	defining credit limit guidelines and credit limit approval processes;

•	providing a consistent and integrated credit risk framework across the enterprise;

•	approving counterparties and counterparty limits with parameters set by its Risk Management Committee;

•	negotiating, approving and monitoring credit terms in legal and master documentation;

•	delivering credit limits to all relevant sales and trading desks;

•	maintaining credit reviews for all active and new counterparties;

59

---

•	operating a control function for exposure analytics and exception management and reporting;

•	determining the analytical standards and risk parameters for on-going management and monitoring of global credit risk books;

•	actively managing daily exposure, exceptions, and breaches;

•	monitoring daily margin call activity and counterparty performance (in concert with the Margin Department); and

•	setting the minimum global requirements for systems, reports, and technology.

Jefferies Credit Exposures

Credit exposure exists across a wide-range of products including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts.

•

Loans and lending arise in connection with Jefferies capital markets activities and represents the current exposure, amount at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments outstanding.  In addition, credit exposures on forward settling traded loans are included within Jefferies loans and lending exposures for consistency with the Statement of Financial Condition categorization of these items.

•	Securities and margin finance includes credit exposure arising on securities financing transactions (reverse repurchase agreements, repurchase agreements and securities lending agreements) to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.

•

Derivatives represent over-the-counter ("OTC") derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement.  Derivatives are accounted for at fair value net of cash collateral received or posted under credit support agreements.  In addition, credit exposures on forward settling trades are included within Jefferies derivative credit exposures.

•	Cash and cash equivalents include both interest-bearing and non-interest bearing deposits at banks.

Current counterparty credit exposures are summarized in the table below and provided by credit quality, region and industry. Credit exposures presented take netting and collateral into consideration by counterparty and master agreement.  Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements.  Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery.  Current exposure equals the fair value of the positions less collateral.  Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans).  Issuer risk is included in Jefferies country risk exposure tables below. The amounts in the tables below are for amounts included in our Consolidated Statements of Financial Condition at December 31, 2016 and 2015 (in millions).

Counterparty Credit Exposure by Credit Rating
	Loans and Lending								Securities and Margin Finance								OTC Derivatives								Total								Cash and Cash Equivalents								Total with Cash and Cash Equivalents
	At								At								At								At								At								At
	December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
					(1)																								(1)																(1)
AAA Range	$	—			$	—			$	—			$	11.8			$	—			$	—			$	—			$	11.8			$	2,601.8			$	2,461.4			$	2,601.8			$	2,473.2
AA Range	44.0				—				87.3				152.3				2.1				4.4				133.4				156.7				37.0				175.0				170.4				331.7
A Range	4.2				1.0				539.2				556.4				214.7				96.0				758.1				653.4				814.1				846.3				1,572.2				1,499.7
BBB Range	4.9				86.6				117.3				107.9				9.4				31.7				131.6				226.2				51.2				25.8				182.8				252.0
BB or Lower	100.1				181.6				6.2				14.8				23.8				30.1				130.1				226.5				25.1				—				155.2				226.5
Unrated	93.5				56.3				—				—				—				0.1				93.5				56.4				0.3				1.7				93.8				58.1
Total	$	246.7			$	325.5			$	750.0			$	843.2			$	250.0			$	162.3			$	1,246.7			$	1,331.0			$	3,529.5			$	3,510.2			$	4,776.2			$	4,841.2

60

---

Counterparty Credit Exposure by Region
	Loans and Lending								Securities and Margin Finance								OTC Derivatives								Total								Cash and Cash Equivalents								Total with Cash and Cash Equivalents
	At								At								At								At								At								At
	December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
					(1)																								(1)																(1)
Asia/Latin America/ Other	$	4.9			$	10.1			$	16.3			$	15.3			$	32.7			$	40.6			$	53.9			$	66.0			$	165.8			$	159.6			$	219.7			$	225.6
Europe	—				0.4				234.4				212.2				20.9				43.4				255.3				256.0				248.0				341.8				503.3				597.8
North America	241.8				315.0				499.3				615.7				196.4				78.3				937.5				1,009.0				3,115.7				3,008.8				4,053.2				4,017.8
Total	$	246.7			$	325.5			$	750.0			$	843.2			$	250.0			$	162.3			$	1,246.7			$	1,331.0			$	3,529.5			$	3,510.2			$	4,776.2			$	4,841.2

Counterparty Credit Exposure by Industry
	Loans and Lending								Securities and Margin Finance								OTC Derivatives								Total								Cash and Cash Equivalents								Total with Cash and Cash Equivalents
	At								At								At								At								At								At
	December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015				December 31, 2016				December 31, 2015
					(1)																								(1)																(1)
Asset Managers	$	—			$	—			$	39.7			$	69.8			$	10.9			$	—			$	50.6			$	69.8			$	2,599.5			$	2,461.3			$	2,650.1			$	2,531.1
Banks, Broker-dealers	0.2				0.9				435.9				464.9				170.4				95.2				606.5				561.0				930.0				1,048.9				1,536.5				1,609.9
Commodities	—				—				—				—				3.3				16.7				3.3				16.7				—				—				3.3				16.7
Corporates/Loans	204.4				193.9				—				—				18.4				11.3				222.8				205.2				—				—				222.8				205.2
Other	42.1				130.7				274.4				308.5				47.0				39.1				363.5				478.3				—				—				363.5				478.3
Total	$	246.7			$	325.5			$	750.0			$	843.2			$	250.0			$	162.3			$	1,246.7			$	1,331.0			$	3,529.5			$	3,510.2			$	4,776.2			$	4,841.2

(1) Loans and lending amounts have been recast to conform to the current period's presentation. Loans and lending amounts include the current exposure, the amount at risk on a default event with no recovery of loans. Previously, loans and lending amounts represented the notional value.

