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Jefferies Reports Fiscal First Quarter 2015 Financial Results

2015-03-18 14:33
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NEW YORK--()--Jefferies Group LLC today announced financial results for its fiscal first quarter 2015.

Highlights for the three months ended February 28, 2015, with adjusted amounts excluding the operating results of our Bache business:

  • Total Net revenues of $592 million
  • Total Adjusted Net Revenues (excluding Bache) of $536 million1
  • Net earnings of $13 million
  • Adjusted Net earnings (excluding Bache) of $20 million1

Richard B. Handler, Chairman and Chief Executive Officer, and Brian P. Friedman, Chairman of the Executive Committee, commented: “We experienced a slow first quarter due to a tepid fixed income trading market and fewer new issues in leveraged finance capital markets. Despite these results, and in view of an improving environment, we believe Jefferies’ prospects for the remainder of 2015 are good. Our Investment Banking backlog is currently solid, and fixed income trading markets appear to have stabilized.”

The attached financial tables should be read in connection with our Annual Report on Form 10-K for the year ended November 30, 2014.

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.

1 Adjusted financial measures are non-GAAP financial measures. Management believes such measures provide meaningful information to investors as they enable investors to evaluate the Company's results in the context of our pursuing various strategic alternatives for the Bache business. Refer to the Supplemental Schedules on pages 3-4 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures.

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)
                           
        Quarter Ended     Quarter Ended     Quarter Ended
        February 28, 2015     November 30, 2014     February 28, 2014
                           
Revenues:                          
Commissions       $ 166,922     $ 180,275     $ 162,063
Principal transactions         105,477       (33,841)       238,363
Investment banking         271,995       316,012       414,320

Asset management fees and investment income (loss) from managed funds

        (9,837)       1,728       9,957
Interest income         228,870       237,911       249,268
Other revenues         19,905       20,919       23,069
Total revenues         783,332       723,004       1,097,040
Interest expense         191,660       198,195       198,012
Net revenues         591,672       524,809       899,028
                           
Non-interest expenses:                          
Compensation and benefits         365,215       308,487       507,899
                           
Non-compensation expenses:                          
Floor brokerage and clearing fees         55,080       55,829       49,513
Technology and communications         72,387       66,363       64,306
Occupancy and equipment rental         24,184       26,115       26,502
Business development         21,937       27,791       26,476
Professional services         24,256       28,206       24,819
Bad debt provision         (1,018)       50,772       2,614
Goodwill impairment         -       54,000       -
Other         16,747       21,266       14,630
Total non-compensation expenses         213,573       330,342       208,860
Total non-interest expenses         578,788       638,829       716,759
Earnings (loss) before income taxes         12,884       (114,020)       182,269
Income tax expense (benefit)         331       (13,901)       66,877
Net earnings (loss)         12,553       (100,119)       115,392
Net earnings (loss) attributable to noncontrolling interests         871       (360)       2,960
Net earnings (loss) attributable to Jefferies Group LLC       $ 11,682     $ (99,759)     $ 112,432
                           
Pretax operating margin         2.2%       -21.7%       20.3%
Effective tax rate         2.6%       12.2%       36.7%
 
 

 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA
(Amounts in Thousands)
(Unaudited)
                           
      Quarter Ended February 28, 2015
      GAAP     Adjustments       Adjusted
                           
                           
Net revenues     $ 591,672     $ 55,906   (1)   $ 535,766
                           
Non-interest expenses:                          
Compensation and benefits       365,215       27,067   (2)     338,148
Non-compensation expenses       213,573       41,785   (3)     171,788
Total non-interest expenses       578,788       68,852         509,936
                           
Operating income (loss)     $ 12,884     $ (12,946)       $ 25,830
                           
Net earnings (loss)     $ 12,553     $ (7,724)       $ 20,277
                           
Compensation ratio (a)       61.7%                 63.1%
                           
                           
      Quarter Ended November 30, 2014
      GAAP     Adjustments       Adjusted
                           
                           
Net revenues     $ 524,809     $ 43,627   (1)   $ 481,182
                           
Non-interest expenses:                          
Compensation and benefits       308,487       27,163   (2)     281,324
Non-compensation expenses       330,342       148,287   (4)     182,055
Total non-interest expenses       638,829       175,450         463,379
                           
Operating income (loss)     $ (114,020)     $ (131,823)       $ 17,803
                           
Net earnings (loss)     $ (100,119)     $ (111,899)       $ 11,780
                           
Compensation ratio (a)       58.8%                 58.5%
                           
                           
      Quarter Ended February 28, 2014
      GAAP     Adjustments       Adjusted
                           
Net revenues     $ 899,028     $ 47,172   (1)   $ 851,856
                           
Non-interest expenses:                          
Compensation and benefits       507,899       28,617   (2)     479,282
Non-compensation expenses       208,860       32,840   (3)     176,020
Total non-interest expenses       716,759       61,457         655,302
                           
Operating income (loss)     $ 182,269     $ (14,285)       $ 196,554
                           
Net earnings (loss)     $ 115,392     $ (8,969)       $ 124,361
                           
Compensation ratio (a)       56.5%                 56.3%
 

(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 pursuing various strategic alternatives for 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 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)   The following expenses incurred as part of the Bache business during the period presented are excluded from Adjusted non-compensation expenses:
 
 
 
