Jefferies Group LLC today announced financial results for its
fiscal first quarter 2015.
Highlights for the three months ended February 28, 2015, with
adjusted amounts excluding the operating results of our Bache
business:
- Total Net revenues of $592 million
- Total Adjusted Net Revenues (excluding
Bache) of $536 million1
- Net earnings of $13 million
- Adjusted Net earnings (excluding Bache)
of $20 million1
Richard B. Handler, Chairman and Chief Executive Officer, and
Brian P. Friedman, Chairman of the Executive Committee, commented:
“We experienced a slow first quarter due to a tepid fixed income
trading market and fewer new issues in leveraged finance capital
markets. Despite these results, and in view of an improving
environment, we believe Jefferies’ prospects for the remainder of
2015 are good. Our Investment Banking backlog is currently solid,
and fixed income trading markets appear to have stabilized.”
The attached financial tables should be read in connection with
our Annual Report on Form 10-K for the year ended November 30,
2014.
Jefferies, the global investment banking firm focused on serving
clients for over 50 years, is a leader in providing insight,
expertise and execution to investors, companies and governments.
The firm provides a full range of investment banking, sales,
trading, research and strategy across the spectrum of equities,
fixed income, foreign exchange, futures and commodities, as well as
wealth management, in the Americas, Europe and Asia. Jefferies
Group LLC is a wholly-owned subsidiary of Leucadia National
Corporation (NYSE:LUK), a diversified holding company.
1 Adjusted financial measures are non-GAAP financial measures.
Management believes such measures provide meaningful information to
investors as they enable investors to evaluate the Company's
results in the context of our pursuing various strategic
alternatives for the Bache business. Refer to the Supplemental
Schedules on pages 3-4 for a reconciliation of Adjusted measures to
the respective direct U.S. GAAP financial measures.
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Amounts in Thousands)
(Unaudited)
Quarter Ended Quarter Ended Quarter Ended
February 28, 2015 November 30, 2014 February 28,
2014 Revenues: Commissions $ 166,922 $ 180,275 $ 162,063
Principal transactions 105,477 (33,841) 238,363 Investment banking
271,995 316,012 414,320
Asset management fees and investment
income (loss) from managed funds
(9,837) 1,728 9,957 Interest income 228,870 237,911 249,268 Other
revenues 19,905 20,919 23,069 Total revenues
783,332 723,004 1,097,040 Interest expense 191,660
198,195 198,012 Net revenues 591,672 524,809
899,028 Non-interest expenses: Compensation and
benefits 365,215 308,487 507,899 Non-compensation expenses:
Floor brokerage and clearing fees 55,080 55,829 49,513 Technology
and communications 72,387 66,363 64,306 Occupancy and equipment
rental 24,184 26,115 26,502 Business development 21,937 27,791
26,476 Professional services 24,256 28,206 24,819 Bad debt
provision (1,018) 50,772 2,614 Goodwill impairment - 54,000 - Other
16,747 21,266 14,630 Total non-compensation
expenses 213,573 330,342 208,860 Total
non-interest expenses 578,788 638,829 716,759
Earnings (loss) before income taxes 12,884 (114,020) 182,269 Income
tax expense (benefit) 331 (13,901) 66,877 Net
earnings (loss) 12,553 (100,119) 115,392 Net earnings (loss)
attributable to noncontrolling interests 871 (360)
2,960 Net earnings (loss) attributable to Jefferies Group
LLC $ 11,682 $ (99,759) $ 112,432 Pretax operating margin
2.2% -21.7% 20.3% Effective tax rate 2.6% 12.2% 36.7%
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
ADJUSTED SELECTED FINANCIAL DATA (Amounts in Thousands)
(Unaudited)
Quarter Ended February 28, 2015 GAAP
Adjustments Adjusted Net revenues $
591,672 $ 55,906 (1) $ 535,766 Non-interest expenses:
Compensation and benefits 365,215 27,067 (2) 338,148
Non-compensation expenses 213,573 41,785 (3)
171,788 Total non-interest expenses 578,788 68,852
509,936 Operating income (loss) $ 12,884 $ (12,946) $
25,830 Net earnings (loss) $ 12,553 $ (7,724) $ 20,277
Compensation ratio (a) 61.7% 63.1%
Quarter
Ended November 30, 2014 GAAP Adjustments
Adjusted Net revenues $ 524,809 $ 43,627 (1) $
481,182 Non-interest expenses: Compensation and benefits
308,487 27,163 (2) 281,324 Non-compensation expenses 330,342
148,287 (4) 182,055 Total non-interest expenses
638,829 175,450 463,379 Operating
income (loss) $ (114,020) $ (131,823) $ 17,803 Net earnings
(loss) $ (100,119) $ (111,899) $ 11,780 Compensation ratio
(a) 58.8% 58.5%
Quarter Ended February 28,
