Jefferies Group LLC today announced financial results for its
fiscal second quarter 2015.
Highlights for the three months ended May 31, 2015, with
adjusted amounts excluding the operating results of our Bache
business:
- Investment banking net revenues of $404
million
- Total Net revenues of $792 million
- Total Adjusted Net revenues (excluding
Bache net revenues) of $757 million
- Adjusted Net earnings (excluding Bache
net loss) of $86 million
- Net earnings of $60 million (including
Bache exit costs of $20 million on an after-tax basis)
Highlights for the six months ended May 31, 2015, with adjusted
amounts excluding the operating results of our Bache business:
- Investment banking net revenues of $676
million
- Total Net revenues of $1,383
million
- Total Adjusted Net revenues (excluding
Bache net revenues) of $1,299 million
- Adjusted Net earnings (excluding Bache
net loss) of $106 million
- Net earnings of $73 million (including
Bache exit costs of $20 million on an after-tax basis)
Richard B. Handler, Chairman and Chief Executive Officer, and
Brian P. Friedman, Chairman of the Executive Committee, commented:
“We are pleased to report quarterly revenues above those of the
first quarter and the same period last year. Investment banking net
revenues were in excess of $400 million, an increase of 49%
compared to this year’s first quarter and 22% versus the second
quarter last year. Our momentum has continued in investment banking
and our current backlog for the third quarter is comparable to the
backlog of three months ago. Our equity net revenues were strong
versus the first quarter and the same quarter last year. Excluding
Bache, Fixed income net revenues increased by 56% versus the slow
first quarter, but declined by 29% compared to the year ago
quarter. Fixed income results improved each month during the
quarter. We continue to unwind the Bache business and to date have
transferred about 50% of client accounts to Societe Generale and
other brokers. We expect to have substantially completed the unwind
of Bache by the end of the summer.”
The attached financial tables should be read in connection with
our Quarterly Report on Form 10-Q for the quarter ended February
28, 2015 and our Annual Report on Form 10-K for the year ended
November 30, 2014. Adjusted financial measures referenced
above are non-GAAP financial measures, which management believes
provide meaningful information to enable investors to evaluate the
Company's results in the context of exiting the Bache business.
Refer to the Supplemental Schedules on pages 5-7 for a
reconciliation of Adjusted measures to the respective direct U.S.
GAAP financial measures.
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 and foreign exchange, 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) Quarter Ended May
31, 2015 February 28, 2015 May 31,
2014 Revenues: Commissions $ 173,508 $ 166,922 $ 167,378
Principal transactions 155,962 105,477 183,416 Investment banking
404,262 271,995 331,149 Asset management fees and investmentincome
(loss) from managed funds 5,650 (9,837 ) (3,101 ) Interest income
240,552 228,870 283,540 Other revenues 28,576
19,905 8,404 Total revenues 1,008,510 783,332
970,786 Interest expense 216,956 191,660
247,794 Net revenues 791,554
591,672 722,992 Non-interest
expenses: Compensation and benefits 480,770 365,215 404,876
Non-compensation expenses: Floor brokerage and clearing fees 58,713
55,080 54,020 Technology and communications 72,361 72,387 70,257
Occupancy and equipment rental 24,420 24,184 26,673 Business
development 26,401 21,937 24,917 Professional services 27,419
24,256 25,345 Other 16,758 15,729
17,767 Total non-compensation expenses 226,072
213,573 218,979 Total
non-interest expenses 706,842 578,788
623,855 Earnings before income taxes 84,712 12,884
99,137 Income tax expense 24,530 331
37,323 Net earnings 60,182 12,553 61,814 Net earnings
attributable to noncontrolling interests 349
871 488 Net earnings attributable to Jefferies
