Jefferies Reports Record Quarterly Net Income

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

Highlights for the three months ended February 28, 2014:
  • Net revenues of $899 million
  • Net earnings of $112 million
  • Investment banking net revenues of $414 million
  • Equities net revenues of $189 million
  • Fixed Income net revenues of $286 million

Richard B. Handler, Chairman and Chief Executive Officer of Jefferies, commented: “We are pleased with our strong results for the first quarter, which include record net earnings of $112 million for the period. Our results reflect another strong performance in investment banking, with revenues in excess of $400 million for the second successive quarter, and a solid performance in both equities and fixed income. Our combined equities and FICC revenues were $475 million. Excluding the impact of Knight Capital and Harbinger Group, sales and trading revenues were $488 million, a 19% increase versus the fourth quarter on a comparable basis. Our investment banking business continued to benefit from strong equities and leveraged finance new issues markets. Our holdings of shares of Knight Capital and Harbinger Group were both marked down in the first quarter by $13 million in aggregate, compared to a total mark-up of $110 million in the fourth quarter of last year, the impact of which was recorded in our equities revenues.”

The financial tables attached should be read in connection with 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 SUBSIDIARIESCONSOLIDATED STATEMENTS OF EARNINGS(Amounts in Thousands)(Unaudited)
           
Successor Predecessor
Quarter Ended Quarter Ended Quarter Ended
February 28, 2014 November 30, 2013 February 28, 2013
 
Revenues:
Commissions $ 162,063 $ 156,435 $ 146,240
Principal transactions 238,363 289,430 300,278
Investment banking 414,320 417,044 288,278

Asset management fees and investment  income from managed funds

 
9,957 12,017 10,883
Interest income 249,268 224,911 249,277
Other revenues   23,069  

39,320
  27,004

Total revenues
1,097,040 1,139,157

1,021,960
Interest expense   198,012   188,609   203,416
Net revenues 899,028 950,548 818,544

Interest on mandatorily redeemable preferred interests of  consolidated subsidiaries

 
-   -   10,961

Net revenues, less interest on mandatorily redeemable preferred

  interests of consolidated subsidiaries
899,028   950,548   807,583
 
Non-interest expenses:
Compensation and benefits 507,899 546,257 474,217
 
Non-compensation expenses:
Floor brokerage and clearing fees 49,513 52,706 46,155
Technology and communications 64,306 67,578 59,878
Occupancy and equipment rental 27,017 28,271 24,309
Business development 26,476 22,759 24,927
Professional services 24,304 18,014 24,135
Other   17,244   39,303   14,475
Total non-compensation expenses   208,860   228,631   193,879
Total non-interest expenses   716,759   774,888   668,096
Earnings before income taxes 182,269 175,660 139,487
Income tax expense   66,877   61,186   48,645
Net earnings 115,392 114,474 90,842
Net earnings attributable to noncontrolling interests   2,960   4,531   10,704

Net earnings attributable to Jefferies Group LLC/ common  shareholders
$ 112,432 $ 109,943 $ 80,138

JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
           
Successor Predecessor
Quarter Ended Quarter Ended Quarter Ended
February 28, 2014 November 30, 2013 February 28, 2013

Revenues by Source
Equities $ 188,823 $ 289,727 $ 167,354
Fixed income 285,928 227,136 352,029
Other   -   4,624   -  
Total 474,751 521,487 519,383
 
 
Equity 94,738 118,348 61,380
Debt   173,038   162,031   140,672  
Capital markets 267,776 280,379 202,052
Advisory   146,544   136,665   86,226  
Investment banking 414,320 417,044 288,278
 

Asset management fees and investment income (loss)

  from managed funds:
Asset management fees 9,446 5,563 11,083
Investment income (loss) from managed funds   511   6,454   (200 )
Total   9,957   12,017   10,883  
Net revenues   899,028   950,548   818,544  
Interest on mandatorily redeemable preferred interests of consolidated subsidiaries   -   -   10,961  
Net revenues, less mandatorily redeemable preferred interests of consolidated subsidiaries $ 899,028 $ 950,548 $ 807,583  
 

Other Data
Number of trading days 61 63 60
 
Average firmwide VaR (in millions) (A) $ 16.27 $ 12.61 $ 9.27
Average firmwide VaR excluding Knight Capital (in millions) (A) $ 12.64 $ 10.37 $ 5.99
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (in millions) (A) $ 9.23 $ 7.32 $ 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 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, 2013.

