Jefferies Reports Fiscal Second Quarter 2015 Financial Results

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NEW YORK--(BUSINESS WIRE)-- Jefferies Group LLC today announced financial results for its fiscal second quarter 2015.

Highlights for the three months ended May 31, 2015, with adjusted amounts excluding the operating results of our Bache business:

Investment banking net revenues of $404 million
Total Net revenues of $792 million
Total Adjusted Net revenues (excluding Bache net revenues) of $757 million
Adjusted Net earnings (excluding Bache net loss) of $86 million
Net earnings of $60 million (including Bache exit costs of $20 million on an after-tax basis)

Highlights for the six months ended May 31, 2015, with adjusted amounts excluding the operating results of our Bache business:

Investment banking net revenues of $676 million
Total Net revenues of $1,383 million
Total Adjusted Net revenues (excluding Bache net revenues) of $1,299 million
Adjusted Net earnings (excluding Bache net loss) of $106 million
Net earnings of $73 million (including Bache exit costs of $20 million on an after-tax basis)

Richard B. Handler, Chairman and Chief Executive Officer, and Brian P. Friedman, Chairman of the Executive Committee, commented: “We are pleased to report quarterly revenues above those of the first quarter and the same period last year. Investment banking net revenues were in excess of $400 million, an increase of 49% compared to this year’s first quarter and 22% versus the second quarter last year. Our momentum has continued in investment banking and our current backlog for the third quarter is comparable to the backlog of three months ago. Our equity net revenues were strong versus the first quarter and the same quarter last year. Excluding Bache, Fixed income net revenues increased by 56% versus the slow first quarter, but declined by 29% compared to the year ago quarter. Fixed income results improved each month during the quarter. We continue to unwind the Bache business and to date have transferred about 50% of client accounts to Societe Generale and other brokers. We expect to have substantially completed the unwind of Bache by the end of the summer.”

The attached financial tables should be read in connection with our Quarterly Report on Form 10-Q for the quarter ended February 28, 2015 and our Annual Report on Form 10-K for the year ended November 30, 2014. Adjusted financial measures referenced above are non-GAAP financial measures, which management believes provide meaningful information to enable investors to evaluate the Company's results in the context of exiting the Bache business. Refer to the Supplemental Schedules on pages 5-7 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures.

Jefferies, the global investment banking firm focused on serving clients for over 50 years, is a leader in providing insight, expertise and execution to investors, companies and governments. The firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income and foreign exchange, as well as wealth management, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding company.


JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)

	Quarter Ended
	May 31, 2015			February 28, 2015			May 31, 2014

Revenues:
Commissions	$	173,508		$	166,922		$	167,378
Principal transactions		155,962			105,477			183,416
Investment banking		404,262			271,995			331,149
Asset management fees and investmentincome (loss) from managed funds		5,650			(9,837	)		(3,101	)
Interest income		240,552			228,870			283,540
Other revenues		28,576			19,905			8,404
Total revenues		1,008,510			783,332			970,786
Interest expense		216,956			191,660			247,794
Net revenues		791,554			591,672			722,992

Non-interest expenses:
Compensation and benefits		480,770			365,215			404,876

Non-compensation expenses:
Floor brokerage and clearing fees		58,713			55,080			54,020
Technology and communications		72,361			72,387			70,257
Occupancy and equipment rental		24,420			24,184			26,673
Business development		26,401			21,937			24,917
Professional services		27,419			24,256			25,345
Other		16,758			15,729			17,767
Total non-compensation expenses		226,072			213,573			218,979
Total non-interest expenses		706,842			578,788			623,855
Earnings before income taxes		84,712			12,884			99,137
Income tax expense		24,530			331			37,323
Net earnings		60,182			12,553			61,814
Net earnings attributable to noncontrolling interests		349			871			488
Net earnings attributable to Jefferies Group LLC	$	59,833		$	11,682		$	61,326

Pretax operating margin		10.7	%		2.2	%		13.7	%
Effective tax rate		29.0	%		2.6	%		37.6	%


JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands)
(Unaudited)

	Six Months Ended
	May 31, 2015			May 31, 2014

Revenues:
Commissions	$	340,430		$	329,441
Principal transactions		261,439			421,779
Investment banking		676,257			745,469
Asset management fees and investmentincome (loss) from managed funds		(4,187	)		6,856
Interest income		469,422			532,808
Other revenues		48,481			31,473
Total revenues		1,791,842			2,067,826
Interest expense		408,616			445,806
Net revenues		1,383,226			1,622,020

Non-interest expenses:
Compensation and benefits		845,985			912,775

Non-compensation expenses:
Floor brokerage and clearing fees		113,793			103,533
Technology and communications		144,748			134,563
Occupancy and equipment rental		48,604			53,175
Business development		48,338			51,393
Professional services		51,675			50,164
Other		32,487			35,011
Total non-compensation expenses		439,645			427,839
Total non-interest expenses		1,285,630			1,340,614
Earnings before income taxes		97,596			281,406
Income tax expense		24,861			104,200
Net earnings		72,735			177,206
Net earnings attributable to noncontrolling interests		1,220			3,448
Net earnings attributable to Jefferies Group LLC	$	71,515		$	173,758

Pretax operating margin		7.1	%		17.3	%
Effective tax rate		25.5	%		37.0	%


JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA
(Amounts in Thousands)
(Unaudited)

	Quarter Ended May 31, 2015
	GAAP			Adjustments				Adjusted

Net revenues	$	791,554		$	34,589		(1)	$	756,965
Non-interest expenses:
Compensation and benefits		480,770			34,473		(2)		446,297
Non-compensation expenses		226,072			38,536		(3)		187,536
Total non-interest expenses		706,842			73,009		(4)		633,833

Operating income (loss)	$	84,712		$	(38,420	)		$	123,132
Net earnings (loss)	$	60,182		$	(25,940	)		$	86,122

Compensation ratio (a)		60.7	%						59.0	%

	Quarter Ended February 28, 2015
	GAAP			Adjustments				Adjusted

Net revenues	$	591,672		$	49,933		(1)	$	541,739
Non-interest expenses:
Compensation and benefits		365,215			23,980		(2)		341,235
Non-compensation expenses		213,573			38,597		(3)		174,976
Total non-interest expenses		578,788			62,577				516,211

Operating income (loss)	$	12,884		$	(12,644	)		$	25,528
Net earnings (loss)	$	12,553		$	(6,961	)		$	19,514

Compensation ratio (a)		61.7	%						63.0	%

	Quarter Ended May 31, 2014
	GAAP			Adjustments				Adjusted

Net revenues	$	722,992		$	50,734		(1)	$	672,258

Non-interest expenses:
Compensation and benefits		404,876			29,756		(2)		375,120
Non-compensation expenses		218,979			36,573		(3)		182,406
Total non-interest expenses		623,855			66,329				557,526

Operating income (loss)	$	99,137		$	(15,595	)		$	114,732
Net earnings (loss)	$	61,814		$	(8,341	)		$	70,155

Compensation ratio (a)		56.0	%						55.8	%

(a) Reconciliation of the compensation ratio for U.S. GAAP to Adjusted is a derivation of the reconciliation of the components above.

This presentation of Adjusted financial information is an unaudited non-GAAP financial measure. Adjusted financial information begins with information prepared in accordance with U.S. GAAP and then those results are adjusted to exclude the operations of the Company's Bache business. The Company believes that the disclosed Adjusted measures and any adjustments thereto, when presented in conjunction with comparable U.S. GAAP measures are useful to investors as they enable investors to evaluate the Company's results in the context of exiting the Bache business. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.


JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA
(Amounts in Thousands)
(Unaudited)

	Six Months Ended May 31, 2015
	GAAP			Adjustments				Adjusted

Net revenues	$	1,383,226		$	84,522		(1)	$	1,298,704

Non-interest expenses:
Compensation and benefits		845,985			58,453		(2)		787,532
Non-compensation expenses		439,645			77,133		(3)		362,512
Total non-interest expenses		1,285,630			135,586		(4)		1,150,044

Operating income (loss)	$	97,596		$	(51,064	)		$	148,660

Net earnings (loss)	$	72,735		$	(32,901	)		$	105,636

Compensation ratio (a)		61.2	%						60.6	%


	Six Months Ended May 31, 2014
	GAAP			Adjustments				Adjusted

Net revenues	$	1,622,020		$	99,962		(1)	$	1,522,058

Non-interest expenses:
Compensation and benefits		912,775			54,222		(2)		858,553
Non-compensation expenses		427,839			68,443		(3)		359,396
Total non-interest expenses		1,340,614			122,665				1,217,949

Operating income (loss)	$	281,406		$	(22,703	)		$	304,109

Net earnings (loss)	$	177,206		$	(11,470	)		$	188,676

Compensation ratio (a)		56.3	%						56.4	%

(a) Reconciliation of the compensation ratio for U.S. GAAP to Adjusted is a derivation of the reconciliation of the components above.

JEFFERIES GROUP LLC AND SUBSIDIARIES CONSOLIDATED ADJUSTED SELECTED FINANCIAL DATA FOOTNOTES

(1)		Revenues generated by the Bache business, including commissions, principal transaction revenues and net interest revenue, for the presented period have been classified as a reduction of revenue in the presentation of Adjusted financial measures.

(2)		Compensation expense and benefits recognized during the presented period for employees whose sole responsibilities pertain to the activities of the Bache business, including front office personnel and dedicated support personnel, have been classified as a reduction of Compensation and benefits expense in the presentation of Adjusted financial measures.

(3)		Expenses directly related to the operations of the Bache business for the presented periods have been excluded from Adjusted non-compensation expenses. These expenses include Floor brokerage and clearing fees, amortization of capitalized software used directly by the Bache business in conducting its business activities, technology and occupancy expenses directly related to conducting Bache business operations and business development and professional services expenses incurred by the Bache business as part of its client sales and trading activities, including estimates of certain support costs dedicated to the Bache business.

(4)		Total non-interest expenses for the period include costs of $28.6 million, on a pre-tax basis, related to our exit of the Bache business. The after-tax effect of these costs is $20.5 million. These costs consist primarily of severance, retention and benefit payments for employees, incremental amortization of outstanding restricted stock and cash awards, contract termination costs and incremental amortization expense of capitalized software expected to no longer be used subsequent to the wind-down of the business. We expect to incur additional costs of $48.6 million and $34.3 million on a pre-tax and post-tax basis, respectively, over the remainder of fiscal 2015.


JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)

	Quarter Ended
	May 31, 2015		February 28, 2015			May 31, 2014
Revenues by Source
Equities	$	228,198	$	203,479		$	177,238
Fixed income	153,444		126,035			217,706
Total sales and trading	381,642		329,514			394,944

Equity	108,805		79,071			83,726
Debt	154,670		60,876			147,000
Capital markets	263,475		139,947			230,726
Advisory	140,787		132,048			100,423
Total investment banking	404,262		271,995			331,149

Asset management fees and investment income (loss)from managed funds:
Asset management fees	4,903		13,985			4,927
Investment (loss) income from managed funds	747		(23,822		)	(8,028		)
Total	5,650		(9,837		)	(3,101		)
Net revenues	$	791,554	$	591,672		$	722,992

Other Data
Number of trading days	63		61			63
Number of trading loss days	10		11			11
Number of trading loss days excluding Knight Capital	5		9			4

Average firmwide VaR (in millions) (A)	$	12.80	$	13.27		$	14.94
Average firmwide VaR excluding Knight Capital (in millions) (A)	$	9.86	$	9.29		$	8.63
Average firmwide VaR excluding Knight Capital and HRG Group Inc. (in millions) (A)	$	9.86	$	9.29		$	7.97

(A)

VaR estimates the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further discussion of the calculation of VaR, see "Value at risk" in Part II, Item 7 "Management's Discussion and Analysis" in our Annual Report on Form 10-K for the year ended November 30, 2014.


