Jefferies Financial Group Inc. - Annual Report: 2014 (Form 10-K)
WASHINGTON, D.C. 20549
[x] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 |
[_] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
New York
|
13-2615557
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
Title of Each Class
|
Name of Each Exchange on Which Registered
|
Common Shares, par value $1 per share
|
New York Stock Exchange
|
Large accelerated filer [x]
|
Accelerated filer [ ]
|
Non-accelerated filer [ ]
|
Smaller reporting company [ ]
|
·
|
Jefferies, 100% (investment banking & capital markets);
|
·
|
Leucadia Asset Management, various (asset management);
|
·
|
HomeFed, 65% (45% voting) (real estate); and
|
·
|
Berkadia, 50% (commercial mortgage banking and servicing).
|
·
|
National Beef, 79% (beef processing);
|
·
|
Harbinger, 23% (diversified holding company);
|
·
|
Vitesse Energy, 96% (oil and gas exploration and development);
|
·
|
Juneau Energy, 98% (oil and gas exploration and development);
|
·
|
Linkem, 55% fully-diluted (42% voting) (fixed wireless broadband services);
|
·
|
Conwed Plastics, 100% (manufacturing);
|
·
|
Idaho Timber, 100% (manufacturing);
|
·
|
Garcadia, about 74% (automobile dealerships); and
|
·
|
Golden Queen, 34% (a gold and silver mining project).
|
·
|
A market downturn could lead to a decline in the volume of transactions executed for customers and, therefore, to a decline in the revenues Jefferies receives from commissions and spreads.
|
·
|
Unfavorable financial or economic conditions could reduce the number and size of transactions in which Jefferies provides underwriting, financial advisory and other services. Jefferies investment banking revenues, in the form of financial advisory and sales and trading or placement fees, are directly related to the number and size of the transactions in which Jefferies participates and could therefore be adversely affected by unfavorable financial or economic conditions.
|
·
|
Adverse changes in the market could lead to losses from principal transactions on Jefferies inventory positions.
|
·
|
Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds and losses on Jefferies own capital invested in managed funds. Even in the absence of a market downturn, below-market investment performance by Jefferies funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors.
|
·
|
Limitations on the availability of credit, such as occurred during 2008, can affect Jefferies ability to borrow on a secured or unsecured basis, which may adversely affect Jefferies liquidity and results of operations.
|
·
|
New or increased taxes on compensation payments such as bonuses or on balance sheet items may adversely affect Jefferies profits.
|
·
|
Should one of Jefferies customers or competitors fail, Jefferies business prospects and revenue could be negatively impacted due to negative market sentiment causing customers to cease doing business with Jefferies and Jefferies lenders to cease loaning Jefferies money, which could adversely affect its business, funding and liquidity.
|
Item 1B. | Unresolved Staff Comments. |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Common Share
|
||||||||
High
|
Low
|
|||||||
2013
|
||||||||
First Quarter
|
$
|
27.57
|
$
|
22.98
|
||||
Second Quarter
|
32.43
|
24.70
|
||||||
Third Quarter
|
28.75
|
24.80
|
||||||
Fourth Quarter
|
29.56
|
26.82
|
||||||
2014
|
||||||||
First Quarter
|
$
|
28.72
|
$
|
26.04
|
||||
Second Quarter
|
28.09
|
24.52
|
||||||
Third Quarter
|
26.50
|
23.74
|
||||||
Fourth Quarter
|
24.72
|
20.96
|
||||||
2015
|
||||||||
First Quarter (through February 12, 2015)
|
$
|
23.84
|
$
|
21.28
|
Total
Number of
Shares
Purchased
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
|
Maximum Number
of Shares that May Yet
Be Purchased Under the
Plans or Programs
|
|||||||||||||
October 2014
|
38,940
|
$
|
22.93
|
–
|
25,000,000
|
|||||||||||
November 2014
|
30,891
|
$
|
24.05
|
–
|
25,000,000
|
|||||||||||
December 2014
|
917,354
|
$
|
21.70
|
704,806
|
24,295,194
|
|||||||||||
Total
|
987,185
|
704,806
|
![](https://www.sec.gov/Archives/edgar/data/0000096223/000009622315000006/image0.jpg)
Item 6. | Selected Financial Data. |
Year Ended December 31,
|
||||||||||||||||||||
2014
|
2013
|
2012
|
2011
|
2010
|
||||||||||||||||
(In thousands, except per share amounts)
|
||||||||||||||||||||
SELECTED INCOME STATEMENT DATA: (a)
|
||||||||||||||||||||
Net revenues (b)
|
$
|
11,486,485
|
$
|
10,425,746
|
$
|
9,404,584
|
$
|
637,265
|
$
|
1,418,813
|
||||||||||
Expenses
|
11,243,790
|
9,999,202
|
8,051,204
|
578,701
|
654,478
|
|||||||||||||||
Income from continuing operations before income taxes
|
381,222
|
545,585
|
1,442,029
|
120,577
|
797,911
|
|||||||||||||||
Income tax provision (benefit) (c)
|
165,971
|
136,481
|
539,464
|
71,237
|
(1,142,943
|
)
|
||||||||||||||
Income from continuing operations (c)
|
215,251
|
409,104
|
902,565
|
49,340
|
1,940,854
|
|||||||||||||||
Income (loss) from discontinued operations, including gain (loss) on disposal, net of taxes
|
(16,226
|
)
|
(46,911
|
)
|
(37,924
|
)
|
(24,384
|
)
|
(618
|
)
|
||||||||||
Net income attributable to Leucadia National
|
||||||||||||||||||||
Corporation common shareholders
|
204,306
|
369,240
|
854,466
|
25,231
|
1,939,312
|
|||||||||||||||
Per share:
|
||||||||||||||||||||
Basic earnings (loss) per common share attributable
|
||||||||||||||||||||
to Leucadia National Corporation common
|
||||||||||||||||||||
shareholders:
|
||||||||||||||||||||
Income from continuing operations
|
$
|
.58
|
$
|
1.20
|
$
|
3.64
|
$
|
.20
|
$
|
7.98
|
||||||||||
Income (loss) from discontinued operations, including gain (loss) on disposal
|
(.04
|
)
|
(.13
|
)
|
(.15
|
)
|
(.10
|
)
|
(.01
|
)
|
||||||||||
Net income
|
$
|
.54
|
$
|
1.07
|
$
|
3.49
|
$
|
.10
|
$
|
7.97
|
||||||||||
Diluted earnings (loss) per common share attributable
|
||||||||||||||||||||
to Leucadia National Corporation common
|
||||||||||||||||||||
shareholders:
|
||||||||||||||||||||
Income from continuing operations
|
$
|
.58
|
$
|
1.20
|
$
|
3.59
|
$
|
.20
|
$
|
7.85
|
||||||||||
Income (loss) from discontinued operations, including gain (loss) on disposal
|
(.04
|
)
|
(.14
|
)
|
(.15
|
)
|
(.10
|
)
|
–
|
|||||||||||
Net income
|
$
|
.54
|
$
|
1.06
|
$
|
3.44
|
$
|
.10
|
$
|
7.85
|
||||||||||
At December 31,
|
||||||||||||||||||||
2014
|
2013
|
2012
|
2011
|
2010
|
||||||||||||||||
(In thousands, except per share amounts)
|
||||||||||||||||||||
SELECTED BALANCE SHEET DATA: (a)
|
||||||||||||||||||||
Total assets
|
$
|
52,623,908
|
$
|
47,866,781
|
$
|
9,349,118
|
$
|
9,263,189
|
$
|
9,350,298
|
||||||||||
Long-term debt
|
8,527,929
|
8,180,865
|
1,358,695
|
1,903,653
|
1,680,106
|
|||||||||||||||
Mezzanine equity
|
311,686
|
366,075
|
241,649
|
235,909
|
–
|
|||||||||||||||
Shareholders’ equity
|
10,302,158
|
10,102,462
|
6,767,268
|
6,174,396
|
6,956,758
|
|||||||||||||||
Book value per common share
|
$
|
28.03
|
$
|
27.71
|
$
|
27.67
|
$
|
25.24
|
$
|
28.53
|
||||||||||
Cash dividends per common share
|
$
|
.25
|
$
|
.25
|
$
|
.25
|
$
|
.25
|
$
|
.25
|
(a)
|
Subsidiaries are reflected above as consolidated entities from the date of acquisition. Jefferies was acquired on March 1, 2013. National Beef was acquired on December 30, 2011; however, since its operating activities subsequent to the acquisition during 2011 were not significant they were not included in the 2011 consolidated statement of operations.
|
(b)
|
Includes net securities gains of $30.4 million, $244.0 million, $590.6 million, $641.5 million and $179.5 million for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, respectively.
|
(c)
|
At December 31, 2010, we concluded that it was more likely than not that we would be able to realize a portion of the net deferred tax asset; accordingly, $1,157 million of the deferred tax valuation allowance was reversed as a credit to income tax expense.
|
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
2014
|
2013
|
2012
|
||||||||||
Pre-tax income (loss) from continuing operations:
|
||||||||||||
Jefferies
|
$
|
358,396
|
$
|
260,984
|
$
|
–
|
||||||
National Beef
|
(40,303
|
)
|
(42,358
|
)
|
59,048
|
|||||||
Corporate and other
|
(144,508
|
)
|
(91,917
|
)
|
(122,476
|
)
|
||||||
Other Financial Services Businesses
|
139,055
|
275,430
|
374,595
|
|||||||||
Other Merchant Banking Businesses
|
166,697
|
215,663
|
1,211,012
|
|||||||||
Parent Company Interest
|
(98,115
|
)
|
(72,217
|
)
|
(80,150
|
)
|
||||||
Total consolidated pre-tax income from
|
||||||||||||
continuing operations
|
$
|
381,222
|
$
|
545,585
|
$
|
1,442,029
|
Year Ended
December 31, 2014
|
For the Period From the Jefferies Acquisition Through
December 31, 2013
|
|||||||
Net revenues
|
$
|
2,986,325
|
$
|
2,134,002
|
||||
Expenses:
|
||||||||
Compensation and benefits
|
1,697,533
|
1,213,908
|
||||||
Floor brokerage and clearing fees
|
215,329
|
150,774
|
||||||
Depreciation and amortization
|
78,566
|
59,631
|
||||||
Provision for doubtful accounts
|
55,355
|
179
|
||||||
Selling, general and other expenses
|
581,146
|
448,526
|
||||||
2,627,929
|
1,873,018
|
|||||||
Income before income taxes
|
$
|
358,396
|
$
|
260,984
|
Year Ended
December 31, 2014
|
For the Period From the Jefferies Acquisition Through
December 31, 2013
|
|||||||
Equities
|
$
|
690,793
|
$
|
578,045
|
||||
Fixed income
|
751,848
|
507,285
|
||||||
Total sales and trading
|
1,442,641
|
1,085,330
|
||||||
Investment banking:
|
||||||||
Capital markets:
|
||||||||
Equities
|
339,683
|
228,394
|
||||||
Debt
|
627,536
|
410,370
|
||||||
Advisory
|
559,418
|
369,191
|
||||||
Total investment banking
|
1,526,637
|
1,007,955
|
||||||
Other
|
17,047
|
40,717
|
||||||
Total net revenues
|
$
|
2,986,325
|
$
|
2,134,002
|
2014
|
2013
|
2012
|
||||||||||
Net revenues
|
$
|
7,832,424
|
$
|
7,487,724
|
$
|
7,480,934
|
||||||
Expenses:
|
||||||||||||
Cost of sales
|
7,708,007
|
7,308,580
|
7,269,912
|
|||||||||
Compensation and benefits
|
38,660
|
33,447
|
31,638
|
|||||||||
Interest
|
14,503
|
12,272
|
12,431
|
|||||||||
Depreciation and amortization
|
85,305
|
88,483
|
83,063
|
|||||||||
Selling, general and other expenses
|
26,252
|
87,300
|
24,842
|
|||||||||
7,872,727
|
7,530,082
|
7,421,886
|
||||||||||
Income (loss) before income taxes
|
$
|
(40,303
|
)
|
$
|
(42,358
|
)
|
$
|
59,048
|
2014
|
2013
|
2012
|
||||||||||
Net revenues
|
$
|
60,720
|
$
|
50,190
|
$
|
67,039
|
||||||
Expenses:
|
||||||||||||
Compensation and benefits
|
71,034
|
83,005
|
107,748
|
|||||||||
Depreciation and amortization
|
5,627
|
9,924
|
12,785
|
|||||||||
Selling, general and other expenses
|
129,396
|
52,573
|
71,632
|
|||||||||
206,057
|
145,502
|
192,165
|
||||||||||
Income related to associated companies
|
829
|
3,395
|
2,650
|
|||||||||
Pre-tax loss from continuing operations
|
$
|
(144,508
|
)
|
$
|
(91,917
|
)
|
$
|
(122,476
|
)
|
2014
|
2013
|
2012
|
||||||||||
Net revenues
|
$
|
538,775
|
$
|
567,682
|
$
|
1,555,193
|
||||||
Expenses:
|
||||||||||||
Cost of sales
|
316,279
|
259,127
|
209,834
|
|||||||||
Compensation and benefits
|
21,917
|
19,924
|
26,442
|
|||||||||
Interest
|
1,544
|
–
|
–
|
|||||||||
Depreciation and amortization
|
12,229
|
9,269
|
20,539
|
|||||||||
Selling, general and other expenses
|
53,470
|
83,950
|
99,510
|
|||||||||
405,439
|
372,270
|
356,325
|
||||||||||
Income before income taxes and income
|
||||||||||||
related to associated companies
|
133,336
|
195,412
|
1,198,868
|
|||||||||
Income related to associated companies
|
33,361
|
20,251
|
12,144
|
|||||||||
Pre-tax income from continuing operations
|
$
|
166,697
|
$
|
215,663
|
$
|
1,211,012
|
Total equity
|
$
|
10,302,158
|
||
Less, investment in Jefferies
|
(5,474,533
|
)
|
||
Equity excluding Jefferies
|
4,827,625
|
|||
Less, our two largest investments:
|
||||
National Beef
|
(796,446
|
)
|
||
Harbinger, at cost
|
(475,600
|
)
|
||
Equity in a stressed scenario
|
3,555,579
|
|||
Less, net deferred tax asset excluding Jefferies amount
|
(1,312,938
|
)
|
||
Equity in a stressed scenario less net deferred tax asset
|
$
|
2,242,641
|
||
Balance sheet amounts:
|
||||
Available liquidity
|
$
|
2,147,672
|
||
Parent company debt (see Note 17 to our
|
||||
Consolidated financial statements)
|
$
|
1,445,462
|
||
Ratio of parent company debt to stressed equity:
|
||||
Maximum
|
.50
|
x
|
||
Actual, equity in a stressed scenario
|
.41
|
x
|
||
Actual, equity in a stressed scenario excluding net deferred tax asset
|
.64
|
x
|
||
Ratio of available liquidity to parent company debt:
|
||||
Minimum
|
1.0
|
x
|
||
Actual
|
1.5
|
x
|
From Jefferies Acquisition
|
||||||||
Year Ended
|
Through
|
|||||||
December 31, 2014
|
December 31, 2013
|
|||||||
Securities purchased under agreements to resell:
|
||||||||
Period end
|
$
|
3,927
|
$
|
3,747
|
||||
Month end average
|
5,788
|
4,936
|
||||||
Maximum month end
|
8,081
|
6,007
|
||||||
Securities sold under agreements to repurchase:
|
||||||||
Period end
|
$
|
10,672
|
$
|
10,780
|
||||
Month end average
|
13,291
|
13,308
|
||||||
Maximum month end
|
16,586
|
16,502
|
Cash Capital Policy. A cash capital model is maintained that measures long-term funding sources against requirements. Sources of cash capital include equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following: (a) illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments; (b) a portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and (c) drawdowns of unfunded commitments. To ensure that Jefferies does not need to liquidate inventory in the event of a funding crises, Jefferies seeks to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies maintains.
|
December 31,
2014 |
Average Balance
Fourth Quarter 2014 (1) |
December 31,
2013 |
|||||||||
Cash and cash equivalents:
|
||||||||||||
Cash in banks
|
$
|
1,083,605
|
$
|
603,459
|
$
|
830,438
|
||||||
Certificate of deposit
|
75,000
|
59,524
|
50,005
|
|||||||||
Money market investments
|
2,921,363
|
2,333,772
|
2,680,676
|
|||||||||
|
||||||||||||
Total cash and cash equivalents
|
4,079,968
|
2,996,755
|
3,561,119
|
|||||||||
|
||||||||||||
Other sources of liquidity:
|
||||||||||||
Debt securities owned and securities purchased under agreements to
resell (2) |
1,056,766
|
1,125,420
|
1,316,867
|
|||||||||
Other (3)
|
363,713
|
572,024
|
403,738
|
|||||||||
|
||||||||||||
Total other sources
|
1,420,479
|
1,697,444
|
1,720,605
|
|||||||||
|
||||||||||||
Total cash and cash equivalents and other liquidity sources
|
$
|
5,500,447
|
$
|
4,694,199
|
$
|
5,281,724
|
||||||
|
(1)
|
Average balances are calculated based on weekly balances.
|
(2)
|
Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the USA; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.
|
(3)
|
Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts and additional funds available under the committed senior secured revolving credit facility available for working capital needs of Jefferies Bache, LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies LLC, with Jefferies LLC as the surviving entity.
|
|
December 31, 2014
|
December 31, 2013
|
||||||||||||||
|
Liquid Financial
Instruments |
Unencumbered
Liquid Financial Instruments (2) |
Liquid Financial
Instruments |
Unencumbered
Liquid Financial Instruments (2) |
||||||||||||
Corporate equity securities
|
$
|
2,191,288
|
$
|
297,628
|
$
|
1,982,877
|
$
|
137,721
|
||||||||
Corporate debt securities
|
2,583,779
|
11,389
|
2,250,512
|
26,983
|
||||||||||||
U.S. Government, agency and municipal securities
|
3,124,780
|
250,278
|
2,513,388
|
400,821
|
||||||||||||
Other sovereign obligations
|
2,671,807
|
877,366
|
2,346,485
|
991,774
|
||||||||||||
Agency mortgage-backed securities (1)
|
3,395,771
|
—
|
2,976,133
|
—
|
||||||||||||
Physical commodities
|
62,234
|
—
|
37,888
|
—
|
||||||||||||
|
||||||||||||||||
|
$
|
14,029,659
|
$
|
1,436,661
|
$
|
12,107,283
|
$
|
1,557,299
|
||||||||
|
(1)
|
Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages (“ARMs”), collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.
|
(2)
|
Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.