$ thousands      

Quarter Ended
November 30,
2014

Floor brokerage, technology and communications, business

         

development, professional services and other estimated

         

expenses directly incurred by the Bache business in

         

conducting operations

      $ 36,553
Bad debt expense incurred on customer default and close-out         52,300
Impairment of goodwill attributed to the Bache reporting unit         51,900

Impairment of certain intangible assets attributed to the Bache

         

reporting unit

        7,534
        $ 148,287
         
 

 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)
                     
        Quarter Ended     Quarter Ended     Quarter Ended
        February 28, 2015     November 30, 2014     February 28, 2014

Revenues by Source

                   
Equities       $ 203,479       $ 158,452       $ 188,823
Fixed income         126,035         48,617         285,928
Total         329,514         207,069         474,751
                     
Equity         79,071         67,910         94,738
Debt         60,876         131,901         173,038
Capital markets         139,947         199,811         267,776
Advisory         132,048         116,201         146,544
Investment banking         271,995         316,012         414,320
                     
Asset management fees and investment income (loss)

from managed funds:

                   
Asset management fees         13,985         4,930         9,446
Investment (loss) income from managed funds         (23,822 )       (3,202 )       511
Total         (9,837 )       1,728         9,957
Net revenues       $ 591,672       $ 524,809       $ 899,028
                     

Other Data

                   
Number of trading days         61         63         61
                     
Average firmwide VaR (in millions) (A)       $ 13.27       $ 12.75       $ 16.27
Average firmwide VaR excluding Knight Capital (in millions) (A)       $ 9.29       $ 8.77       $ 12.64
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (in millions) (A)       $ 9.29       $ 8.77       $ 9.23
 
(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     Quarter Ended     Quarter Ended
        February 28, 2015     November 30, 2014     February 28, 2014
                     

Financial position:

                   
Total assets (1)       $ 43,787       $ 44,518       $ 43,440  
Average total assets for the period (1)       $ 49,862       $ 51,030       $ 49,075  
Average total assets less goodwill and intangible assets for the period (1)       $ 47,961       $ 49,077       $ 47,089  
                     
Cash and cash equivalents (1)       $ 3,340       $ 4,080       $ 2,865  
Cash and cash equivalents and other sources of liquidity (1) (2)       $ 4,647       $ 5,500       $ 4,467  
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)         10.6 %       12.4 %       10.3 %
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)         11.1 %       12.9 %       10.8 %
                     
Financial instruments owned (1)       $ 19,099       $ 18,637       $ 18,126  
Goodwill and intangible assets (1)       $ 1,900       $ 1,904       $ 1,987  
                     
Total equity (including noncontrolling interests)       $ 5,466       $ 5,463       $ 5,462  
Total member's equity       $ 5,427       $ 5,425       $ 5,432  
Tangible member's equity (3)       $ 3,527       $ 3,520       $ 3,445  
                     
Bache assets (4)       $ 3,926       $ 4,202       $ 3,839  
                     

Level 3 financial instruments:

                   
Level 3 financial instruments owned (1) (5)       $ 579       $ 527       $ 495  
Level 3 financial instruments owned - % total assets (1)         1.3 %       1.2 %       1.1 %
Level 3 financial instruments owned - % total financial instruments owned (1)         3.0 %       2.8 %       2.7 %
Level 3 financial instruments owned - % tangible member's equity (1)         16.4 %       15.0 %       14.4 %
                     

Other data and financial ratios:

                   
Total capital (1) (6)       $ 11,193       $ 11,269       $ 11,219  
Leverage ratio (1) (7)         8.0         8.1         8.0  
Adjusted leverage ratio (1) (8)         10.1         10.4         10.4  
Tangible gross leverage ratio (1) (9)         11.9         12.1         12.0  
Leverage ratio - excluding impacts of the Leucadia transaction (1) (10)         10.1         10.3         10.0  
                     
Number of trading days         61         63         61  
                     
Average firmwide VaR (11)       $ 13.27       $ 12.75       $ 16.27  
Average firmwide VaR excluding Knight Capital (11)       $ 9.29       $ 8.77       $ 12.64  
Average firmwide VaR excluding Knight Capital and Harbinger Group Inc. (11)       $ 9.29       $ 8.77       $ 9.23  
                     
Number of employees, at period end         3,936         3,915         3,838  
 
 

 

 
JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS - FOOTNOTES
 
(1)   Amounts pertaining to February 28, 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 February 28, 2015.
     
(2)   At February 28, 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 $911 million, in aggregate, and $396 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 November 30, 2014 were $1,057 million and $364 million, and at February 28, 2014, were $1,130 million and $472 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)   At February 28, 2015, November 30, 2014 and February 28, 2014, total capital includes our long-term debt of $5,726 million, $5,806 million and $5,757 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). At February 28, 2015, November 30, 2014 and February 28, 2014, adjusted assets were $35,977 million, $36,906 million and $36,273 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 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:
 
 
 
        February 28,     November 30,     February 28,
$ millions       2015     2014     2014
Total assets       $ 43,787       $ 44,518       $ 43,440  
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         112         108         32  
Total assets excluding transaction impacts       $ 41,942       $ 42,669       $ 41,515  
                     
Total equity       $ 5,466       $ 5,463       $ 5,462  
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         (20 )       (9 )       (36 )
Total equity excluding transaction impacts       $ 4,145       $ 4,153       $ 4,125  
                     
Leverage ratio - excluding impacts of the Leucadia transaction         10.1         10.3         10.0  
 
 
(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, 2014.
 
 

 

Contacts

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