Leucadia National: Jefferies Announces Third Quarter 2019 Financial Results

The following excerpt is from the company's SEC filing.

New York, New York, September 26, 2019--Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and nine month periods ended August 31, 2019.

Highlights for the three months ended August 31, 2019:

Net income attributable to Jefferies Financial Group common shareholders of $48 million, or $0.15 per diluted share, reflecting solid results at Jefferies Group and certain of our merchant banking investments, offset by a non-cash fair value reduction of $146 million to our investment in The We Company (we invested $9 million in We, have received $31 million in cash and continue to own approximately 0.8% of We's fully diluted shares)

Jefferies Group (Investment Banking, Capital Markets and Asset Management) pre-tax income of

$83 million

and net earnings of

$65 million

Total Net Revenues of

$777 million

Investment Banking Net Revenues of

$403 million

Total Equities and Fixed Income Net Revenues of

$342 million

Asset Management Revenues (before Allocated net interest

$29 million

Merchant Banking pre-tax loss of $43 million, reflecting strong performance by National Beef and a gain related to the purchase of the remaining interest in HomeFed, more than offset by the $146 million fair value adjustment to our investment in We

Return of capital through a special dividend of Spectrum Brands Common Stock, valued at approximately $450 million at announcement on September 16, 2019; approximately $330 million remaining to be purchased under previously authorized share buyback

Jefferies Financial Group had parent company liquidity of $1.4 billion at August 31, 2019

Highlights for the nine months ended August 31, 2019:

Net income attributable to Jefferies Financial Group common shareholders of $764 million, or $2.41 per diluted share, including the impact of a nonrecurring tax benefit of $545 million; adjusted net income of $219 million

, or $0.70 per diluted share

$301 million

$221 million

$2,365 million

$1,129 million

, below-normal due to the impact of market conditions in December and the shutdown of the U.S. Government in December and January

$1,092 million

$121 million

Merchant Banking pre-tax income of $28 million, reflecting strong performance from National Beef and Vitesse, and the gain related to the HomeFed transaction, offset by fair value adjustments to both our investment in We and some of our mark-to-market investments in public companies

Return of excess capital, including announced special dividend of Spectrum Brands common stock, share repurchases and cash dividends, totaling approximately $900 million; share repurchases during the nine months totaled 17.7 million shares for $352 million, or an average price of $19.87 per share

Rich Handler, our CEO, and Brian Friedman, our President, said:

"2019 is proving to be a year of solid progress on our strategy of simplifying Jefferies Financial Group to focus on Investment Banking, Capital Markets and Asset Management, reducing our share count and returning capital to our shareholders. The recently announced distribution of our Spectrum Brands position aligns directly with our strategy.

"So far this fiscal year, we have repurchased 17.7 million Jefferies shares for $352 million, or an average of $19.87 per share.  Since April 1, 2018, we have repurchased an aggregate of 67.7 million shares at an average price of $22.07 per share. Combining share buybacks and dividends paid from April 1, 2018 through August 31, 2019 with the announced special dividend of Spectrum Brands common stock, we are returning to our shareholders an aggregate of $2.2 billion, or 21% of our common shareholders’ equity (28% of our tangible equity

) as of the beginning of this period. Even after this return of value to our shareholders and continuing investment in our business, we ended the third quarter with parent company liquidity of $1.4 billion. We are currently authorized to repurchase up to an additional $330 million (based on September 25 closing stock price) worth of shares.

"Jefferies Group's third quarter revenues of

 reflect solid performances in Investment Banking, with revenues of

, and in Sales and Trading where revenues were

, although market volatility in August impacted activity levels in both the primary and secondary markets.

"Investment Banking Advisory revenues for the quarter were

$213 million

, an increase of

versus the second quarter and

versus last year’s third quarter. Our Investment Banking results reflect lower new issue transaction levels during the period versus the second quarter of this year and the third quarter of last year. Our fourth quarter Investment Banking backlog is very solid.

"Our Equities Sales and Trading business enjoyed another strong quarter, with revenues of

$193 million

. Prime Brokerage, Electronic Trading and our High Touch Cash businesses performed well during the quarter. Fixed Income Sales and Trading volumes were quite strong during June and July, but downward moves in interest rates during August reduced volumes for much of the last month of our fiscal quarter. More normal secondary activity levels have prevailed in the first few weeks of September.   

