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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Jefferies Financial Group Inc | NYSE:JEF | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.95 | 2.16% | 44.86 | 44.91 | 44.22 | 44.45 | 698,065 | 01:00:00 |
Quarterly Cash Dividend of $0.15 per Jefferies Common Share Declared Share Repurchase Authorization Increased to $250 Million
Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and six month periods ended May 31, 2020. In addition, the Jefferies Board of Directors declared a quarterly cash dividend equal to $0.15 per Jefferies common share payable on August 28, 2020 to record holders of Jefferies common shares on August 17, 2020. The Jefferies Board of Directors also increased the Company's stock buyback authorization by $177 million to a total of $250 million. We expect to file our Form 10-Q on or about July 9, 2020.
Highlights for the three months ended May 31, 2020:
Highlights for the six months ended May 31, 2020:
Rich Handler, our CEO, and Brian Friedman, our President, said:
"From the very start of our second fiscal quarter on March 1st and for the duration of our second quarter, all of us at Jefferies Group endured a surreal environment unlike anything we could ever have imagined. The most challenging health crisis to overtake the world in over a century caused a shutdown of a large portion of the global economy. We at Jefferies immediately pivoted to operate from nearly 4,000 different home offices across the globe, as we worked tirelessly to keep our team safe, do our best to help our clients navigate unprecedented volatility and opacity, and protect Jefferies from the incredible financial storm. Peg Broadbent, our longstanding esteemed Jefferies Group CFO tragically died from complications of the Coronavirus in March. We lost an incredible individual whom we all cherished and miss dearly. In Peg's memory, our clients, employees and firm came together to contribute $9.25 million to over 85 front line charities aiding those most affected by COVID-19 and in greatest need.
"Despite the incredibly challenging, volatile and sad environment, our Jefferies team not only survived the quarter, but truly achieved remarkable results and continued momentum across our products, services and geographies. We collectively demonstrated the distinct value to our clients and our shareholders of a diversified and integrated investment banking and capital markets platform with a true global reach. Without hyperbole, the Jefferies team operated at peak performance and the two of us are in awe of our team that was remarkably resilient, passionately dedicated and impeccably skilled in serving our clients exactly when they needed Jefferies most. We have been through many challenging periods in our combined 50 years at Jefferies, and all we can say at this time to everyone at Jefferies is 'thank you for being truly the best.'
"Our second quarter ended with the world beginning to come to grips with the racism, hatred, bigotry and unfairness that sadly still grips much of our nation and world today. As we move forward in our second half of 2020, we at Jefferies will be working to fully acknowledge and attempt to do our part to help eradicate the pain of racism so many African Americans (and others) have been living with for too long. We will listen intently and with open eyes, ears and hearts to learn how we can best be part of the solution. We are committed to action and results that will help make the world a better and more equal place for all people, and fully recognize that this likely will be an ongoing battle that will require long-term commitment and relentless dedication and passion, traits we have honed together in building Jefferies.
"Finally, we implore everyone to wear a mask when out in public. When you wear a mask, you do it out of respect for your fellow humans and we believe masks (and testing) will be critical to allowing all of us to protect those most at risk as our medical experts work tirelessly to develop the needed therapeutics, vaccines and methods of delivering them in mass quantities. Working together will allow us all to best navigate this incredibly difficult period and bridge our path to a more normal way of life that we will never take for granted."
* * * *
Amounts herein pertaining to May 31, 2020 represent a preliminary estimate as of the date of this earnings release and may be revised upon filing our Quarterly Report on Form 10-Q with the Securities and Exchange Commission ("SEC"). More information on our results of operations for the three and six month periods ended May 31, 2020 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC.
This press release contains "forward-looking statements" within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words "should," "expect," "intend," "may," "will," or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC.
Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s).
1
Return on tangible equity (a non-GAAP financial measure) equals our three months ended May 31, 2020 annualized net earnings attributable to Jefferies Group LLC divided by our tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) of $4,503 million at February 29, 2020. Tangible Jefferies Group LLC member's equity at February 29, 2020 equals Jefferies Group LLC member's equity of $6,313 million less goodwill and identifiable intangibles assets of $1,810 million.