2014 GAAP Adjustments Adjusted Net
revenues $ 899,028 $ 47,172 (1) $ 851,856 Non-interest
expenses: Compensation and benefits 507,899 28,617 (2) 479,282
Non-compensation expenses 208,860 32,840 (3)
176,020 Total non-interest expenses 716,759 61,457
655,302 Operating income (loss) $ 182,269 $ (14,285) $
196,554 Net earnings (loss) $ 115,392 $ (8,969) $ 124,361
Compensation ratio (a) 56.5% 56.3%
(a) Reconciliation of the compensation ratio for U.S. GAAP to
Adjusted is a derivation of the reconciliation of the components
above.
This presentation of Adjusted financial
information is an unaudited non-GAAP financial measure. Adjusted
financial information begins with information prepared in
accordance with U.S. GAAP and then those results are adjusted to
exclude the operations of the Company's Bache business. The Company
believes that the disclosed Adjusted measures and any adjustments
thereto, when presented in conjunction with comparable U.S. GAAP
measures are useful to investors as they enable investors to
evaluate the Company's results in the context of pursuing various
strategic alternatives for the Bache business. These measures
should not be considered a substitute for, or superior to, measures
of financial performance prepared in accordance with U.S. GAAP.
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
ADJUSTED SELECTED FINANCIAL DATA FOOTNOTES
(1) Revenues generated by the Bache business, including
commissions, principal transaction revenues and net interest
revenue, for the presented period have been classified as a
reduction of revenue in the presentation of Adjusted financial
measures. (2) Compensation expense and benefits recognized
during the presented period for employees whose sole
responsibilities pertain to the activities of the Bache business,
including front office personnel and dedicated support personnel,
have been classified as a reduction of Compensation and benefits
expense in the presentation of Adjusted financial measures.
(3)
Expenses directly related to the
operations of the Bache business for the presented periods have
been excluded from Adjusted non-compensation expenses. These
expenses include Floor brokerage and clearing fees, amortization of
capitalized software used directly by the Bache business in
conducting its business activities, technology expenses directly
related to conducting Bache business operations and business
development and professional services expenses incurred by the
Bache business as part of its client sales and trading activities,
including estimates of certain support costs dedicated to the Bache
business.
(4) The following expenses incurred as part of the Bache
business during the period presented are excluded from Adjusted
non-compensation expenses: $ thousands
Quarter EndedNovember 30,2014
Floor brokerage, technology and
communications, business
development, professional services and
other estimated
expenses directly incurred by the Bache
business in
conducting operations
$ 36,553 Bad debt expense incurred on customer default and
close-out 52,300 Impairment of goodwill attributed to the Bache
reporting unit 51,900
Impairment of certain intangible assets
attributed to the Bache
reporting unit
7,534 $ 148,287
JEFFERIES GROUP LLC AND
SUBSIDIARIES SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data) (Unaudited)
Quarter
Ended Quarter Ended Quarter Ended February 28,
2015 November 30, 2014 February 28, 2014
Revenues by
Source
Equities $ 203,479 $ 158,452 $ 188,823 Fixed income 126,035
48,617 285,928 Total 329,514 207,069
474,751 Equity 79,071 67,910 94,738 Debt 60,876
131,901 173,038 Capital markets 139,947
199,811 267,776 Advisory 132,048 116,201
146,544 Investment banking 271,995 316,012 414,320
Asset management fees and investment income (loss)
from managed funds:
Asset management fees 13,985 4,930 9,446 Investment (loss) income
from managed funds (23,822 ) (3,202 ) 511
Total (9,837 ) 1,728 9,957
Net
revenues $ 591,672 $ 524,809
$ 899,028
Other
Data
Number of trading days 61 63 61 Average firmwide VaR (in
millions) (A) $ 13.27 $ 12.75 $ 16.27 Average firmwide VaR
excluding Knight Capital (in millions) (A) $ 9.29 $ 8.77 $ 12.64
Average firmwide VaR excluding Knight Capital and Harbinger Group
Inc. (in millions) (A) $ 9.29 $ 8.77 $ 9.23 (A) VaR
estimates the potential loss in value of our trading positions due
to adverse market movements over a one-day time horizon with a 95%
confidence level. For a further discussion of the calculation of
VaR, see "Value at risk" in Part II, Item 7 "Management's
Discussion and Analysis" in our Annual Report on Form 10-K for the
year ended November 30, 2014.