"Our third quarter merchant banking results reflect strong performance by National Beef. While grilling season typically makes third quarter results stronger, the third quarter of 2019 represents the best quarter for National Beef since our initial investment. Our previously announced closing of the purchase of the remaining interest in HomeFed generated a gain of $72 million related to the write-up of our existing ownership interest to its estimated fair value on the acquisition date. Our third quarter results also include an adjustment to reduce the estimated fair value of our investment in We by $146 million. This is based on an estimate of value as of August 31, 2019, using available market information at that time, including a significant discount due to uncertainty regarding the timing and pricing of We's IPO. As the facts at We become clearer, further adjustments may be made in future periods."

Amounts herein pertaining to August 31, 2019 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 nine month periods ended August 31, 2019 will be provided upon filing our Quarterly Report on Form 10-Q with the SEC. Jefferies expects to file its Form 10-Q on or about October 8, 2019.

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).

For further information, please contact:

Teresa S. Gendron

Chief Financial Officer

Tel. (212) 460-1932

Peregrine C. Broadbent

Jefferies Group LLC

Tel. (212) 284-2338

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, which allocation is consistent with Jefferies Group LLC's policy of allocating such items to its business lines. Refer to Jefferies Group LLC's summary of Net Revenues by Source on pages 9 and 10.

Jefferies Financial Group adjusted net income, a non-GAAP measure, is defined as Jefferies Financial Group's net income less accumulated other comprehensive income nonrecurring tax benefit. Jefferies Financial Group adjusted diluted earnings per share, a non-GAAP measure, is defined as Jefferies Financial Group's diluted earnings per share less accumulated other comprehensive income non-recurring tax benefit. Refer to schedule on page 13 for reconciliation to U.S. GAAP amounts.

Tangible equity of $7,808 million at March 31, 2018 is a non-GAAP measure and equals Jefferies Financial Group's common shareholders' equity of $10,259 million less Intangible assets, net and goodwill of $2,451 million.

Summary for Jefferies Financial Group Inc. and Subsidiaries

(In thousands, except per share amounts)

(Unaudited)

For the Three Months Ended

For the Nine Months Ended

September 30,

Net revenues

856,778

1,150,846

2,786,878

2,957,440

Income (loss) from continuing operations before income taxes and income related to associated companies

(59,020

253,825

124,293

263,650

Income related to associated companies

72,283

18,867

121,766

84,320

Income from continuing operations before income taxes

13,263

272,692

246,059

347,970

Income tax provision (benefit)

(36,131

90,391

(522,626

51,560

49,394

182,301

768,685

296,410

Income from discontinued operations, net of income tax provision of $0, $0, $0 and $47,045

130,063

Gain on disposal of discontinued operations, net of income tax provision of $0, $0, $0 and $229,553

643,921

1,070,394

Net (income) loss attributable to the noncontrolling interests

12,000

13,208

Net (income) loss attributable to the redeemable noncontrolling interests

(37,294

Preferred stock dividends

(1,275

(1,276

(3,827

(3,619

Net income attributable to Jefferies Financial Group Inc. common shareholders

48,477

192,635

764,052

1,042,689

Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:

Number of shares in calculation

310,288

341,434

310,838

353,300

Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:

311,897

350,307

317,181

357,169

A summary of results for the three months ended August 31, 2019 is as follows (in thousands):

Corporate

Parent Company Interest

Consolidation Adjustments

777,159

75,497

(4,845

Expenses:

Compensation and benefits

411,936

23,496

11,450

446,882

Cost of sales

85,773

Floor brokerage and clearing fees

54,247

(3,389

50,858

Interest expense

14,770

23,663

Depreciation and amortization

21,170

17,880

39,880

Selling, general and other expenses

206,731

54,683

(1,138

268,742

Total expenses

694,084

190,725

20,746

(4,527

915,798

83,075

(115,228

(11,779

(14,770

(42,945

Income tax benefit from continuing operations

A summary of results for the three months ended September 30, 2018 is as follows (in thousands):

777,615

369,309

(4,792

428,033

19,464

13,768

461,265

84,876

45,745

(1,175

44,570

14,082

14,755

28,837

17,175

14,268

32,295

199,561

36,954

245,178

690,514

169,644

24,081

(1,973

897,021

87,101

199,665

(15,367

(14,755

(2,819

218,532

Income tax provision from continuing operations

A summary of results for the nine months ended August 31, 2019 is as follows (in thousands):

