Leucadia National: Jefferies Financial Group Inc. Annual Report 2020

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

On a fully diluted per share basis, tangible book value increased from $20.48 three years ago to $27.38 at November 30, 2020. The combination of this 34% increase in tangible book value per
share plus $3.05 per share for the three years in dividends and the Spectrum Brands distribution, delivered a 49% return to shareholders for this period. We finished 2020 with parent company liquidity of $1.9 billion and Jefferies Group ended
the year with


record liquidity of $8.6 billion.

Our strategy remains straightforward and designed to complete
the transformation of Jefferies in to a pure financial services firm that is a global leader in Investment Banking, Capital Markets and Alternative Asset Management. With our continuing efforts to smartly manage down our legacy Merchant Banking
portfolio, we intend to reinvest in our core business, while continuing to return excess capital to shareholders through buybacks and dividends. We expect Jefferies Financial Group’s consolidated ROTE to converge over time with that of
Jefferies Group. It should go without saying (but we will still say it and live it) that long-term stability and success will continue to require prudence in risk, liquidity and capital management and will be consistent with our respect for our
obligations to all constituencies, including creditors, rating agencies, regulatory bodies, and the communities in which we live and operate.

Consistent with our
stated plan, we are actively managing the legacy Merchant Banking portfolio for optimal value. We carry our remaining Merchant Banking investments on our balance sheet at their tangible book value of $1.9 billion. Since


when Jefferies and Leucadia began the process toward merging, we have sold our interests in eleven businesses for $4.7 billion in proceeds and recognized


gains of $2.4 billion in aggregate, or 122% above tangible book value. We believe there is solid upside in the remaining portfolio.

We continue to believe
that the stock market has neither fully appreciated the uniqueness and momentum of the Jefferies core operating platform, nor the sum of the value of our businesses and assets. We have taken advantage over the past three years of what we consider a
“once in a lifetime” opportunity to reduce our fully diluted number of shares outstanding dramatically from 373 million to 274 million at prices that represent a substantial discount to both tangible and intrinsic value. As
significant and long-term minded shareholders, we are thrilled that this massive reduction in share count has increased our personal ownership percentage and we are happy to let this commitment speak for itself.    

Similarly, we easily could just stop here and allow the facts above to speak for themselves, but we believe that at this moment in the world, there are important topics
that deserve to be addressed:


and Culture

With our combined 50+ years at Jefferies and 70+ years on Wall Street, we have endured many cycles and our share of crises.

presented us with the most challenging set of threats we have ever faced. Not the least of these was at the onset, when our team successfully dealt with the historically unthinkable task of getting
everyone safely working at home, while instantaneously transforming Jefferies Group from a firm with 41 regularly attended and densely populated global offices to a community operating from 3,822 individual home offices across four continents. This
seamless evacuation and transformation (amid record market volumes, and broad corporate needs for advice and capital) strove to keep our precious employee-partners safe from the virus, while helping our clients navigate the staggering economic and
market impact of the pandemic. Jefferies overcame this challenge not just because of the quality and commitment of our team, but also because of the strong bond of partnership, trust, camaraderie and transparency that defines our culture and
permeates our firm. We also had a secret weapon that heroically enabled us to seamlessly protect our firm and serve our clients: our incredibly talented technology and support teams. We could not be any prouder of the entire Jefferies family.

Jefferies Financial Group Inc.  Annual Report 2020

Living in a


We believe that 2021 will be a year of forward transition for society, thanks to the miraculous brilliance of our scientists and medical professionals who have developed
vaccines that are beginning to rollout across the U.S. and world, hopefully on a fair-minded and transparent, prioritized basis. We caution everyone against premature celebration. This will be a frustrating and complex process of mass producing the
vaccines, moving them properly through fill and finish technology, transporting them and ultimately administering the injections to all of us. We believe 2021 will be a dangerous year of making sure nobody gets careless or reckless as the

war winds down and peacetime approaches. As such, we will continue to stress flexibility in allowing each member of the Jefferies team to decide personally whether and when to come to the office. We implore
everyone to follow all the rules of social distancing, continual proper hygiene and wearing a mask whenever at possible risk. There will be a great deal to enjoy once this pandemic eases and we want to make sure the party will be as big as possible.

Future of Work at Jefferies

As we said

will eventually be a crisis that ends. We learned that we all have much more flexibility than we ever realized in how, where and when we can work. The question therefore is: What does the
future of work look like and how can we best design the operating environment of Jefferies to incorporate the needs and desires of our clients and our team? We started our process of developing perspective on this opportunity by sending out a
fulsome survey to our people, asking many of the most relevant questions regarding how and where they want to work in the future. We are holding focus groups and leadership discussions around this topic. This will be an ongoing work in process and
there is no doubt our thoughts will evolve as time passes and we learn more. That said, it is clear that there will be some version of a hybrid model going forward, creating a combination of a series of active central offices and meeting places,
balanced with the opportunity to work from home. This will have implications for the size and layout of our offices, technology decisions, ability for people to live in a greater radius of their primary Jefferies location, and the elimination of the
misguided notion that people raising families or caring for ailing loved ones can’t be completely effective when they spend time at home. We don’t know where this exercise will lead, but are optimistic that if we listen to our people and
effectively balance their needs with our opportunities to serve our clients, the end result will be extremely positive for everyone. We wish it didn’t take a pandemic to show us this was possible, but we certainly aren’t going to let any
of these newfound insights go to waste.