For additional information regarding credit exposure to OTC derivative contracts, see Note 5 in the consolidated financial statements.

61

---

Jefferies Country Risk Exposure

Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic, political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations.  Jefferies defines country risk as the country of jurisdiction or domicile of the obligor.  The following tables reflect Jefferies top exposures to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which there is net long issuer and counterparty exposure, as reflected in our Consolidated Statements of Financial Condition at December 31, 2016 and 2015 (in millions):

	December 31, 2016
	Issuer Risk												Counterparty Risk																Issuer and Counterparty Risk
	Fair Value of Long Debt  Securities				Fair Value of Short Debt  Securities				Net Derivative Notional  Exposure				Loans and  Lending				Securities and Margin  Finance				OTC  Derivatives				Cash and Cash Equivalents				Excluding Cash and Cash Equivalents				Including Cash and Cash Equivalents
Germany	$	318.9			$	(166.4	)		$	815.3			$	—			$	86.9			$	0.3			$	111.9			$	1,055.0			$	1,166.9
Italy	1,069.8				(844.2		)		69.8				—				—				0.2				—				295.6				295.6
France	356.2				(538.4		)		419.5				—				24.8				3.4				—				265.5				265.5
United Kingdom	290.1				(136.4		)		(12.7		)		—				61.0				13.4				37.7				215.4				253.1
Spain	210.4				(151.7		)		—				—				—				0.3				50.2				59.0				109.2
Hong Kong	34.0				(30.2		)		1.3				—				0.5				—				79.1				5.6				84.7
Switzerland	80.7				(33.6		)		12.1				—				11.4				2.2				4.1				72.8				76.9
Ireland	124.4				(61.2		)		4.4				—				0.6				—				—				68.2				68.2
Singapore	36.2				(9.6		)		3.9				—				—				—				16.1				30.5				46.6
Qatar	15.2				(0.7		)		—				—				—				27.1				—				41.6				41.6
Total	$	2,535.9			$	(1,972.4	)		$	1,313.6			$	—			$	185.2			$	46.9			$	299.1			$	2,109.2			$	2,408.3

	December 31, 2015
	Issuer Risk												Counterparty Risk																Issuer and Counterparty Risk
	Fair Value of Long Debt  Securities				Fair Value of Short Debt  Securities				Net Derivative Notional  Exposure				Loans and  Lending				Securities and Margin  Finance				OTC  Derivatives				Cash and Cash Equivalents				Excluding Cash and Cash Equivalents				Including Cash and Cash Equivalents
Belgium	$	413.8			$	(48.8	)		$	6.2			$	—			$	—			$	—			$	157.8			$	371.2			$	529.0
United Kingdom	711.6				(359.3		)		52.4				0.4				31.6				25.4				26.3				462.1				488.4
Netherlands	543.5				(139.6		)		(23.4		)		—				36.2				2.0				—				418.7				418.7
Italy	1,112.2				(662.4		)		(105.6		)		—				—				0.2				—				344.4				344.4
Ireland	164.3				(27.4		)		3.3				—				3.5				—				—				143.7				143.7
Spain	394.0				(291.9		)		(1.6		)		—				—				0.2				26.6				100.7				127.3
Australia	86.6				(24.9		)		9.6				37.4				—				0.3				0.8				109.0				109.8
Hong Kong	38.1				(22.3		)		(2.9		)		—				0.4				—				74.8				13.3				88.1
Switzerland	79.5				(28.9		)		(6.6		)		—				34.5				5.2				3.7				83.7				87.4
Portugal	111.9				(38.2		)		—				—				—				—				—				73.7				73.7
Total	$	3,655.5			$	(1,643.7	)		$	(68.6	)		$	37.8			$	106.2			$	33.3			$	290.0			$	2,120.5			$	2,410.5

In addition, Jefferies' issuer and counterparty risk exposure to Puerto Rico was $31.0 million, as reflected in our Consolidated Statement of Financial Condition at December 31, 2016 , which is in connection with its municipal securities market making activities. The government of Puerto Rico is seeking to restructure much of its $70.0 billion in debt on a voluntary basis. At December 31, 2016 , Jefferies had no material exposure to countries where either sovereign or non-sovereign sectors potentially pose potential default risk as the result of liquidity concerns.