JEFFERIES GROUP LLC
AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in
Millions, Except Where Noted) (Unaudited)
Quarter Ended Quarter
Ended Quarter Ended February 28, 2015 November
30, 2014 February 28, 2014
Financial
position:
Total assets (1) $ 43,787 $ 44,518 $ 43,440 Average total assets
for the period (1) $ 49,862 $ 51,030 $ 49,075 Average total assets
less goodwill and intangible assets for the period (1) $ 47,961 $
49,077 $ 47,089 Cash and cash equivalents (1) $ 3,340 $
4,080 $ 2,865 Cash and cash equivalents and other sources of
liquidity (1) (2) $ 4,647 $ 5,500 $ 4,467 Cash and cash equivalents
and other sources of liquidity - % total assets (1) (2) 10.6 % 12.4
% 10.3 % Cash and cash equivalents and other sources of liquidity -
% total assets less goodwill and intangible assets (1) (2) 11.1 %
12.9 % 10.8 % Financial instruments owned (1) $ 19,099 $
18,637 $ 18,126 Goodwill and intangible assets (1) $ 1,900 $ 1,904
$ 1,987 Total equity (including noncontrolling interests) $
5,466 $ 5,463 $ 5,462 Total member's equity $ 5,427 $ 5,425 $ 5,432
Tangible member's equity (3) $ 3,527 $ 3,520 $ 3,445 Bache
assets (4) $ 3,926 $ 4,202 $ 3,839
Level 3 financial
instruments:
Level 3 financial instruments owned (1) (5) $ 579 $ 527 $ 495 Level
3 financial instruments owned - % total assets (1) 1.3 % 1.2 % 1.1
% Level 3 financial instruments owned - % total financial
instruments owned (1) 3.0 % 2.8 % 2.7 % Level 3 financial
instruments owned - % tangible member's equity (1) 16.4 % 15.0 %
14.4 %
Other data and
financial ratios:
Total capital (1) (6) $ 11,193 $ 11,269 $ 11,219 Leverage ratio (1)
(7) 8.0 8.1 8.0 Adjusted leverage ratio (1) (8) 10.1 10.4 10.4
Tangible gross leverage ratio (1) (9) 11.9 12.1 12.0 Leverage ratio
- excluding impacts of the Leucadia transaction (1) (10) 10.1 10.3
10.0 Number of trading days 61 63 61 Average firmwide
VaR (11) $ 13.27 $ 12.75 $ 16.27 Average firmwide VaR excluding
Knight Capital (11) $ 9.29 $ 8.77 $ 12.64 Average firmwide VaR
excluding Knight Capital and Harbinger Group Inc. (11) $ 9.29 $
8.77 $ 9.23 Number of employees, at period end 3,936 3,915
3,838
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES (1) Amounts
pertaining to February 28, 2015 represent a preliminary estimate as
of the date of this earnings release and may be revised in our
Quarterly Report on Form 10-Q for the quarterly period ended
February 28, 2015. (2) At February 28, 2015, other sources
of liquidity include high quality sovereign government securities
and reverse repurchase agreements collateralized by U.S. government
securities and other high quality sovereign government securities
of $911 million, in aggregate, and $396 million, being the total of
the estimated amount of additional secured financing that could be
reasonably expected to be obtained from our financial instruments
that are currently not pledged at reasonable financing haircuts and
additional funds available under the committed senior secured
revolving credit facility available for working capital needs of
Jefferies Bache. The corresponding amounts included in other
sources of liquidity at November 30, 2014 were $1,057 million and
$364 million, and at February 28, 2014, were $1,130 million and
$472 million, respectively. (3) Tangible member's equity (a
non-GAAP financial measure) represents total member's equity less
goodwill and identifiable intangible assets. We believe that
tangible member's' equity is meaningful for valuation purposes, as
financial companies are often measured as a multiple of tangible
member's equity, making these ratios meaningful for investors.
