Leucadia National: Jefferies Financial Group Announces Second Quarter 2020 Financial Results -- Jefferies Group LLC Records Record Six Months Revenues

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

and Net Income for First Half 2020

Quarterly Cash Dividend of $0.15 per Jefferies Common Share Declared

Share Repurchase Authorization Increased to $250 Million

New York, New York — June 29, 2020 — 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 th e 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:

Jefferies Group LLC recorded quarterly net revenues of $1,034 million, pre-tax income of $173 million, net earnings of $129 million and return on tangible equity of 11.6%

Record quarterly combined Capital Markets net revenues of $730 million; Equities net revenues of $237 million and record Fixed Income net revenues of $493 million

Investment Banking net revenues of $316 million, including Advisory net revenues of $182 million

Asset Management revenues (before allocated net interest

) of $19 million

Merchant Banking recorded a pre-tax loss of $75 million, reflecting the positive impact of hedging gains at Vitesse, solid results at Idaho Timber and a record quarter for FXCM, that were more than offset by a $44 million non-cash charge to write-down the value of our investment in the We Company in light of Softbank's withdrawal of its $3 billion tender offer and We's current performance outlook, a total of $12 million in write-downs of HomeFed's interests in a hotel and a retail center significantly impacted by the external events of the second quarter and a continued operating loss at Linkem, which experienced increased subscriber growth and network usage

Net income attributable to Jefferies Financial Group common shareholders was $45 million, or $0.16 per diluted share

We repurchased 10.1 million shares for $166 million, or an average price of $16.42 per share, including the 8.0 million shares repurchased early in March and previously disclosed; a further $250 million now authorized for repurchase; 267.1 million shares outstanding and 290.7 million shares outstanding on a fully diluted basis

at May 31, 2020; Jefferies book value per share was $34.92 and tangible book value per fully diluted share

was $25.51 at the end of the second quarter

Jefferies Financial Group had parent company liquidity of $1.6 billion at May 31, 2020. Jefferies Group had a liquidity buffer of $6.5 billion of cash and unencumbered liquid collateral at May 31, 2020, which represented 15% of its total balance sheet.

Highlights for the six months ended May 31, 2020:

Jefferies Group recorded record six months net revenues of $2,205 million, record pre-tax income of $408 million, record net earnings of $300 million and return on tangible equity of 14.1%

Investment Banking net revenues of $894 million, including record six months Advisory net revenues of $525 million

Record combined six months Capital Markets net revenues of $1,224 million, including record Equities net revenues of $483 million and record Fixed Income net revenues of $741 million

) of $51 million

Merchant Banking pre-tax loss of $128 million, reflecting positive contributions from Vitesse, Idaho Timber and FXCM, and a gain of about $60 million from effective short-term hedges against mark-to-market and fair value decreases, more than offset by a $44 million non-cash charge to write-down our investment in We, $45 million in non-cash charges to mark-to-market investments in public companies, $68 million in non-cash write-downs related to real estate investments at HomeFed, and a $33 million non-cash charge to write-down our investment in JETX

Net income attributable to Jefferies Financial Group common shareholders of $158 million, or $0.53 per diluted share

Repurchases of 24.8 million shares for $492 million, or an average price of $19.85 per share

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).

For further information, please contact:

Teresa S. Gendron

Chief Financial Officer

Tel. (212) 460-1932

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.

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.

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.

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.

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, 2019

Six Months Ended

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 

75,507 

183,479 

233,301 

232,796 

Income tax provision (benefit)

31,962 

(488,797)

77,735 

(486,495)

43,545 

672,276 

155,566 

719,291 

Net (income) loss attributable to the noncontrolling interests

2,580 

4,709 

Net (income) loss attributable to the redeemable noncontrolling interests

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:

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:

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

1,028,832 

7,391 

107,162 

1,525 

2,679 

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 

40,366 

Selling, general and other expenses

174,895 

12,431 

54,753 

7,334 

249,118 

Total expenses

814,298 

48,944 

175,157 

14,379 

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 

Loss related to associated companies

Income (loss) from before income taxes

(74,716)

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

859,275 

44,362 

185,379 

8,974 

3,667 

470,530 

13,338 

13,931 

12,761 

510,560 

50,218 

10,169 

80,415 

140,802 

8,372 

14,766 

23,138 

18,588 

16,826 

36,786 

177,358 

12,240 

30,356 

9,231 

229,062 

716,694 

36,252 

149,900 

22,859 

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 

Income related to associated companies

22,050 

8,230 

57,529 

Income tax benefit

(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):