2,364,728

399,159

22,134

1,261,506

63,796

41,732

1,367,034

233,109

168,698

(5,585

163,113

25,521

44,298

69,819

57,800

50,248

110,600

575,926

119,867

24,857

(1,740

718,910

2,063,930

492,541

69,141

(7,325

2,662,585

300,798

(93,382

(47,007

(44,298

28,384

A summary of results for the nine months ended September 30, 2018 is as follows (in thousands):

2,421,418

529,627

14,775

(8,380

1,327,760

59,507

43,045

1,429,439

257,501

135,808

(4,016

131,792

30,363

44,251

74,614

50,829

38,932

92,360

575,317

108,427

27,238

(2,898

708,084

2,089,714

494,730

72,882

(7,787

2,693,790

331,704

34,897

(58,107

(44,251

119,217

The following financial tables provide information for the results of Jefferies Group LLC and should be read in conjunction with Jefferies Group LLC's Quarterly Report on Form 10-Q for the quarter ended

May 31, 2019

and Annual Report on Form 10-K for the year ended November 30, 2018. Amounts herein pertaining to

August 31, 2019

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

Jefferies Group LLC and Subsidiaries

Consolidated Statements of Earnings

(Amounts in Thousands)

Quarter Ended

August 31, 2018

Revenues:

Commissions and other fees (1)

171,003

167,698

162,700

Principal transactions

148,873

248,831

143,308

Investment banking

412,533

430,087

465,326

Asset management fees

383,596

418,451

305,347

Other (1)

22,286

44,876

Total revenues

1,141,631

1,314,493

1,088,285

364,472

412,642

310,670

901,851

Non-interest expenses:

477,885

Non-compensation expenses:

62,474

Technology and communications

86,649

81,645

76,877

Occupancy and equipment rental

29,300

29,748

25,559

Business development

36,526

36,349

39,733

Professional services

42,379

38,066

35,316

Underwriting costs

14,647

12,823

20,528

18,400

18,723

Total non-compensation expenses

282,148

268,828

262,481

Total non-interest expenses

746,713

Earnings before income taxes

155,138

Income tax expense

18,250

45,319

26,923

Net earnings

64,825

109,819

60,178

Net loss attributable to noncontrolling interests

Net earnings attributable to Jefferies Group LLC

64,968

109,920

60,182

Pre-tax operating margin

Effective tax rate

Certain reclassifications within revenue line items have been made for the three month periods ended May 31, 2019 and August 31, 2018. 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. These fees were previously presented as Other revenues in Jefferies Group LLC's Consolidated Statements of Earnings and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation.

493,843

482,194

632,002

498,583

1,128,216

1,405,614

14,559

16,130

1,163,022

870,490

79,354

58,678

3,510,996

3,331,689

1,146,268

910,271

247,464

222,335

87,587

75,143

103,430

124,233

117,372

101,715

36,045

47,832

41,828

54,888

802,424

761,954

79,789

234,337

221,009

97,367

Net earnings (loss) attributable to noncontrolling interests

220,869

97,368

Effective tax rate (2)

Certain reclassifications within revenue line items have been made for the nine month period ended August 31, 2018. 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. These fees were previously presented as Other revenues in Jefferies Group LLC's Consolidated Statements of Earnings and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation.

The effective tax rate for the nine months ended August 31, 2018 includes an estimated provisional tax charge of approximately $160 million as a result of the Tax Cuts and Jobs Act ("Tax Act").

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

Net Revenues by Source:

193,229

206,083

170,611

Fixed income

148,334

173,253

139,846

Total sales and trading

341,563

379,336

310,457

Equity

97,494

108,022

139,220

101,689

151,511

138,515

Capital markets

199,183

259,533

277,735

213,350

178,554

187,591

Other investment banking

(9,108

(13,732

Total investment banking

403,425

447,721

451,594

12,374

32,218

Total Capital Markets (1) (2)

757,362

859,275

766,961

Asset management fees

Investment return (3) (4)

25,746

48,075

14,483

Allocated net interest (3) (5)

(9,289

(10,049

(9,013

Total Asset Management

19,797

42,576

10,654

Other Data:

Number of trading days

Number of trading loss days

Average firmwide VaR (in millions) (6) (7)

Includes net interest revenue of $30.4 million, $16.4 million and $6.9 million for the quarters ended August 31, 2019, May 31, 2019, and August 31, 2018, respectively.