2
Allocated net interest represents the allocation of a ratable portion of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity, which allocation is consistent with Jefferies Group LLC's policy of allocating such items to all its business lines. Refer to Jefferies Group LLC's summary of Net Revenues by Source on page 9 and 10.
3
Shares outstanding on a fully diluted basis, a non-GAAP measure, is defined as Jefferies Financial Group's common shares outstanding plus restricted stock units and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
4
Tangible book value per fully diluted share, a non-GAAP measure, is defined as Tangible book value divided by shares outstanding on a fully diluted basis. Tangible book value, a non-GAAP measure, is defined as Jefferies Financial Group shareholders' equity (book value) less Intangible assets, net and goodwill. Shares outstanding on a fully diluted basis, a non-GAAP measure, is defined as Jefferies Financial Group's common shares outstanding plus restricted stock units and other shares. Refer to schedule on page 14 for reconciliation to U.S. GAAP amounts.
5
Return on tangible equity (a non-GAAP financial measure) equals our first six months of 2020 annualized net earnings attributable to Jefferies Group LLC divided by our tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) of $4,311 million at November 30, 2019. Tangible Jefferies Group LLC member's equity at November 30, 2019 equals Jefferies Group LLC member's equity of $6,125 million less goodwill and identifiable intangibles assets of $1,814 million.
Summary for Jefferies Financial Group Inc. and Subsidiaries (In thousands, except per share amounts) (Unaudited)
Three Months Ended May 31, 2020
Three Months Ended May 31, 2019
Six Months Ended May 31, 2020
Six Months Ended May 31, 2019
Net revenues
$
1,147,589
$
1,101,657
$
2,533,917
$
1,930,100
Income before income taxes and income (loss) related to associated companies
$
82,228
$
161,309
$
307,877
$
183,313
Income (loss) related to associated companies
(6,721
)
22,170
(74,576
)
49,483
Income before income taxes
75,507
183,479
233,301
232,796
Income tax provision (benefit)
31,962
(488,797
)
77,735
(486,495
)
Net income
43,545
672,276
155,566
719,291
Net (income) loss attributable to the noncontrolling interests
2,580
191
4,709
(875
)
Net (income) loss attributable to the redeemable noncontrolling interests
198
(427
)
480
(289
)
Preferred stock dividends
(1,404
)
(1,276
)
(2,826
)
(2,552
)
Net income attributable to Jefferies Financial Group Inc. common shareholders
$
44,919
$
670,764
$
157,929
$
715,575
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Net income
$
0.16
$
2.17
$
0.53
$
2.29
Number of shares in calculation
286,764
307,010
294,590
311,108
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Net income
$
0.16
$
2.14
$
0.53
$
2.25
Number of shares in calculation
286,764
312,527
295,301
317,736
A summary of results for the three months ended May 31, 2020 is as follows (in thousands):
Investment Banking and Capital Markets (1)
Asset Management (1)
Merchant Banking (1)
Corporate
Parent Company Interest
Consolidation Adjustments
Total
Net revenues
$
1,028,832
$
7,391
$
107,162
$
1,525
$
—
$
2,679
$
1,147,589
Expenses:
Compensation and benefits
551,821
26,502
13,973
6,171
—
—
598,467
Cost of sales (2)
67,601
7,878
80,771
—
—
—
156,250
Interest expense
—
—
8,282
—
12,878
—
21,160
Depreciation and amortization
19,981
2,133
17,378
874
—
—
40,366
Selling, general and other expenses
174,895
12,431
54,753
7,334
—
(295
)
249,118
Total expenses
814,298
48,944
175,157
14,379
12,878
(295
)
1,065,361
Income (loss) before income taxes and loss related to associated companies