Group LLC $ 59,833 $ 11,682 $ 61,326
Pretax operating margin 10.7 % 2.2 % 13.7 % Effective tax rate 29.0
% 2.6 % 37.6 %
JEFFERIES GROUP LLC AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands) (Unaudited)
Six Months Ended May 31, 2015 May
31, 2014 Revenues: Commissions $ 340,430 $ 329,441
Principal transactions 261,439 421,779 Investment banking 676,257
745,469 Asset management fees and investmentincome (loss) from
managed funds (4,187 ) 6,856 Interest income 469,422 532,808 Other
revenues 48,481 31,473 Total revenues
1,791,842 2,067,826 Interest expense 408,616
445,806 Net revenues 1,383,226
1,622,020 Non-interest expenses: Compensation and
benefits 845,985 912,775 Non-compensation expenses: Floor
brokerage and clearing fees 113,793 103,533 Technology and
communications 144,748 134,563 Occupancy and equipment rental
48,604 53,175 Business development 48,338 51,393 Professional
services 51,675 50,164 Other 32,487 35,011
Total non-compensation expenses 439,645
427,839 Total non-interest expenses 1,285,630
1,340,614 Earnings before income taxes 97,596 281,406
Income tax expense 24,861 104,200 Net
earnings 72,735 177,206 Net earnings attributable to noncontrolling
interests 1,220 3,448 Net earnings
attributable to Jefferies Group LLC $ 71,515 $ 173,758
Pretax operating margin 7.1 % 17.3 % Effective tax
rate 25.5 % 37.0 %
JEFFERIES GROUP LLC AND
SUBSIDIARIES CONSOLIDATED ADJUSTED SELECTED FINANCIAL
DATA (Amounts in Thousands) (Unaudited)
Quarter Ended May 31, 2015
GAAP Adjustments Adjusted Net revenues
$ 791,554 $ 34,589 (1) $ 756,965 Non-interest expenses:
Compensation and benefits 480,770 34,473 (2) 446,297
Non-compensation expenses 226,072 38,536
(3) 187,536 Total non-interest expenses
706,842 73,009 (4) 633,833
Operating income (loss) $ 84,712 $ (38,420 ) $
123,132 Net earnings (loss) $ 60,182 $ (25,940 ) $
86,122 Compensation ratio (a) 60.7 % 59.0 %
Quarter Ended February 28, 2015 GAAP
Adjustments Adjusted Net revenues $ 591,672 $
49,933 (1) $ 541,739 Non-interest expenses: Compensation and
benefits 365,215 23,980 (2) 341,235 Non-compensation expenses
213,573 38,597 (3) 174,976
Total non-interest expenses 578,788
62,577 516,211 Operating income (loss)
$ 12,884 $ (12,644 ) $ 25,528 Net earnings (loss) $
12,553 $ (6,961 ) $ 19,514 Compensation ratio
(a) 61.7 % 63.0 %
Quarter Ended May 31, 2014
GAAP Adjustments Adjusted Net revenues
$ 722,992 $ 50,734 (1) $ 672,258 Non-interest expenses:
Compensation and benefits 404,876 29,756 (2) 375,120
Non-compensation expenses 218,979 36,573 (3)
182,406 Total non-interest expenses 623,855
66,329 557,526 Operating income
(loss) $ 99,137 $ (15,595 ) $ 114,732 Net earnings
(loss) $ 61,814 $ (8,341 ) $ 70,155
Compensation ratio (a) 56.0 % 55.8 % (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 exiting 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)
Six Months Ended May 31, 2015 GAAP
Adjustments Adjusted Net revenues $ 1,383,226
$ 84,522 (1) $ 1,298,704 Non-interest expenses: Compensation
and benefits 845,985 58,453 (2) 787,532 Non-compensation expenses
439,645 77,133 (3) 362,512
Total non-interest expenses 1,285,630
135,586 (4) 1,150,044 Operating income
(loss) $ 97,596 $ (51,064 ) $ 148,660 Net
earnings (loss) $ 72,735 $ (32,901 ) $ 105,636
Compensation ratio (a) 61.2 % 60.6 %
Six Months
Ended May 31, 2014 GAAP Adjustments
Adjusted Net revenues $ 1,622,020 $ 99,962 (1) $
1,522,058 Non-interest expenses: Compensation and benefits
912,775 54,222 (2) 858,553 Non-compensation expenses 427,839
68,443 (3) 359,396 Total
non-interest expenses 1,340,614 122,665
1,217,949 Operating income (loss) $ 281,406
$ (22,703 ) $ 304,109 Net earnings (loss) $
177,206 $ (11,470 ) $ 188,676 Compensation
ratio (a) 56.3 % 56.4 % (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 exiting 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) 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 and occupancy 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.