|
Rating
|
Outlook
|
|
Moody’s Investors Service
|
Baa3
|
Negative
|
Standard and Poor’s (1)
|
BBB-
|
Stable
|
Fitch Ratings
|
BBB-
|
Stable
|
(1) | On December 11, 2014, S&P announced its review of the ratings on 13 U.S. securities firms by applying its new ratings criteria for the sector. As part of this review, S&P downgraded our long-term debt rating one notch from “BBB” to “BBB-” and left the rating outlook unchanged at “stable”. |
|
Net Capital
|
Excess Net Capital
|
||||||
Jefferies LLC
|
$
|
1,025,113
|
$
|
913,465
|
||||
Jefferies Execution
|
6,150
|
5,900
|
Expected Maturity Date (in millions)
|
||||||||||||||||||||||||
Contractual Cash Obligations
|
Total
|
2015
|
2016
|
2017
and
2018
|
2019
and
2020
|
After
2020
|
||||||||||||||||||
Indebtedness
|
$
|
8,150.3
|
$
|
1,032.2
|
$
|
408.0
|
$
|
1,384.8
|
$
|
1,327.1
|
$
|
3,998.2
|
||||||||||||
Estimated interest expense on debt
|
3,774.5
|
431.3
|
370.4
|
683.6
|
501.8
|
1,787.4
|
||||||||||||||||||
Cattle commitments
|
121.6
|
121.6
|
–
|
–
|
–
|
–
|
||||||||||||||||||
Operating leases, net of sublease income
|
772.9
|
62.9
|
67.4
|
129.3
|
112.3
|
401.0
|
||||||||||||||||||
Other
|
331.3
|
78.0
|
59.9
|
96.6
|
55.7
|
41.1
|
||||||||||||||||||
Total Contractual Cash Obligations
|
$
|
13,150.6
|
$
|
1,726.0
|
$
|
905.7
|
$
|
2,294.3
|
$
|
1,996.9
|
$
|
6,227.7
|
Expected Maturity Date (in millions)
|
||||||||||||||||||||||||
Commitments and Guarantees
|
Total
|
2015
|
2016
|
2017
and
2018
|
2019
and
2020
|
After
2020
|
||||||||||||||||||
Equity commitments
|
$
|
226.4
|
$
|
–
|
$
|
9.3
|
$
|
0.8
|
$
|
–
|
$
|
216.3
|
||||||||||||
Loan commitments
|
794.9
|
50.7
|
440.2
|
283.1
|
20.7
|
0.2
|
||||||||||||||||||
Mortgage-related and other
|
||||||||||||||||||||||||
purchase commitments
|
2,341.9
|
1,058.5
|
1,165.8
|
117.6
|
–
|
–
|
||||||||||||||||||
Forward starting reverse repos and repos
|
5,127.2
|
5,127.2
|
–
|
–
|
–
|
–
|
||||||||||||||||||
Other unfunded commitments
|
29.3
|
6.3
|
–
|
–
|
–
|
23.0
|
||||||||||||||||||
Derivative contracts (1):
|
||||||||||||||||||||||||
Non credit related
|
61,566.8
|
59,875.6
|
229.6
|
252.1
|
721.8
|
487.7
|
||||||||||||||||||
Credit related
|
485.0
|
–
|
–
|
–
|
485.0
|
–
|
||||||||||||||||||
Standby letters of credit
|
74.0
|
73.7
|
–
|
–
|
–
|
0.3
|
||||||||||||||||||
Total Commitments and Guarantees
|
$
|
70,645.5
|
$
|
66,192.0
|
$
|
1,844.9
|
$
|
653.6
|
$
|
1,227.5
|
$
|
727.5
|
(1)
|
Certain of Jefferies derivative contracts meet the definition of a guarantee and are therefore included in the above table. For additional information on commitments, see Note 26 in our consolidated financial statements.
|
(In millions)
Risk Categories
|
VaR at
November 30, 2014 |
Daily VaR (1)
Value-at-Risk In Trading Portfolios Daily VaR for the Year Ended November 30, 2014 |
VaR at
November 30, 2013 |
Daily VaR for the
Year Ended November 30, 2013 |
||||||||||||||||||||||||||||
|
Average
|
High
|
Low
|
Average
|
High
|
Low
|
||||||||||||||||||||||||||
Interest Rates
|
$
|
5.56
|
$
|
5.77
|
$
|
8.69
|
$
|
3.16
|
$
|
7.33
|
$
|
5.38
|
$
|
9.46
|
$
|
3.68
|
||||||||||||||||
Equity Prices
|
10.53
|
11.08
|
14.68
|
7.85
|
12.22
|
6.57
|
12.37
|
3.85
|
||||||||||||||||||||||||
Currency Rates
|
0.87
|
1.33
|
6.59
|
0.15
|
0.56
|
0.83
|
2.07
|
0.11
|
||||||||||||||||||||||||
Commodity Prices
|
0.19
|
0.70
|
2.14
|
0.07
|
0.74
|
0.94
|
1.70
|
0.37
|
||||||||||||||||||||||||
Diversification Effect (2)
|
(3.87
|
)
|
(4.53
|
)
|
–
|
–
|
(4.60
|
)
|
(3.29
|
)
|
N/
|
A
|
N/
|
A
|
||||||||||||||||||
Firmwide
|
$
|
13.28
|
$
|
14.35
|
$
|
19.68
|
$
|
10.31
|
$
|
16.25
|
$
|
10.43
|
$
|
16.25
|
$
|
6.00
|
(1)
|
VaR is the potential loss in value of Jefferies trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.
|
(2)
|
The diversification effect is not applicable for the maximum and minimum VaR values as the Jefferies VaR and VaR values for the four risk categories might have occurred on different days during the period.
|
10% Sensitivity
|
||||
Private investments
|
$
|
39,019
|
||
Corporate debt securities in default
|
12,971
|
|||
Trade claims
|
2,330
|
·
|
defining credit limit guidelines and credit limit approval processes;
|
·
|
providing a consistent and integrated credit risk framework across the enterprise;
|
·
|
approving counterparties and counterparty limits with parameters set by its Risk Management Committee;
|
·
|
negotiating, approving and monitoring credit terms in legal and master documentation;
|
·
|
delivering credit limits to all relevant sales and trading desks;
|
·
|
maintaining credit reviews for all active and new counterparties;
|
·
|
operating a control function for exposure analytics and exception management and reporting;
|
·
|
determining the analytical standards and risk parameters for on-going management and monitoring of global credit risk books;
|
·
|
actively managing daily exposure, exceptions, and breaches;
|
·
|
monitoring daily margin call activity and counterparty performance (in concert with the Margin Department); and
|
·
|
setting the minimum global requirements for systems, reports, and technology.
|
·
|
Loans and lending arise in connection with our capital markets activities and represents the notional value of loans that have been drawn by the borrower and lending commitments outstanding. In addition, credit exposures on forward settling traded loans are included within Jefferies loans and lending exposures for consistency with the balance sheet categorization of these items.
|
·
|
Securities and margin finance includes credit exposure arising on securities financing transactions (reverse repurchase agreements, repurchase agreements and securities lending agreements) to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.
|
·
|
Derivatives represent over-the-counter ("OTC") derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Derivatives are accounted for at fair value net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within Jefferies derivative credit exposures.
|
·
|
Cash and cash equivalents include both interest-bearing and non-interest bearing deposits at banks.
|
Counterparty Credit Exposure by Credit Rating
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Loans and Lending
|
Securities and
Margin Finance |
OTC Derivatives
|
Total
|
Cash and Cash
Equivalents |
Total with Cash and
Cash Equivalents |
||||||||||||||||||||||||||||||||||||||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
||||||||||||||||||||||||||||||||||||||||||
|
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
||||||||||||||||||||||||||||||||||||
AAA Range
|
$
|
—
|
$
|
—
|
$
|
1.9
|
$
|
0.2
|
$
|
—
|
$
|
—
|
$
|
1.9
|
$
|
0.2
|
$
|
2,921.4
|
$
|
2,680.6
|
$
|
2,923.3
|
$
|
2,680.8
|
||||||||||||||||||||||||
AA Range
|
2.7
|
—
|
134.6
|
104.8
|
7.1
|
14.7
|
144.4
|
119.5
|
412.9
|
144.1
|
557.3
|
263.6
|
||||||||||||||||||||||||||||||||||||
A Range
|
7.6
|
—
|
586.9
|
374.4
|
218.1
|
56.7
|
812.6
|
431.1
|
731.3
|
734.7
|
1,543.9
|
1,165.8
|
||||||||||||||||||||||||||||||||||||
BBB Range
|
132.3
|
71.0
|
73.6
|
39.9
|
34.8
|
16.2
|
240.7
|
127.1
|
2.8
|
1.7
|
243.5
|
128.8
|
||||||||||||||||||||||||||||||||||||
BB or Lower
|
189.9
|
120.3
|
127.9
|
115.4
|
45.2
|
9.5
|
363.0
|
245.2
|
—
|
—
|
363.0
|
245.2
|
||||||||||||||||||||||||||||||||||||
Unrated
|
139.6
|
86.6
|
—
|
—
|
—
|
18.6
|
139.6
|
105.2
|
11.5
|
—
|
151.1
|
105.2
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Total
|
$
|
472.1
|
$
|
277.9
|
$
|
924.9
|
$
|
634.7
|
$
|
305.2
|
$
|
115.7
|
$
|
1,702.2
|
$
|
1,028.3
|
$
|
4,079.9
|
$
|
3,561.1
|
$
|
5,782.1
|
$
|
4,589.4
|
||||||||||||||||||||||||
|
Counterparty Credit Exposure by Region
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Loans and Lending
|
Securities and
Margin Finance |
OTC Derivatives
|
Total
|
Cash and Cash
Equivalents |
Total with Cash and
Cash Equivalents |
||||||||||||||||||||||||||||||||||||||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
||||||||||||||||||||||||||||||||||||||||||
|
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
December
31, 2014 |
December
31, 2013 |
||||||||||||||||||||||||||||||||||||
Asia/Latin America/
Other |
$
|
48.8
|
$
|
—
|
$
|
55.7
|
$
|
30.9
|
$
|
24.6
|
$
|
11.6
|
$
|
129.1
|
$
|
42.5
|
$
|
221.0
|
$
|
183.3
|
$
|
350.1
|
$
|
225.8
|
||||||||||||||||||||||||
Europe
|
8.5
|
—
|
218.2
|
180.3
|
76.1
|
47.6
|
302.8
|
227.9
|
617.5
|
269.3
|
920.3
|
497.2
|
||||||||||||||||||||||||||||||||||||
North
America |
414.8
|
277.9
|
651.0
|
423.5
|
204.5
|
56.5
|
1,270.3
|
757.9
|
3,241.4
|
3,108.5
|
4,511.7
|
3,866.4
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Total
|
$
|
472.1
|
$
|
277.9
|
$
|
924.9
|
$
|
634.7
|
$
|
305.2
|
$
|
115.7
|
$
|
1,702.2
|
$
|
1,028.3
|
$
|
4,079.9
|
$
|
3,561.1
|
$
|
5,782.1
|
$
|
4,589.4
|
||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Counterparty Credit Exposure by Industry
|
||||||||||||||||||||||||||||||||||||||||||||||||
|
Loans and Lending
|
Securities and
Margin Finance |
OTC Derivatives
|
Total
|
Cash and Cash
Equivalents |
Total with Cash and
Cash Equivalents |
||||||||||||||||||||||||||||||||||||||||||
|
At
|
At
|
At
|
At
|
At
|
At
|
||||||||||||||||||||||||||||||||||||||||||
|
December
201431, |
December
201331, |
December
201431, |
December
201331, |
December
201431, |
December
31,
2013 |
December
201431, |
December
201331, |
December
201431, |
December
201331, |
December
201431, |
December
201331, |
||||||||||||||||||||||||||||||||||||
Asset
Managers |
$
|
—
|
$
|
—
|
$
|
91.8
|
$
|
7.1
|
$
|
—
|
$
|
0.5
|
$
|
91.8
|
$
|
7.6
|
$
|
2,921.4
|
$
|
2,680.7
|
$
|
3,013.2
|
$
|
2,688.3
|
||||||||||||||||||||||||
Banks, Broker-dealers
|
10.7
|
—
|
482.2
|
354.9
|
251.4
|
73.8
|
744.3
|
428.7
|
1,158.5
|
880.4
|
1,902.8
|
1,309.1
|
||||||||||||||||||||||||||||||||||||
Commodities
|
—
|
—
|
59.9
|
35.6
|
24.8
|
9.4
|
84.7
|
45.0
|
—
|
—
|
84.7
|
45.0
|
||||||||||||||||||||||||||||||||||||
Other
|
461.4
|
277.9
|
291.0
|
237.1
|
29.0
|
32.0
|
781.4
|
547.0
|
—
|
—
|
781.4
|
547.0
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||||||||||||||
Total
|
$
|
472.1
|
$
|
277.9
|
$
|
924.9
|
$
|
634.7
|
$
|
305.2
|
$
|
115.7
|
$
|
1,702.2
|
$
|
1,028.3
|
$
|
4,079.9
|
$
|
3,561.1
|
$
|
5,782.1
|
$
|
4,589.4
|
||||||||||||||||||||||||
|
December 31, 2014
|
||||||||||||||||||||||||||||||||||||
|
Issuer Risk
|
Counterparty Risk
|
Issuer and Counterparty Risk
|
|||||||||||||||||||||||||||||||||
|
Fair Value of
Long Debt Securities |
Fair Value of
Short Debt Securities |
Net Derivative
Notional Exposure |
Loans
and Lending |
Securities
and Margin Finance |
OTC
Derivatives |
Cash and
Cash Equivalents |
Excluding
Cash and Cash Equivalents |
Including
Cash and Cash Equivalents |
|||||||||||||||||||||||||||
Germany
|
$
|
357.6
|
$
|
(153.7
|
)
|
$
|
196.1
|
$
|
—
|
$
|
97.8
|
$
|
16.8
|
$
|
59.5
|
$
|
514.6
|
$
|
574.1
|
|||||||||||||||||
Spain
|
587.2
|
(171.0
|
)
|
—
|
0.2
|
1.2
|
—
|
—
|
417.6
|
417.6
|
||||||||||||||||||||||||||
Great Britain
|
441.0
|
(252.5
|
)
|
(25.4
|
)
|
6.5
|
29.8
|
25.2
|
138.9
|
224.6
|
363.5
|
|||||||||||||||||||||||||
Belgium
|
137.6
|
(65.9
|
)
|
(8.4
|
)
|
—
|
2.5
|
—
|
278.7
|
65.8
|
344.5
|
|||||||||||||||||||||||||
Canada
|
123.1
|
(28.8
|
)
|
(27.3
|
)
|
—
|
120.2
|
79.6
|
5.3
|
266.8
|
272.1
|
|||||||||||||||||||||||||
Netherlands
|
341.4
|
(121.0
|
)
|
(13.5
|
)
|
—
|
5.4
|
—
|
—
|
212.3
|
212.3
|
|||||||||||||||||||||||||
Italy
|
1,467.9
|
(880.1
|
)
|
(427.7
|
)
|
—
|
—
|
0.3
|
—
|
160.4
|
160.4
|
|||||||||||||||||||||||||
Hong Kong
|
18.4
|
(8.5
|
)
|
—
|
—
|
0.6
|
—
|
145.1
|
10.5
|
155.6
|
||||||||||||||||||||||||||
Luxembourg
|
5.6
|
(6.9
|
)
|
2.9
|
—
|
0.4
|
—
|
127.2
|
2.0
|
129.2
|
||||||||||||||||||||||||||
Puerto Rico
|
108.2
|
—
|
—
|
—
|
—
|
0.8
|
—
|
109.0
|
109.0
|
|||||||||||||||||||||||||||
Total
|
$
|
3,588.0
|
$
|
(1,688.4
|
)
|
$
|
(303.3
|
)
|
$
|
6.7
|
$
|
257.9
|
$
|
122.7
|
$
|
754.7
|
$
|
1,983.6
|
$
|
2,738.3
|
December 31, 2013
|
||||||||||||||||||||||||||||||||||||
|
Issuer Risk
|
Counterparty Risk
|
Issuer and Counterparty Risk
|
|||||||||||||||||||||||||||||||||
|
Fair Value of
Long Debt Securities |
Fair Value of
Short Debt Securities |
Net Derivative
Notional Exposure |
Loans
and Lending |
Securities
and Margin Finance |
OTC
Derivatives |
Cash and
Cash Equivalents |
Excluding
Cash and Cash Equivalents |
Including
Cash and Cash Equivalents |
|||||||||||||||||||||||||||
Great Britain
|
$
|
418.8
|
$
|
(181.5
|
)
|
$
|
(27.2
|
)
|
$
|
—
|
$
|
42.5
|
$
|
20.7
|
$
|
113.1
|
$
|
273.3
|
$
|
386.4
|
||||||||||||||||
Germany
|
462.0
|
(226.1
|
)
|
(70.5
|
)
|
—
|
93.2
|
10.9
|
3.3
|
269.5
|
272.8
|
|||||||||||||||||||||||||
Netherlands
|
445.7
|
(198.8
|
)
|
(2.3
|
)
|
—
|
5.2
|
1.5
|
0.3
|
251.3
|
251.6
|
|||||||||||||||||||||||||
Italy
|
1,181.4
|
(1,017.6
|
)
|
74.2
|
—
|
1.8
|
0.1
|
—
|
239.9
|
239.9
|
||||||||||||||||||||||||||
Canada
|
140.6
|
(59.0
|
)
|
18.8
|
—
|
99.5
|
0.2
|
2.2
|
200.1
|
202.3
|
||||||||||||||||||||||||||
Spain
|
352.3
|
(159.8
|
)
|
0.3
|
—
|
3.0
|
0.2
|
0.1
|
196.0
|
196.1
|
||||||||||||||||||||||||||
Puerto Rico
|
130.1
|
—
|
—
|
—
|
—
|
—
|
—
|
130.1
|
130.1
|
|||||||||||||||||||||||||||
Luxembourg
|
75.0
|
(15.1
|
)
|
—
|
—
|
0.1
|
—
|
68.0
|
60.0
|
128.0
|
||||||||||||||||||||||||||
Hong Kong
|
33.9
|
(18.3
|
)
|
(0.9
|
)
|
—
|
0.3
|
—
|
104.3
|
15.0
|
119.3
|
|||||||||||||||||||||||||
Austria
|
130.2
|
(32.8
|
)
|
—
|
—
|
5.0
|
—
|
0.1
|
102.4
|
102.5
|
||||||||||||||||||||||||||
Total
|
$
|
3,370.0
|
$
|
(1,909.0
|
)
|
$
|
(7.6
|
)
|
$
|
—
|
$
|
250.6
|
$
|
33.6
|
$
|
291.4
|
$
|
1,737.6
|
$
|
2,029.0
|
(In millions)
|
Fair Value
|
Notional Amount
|
||||||||||||||||||||||||||
|
Long Debt
Securities (1) (2) |
Short Debt
Securities (2) (3) |
Net Cash
Inventory |
Long
Derivatives |
Short
Derivatives |
Net
Derivatives |
Total Net
Exposure |
|||||||||||||||||||||
Greece:
|
||||||||||||||||||||||||||||
Sovereigns
|
$
|
1.0
|
$
|
0.3
|
$
|
0.7
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
0.7
|
||||||||||||||
Corporations (4)
|
7.9
|
1.3
|
6.6
|
—
|
0.2
|
(0.2
|
)
|
6.4
|
||||||||||||||||||||
Financial Institutions
|
3.3
|
—
|
3.3
|
—
|
—
|
—
|
3.3
|
|||||||||||||||||||||
Structured Products
|
1.4
|
—
|
1.4
|
—
|
—
|
—
|
1.4
|
|||||||||||||||||||||
Total Greece
|
13.6
|
1.6
|
12.0
|
—
|
0.2
|
(0.2
|
)
|
11.8
|
||||||||||||||||||||
Ireland:
|
||||||||||||||||||||||||||||
Sovereigns
|
2.4
|
0.4
|
2.0
|
—
|
—
|
—
|
2.0
|
|||||||||||||||||||||
Corporations
|
1.7
|
1.1
|
0.6
|
—
|
—
|
—
|
0.6
|
|||||||||||||||||||||
Financial Institutions
|
17.1
|
12.5
|
4.6
|
—
|
—
|
—
|
4.6
|
|||||||||||||||||||||
Structured Products
|
2.0
|
—
|
2.0
|
—
|
—
|
—
|
2.0
|
|||||||||||||||||||||
Total Ireland
|
23.2
|
14.0
|
9.2
|
—
|
—
|
—
|
9.2
|
|||||||||||||||||||||
Italy:
|
||||||||||||||||||||||||||||
Sovereigns (5)
|
1,283.9
|
858.0
|
425.9
|
51.8
|
479.5
|
(427.7
|
)
|
(1.8
|
)
|
|||||||||||||||||||
Corporations
|
61.3
|
10.6
|
50.7
|
—
|
—
|
—
|
50.7
|
|||||||||||||||||||||
Financial Institutions
|
60.2
|
11.5
|
48.7
|
—
|
—
|
—
|
48.7
|
|||||||||||||||||||||
Structured Products
|
62.5
|
—
|
62.5
|
—
|
—
|
—
|
62.5
|
|||||||||||||||||||||
Total Italy
|
1,467.9
|
880.1
|
587.8
|
51.8
|
479.5
|
(427.7
|
)
|
160.1
|
||||||||||||||||||||
Portugal:
|
||||||||||||||||||||||||||||
Sovereigns
|
72.0
|
45.3
|
26.7
|
—
|
—
|
—
|
26.7
|
|||||||||||||||||||||
Corporations
|
—
|
1.7
|
(1.7
|
)
|
—
|
—
|
—
|
(1.7
|
)
|
|||||||||||||||||||
Financial Institutions
|
2.2
|
—
|
2.2
|
—
|
—
|
—
|
2.2
|
|||||||||||||||||||||
Structured Products
|
28.3
|
—
|
28.3
|
—
|
—
|
—
|
28.3
|
|||||||||||||||||||||
Total Portugal
|
102.5
|
47.0
|
55.5
|
—
|
—
|
—
|
55.5
|
|||||||||||||||||||||
Spain:
|
||||||||||||||||||||||||||||
Sovereigns
|
270.0
|
154.9
|
115.1
|
—
|
—
|
—
|
115.1
|
|||||||||||||||||||||
Corporations
|
18.9
|
13.0
|
5.9
|
—
|
—
|
—
|
5.9
|
|||||||||||||||||||||
Financial Institutions
|
111.9
|
3.1
|
108.8
|
—
|
—
|
—
|
108.8
|
|||||||||||||||||||||
Structured Products
|
186.4
|
—
|
186.4
|
—
|
—
|
—
|
186.4
|
|||||||||||||||||||||
Total Spain
|
587.2
|
171.0
|
416.2
|
—
|
—
|
—
|
416.2
|
|||||||||||||||||||||
Total
|
$
|
2,194.4
|
$
|
1,113.7
|
$
|
1,080.7
|
$
|
51.8
|
$
|
479.7
|
$
|
(427.9
|
)
|
$
|
652.8
|
|||||||||||||
Total Sovereign
|
$
|
1,629.3
|
$
|
1,058.9
|
$
|
570.4
|
$
|
51.8
|
$
|
479.5
|
$
|
(427.7
|
)
|
$
|
142.7
|
|||||||||||||
Total Non-sovereign
|
$
|
565.1
|
$
|
54.8
|
$
|
510.3
|
$
|
—
|
$
|
0.2
|
$
|
(0.2
|
)
|
$
|
510.1
|
(1)
|
Long securities represent the fair value of debt securities and are presented within Trading assets on the face of the Consolidated Statement of Financial Condition and are accounted for at fair value with changes in fair value recognized in Principal transactions revenues.