214,534
(41,553
)
(67,995
)
(12,854
)
(12,878
)
2,974
82,228
Loss related to associated companies
—
—
(6,721
)
—
—
—
(6,721
)
Income (loss) from before income taxes
$
214,534
$
(41,553
)
$
(74,716
)
$
(12,854
)
$
(12,878
)
$
2,974
75,507
Income tax provision
31,962
Net income
$
43,545
A summary of results for the three months ended May 31, 2019 is as follows (in thousands):
Investment Banking and Capital Markets (1)
Asset Management (1)
Merchant Banking (1)
Corporate
Parent Company Interest
Consolidation Adjustments
Total
Net revenues
$
859,275
$
44,362
$
185,379
$
8,974
$
—
$
3,667
$
1,101,657
Expenses:
Compensation and benefits
470,530
13,338
13,931
12,761
—
—
510,560
Cost of sales (2)
50,218
10,169
80,415
—
—
—
140,802
Interest expense
—
—
8,372
—
14,766
—
23,138
Depreciation and amortization
18,588
505
16,826
867
—
—
36,786
Selling, general and other expenses
177,358
12,240
30,356
9,231
—
(123
)
229,062
Total expenses
716,694
36,252
149,900
22,859
14,766
(123
)
940,348
Income (loss) before income taxes and income related to associated companies
142,581
8,110
35,479
(13,885
)
(14,766
)
3,790
161,309
Income related to associated companies
—
120
22,050
—
—
—
22,170
Income (loss) before income taxes
$
142,581
$
8,230
$
57,529
$
(13,885
)
$
(14,766
)
$
3,790
183,479
Income tax benefit
(488,797
)
Net income
$
672,276
(1)
We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure.
(2)
Includes Floor brokerage and clearing fees.
A summary of results for the six months ended May 31, 2020 is as follows (in thousands):
Investment Banking and Capital Markets (1)
Asset Management (1)
Merchant Banking (1)
Corporate
Parent Company Interest
Consolidation Adjustments
Total
Net revenues
$
2,177,661
$
27,720
$
311,721
$
11,317
$
—
$
5,498
$
2,533,917
Expenses:
Compensation and benefits
1,172,745
48,723
31,163
16,029
—
—
1,268,660
Cost of sales (2)
120,475
14,185
153,214
—
—
—
287,874
Interest expense
—
—
17,055
—
25,659
—
42,714
Depreciation and amortization
39,097
2,758
36,219
1,762
—
—
79,836
Selling, general and other expenses
380,853
24,536
127,833
14,134
—
(400
)
546,956
Total expenses
1,713,170
90,202
365,484
31,925
25,659
(400
)
2,226,040
Income (loss) before income taxes and loss related to associated companies
464,491
(62,482
)
(53,763
)
(20,608
)
(25,659
)
5,898
307,877
Loss related to associated companies
—
—
(74,576
)
—
—
—
(74,576
)
Income (loss) from before income taxes
$
464,491
$
(62,482
)
$
(128,339
)
$
(20,608
)
$
(25,659
)
$
5,898
233,301
Income tax provision
77,735
Net income
$
155,566
A summary of results for the six months ended May 31, 2019 is as follows (in thousands):
Investment Banking and Capital Markets (1)
Asset Management (1)
Merchant Banking (1)
Corporate
Parent Company Interest
Consolidation Adjustments
Total
Net revenues
$
1,517,522
$
75,107
$
318,071
$
13,167
$
—
$
6,233
$
1,930,100
Expenses:
Compensation and benefits
831,844
30,192
27,834
30,282
—
—
920,152
Cost of sales (2)
97,354
14,901
147,336
—
—
—
259,591
Interest expense
—
—
16,628
—
29,528
—
46,156
Depreciation and amortization
35,918
960
32,120
1,722
—
—
70,720
Selling, general and other expenses
354,708
19,980
59,378
16,391
—
(289
)
450,168
Total expenses
1,319,824
66,033
283,296
48,395
29,528
(289
)
1,746,787
Income (loss) before income taxes and income related to associated companies
197,698
9,074
34,775
(35,228
)
(29,528
)
6,522
183,313
Income related to associated companies
—
340
49,143
—
—
—
49,483
Income (loss) before income taxes
$
197,698
$
9,414
$
83,918
$
(35,228
)
$
(29,528
)
$
6,522
232,796
Income tax benefit
(486,495
)
Net income
$
719,291
(1)
We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure.
