Jefferies Group LLC today announced financial results for its
fiscal fourth quarter 2014.
Highlights for the three months ended November 30, 2014, with
adjusted amounts excluding the operating results and goodwill and
intangible asset impairments attributable to our Bache
business:
- Total Net revenues of $538 million
- Total Adjusted Net Revenues (excluding
Bache) of $494 million1
- Pre-tax earnings of negative $101
million, which includes both a goodwill impairment of $52 million
and a write off of $8 million of intangible assets related to our
Bache business, and a $52 million bad debt provision in respect of
a receivable from OW Bunker
- Adjusted Operating income (excluding
Bache) of positive $30 million1
- Net earnings of negative $93 million,
reflecting the same items as noted in pre-tax earnings; the charge
due to the impairment of Bache goodwill is not tax-deductible and
the full-year tax rate has been trued up for the final regional mix
of pre-tax earnings, which was significantly impacted by the OW
Bunker bad debt provision
- Adjusted Net earnings (excluding Bache)
of $19 million1
Highlights for the twelve months ended November 30, 2014:
- Total Net revenues of $3,003
million
- Investment Banking Net revenues of
$1,529 million
- Equities and Fixed Income Net revenues
of $1,457 million
- Total Adjusted Net revenues (excluding
Bache) of $2,828 billion1
- Pre-tax earnings of $316 million
- Adjusted Operating income (excluding
Bache) of $517 million1
- Net earnings of $168 million
- Adjusted Net earnings of $325
million1
Richard B. Handler, Chairman and Chief Executive Officer, and
Brian P. Friedman, Chairman of the Executive Committee, commented:
“After four consecutive strong quarters, we experienced a very
challenging fourth quarter. Our Net revenues for the quarter were
$538 million and our pre-tax earnings were negative $101
million. Excluding Bache, our adjusted Net revenues for the
quarter were $494 million and our adjusted pre-tax profits were $30
million. Despite these results and our decision in respect of
pursuing strategic alternatives for our Bache business, we believe
Jefferies’ prospects for 2015 are solid, with our Investment
Banking backlog currently robust, and an expectation of more normal
trading markets.”
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 6-7 for a reconciliation of Adjusted measures to
the respective direct U.S. GAAP financial measures.
“Heightened volatility from mid-September through mid-November
and a tepid trading environment throughout the quarter led to poor
Fixed Income results, including mark-to-market write-downs in our
inventory. Fixed Income revenues were $61 million for the quarter,
compared to $227 million for the fourth quarter of last year, a
decline of 73%, or $166 million. In particular, our distressed
trading revenues for the quarter were negative $55 million versus
positive $29 million for the comparable quarter last year, a
decline of $84 million, much of which is unrealized. This decline
was primarily due to mark to market inventory losses as a result of
the broad sell-off in distressed and post-reorganization securities
that followed the September 30 court decision regarding Fannie Mae
and Freddie Mac. Mark downs between about $1 million and $5 million
per name were recorded in securities of over twenty distressed and
post re-organization issuers held by our core trading desks,
including Freddie Mac and Fannie Mae, various issues in the energy
and transport sectors, as well as several high yield municipal
issuers, with most of the mark downs below $2 million per issuer.
As is the nature of the distressed market making business,
Jefferies holds positions of varying sizes across sectors where the
firm is most active, with mark to market gains and losses
recognized on a daily basis. The balance of our Fixed Income
year-over-year quarterly revenue decline of about $82 million is
primarily attributable to slower activity, heightened volatility
and more modest inventory write downs in our other U.S. and
international credit businesses, where no write downs exceeded $3
million for any individual security position.”
“While adversely impacted by events in October, our core
Equities business otherwise performed well. Equities Net
revenues for the period were $158 million compared to $290 million
in the same quarter last year, a decrease of $132 million. $126
million of this decrease may be attributed to the mark to market
gains of $110 million recorded in last year’s fourth quarter in
respect of KCG and Harbinger, and the $16 million mark to market
loss we recorded this quarter with respect to our investment in
KCG. The Harbinger position was sold to Leucadia, at the then
market price, during the second quarter of fiscal 2014.”