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)
     
Successor Predecessor
Quarter Ended Quarter Ended Quarter Ended
February 28, 2014 November 30, 2013 February 28, 2013
 

Results:
Net earnings attributable to Jefferies Group LLC / common shareholders (in thousands) $ 112,432 $ 109,943 $ 80,138
Pretax operating margin 20.3 % 18.5 % 17.3 %
Effective tax rate 36.7 % 34.8 % 34.9 %
 

Financial position:
Total assets (1) $ 43,440 $ 40,177 $ 37,800
Average total assets for quarter (1) $ 49,075 $ 46,439 $ 45,418
Average total assets less goodwill and intangible assets for quarter (1) $ 47,089 $ 44,455 $ 45,039
 
Cash and cash equivalents (1) $ 2,865 $ 3,561 $ 3,018
Cash and cash equivalents and other sources of liquidity (1) (2) $ 4,467 $ 5,282 $ 4,726
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2) 10.3 % 13.1 % 12.5 %
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2) 10.8 % 13.8 % 12.6 %
 
Financial instruments owned (1) $ 18,126 $ 16,650 $ 16,414
Goodwill and intangible assets (1) $ 1,987 $ 1,986 $ 380
 
Total equity (including noncontrolling interests) $ 5,462 $ 5,422 $ 3,688
Total member's / common stockholders' equity $ 5,432 $ 5,305 $ 3,332
Tangible member's / common stockholders' equity (3) $ 3,445 $ 3,318 $ 2,952

 

Level 3 financial instruments:
Level 3 financial instruments owned (1) (4) $ 495 $ 457 $ 505
Level 3 financial instruments owned - % total assets (1) 1.1 % 1.1 % 1.3 %
Level 3 financial instruments owned - % total financial instruments owned (1) 2.7 % 2.7 % 3.1 %
Level 3 financial instruments owned - % tangible member's / common stockholders' equity (1) 14.4 % 13.8 % 17.1 %
 

Other data and financial ratios:
Total capital (1) (5) $ 11,219 $ 11,199 $ 9,624
Leverage ratio (1) (6) 8.0 7.4 10.2
Adjusted leverage ratio (1) (7) 10.4 9.5 10.4
Tangible gross leverage ratio (1) (8) 12.0 11.5 12.7
Leverage ratio - excluding merger impacts (1) (9) 10.0 9.3 N/A
 
Number of trading days 61 63 60
 
Average firmwide VaR (10) $ 16.27 $ 12.61 $ 9.27
Average firmwide VaR excluding Knight Capital (10) $ 12.64 $ 10.37 $ 5.99
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (10) $ 9.23 $ 7.32 $ 5.99
 
Number of employees, at quarter end 3,838 3,797 3,841

JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
 
 
(1) Amounts pertaining to February 28, 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 February 28, 2014.
 
(2) As of February 28, 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 $1,130 million, in aggregate, and $472 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 November 30, 2013, were $1,317 million and $404 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 February 28, 2014 and November 30, 2013, total capital includes our long-term debt of $5,757 million and $5,777 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 February 28, 2014, November 30, 2013 and February 28, 2013 adjusted assets were $36,273 million, $32,559 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:
                                February 28,   November 30,
$ millions 2014 2013
Total assets $ 43,440 $ 40,177
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   32     27  
Total assets excluding the impact of the merger $ 41,515   $ 38,247  
 
Total equity $ 5,462 $ 5,422
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   (37 )   (25 )
Total equity excluding the impact of the merger $ 4,124   $ 4,096  
 
Leverage ratio - excluding merger impacts   10.0     9.3  
(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, 2013.

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