Diversity, Equity and Inclusion

Another regrettable, but very important realization in 2020, is the incontrovertible fact that there are serious systemic issues of racial inequality and exclusion
permeating at least the U.S. and Europe, and it is up to all of us to accept and embrace this truth and do something about it. There was always a realization around this issue, but when we each watched video after video of this stark and painful
reality, it became the last


call we needed. Businesses must champion these causes and Jefferies is striving to do more than ever. We are extremely thankful that as a result of initiatives over the
years, we now have six active Diversity, Equity and Inclusion Groups within our firm:


jWIN, JEMS, jMosaic+, jVETS and NextGen. While they are empowered to help us be better, the fact is that it is up
to every one of us to do our fair share and Jefferies will be relentless in our efforts.

U.S. Government

In March, we very actively and publicly expressed our opinion that governments needed to act smartly, swiftly and in huge scale to prevent an explosion of unemployment,
an implosion in the financial markets and the destruction of far too many businesses that did absolutely nothing wrong. In the U.S., our political leaders on both sides of the aisle took actions that brought a desperately needed measure

of stability to the economy. The economy is somewhat better today and the financial markets are projecting a return to health in a post-pandemic world, but reality is that far too many people and
businesses are still in too much trouble and this winter will be very hard. We are writing this as some incremental stimulus has been approved. This will help, but may not be sufficient. We implore both U.S. political parties to put aside their
differences and come together again now in 2021 and provide a truly sufficient backstop for those most in need, particularly essential workers and their families. We cannot let these people down just as the end of this calamity is finally in sight.

Privilege and Responsibility

There are
some businesses, including Jefferies, that have been remarkably resilient and fortunate throughout this pandemic.

has been hard on everyone and nobody is immune from its consequences, but the truth is
that some people have been much more fortunate than others. We count ourselves and Jefferies in this category. There are many others. We would like to remind everyone, including ourselves, that it is a privilege to be in this position and every one
of us needs to accept the responsibility that there is much we can do to help others who have been adversely impacted much more dramatically only because their circumstances made them more vulnerable.

Through our corporate philanthropy and support of volunteerism, Jefferies strives to make a positive difference in the communities in which we live and work. In this
vein, in January, our firm, our employee-partners and our clients banded together to provide A$4 million of support for the wildfire relief efforts in Australia. In May, to honor Peg’s memory, we led the donation of $9.25 million to
over 85 different charities on the front lines of helping those in need in the face of


There is more that we must and will do.

Culture defines every enterprise and we believe Jefferies benefits from our unique Wall Street culture of partnership, service, nimbleness, drive and humility. Inside
Jefferies, we doubled down in 2020 on our people, their safety, their physical and mental well-being, their personal development and their commitments to each other, to justice and equity, and to society at large. As a people-driven business, our
greatest contribution to the world flows through our team of outstanding and special individuals. We are committed to caring, service and accountability.

Annual Meeting and Investor Meeting

We look forward to answering your questions at our upcoming Annual Meeting on March 25,
2021. We also will hold our annual Jefferies Investor Meeting on October 12, 2021, at which time you will have the opportunity to hear from our senior leaders across the Jefferies platform. We thank all of you—our clients and customers,
employee-partners, fellow shareholders, bondholders, vendors and all others associated with our businesses—for your continued partnership and support.


Richard B. Handler

Chief Executive Officer

Brian P. Friedman



The following tables reconcile financial results reported in accordance with generally accepted accounting principles (“GAAP”) to


financial results. The shareholders’ letter contains

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

financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in
accordance with GAAP.


Calculation of 2020 Return on Tangible Equity (ROTE) (1)

($ millions)


Year Ended

  Nov. 30, 2020  

Net earnings attributable to Jefferies Group LLC

Reconciliation of Member’s Equity to Tangible Member’s Equity

Nov. 30, 2019

Member’s equity (GAAP)

Less: Intangible assets, net and goodwill


Tangible member’s equity


Return on tangible equity


Calculation of 2020 Adjusted Return on Tangible Equity (ROTE) (2)

Reconciliation of Net Income to Adjusted Net Income

Net income attributable to common shareholders (GAAP)

Intangible amortization and impairment expense, net of tax

Adjusted net income

Reconciliation of Shareholders’ Equity to Adjusted Tangible Shareholders’

Nov. 30, 2019

Shareholders’ equity (GAAP)


Less: Deferred tax asset

Less: Weighted average impact of 2020 cash dividends and share repurchases

Adjusted tangible shareholders’ equity

Adjusted return on tangible equity

Calculation of Tangible Book Value per Fully Diluted Share (3)

Reconciliation of Shareholders’ Equity to Tangible Shareholders’

Dec. 31, 2017




Tangible shareholders’ equity

Reconciliation of Shares Outstanding to Fully Diluted Shares Outstanding


Shares outstanding (GAAP)

Restricted Stock Units (“RSUs”)

Other dilutive shares

Fully diluted shares outstanding

Tangible book value per fully diluted share

Reconciliation of Book Value to Tangible Book Value of Merchant Banking Portfolio

Nov. 30, 2020

Book value of Merchant Banking portfolio (GAAP)

Tangible book value of Merchant Banking portfolio

Reconciliation of Book Value to Tangible Book Value of Merchant Banking Assets Sold

Book value of Merchant Banking assets sold since


Tangible book value of Merchant Banking assets sold since


Jefferies Group ROTE is equal to 2020 Net earnings attributable to Jefferies Group LLC divided by beginning of year
Tangible member’s equity.

Jefferies Financial Group Adjusted ROTE is equal to 2020 Adjusted net income divided by beginning of year Adjusted
tangible shareholders’ equity.

Jefferies Financial Group Tangible book value per fully diluted share is equal to Tangible shareholders’ equity
divided by Fully diluted shares outstanding.

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 senior executive compensation plans.

Cautionary Note on Forward-Looking Statements

This letter 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 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).

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

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