“Jefferies Investment Banking Net revenues of $316 million are
below last year’s $417 million fourth quarter, primarily as a
result of dampened capital markets activity due to the unsettled
markets, which in turn led to the postponement of deals into future
periods. The impact from the unusual publicity in late October and
November was immaterial.”
“As a result of the growth and margin challenges we have
recently faced in the Bache business we acquired in mid-2011, we
are pursuing strategic alternatives for this business, and
discussions with third parties in this regard are already underway.
We are focused on the potential combination of Bache with another
similar business that improves the combined businesses’ competitive
standing and margin. In connection with this, we have reversed the
entire $52 million in goodwill and $8 million of the intangible
assets that were both allocated to the Bache business as a function
of the purchase accounting that arose upon our 2013 transaction
with Leucadia. This goodwill was not initially recorded as a result
of our acquisition of Bache, which we acquired below tangible book
value. This amount is included in our non-compensation expenses, as
is a 100% bad debt provision in respect of a $52 million receivable
we hold from OW Bunker, which abruptly declared bankruptcy in early
November after saying it uncovered risk-management issues that
would result in $150 million in losses and a separate fraud that
would result in a further $125 million in losses, the combined
effect of which would wipe out its equity. We provided futures
clearing and execution services to OW Bunker, which was a public
company in Denmark, the stock market capitalization of which was
over $1 billion only six weeks before its bankruptcy filing. The
amount of our receivable was increased considerably by the
relatively high volatility in energy prices at the time of OW
Bunker’s failure to meet margin calls and during our realization
process. We are pursuing a recovery of the amounts owed to us by OW
Bunker. Since the bankruptcy process is in its early stages and we
cannot currently estimate what portion of the receivable is likely
to be recovered, we have written off the entire amount and value
our unsecured creditor position at zero.”
This release contains “forward looking statements” within the
meaning of the safe harbor provisions of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward looking statements include statements
about our future. These forward looking statements are usually
preceded by the words “believe,” “intend,” “expect” or similar
expressions. Forward looking statements include our belief as to
our future prospects, including our strategy for our Bache
business. Forward looking statements represent only our belief
regarding future events, many of which by their nature are
inherently uncertain. We will not update any forward looking
statement to reflect future events or circumstances, except as
required by applicable law.
The attached financial tables should be read in connection with
our Quarterly Report on Form 10-Q for the quarter ended August 31,
2014 and our Annual Report on Form 10-K for the year ended November
30, 2013.
Jefferies, the global investment banking firm focused on serving
clients for over 50 years, is a leader in providing insight,
expertise and execution to investors, companies and governments.
The firm provides a full range of investment banking, sales,
trading, research and strategy across the spectrum of equities,
fixed income, foreign exchange, futures and commodities, as well as
wealth management, in the Americas, Europe and Asia. Jefferies
Group LLC is a wholly-owned subsidiary of Leucadia National
Corporation (NYSE:LUK), a diversified holding company.
