Jefferies Reports Record Fiscal Fourth-Quarter 2013 Financial Results

News provided by
Jefferies Group LLC NYSE JEF
Dec. 17, 2013 22:00
NEW YORK--(Business Wire / Korea Newswire)--Jefferies Group LLC today announced financial results for its fiscal fourth quarter 2013.

Highlights for the three months ended November 30, 2013:
· Net revenues of $936 million
· Net earnings of $120 million
· Investment banking net revenues of $417 million
· Equities net revenues of $294 million
· Fixed Income net revenues of $212 million

Richard B. Handler, Chairman and Chief Executive Officer of Jefferies, commented: “Our results reflect exceptional quarterly performance in our investment banking efforts, a solid performance from our core global equity businesses, and a very significant improvement in our fixed income results versus the third-quarter. Our investment banking performance benefited from a strong equities and leveraged finance new issues market and demonstrates our significant market presence and value added capabilities. Our equities results include the impact of $110 million in pre-tax unrealized mark-to-market gains on our holdings of shares of Knight Capital and Harbinger Group. Fixed income customer flows improved significantly from last quarter. While our results for the full fiscal year 2013 were below those of 2012, primarily due to the difficult mid-year fixed income environment, we believe the strong finish to the year, combined with the continued positive momentum in all of our core businesses, positions us well for 2014. We thank our clients, our employees, our bondholders and all our business partners for their continued support.”

The financial tables attached should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended August 31, 2013 and our Annual Report on Form 10-K for the year ended November 30, 2012.

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, and also select asset and wealth management strategies, 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 Quarter Ended Quarter Ended
November 30, 2013 August 31, 2013 November 30, 2012

Revenues:
Commissions $ 141,594 $ 138,736 $ 127,074
Principal transactions 289,430 (24,910) 242,140
Investment banking 417,044 309,339 282,962
Asset management fees and
investment income from managed funds
12,017 13,549 16,318
Interest income 224,911 230,672 242,904
Other revenues 39,320 28,630 61,872
Total revenues 1,124,316 696,016 973,270
Interest expense 188,609 178,987 204,421
Net revenues 935,707 517,029 768,849
Interest on mandatorily redeemable preferred interests of
consolidated subsidiaries
- - 8,279
Net revenues, less interest on mandatorily redeemable preferred
interests of consolidated subsidiaries
935,707 517,029 760,570

Non-interest expenses:
Compensation and benefits 546,257 293,771 460,404
546,332
Non-compensation expenses:
Floor brokerage and clearing fees 37,866 34,500 29,106
Technology and communications 67,578 62,266 64,051
Occupancy and equipment rental 28,270 26,205 25,815
Business development 22,759 17,624 22,968
Professional services 18,014 25,269 27,771
Other 23,593 34,012 16,480
Total non-compensation expenses 198,080 199,876 186,191
Total non-interest expenses 744,337 493,647 646,595
Earnings before income taxes 191,370 23,382 113,975
Income tax expense 66,785 8,493 34,243
Net earnings 124,585 14,889 79,732
Net earnings attributable to noncontrolling interests (A) 4,531 3,149 8,128
Net earnings attributable to Jefferies Group LLC/ common shareholders
$ 120,054 $ 11,740 $ 71,604
Compensation and benefits / Net revenues 58.4% 56.8% 59.9%
Effective tax rate 34.9% 36.3% 30.0%

(A) For the quarters ended November 30, 2013 and August 31, 2013, this line item represents net earnings attributable to third party interests in certain asset management entities and investment vehicles managed by us, including a Leucadia interest.

JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)

Successor Predecessor
Nine Months Three Months Twelve Months
Ended Ended Ended
November 30, 2013 February 28, 2013 (A) November 30, 2012

Revenues:
Commissions $ 427,178 $ 131,083 $ 485,569
Principal transactions 399,091 300,278 1,035,974
Investment banking 1,003,517 288,278 1,125,883
Asset management fees and
investment income from managed funds
36,093 10,883 26,966
Interest income 714,248 249,277 1,031,839
Other revenues 94,195 27,004 164,974
Total revenues 2,674,322 1,006,803 3,871,205
Interest expense 579,059 203,416 872,421
Net revenues 2,095,263 803,387 2,998,784
Interest on mandatorily redeemable preferred interests of
consolidated subsidiaries
3,368 10,961 42,883
Net revenues, less interest on mandatorily redeemable preferred
interests of consolidated subsidiaries
2,091,895 792,426 2,955,901

Non-interest expenses:
Compensation and benefits 1,213,908 474,217 1,770,798

Non-compensation expenses:
Floor brokerage and clearing fees 105,357 30,998 120,145
Technology and communications 193,683 59,878 244,511
Occupancy and equipment rental 86,700 24,309 97,397
Business development 63,115 24,927 95,330
Professional services 72,802 24,135 73,427
Other 76,325 14,475 62,498
Total non-compensation expenses 597,982 178,722 693,308
Total non-interest expenses 1,811,890 652,939 2,464,106
Earnings before income taxes 280,005 139,487 491,795
Income tax expense 100,285 48,645 168,646
Net earnings 179,720 90,842 323,149
Net earnings attributable to noncontrolling interests (B) 8,418 10,704 40,740
Net earnings attributable to Jefferies Group LLC/ common shareholders $ 171,302 $ 80,138 $ 282,409

Compensation and benefits / Net revenues 57.9% 59.0% 59.1%
Effective tax rate 35.8% 34.9% 34.3%

(A) Our consolidated net earnings for the three months ended February 28, 2013 reflects an adjustment of $5.3 million, after tax, to correct for the effect of an overstatement of professional service fees of $8.5 million relating to the Leucadia merger. We evaluated the effects of this error and concluded that it is not material to the previously issued Quarterly Report on Form 10-Q for the three month period ended February 28, 2013. Nevertheless, we revised our consolidated net earnings for the three month period ended February 28, 2013 to correct for the effect of this error and appropriately reflected the $8.5 million of professional service fees as an expense in the nine month period ended November 30, 2013.
(B) For the nine months ended November 30, 2013, this line item represents net earnings attributable to third party interests in certain asset management entities and investment vehicles managed by us, including a Leucadia interest.

JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)

Quarter Ended
Successor Predecessor
November 30, August 31, November 30,
2013 2013 2012

Revenues by Source

Equities $ 294,351 $ 151,037 $ 176,595
Fixed income 212,295 33,103 292,974

Total
506,646 184,140 469,569


Equity 118,348 56,482 52,919
Debt 162,031 120,187 145,772

Capital markets
280,379 176,669 198,691
Advisory 136,665 142,670 84,271
Investment banking 417,044 319,339 282,962


Asset management fees and investment gain
from managed funds:

Asset management fees 5,563 9,579 9,680
Investment gain from managed funds 6,454 3,971 6,638

Total
12,017 13,550 16,318
Net revenues 935,707 517,029 768,849

Interest on mandatorily redeemable preferred interests of
consolidated subsidiaries
- - 8,279

Net revenues, less mandatorily redeemable preferred
interests of consolidated subsidiaries
$ 935,707 $ 517,029 $ 760,570

Other Data

Number of trading days 63 64 63

Average firmwide VaR (in millions) (A) $ 12.61 $ 11.02 $ 13.38
Average firmwide VaR excluding Knight Capital (in millions) (A) $ 10.37 $ 7.24 $ 7.95

Average firmwide VaR excluding Knight Capital and Harbinger
Group Inc. (in millions) (A)
$ 7.32 $ 7.24 $ 7.95

(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, 2012.


JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)

Quarter Ended
Successor Predecessor
November 30, August 31, November 30,
2013 2013 2012

Results:

Net earnings attributable to Jefferies Group LLC / common shareholders (in thousands) $ 120,054 $ 11,740 $ 71,604
Pretax operating margin 20.5 % 4.5 % 15.0 %
Effective tax rate 34.9 % 36.3 % 30.0 %

Financial position:

Total assets (1) $ 40,176 $ 38,830 $ 36,294
Average total assets for quarter (1) $ 46,439 $ 45,824 $ 44,242
Average total assets less goodwill and intangible assets for quarter (1) $ 44,455 $ 43,840 $ 43,848

Cash and cash equivalents (1) $ 3,561 $ 4,119 $ 2,693
Cash and cash equivalents and other sources of liquidity (1) (2) $ 5,282 $ 5,574 $ 4,424
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 13.1 % 14.4 % 12.2 %
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) 13.8 % 15.1 % 12.3 %

Financial instruments owned (1) $ 16,650 $ 13,698 $ 16,670
Goodwill and intangible assets (1) $ 1,982 $ 1,988 $ 381

Total equity (including noncontrolling interests) $ 5,432 $ 5,241 $ 3,783
Total member‘s / common stockholders’ equity $ 5,315 $ 5,164 $ 3,436
Tangible member‘s / common stockholders’ equity (3) $ 3,333 $ 3,176 $ 3,055

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) $ 457 $ 444 $ 504
Level 3 financial instruments owned - % total assets (1) 1.1 % 1.1 % 1.4 %
Level 3 financial instruments owned - % total financial instruments owned (1) 2.7 % 3.2 % 3.0 %
Level 3 financial instruments owned - % tangible member‘s / common stockholders’ equity (1) 13.7 % 14.0 % 16.5 %

Other data and financial ratios:

Total capital (1) (5) $ 11,209 $ 11,034 $ 8,710
Leverage ratio (1) (6) 7.4 7.4 9.6
Adjusted leverage ratio (1) (7) 9.4 9.3 9.0
Tangible gross leverage ratio (1) (8) 11.5 11.6 11.8
Leverage ratio - excluding merger impacts (1) (9) 9.3 9.4 N/A

Number of trading days 63 64 63

Average firmwide VaR (10) $ 12.61 $ 11.02 $ 13.38
Average firmwide VaR excluding Knight Capital (10) $ 10.37 $ 7.24 $ 7.95
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (10) $ 7.32 $ 7.24 $ 7.95

Number of employees, at quarter end 3,797 3,805 3,804
Compensation and benefits / Net revenues 58.4 % 56.8 % 59.9 %

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES

(1) Amounts pertaining to November 30, 2013 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 year ended November 30, 2013.

(2) As of November 30, 2013, 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 $1,317 million, in aggregate, and $404 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 August 31, 2013 were $1,145 million and $310 million, and as of November 30, 2012 were $1,307 million and $424 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 November 30 and August 31, 2013, total capital includes our long-term debt of $5,777 million and $5,793 million, respectively, and total equity. As of November 30, 2012 total capital includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries, in aggregate $4,928 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 November 30, 2013, August 31, 2013 and November 30, 2012 adjusted assets were $32,562 million, $30,112 million and $30,591 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:

November 30, August 31,
$ millions 2013 2013
Total assets $ 40,176 $ 38,830
Goodwill and acquisition accounting fair value adjustments on the merger with Leucadia (1,953 ) (1,953 )
Net amortization to date on asset related purchase accounting adjustments 27 18
Total assets excluding the impact of the merger $ 38,250 $ 36,895

Total equity $ 5,432 $ 5,241
Equity arising from merger consideration (1,422 ) (1,422 )
Preferred stock assumed by Leucadia 125 125
Net amortization to date of purchase accounting adjustments, net of tax (25 ) (17 )
Total equity excluding the impact of the merger $ 4,110 $ 3,927
Leverage ratio - excluding merger impacts 9.3 9.4

(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 calcuation 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, 2012.

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http://www.businesswire.com/news/home/20131217005497/en

Contact

Jefferies Group LLC
Peregrine C. Broadbent,
+1 212-284-2338
Chief Financial Officer