Other than our trading portfolio, our financial instrument portfolio is primarily classified as available for sale, and consequently, is recorded at fair value with unrealized gains and losses reflected in equity.  Included in our available for sale portfolio are fixed income securities, which comprised approximately 74% of the total available for sale portfolio at December 31, 2016 .  These fixed

62

---

income securities are primarily rated “investment grade” or are U.S. governmental agency issued or U.S. Government-Sponsored Enterprises.  The estimated weighted average remaining life of these fixed income securities was approximately 0.9 years at December 31, 2016 .  Our fixed income securities, like all fixed income instruments, are subject to interest rate risk and will fall in value if market interest rates increase.  At December 31, 2015 , fixed income securities comprised approximately 64% of the total portfolio and had an estimated weighted average remaining life of approximately 2.1 years.

Also included in the available for sale portfolio are equity securities, which are recorded at an aggregate fair value of $79.4 million (aggregate cost of $53.0 million) and which comprised approximately 26% of our total available for sale portfolio at December 31, 2016 .  We evaluate our portfolio for impairment on a quarterly basis.

The following table provides information about our financial instruments used for purposes other than trading that are primarily sensitive to changes in interest rates.

For additional information see Note 8 to our consolidated financial statements.

	Expected Maturity Date
	2017				2018				2019				2020				2021				Thereafter				Total				Fair Value
	(Dollars in thousands)
Rate Sensitive Assets:
Available for Sale Fixed   Income Securities:
U.S. Government	$	174,933			$	—			$	—			$	—			$	—			$	—			$	174,933			$	174,933
Weighted-Average       Interest Rate	0.21		%
Residential mortgage-backed:       Rated Investment Grade	$	3,122			$	1,714			$	3,240			$	933			$	708			$	1,901			$	11,618			$	11,618
Weighted-Average         Interest Rate	2.70		%		2.74		%		3.55		%		2.58		%		2.56		%		2.75		%
Rated Less Than Investment        Grade/Not Rated	$	2,833			$	1,415			$	2,130			$	221			$	170			$	746			$	7,515			$	7,515
Weighted-Average         Interest Rate	2.12		%		2.88		%		3.81		%		3.99		%		3.94		%		3.97		%
Commercial mortgage-backed:
Rated Investment Grade	$	—			$	3,464			$	995			$	3,878			$	—			$	—			$	8,337			$	8,337
Weighted-Average        Interest Rate					2.80		%		3.80		%		4.10		%
Other asset-backed:
Rated Investment Grade	$	6,403			$	12,639			$	—			$	—			$	—			$	—			$	19,042			$	19,042
Weighted-Average        Interest Rate	2.80		%		3.08		%
All other corporates:
Rated Less Than Investment        Grade/Not Rated	$	—			$	—			$	179			$	—			$	—			$	—			$	179			$	179
Weighted-Average         Interest Rate									6.75		%

63

---

We are also subject to interest rate risk on our long-term fixed interest rate debt.  Generally, the fair market value of debt securities with a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise.  The following table represents principal cash flows by expected maturity dates for our consolidated long-term debt obligations.  For the variable rate borrowings, the weighted average interest rates are based on implied forward rates in the yield curve at the reporting date.  Our market risk with respect to foreign currency exposure on our long-term debt is also shown below.  For additional information, see Note 16 to our consolidated financial statements.

	Expected Maturity Date
	2017				2018				2019				2020				2021				Thereafter				Total				Fair Value
	(Dollars in thousands)
Rate Sensitive Liabilities:
Fixed Interest Rate Borrowings	$	345,000			$	863,910			$	945,253			$	104,500			$	750,000			$	3,071,358			$	6,080,021			$	6,366,749
Weighted-Average Interest Rate	3.88		%		5.19		%		7.62		%		5.49		%		6.88		%		5.77		%
Variable Interest Rate Borrowings	$	100,454			$	316,558			$	2,511			$	34,555			$	2,655			$	45,648			$	502,381			$	502,090
Weighted-Average Interest Rate	3.54		%		4.08		%		3.98		%		3.26		%		3.97		%		4.01		%
Borrowings with Foreign Currency Exposure	$	—			$	6,360			$	10,600			$	529,975			$	—			$	41,339			$	588,274			$	601,475
Weighted-Average Interest Rate					0.74		%		2.15		%		2.38		%						3.82		%

Item 8 .	Financial Statements and Supplementary Data .

Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below.

Item 9 .	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .

None.

Item 9A .	Controls and Procedures .

Evaluation of disclosure controls and procedures

The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2016 .  Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2016 .

Changes in internal control over financial reporting

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended December 31, 2016 , that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

64

---

Management’s Report on Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•	Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company;

•	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 .  In making this assessment, the Company’s management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013.

Based on our assessment and those criteria, management concluded that, as of December 31, 2016 , the Company’s internal control over financial reporting was effective.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein in Item 8.

Item 9B .	Other Information .

On February 23, 2017, our Board of Directors approved an amendment to our By-Laws to adopt shareholder proxy access. Under our Amended and Restated By-Laws, shareholders (or a group of up to 20 shareholders) holding 3% of our outstanding shares for three years may submit Board nominees for inclusion in our annual proxy statement. Subject to our By-Laws, shareholders may include two nominees (or up to 20% of the size of our Board, if greater).

65

---