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Amounts in Thousands)
(Unaudited) Successor Quarter
Ended Quarter Ended Quarter Ended November 30,
2014 August 31, 2014 November 30, 2013
Revenues: Commissions $ 180,275 $ 159,085 $ 156,435 Principal
transactions (21,071) 144,354 289,430 Investment banking 316,012
467,793 417,044
Asset management fees and investment
income from managed funds
1,728 8,463 12,017 Interest income 237,911 249,251 224,911 Other
revenues 20,919 26,489 39,320 Total revenues
735,774 1,055,435 1,139,157 Interest expense 198,195
212,126 188,609 Net revenues 537,579 843,309
950,548 Non-interest expenses: Compensation and
benefits 308,187 477,268 546,257 Non-compensation expenses:
Floor brokerage and clearing fees 55,829 55,967 52,706 Technology
and communications 66,363 67,286 67,578 Occupancy and equipment
rental 26,115 28,477 28,271 Business development 27,791 27,800
22,759 Professional services 28,206 31,231 18,014 Bad debt
provision 48,989 927 (2,639) Goodwill impairment 54,000 - - Other
23,580 18,718 41,942 Total non-compensation
expenses 330,873 230,406 228,631 Total
non-interest expenses 639,060 707,674 774,888
Earnings (loss) before income taxes (101,481) 135,635 175,660
Income tax expense (benefit) (8,763) 51,762
61,186 Net earnings (loss) (92,718) 83,873 114,474 Net earnings
attributable to noncontrolling interests (360) 312
4,531 Net earnings (loss) attributable to Jefferies Group
LLC $ (92,358) $ 83,561 $ 109,943 Pretax operating margin
-18.9% 16.1% 18.5% Effective tax rate 8.6% 38.2% 34.8%
JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF EARNINGS (Amounts in Thousands)
(Unaudited) Successor
Predecessor Year Ended Nine Months Ended
Quarter Ended November 30, 2014 November 30,
2013 February 28, 2013 Revenues: Commissions $
668,801 $ 472,596 $ 146,240 Principal transactions 545,062 399,091
300,278 Investment banking 1,529,274 1,003,517 288,278
Asset management fees and investment
income from managed funds
17,047 36,093 10,883 Interest income 1,019,970 714,248 249,277
Other revenues 78,881 94,195 27,004 Total
revenues 3,859,035 2,719,740 1,021,960 Interest expense
856,127 579,059 203,416 Net revenues 3,002,908
2,140,681 818,544
Interest on mandatorily redeemable
preferred interests of consolidated subsidiaries
- 3,368 10,961
Net revenues, less interest on mandatorily
redeemable preferred interests of consolidated subsidiaries
3,002,908 2,137,313 807,583 Non-interest
expenses: Compensation and benefits 1,698,230 1,213,908 474,217
Non-compensation expenses: Floor brokerage and clearing fees
215,329 150,774 46,155 Technology and communications 268,212
193,683 59,878 Occupancy and equipment rental 107,767 86,701 24,309
Business development 106,984 63,115 24,927 Professional services
109,601 72,802 24,135 Bad debt provision 53,572 179 1,945 Goodwill
impairment 54,000 - - Other 73,653 91,856
12,530 Total non-compensation expenses 989,118
659,110 193,879 Total non-interest expenses 2,687,348
1,873,018 668,096 Earnings before income taxes
315,560 264,295 139,487 Income tax expense 147,199
94,686 48,645 Net earnings 168,361 169,609 90,842 Net
earnings attributable to noncontrolling interests 3,400
8,418 10,704 Net earnings attributable to Jefferies
Group LLC/common stockholders $ 164,961 $ 161,191 $ 80,138
Pretax operating margin 10.5% 12.4% 17.3% Effective tax rate 46.6%
35.8% 34.9%
JEFFERIES GROUP LLC AND
SUBSIDIARIES CONSOLIDATED ADJUSTED SELECTED FINANCIAL
DATA (Amounts in Thousands) (Unaudited)
Successor Quarter Ended November 30,
2014 GAAP Adjustments Adjusted
