Jefferies Reports Third Quarter 2014 Financial Results

NEW YORK--(BUSINESS WIRE)--

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

Highlights for the three months ended August 31, 2014:

• Total Net revenues of $843 million
• Pre-tax earnings of $136 million
• Net earnings of $84 million
• Record Investment Banking net revenues of $468 million
• Equities net revenues of $172 million
• Fixed Income net revenues of $195 million
• Total Sales and Trading net revenues of $367 million

Highlights for the nine months ended August 31, 2014:

• Record Total Net revenues of $2,465 million
• Record Pre-tax earnings of $417 million
• Record Net earnings of $257 million
• Record Investment Banking net revenues of $1,213 million
• Equities net revenues of $538 million
• Fixed Income net revenues of $699 million
• Total Sales and Trading net revenues of $1,237 million

Richard B. Handler, Chairman and Chief Executive Officer, and Brian P. Friedman, Chairman of the Executive Committee, commented: “These results represent the best third quarter and the best first nine-months Jefferies has achieved in our over 50-year history. Our third quarter performance was driven by $468 million in Investment Banking net revenues. These record investment banking results reflect solid contributions from equity and debt capital markets, strong performance in our merger and acquisition advisory business, and broad participation across our industry groups and geographies. Our sales and trading business results were also solid for the quarter and are $367 million. We continue to expand our client reach and believe we are gaining market share across the board as we leverage our unique position as the largest non-bank, full-service global investment banking firm based in the U.S. The overall environment is reasonable, and our competitive position has never been stronger.”

The attached financial tables should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended May 31, 2014 and our Annual Report on Form 10-K for the year ended November 30, 2013. On September 2, 2014, we issued a press release announcing preliminary financial results for the fiscal third quarter of 2014, which were also filed with a Current Report on Form 8-K. Actual results as reported herein differ from those preliminary results as a result of our routine financial reporting close process, which has now been finalized. Differences in the actual results for the fiscal third quarter of 2014 reported herein from the preliminary results are attributed to revenue allocations to business divisions, conclusions on revenue arrangements, fair value estimates and adjustments to expense accruals.

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 LUK, a diversified holding company.

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
			Successor															Predecessor
			Quarter Ended				Quarter Ended				Nine Months Ended				Six Months Ended			Quarter Ended
			August 31, 2014				August 31, 2013				August 31, 2014				August 31, 2013			February 28, 2013
Revenues:
Commissions			$	159,085			$	153,402			$	488,526			$	316,161		$	146,240
Principal transactions				144,354				(24,910)				566,133				109,661			300,278
Investment banking				467,793				309,339				1,213,262				586,473			288,278
Asset management fees and investment
income from managed funds				8,463				13,549				15,319				24,076			10,883
Interest income				249,251				230,672				782,059				489,337			249,277
Other revenues				26,489				28,630				57,962				54,875			27,004
Total revenues				1,055,435				710,682				3,123,261				1,580,583			1,021,960
Interest expense				212,126				178,987				657,932				390,450			203,416
Net revenues				843,309				531,695				2,465,329				1,190,133			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				843,309				531,695				2,465,329				1,186,765			807,583
Non-interest expenses:
Compensation and benefits				477,268				293,771				1,390,043				667,651			474,217
Non-compensation expenses:
Floor brokerage and clearing fees				55,967				49,166				159,500				98,068			46,155
Technology and communications				67,286				62,266				201,849				126,105			59,878
Occupancy and equipment rental				28,477				26,205				81,652				58,430			24,309
Business development				27,800				17,624				79,193				40,356			24,927
Professional services				31,231				25,269				81,395				54,788			24,135
Other				19,645				34,012				54,656				52,732			14,475
Total non-compensation expenses				230,406				214,542				658,245				430,479			193,879
Total non-interest expenses				707,674				508,313				2,048,288				1,098,130			668,096
Earnings before income taxes				135,635				23,382				417,041				88,635			139,487
Income tax expense				51,762				8,493				155,962				33,500			48,645
Net earnings				83,873				14,889				261,079				55,135			90,842
Net earnings attributable to noncontrolling interests				312				3,149				3,760				3,887			10,704
Net earnings attributable to Jefferies Group LLC/common   stockholders			$	83,561			$	11,740			$	257,319			$	51,248		$	80,138
Pretax operating margin				16.1%				4.4%				16.9%				7.5%			17.3%
Effective tax rate				38.2%				36.3%				37.4%				37.8%			34.9%

JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
		Successor																		Predecessor
		Quarter Ended				Quarter Ended				Nine Months Ended				Six Months Ended						Quarter Ended
		August 31, 2014				August 31, 2013				August 31, 2014				August 31, 2013						February 28, 2013
Revenues by Source
Equities		$	171,708			$	151,038			$	537,769					$	292,628			$	167,354
Fixed income			195,345				47,769				698,979						276,956				352,029
Total			367,053				198,807				1,236,748						569,584				519,383
Equity			93,309				56,482				271,773						110,046				61,380
Debt			175,597				120,187				495,635						253,901				140,672
Capital markets			268,906				176,669				767,408						363,947				202,052
Advisory			198,887				142,670				445,854						232,526				86,226
Investment banking			467,793				319,339				1,213,262						596,473				288,278
Asset management fees and investment income (loss)
from managed funds:
Asset management fees			7,379				9,578				21,752						20,910				11,083
Investment income (loss) from managed funds			1,084				3,971				(6,433	)					3,166				(200	)
Total			8,463				13,549				15,319						24,076				10,883
Net revenues			843,309				531,695				2,465,329						1,190,133				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		$	843,309			$	531,695			$	2,465,329					$	1,186,765			$	807,583
Other Data
Number of trading days			64				64				188						128				60
Average firmwide VaR (in millions) (A)		$	13.50			$	11.02			$	14.88					$	9.89			$	9.27
Average firmwide VaR excluding Knight Capital (in millions) (A)		$	8.25			$	7.24			$	9.80					$	6.51			$	5.99
Average firmwide VaR excluding Knight Capital and Harbinger Group
Inc. (in millions) (A)		$	8.25			$	7.24			$	8.48					$	6.51			$	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
		August 31, 2014					May 31, 2014					August 31, 2013
Financial position:
Total assets (1)		$	44,764				$	43,610				$	38,830
Average total assets for the period (1)		$	51,369				$	50,379				$	45,824
Average total assets less goodwill and intangible assets for the period (1)		$	49,387				$	48,394				$	43,840
Cash and cash equivalents (1)		$	4,035				$	3,958				$	4,119
Cash and cash equivalents and other sources of liquidity (1) (2)		$	5,913				$	5,824				$	5,574
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)			13.2	%				13.4	%				14.4	%
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1)(2)			13.8	%				14.0	%				15.1	%
Financial instruments owned (1)		$	18,420				$	17,144				$	13,698
Goodwill and intangible assets (1)		$	1,978				$	1,984				$	1,988
Total equity (including noncontrolling interests)		$	5,602				$	5,527				$	5,241
Total member's / common stockholders' equity		$	5,571				$	5,496				$	5,164
Tangible member's / common stockholders' equity (3)		$	3,593				$	3,512				$	3,176
Level 3 financial instruments:
Level 3 financial instruments owned (1) (4)		$	499				$	490				$	444
Level 3 financial instruments owned with economic exposure (1) (5)		$	480				$	490				$	441
Level 3 financial instruments owned - % total assets (1)			1.1	%				1.1	%				1.1	%
Level 3 financial instruments owned - % total financial instruments owned (1)			2.7	%				2.9	%				3.2	%
Level 3 financial instruments owned with economic exposure - % total financial instruments owned (1)			2.6	%				2.9	%				3.2	%
Level 3 financial instruments owned with economic exposure - % tangible member's / common stockholders' equity (1)			13.4	%				14.0	%				13.9	%
Other data and financial ratios:
Total capital (1) (6)		$	11,970				$	11,941				$	11,034
Leverage ratio (1) (7)			8.0					7.9					7.4
Adjusted leverage ratio (1) (8)			10.5					10.0					9.3
Tangible gross leverage ratio (1) (9)			11.9					11.9					11.6
Leverage ratio - excluding impacts of the Leucadia transaction (1) (10)			10.1					10.0					9.4
Number of trading days			64					63					64
Average firmwide VaR (11)		$	13.50				$	14.94				$	11.02
Average firmwide VaR excluding Knight Capital (11)		$	8.25				$	8.63				$	7.24
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (11)		$	8.25				$	7.97				$	7.24
Number of employees, at period end			3,885					3,785					3,805

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
(1)		Amounts pertaining to August 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 August 31, 2014.
(2)		As of August 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 $1,530 million, in aggregate, and $348 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, 2014 were $1,202 million and $664 million, and as of August 31, 2013, were $1,145 million and $310 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)		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.
(6)		As of August 31, 2014, May 31, 2014 and August 31, 2013, total capital includes our long-term debt of $6,368 million, $6,414 million and $5,793 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). As of August 31, 2014, May 31, 2014 and August 31, 2013 adjusted assets were $38,100 million, $35,577 million and $30,112 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 / common stockholders' 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:

									August 31,					May 31,					August 31,
				$ millions					2014					2014					2013
				Total assets					$	44,764				$	43,610				$	38,830
				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						42					37					18
				Total assets excluding transaction impacts					$	42,849				$	41,690				$	36,891
				Total equity					$	5,602				$	5,527				$	5,241
				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						(58	)				(48	)				(17	)
				Total equity excluding transaction impacts					$	4,243				$	4,178				$	3,923
				Leverage ratio - excluding impacts of the Leucadia transaction						10.1					10.0					9.4

(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, 2013.