(4) Bache assets (a non-GAAP financial measure) includes
Cash and cash equivalents, Cash and securities segregated,
Financial instruments owned, Securities purchased under agreements
to resell and Receivables attributable to our Bache business.
(5) Level 3 financial instruments represent those financial
instruments classified as such under Accounting Standards
Codification 820, accounted for at fair value and included within
Financial instruments owned. (6) At February 28, 2015,
November 30, 2014 and February 28, 2014, total capital includes our
long-term debt of $5,726 million, $5,806 million and $5,757
million, respectively, and total equity. Long-term debt included in
total capital is reduced by amounts outstanding under the revolving
credit facility and the amount of debt maturing in less than one
year, where applicable. (7) Leverage ratio equals total
assets divided by total equity. (8) Adjusted leverage ratio
(a non-GAAP financial measure) equals adjusted assets divided by
tangible total equity, being total equity less goodwill and
identifiable intangible assets. Adjusted assets (a non-GAAP
financial measure) equals total assets less securities borrowed,
securities purchased under agreements to resell, cash and
securities segregated, goodwill and identifiable intangibles plus
financial instruments sold, not yet purchased (net of derivative
liabilities). At February 28, 2015, November 30, 2014 and February
28, 2014, adjusted assets were $35,977 million, $36,906 million and
$36,273 million, respectively. We believe that adjusted assets is a
meaningful measure as it excludes certain assets that are
considered of lower risk as they are generally self-financed by
customer liabilities through our securities lending activities.
(9) Tangible gross leverage ratio (a non-GAAP financial
measure) equals total assets less goodwill and identifiable
intangible assets divided by tangible member's equity. The tangible
gross leverage ratio is used by rating agencies in assessing our
leverage ratio. (10) Leverage ratio - excluding impacts of
the Leucadia transaction (a non-GAAP financial measure) is
calculated as follows: February
28, November 30, February 28, $
millions 2015 2014 2014 Total assets $ 43,787 $ 44,518 $ 43,440
Goodwill and acquisition accounting fair value adjustments on the
transaction with Leucadia (1,957 ) (1,957 ) (1,957 ) Net
amortization to date on asset related purchase accounting
adjustments 112 108 32
Total assets excluding transaction impacts $ 41,942 $ 42,669
$ 41,515 Total equity $ 5,466 $ 5,463 $ 5,462
Equity arising from transaction consideration (1,426 ) (1,426 )
(1,426 ) Preferred stock assumed by Leucadia 125 125 125 Net
amortization to date of purchase accounting adjustments, net of tax
(20 ) (9 ) (36 ) Total equity excluding
transaction impacts $ 4,145 $ 4,153 $ 4,125
Leverage ratio - excluding impacts of the Leucadia
transaction 10.1 10.3 10.0
(11) VaR estimates the potential loss in value
of our trading positions due to adverse market movements over a
one-day time horizon with a 95% confidence level. For a further
discussion of the calculation of VaR, see "Value at risk" in Part
II, Item 7 "Management's Discussion and Analysis" in our Annual
Report on Form 10-K for the year ended November 30, 2014.
Jefferies Group LLCPeregrine C. Broadbent, 212-284-2338Chief
Financial Officer
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