Net revenues $ 537,579 $ 43,627 (1) $ 493,952
Non-interest expenses: Compensation and benefits 308,187 27,163 (2)
281,024 Non-compensation expenses 330,873 148,287 (3)
182,586 Total non-interest expenses 639,060
175,450 463,610 Operating income (loss) $ (101,481) $
(131,823) $ 30,342 Net earnings (loss) $ (92,718) $
(111,899) $ 19,181 Compensation ratio (a) 57.3% 56.9%
Successor Quarter Ended August 31, 2014
GAAP Adjustments Adjusted Net
revenues $ 843,309 $ 43,350 (1) $ 799,959 Non-interest
expenses: Compensation and benefits 477,268 26,416 (2) 450,852
Non-compensation expenses 230,406 38,944 (4)
191,462 Total non-interest expenses 707,674 65,360
642,314 Operating income (loss) $ 135,635 $ (22,010)
$ 157,645 Net earnings (loss) $ 83,873 $ (13,591) $ 97,464
Compensation ratio (a) 56.6% 56.4%
Successor Quarter Ended November 30, 2013 GAAP
Adjustments Adjusted Net revenues $ 950,548 $
45,760 (1) $ 904,788 Non-interest expenses: Compensation and
benefits 546,257 42,816 (2) 503,441 Non-compensation expenses
228,631 35,037 (4) 193,594 Total non-interest
expenses 774,888 77,853 697,035 Operating
income $ 175,660 $ (32,093) $ 207,753 Net earnings (loss) $
114,474 $ (22,311) $ 136,785 Compensation ratio (a) 57.5%
55.6%
(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 (Amounts in
Thousands) (Unaudited) Successor
Year Ended November 30, 2014 GAAP Adjustments
Adjusted
Net revenues, less interest on mandatorily
redeemable preferred interests of consolidated subsidiaries
$ 3,002,908 $ 175,283 (1) $ 2,827,625 Non-interest expenses:
Compensation and benefits 1,698,230 118,412 (2) 1,579,818
Non-compensation expenses 989,118 258,760 (3)
730,358 Total non-interest expenses 2,687,348 377,172
2,310,176 Operating income (loss) $ 315,560 $
(201,889) $ 517,449 Net earnings (loss) $ 168,361 $
(156,442) $ 324,803 Compensation ratio (a) 56.6% 55.9%
Successor Nine Months Ended November 30,
2013 GAAP Adjustments Adjusted
Net revenues, less interest on mandatorily
redeemable preferred interests of consolidated subsidiaries
$ 2,137,313 $ 140,701 (1) $ 1,996,612 Non-interest expenses:
Compensation and benefits 1,213,908 101,414 (2) 1,112,494
Non-compensation expenses 659,110 106,129 (4) 552,981
Total non-interest expenses 1,873,018 207,543
1,665,475 Operating income (loss) $ 264,295 $ (66,842) $
331,137 Net earnings (loss) $ 169,609 $ (44,925) $ 214,534
Compensation ratio (a) 56.8% 55.7%
Predecessor
Quarter Ended February 28, 2013 GAAP
Adjustments Adjusted
Net revenues, less interest on mandatorily
redeemable preferred interests of consolidated subsidiaries
$ 807,583 $ 59,532 (1) $ 748,051 Non-interest expenses:
Compensation and benefits 474,217 35,981 (2) 438,236
Non-compensation expenses 193,879 36,441 (4) 157,438
Total non-interest expenses 668,096 72,422 595,674
Operating income (loss) $ 139,487 $ (12,890) $ 152,377
Net earnings (loss) $ 90,842 $ (7,249) $ 98,091
Compensation ratio (a) 58.7% 58.6%
(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) The following expenses
incurred as part of the Bache business during the period presented
are excluded from Adjusted non-compensation expenses:
Quarter Ended Year Ended November
November 30, 30, 2014 $ thousands 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 $ 147,026 Bad debt expense incurred on customer default
and close-out 52,300 52,300 Impairment of goodwill attributed to
the Bache reporting unit 51,900 51,900 Impairment of certain
intangible assets attributed to the Bache
reporting unit
7,534 7,534 $ 148,287 $ 258,760 (4)
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.