|
(2)
|
Classification of securities by country and by issuer type is presented based on the view of Jefferies Risk Management Department. Jefferies Risk Management takes into account whether a particular security or issuer of a security is guaranteed or otherwise backed by a sovereign government and also takes into account whether a corporate or financial institution that issues a particular security is owned by a sovereign government when determining domicile and whether a particular security should be classified for risk purposes as a sovereign obligation. The classification of debt securities within the table above will differ from the financial statement presentation in the Consolidated Statement of Financial Condition because the classification used for financial statement presentation in the Consolidated Statement of Financial Condition classifies a debt security solely by the direct issuer and the domicile of the direct issuer.
|
(3)
|
Short securities represent the fair value of debt securities sold short and are presented within Trading liabilities on the face of the Consolidated Statement of Financial Condition and are accounted for at fair value with changes in fair value recognized in Principal transactions revenues.
|
(4)
|
These derivative contract positions are comprised of listed equity options.
|
(5)
|
These derivative positions are comprised of bond futures executed on exchanges outside Italy.
|
|
Remaining Maturity
Less Than One Year |
Remaining Maturity
Greater Than or Equal to One Year |
Total Average Balance
|
|||||||||
Financial instruments
owned - Debt securities |
||||||||||||
Greece
|
$
|
—
|
$
|
4.1
|
$
|
4.1
|
||||||
Ireland
|
1.3
|
6.5
|
7.8
|
|||||||||
Italy
|
675.6
|
1,841.9
|
2,517.5
|
|||||||||
Portugal
|
6.7
|
106.2
|
112.9
|
|||||||||
Spain
|
125.9
|
304.6
|
430.5
|
|||||||||
Total average fair value of long debt securities (1)
|
809.5
|
2,263.3
|
3,072.8
|
|||||||||
Financial instruments sold - Debt securities
|
||||||||||||
Greece
|
—
|
2.8
|
2.8
|
|||||||||
Ireland
|
0.5
|
3.8
|
4.3
|
|||||||||
Italy
|
537.0
|
1,113.1
|
1,650.1
|
|||||||||
Portugal
|
3.0
|
80.5
|
83.5
|
|||||||||
Spain
|
3.1
|
301.7
|
304.8
|
|||||||||
Total average fair value of short debt securities
|
543.6
|
1,501.9
|
2,045.5
|
|||||||||
Total average net fair value of debt securities
|
265.9
|
761.4
|
1,027.3
|
|||||||||
Derivative contracts - long notional exposure Italy
|
—
|
103.6
|
(2)
|
103.6
|
||||||||
Total average notional amount – long
|
—
|
103.6
|
103.6
|
|||||||||
Derivative contracts - short notional exposure Italy
|
—
|
297.9
|
(2)
|
297.9
|
||||||||
Total average notional amount – short
|
—
|
297.9
|
297.9
|
|||||||||
Total average net derivative notional exposure
|
—
|
(194.3
|
)
|
(194.3
|
)
|
|||||||
Total average net exposure to select European countries
|
$
|
265.9
|
$
|
567.1
|
$
|
833.0
|
(1) | Classification of securities by country and by issuer type is presented based on the view of Jefferies Risk Management Department. Risk Management takes into account whether a particular security or issuer of a security is guaranteed or otherwise backed by a sovereign government and also takes into account whether a corporate or financial institution that issues a particular security is owned by a sovereign government when determining domicile and whether a particular security should be classified for risk purposes as a sovereign obligation. The classification of debt securities within the table above will differ from the financial statement presentation in the Consolidated Statement of Financial Condition because the classification used for financial statement presentation in the Consolidated Statement of Financial Condition classifies a debt security solely by the direct issuer and the domicile of the direct issuer. |
(2) | These positions are comprised of bond futures executed on exchanges outside Italy. |
|
Reverse Repurchase
Agreements (1) |
Repurchase
Agreements (1) |
Net
|
||||||||||
Greece
|
$
|
–
|
$
|
–
|
$
|
–
|
|||||||
Ireland
|
5.2
|
81.0
|
(75.8
|
)
|
|||||||||
Italy
|
1,081.3
|
1,533.2
|
(451.9
|
)
|
|||||||||
Portugal
|
35.5
|
57.3
|
(21.8
|
)
|
|||||||||
Spain
|
159.1
|
513.4
|
(354.3
|
)
|
|||||||||
Total
|
$
|
1,281.1
|
$
|
2,184.9
|
$
|
(903.8
|
)
|
(1)
|
Amounts represent the contract amount of the repurchase financing arrangements.
|
Expected Maturity Date
|
||||||||||||||||||||||||||||||||
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Total
|
Fair Value
|
|||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Rate Sensitive Assets:
|
||||||||||||||||||||||||||||||||
Available for Sale Fixed
Income Securities:
|
||||||||||||||||||||||||||||||||
U.S. Government
|
$
|
593,773
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
593,773
|
$
|
593,773
|
||||||||||||||||
Weighted-Average
Interest Rate
|
.04
|
%
|
||||||||||||||||||||||||||||||
Residential mortgage-backed:
Rated Investment Grade
|
$
|
114,218
|
$
|
76,084
|
$
|
57,356
|
$
|
44,968
|
$
|
36,496
|
$
|
210,574
|
$
|
539,696
|
$
|
539,696
|
||||||||||||||||
Weighted-Average
Interest Rate |
2.57
|
%
|
2.58
|
%
|
2.57
|
%
|
2.56
|
%
|
2.54
|
%
|
2.47
|
%
|
||||||||||||||||||||
Rated Less Than Investment
Grade/Not Rated
|
$
|
37,349
|
$
|
10,738
|
$
|
5,537
|
$
|
3,264
|
$
|
2,341
|
$
|
7,758
|
$
|
66,987
|
$
|
66,987
|
||||||||||||||||
Weighted-Average
Interest Rate |
3.87
|
%
|
4.31
|
%
|
4.18
|
%
|
4.39
|
%
|
4.69
|
%
|
4.75
|
%
|
||||||||||||||||||||
Commercial mortgage-backed:
|
||||||||||||||||||||||||||||||||
Rated Investment Grade
|
$
|
-
|
$
|
-
|
$
|
6,918
|
$
|
51
|
$
|
54
|
$
|
378
|
$
|
7,401
|
$
|
7,401
|
||||||||||||||||
Weighted-Average
Interest Rate
|
5.05
|
%
|
5.57
|
%
|
5.57
|
%
|
5.57
|
%
|
||||||||||||||||||||||||
Rated Less Than Investment
Grade/Not Rated
|
$
|
-
|
$
|
8,855
|
$
|
23,037
|
$
|
2,785
|
$
|
1,022
|
$
|
301
|
$
|
36,000
|
$
|
36,000
|
||||||||||||||||
Weighted-Average
Interest Rate |
5.69
|
%
|
4.91
|
%
|
4.28
|
%
|
5.66
|
%
|
4.00
|
%
|
||||||||||||||||||||||
Other asset-backed:
|
||||||||||||||||||||||||||||||||
Rated Investment Grade
|
$
|
119,286
|
$
|
75,051
|
$
|
39,126
|
$
|
4,693
|
$
|
-
|
$
|
-
|
$
|
238,156
|
$
|
238,156
|
||||||||||||||||
Weighted-Average
Interest Rate
|
4.36
|
%
|
3.70
|
%
|
3.00
|
%
|
3.79
|
%
|
||||||||||||||||||||||||
Rated Less Than Investment
Grade/Not Rated
|
$
|
7,000
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
7,000
|
$
|
7,000
|
||||||||||||||||
Weighted-Average
Interest Rate |
4.00
|
%
|
||||||||||||||||||||||||||||||
All other corporates:
|
||||||||||||||||||||||||||||||||
Rated Investment Grade
|
$
|
-
|
$
|
2,849
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
2,849
|
$
|
2,849
|
||||||||||||||||
Weighted-Average
Interest Rate
|
7.25
|
%
|
||||||||||||||||||||||||||||||
Rated Less Than Investment
Grade/Not Rated
|
$
|
13,297
|
$
|
6,330
|
$
|
2,450
|
$
|
4,962
|
$
|
515
|
$
|
-
|
$
|
27,554
|
$
|
27,554
|
||||||||||||||||
Weighted-Average
Interest Rate |
3.54
|
%
|
3.89
|
%
|
7.25
|
%
|
5.75
|
%
|
6.75
|
%
|
Expected Maturity Date
|
||||||||||||||||||||||||||||||||
2015
|
2016
|
2017
|
2018
|
2019
|
Thereafter
|
Total
|
Fair Value
|
|||||||||||||||||||||||||
(Dollars in thousands)
|
||||||||||||||||||||||||||||||||
Rate Sensitive Liabilities:
|
||||||||||||||||||||||||||||||||
Fixed Interest Rate Borrowings
|
$
|
964,940
|
$
|
364,251
|
$
|
345,327
|
$
|
800,340
|
$
|
700,354
|
$
|
3,607,094
|
$
|
6,782,306
|
$
|
7,422,219
|
||||||||||||||||
Weighted-Average
Interest Rate
|
5.91
|
%
|
5.67
|
%
|
3.88
|
%
|
5.13
|
%
|
8.50
|
%
|
3.51
|
%
|
||||||||||||||||||||
Variable Interest Rate Borrowings
|
$
|
67,289
|
$
|
43,711
|
$
|
201,930
|
$
|
382,144
|
$
|
2,082
|
$
|
43,722
|
$
|
740,878
|
$
|
741,119
|
||||||||||||||||
Weighted-Average
Interest Rate
|
2.68
|
%
|
3.54
|
%
|
2.31
|
%
|
4.93
|
%
|
3.96
|
%
|
4.02
|
%
|
||||||||||||||||||||
Borrowings with Foreign
|
||||||||||||||||||||||||||||||||
Currency Exposure
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
627,152
|
$
|
627,152
|
$
|
643,362
|
||||||||||||||||
Weighted-Average
Interest Rate
|
2.37
|
%
|
·
|
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company;
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.
|
Report of Independent Registered Public Accounting Firm
|
F-1
|
Financial Statements:
|
|
Consolidated Statements of Financial Condition at December 31, 2014 and 2013
|
F-2
|
Consolidated Statements of Operations for the years ended December 31, 2014,
|
|
2013 and 2012
|
F-3
|
Consolidated Statements of Comprehensive Income (Loss) for the years ended
|
|
December 31, 2014, 2013 and 2012
|
F-5
|
Consolidated Statements of Cash Flows for the years ended December 31, 2014,
|
|
2013 and 2012
|
F-6
|
Consolidated Statements of Changes in Equity for the years ended
|
|
December 31, 2014, 2013 and 2012
|
F-8
|
Notes to Consolidated Financial Statements
|
F-9
|
(2) | Financial Statement Schedules. |
(3) | See Item 15(b) below for a complete list of Exhibits to this report, including Executive Compensation Plans and Arrangements. |
2.1 | Agreement and Plan of Merger, dated as of November 11, 2012, by and among Leucadia National Corporation, Limestone Merger Sub, LLC, Jefferies Group, Inc., JSP Holdings, Inc. and Jasper Merger Sub, Inc. (filed as Exhibit 2.1 of the Current Report on Form 8-K filed by Jefferies Group, Inc. on November 13, 2012).* |
2.2 | Agreement and Plan of Merger, dated as of November 11, 2012, by and among Jefferies Group, Inc., JSP Holdings, Inc. and Jasper Merger Sub, Inc. (filed as Exhibit 2.2 of the Current Report on Form 8-K filed by Jefferies Group, Inc. on November 13, 2012).* |
2.3 | Purchase Agreement, dated as of February 28, 2014, by and among HomeFed Corporation, Leucadia National Corporation, Baldwin Enterprises, Inc., LUK-REN, Inc., LUK-Myrtle Beach, LLC, Leucadia Financial Corporation, Leucadia LLC, Maine Isles, LLC, Glen Cove TND, LLC and Rockport Properties, Inc. (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated February 28, 2014).* |
2.4 | Preferred Securities Purchase Agreement, dated as of March 18, 2014, by and among Harbinger Capital Partners Master Fund, Ltd., Global Opportunities Breakaway Ltd., Harbinger Capital Partners Special Situations Fund, L.P. and Leucadia National Corporation (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K/A dated March 18, 2014).* |
3.1 | Restated Certificate of Incorporation (filed as Exhibit 5.1 to the Company’s Current Report on Form 8-K dated July 14, 1993).* |
3.2 | Certificate of Amendment of the Certificate of Incorporation dated as of May 14, 2002 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the “2003 10-K”)).* |
3.3 | Certificate of Amendment of the Certificate of Incorporation dated as of December 23, 2002 (filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002).* |
3.4 | Certificate of Amendment of the Certificate of Incorporation dated as of May 13, 2004 (filed as Exhibit 3.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004).* |
3.5 | Certificate of Amendment of the Certificate of Incorporation dated as of May 17, 2005 (filed as Exhibit 3.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (the “2005 10-K”)).* |
3.6 | Certificate of Amendment of the Certificate of Incorporation dated as of May 23, 2007 (filed as Exhibit 4.7 to the Company’s Registration Statement on Form S-8 (No. 333-143770)).* |
3.7 | Certificate of Amendment to the Certificate of Incorporation dated as of February 26, 2013 (filed as Exhibit 3.7 to the Company’s Current Report on Form 8-K on March 1, 2013 (the “March 1, 2013 Form 8-K”).* |
3.8 | Certificate of Amendment to the Certificate of Incorporation dated as of February 26, 2013 (filed as Exhibit 3.8 to the March 1, 2013 Form 8-K).* |
3.9 | Amended and Restated By-laws of Leucadia National Corporation (filed as Exhibit 3.9 to the March 1, 2013 Form 8-K).* |
4.1 | The Company undertakes to furnish the Securities and Exchange Commission, upon written request, a copy of all instruments with respect to long-term debt not filed herewith. |
10.31
|
1999 Stock Option Plan as Amended and Restated (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (No. 333-169377)).* +
|
10.32
|
Form of Grant Letter for the 1999 Stock Option Plan (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 24, 2012 (the “February 24, 2012 8-K”)).* +
|
10.33
|
Leucadia National Corporation 2003 Incentive Compensation Plan (filed as Appendix II to the Company’s Proxy Statement dated June 27, 2013 (the “2013 Proxy Statement”)).* +
|
10.34
|
Form of Restricted Stock Units Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 31, 2013).* +
|
10.35
|
Form of Restricted Stock Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 31, 2013).* +
|
10.36
|
Leucadia National Corporation 1999 Directors’ Stock Compensation Plan (filed as Appendix II to the 2013 Proxy Statement).* +
|
10.37
|
Leucadia National Corporation 2011 Senior Executive Warrant Plan (filed as Annex A to the Company’s Proxy Statement dated April 13, 2011).* +
|
10.38
|
Form of Common Share Purchase Warrant (filed as Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 (the “2nd Quarter 2011 10-Q”)).* +
|
10.39
|
Amended and Restated Shareholders Agreement dated as of June 30, 2003 among the Company, Ian M. Cumming and Joseph S. Steinberg (filed as Exhibit 10.5 to the 2003 10-K).* +
|
10.40
|
Amendment No. 1, dated as of May 16, 2006, to the Amended and Restated Shareholders Agreement dated as of June 30, 2003, by and among Ian M. Cumming, Joseph S. Steinberg and the Company (filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006). * +
|
10.41
|
Services Agreement, dated as of January 1, 2004, between the Company and Joseph S. Steinberg (filed as Exhibit 10.38 to the 2005 10-K).* +
|
10.42
|
Leucadia National Corporation 2003 Senior Executive Annual Incentive Bonus Plan, as amended May 16, 2006 (filed as Annex A to the Company’s Proxy Statement dated April 17, 2006).* +
|
10.43
|
Employment Agreement made as of June 30, 2005 by and between the Company and Joseph S. Steinberg (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated July 13, 2005 8-K).* +
|
10.44
|
Exhibit 1 to the Agreement and Plan of Reorganization between the Company and TLC Associates, dated February 23, 1989 (filed as Exhibit 3 to Amendment No. 12 to the Schedule 13D dated December 29, 2004 of Ian M. Cumming and Joseph S. Steinberg with respect to the Company).*
|
10.45
|
Compensation Information Concerning Non-Employee Directors (incorporated by reference to page 31 of the Company’s Proxy Statement dated April 13, 2012).* +
|
10.46
|
Credit Agreement dated as of December 10, 2009 among Berkadia Commercial Mortgage LLC and BH Finance LLC (filed as Exhibit 10.1 to the 2nd Quarter 2011 10-Q).*
|
10.47
|
Amendment No. 1 to Credit Agreement dated as of October 29, 2010 among Berkadia Commercial Mortgage LLC, BH Finance LLC and Baldwin Enterprises, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 5, 2010).*
|
10.48
|
Guaranty, dated as of December 10, 2009, by Leucadia National Corporation in favor of BH Finance LLC, in its own capacity as the lender under the Credit Agreement, dated as of December 10, 2009, among Berkadia Commercial Mortgage LLC and BH Finance LLC, and on behalf of each of the other Secured Parties under (and as defined in) the Credit Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 14, 2009).*
|
10.49
|
Retention Agreement, dated March 1, 2010, between Leucadia National Corporation and Justin R. Wheeler (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 5, 2010).*+
|
10.50
|
Form of Retention Agreement, dated June 22, 2010, between Leucadia National Corporation and Thomas E. Mara/Joseph A. Orlando (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 22, 2010).* +
|
10.51
|
Form of Amended Retention Agreement for Thomas E. Mara, Joseph A. Orlando, and Justin R. Wheeler (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 23, 2012).* +
|
10.52
|
Employment Agreement, dated as of June 24, 2013, between Leucadia National Corporation and Justin R. Wheeler (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated June 26, 2013.)* +
|
10.53
|
Participation Agreement dated as of October 29, 2010 between Baldwin Enterprises, Inc. and BH Finance LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 5, 2010).*
|
10.54
|
Amendment No. 1 to Guaranty dated as of October 29, 2010 made by Leucadia National Corporation in favor of BH Finance LLC in its own capacity as a lender under the Credit Agreement referred to therein and on behalf of each of the other Secured Parties under the Credit Agreement (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November 5, 2010).*
|
10.55
|
Membership Interest Purchase Agreement among Leucadia National Corporation, National Beef Packing Company, LLC, U.S. Premium Beef, LLC, NBPCo Holdings, LLC, TKK Investments, LLC, TMKCo, LLC and TMK Holdings, LLC (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed December 30, 2011 (the “December 30, 2011 8-K”)).*
|
10.56
|
First Amended and Restated Limited Liability Company Agreement of National Beef Packing Company, dated as of December 30, 2011 (filed as Exhibit 10.1 to the December 30, 2011 8-K).*
|
10.57
|
