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
and net earnings of
Total Net Revenues of
Investment Banking Net Revenues of
Total Equities and Fixed Income Net Revenues of
Asset Management Revenues (before Allocated net interest
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
, below-normal due to the impact of market conditions in December and the shutdown of the U.S. Government in December and January
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
, 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
. 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)
For the Three Months Ended
For the Nine Months Ended
Income (loss) from continuing operations before income taxes and income related to associated companies
Income related to associated companies
Income from continuing operations before income taxes
Income tax provision (benefit)
Income from discontinued operations, net of income tax provision of $0, $0, $0 and $47,045
Gain on disposal of discontinued operations, net of income tax provision of $0, $0, $0 and $229,553
Net (income) loss attributable to the noncontrolling interests
Net (income) loss attributable to the redeemable noncontrolling interests
Preferred stock dividends
Net income attributable to Jefferies Financial Group Inc. common shareholders
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
Number of shares in calculation
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
A summary of results for the three months ended August 31, 2019 is as follows (in thousands):
Parent Company Interest
Compensation and benefits
Cost of sales
Floor brokerage and clearing fees
Depreciation and amortization
Selling, general and other expenses
Income tax benefit from continuing operations
A summary of results for the three months ended September 30, 2018 is as follows (in thousands):
Income tax provision from continuing operations
A summary of results for the nine months ended August 31, 2019 is as follows (in thousands):
A summary of results for the nine months ended September 30, 2018 is as follows (in thousands):
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)
August 31, 2018
Commissions and other fees (1)
Asset management fees
Technology and communications
Occupancy and equipment rental
Total non-compensation expenses
Total non-interest expenses
Earnings before income taxes
Income tax expense
Net loss attributable to noncontrolling interests
Net earnings attributable to Jefferies Group LLC
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.
Net earnings (loss) attributable to noncontrolling interests
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:
Total sales and trading
Other investment banking
Total investment banking
Total Capital Markets (1) (2)
Asset management fees
Investment return (3) (4)
Allocated net interest (3) (5)
Total Asset Management
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.
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.
(Amounts in Millions, Except Where Noted)
Total assets (1)
Average total assets for the period (1)
Average total assets less goodwill and intangible assets for the period (1)
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)
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)
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.
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)
Jefferies Financial Group adjusted net income (non-GAAP)
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.
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Other recent filings from the company include the following:
Quarterly report filed by institutional managers, Holdings - Nov. 13, 2020