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Press release from Business Wire

Jefferies Reports Second Quarter 2014 Financial Results

Tuesday, June 17, 2014

Jefferies Reports Second Quarter 2014 Financial Results

08:00 EDT Tuesday, June 17, 2014

NEW YORK (Business Wire) -- Jefferies Group LLC today announced financial results for its fiscal second quarter 2014.

Highlights for the three months ended May 31, 2014:

  • Net revenues of $723 million
  • Net earnings of $61 million
  • Investment banking net revenues of $331 million
  • Trading net revenues of $395 million

Highlights for the six months ended May 31, 2014:

  • Net revenues of $1,622 million
  • Net earnings of $174 million
  • Investment banking net revenues of $745 million
  • Trading net revenues of $870 million

Richard B. Handler, Chairman and Chief Executive Officer of Jefferies, commented: “We are pleased to report quarterly results well-above those of the same quarter last year, due to an over 19% increase in our investment banking net revenues and an almost 7% increase in our overall trading net revenues. Our momentum has continued in investment banking and we are continuing to add to our team to capitalize further on our broad capabilities. Without the impact of marking to market certain equity block holdings, our equity and fixed income net revenues each declined about 5% in the most recent quarter compared to the same quarter last year. During the second quarter, clients have been cautious and generally less active in trading due to the unsettled markets, but we believe Jefferies' results reflect gains in market share. Our industry and competitors are in the midst of significant changes. We believe our platform, strategy, business mix and unique culture will allow us to continue to provide a differentiated and value-added service to our clients.”

The attached financial tables should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended February 28, 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 Predecessor
Quarter Ended Six Months Ended Quarter Ended Quarter Ended
May 31, 2014 May 31, 2014 May 31, 2013 February 28, 2013
 
Revenues:
Commissions $ 167,378 $ 329,441 $ 162,759 $ 146,240
Principal transactions 183,416 421,779 134,571 300,278
Investment banking 331,149 745,469 277,134 288,278

Asset management fees and investment income (loss) from managed funds

(3,101) 6,856 10,527 10,883
Interest income 283,540 532,808 258,665 249,277
Other revenues   8,404   31,473   26,245   27,004
Total revenues 970,786 2,067,826 869,901 1,021,960
Interest expense   247,794   445,806   211,463   203,416
Net revenues 722,992 1,622,020 658,438 818,544

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

  722,992   1,622,020   655,070   807,583
 
Non-interest expenses:
Compensation and benefits 404,876 912,775 373,880 474,217
 
Non-compensation expenses:
Floor brokerage and clearing fees 54,020 103,533 48,902 46,155
Technology and communications 70,257 134,563 63,839 59,878
Occupancy and equipment rental 26,673 53,175 32,225 24,309
Business development 24,917 51,393 22,732 24,927
Professional services 25,345 50,164 29,519 24,135
Other   17,767   35,011   18,720   14,475
Total non-compensation expenses   218,979   427,839   215,937   193,879
Total non-interest expenses   623,855   1,340,614   589,817   668,096
Earnings before income taxes 99,137 281,406 65,253 139,487
Income tax expense   37,323   104,200   25,007   48,645
Net earnings 61,814 177,206 40,246 90,842
Net earnings attributable to noncontrolling interests   488   3,448   738   10,704
Net earnings attributable to Jefferies Group LLC/common stockholders $ 61,326 $ 173,758 $ 39,508 $ 80,138
 

JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
         
Successor Predecessor
Quarter Ended Six Months Ended Quarter Ended Quarter Ended
May 31, 2014 May 31, 2014 May 31, 2013 February 28, 2013

Revenues by Source

Equities $ 177,238 $ 366,061 $ 141,590 $ 167,354
Fixed income   217,706     503,634     229,187     352,029  
Total 394,944 869,695 370,777 519,383
 
 
Equity 83,726 178,464 53,564 61,380
Debt   147,000     320,038     133,714     140,672  
Capital markets 230,726 498,502 187,278 202,052
Advisory   100,423     246,967     89,856     86,226  
Investment banking 331,149 745,469 277,134 288,278
 

Asset management fees and investment income (loss) from managed funds:

Asset management fees 4,927 14,373 11,332 11,083
Investment loss from managed funds   (8,028 )   (7,517 )   (805 )   (200 )
Total   (3,101 )   6,856     10,527     10,883  
Net revenues   722,992     1,622,020     658,438     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 $ 722,992   $ 1,622,020   $ 655,070   $ 807,583  
 

Other Data

Number of trading days 63 124 64 60
 
Average firmwide VaR (in millions) (A) $ 14.94 $ 15.60 $ 8.77 $ 9.27
Average firmwide VaR excluding Knight Capital (in millions) (A) $ 8.63 $ 10.60 $ 5.77 $ 5.99
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (in millions) (A) $ 7.97 $ 8.59 $ 5.77 $ 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 Predecessor
Quarter Ended Six Months Ended Quarter Ended Quarter Ended
May 31, 2014 May 31, 2014 May 31, 2013 February 28, 2013
 

Results:

Net earnings attributable to Jefferies Group LLC / common stockholders (in thousands) $ 61,326 $ 173,758 $ 39,508 $ 80,138
Pretax operating margin 13.7 % 17.3 % 10.0 % 17.3 %
Effective tax rate 37.6 % 37.0 % 38.3 % 34.9 %
 