(4) Total non-interest expenses for the period include costs
of $28.6 million, on a pre-tax basis, related to our exit of the
Bache business. The after-tax effect of these costs is $20.5
million. These costs consist primarily of severance, retention and
benefit payments for employees, incremental amortization of
outstanding restricted stock and cash awards, contract termination
costs and incremental amortization expense of capitalized software
expected to no longer be used subsequent to the wind-down of the
business. We expect to incur additional costs of $48.6 million and
$34.3 million on a pre-tax and post-tax basis, respectively, over
the remainder of fiscal 2015.
JEFFERIES GROUP LLC AND
SUBSIDIARIES SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data) (Unaudited)
Quarter Ended May 31,
2015 February 28, 2015 May 31, 2014
Revenues by
Source
Equities $ 228,198 $ 203,479 $ 177,238 Fixed income 153,444 126,035
217,706 Total sales and trading 381,642 329,514
394,944 Equity 108,805 79,071 83,726 Debt 154,670 60,876
147,000 Capital markets 263,475 139,947 230,726
Advisory 140,787 132,048 100,423 Total investment
banking 404,262 271,995 331,149 Asset management fees and
investment income (loss)from managed funds: Asset management fees
4,903 13,985 4,927 Investment (loss) income from managed funds 747
(23,822 ) (8,028 ) Total 5,650 (9,837 ) (3,101 )
Net
revenues $ 791,554 $ 591,672
$ 722,992
Other
Data
Number of trading days 63 61 63 Number of trading loss days 10 11
11 Number of trading loss days excluding Knight Capital 5 9 4
Average firmwide VaR (in millions) (A) $ 12.80 $ 13.27 $
14.94 Average firmwide VaR excluding Knight Capital (in millions)
(A) $ 9.86 $ 9.29 $ 8.63 Average firmwide VaR excluding Knight
Capital and HRG Group Inc. (in millions) (A) $ 9.86 $ 9.29 $ 7.97
(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, 2014.
JEFFERIES
GROUP LLC AND SUBSIDIARIES SELECTED STATISTICAL
INFORMATION (Amounts in Thousands, Except Other Data)
(Unaudited) Six Months
Ended May 31, 2015 May 31, 2014
Revenues by
Source
Equities $ 431,677 $ 366,061 Fixed income 279,479 503,634
Total sales and trading 711,156 869,695 Equity
187,876 178,464 Debt 215,546 320,038 Capital markets
403,422 498,502 Advisory 272,835 246,967 Total
investment banking 676,257 745,469 Asset management fees and
investment income (loss)from managed funds: Asset management fees
18,888 14,373 Investment (loss) income from managed funds (23,075 )
(7,517 ) Total (4,187 ) 6,856
Net revenues $
1,383,226 $ 1,622,020
Other
Data
Number of trading days 124 124 Number of trading loss days 21 18
Number of trading loss days excluding Knight Capital 14 5
Average firmwide VaR (in millions) (A) $ 13.03 $ 15.60 Average
firmwide VaR excluding Knight Capital (in millions) (A) $ 9.58 $
10.60 Average firmwide VaR excluding Knight Capital and HRG Group
Inc. (in millions) (A) $ 9.58 $ 8.59 (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, 2014.