Cattle Purchase and Sale Agreement by and between National Beef Packing Company, LLC and U.S. Premium Beef, LLC, dated as of December 30, 2011 (filed as Exhibit 10.6 to the December 30, 2011 8-K).*
|
10.58
|
Summary of executive compensation (filed in the Company’s Current Report on Form 8-K dated February 4, 2015).* +
|
10.59
|
Summary of executive compensation for Richard B. Handler, Brian P. Friedman and Michael J. Sharp (filed in the Company’s Current Report on Form 8-K dated February 28, 2014).* +
|
10.60
|
General Termination and Release dated as of December 31, 2011 by and among Berkadia Commercial Mortgage LLC, BH Finance LLC, Baldwin Enterprises, Inc., Berkadia Commercial Mortgage Inc. and Leucadia National Corporation (filed as Exhibit 10.2 to the February 24, 2012 8-K).*
|
10.61
|
Agreement of Terms dated as of December 31, 2011 between Leucadia National Corporation and Berkshire Hathaway Inc. (filed as Exhibit 10.1 to the February 24, 2012 8-K).*
|
10.62
|
Deed of Release, Termination and Settlement dated as of September 19, 2012 between Fortescue Metals Group Ltd and Chichester Metals Pty Ltd and John Andrew Henry Forrest and Leucadia National Corporation and Baldwin Enterprises, Inc. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 19, 2012).*
|
10.63
|
Voting Agreement, dated as of November 11, 2012, by and among the Company, BEI Jeffvest, LLC and Jefferies Group, Inc. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed by Jefferies Group, Inc. on November 13, 2012).*
|
10.64
|
Memo of Terms (filed as Exhibit 99.2 to the Company’s Current Report on Form 8-K dated November 11, 2012).*+
|
10.65
|
Membership Interest Purchase Agreement by and among GAR, LLC, Premier Entertainment Biloxi LLC, Leucadia National Corporation and Twin River Management Group, Inc., dated as of December 14, 2013 (filed as Exhibit 10 to the Company’s Current Report on Form 8-K on December 16, 2013).*
|
10.66
|
Letter Agreement, dated as of February 15, 2013, among Jefferies Group, Inc., JSP Holdings, Inc., Leucadia National Corporation, Massachusetts Mutual Life Insurance Company and C.M. Life Insurance Company (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on February 26, 2013).*
|
10.67
|
Acknowledgement to Registration Rights Agreement, dated as of March 18, 2014, by and among Harbinger Group Inc., Harbinger Capital Partners Master Fund, Ltd., Global Opportunities Breakaway Ltd., Harbinger Capital Partners Special Situations Fund, L.P. and Leucadia National Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K/A dated March 18, 2014).*
|
10.68
|
Letter Agreement, dated as of March 18, 2014, by and between Harbinger Group Inc. and Leucadia National Corporation (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K/A dated March 18, 2014).*
|
10.69
|
Exchange Agreement by and among Harbinger Capital Group Partners Master Fund I, Ltd., Global Opportunities Breakaway Ltd., Harbinger Capital Partners Special Situations Fund, L.P., and Leucadia National Corporation (filed as Exhibit 99.5 to Schedule 13D filed March 28, 2014).*
|
10.70
|
Joinder Agreement to Registration Rights Agreement by and among Harbinger Capital Group Partners Master Fund I, Ltd., Global Opportunities Breakaway Ltd., Harbinger Capital Partners Special Situations Fund, L.P., and Leucadia National Corporation (filed as Exhibit 99.8 to Schedule 13D filed on March 28, 2014).*
|
10.71
|
Stockholders Agreement, dated as of March 28, 2014, by and between HomeFed Corporation and Leucadia National Corporation (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 3, 2014).*
|
10.72
|
Employment Agreement between Leucadia National Corporation and Teresa S. Gendron dated July 2, 2014 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated November 7, 2014). *+
|
21 | Subsidiaries of the registrant. |
23.1 | Consent of PricewaterhouseCoopers LLP, with respect to the incorporation by reference into the Company’s Registration Statements on Form S-8 (No. 333-169377), Form S-8 (No. 333-51494), Form S-8 (No. 333-143770), Form S-8 (No. 333-185318) and Form S-3 (No. 333-191533). |
23.2 | Consent of PricewaterhouseCoopers LLP, with respect to the inclusion in this Annual Report on Form 10-K of the financial statements of Jefferies Group, Inc. and with respect to the incorporation by reference in the Company’s Registration Statements on Form S-8 (No. 333-169377), Form S-8 (No. 333-51494), Form S-8 (No. 333-143770), Form S-8 (No. 333-185318) and Form S-3 (No. 333-191533). |
23.3 | Consent of independent auditors from Deloitte & Touche LLP, with respect to the inclusion in this Annual Report on Form 10-K of the financial statements of Jefferies Group, Inc. and with respect to the incorporation by reference in the Company’s Registration Statements on Form S-8 (No. 333-169377), Form S-8 (No. 333-51494), Form S-8 (No. 333-143770), Form S-8 (No. 333-185318) and Form S-3 (No. 333-191533). |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** |
101 | Financial statements from the Annual Report on Form 10-K of Leucadia National Corporation for the year ended December 31, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity and (vi) the Notes to Consolidated Financial Statements. |
(c) | Financial statement schedules. |
(1) | Jefferies Group, Inc. financial statements for the three months ended February 28, 2013, and Jefferies Group, Inc. financial statements for the year ended November 30, 2012. |
+ | Management/Employment Contract or Compensatory Plan or Arrangement. |
* | Incorporated by reference. |
** | Furnished herewith pursuant to item 601(b) (32) of Regulation S-K. |
LEUCADIA NATIONAL CORPORATION | |||
Date: February 27, 2015
|
By:
|
/s/ Barbara L. Lowenthal | |
Name: Barbara L. Lowenthal | |||
Title: Vice President and Comptroller | |||
Date
|
Signature
|
Title
|
|
February 27, 2015
|
By:
|
/s/ Joseph S. Steinberg
|
Chairman of the Board
|
Joseph S. Steinberg
|
|||
February 27, 2015
|
By:
|
/s/ Richard B. Handler
|
Chief Executive Officer and Director
|
Richard B. Handler
|
(Principal Executive Officer)
|
||
February 27, 2015
|
By:
|
/s/ Brian P. Friedman
|
President and Director
|
Brian P. Friedman
|
|||
February 27, 2015
|
By:
|
/s/ Teresa S. Gendron
|
Vice President and Chief Financial Officer
|
Teresa S. Gendron
|
(Principal Financial Officer)
|
||
February 27, 2015
|
By:
|
/s/ Barbara L. Lowenthal
|
Vice President and Comptroller
|
Barbara L. Lowenthal
|
(Principal Accounting Officer)
|
||
February 27, 2015
|
By:
|
/s/ Linda L. Adamany
|
Director
|
Linda L. Adamany
|
|||
February 27, 2015
|
By:
|
/s/ Robert D. Beyer
|
Director
|
Robert D. Beyer
|
|||
February 27, 2015
|
By:
|
/s/ Francisco L. Borges
|
Director
|
Francisco L. Borges
|
|||
February 27, 2015
|
By:
|
/s/ W. Patrick Campbell
|
Director
|
W. Patrick Campbell
|
|||
February 27, 2015
|
By:
|
/s/ Robert E. Joyal
|
Director
|
Robert E. Joyal
|
|||
February 27, 2015
|
By:
|
/s/ Jeffrey C. Keil
|
Director
|
Jeffrey C. Keil
|
|||
February 27, 2015
|
By:
|
/s/ Michael T. O’Kane
|
Director
|
Michael T. O’Kane
|
|||
February 27, 2015
|
By:
|
/s/ Stuart H. Reese
|
Director
|
Stuart H. Reese
|
2014
|
2013
|
|||||||
ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
4,276,775
|
$
|
3,907,595
|
||||
Cash and securities segregated and on deposit for regulatory purposes
|
||||||||
or deposited with clearing and depository organizations
|
3,444,674
|
3,616,602
|
||||||
Financial instruments owned, including securities pledged of $14,794,488 and $13,253,537:
|
||||||||
Trading assets, at fair value
|
19,612,490
|
16,699,542
|
||||||
Available for sale securities
|
1,608,769
|
2,866,143
|
||||||
Total financial instruments owned
|
21,221,259
|
19,565,685
|
||||||
Investments in managed funds
|
281,470
|
57,285
|
||||||
Loans to and investments in associated companies
|
1,712,568
|
1,258,341
|
||||||
Securities borrowed
|
6,853,103
|
5,359,846
|
||||||
Securities purchased under agreements to resell
|
3,926,858
|
3,746,920
|
||||||
Securities received as collateral
|
5,418
|
11,063
|
||||||
Receivables
|
3,934,825
|
3,816,680
|
||||||
Property, equipment and leasehold improvements, net
|
726,376
|
885,859
|
||||||
Intangible assets, net and goodwill
|
2,720,763
|
2,768,628
|
||||||
Deferred tax asset, net
|
1,712,535
|
1,809,943
|
||||||
Other assets
|
1,807,284
|
1,062,334
|
||||||
Total
|
$
|
52,623,908
|
$
|
47,866,781
|
||||
LIABILITIES
|
||||||||
Short-term borrowings
|
$
|
12,000
|
$
|
12,000
|
||||
Trading liabilities, at fair value
|
8,904,592
|
7,293,102
|
||||||
Securities loaned
|
2,598,487
|
2,506,122
|
||||||
Securities sold under agreements to repurchase
|
10,672,157
|
10,779,845
|
||||||
Other secured financings
|
705,126
|
234,711
|
||||||
Obligation to return securities received as collateral
|
5,418
|
11,063
|
||||||
Payables, expense accruals and other liabilities
|
10,516,491
|
8,309,945
|
||||||
Long-term debt
|
8,527,929
|
8,180,865
|
||||||
Total liabilities
|
41,942,200
|
37,327,653
|
||||||
Commitments and contingencies
|
||||||||
MEZZANINE EQUITY
|
||||||||
Redeemable noncontrolling interests
|
186,686
|
241,075
|
||||||
Mandatorily redeemable convertible preferred shares
|
125,000
|
125,000
|
||||||
EQUITY
|
||||||||
Common shares, par value $1 per share, authorized 600,000,000 shares;
|
||||||||
367,498,615 and 364,541,333 shares issued and outstanding, after deducting
|
||||||||
48,447,573 and 46,695,470 shares held in treasury
|
367,499
|
364,541
|
||||||
Additional paid-in capital
|
5,059,508
|
4,881,031
|
||||||
Accumulated other comprehensive income
|
447,082
|
538,050
|
||||||
Retained earnings
|
4,428,069
|
4,318,840
|
||||||
Total Leucadia National Corporation shareholders’ equity
|
10,302,158
|
10,102,462
|
||||||
Noncontrolling interests
|
67,864
|
70,591
|
||||||
Total equity
|
10,370,022
|
10,173,053
|
||||||
Total
|
$
|
52,623,908
|
$
|
47,866,781
|
2014
|
2013
|
2012
|
||||||||||
Revenues:
|
||||||||||||
Beef processing services
|
$
|
7,824,246
|
$
|
7,486,332
|
$
|
7,479,251
|
||||||
Commissions
|
668,801
|
472,596
|
–
|
|||||||||
Principal transactions
|
662,213
|
574,895
|
331,359
|
|||||||||
Investment banking
|
1,526,637
|
997,955
|
–
|
|||||||||
Interest income
|
1,052,151
|
737,780
|
20,492
|
|||||||||
Net realized securities gains
|
30,394
|
243,957
|
590,581
|
|||||||||
Other
|
570,465
|
485,492
|
982,901
|
|||||||||
Total revenues
|
12,334,907
|
10,999,007
|
9,404,584
|
|||||||||
Interest expense
|
848,422
|
573,261
|
–
|
|||||||||
Net revenues
|
11,486,485
|
10,425,746
|
9,404,584
|
|||||||||
Expenses:
|
||||||||||||
Cost of sales
|
8,024,286
|
7,567,707
|
7,479,746
|
|||||||||
Compensation and benefits
|
1,841,674
|
1,352,654
|
166,138
|
|||||||||
Floor brokerage and clearing fees
|
215,329
|
150,774
|
–
|
|||||||||
Interest
|
117,174
|
84,964
|
92,581
|
|||||||||
Depreciation and amortization
|
185,993
|
167,425
|
116,388
|
|||||||||
Provision for doubtful accounts
|
59,695
|
1,490
|
1,903
|
|||||||||
Selling, general and other expenses
|
799,639
|
674,188
|
194,448
|
|||||||||
11,243,790
|
9,999,202
|
8,051,204
|
||||||||||
Income from continuing operations before income
|
||||||||||||
taxes and income related to associated companies
|
242,695
|
426,544
|
1,353,380
|
|||||||||
Income related to associated companies
|
138,527
|
119,041
|
88,649
|
|||||||||
Income from continuing operations before income taxes
|
381,222
|
545,585
|
1,442,029
|
|||||||||
Income tax provision
|
165,971
|
136,481
|
539,464
|
|||||||||
Income from continuing operations
|
215,251
|
409,104
|
902,565
|
|||||||||
Loss from discontinued operations, net of income tax
|
||||||||||||
(benefit) of $(9,634), $(32,303) and $(20,971)
|
(17,893
|
)
|
(60,026
|
)
|
(33,797
|
)
|
||||||
Gain (loss) on disposal of discontinued operations, net of income tax
|
||||||||||||
provision (benefit) of $899, $(3,009) and $(2,222)
|
1,667
|
13,115
|
(4,127
|
)
|
||||||||
Net income
|
199,025
|
362,193
|
864,641
|
|||||||||
Net loss attributable to the noncontrolling interests
|
727
|
1,162
|
2,060
|
|||||||||
Net (income) loss attributable to the redeemable noncontrolling
|
||||||||||||
interests
|
8,616
|
9,282
|
(12,235
|
)
|
||||||||
Preferred stock dividends
|
(4,062
|
)
|
(3,397
|
)
|
–
|
|||||||
Net income attributable to Leucadia National
|
||||||||||||
Corporation common shareholders
|
$
|
204,306
|
$
|
369,240
|
$
|
854,466
|
2014
|
2013
|
2012
|
||||||||||
Basic earnings (loss) per common share attributable
|
||||||||||||
to Leucadia National Corporation common shareholders:
|
||||||||||||
Income from continuing operations
|
$
|
.58
|
$
|
1.20
|
$
|
3.64
|
||||||
Loss from discontinued operations
|
(.05
|
)
|
(.17
|
)
|
(.13
|
)
|
||||||
Gain (loss) on disposal of discontinued operations
|
.01
|
.04
|
(.02
|
)
|
||||||||
Net income
|
$
|
.54
|
$
|
1.07
|
$
|
3.49
|
||||||
Diluted earnings (loss) per common share attributable
|
||||||||||||
to Leucadia National Corporation common shareholders:
|
||||||||||||
Income from continuing operations
|
$
|
.58
|
$
|
1.20
|
$
|
3.59
|
||||||
Loss from discontinued operations
|
(.05
|
)
|
(.17
|
)
|
(.13
|
)
|
||||||
Gain (loss) on disposal of discontinued operations
|
.01
|
.03
|
(.02
|
)
|
||||||||
Net income
|
$
|
.54
|
$
|
1.06
|
$
|
3.44
|
||||||
Amounts attributable to Leucadia National Corporation
|
||||||||||||
common shareholders:
|
||||||||||||
Income from continuing operations, net of taxes
|
$
|
220,584
|
$
|
415,093
|
$
|
890,941
|
||||||
Loss from discontinued operations, net of taxes
|
(17,945
|
)
|
(58,968
|
)
|
(32,348
|
)
|
||||||
Gain (loss) on disposal of discontinued operations, net of taxes
|
1,667
|
13,115
|
(4,127
|
)
|
||||||||
Net income
|
$
|
204,306
|
$
|
369,240
|
$
|
854,466
|
2014
|
2013
|
2012
|
||||||||||
Net income
|
$
|
199,025
|
$
|
362,193
|
$
|
864,641
|
||||||
Other comprehensive income (loss):
|
||||||||||||
Net unrealized holding gains (losses) on investments arising
|
||||||||||||
during the period, net of income tax provision (benefit) of
|
||||||||||||
$(4,923), $(543) and $53,903
|
(8,866
|
)
|
(979
|
)
|
97,086
|
|||||||
Less: reclassification adjustment for net (gains) losses included
|
||||||||||||
in net income (loss), net of income tax provision (benefit) of
|
||||||||||||
$1,631, $118,292 and $162,014
|
(2,939
|
)
|
(213,058
|
)
|
(291,807
|
)
|
||||||
Net change in unrealized holding gains (losses) on investments, net of
|
||||||||||||
income tax provision (benefit) of $(6,554), $(118,835) and $(108,111)
|
(11,805
|
)
|
(214,037
|
)
|
(194,721
|
)
|
||||||
Net unrealized foreign exchange gains (losses) arising during
|
||||||||||||
the period, net of income tax provision (benefit) of $(6,837), $865
|
||||||||||||
and $(1,626)
|
(43,307
|
)
|
22,900
|
(2,929
|
)
|
|||||||
Less: reclassification adjustment for foreign exchange (gains)
|
||||||||||||
losses included in net income (loss), net of income tax provision
|
||||||||||||
(benefit) of $149, $0 and $0
|
(267
|
)
|
–
|
–
|
||||||||
Net change in unrealized foreign exchange gains (losses),
|
||||||||||||
net of income tax provision (benefit) of $(6,986), $865 and $(1,626)
|
(43,574
|
)
|
22,900
|
(2,929
|
)
|
|||||||
Net unrealized gains (losses) on derivatives arising during the
|
||||||||||||
period, net of income tax provision (benefit) of $0, $(9) and $(86)
|
–
|
(15
|
)
|
(154
|
)
|
|||||||
Less: reclassification adjustment for derivative (gains) losses
|
||||||||||||
included in net income (loss), net of income tax provision (benefit)
|
||||||||||||
of $(95), $0 and $0
|
169
|
–
|
–
|
|||||||||
Net change in unrealized derivative gains (losses), net of income
|
||||||||||||
tax provision (benefit) of $95, $(9) and $(86)
|
169
|
(15
|
)
|
(154
|
)
|
|||||||
Net pension and postretirement gains (losses) arising during the
|
||||||||||||
period, net of income tax provision (benefit) of $(17,698), $11,685
|
||||||||||||
and $(6,998)
|
(38,959
|
)
|
19,274
|
(12,606
|
)
|
|||||||
Less: reclassification adjustment for pension and postretirement (gains)
|
||||||||||||
losses included in net income (loss), net of income tax provision
|
||||||||||||
(benefit) of $(1,676), $(2,665) and $(1,731)
|
3,201
|
4,799
|
3,118
|
|||||||||
Net change in pension liability and postretirement benefits,
|
||||||||||||
net of income tax provision (benefit) of $(16,022), $14,350 and $(5,267)
|
(35,758
|
)
|
24,073
|
(9,488
|
)
|
|||||||
Other comprehensive loss, net of income taxes
|
(90,968
|
)
|
(167,079
|
)
|
(207,292
|
)
|
||||||
Comprehensive income
|
108,057
|
195,114
|
657,349
|
|||||||||
Comprehensive loss attributable to the noncontrolling interests
|
727
|
1,162
|
2,060
|
|||||||||
Comprehensive (income) loss attributable to the redeemable
|
||||||||||||
noncontrolling interests
|
8,616
|
9,282
|
(12,235
|
)
|
||||||||
Preferred stock dividends
|
(4,062
|
)
|
(3,397
|
)
|
–
|
|||||||
Comprehensive income attributable to Leucadia National
|
||||||||||||
Corporation common shareholders
|
$
|
113,338
|
$
|
202,161
|
$
|
647,174
|
2014
|
2013
|
2012
|
||||||||||
Net cash flows from operating activities:
|
||||||||||||
Net income
|
$
|
199,025
|
$
|
362,193
|
$
|
864,641
|
||||||
Adjustments to reconcile net income to net cash provided by (used for) operations:
|
||||||||||||
Deferred income tax provision
|
126,885
|
70,047
|
484,974
|
|||||||||