Allocated net interest is not separately disaggregated in presenting our Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Capital Markets internal performance measurement.

Beginning with the first quarter of 2019, 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 footnote 4). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside Jefferies Group LLC. 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.

Includes net interest expense of $2.0 million, $0.6 million and $3.3 million for the quarters ended August 31, 2019, May 31, 2019, and August 31, 2018, respectively.

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).

The quarters ended August 31, 2019 and May 31, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

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, 2018.

573,851

501,471

518,346

472,886

1,092,197

974,357

256,853

326,613

306,977

483,271

563,830

809,884

572,386

595,730

(7,116

(13,885

1,129,100

1,391,729

53,587

22,868

2,274,884

2,388,954

106,233

40,754

(30,948

(24,420

89,844

32,464

Includes net interest revenue (expense) of $51.4 million and ($11.2) million for the nine months ended August 31, 2019 and 2018, respectively.

Includes net interest expense of $3.7 million and $4.2 million for the nine months ended August 31, 2019 and 2018, respectively.

The nine months ended August 31, 2019 information includes higher investments in certain separately managed accounts and funds, primarily due to the transfer of certain investments to Jefferies Group LLC on October 1, 2018 from Jefferies Financial Group Inc.

Financial Highlights

(Amounts in Millions, Except Where Noted)

August 31, 

May 31, 

Financial position:

Total assets (1)

43,094

42,818

40,572

Average total assets for the period (1)

53,097

53,675

48,022

Average total assets less goodwill and intangible assets for the period (1)

51,281

51,851

46,189

Cash and cash equivalents (1)

Cash and cash equivalents and other sources of liquidity (1) (2)

Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)

Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)

Financial instruments owned (1)

16,371

16,096

15,196

Goodwill and intangible assets (1)

Total equity (including noncontrolling interests) (1)

Total Jefferies Group LLC member's equity (1)

Tangible Jefferies Group LLC member's equity (1) (3)

Level 3 financial instruments:

Level 3 financial instruments owned (1) (4) (5)

Level 3 financial instruments owned - % total assets (1) (4)

Level 3 financial instruments owned - % total financial instruments (1) (4)

Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (4)

Other data and financial ratios:

Total long-term capital (1) (6)

12,219

11,444

11,261

Leverage ratio (1) (7)

Tangible gross leverage ratio (1) (8)

Number of trading loss days

Average firmwide VaR (5) (9)

Number of employees, at period end

Financial Highlights - Footnotes

Amounts pertaining to August 31, 2019 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 August 31, 2019.

At August 31, 2019, 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 $1,063 million, in aggregate, and $345 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 May 31, 2019 were $1,175 million and $313 million, respectively, and at August 31, 2018, were $948 million and $337 million, respectively.

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.

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.

At August 31, 2019, May 31, 2019 and August 31, 2018, total long-term capital includes Jefferies Group LLC's long-term debt of $6,030 million, $5,265 million and $5,703 million, respectively, and total equity. Long-term debt included in total long-term capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, as applicable.

Leverage ratio equals total assets divided by total equity.

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.

Non-GAAP Reconciliations

The following tables reconcile 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 Net Income and Earnings Per Share GAAP Reconciliation

Reconciliation of Jefferies Financial Group net income to adjusted net income (a non-GAAP measure) and diluted earnings per share to adjusted diluted earnings per share (a non-GAAP measure) (in thousands, except per share amounts):

Nine months ended August 31, 2019

Jefferies Financial Group net income (GAAP)

Accumulated other comprehensive income tax benefit (1)

(544,583

Jefferies Financial Group adjusted net income (non-GAAP)

219,469

Jefferies Financial Group diluted earnings per share (GAAP)

Jefferies Financial Group adjusted diluted earnings per share (non-GAAP)

(1) During the second quarter of 2019, in connection with the closing of our corporate available for sale portfolio, we realized a non-cash tax benefit of $545 million. This tax benefit was generated primarily through activity during 2008-2010 and since then has remained an unrealized balance within equity until the liquidation of the portfolio. This realization did not impact total equity, as the increase in retained earnings was offset by a corresponding decrease in accumulated other comprehensive income.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

To receive a free e-mail notification whenever Leucadia National Corporation makes a similar move, sign up!

Other recent filings from the company include the following:

Quarterly report filed by institutional managers, Holdings - Nov. 13, 2020

Auto Refresh

Feedback