JEFFERIES GROUP LLC AND SUBSIDIARIES SELECTED
STATISTICAL INFORMATION (Amounts in Thousands, Except Other
Data) (Unaudited) Successor Quarter
Ended Quarter Ended Quarter Ended November 30,
2014 August 31, 2014 November 30, 2013
Revenues by
Source
Equities $ 158,452 $ 171,708 $ 289,727 Fixed income 61,387
195,345 227,136 Total 219,839 367,053 516,863
Other - - 4,624 Equity 67,910 93,309 118,348 Debt
131,901 175,597 162,031 Capital markets
199,811 268,906 280,379 Advisory 116,201
198,887 136,665 Investment banking 316,012 467,793 417,044
Asset management fees and investment
income (loss) from managed funds:
Asset management fees 4,930 7,379 5,563 Investment (loss) income
from managed funds (3,202 ) 1,084 6,454 Total
1,728 8,463 12,017
Net revenues
$ 537,579 $ 843,309 $
950,548
Other
Data
Number of trading days 63 64 63 Average firmwide VaR (in
millions) (A) $ 12.75 $ 13.50 $ 12.61 Average firmwide VaR
excluding Knight Capital (in millions) (A) $ 8.77 $ 8.25 $ 10.37
Average firmwide VaR excluding Knight Capital and Harbinger Group
Inc. (in millions) (A) $ 8.77 $ 8.25 $ 7.32 (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, 2013.
JEFFERIES
GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL
INFORMATION (Amounts in Thousands, Except Other Data)
(Unaudited) Successor Predecessor
Year Ended Nine Months Ended Quarter Ended
November 30, 2014 November 30, 2013 February 28,
2013
Revenues by
Source
Equities $ 696,221 $ 582,355 $ 167,354 Fixed income 760,366
504,092 352,029 Total 1,456,587
1,086,447 519,383 Other - 4,624 - Equity 339,683
228,394 61,380 Debt 627,536 415,932
140,672 Capital markets 967,219 644,326 202,052 Advisory
562,055 369,191 86,226
Investment banking 1,529,274 1,013,517 288,278
Asset management fees and investment
income (loss) from managed funds:
Asset management fees 26,682 26,473 11,083 Investment (loss) income
from managed funds (9,635 ) 9,620 (200 ) Total
17,047 36,093 10,883
Net
revenues 3,002,908 2,140,681
818,544
Interest on mandatorily redeemable
preferred interests of consolidated subsidiaries
- 3,368 10,961
Net revenues, less mandatorily
redeemable preferred interests of consolidated subsidiaries
$ 3,002,908 $ 2,137,313 $
807,583
Other
Data
Number of trading days 251 191 60 Average firmwide VaR (in
millions) (A) $ 14.35 $ 10.79 $ 9.27 Average firmwide VaR excluding
Knight Capital (in millions) (A) $ 9.54 $ 7.78 $ 5.99 Average
firmwide VaR excluding Knight Capital and Harbinger Group Inc. (in
millions) (A) $ 8.55 $ 6.77 $ 5.99 (A) VaR estimates
the potential loss in value of our trading positions due to adverse
market movements over a one-day time horizon with a 95% confidence
level. For a further discussion of the 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, 2013.