Depreciation and amortization of property, equipment and leasehold improvements
|
124,977
|
111,175
|
96,507
|
|||||||||
Other amortization
|
14,767
|
27,789
|
73,606
|
|||||||||
Share-based compensation
|
109,838
|
87,309
|
14,459
|
|||||||||
Provision for doubtful accounts
|
69,907
|
13,945
|
10,707
|
|||||||||
Net securities gains
|
(30,394
|
)
|
(243,957
|
)
|
(590,581
|
)
|
||||||
Income related to associated companies
|
(228,769
|
)
|
(211,221
|
)
|
(88,649
|
)
|
||||||
Distributions from associated companies
|
176,491
|
137,098
|
65,461
|
|||||||||
Net (gains) losses related to real estate, property and equipment, and other assets
|
(27,784
|
)
|
94,074
|
(528,188
|
)
|
|||||||
Income related to Fortescue’s Pilbara project, net of proceeds received
|
–
|
–
|
107,881
|
|||||||||
(Gain) loss on disposal of discontinued operations
|
(12,566
|
)
|
(10,106
|
)
|
6,349
|
|||||||
Change in estimated litigation reserve
|
101,710
|
–
|
20,000
|
|||||||||
Net change in:
|
||||||||||||
Cash and securities segregated and on deposit for regulatory purposes or deposited
|
||||||||||||
with clearing and depository organizations
|
166,108
|
113,754
|
–
|
|||||||||
Trading assets
|
(3,223,327
|
)
|
(383,682
|
)
|
120,857
|
|||||||
Investments in managed funds
|
(80,247
|
)
|
2,674
|
–
|
||||||||
Securities borrowed
|
(1,497,438
|
)
|
(41,678
|
)
|
–
|
|||||||
Securities purchased under agreements to resell
|
(200,568
|
)
|
(156,197
|
)
|
–
|
|||||||
Receivables from brokers, dealers and clearing organizations
|
11,872
|
336,263
|
–
|
|||||||||
Receivables from customers of securities operations
|
(349,767
|
)
|
225
|
–
|
||||||||
Other receivables
|
(161,415
|
)
|
(93,690
|
)
|
(23,358
|
)
|
||||||
Other assets
|
(107,028
|
)
|
23,488
|
(19,078
|
)
|
|||||||
Trading liabilities
|
1,832,930
|
(2,511,777
|
)
|
–
|
||||||||
Securities loaned
|
95,607
|
600,539
|
–
|
|||||||||
Securities sold under agreements to repurchase
|
(84,303
|
)
|
2,794,412
|
–
|
||||||||
Payables to brokers, dealers and clearing organizations
|
968,615
|
(507,722
|
)
|
–
|
||||||||
Payables to customers of securities operations
|
1,089,423
|
(249,305
|
)
|
–
|
||||||||
Trade payables, expense accruals and other liabilities
|
(3,546
|
)
|
345,345
|
30,348
|
||||||||
Other
|
(68,163
|
)
|
(8,655
|
)
|
(497
|
)
|
||||||
Net cash provided by (used for) operating activities
|
(987,160
|
)
|
702,340
|
645,439
|
||||||||
Net cash flows from investing activities:
|
||||||||||||
Acquisitions of property, equipment and leasehold improvements, and other assets
|
(598,659
|
)
|
(137,130
|
)
|
(71,325
|
)
|
||||||
Acquisitions of and capital expenditures for real estate investments
|
(2,178
|
)
|
(28,999
|
)
|
(7,689
|
)
|
||||||
Proceeds from disposals of real estate, property and equipment, and other assets
|
52,011
|
24,400
|
10,728
|
|||||||||
Net change in restricted cash
|
5,000
|
86
|
4,816
|
|||||||||
Proceeds from disposal of discontinued operations, net of expenses and cash
|
||||||||||||
of operations sold
|
223,217
|
20,997
|
130,753
|
|||||||||
Proceeds from redemption of FMG Note
|
–
|
–
|
715,000
|
|||||||||
Cash acquired upon acquisition of Jefferies Group LLC
|
–
|
3,017,958
|
–
|
|||||||||
Acquisitions, net of cash acquired
|
(61,493
|
)
|
–
|
(25,232
|
)
|
|||||||
Cash paid and cash of real estate operations sold to HomeFed Corporation
|
(19,730
|
)
|
–
|
–
|
||||||||
Advances on notes and other receivables
|
(8,500
|
)
|
(1,934
|
)
|
(4,818
|
)
|
||||||
Collections on notes, loans and other receivables
|
22,002
|
18,852
|
31,021
|
|||||||||
Loans to and investments in associated companies
|
(2,959,689
|
)
|
(2,388,540
|
)
|
(35,964
|
)
|
||||||
Capital distributions and loan repayment from associated companies
|
2,756,320
|
2,381,145
|
51,196
|
|||||||||
Deconsolidation of asset management entities
|
(207,965
|
)
|
–
|
–
|
||||||||
Purchases of investments (other than short-term)
|
(1,821,635
|
)
|
(3,789,166
|
)
|
(2,689,715
|
)
|
||||||
Proceeds from maturities of investments
|
1,191,349
|
2,368,734
|
397,886
|
|||||||||
Proceeds from sales of investments
|
1,878,427
|
1,838,029
|
1,475,327
|
|||||||||
Other
|
606
|
(810
|
)
|
1,397
|
||||||||
Net cash provided by (used for) investing activities
|
449,083
|
3,323,622
|
(16,619
|
)
|
2014
|
2013
|
2012
|
||||||||||
Net cash flows from financing activities:
|
||||||||||||
Issuance of debt, net of issuance costs
|
$
|
1,002,636
|
$
|
2,038,226
|
$
|
1,022
|
||||||
Change in short-term borrowings
|
–
|
(88,000
|
)
|
–
|
||||||||
Reduction of debt
|
(434,278
|
)
|
(1,894,301
|
)
|
(572,924
|
)
|
||||||
Net proceeds from other secured financings
|
470,415
|
114,711
|
–
|
|||||||||
Issuance of common shares
|
2,190
|
5,557
|
–
|
|||||||||
Cash and cash equivalents of Crimson Wine Group, Ltd., which was spun off
|
–
|
(21,042
|
)
|
–
|
||||||||
Net distributions to redeemable noncontrolling interests
|
(2,765
|
)
|
(8,073
|
)
|
(12,722
|
)
|
||||||
Distributions to noncontrolling interests
|
(7,797
|
)
|
(355,086
|
)
|
(3,909
|
)
|
||||||
Contributions from noncontrolling interests
|
54,259
|
65,870
|
1,083
|
|||||||||
Purchase of common shares for treasury
|
(75,728
|
)
|
(40,024
|
)
|
–
|
|||||||
Dividends paid
|
(93,071
|
)
|
(91,335
|
)
|
(61,146
|
)
|
||||||
Other
|
1,921
|
2,990
|
(3,112
|
)
|
||||||||
Net cash provided by (used for) financing activities
|
917,782
|
(270,507
|
)
|
(651,708
|
)
|
|||||||
Effect of foreign exchange rate changes on cash
|
(10,525
|
)
|
6,180
|
358
|
||||||||
Net increase (decrease) in cash and cash equivalents
|
369,180
|
3,761,635
|
(22,530
|
)
|
||||||||
Cash and cash equivalents at January 1, including cash classified as assets of
|
||||||||||||
discontinued operations
|
3,907,595
|
145,960
|
168,490
|
|||||||||
Cash and cash equivalents at December 31, including cash classified as assets of
|
||||||||||||
discontinued operations
|
$
|
4,276,775
|
$
|
3,907,595
|
$
|
145,960
|
||||||
Supplemental disclosures of cash flow information:
|
||||||||||||
Cash paid during the year for:
|
||||||||||||
Interest
|
$
|
1,038,201
|
$
|
722,695
|
$
|
103,999
|
||||||
Income tax payments, net
|
$
|
9,880
|
$
|
75,925
|
$
|
37,355
|
||||||
Non-cash investing activities:
|
||||||||||||
Common stock issued for acquisition of Jefferies Group LLC
|
$
|
–
|
$
|
3,385,699
|
$
|
–
|
||||||
Issuance of mandatorily redeemable convertible preferred shares for
|
||||||||||||
acquisition of Jefferies Group LLC
|
$
|
–
|
$
|
125,000
|
$
|
–
|
||||||
Non-cash financing activities:
|
||||||||||||
Net assets excluding cash and cash equivalents of Crimson Wine Group, Ltd.,
|
||||||||||||
which was spun off
|
$
|
–
|
$
|
175,958
|
$
|
–
|
||||||
Issuance of common shares for debt conversion
|
$
|
97,546
|
$
|
–
|
$
|
–
|
Leucadia National Corporation Common Shareholders
|
||||||||||||||||||||||||||||
Common
|
Accumulated
|
|||||||||||||||||||||||||||
Shares
|
Additional
|
Other
|
||||||||||||||||||||||||||
$1 Par
|
Paid-In
|
Comprehensive
|
Retained
|
Noncontrolling
|
||||||||||||||||||||||||
Value
|
Capital
|
Income (Loss)
|
Earnings
|
Subtotal
|
Interests
|
Total
|
||||||||||||||||||||||
Balance, January 1, 2012
|
$
|
244,583
|
$
|
1,570,684
|
$
|
912,421
|
$
|
3,446,708
|
$
|
6,174,396
|
$
|
3,865
|
$
|
6,178,261
|
||||||||||||||
Net income
|
854,466
|
854,466
|
(2,060
|
)
|
852,406
|
|||||||||||||||||||||||
Other comprehensive loss, net of taxes
|
(207,292
|
)
|
(207,292
|
)
|
(207,292
|
)
|
||||||||||||||||||||||
Contributions from noncontrolling interests
|
–
|
1,083
|
1,083
|
|||||||||||||||||||||||||
Distributions to noncontrolling interests
|
–
|
(3,909
|
)
|
(3,909
|
)
|
|||||||||||||||||||||||
Change in interest in consolidated subsidiary
|
(1,388
|
)
|
(1,388
|
)
|
1,388
|
–
|
||||||||||||||||||||||
Share-based compensation expense
|
14,459
|
14,459
|
14,459
|
|||||||||||||||||||||||||
Change in fair value of redeemable
|
||||||||||||||||||||||||||||
noncontrolling interests
|
(6,227
|
)
|
(6,227
|
)
|
(6,227
|
)
|
||||||||||||||||||||||
Dividends ($.25 per common share)
|
(61,146
|
)
|
(61,146
|
)
|
(61,146
|
)
|
||||||||||||||||||||||
Balance, December 31, 2012
|
244,583
|
1,577,528
|
705,129
|
4,240,028
|
6,767,268
|
367
|
6,767,635
|
|||||||||||||||||||||
Net income
|
369,240
|
369,240
|
(1,162
|
)
|
368,078
|
|||||||||||||||||||||||
Other comprehensive loss, net of taxes
|
(167,079
|
)
|
(167,079
|
)
|
(167,079
|
)
|
||||||||||||||||||||||
Acquisition of Jefferies Group LLC
|
119,363
|
3,266,336
|
3,385,699
|
356,180
|
3,741,879
|
|||||||||||||||||||||||
Distribution of common shares of Crimson
|
||||||||||||||||||||||||||||
Wine Group, Ltd. to shareholders
|
(197,000
|
)
|
(197,000
|
)
|
(197,000
|
)
|
||||||||||||||||||||||
Contributions from noncontrolling interests
|
–
|
65,870
|
65,870
|
|||||||||||||||||||||||||
Distributions to noncontrolling interests
|
–
|
(355,086
|
)
|
(355,086
|
)
|
|||||||||||||||||||||||
Change in interest in consolidated subsidiary
|
(4,422
|
)
|
(4,422
|
)
|
4,422
|
–
|
||||||||||||||||||||||
Share-based compensation expense
|
87,309
|
87,309
|
87,309
|
|||||||||||||||||||||||||
Change in fair value of redeemable
|
||||||||||||||||||||||||||||
noncontrolling interests
|
(16,781
|
)
|
(16,781
|
)
|
(16,781
|
)
|
||||||||||||||||||||||
Exercise of options to purchase common
|
||||||||||||||||||||||||||||
shares, including excess tax benefit
|
184
|
4,361
|
4,545
|
4,545
|
||||||||||||||||||||||||
Purchase of common shares for treasury
|
(1,423
|
)
|
(38,601
|
)
|
(40,024
|
)
|
(40,024
|
)
|
||||||||||||||||||||
Dividends ($.25 per common share)
|
(93,428
|
)
|
(93,428
|
)
|
(93,428
|
)
|
||||||||||||||||||||||
Other
|
1,834
|
5,301
|
7,135
|
7,135
|
||||||||||||||||||||||||
Balance, December 31, 2013
|
364,541
|
4,881,031
|
538,050
|
4,318,840
|
10,102,462
|
70,591
|
10,173,053
|
|||||||||||||||||||||
Net income
|
204,306
|
204,306
|
(727
|
)
|
203,579
|
|||||||||||||||||||||||
Other comprehensive loss, net of taxes
|
(90,968
|
)
|
(90,968
|
)
|
(90,968
|
)
|
||||||||||||||||||||||
Contributions from noncontrolling interests
|
–
|
72,221
|
72,221
|
|||||||||||||||||||||||||
Distributions to noncontrolling interests
|
–
|
(8,977
|
)
|
(8,977
|
)
|
|||||||||||||||||||||||
Deconsolidation of asset management entities
|
–
|
(77,475
|
)
|
(77,475
|
)
|
|||||||||||||||||||||||
Change in interest in consolidated subsidiary
|
(3,654
|
)
|
(3,654
|
)
|
3,654
|
–
|
||||||||||||||||||||||
Share-based compensation expense
|
109,838
|
109,838
|
109,838
|
|||||||||||||||||||||||||
Change in fair value of redeemable
|
||||||||||||||||||||||||||||
noncontrolling interests
|
45,401
|
45,401
|
45,401
|
|||||||||||||||||||||||||
Issuance of common shares for debt
|
||||||||||||||||||||||||||||
conversion
|
4,606
|
92,940
|
97,546
|
97,546
|
||||||||||||||||||||||||
Exercise of options to purchase common
|
||||||||||||||||||||||||||||
shares, including excess tax benefit
|
36
|
777
|
813
|
813
|
||||||||||||||||||||||||
Purchase of common shares for treasury
|
(2,990
|
)
|
(72,738
|
)
|
(75,728
|
)
|
(75,728
|
)
|
||||||||||||||||||||
Dividends ($.25 per common share)
|
(95,077
|
)
|
(95,077
|
)
|
(95,077
|
)
|
||||||||||||||||||||||
Other
|
1,306
|
5,913
|
7,219
|
8,577
|
15,796
|
|||||||||||||||||||||||
Balance, December 31, 2014
|
$
|
367,499
|
$
|
5,059,508
|
$
|
447,082
|
$
|
4,428,069
|
$
|
10,302,158
|
$
|
67,864
|
$
|
10,370,022
|
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
Level 2: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. |
Level 3: | Instruments that have little to no pricing observability as of the reported date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
Assets
|
||||
Cash and cash equivalents
|
$
|
3,017,958
|
||
Cash and securities segregated and on deposit for regulatory purposes or
|
||||
deposited with clearing and depository organizations
|
3,728,742
|
|||
Trading assets
|
16,413,535
|
|||
Loans to and investments in associated companies
|
766,893
|
|||
Securities borrowed
|
5,315,488
|
|||
Securities purchased under agreements to resell
|
3,578,366
|
|||
Intangible assets, net
|
282,852
|
|||
Goodwill
|
1,722,591
|
|||
Deferred tax asset, net
|
539,384
|
|||
Other assets
|
4,386,419
|
|||
Total assets
|
39,752,228
|
|||
Liabilities
|
||||
Short-term borrowings
|
100,000
|
|||
Trading liabilities
|
9,766,876
|
|||
Securities loaned
|
1,902,687
|
|||
Securities sold under agreements to repurchase
|
7,976,492
|
|||
Payables to customers of securities operations
|
5,450,781
|
|||
Trade payables, expense accruals and other liabilities
|
2,724,136
|
|||
Mandatorily redeemable preferred interest in JHYH held by Leucadia
|
358,951
|
|||
Long-term debt
|
6,345,536
|
|||
Total liabilities
|
34,625,459
|
|||
Noncontrolling interests
|
356,180
|
|||
Net assets acquired
|
$
|
4,770,589
|
Amortization
|
|||||
Amount
|
Years
|
||||
Customer relationships
|
$
|
136,002
|
9 to 18 years
|
||
Tradenames and related trademarks
|
131,299
|
35 years
|
|||
Exchange and clearing organization
|
|||||
membership interests and registrations
|
15,551
|
Indefinite
|
|||
Subtotal, intangible assets
|
282,852
|
||||
Goodwill
|
1,722,591
|
||||
Total
|
$
|
2,005,443
|
2013
|
2012
|
|||||||
Net revenues
|
$
|
11,083,248
|
$
|
12,252,511
|
||||
Net income attributable to Leucadia National Corporation
|
||||||||
common shareholders
|
$
|
267,160
|
$
|
900,044
|
||||
Basic income per common share attributable to Leucadia
|
||||||||
National Corporation common shareholders
|
$
|
.70
|
$
|
2.37
|
||||
Diluted income per common share attributable to Leucadia
|
||||||||
National Corporation common shareholders
|
$
|
.70
|
$
|
2.33
|
|
December 31, 2014
|
|||||||||||||||||||
|
Level 1 (1)
|
Level 2 (1)
|
Level 3
|
Counterparty
and
Cash
Collateral
Netting (2)
|
Total
|
|||||||||||||||
Assets:
|
||||||||||||||||||||
Trading assets, at fair value:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
3,130,892
|
$
|
226,441
|
$
|
20,964
|
$
|
–
|
$
|
3,378,297
|
||||||||||
Corporate debt securities
|
–
|
3,342,276
|
55,918
|
–
|
3,398,194
|
|||||||||||||||
Collateralized debt obligations
|
–
|
306,218
|
91,498
|
–
|
397,716
|
|||||||||||||||
U.S. government and federal agency securities
|
2,694,268
|
81,273
|
–
|
–
|
2,775,541
|
|||||||||||||||
Municipal securities
|
–
|
590,849
|
–
|
–
|
590,849
|
|||||||||||||||
Sovereign obligations
|
1,968,747
|
790,764
|
–
|
–
|
2,759,511
|
|||||||||||||||
Residential mortgage-backed securities
|
–
|
2,879,954
|
82,557
|
–
|
2,962,511
|
|||||||||||||||
Commercial mortgage-backed securities
|
–
|
966,651
|
26,655
|
–
|
993,306
|
|||||||||||||||
Other asset-backed securities
|
–
|
137,387
|
2,294
|
–
|
139,681
|
|||||||||||||||
Loans and other receivables
|
–
|
1,458,760
|
97,258
|
–
|
1,556,018
|
|||||||||||||||
Derivatives
|
65,145
|
5,046,278
|
54,190
|
(4,759,345
|
)
|
406,268
|
||||||||||||||
Investments at fair value
|
–
|
73,152
|
119,212
|
–
|
192,364
|
|||||||||||||||
Physical commodities
|
–
|
62,234
|
–
|
–
|
62,234
|
|||||||||||||||
Total trading assets
|
$
|
7,859,052
|
$
|
15,962,237
|
$
|
550,546
|
$
|
(4,759,345
|
)
|
$
|
19,612,490
|
|||||||||
Available for sale securities:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
89,353
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
89,353
|
||||||||||
Corporate debt securities
|
–
|
30,403
|
–
|
–
|
30,403
|
|||||||||||||||
U.S. government securities
|
593,773
|
–
|
–
|
–
|
593,773
|
|||||||||||||||
Residential mortgage-backed securities
|
–
|
606,683
|
–
|
–
|
606,683
|
|||||||||||||||
Commercial mortgage-backed securities
|
–
|
43,401
|
–
|
–
|
43,401
|
|||||||||||||||
Other asset-backed securities
|
–
|
245,156
|
–
|
–
|
245,156
|
|||||||||||||||
Total available for sale securities
|
$
|
683,126
|
$
|
925,643
|
$
|
–
|
$
|
–
|
$
|
1,608,769
|
||||||||||
Cash and cash equivalents
|
$
|
4,276,775
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
4,276,775
|
||||||||||
Investments in managed funds
|
$
|
–
|
$
|
226,488
|
$
|
54,982
|
$
|
–
|
$
|
281,470
|
||||||||||
Cash and securities segregated and on deposit for regulatory
|
||||||||||||||||||||
purposes or deposited with clearing and depository
|
||||||||||||||||||||
organizations (3)
|
$
|
3,444,674
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
3,444,674
|
||||||||||
Securities received as collateral
|
$
|
5,418
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
5,418
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Trading liabilities:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
1,934,469
|
$
|
74,681
|
$
|
38
|
$
|
–
|
$
|
2,009,188
|
||||||||||
Corporate debt securities
|
–
|
1,611,994
|
223
|
–
|
1,612,217
|
|||||||||||||||
Collateralized debt obligations
|
–
|
4,557
|
–
|
–
|
4,557
|
|||||||||||||||
U.S. government and federal agency securities
|
2,253,055
|
–
|
–
|
–
|
2,253,055
|
|||||||||||||||
Sovereign obligations
|
1,217,075
|
574,010
|
–
|
–
|
1,791,085
|
|||||||||||||||
Loans
|
–
|
856,525
|
14,450
|
–
|
870,975
|
|||||||||||||||
Derivatives
|
52,778
|
5,117,803
|
49,552
|
(4,856,618
|
)
|
363,515
|
||||||||||||||
Total trading liabilities
|
$
|
5,457,377
|
$
|
8,239,570
|
$
|
64,263
|
$
|
(4,856,618
|
)
|
$
|
8,904,592
|
|||||||||
Other secured financings
|
$
|
–
|
$
|
–
|
$
|
30,825
|
$
|
–
|
$
|
30,825
|
||||||||||
Obligation to return securities received as collateral