2,177,661 

27,720 

311,721 

11,317 

5,498 

1,172,745 

48,723 

31,163 

16,029 

1,268,660 

120,475 

14,185 

153,214 

287,874 

17,055 

25,659 

42,714 

39,097 

2,758 

36,219 

1,762 

79,836 

380,853 

24,536 

127,833 

14,134 

546,956 

1,713,170 

90,202 

365,484 

31,925 

2,226,040 

464,491 

(62,482)

(53,763)

(20,608)

(25,659)

5,898 

(128,339)

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

1,517,522 

75,107 

318,071 

13,167 

6,233 

831,844 

30,192 

27,834 

30,282 

920,152 

97,354 

14,901 

147,336 

259,591 

16,628 

29,528 

46,156 

35,918 

32,120 

1,722 

70,720 

354,708 

19,980 

59,378 

16,391 

450,168 

1,319,824 

66,033 

283,296 

48,395 

1,746,787 

197,698 

9,074 

34,775 

(35,228)

(29,528)

6,522 

49,143 

9,414 

83,918 

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)

Quarter Ended

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 

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 

232,916 

308,860 

412,642 

1,034,367 

1,170,696 

901,851 

Non-interest expenses:

571,547 

635,230 

477,885 

Non-compensation expenses:

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 

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)

Net earnings attributable to Jefferies Group LLC 

130,738 

173,389 

109,920 

Pre-tax operating margin

Effective tax rate

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.

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.

422,802 

322,840 

839,185 

483,129 

979,493 

715,683 

16,296 

12,130 

506,609 

779,426 

(17,546)

56,157 

2,746,839 

2,369,365 

541,776 

781,796 

2,205,063 

1,587,569 

1,206,777 

849,570 

138,199 

114,451 

184,778 

160,815 

51,898 

58,287 

38,316 

66,904 

86,659 

74,993 

30,014 

21,398 

60,176 

23,428 

590,040 

520,276 

1,796,817 

1,369,846 

408,246 

217,723 

107,985 

61,539 

300,261 

156,184 

Net earnings (loss) attributable to noncontrolling interests

(3,866)

304,127 

155,901 

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.

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.

Selected Statistical Information

(Amounts in Thousands, Except Other Data)

Net Revenues by Source:

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 

237,131 

245,641 

206,083 

Fixed income

493,144 

248,182 

173,253 

Total capital markets

730,275 

493,823 

379,336 

(17,700)

77,533 

32,218 

Total Investment Banking and Capital Markets (1) (2)

1,148,829 

Asset management fees and revenues (3)

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 

Other Data:

Number of trading days

Number of trading loss days

Average firmwide VaR (in millions) (7)

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.

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.

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.

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.

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.

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).

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.

525,239 

359,036 

256,075 

159,359 

198,179 

205,288 

454,254 

364,647 

(85,763)

1,992 

893,730 

725,675 

482,772 

380,622 

741,326 

370,012 

1,224,098 

750,634 

59,833 

41,213 

34,783 

79,576 

(23,677)

(21,659)

27,402 

70,047 

Includes net interest revenue of $2.1 million and $21.0 million for the six months ended May 31, 2020 and 2019, respectively.

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.

Includes net interest expense of $13.6 million and $1.7 million for the six months ended May 31, 2020 and 2019, respectively.

Financial Highlights

(Amounts in Millions, Except Where Noted)

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 

4,213 

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)

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

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)

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)

Level 3 financial instruments owned - % total assets (1) (5)

Level 3 financial instruments owned - % total financial instruments (1) (5)

Level 3 financial instruments owned - % tangible Jefferies Group LLC member's equity (1) (5)

Other data and financial ratios:

Total long-term capital (1) (6)

12,102 

12,706 

11,444 

Leverage ratio (1) (7)

Tangible gross leverage ratio (1) (8)

Adjusted tangible gross leverage ratio (1) (3) (9)

Number of trading loss days

Average firmwide VaR (10)

Number of employees, at period end

3,850 

3,822 

3,656 

N/A — Not Applicable

Financial Highlights - Footnotes

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.

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.

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.

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 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.

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.

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.

Merchant Banking Net Asset Overview

As of May 31, 2020

($ Millions)

(Unaudited) Book Value

Estimated Fair Value (2)

Basis for Fair Value Estimate

Income approach and market comparable method

Real estate assets (1)

Various

Oil and Gas (Vitesse and JETX)

Income approach, market comparable and market

transaction method

Investments in Public Companies

Mark-to-market (same for GAAP book value)

   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

Fair Value Adjustments

(GAAP)

(Non-GAAP)

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 

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.

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

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