(2)
Includes Floor brokerage and clearing fees.
The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2019. Amounts herein pertaining to May 31, 2020 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended May 31, 2020.
Jefferies Group LLC and Subsidiaries Consolidated Statements of Earnings (Amounts in Thousands) (Unaudited)
Quarter Ended
May 31, 2020
February 29, 2020
May 31, 2019
Revenues:
Commissions and other fees (1)
$
243,267
$
179,535
$
167,698
Principal transactions
467,283
371,902
248,831
Investment banking
387,491
592,002
430,087
Asset management fees and revenues (2)
4,576
11,720
5,099
Interest
211,941
294,668
418,451
Other (1)(2)
(47,275
)
29,729
44,327
Total revenues
1,267,283
1,479,556
1,314,493
Interest expense
232,916
308,860
412,642
Net revenues
1,034,367
1,170,696
901,851
Non-interest expenses:
Compensation and benefits
571,547
635,230
477,885
Non-compensation expenses:
Floor brokerage and clearing fees
77,619
60,580
62,474
Technology and communications
95,594
89,184
81,645
Occupancy and equipment rental
24,395
27,503
29,748
Business development
8,359
29,957
36,349
Professional services
41,994
44,665
38,066
Underwriting costs
12,485
17,529
12,823
Other
29,506
30,670
7,723
Total non-compensation expenses
289,952
300,088
268,828
Total non-interest expenses
861,499
935,318
746,713
Earnings before income taxes
172,868
235,378
155,138
Income tax expense
43,972
64,013
45,319
Net earnings
128,896
171,365
109,819
Net loss attributable to noncontrolling interests
(1,842
)
(2,024
)
(101
)
Net earnings attributable to Jefferies Group LLC
$
130,738
$
173,389
$
109,920
Pre-tax operating margin
16.7
%
20.1
%
17.2
%
Effective tax rate
25.4
%
27.2
%
29.2
%
(1)
In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. Jefferies Group LLC's Consolidated Statement of Earnings reflects the reclassification of revenues of $7.9 million from Other revenues to Commissions and other fees for the three months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.
(2)
In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC's Consolidated Statement of Earnings reflects the reclassification of revenues of $0.5 million from Other revenues to Asset management fees and revenues for the three months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.
Jefferies Group LLC and Subsidiaries Consolidated Statements of Earnings (Amounts in Thousands) (Unaudited)
Six Months Ended
May 31, 2020
May 31, 2019
Revenues:
Commissions and other fees (1)
$
422,802
$
322,840
Principal transactions
839,185
483,129
Investment banking
979,493
715,683
Asset management fees and revenues (2)
16,296
12,130
Interest
506,609
779,426
Other (1)(2)
(17,546
)
56,157
Total revenues
2,746,839
2,369,365
Interest expense
541,776
781,796
Net revenues
2,205,063
1,587,569
Non-interest expenses:
Compensation and benefits
1,206,777
849,570
Non-compensation expenses:
Floor brokerage and clearing fees
138,199
114,451
Technology and communications
184,778
160,815
Occupancy and equipment rental
51,898
58,287
Business development
38,316
66,904
Professional services
86,659
74,993
Underwriting costs
30,014
21,398
Other
60,176
23,428
Total non-compensation expenses
590,040
520,276
Total non-interest expenses
1,796,817
1,369,846
Earnings before income taxes
408,246
217,723
Income tax expense
107,985
61,539
Net earnings
300,261
156,184
Net earnings (loss) attributable to noncontrolling interests
(3,866
)
283
Net earnings attributable to Jefferies Group LLC
$
304,127
$
155,901
Pre-tax operating margin
18.5
%
13.7
%
Effective tax rate
26.5
%
28.3
%
(1)
In the third quarter of 2019, Jefferies Group LLC reorganized the presentation of certain other fees, primarily related to prime brokerage services offered to clients. Jefferies Group LLC's Consolidated Statement of Earnings reflects the reclassification of revenues of $15.7 million from Other revenues to Commissions and other fees for the six months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.