|
$
|
5,418
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
5,418
|
|
December 31, 2013
|
|||||||||||||||||||
|
Level 1 (1)
|
Level 2 (1)
|
Level 3
|
Counterparty
and
Cash
Collateral
Netting (2)
|
Total
|
|||||||||||||||
Assets:
|
||||||||||||||||||||
Trading assets, at fair value:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
1,957,963
|
$
|
175,493
|
$
|
9,884
|
$
|
–
|
$
|
2,143,340
|
||||||||||
Corporate debt securities
|
–
|
2,961,857
|
25,666
|
–
|
2,987,523
|
|||||||||||||||
Collateralized debt obligations
|
–
|
182,095
|
37,216
|
–
|
219,311
|
|||||||||||||||
U.S. government and federal agency securities
|
2,293,221
|
40,389
|
–
|
–
|
2,333,610
|
|||||||||||||||
Municipal securities
|
–
|
664,054
|
–
|
–
|
664,054
|
|||||||||||||||
Sovereign obligations
|
1,458,803
|
889,685
|
–
|
–
|
2,348,488
|
|||||||||||||||
Residential mortgage-backed securities
|
–
|
2,932,268
|
105,492
|
–
|
3,037,760
|
|||||||||||||||
Commercial mortgage-backed securities
|
–
|
1,130,410
|
17,568
|
–
|
1,147,978
|
|||||||||||||||
Other asset-backed securities
|
–
|
55,475
|
12,611
|
–
|
68,086
|
|||||||||||||||
Loans and other receivables
|
–
|
1,203,238
|
145,890
|
–
|
1,349,128
|
|||||||||||||||
Derivatives
|
40,952
|
2,472,238
|
1,493
|
(2,253,589
|
)
|
261,094
|
||||||||||||||
Investments at fair value
|
–
|
40
|
101,242
|
–
|
101,282
|
|||||||||||||||
Physical commodities
|
–
|
37,888
|
–
|
–
|
37,888
|
|||||||||||||||
Total trading assets
|
$
|
5,750,939
|
$
|
12,745,130
|
$
|
457,062
|
$
|
(2,253,589
|
)
|
$
|
16,699,542
|
|||||||||
Available for sale securities:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
252,531
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
252,531
|
||||||||||
Corporate debt securities
|
–
|
51,163
|
–
|
–
|
51,163
|
|||||||||||||||
U.S. government securities
|
1,781,266
|
–
|
–
|
–
|
1,781,266
|
|||||||||||||||
Residential mortgage-backed securities
|
–
|
579,162
|
–
|
–
|
579,162
|
|||||||||||||||
Commercial mortgage-backed securities
|
–
|
17,985
|
–
|
–
|
17,985
|
|||||||||||||||
Other asset-backed securities
|
–
|
184,036
|
–
|
–
|
184,036
|
|||||||||||||||
Total available for sale securities
|
$
|
2,033,797
|
$
|
832,346
|
$
|
–
|
$
|
–
|
$
|
2,866,143
|
||||||||||
Cash and cash equivalents
|
$
|
3,907,595
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
3,907,595
|
||||||||||
Investments in managed funds
|
$
|
–
|
$
|
–
|
$
|
57,285
|
$
|
–
|
$
|
57,285
|
||||||||||
Cash and securities segregated and on deposit for regulatory
|
||||||||||||||||||||
purposes or deposited with clearing and depository
|
||||||||||||||||||||
organizations (3)
|
$
|
3,616,602
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
3,616,602
|
||||||||||
Securities received as collateral
|
$
|
11,063
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
11,063
|
||||||||||
Liabilities:
|
||||||||||||||||||||
Trading liabilities:
|
||||||||||||||||||||
Corporate equity securities
|
$
|
1,804,392
|
$
|
40,358
|
$
|
38
|
$
|
–
|
$
|
1,844,788
|
||||||||||
Corporate debt securities
|
–
|
1,346,078
|
–
|
–
|
1,346,078
|
|||||||||||||||
U.S. government and federal agency securities
|
1,324,326
|
–
|
–
|
–
|
1,324,326
|
|||||||||||||||
Sovereign obligations
|
1,360,269
|
471,088
|
–
|
–
|
1,831,357
|
|||||||||||||||
Residential mortgage-backed securities
|
–
|
34,691
|
–
|
–
|
34,691
|
|||||||||||||||
Loans
|
–
|
672,838
|
22,462
|
–
|
695,300
|
|||||||||||||||
Derivatives
|
43,829
|
2,480,463
|
8,398
|
(2,352,611
|
)
|
180,079
|
||||||||||||||
Physical commodities
|
–
|
36,483
|
–
|
–
|
36,483
|
|||||||||||||||
Total trading liabilities
|
$
|
4,532,816
|
$
|
5,081,999
|
$
|
30,898
|
$
|
(2,352,611
|
)
|
$
|
7,293,102
|
|||||||||
Other secured financings
|
$
|
–
|
$
|
31,000
|
$
|
8,711
|
$
|
–
|
$
|
39,711
|
||||||||||
Obligation to return securities received as collateral
|
$
|
11,063
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
11,063
|
(1) | During 2014, equity options presented within Trading assets and Trading liabilities of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value. During 2013, listed equity options with a fair value of $403.0 million within Trading assets and $423.0 million within Trading liabilities were transferred from Level 1 to Level 2 as adjustments to the exchange closing price are necessary to best reflect the fair value of the population at its exit price. |
(2) | Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
(3) | Securities comprise U.S. government securities segregated for regulatory purposes with a fair value of $453.7 million and $304.2 million at December 31, 2014 and 2013, respectively, and, at December 31, 2014, Commodities Futures Trading Commission (“CFTC”) approved money market funds with a fair value of $545.0 million. |
·
|
Exchange Traded Equity Securities: Exchange traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 or Level 3 of the fair value hierarchy.
|
·
|
Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).
|
·
|
Equity Warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.
|
·
|
Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions of comparable size, and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.
|
·
|
High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.
|
·
|
U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.
|
·
|
U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services. Non-callable U.S. agency securities are generally categorized within Level 1 and callable U.S. agency securities are categorized within Level 2 of the fair value hierarchy.
|
·
|
Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.
|
·
|
Agency Residential Interest-Only and Inverse Interest-Only Securities ("Agency Inverse IOs"): The fair value of Agency Inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency Inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.
|
·
|
Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.
|
·
|
Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.
|
·
|
Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.
|
·
|
Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.
|
·
|
Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.
|
·
|
Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.
|
·
|
Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.
|
·
|
Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.
|
·
|
Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.
|
·
|
OTC Derivative Contracts: Over-the-counter ("OTC") derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.
|
December 31, 2014
|
||||||||||||
|
Fair Value (1)
|
Unfunded
Commitments
|
Redemption
Frequency
(if currently eligible)
|
|||||||||
Equity Long/Short Hedge Funds (2)
|
$
|
146,134
|
$
|
–
|
Monthly/Quarterly
|
|||||||
High Yield Hedge Funds (3)
|
204
|
–
|
–
|
|||||||||
Fund of Funds (4)
|
323
|
94
|
–
|
|||||||||
Equity Funds (5)
|
65,216
|
26,023
|
–
|
|||||||||
Convertible Bond Funds (6)
|
3,355
|
–
|
At Will
|
|||||||||
Multi-strategy Fund (7)
|
105,954
|
–
|
–
|
|||||||||
Total (8)
|
$
|
321,186
|
$
|
26,117
|
December 31, 2013
|
||||||||||||
|
Fair Value (1)
|
Unfunded
Commitments
|
Redemption
Frequency
(if currently eligible)
|
|||||||||
Equity Long/Short Hedge Funds (2)
|
$
|
20,927
|
$
|
–
|
Monthly/Quarterly
|
|||||||
High Yield Hedge Funds (3)
|
244
|
–
|
–
|
|||||||||
Fund of Funds (4)
|
494
|
94
|
–
|
|||||||||
Equity Funds (5)
|
66,495
|
40,816
|
–
|
|||||||||
Convertible Bond Funds (6)
|
3,473
|
–
|
At Will
|
|||||||||
Total (8)
|
$
|
91,633
|
$
|
40,910
|
(1)
|
Where fair value is calculated based on net asset value, fair value has been derived from each of the funds' capital statements.
|
(2)
|
This category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At December 31, 2014 and 2013, investments representing approximately 99% and 98%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice, and includes an investment in a private asset management fund managed by us with a fair value of $117.2 million at December 31, 2014.
|
(3)
|
Includes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.
|
(4)
|
Includes investments in fund of funds that invest in various private equity funds. At December 31, 2014 and 2013, approximately 95% and 98%, respectively, of the fair value of investments in this category is managed by us and has no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments, we have requested redemption; however, we are unable to estimate when these funds will be received.
|
(5)
|
At December 31, 2014 and 2013, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated.
|
(6)
|
Investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice.
|
(7)
|
Investment in private asset management fund managed by us that employs a variety of investment strategies and can invest in U.S. and non-U.S. equity and equity related securities, futures, exchange traded funds, fixed income securities, preferred securities, options, forward contracts and swaps. Withdrawals from the fund prior to the first year anniversary of the investment are subject to a 5% withdrawal fee and withdrawals during any calendar quarter are limited to 25% of the fund’s net asset value. Both of these restrictions can be waived by us, in our sole discretion.
|
(8)
|
Investments at fair value in the Consolidated Statements of Financial Condition at December 31, 2014 and 2013, include $152.6 million and $66.9 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table.
|
|
December 31, 2014
|
December 31, 2013
|
||||||||||||||
|
Trading Assets
|
Trading Liabilities
|
Trading Assets
|
Trading Liabilities
|
||||||||||||
Exchange closing prices
|
16
|
%
|
20
|
%
|
12
|
%
|
25
|
%
|
||||||||
Recently observed transaction prices
|
4
|
%
|
2
|
%
|
5
|
%
|
4
|
%
|
||||||||
External pricing services
|
67
|
%
|
69
|
%
|
68
|
%
|
66
|
%
|
||||||||
Broker quotes
|
4
|
%
|
3
|
%
|
3
|
%
|
3
|
%
|
||||||||
Valuation techniques
|
9
|
%
|
6
|
%
|
12
|
%
|
2
|
%
|
||||||||
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Year Ended December 31, 2014
|
||||||||||||||||||||||||||||||||||||
Balance, December 31, 2013
|
Total gains (losses)
(realized and unrealized) (1)
|
Purchases
|
Sales
|
Settlements
|
Issuances
|
Net transfers
into (out of)
Level 3
|
Balance,
December 31,
2014
|
Changes in
unrealized gains (losses) relating to instruments still held at
December 31,
2014 (1)
|
||||||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||||||||||
Trading assets:
|
||||||||||||||||||||||||||||||||||||
Corporate equity securities
|
$
|
9,884
|
$
|
957
|
$
|
18,138
|
$
|
(12,826
|
)
|
$
|
–
|
$
|
–
|
$
|
4,811
|
$
|
20,964
|
$
|
2,324
|
|||||||||||||||||
Corporate debt securities
|
25,666
|
2,546
|
62,933
|
(51,094
|
)
|
–
|
–
|
15,867
|
55,918
|
16,000
|
||||||||||||||||||||||||||
Collateralized debt obligations
|
37,216
|
(2,303
|
)
|
179,720
|
(170,991
|
)
|
(1,297
|
)
|
–
|
49,153
|
91,498
|
8,159
|
||||||||||||||||||||||||
U.S. government and federal
|
||||||||||||||||||||||||||||||||||||
agency securities
|
–
|
13
|
2,505
|
(2,518
|
)
|
–
|
–
|
–
|
–
|
–
|
||||||||||||||||||||||||||
Residential mortgage-backed
|
||||||||||||||||||||||||||||||||||||
securities
|
105,492
|
(9,870
|
)
|
42,632
|
(61,689
|
)
|
(1,847
|
)
|
–
|
7,839
|
82,557
|
(4,679
|
)
|
|||||||||||||||||||||||
Commercial mortgage-backed
|
||||||||||||||||||||||||||||||||||||
securities
|
17,568
|
(4,237
|
)
|
49,159
|
(51,360
|
)
|
(782
|
)
|
–
|
16,307
|
26,655
|
(2,384
|
)
|
|||||||||||||||||||||||
Other asset-backed securities
|
12,611
|
1,784
|
4,987
|
(18,002
|
)
|
–
|
–
|
914
|
2,294
|
1,484
|
||||||||||||||||||||||||||
Loans and other receivables
|
145,890
|
(31,311
|
)
|
130,169
|
(92,140
|
)
|
(60,390
|
)
|
–
|
5,040
|
97,258
|
(26,864
|
)
|
|||||||||||||||||||||||
Investments at fair value
|
101,242
|
20,383
|
34,993
|
(26,353
|
)
|
(1,243
|
)
|
–
|
(9,810
|
)
|
119,212
|
4,726
|
||||||||||||||||||||||||
Investments in managed funds
|
57,285
|
(13,541
|
)
|
14,876
|
(315
|
)
|
–
|
–
|
(3,323
|
)
|
54,982
|
(13,541
|
)
|
|||||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||||||||||||||
Trading liabilities:
|
||||||||||||||||||||||||||||||||||||
Corporate equity securities
|
$
|
38
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
38
|
$
|
–
|
||||||||||||||||||
Corporate debt securities
|
–
|
(149
|
)
|
(565
|
)
|
960
|
–
|
–
|
(23
|
)
|
223
|
(8
|
)
|
|||||||||||||||||||||||
Net derivatives (2)
|
6,905
|
15,055
|
(24,682
|
)
|
1,094
|
322
|
–
|
(3,332
|
)
|
(4,638
|
)
|
(15,615
|
)
|
|||||||||||||||||||||||
Loans
|
22,462
|
–
|
(18,332
|
)
|
11,338
|
–
|
–
|
(1,018
|
)
|
14,450
|
–
|
|||||||||||||||||||||||||
Other secured financings
|
8,711
|
–
|
–
|
–
|
(17,525
|
)
|
39,639
|
–
|
30,825
|
–
|
(1) | Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
(2) | Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
·
|
Non-agency residential mortgage-backed securities of $30.3 million and commercial mortgage-backed securities of $16.6 million for which no recent trade activity was observed for purposes of determining observable inputs;
|
·
|
Loans and other receivables of $8.5 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;
|
·
|
Collateralized debt obligations of $49.6 million which have little to no transparency related to trade activity;
|
·
|
Corporate debt securities of $23.4 million, corporate equity securities of $9.7 million and investments at fair value of $5.8 million due to a lack of observable market transactions.
|
·
|
Non-agency residential mortgage-backed securities of $22.4 million for which market trades were observed in the period for either identical or similar securities;
|
·
|
Loans and other receivables of $3.5 million and investments at fair value of $15.6 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;
|
·
|
Corporate equity securities of $4.9 million, corporate debt securities of $7.5 million and investments in managed funds of $3.5 million due to an increase in observable market transactions.
|
Period from the Jefferies Acquisition through December 31, 2013 (3)
|
||||||||||||||||||||||||||||||||
Beginning Balance
|
Total gains (losses)
(realized and unrealized) (1)
|
Purchases
|
Sales
|
Settlements
|
Net transfers
into (out of)
Level 3
|
Ending
Balance
|
Changes in
unrealized gains (losses) relating to instruments still held at
December 31, 2013 (1)
|
|||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||||||||||
Trading assets:
|
||||||||||||||||||||||||||||||||
Corporate equity securities
|
$
|
13,234
|
$
|
1,551
|
$
|
3,583
|
$
|
(7,141
|
)
|
$
|
–
|
$
|
(1,343
|
)
|
$
|
9,884
|
$
|
(419
|
)
|
|||||||||||||
Corporate debt securities
|
31,820
|
(2,454
|
)
|
31,014
|
(34,125
|
)
|
–
|
(589
|
)
|
25,666
|
(2,749
|
)
|
||||||||||||||||||||
Collateralized debt obligations
|
24,736
|
(2,309
|
)
|
45,437
|
(32,874
|
)
|
–
|
2,226
|
37,216
|
(8,384
|
)
|
|||||||||||||||||||||
Residential mortgage-backed
|
||||||||||||||||||||||||||||||||
securities
|
169,426
|
(4,897
|
)
|
89,792
|
(150,807
|
)
|
(11,007
|
)
|
12,985
|
105,492
|
(6,932
|
)
|
||||||||||||||||||||
Commercial mortgage-backed
|
||||||||||||||||||||||||||||||||
securities
|
17,794
|
(4,469
|
)
|
20,130
|
(13,538
|
)
|
(100
|
)
|
(2,249
|
)
|
17,568
|
(3,794
|
)
|
|||||||||||||||||||
Other asset-backed securities
|
1,292
|
(4,535
|
)
|
105,291
|
(104,711
|
)
|
–
|
15,274
|
12,611
|
(3,497
|
)
|
|||||||||||||||||||||
Loans and other receivables
|
170,986
|
15,008
|
287,757
|
(115,231
|
)
|
(211,805
|
)
|
(825
|
)
|
145,890
|
13,402
|
|||||||||||||||||||||
Investments at fair value
|
75,067
|
1,678
|
28,594
|
(102
|
)
|
(5,012
|
)
|
1,017
|
101,242
|
1,705
|
||||||||||||||||||||||
Investments in managed funds
|
59,976
|
9,863
|
15,651
|
(17
|
)
|
(28,188
|
)
|
–
|
57,285
|
9,863
|
||||||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||||||||||
Trading liabilities:
|
||||||||||||||||||||||||||||||||
Corporate equity securities
|
$
|
38
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
38
|
$
|
–
|
||||||||||||||||
Residential mortgage-backed
|
||||||||||||||||||||||||||||||||
securities
|
1,542
|
(1,542
|
)
|
–
|
–
|
–
|
–
|
–
|
–
|
|||||||||||||||||||||||
Net derivatives (2)
|
11,185
|
4,408
|
–
|
(300
|
)
|
(8,515
|
)
|
127
|
6,905
|
1,609
|
||||||||||||||||||||||
Loans
|
7,398
|
2,959
|
(16,027
|
)
|
28,065
|
67
|
–
|
22,462
|
(2,970
|
)
|
(1) | Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations. |
(2) | Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives. |
(3) | In addition to the above changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy, during the period from the Jefferies acquisition through December 31, 2013, secured financings of $8.7 million were issued. |
·
|
Non-agency residential mortgage-backed securities of $58.8 million and other asset-backed securities of $16.4 million for which no recent trade activity was observed for purposes of determining observable inputs;
|
·
|
Loans and other receivables of $0.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;
|
·
|
Corporate equity securities of $2.3 million, corporate debt securities of $0.2 million and investments at fair value of $1.0 million due to lack of observable market transactions;
|
·
|
Collateralized debt obligations of $2.8 million which have little to no transparency in trade activity.