JEFFERIES GROUP LLC AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Other Data)
(Unaudited)

	Six Months Ended
	May 31, 2015			May 31, 2014
Revenues by Source
Equities	$	431,677		$	366,061
Fixed income	279,479			503,634
Total sales and trading	711,156			869,695

Equity	187,876			178,464
Debt	215,546			320,038
Capital markets	403,422			498,502
Advisory	272,835			246,967
Total investment banking	676,257			745,469

Asset management fees and investment income (loss)from managed funds:
Asset management fees	18,888			14,373
Investment (loss) income from managed funds	(23,075		)	(7,517		)
Total	(4,187		)	6,856
Net revenues	$	1,383,226		$	1,622,020

Other Data
Number of trading days	124			124
Number of trading loss days	21			18
Number of trading loss days excluding Knight Capital	14			5

Average firmwide VaR (in millions) (A)	$	13.03		$	15.60
Average firmwide VaR excluding Knight Capital (in millions) (A)	$	9.58		$	10.60
Average firmwide VaR excluding Knight Capital and HRG Group Inc. (in millions) (A)	$	9.58		$	8.59

(A)


JEFFERIES GROUP LLC AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Millions, Except Where Noted)
(Unaudited)

	Quarter Ended
	May 31, 2015			February 28, 2015			May 31, 2014

Financial position:
Total assets (1)	$	44,142		$	43,787		$	43,610
Average total assets for the period (1)	$	51,013		$	49,862		$	50,379
Average total assets less goodwill and intangible assets for the period (1)	$	49,118		$	47,961		$	48,394

Cash and cash equivalents (1)	$	3,289		$	3,340		$	3,958
Cash and cash equivalents and other sources of liquidity (1) (2)	$	4,951		$	4,647		$	5,824
Cash and cash equivalents and other sources of liquidity - % total assets (1) (2)	11.2		%	10.6		%	13.4		%
Cash and cash equivalents and other sources of liquidity - % total assets less goodwill and intangible assets (1) (2)	11.7		%	11.1		%	14.0		%

Financial instruments owned (1)	$	18,843		$	19,099		$	17,144
Goodwill and intangible assets (1)	$	1,895		$	1,900		$	1,984

Total equity (including noncontrolling interests)	$	5,520		$	5,466		$	5,527
Total member's equity	$	5,480		$	5,427		$	5,496
Tangible member's equity (3)	$	3,585		$	3,527		$	3,512

Bache assets (4)	$	2,955		$	3,926		$	3,271

Level 3 financial instruments:
Level 3 financial instruments owned (1) (5) (6)	$	540		$	540		$	453
Level 3 financial instruments owned - % total assets (1) (6)	1.2		%	1.2		%	1.0		%
Total Level 3 financial instruments owned - % total financial instruments (1) (6)	2.9		%	2.8		%	2.6		%
Level 3 financial instruments owned - % tangible member's equity (1) (6)	15.1		%	15.3		%	12.9		%

Other data and financial ratios:
Total capital (1) (7)	$	10,860		$	11,193		$	11,941
Leverage ratio (1) (8)	8.0			8.0			7.9
Adjusted leverage ratio (1) (9)	10.3			10.1			10.0
Tangible gross leverage ratio (1) (10)	11.8			11.9			11.9
Leverage ratio - excluding impacts of the Leucadia transaction (1) (11)	10.1			10.1			10.0

Number of trading days	63			61			63
Number of trading loss days	10			11			11
Number of trading loss days excluding Knight Capital	5			9			4
Average firmwide VaR (12)	$	12.80		$	13.27		$	14.94
Average firmwide VaR excluding Knight Capital (12)	$	9.86		$	9.29		$	8.63
Average firmwide VaR excluding Knight Capital and HRG Group Inc. (12)	$	9.86		$	9.29		$	7.97

Number of employees, at period end	3,830			3,936			3,785

JEFFERIES GROUP LLC AND SUBSIDIARIES FINANCIAL HIGHLIGHTS - FOOTNOTES

(1)		Amounts pertaining to May 31, 2015 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2015.