(2)
In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC's Consolidated Statement of Earnings reflects the reclassification of revenues of $0.9 million from Other revenues to Asset management fees and revenues for the six months ended May 31, 2019. There is no impact on Total revenues as a result of this change in presentation.
Jefferies Group LLC and Subsidiaries Selected Statistical Information (Amounts in Thousands, Except Other Data) (Unaudited)
Quarter Ended
May 31, 2020
February 29, 2020
May 31, 2019
Net Revenues by Source:
Advisory
$
182,081
$
343,158
$
178,554
Equity underwriting
124,383
131,692
108,022
Debt underwriting
81,027
117,152
151,511
Total underwriting
205,410
248,844
259,533
Other investment banking
(71,234
)
(14,529
)
9,634
Total investment banking
316,257
577,473
447,721
Equities
237,131
245,641
206,083
Fixed income
493,144
248,182
173,253
Total capital markets
730,275
493,823
379,336
Other
(17,700
)
77,533
32,218
Total Investment Banking and Capital Markets (1) (2)
1,028,832
1,148,829
859,275
Asset management fees and revenues (3)
4,576
11,720
5,099
Investment return (3) (4) (5)
13,944
20,839
47,526
Allocated net interest (4) (6)
(12,985
)
(10,692
)
(10,049
)
Total Asset Management
5,535
21,867
42,576
Net Revenues
$
1,034,367
$
1,170,696
$
901,851
Other Data:
Number of trading days
63
61
64
Number of trading loss days
11
4
4
Average firmwide VaR (in millions) (7)
$
9.16
$
7.39
$
8.70
(1)
Includes net interest revenue (expense) of $(0.8) million, $2.9 million and $16.4 million for the quarters ended May 31, 2020, February 29, 2020, and May 31, 2019, respectively.
(2)
Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Jefferies Group LLC's Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
(3)
In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC's Net Revenues by Source reflects the reclassification of revenues of $0.5 million from Investment return revenues to Asset management fees and revenues for the three months ended May 31, 2019. There is no impact on Total Asset Management revenues as a result of this change in presentation.
(4)
Net revenues attributed to the Investment return in Jefferies Group LLC's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnotes 5 and 6). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to Jefferies Group LLC's credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(5)
Includes net interest expense of $7.2 million, $6.4 million and $0.6 million for the quarters ended May 31, 2020, February 29, 2020, and May 31, 2019, respectively.
(6)
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity (refer to page 11).
(7)
VaR estimates the potential loss in value of Jefferies Group LLC's 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 Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2019.
Jefferies Group LLC and Subsidiaries Selected Statistical Information (Amounts in Thousands, Except Other Data) (Unaudited)
Six Months Ended
May 31, 2020
May 31, 2019
Net Revenues by Source:
Advisory
$
525,239
$
359,036
Equity underwriting
256,075
159,359
Debt underwriting
198,179
205,288
Total underwriting
454,254
364,647
Other investment banking
(85,763
)
1,992
Total investment banking
893,730
725,675
Equities
482,772
380,622
Fixed income
741,326
370,012
Total capital markets
1,224,098
750,634
Other
59,833
41,213
Total Investment Banking and Capital Markets (1) (2)
2,177,661
1,517,522
Asset management fees and revenues (3)
16,296
12,130
Investment return (3) (4) (5)
34,783
79,576
Allocated net interest (4) (6)
(23,677
)
(21,659
)
Total Asset Management
27,402
70,047
Net Revenues
$
2,205,063
$
1,587,569
Other Data:
Number of trading days
124
123
Number of trading loss days
15
13
Average firmwide VaR (in millions) (7)
$
8.29
$
8.87
(1)
Includes net interest revenue of $2.1 million and $21.0 million for the six months ended May 31, 2020 and 2019, respectively.
(2)
Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Jefferies Group LLC's Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.
(3)
In the fourth quarter of 2019, Jefferies Group LLC reorganized the presentation of revenues from arrangements which entitle us to certain portions of revenues and/or profits of strategic asset management partners. Jefferies Group LLC's Net Revenues by Source reflects the reclassification of revenues of $0.9 million from Investment return revenues to Asset management fees and revenues for the six months ended May 31, 2019. There is no impact on Total Asset Management revenues as a result of this change in presentation.