|
·
|
Non-agency residential mortgage-backed securities of $45.9 million, commercial mortgage-backed securities of $2.2 million and other asset-backed securities of $1.1 million for which market trades were observed in the period for either identical or similar securities;
|
·
|
Collateralized debt obligations of $0.6 million and loans and other receivables of $1.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;
|
·
|
Corporate equity securities of $3.6 million and corporate debt securities of $0.8 million due to an increase in observable market transactions.
|
December 31, 2014
|
||||||||||||||
Financial Instruments Owned
|
Fair Value
(in thousands)
|
Valuation
Technique
|
Significant
Unobservable Input(s)
|
Input/Range
|
Weighted
Average
|
|||||||||
Corporate equity securities
|
$
|
19,814
|
||||||||||||
Non-exchange traded securities
|
Market approach
|
EBITDA (a) multiple
|
3.4 to 4.7
|
3.6
|
||||||||||
Scenario analysis
|
Estimated recovery percentage
|
24
|
%
|
–
|
||||||||||
Corporate debt securities
|
$
|
22,766
|
Convertible bond model
|
Discount rate/yield
|
32
|
%
|
–
|
|||||||
Collateralized debt obligations
|
$
|
41,784
|
Discounted cash flows
|
Constant prepayment rate
|
0% to 20%
|
13
|
%
|
|||||||
Constant default rate
|
0% to 2%
|
2
|
%
|
|||||||||||
Loss severity
|
0% to 70%
|
39
|
%
|
|||||||||||
Yield
|
2% to 51%
|
16
|
%
|
|||||||||||
Residential mortgage-backed securities
|
$
|
82,557
|
Discounted cash flows
|
Constant prepayment rate
|
1% to 50%
|
13
|
%
|
|||||||
Constant default rate
|
1% to 100%
|
14
|
%
|
|||||||||||
Loss severity
|
20% to 80%
|
50
|
%
|
|||||||||||
Yield
|
3% to 13%
|
7
|
%
|
|||||||||||
Commercial mortgage-backed securities
|
$
|
26,655
|
Discounted cash flows
|
Yield
|
8% to 12%
|
11
|
%
|
|||||||
Cumulative loss rate
|
4% to 72%
|
15
|
%
|
|||||||||||
Scenario analysis
|
Estimated recovery percentage
|
90
|
%
|
–
|
||||||||||
Other asset-backed securities
|
$
|
2,294
|
Discounted cash flows
|
Constant prepayment rate
|
8
|
%
|
–
|
|||||||
Constant default rate
|
3
|
%
|
–
|
|||||||||||
Loss severity
|
70
|
%
|
–
|
|||||||||||
Yield
|
7
|
%
|
–
|
|||||||||||
Loans and other receivables
|
$
|
88,154
|
Comparable pricing
|
Comparable loan price
|
$
|
100 to $101
|
$
|
100.3
|
||||||
Market approach
|
Yield
|
3% to 5%
|
4
|
%
|
||||||||||
EBITDA (a) multiple
|
3.4 to 8.2
|
7.6
|
||||||||||||
Scenario analysis
|
Estimated recovery percentage
|
10% to 41%
|
36
|
%
|
||||||||||
Derivatives
|
$
|
54,190
|
|
|
||||||||||
Foreign exchange options
|
Option model
|
Volatility
|
13% to 23%
|
17
|
%
|
|||||||||
Commodity forwards
|
Discounted cash flows
|
Discount rate
|
17
|
%
|
–
|
|||||||||
Loan commitments
|
Comparable pricing
|
Comparable loan price
|
$
|
100
|
–
|
|||||||||
Investments at fair value
|
||||||||||||||
Private equity securities
|
$
|
32,323
|
Market approach
|
Transaction Level
|
$
|
50
|
–
|
|||||||
Market approach
|
Discount rate
|
15% to 30%
|
23
|
%
|
||||||||||
Trading Liabilities
|
Fair Value
(in thousands)
|
Valuation
Technique
|
Significant
Unobservable Input(s)
|
Input/Range
|
Weighted
Average
|
|||||||||
Derivatives
|
$
|
49,552
|
||||||||||||
FX options
|
Option model
|
Volatility
|
13% to 23%
|
17
|
%
|
|||||||||
Unfunded commitments
|
Comparable pricing
|
Comparable loan price
|
$
|
89 to $100
|
$
|
92.0
|
||||||||
Credit spread
|
45 bps
|
–
|
||||||||||||
Market approach
|
Yield
|
5
|
%
|
–
|
||||||||||
Loans
|
$
|
14,450
|
Comparable pricing
|
Comparable loan price
|
$
|
100
|
–
|
|||||||
Other secured financings
|
$
|
30,825
|
Comparable pricing
|
Comparable loan price
|
$
|
81 to $100
|
$
|
98.7
|
||||||
December 31, 2013
|
||||||||||||||
Financial Instruments Owned
|
Fair Value
(in thousands)
|
Valuation
Technique
|
Significant
Unobservable Input(s)
|
Input/Range
|
Weighted
Average
|
|||||||||
Corporate equity securities
|
$
|
8,034
|
||||||||||||
Non-exchange traded securities
|
Market approach
|
EBITDA (a) multiple
|
4.0 to 5.5
|
4.53
|
||||||||||
Warrants
|
Option model
|
Volatility
|
36
|
%
|
–
|
|||||||||
Corporate debt securities
|
$
|
17,699
|
Scenario analysis
|
Estimated recovery percentage
|
24
|
%
|
–
|
|||||||
Comparable pricing
|
Comparable bond or loan price
|
$
|
69.10 to $70.50
|
$
|
69.91
|
|||||||||
Market approach
|
Yield
|
13
|
%
|
–
|
||||||||||
Collateralized debt obligations
|
$
|
34,316
|
Discounted cash flows
|
Constant prepayment rate
|
0% to 20%
|
13
|
%
|
|||||||
Constant default rate
|
2% to 3%
|
2
|
%
|
|||||||||||
Loss severity
|
30% to 85%
|
38
|
%
|
|||||||||||
Yield
|
3% to 91%
|
28
|
%
|
|||||||||||
Residential mortgage-backed securities
|
$
|
105,492
|
Discounted cash flows
|
Constant prepayment rate
|
2% to 50%
|
11
|
%
|
|||||||
Constant default rate
|
1% to 100%
|
17
|
%
|
|||||||||||
Loss severity
|
30% to 90%
|
48
|
%
|
|||||||||||
Yield
|
0% to 20%
|
7
|
%
|
|||||||||||
Commercial mortgage-backed securities
|
$
|
17,568
|
Discounted cash flows
|
Yield
|
12% to 20%
|
14
|
%
|
|||||||
Cumulative loss rate
|
5% to 28.2%
|
11
|
%
|
|||||||||||
Other asset-backed securities
|
$
|
12,611
|
Discounted cash flows
|
Constant prepayment rate
|
4% to 30%
|
17
|
%
|
|||||||
Constant default rate
|
2% to 11%
|
7
|
%
|
|||||||||||
Loss severity
|
40% to 92%
|
64
|
%
|
|||||||||||
Yield
|
3% to 29%
|
18
|
%
|
|||||||||||
Loans and other receivables
|
$
|
101,931
|
Comparable pricing
|
Comparable bond or loan price
|
$
|
91 to $101
|
$
|
98.90
|
||||||
Market approach
|
Yield
|
8.75% to 13.5%
|
10
|
%
|
||||||||||
EBITDA (a) multiple
|
6.9
|
–
|
||||||||||||
Scenario analysis
|
Estimated recovery percentage
|
16.9% to 92%
|
74
|
%
|
||||||||||
Derivatives
|
||||||||||||||
Loan commitments
|
$
|
1,493
|
Comparable pricing
|
Comparable bond or loan price
|
$
|
100.875
|
–
|
|||||||
Investments at fair value
|
||||||||||||||
Private equity securities
|
$
|
30,203
|
Comparable pricing
|
Comparable share price
|
$
|
414
|
–
|
|||||||
Market approach
|
Discount rate
|
15% to 30%
|
23
|
%
|
||||||||||
Trading Liabilities
|
Fair Value
(in thousands)
|
Valuation
Technique
|
Significant
Unobservable Input(s)
|
Input/Range
|
Weighted
Average
|
|||||||||
Derivatives
|
||||||||||||||
Equity options
|
$
|
8,398
|
Option model
|
Volatility
|
36.25% to 41%
|
39
|
%
|
|||||||
Loans
|
$
|
8,106
|
Comparable pricing
|
Comparable bond or loan price
|
$
|
101.88
|
–
|
(a)
|
Earnings before interest, taxes, depreciation and amortization (“EBITDA”).
|
·
|
Private equity securities, corporate debt securities, loans and other receivables and loan commitments using comparable pricing valuation techniques. A significant increase (decrease) in the comparable share, bond or loan price in isolation would result in a significant higher (lower) fair value measurement.
|
·
|
Non-exchange traded securities, corporate debt securities, and loans and other receivables using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate of a private equity security would result in a significantly lower (higher) fair value measurement.
|
·
|
Corporate debt securities, and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.
|
·
|
Collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severities or cumulative loss rate and discount rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significant lower (higher) fair value measurement.
|
·
|
Derivative equity options and equity warrants using an option model. A significant increase (decrease) in volatility would result in a significant higher (lower) fair value measurement.
|
·
|
Private equity securities using a net asset value technique. A significant increase (decrease) in the discount applied to net asset value would result in a significant (lower) higher fair value measurement.
|
For the period
from the
|
||||||||
For the year ended
|
Jefferies acquisition through
|
|||||||
December 31, 2014
|
December 31, 2013
|
|||||||
Financial Instruments Owned:
|
||||||||
Loans and other receivables
|
$
|
(24,785
|
)
|
$
|
15,327
|
|||
Financial Instruments Sold:
|
||||||||
Loans
|
$
|
(585
|
)
|
$
|
(32
|
)
|
||
Loan commitments
|
$
|
(15,459
|
)
|
$
|
(1,007
|
)
|
December 31,
2014
|
December 31, 2013
|
|||||||
Loans and other receivables (1)
|
$
|
403,119
|
$
|
264,896
|
||||
Loans and other receivables greater than 90 days past due (1)
|
$
|
5,594
|
$
|
–
|
||||
Loans and other receivables on nonaccrual status (1) (2)
|
$
|
(22,360
|
)
|
$
|
–
|
(1)
|
Interest income is recognized separately from other changes in fair value and is included within Interest income in the Consolidated Statements of Operations.
|
(2)
|
Amount includes all loans and other receivables greater than 90 or more days past due.
|
|
December 31, 2014
|
|||||||||||||||
|
Assets
|
Liabilities
|
||||||||||||||
|
Fair Value
|
Number of
Contracts
|
Fair Value
|
Number of
Contracts
|
||||||||||||
Interest rate contracts
|
$
|
2,299,807
|
71,505
|
$
|
2,292,691
|
89,861
|
||||||||||
Foreign exchange contracts
|
1,514,881
|
12,861
|
1,519,349
|
12,752
|
||||||||||||
Equity contracts
|
1,050,990
|
2,271,507
|
1,058,015
|
2,051,469
|
||||||||||||
Commodity contracts
|
276,726
|
1,031,568
|
303,206
|
1,020,418
|
||||||||||||
Credit contracts: centrally cleared swaps
|
17,831
|
27
|
23,264
|
22
|
||||||||||||
Credit contracts: other credit derivatives
|
5,378
|
18
|
23,608
|
27
|
||||||||||||
Total
|
5,165,613
|
5,220,133
|
||||||||||||||
Counterparty/cash-collateral netting
|
(4,759,345
|
)
|
(4,856,618
|
)
|
||||||||||||
Total per Consolidated Statement of Financial Condition
|
$
|
406,268
|
$
|
363,515
|
|
December 31, 2013
|
|||||||||||||||
|
Assets
|
Liabilities
|
||||||||||||||
|
Fair Value
|
Number of
Contracts
|
Fair Value
|
Number of
Contracts
|
||||||||||||
Interest rate contracts
|
$
|
1,165,977
|
63,967
|
$
|
1,131,166
|
77,338
|
||||||||||
Foreign exchange contracts
|
653,772
|
118,707
|
693,658
|
112,417
|
||||||||||||
Equity contracts
|
501,784
|
1,742,343
|
474,985
|
1,800,603
|
||||||||||||
Commodity contracts
|
141,280
|
797,529
|
173,119
|
788,717
|
||||||||||||
Credit contracts: centrally cleared swaps
|
49,531
|
49
|
51,632
|
46
|
||||||||||||
Credit contracts: other credit derivatives
|
2,339
|
16
|
8,130
|
19
|
||||||||||||
Total
|
2,514,683
|
2,532,690
|
||||||||||||||
Counterparty/cash-collateral netting
|
(2,253,589
|
)
|
(2,352,611
|
)
|
||||||||||||
Total per Consolidated Statement of Financial Condition
|
$
|
261,094
|
$
|
180,079
|
For the period
from the
|
||||||||
For the year ended
|
Jefferies acquisition through
|
|||||||
December 31, 2014
|
December 31, 2013
|
|||||||
Interest rate contracts
|
$
|
(149,587
|
)
|
$
|
132,397
|
|||
Foreign exchange contracts
|
39,872
|
5,514
|
||||||
Equity contracts
|
(327,978
|
)
|
(21,216
|
)
|
||||
Commodity contracts
|
58,746
|
45,546
|
||||||
Credit contracts
|
(23,934
|
)
|
(18,098
|
)
|
||||
Total
|
$
|
(402,881
|
)
|
$
|
144,143
|
|
OTC Derivative Assets (1) (2) (3)
|
|||||||||||||||||||
|
0-12 Months
|
1-5 Years
|
Greater Than
5 Years
|
Cross-
Maturity
Netting (4)
|
Total
|
|||||||||||||||
Commodity swaps, options and forwards
|
$
|
62,275
|
$
|
6,604
|
$
|
23,387
|
$
|
(6,249
|
)
|
$
|
86,017
|
|||||||||
Credit default swaps
|
–
|
2,936
|
–
|
–
|
2,936
|
|||||||||||||||
Equity swaps and options
|
2,291
|
–
|
20,128
|
–
|
22,419
|
|||||||||||||||
Total return swaps
|
12,668
|
1
|
–
|
(44
|
)
|
12,625
|
||||||||||||||
Foreign currency forwards, swaps and options
|
277,134
|
34,344
|
81
|
(28,294
|
)
|
283,265
|
||||||||||||||
Interest rate swaps, options and forwards
|
74,804
|
111,810
|
158,530
|
(61,665
|
)
|
283,479
|
||||||||||||||
Total
|
$
|
429,172
|
$
|
155,695
|
$
|
202,126
|
$
|
(96,252
|
)
|
690,741
|
||||||||||
Cross product counterparty netting
|
(19,237
|
)
|
||||||||||||||||||
Total OTC derivative assets included in
|
||||||||||||||||||||
Trading assets
|
$
|
671,504
|
(1) | At December 31, 2014, we held exchange traded derivative assets and other credit agreements with a fair value of $44.5 million, which are not included in this table. |
(2) | OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in the Consolidated Statements of Financial Condition. At December 31, 2014 cash collateral received was $309.7 million. |
(3) | Derivative fair values include counterparty netting within product category. |
(4) | Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. |
|
OTC Derivative Liabilities (1) (2) (3)
|
|||||||||||||||||||
|
0-12 Months
|
1-5 Years
|
Greater Than
5 Years
|
Cross-Maturity
Netting (4)
|
Total
|
|||||||||||||||
Commodity swaps, options and forwards
|
$
|
120,863
|
$
|
3,105
|
$
|
5,722
|
$
|
(6,249
|
)
|
$
|
123,441
|
|||||||||
Credit default swaps
|
–
|
1,220
|
6,709
|
–
|
7,929
|
|||||||||||||||
Equity swaps and options
|
5,438
|
38,076
|
10,414
|
–
|
53,928
|
|||||||||||||||
Total return swaps
|
10,179
|
277
|
–
|
(44
|
)
|
10,412
|
||||||||||||||
Foreign currency forwards, swaps and options
|
275,902
|
40,126
|
–
|
(28,294
|
)
|
287,734
|
||||||||||||||
Interest rate swaps, options and forwards
|
58,328
|
77,487
|
210,161
|
(61,665
|
)
|
284,311
|
||||||||||||||
Total
|
$
|
470,710
|
$
|
160,291
|
$
|
233,006
|
$
|
(96,252
|
)
|
767,755
|
||||||||||
Cross product counterparty netting
|
(19,237
|
)
|
||||||||||||||||||
Total OTC derivative liabilities included in
|
||||||||||||||||||||
Trading liabilities
|
$
|
748,518
|
(1) | At December 31, 2014, we held exchange traded derivative liabilities and other credit agreements with a fair value of $21.9 million, which are not included in this table. |
(2) | OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At December 31, 2014, cash collateral pledged was $406.9 million. |
(3) | Derivative fair values include counterparty netting within product category. |
Counterparty credit quality (1):
|
||||
A- or higher
|
$
|
397,655
|
||
BBB- to BBB+
|
59,010
|
|||
BB+ or lower
|
127,332
|
|||
Unrated
|
87,507
|
|||
Total
|
$
|
671,504
|
(1)
|
We utilize internal credit ratings determined by Jefferies Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
|
For the period
from the
|
||||||||
For the year ended
|
Jefferies acquisition through
|
|||||||
December 31, 2014
|
December 31, 2013
|
|||||||
Transferred assets
|
$
|
6,112.6
|
$
|
4,592.5
|
||||
Proceeds on new securitizations
|
6,221.1
|
4,609.0
|
||||||
Cash flows received on retained interests
|
46.3
|
35.6
|
|
December 31, 2014
|
December 31, 2013
|
||||||||||||||
Securitization Type
|
Total
Assets
|
Retained
Interests
|
Total
Assets
|
Retained
Interests
|
||||||||||||
U.S. government agency residential mortgage-backed securities
|
$
|
19,196.9
|
$
|
226.9
|
$
|
11,518.4
|
$
|
281.3
|
||||||||
U.S. government agency commercial mortgage-backed securities
|
5,848.5
|
204.7
|
5,385.6
|
96.8
|
||||||||||||
Collateralized loan obligations
|
4,511.8
|
108.4
|
728.5
|
9.0
|
Gross
|
Gross
|
Estimated
|
||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
2014
|
||||||||||||||||
Bonds and notes:
|
||||||||||||||||
U.S. government securities
|
$
|
593,803
|
$
|
33
|
$
|
63
|
$
|
593,773
|
||||||||
Residential mortgage-backed securities
|
597,402
|
10,959
|
1,678
|
606,683
|
||||||||||||
Commercial mortgage-backed securities
|
42,991
|
484
|
74
|
43,401
|
||||||||||||
Other asset-backed securities
|
245,533
|
619
|
996
|
245,156
|
||||||||||||
All other corporates
|
30,519
|
60
|
176
|
30,403
|
||||||||||||
Total fixed maturities
|
1,510,248
|
12,155
|
2,987
|
1,519,416
|
||||||||||||
Equity securities:
|
||||||||||||||||
Common stocks:
|
||||||||||||||||
Banks, trusts and insurance companies
|
31,853
|
18,740
|
–
|
50,593
|
||||||||||||
Industrial, miscellaneous and all other
|
20,355
|
18,405
|
–
|
38,760
|
||||||||||||
Total equity securities
|
52,208
|
37,145
|
–
|
89,353
|
||||||||||||
$
|
1,562,456
|
$
|
49,300
|
$
|
2,987
|
$
|
1,608,769
|
|||||||||
2013
|
||||||||||||||||
Bonds and notes:
|
||||||||||||||||
U.S. government securities
|
$
|
1,781,052
|
$
|
226
|
$
|
12
|
$
|
1,781,266
|
||||||||
Residential mortgage-backed securities
|
570,642
|
9,946
|
1,426
|
579,162
|
||||||||||||
Commercial mortgage-backed securities
|
18,271
|
13
|
299
|
17,985
|
||||||||||||
Other asset-backed securities
|
183,593
|
627
|
184
|
184,036
|
||||||||||||
All other corporates
|
50,933
|
267
|
37
|
51,163
|
||||||||||||
Total fixed maturities
|
2,604,491
|
11,079
|
1,958
|
2,613,612
|
||||||||||||
Equity securities:
|
||||||||||||||||
Common stocks:
|
||||||||||||||||
First Quantum Minerals Ltd.