(2)		At May 31, 2015, other sources of liquidity include high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities of $1,135 million, in aggregate, and $527 million, being the total of the estimated amount of additional secured financing that could be reasonably expected to be obtained from our financial instruments that are currently not pledged at reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache. The corresponding amounts included in other sources of liquidity at February 28, 2015 were $911 million and $396 million, respectively, and at May 31, 2014, were $1,202 million and $664 million, respectively.

(3)		Tangible member's equity (a non-GAAP financial measure) represents total member's equity less goodwill and identifiable intangible assets. We believe that tangible member's equity is meaningful for valuation purposes, as financial companies are often measured as a multiple of tangible member's equity, making these ratios meaningful for investors.

(4)		Bache assets (a non-GAAP financial measure) includes Cash and cash equivalents, Cash and securities segregated, Financial instruments owned, Securities purchased under agreements to resell and Receivables attributable to our Bache business.

(5)		Level 3 financial instruments represent those financial instruments classified as such under Accounting Standards Codification 820, accounted for at fair value and included within Financial instruments owned.

(6)		In May 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-07, “Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).” The guidance removes the requirement to include investments in the fair value hierarchy for which the fair value is measured at net asset value using the practical expedient under “Fair Value Measurements and Disclosures (Topic 820).” The guidance also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value practical expedient. Rather, those disclosures are limited to investments for which we have elected to measure the fair value using that practical expedient. The guidance is effective retrospectively beginning in the first quarter of fiscal 2017. Early adoption is permitted and we have early adopted this guidance during the second quarter of fiscal 2015.

(7)		At May 31, 2015, February 28, 2015 and May 31, 2014, total capital includes our long-term debt of $5,340 million, $5,726 million and $6,414 million, respectively, and total equity. Long-term debt included in total capital is reduced by amounts outstanding under the revolving credit facility and the amount of debt maturing in less than one year, where applicable.

(8)		Leverage ratio equals total assets divided by total equity.

(9)		Adjusted leverage ratio (a non-GAAP financial measure) equals adjusted assets divided by tangible total equity, being total equity less goodwill and identifiable intangible assets. Adjusted assets (a non-GAAP financial measure) equals total assets less securities borrowed, securities purchased under agreements to resell, cash and securities segregated, goodwill and identifiable intangibles plus financial instruments sold, not yet purchased (net of derivative liabilities). At May 31, 2015, February 28, 2015 and May 31, 2014, adjusted assets were $37,172 million, $35,977 million and $35,577 million, respectively. We believe that adjusted assets is a meaningful measure as it excludes certain assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities.

(10)		Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible member's equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.

(11)		Leverage ratio - excluding impacts of the Leucadia transaction (a non-GAAP financial measure) is calculated as follows:

	May 31,			February 28,			May 31,
$ millions	2015			2015			2014
Total assets	$	44,142		$	43,787		$	43,610
Goodwill and acquisition accounting fair value adjustments on the transaction with Leucadia	(1,957		)	(1,957		)	(1,957		)
Net amortization to date on asset related purchase accounting adjustments	116			112			37
Total assets excluding transaction impacts	$	42,301		$	41,942		$	41,690

Total equity	$	5,520		$	5,466		$	5,527
Equity arising from transaction consideration	(1,426		)	(1,426		)	(1,426		)
Preferred stock assumed by Leucadia	125			125			125
Net amortization to date of purchase accounting adjustments, net of tax	(31		)	(20		)	(48		)
Total equity excluding transaction impacts	$	4,188		$	4,145		$	4,178

Leverage ratio - excluding impacts of the Leucadia transaction	10.1			10.1			10.0