(4)
Net revenues attributed to the Investment return in Jefferies Group LLC's Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnotes 5 and 6). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to Jefferies Group LLC's credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.
(5)
Includes net interest expense of $13.6 million and $1.7 million for the six months ended May 31, 2020 and 2019, respectively.
(6)
Allocated net interest represents the allocation of Jefferies Group LLC's long-term debt interest expense to Jefferies Group LLC's Asset Management reportable segment, net of interest income on Jefferies Group LLC's Cash and cash equivalents and other sources of liquidity (refer to page 11).
(7)
VaR estimates the potential loss in value of Jefferies Group LLC's 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 Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2019.
Jefferies Group LLC and Subsidiaries Financial Highlights (Amounts in Millions, Except Where Noted) (Unaudited)
Quarter Ended
May 31, 2020
February 29, 2020
May 31, 2019
Financial position:
Total assets (1)
$
45,084
$
46,203
$
42,818
Average total assets for the period (1)
$
56,480
$
55,333
$
53,675
Average total assets less goodwill and intangible assets for the period (1)
$
54,673
$
53,518
$
51,851
Cash and cash equivalents (1)
$
5,252
$
4,901
$
4,213
Cash and cash equivalents and other sources of liquidity (1) (2)
$
6,542
$
6,371
$
5,701
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)
14.5
%
13.8
%
13.3
%
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)
15.1
%
14.4
%
13.9
%
Financial instruments owned (1)
$
18,125
$
17,897
$
16,096
Goodwill and intangible assets (1)
$
1,800
$
1,810
$
1,818
Right-of-use assets (1) (3)
$
501
$
512
N/A
Total equity (including noncontrolling interests) (1)
$
6,430
$
6,332
$
6,179
Total Jefferies Group LLC member's equity (1)
$
6,412
$
6,313
$
6,173
Tangible Jefferies Group LLC member's equity (1) (4)
$
4,612
$
4,503
$
4,355
Level 3 financial instruments:
Level 3 financial instruments owned (1) (5)
$
413
$
346
$
367
Level 3 financial instruments owned - % total assets (1) (5)
0.9
%
0.7
%
0.9
%
Level 3 financial instruments owned - % total financial instruments (1) (5)
2.3
%
1.9
%
2.3
%
Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (5)
9.0
%
7.7
%
8.4
%
Other data and financial ratios:
Total long-term capital (1) (6)
$
12,102
$
12,706
$
11,444
Leverage ratio (1) (7)
7.0
7.3
6.9
Tangible gross leverage ratio (1) (8)
9.4
9.9
9.4
Adjusted tangible gross leverage ratio (1) (3) (9)
10.4
11.0
N/A
Number of trading days
63
61
64
Number of trading loss days
11
4
4
Average firmwide VaR (10)
$
9.16
$
7.39
$
8.70
Number of employees, at period end
3,850
3,822
3,656
N/A — Not Applicable
Jefferies Group LLC and Subsidiaries
Financial Highlights - Footnotes
(1)
Amounts pertaining to May 31, 2020 represent a preliminary estimate as of the date of this earnings release and may be revised in Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended May 31, 2020.
(2)
At May 31, 2020, 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 $998 million, in aggregate, and $292 million, being the estimated amount of additional secured financing that could be reasonably expected to be obtained from Jefferies Group LLC's financial instruments that are currently not pledged after considering reasonable financing haircuts. The corresponding amounts included in other sources of liquidity at February 29, 2020 were $638 million and $832 million, respectively, and at May 31, 2019, were $1,175 million and $313 million, respectively.
(3)
Jefferies Group LLC adopted the new lease standard on December 1, 2019 using a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in effect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the lease classification and initial direct costs of existing leases upon transition. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of ROU assets of $520 million, reflected in Premises and equipment in Jefferies Group LLC's Consolidated Statement of Financial Condition.