Financial position:

Total assets (1) $ 43,610 $ 43,610 $ 38,938 $ 37,800
Average total assets for the period (1) $ 50,379 $ 49,749 $ 47,150 $ 45,418
Average total assets less goodwill and intangible assets for the period (1) $ 48,394 $ 47,764 $ 45,157 $ 45,039
 
Cash and cash equivalents (1) $ 3,958 $ 3,958 $ 3,403 $ 3,018
Cash and cash equivalents and other sources of liquidity (1) (2) $ 5,824 $ 5,824 $ 5,187 $ 4,726
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 13.4 % 13.4 % 13.3 % 12.5 %
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) 14.0 % 14.0 % 14.0 % 12.6 %
 
Financial instruments owned (1) $ 17,144 $ 17,144 $ 15,270 $ 16,414
Goodwill and intangible assets (1) $ 1,984 $ 1,984 $ 1,982 $ 380
 
Total equity (including noncontrolling interests) $ 5,527 $ 5,527 $ 5,183 $ 3,688
Total member's / common stockholders' equity $ 5,496 $ 5,496 $ 5,147 $ 3,332
Tangible member's / common stockholders' equity (3) $ 3,512 $ 3,512 $ 3,165 $ 2,952
 

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) $ 490 $ 490 $ 447 $ 505
Level 3 financial instruments owned - % total assets (1) 1.1 % 1.1 % 1.1 % 1.3 %
Level 3 financial instruments owned - % total financial instruments owned (1) 2.9 % 2.9 % 2.9 % 3.1 %
Level 3 financial instruments owned - % tangible member's / common stockholders' equity (1) 14.0 % 14.0 % 14.1 % 17.1 %
 

Other data and financial ratios:

Total capital (1) (5) $ 11,941 $ 11,941 $ 11,271 $ 9,624
Leverage ratio (1) (6) 7.9 7.9 7.5 10.2
Adjusted leverage ratio (1) (7) 10.0 10.0 9.9 10.4
Tangible gross leverage ratio (1) (8) 11.9 11.9 11.7 12.7
Leverage ratio - excluding merger impacts (1) (9) 10.0 10.0 9.5 N/A
 
Number of trading days 63 124 64 60
 
Average firmwide VaR (10) $ 14.94 $ 15.60 $ 8.77 $ 9.27
Average firmwide VaR excluding Knight Capital (10) $ 8.63 $ 10.60 $ 5.77 $ 5.99
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (10) $ 7.97 $ 8.59 $ 5.77 $ 5.99
 
Number of employees, at period end 3,785 3,785 3,785 3,841
 

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES

(1) Amounts pertaining to May 31, 2014 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the three months ended May 31, 2014.

(2) As of May 31, 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 $1,202 million, in aggregate, and $664 million, being the total of the estimated amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged at reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache. The corresponding amounts included in other sources of liquidity as of May 31, 2013 were $1,221 million and $562 million, and as of February 28, 2013, were $1,132 million and $576 million, respectively.

(3) Tangible member's / common stockholders' equity (a non-GAAP financial measure) represents total member's / common stockholders' equity less goodwill and identifiable intangible assets. We believe that tangible member's / common stockholders' equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible member's / common stockholders' equity, making these ratios meaningful for investors.

(4) Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.

(5) As of May 31, 2014 and 2013, total capital includes our long-term debt of $6,414 million and $6,088 million, respectively, and total equity. As of February 28, 2013, total capital includes our long term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries, in aggregate $5,936 million, and total equity. Long-term debt included in total capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, where applicable.

(6) Leverage ratio equals total assets divided by total equity.

(7) Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity, being total equity less goodwill and identifiable intangible assets. Adjusted assets (a non-GAAP financial measure) equals total assets less securities borrowed, securities purchased under agreements to resell, cash and securities segregated, goodwill and identifiable intangibles plus financial instruments sold, not yet purchased (net of derivative liabilities). As of May 31, 2014, May 31, 2013 and February 28, 2013 adjusted assets were $35,577 million, $31,648 million and $34,343 million, respectively. We believe that adjusted assets is a meaningful measure as it excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities.

(8) Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member's / common stockholders' equity. The tangible gross leverage ratio is used by Rating Agencies in assessing our leverage ratio.

(9) Leverage ratio - excluding merger impacts (a non-GAAP financial measure) is calculated as follows:

      May 31,       May 31,
$ millions 2014 2013
Total assets $ 43,610 $ 38,938
Goodwill and acquisition accounting fair value adjustments on the merger with Leucadia (1,957 ) (1,957 )
Net amortization to date on asset related purchase accounting adjustments   37     9  
Total assets excluding the impact of the merger $ 41,690   $ 36,990  
 
Total equity $ 5,527 $ 5,183
Equity arising from merger consideration (1,426 ) (1,426 )
Preferred stock assumed by Leucadia 125 125
Net amortization to date of purchase accounting adjustments, net of tax   (48 )   (8 )
Total equity excluding the impact of the merger $ 4,178   $ 3,874  
 
Leverage ratio - excluding merger impacts   10.0     9.5  
 

(10) 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
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer

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