JEFFERIES GROUP LLC AND
SUBSIDIARIES FINANCIAL HIGHLIGHTS (Amounts in
Millions, Except Where Noted) (Unaudited)
Quarter Ended May 31, 2015
February 28, 2015 May 31, 2014
Financial
position:
Total assets (1) $ 44,142 $ 43,787 $ 43,610 Average total assets
for the period (1) $ 51,013 $ 49,862 $ 50,379 Average total assets
less goodwill and intangible assets for the period (1) $ 49,118 $
47,961 $ 48,394 Cash and cash equivalents (1) $ 3,289 $
3,340 $ 3,958 Cash and cash equivalents and other sources of
liquidity (1) (2) $ 4,951 $ 4,647 $ 5,824 Cash and cash equivalents
and other sources of liquidity - % total assets (1) (2) 11.2 % 10.6
% 13.4 % Cash and cash equivalents and other sources of liquidity -
% total assets less goodwill
and intangible assets (1) (2)
11.7 % 11.1 % 14.0 % Financial instruments owned (1) $
18,843 $ 19,099 $ 17,144 Goodwill and intangible assets (1) $ 1,895
$ 1,900 $ 1,984 Total equity (including noncontrolling
interests) $ 5,520 $ 5,466 $ 5,527 Total member's equity $ 5,480 $
5,427 $ 5,496 Tangible member's equity (3) $ 3,585 $ 3,527 $ 3,512
Bache assets (4) $ 2,955 $ 3,926 $ 3,271
Level 3 financial
instruments:
Level 3 financial instruments owned (1) (5) (6) $ 540 $ 540 $ 453
Level 3 financial instruments owned - % total assets (1) (6) 1.2 %
1.2 % 1.0 % Total Level 3 financial instruments owned - % total
financial instruments (1) (6) 2.9 % 2.8 % 2.6 % Level 3 financial
instruments owned - % tangible member's equity (1) (6) 15.1 % 15.3
% 12.9 %
Other data and
financial ratios:
Total capital (1) (7) $ 10,860 $ 11,193 $ 11,941 Leverage ratio (1)
(8) 8.0 8.0 7.9 Adjusted leverage ratio (1) (9) 10.3 10.1 10.0
Tangible gross leverage ratio (1) (10) 11.8 11.9 11.9 Leverage
ratio - excluding impacts of the Leucadia transaction (1) (11) 10.1
10.1 10.0 Number of trading days 63 61 63 Number of trading
loss days 10 11 11 Number of trading loss days excluding Knight
Capital 5 9 4 Average firmwide VaR (12) $ 12.80 $ 13.27 $ 14.94
Average firmwide VaR excluding Knight Capital (12) $ 9.86 $ 9.29 $
8.63 Average firmwide VaR excluding Knight Capital and HRG Group
Inc. (12) $ 9.86 $ 9.29 $ 7.97 Number of employees, at
period end 3,830 3,936 3,785
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
(1) Amounts pertaining to May 31, 2015 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
quarterly period ended May 31, 2015. (2) At May 31, 2015,
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 $1,135 million, in aggregate,
and $527 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
February 28, 2015 were $911 million and $396 million, respectively,
and at May 31, 2014, were $1,202 million and $664 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) In May 2015, the Financial
Accounting Standards Board issued Accounting Standards Update No.
2015-07, “Fair Value Measurement (Topic 820) - Disclosures for
Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent).” The guidance removes the requirement to
include investments in the fair value hierarchy for which the fair
value is measured at net asset value using the practical expedient
under “Fair Value Measurements and Disclosures (Topic 820).” The
guidance also removes the requirement to make certain disclosures
for all investments that are eligible to be measured at fair value
using the net asset value practical expedient. Rather, those
disclosures are limited to investments for which we have elected to
measure the fair value using that practical expedient. The guidance
is effective retrospectively beginning in the first quarter of
fiscal 2017. Early adoption is permitted and we have early adopted
this guidance during the second quarter of fiscal 2015. (7)
At May 31, 2015, February 28, 2015 and May 31, 2014, total capital
includes our long-term debt of $5,340 million, $5,726 million and
$6,414 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 May 31, 2015, February 28, 2015 and May 31, 2014,
adjusted assets were $37,172 million, $35,977 million and $35,577
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:
May 31, February
28, May 31, $ millions
2015 2015
2014 Total assets $ 44,142 $ 43,787 $ 43,610 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
116 112 37 Total assets excluding transaction
impacts $ 42,301 $ 41,942 $ 41,690
Total equity $ 5,520 $ 5,466 $ 5,527 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
(31 ) (20 ) (48 ) Total equity excluding transaction impacts $
4,188 $ 4,145 $ 4,178 Leverage ratio -
excluding impacts of the Leucadia transaction 10.1 10.1
10.0 (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,
2014.
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version on businesswire.com: http://www.businesswire.com/news/home/20150616005940/en/
Jefferies Group LLCPeregrine C. Broadbent, (212) 284-2338Chief
Financial Officer
Leucadia (NYSE:LUK)
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