(4)
Tangible Jefferies Group LLC member's equity (a non-GAAP financial measure) represents total Jefferies Group LLC member's equity less goodwill and identifiable intangible assets. We believe that tangible Jefferies Group LLC member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible equity, making these ratios meaningful for investors.
(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)
At May 31, 2020, February 29, 2020, and May 31, 2019, total long-term capital includes Jefferies Group LLC's long-term debt of $5,672 million, $6,374 million and $5,265 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility, amounts from secured term loans and the amount of debt maturing in less than one year, as applicable.
(7)
Leverage ratio equals total assets divided by total equity.
(8)
Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member's equity. The tangible gross leverage ratio is used by rating agencies in assessing Jefferies Group LLC's leverage ratio.
(9)
Adjusted tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets and right-of-use assets divided by tangible Jefferies Group LLC member's equity less right-of-use assets.
(10)
VaR estimates the potential loss in value of Jefferies Group LLC's trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value-at-Risk" in Part II, Item 7 "Management's Discussion and Analysis" in Jefferies Group LLC's Annual Report on Form 10-K for the year ended November 30, 2019.
Merchant Banking Net Asset Overview
As of May 31, 2020 ($ Millions)
(Unaudited) Book Value
Estimated Fair Value (2)
Basis for Fair Value Estimate
Linkem
$
214
$
630
Income approach and market comparable method
Real estate assets (1)
541
557
Various
Oil and Gas (Vitesse and JETX)
576
547
Income approach, market comparable and market transaction method
Idaho Timber
85
155
Income approach, market comparable and market transaction method
FXCM
130
144
Income approach and market comparable method
Investments in Public Companies
127
127
Mark-to-market (same for GAAP book value)
Other
266
323
Various
Total Portfolio
$
1,939
$
2,483
(1)
Primarily HomeFed
(2)
The following table reconciles financial results reported in accordance with U.S. GAAP to non-GAAP financial results. The table above contains non-GAAP financial information to aid investors in viewing our businesses and investments through the eyes of management while facilitating a comparison across historical periods. However, these non-GAAP financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in accordance with U.S. GAAP.
Reconciliation of Book Value of Merchant Banking Investments to Estimated Fair Value ($ Millions)
(Unaudited) Book Value May 31, 2020
Fair Value Adjustments
Estimated Fair Value May 31, 2020
(GAAP)
(Non-GAAP)
Linkem
$
214
$
416
$
630
Real estate assets
541
16
557
Oil and Gas (Vitesse and JETX)
576
(29
)
547
Idaho Timber
85
70
155
FXCM
130
14
144
Investments in Public Companies
127
—
127
Other
266
57
323
Total Portfolio
$
1,939
$
544
$
2,483
Jefferies Financial Group Inc. Non-GAAP Reconciliation
The following table reconciles Jefferies Financial Group non-GAAP measures to their respective U.S. GAAP measures. Management believes such non-GAAP measures are useful to investors as they allow them to view our results through the eyes of management, while facilitating a comparison across historical periods. These measures should not be considered a substitute for, or superior to, measures prepared in accordance with U.S. GAAP.
Jefferies Financial Group Book Value and Shares Outstanding GAAP Reconciliation
The table below reconciles our book value to tangible book value and our common shares outstanding to fully diluted shares outstanding (in thousands, except per share amounts):
As Reported, May 31, 2020
Book value (GAAP)
$
9,326,554
Less: Intangibles assets, net and goodwill
(1,910,204
)
Tangible book value (non-GAAP)
$
7,416,350
Common shares outstanding (GAAP)
267,111
Restricted stock units ("RSUs")
22,471
Other
1,092
Fully diluted shares outstanding (non-GAAP) (1)
290,674
Book value per share outstanding
$
34.92
Tangible book value per fully diluted share outstanding
$
25.51
(1) Fully diluted shares outstanding exclude preferred shares as they are antidilutive. Fully diluted shares outstanding include vested RSUs as well as the target number of RSUs issuable under the senior executive compensation plans.
View source version on businesswire.com: https://www.businesswire.com/news/home/20200629005797/en/
Teresa S. Gendron Chief Financial Officer Jefferies Financial Group Inc. Tel. (212) 460-1932
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