JEFFERIES GROUP LLC AND
SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in
Millions, Except Where Noted) (Unaudited)
Successor Quarter Ended Quarter Ended
Quarter Ended November 30, 2014 August 31,
2014 November 30, 2013
Financial
position:
Total assets (1) $ 44,517 $ 44,764 $ 40,177 Average total assets
for the period (1) $ 51,030 $ 51,369 $ 46,439 Average total assets
less goodwill and intangible assets for the period (1) $ 49,077 $
49,387 $ 44,455 Cash and cash equivalents (1) $ 4,080 $
4,035 $ 3,561 Cash and cash equivalents and other sources of
liquidity (1) (2) $ 5,500 $ 5,913 $ 5,282 Cash and cash equivalents
and other sources of liquidity - % total assets (1) (2) 12.4% 13.2%
13.1% Cash and cash equivalents and other sources of liquidity - %
total assets less goodwill and intangible assets (1) (2) 12.9%
13.8% 13.8% Financial instruments owned (1) $ 18,648 $
18,420 $ 16,650 Goodwill and intangible assets (1) $ 1,904 $ 1,978
$ 1,986 Total equity (including noncontrolling interests) $
5,471 $ 5,602 $ 5,422 Total member's equity $ 5,432 $ 5,571 $ 5,305
Tangible member's equity (3) $ 3,527 $ 3,593 $ 3,318 Bache
assets (4) $ 4,202 $ 3,641 $ 3,534
Level 3 financial
instruments:
Level 3 financial instruments owned (1) (5) $ 527 $ 499 $ 457 Level
3 financial instruments owned with economic exposure (1) (6) $ 527
$ 480 $ 457 Level 3 financial instruments owned - % total assets
(1) 1.2% 1.1% 1.1% Level 3 financial instruments owned - % total
financial instruments owned (1) 2.8% 2.7% 2.7% Level 3 financial
instruments owned with economic exposure - % total financial
instruments owned (1) 2.8% 2.6% 2.7% Level 3 financial instruments
owned with economic exposure - % tangible member's equity (1) 14.9%
13.4% 13.8%
Other data and
financial ratios:
Total capital (1) (7) $ 11,276 $ 11,970 $ 11,199 Leverage ratio (1)
(8) 8.1 8.0 7.4 Adjusted leverage ratio (1) (9) 10.3 10.5 9.5
Tangible gross leverage ratio (1) (10) 12.1 11.9 11.5 Leverage
ratio - excluding impacts of the Leucadia transaction (1) (11) 10.3
10.1 9.3 Number of trading days 63 64 63 Average
firmwide VaR (12) $ 12.75 $ 13.50 $ 12.61 Average firmwide VaR
excluding Knight Capital (12) $ 8.77 $ 8.25 $ 10.37 Average
firmwide VaR excluding Knight Capital and Harbinger Group Inc. (12)
$ 8.77 $ 8.25 $ 7.32 Number of employees, at period end
3,915 3,885 3,797
JEFFERIES GROUP LLC AND
SUBSIDIARIES FINANCIAL HIGHLIGHTS - FOOTNOTES (1)
Amounts pertaining to November 30, 2014 represent a preliminary
estimate as of the date of this earnings release and may be revised
in our Annual Report on Form 10-K for the fiscal year ended
November 30, 2014. (2) At November 30, 2014, other sources
of liquidity include high quality sovereign government securities
and reverse repurchase agreements collateralized by U.S. government
securities and other high quality sovereign government securities
of $1,057 million, in aggregate, and $364 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 August 31, 2014 were $1,530 million
and $348 million, and at November 30, 2013, were $1,317 million and
$404 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)
Level 3 financial instruments owned with
economic exposure represent Level 3 financial instruments owned
adjusted for Level 3 financial instruments that are financed by
nonrecourse secured financing or attributable to third party or
employee noncontrolling interests in certain consolidated
entities.
(7) As of November 30, 2014, August 31, 2014 and November
30, 2013, total capital includes our long-term debt of $5,806
million, $6,368 million and $5,777 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.
(8) Leverage ratio equals total assets divided by total
equity. (9) 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 November 30, 2014,
August 31, 2014 and November 30, 2013, adjusted assets were $36,906
million, $38,100 million and $32,559 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. (10) 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. (11)
Leverage ratio - excluding impacts of the Leucadia transaction (a
non-GAAP financial measure) is calculated as follows:
November 30, August 31, November
30, $ millions 2014 2014 2013 Total assets $ 44,517 $ 44,764 $
40,177 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 108 42 27
Total assets excluding transaction impacts $ 42,668 $ 42,849
$ 38,247 Total equity $ 5,471 $ 5,602 $ 5,422
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
(9 ) (58 ) (25 ) Total equity excluding
transaction impacts $ 4,161 $ 4,243 $ 4,096
Leverage ratio - excluding impacts of the Leucadia
transaction 10.3 10.1 9.3
(12) 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, 2013.
Jefferies Group LLCPeregrine C. Broadbent, 212-284-2338Chief
Financial Officer
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