|
154,281
|
–
|
5,616
|
148,665
|
||||||||||||
Banks, trusts and insurance companies
|
22,980
|
27,562
|
–
|
50,542
|
||||||||||||
Industrial, miscellaneous and all other
|
21,012
|
32,312
|
–
|
53,324
|
||||||||||||
Total equity securities
|
198,273
|
59,874
|
5,616
|
252,531
|
||||||||||||
$
|
2,802,764
|
$
|
70,953
|
$
|
7,574
|
$
|
2,866,143
|
|||||||||
Amortized
|
Estimated
|
|||||||
Cost
|
Fair Value
|
|||||||
(In thousands)
|
||||||||
Due within one year
|
$
|
607,208
|
$
|
607,070
|
||||
Due after one year through five years
|
17,114
|
17,106
|
||||||
Due after five years through ten years
|
–
|
–
|
||||||
Due after ten years
|
–
|
–
|
||||||
624,322
|
624,176
|
|||||||
Mortgage-backed and asset-backed securities
|
885,926
|
895,240
|
||||||
$
|
1,510,248
|
$
|
1,519,416
|
·
|
Purchases of securities in connection with our trading and secondary market making activities,
|
·
|
Retained interests held as a result of securitization activities, including the resecuritization of mortgage- and other asset-backed securities and the securitization of commercial mortgage and corporate loans,
|
·
|
Acting as placement agent and/or underwriter in connection with client-sponsored securitizations,
|
·
|
Financing of agency and non-agency mortgage- and other asset-backed securities,
|
·
|
Warehousing funding arrangements for client-sponsored consumer loan vehicles and collateralized loan obligations (“CLOs”) through participation certificates and revolving loan commitments, and
|
·
|
Loans to, investments in and fees from various investment fund vehicles.
|
Securitization Vehicles
|
||||||||
2014
|
2013
|
|||||||
(In millions)
|
||||||||
Cash
|
$
|
.5
|
$
|
–
|
||||
Financial instruments owned
|
62.7
|
97.5
|
||||||
Securities purchased under agreement to resell (1)
|
575.2
|
195.1
|
||||||
Other
|
107.1
|
2.3
|
||||||
Total assets
|
$
|
745.5
|
$
|
294.9
|
||||
Other secured financings (2)
|
$
|
737.0
|
$
|
292.5
|
||||
Other
|
8.5
|
2.1
|
||||||
Total liabilities
|
$
|
745.5
|
$
|
294.6
|
(1) | Securities purchased under agreement to resell represent an amount due under a collateralized transaction on a related consolidated entity, which is eliminated in consolidation. |
(2) | Approximately $39.7 million and $66.5 million of the secured financing represents an amount held by Jefferies in inventory and eliminated in consolidation at December 31, 2014 and 2013, respectively. |
December 31, 2014
|
||||||||||||
Variable Interests
|
||||||||||||
Financial Statement
Carrying Amount (3)
|
Maximum
Exposure to Loss
|
VIE Assets
|
||||||||||
Assets
|
||||||||||||
(In millions)
|
||||||||||||
Collateralized loan obligations
|
$
|
134.0
|
$
|
926.9
|
$
|
7,737.1
|
||||||
Consumer loan financing vehicles
|
170.6
|
797.8
|
485.2
|
|||||||||
Asset management vehicles (1)
|
11.3
|
11.3
|
432.3
|
|||||||||
Private equity vehicles (2)
|
44.3
|
59.2
|
92.8
|
|||||||||
Total
|
$
|
360.2
|
$
|
1,795.2
|
$
|
8,747.4
|
December 31, 2013
|
||||||||||||
Variable Interests
|
||||||||||||
Financial Statement
Carrying Amount (3)
|
Maximum
Exposure to Loss
|
VIE Assets
|
||||||||||
Assets
|
||||||||||||
(In millions)
|
||||||||||||
Collateralized loan obligations
|
$
|
11.9
|
$
|
88.8
|
$
|
1,122.3
|
||||||
Asset management vehicles (1)
|
5.1
|
5.1
|
454.2
|
|||||||||
Private equity vehicles (2)
|
40.8
|
68.8
|
89.4
|
|||||||||
Total
|
$
|
57.8
|
$
|
162.7
|
$
|
1,665.9
|
(1)
|
Assets consist of equity interests, which are included within Investments in managed funds, and accrued management and performance fees, which are included in Receivables.
|
(2)
|
Assets consist of equity interests, which are included in Investment in managed funds.
|
(3)
|
There were no significant liabilities at December 31, 2014 or December 31, 2013.
|
• | Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs |
• | Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests |
• | Trading positions in securities issued in a CLO transaction |
• | Investments in variable funding notes issued by CLOs |
• | A guarantee to a CLO managed by Jefferies Finance, whereby we guarantee certain of the obligations of Jefferies Finance to the CLO |
2014
|
2013
|
|||||||
Jefferies Finance, LLC
|
$
|
508,891
|
$
|
470,537
|
||||
Jefferies LoanCore LLC
|
258,947
|
224,037
|
||||||
Berkadia
|
208,511
|
182,573
|
||||||
Garcadia companies
|
167,939
|
120,017
|
||||||
HomeFed
|
271,782
|
52,923
|
||||||
Linkem S.p.A.
|
159,054
|
173,577
|
||||||
Golden Queen Mining Company, LLC (1)
|
103,598
|
–
|
||||||
Other
|
33,846
|
34,677
|
||||||
Total
|
$
|
1,712,568
|
$
|
1,258,341
|
(1)
|
As discussed below, at December 31, 2014, the balance reflects $34.1 million from a noncontrolling interest.
|
2014
|
2013
|
2012
|
||||||||||
Berkadia
|
$
|
101,187
|
$
|
84,678
|
$
|
38,026
|
||||||
Garcadia companies
|
49,416
|
39,399
|
31,738
|
|||||||||
Linkem
|
(14,633
|
)
|
(22,719
|
)
|
(18,890
|
)
|
||||||
HomeFed
|
3,150
|
3,539
|
1,891
|
|||||||||
JHYH
|
–
|
7,178
|
33,938
|
|||||||||
Other
|
(593
|
)
|
6,966
|
1,946
|
||||||||
Total
|
$
|
138,527
|
$
|
119,041
|
$
|
88,649
|
2014
|
2013
|
|||||||
Jefferies Finance
|
$
|
72,701
|
$
|
57,795
|
||||
Jefferies LoanCore
|
18,793
|
35,300
|
||||||
Other
|
(1,252
|
)
|
(915
|
)
|
||||
Total
|
$
|
90,242
|
$
|
92,180
|
2014
|
2013
|
|||||||||||
Assets
|
$
|
12,683,212
|
$
|
8,852,807
|
||||||||
Liabilities
|
9,350,034
|
6,292,252
|
||||||||||
Noncontrolling interest
|
12,718
|
11,491
|
||||||||||
2014
|
2013
|
2012
|
||||||||||
Revenues
|
$
|
3,201,823
|
$
|
2,710,205
|
$
|
1,995,858
|
||||||
Income from continuing operations before
|
||||||||||||
extraordinary items
|
$
|
431,654
|
$
|
428,509
|
$
|
255,038
|
||||||
Net income
|
$
|
431,654
|
$
|
434,969
|
$
|
255,038
|
||||||
The Company’s income related to
|
||||||||||||
associated companies
|
$
|
228,769
|
$
|
211,221
|
$
|
88,649
|
(In thousands)
|
Gross
Amounts
|
Netting in Consolidated Statement of Financial Condition
|
Net Amounts in Consolidated Statement of Financial Condition
|
Additional Amounts Available for Setoff (1)
|
Available Collateral (2)
|
Net Amount (3)
|
||||||||||||||||||
Assets at December 31, 2014
|
||||||||||||||||||||||||
Derivative contracts
|
$
|
5,165,613
|
$
|
(4,759,345
|
)
|
$
|
406,268
|
$
|
–
|
$
|
–
|
$
|
406,268
|
|||||||||||
Securities borrowing arrangements
|
$
|
6,853,103
|
$
|
–
|
$
|
6,853,103
|
$
|
(680,222
|
)
|
$
|
(1,274,196
|
)
|
$
|
4,898,685
|
||||||||||
Reverse repurchase agreements
|
$
|
14,059,133
|
$
|
(10,132,275
|
)
|
$
|
3,926,858
|
$
|
(634,568
|
)
|
$
|
(3,248,817
|
)
|
$
|
43,473
|
|||||||||
Liabilities at December 31, 2014
|
||||||||||||||||||||||||
Derivative contracts
|
$
|
5,220,133
|
$
|
(4,856,618
|
)
|
$
|
363,515
|
$
|
–
|
$
|
–
|
$
|
363,515
|
|||||||||||
Securities lending arrangements
|
$
|
2,598,487
|
$
|
–
|
$
|
2,598,487
|
$
|
(680,222
|
)
|
$
|
(1,883,140
|
)
|
$
|
35,125
|
||||||||||
Repurchase agreements
|
$
|
20,804,432
|
$
|
(10,132,275
|
)
|
$
|
10,672,157
|
$
|
(634,568
|
)
|
$
|
(8,810,770
|
)
|
$
|
1,226,819
|
|||||||||
Assets at December 31, 2013
|
||||||||||||||||||||||||
Derivative contracts
|
$
|
2,514,683
|
$
|
(2,253,589
|
)
|
$
|
261,094
|
$
|
–
|
$
|
–
|
$
|
261,094
|
|||||||||||
Securities borrowing arrangements
|
$
|
5,359,846
|
$
|
–
|
$
|
5,359,846
|
$
|
(530,293
|
)
|
$
|
(957,140
|
)
|
$
|
3,872,413
|
||||||||||
Reverse repurchase agreements
|
$
|
12,715,449
|
$
|
(8,968,529
|
)
|
$
|
3,746,920
|
$
|
(590,754
|
)
|
$
|
(3,074,540
|
)
|
$
|
81,626
|
|||||||||
Liabilities at December 31, 2013
|
||||||||||||||||||||||||
Derivative contracts
|
$
|
2,532,690
|
$
|
(2,352,611
|
)
|
$
|
180,079
|
$
|
–
|
$
|
–
|
$
|
180,079
|
|||||||||||
Securities lending arrangements
|
$
|
2,506,122
|
$
|
–
|
$
|
2,506,122
|
$
|
(530,293
|
)
|
$
|
(1,942,271
|
)
|
$
|
33,558
|
||||||||||
Repurchase agreements
|
$
|
19,748,374
|
$
|
(8,968,529
|
)
|
$
|
10,779,845
|
$
|
(590,754
|
)
|
$
|
(8,748,641
|
)
|
$
|
1,440,450
|
(1)
|
Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty’s default, but which are not netted in the balance sheet because other provisions of U.S. GAAP are not met. Further, for derivative assets and liabilities, amounts netted include cash collateral paid or received.
|
(2)
|
Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.
|
(3)
|
At December 31, 2014, amounts include $4,847.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,694.0 million, and $1,201.9 million of repurchase agreements, for which we have pledged securities collateral of $1,238.4 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable. At December 31, 2013, amounts include $3,818.4 million of securities borrowing arrangements, for which we have received securities collateral of $3,721.8 million, and $1,410.0 million of repurchase agreements, for which we have pledged securities collateral of $1,438.9 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable.
|
2014
|
2013
|
|||||||
Indefinite lived intangibles:
|
||||||||
Exchange and clearing organization membership interests and registrations
|
$
|
14,528
|
$
|
14,916
|
||||
Amortizable intangibles:
|
||||||||
Customer and other relationships, net of accumulated amortization of
|
||||||||
$155,548 and $117,139
|
493,501
|
502,409
|
||||||
Trademarks and tradename, net of accumulated amortization of $47,101
|
||||||||
and $30,213
|
347,883
|
364,779
|
||||||
Supply contracts, net of accumulated amortization of $30,433 and $20,162
|
119,562
|
129,833
|
||||||
Licenses, net of accumulated amortization of $110 and $4,100
|
-
|
7,928
|
||||||
Other, net of accumulated amortization of $4,703 and $4,500
|
2,900
|
664
|
||||||
Total intangible assets, net
|
978,374
|
1,020,529
|
||||||
Goodwill:
|
||||||||
National Beef
|
14,991
|
14,991
|
||||||
Jefferies
|
1,718,847
|
1,724,557
|
||||||
Other operations
|
8,551
|
8,551
|
||||||
Total goodwill
|
1,742,389
|
1,748,099
|
||||||
Total intangible assets, net and goodwill
|
$
|
2,720,763
|
$
|
2,768,628
|
2014
|
2013
|
|||||||
Finished goods
|
$
|
343,959
|
$
|
273,291
|
||||
Work in process
|
40,951
|
34,701
|
||||||
Raw materials, supplies and other
|
37,993
|
56,334
|
||||||
$
|
422,903
|
$
|
364,326
|
Depreciable
|
||||||||||||
Lives
|
||||||||||||
(in years)
|
2014
|
2013
|
||||||||||
Land, buildings and leasehold improvements
|
1-45
|
$
|
321,098
|
$
|
510,717
|
|||||||
Beef processing machinery and equipment
|
2-15
|
283,360
|
243,026
|
|||||||||
Other machinery and equipment
|
3-15
|
110,075
|
157,164
|
|||||||||
Corporate aircraft
|
10
|
104,780
|
104,780
|
|||||||||
Furniture, fixtures and office equipment
|
2-10
|
283,436
|
210,916
|
|||||||||
Construction in progress
|
N/
|
A
|
40,788
|
69,717
|
||||||||
Other
|
3-10
|
4,598
|
3,316
|
|||||||||
1,148,135
|
1,299,636
|
|||||||||||
Accumulated depreciation and amortization
|
(421,759
|
)
|
(413,777
|
)
|
||||||||
$
|
726,376
|
$
|
885,859
|
2014
|
2013
|
|||||||
Parent Company Debt:
|
||||||||
Senior Notes:
|
||||||||
8.125% Senior Notes due September 15, 2015, $458,641 principal
|
$
|
457,723
|
$
|
456,515
|
||||
5.50% Senior Notes due October 18, 2023, $750,000 principal
|
740,748
|
739,960
|
||||||
6.625% Senior Notes due October 23, 2043, $250,000 principal
|
246,991
|
246,958
|
||||||
Subordinated Notes:
|
||||||||
3.75% Convertible Senior Subordinated Notes due April 15, 2014,
|
||||||||
$97,581 principal
|
–
|
97,581
|
||||||
Total long-term debt – Parent Company
|
1,445,462
|
1,541,014
|
||||||
Subsidiary Debt (non-recourse to Parent Company):
|
||||||||
Jefferies:
|
||||||||
5.875% Senior Notes, due June 8, 2014, $250,000 principal
|
–
|
255,676
|
||||||
3.875% Senior Notes, due November 9, 2015, $500,000 principal
|
507,944
|
516,204
|
||||||
5.5% Senior Notes, due March 15, 2016, $350,000 principal
|
363,229
|
373,178
|
||||||
5.125% Senior Notes, due April 13, 2018, $800,000 principal
|
842,359
|
854,011
|
||||||
8.5% Senior Notes, due July 15, 2019, $700,000 principal
|
832,797
|
858,425
|
||||||
2.375% Euro Senior Notes, due May 20, 2020, $622,175 principal
|
620,725
|
–
|
||||||
6.875% Senior Notes, due April 15, 2021, $750,000 principal
|
853,091
|
866,801
|
||||||
2.25% Euro Medium Term Notes, due July 13, 2022, $4,977 principal
|
4,379
|
4,792
|
||||||
5.125% Senior Notes, due January 20, 2023, $600,000 principal
|
623,311
|
625,626
|
||||||
6.45% Senior Debentures, due June 8, 2027, $350,000 principal
|
381,515
|
383,224
|
||||||
3.875% Convertible Senior Debentures, due November 1, 2029,
|
||||||||
$345,000 principal
|
348,568
|
349,707
|
||||||
6.25% Senior Debentures, due January 15, 2036, $500,000 principal
|
513,046
|
513,343
|
||||||
6.50% Senior Notes, due January 20, 2043, $400,000 principal
|
421,960
|
422,245
|
||||||
Secured credit facility, due June 26, 2017
|
170,000
|
200,000
|
||||||
National Beef Term Loan
|
345,000
|
375,000
|
||||||
National Beef Revolving Credit Facility
|
135,144
|
–
|
||||||
Other
|
119,399
|
41,619
|
||||||
Total long-term debt – subsidiaries
|
7,082,467
|
6,639,851
|
||||||
Long-term debt
|
$
|
8,527,929
|
$
|
8,180,865
|
7% Senior Notes
|
$
|
4,836
|
||
7.125% Senior Notes
|
423,140
|
|||
8.65% Junior Subordinated Deferrable Interest Debentures
|
88,204
|
|||
Total
|
$
|
516,180
|
2014
|
2013
|
|||||||
As of January 1,
|
$
|
241,075
|
$
|
241,649
|
||||
Loss allocated to redeemable noncontrolling
|
||||||||
interests
|
(8,576
|
)
|
(9,282
|
)
|
||||
Net distributions to redeemable noncontrolling interests
|
(2,765
|
)
|
(8,073
|
)
|
||||
Increase (decrease) in fair value of redeemable noncontrolling
|
||||||||
interests charged to additional paid-in capital
|
(45,401
|
)
|
16,781
|
|||||
Balance, December 31,
|
$
|
184,333
|
$
|
241,075
|
Discount Rates
|
||||||||||||||
Terminal Growth Rates
|
12.25%
|
|
12.50%
|
|
12.75%
|
|
||||||||
1.75
|
%
|
$
|
186.4
|
$
|
183.2
|
$
|
180.1
|
|||||||
2.00
|
%
|
$
|
187.6
|
$
|
184.3
|
$
|
181.2
|
|||||||
2.25
|
%
|
$
|
188.9
|
$
|
185.6
|
$
|
182.3
|
Weighted-
|
|||||||||||||
Common
|
Weighted-
|
Average
|
|||||||||||
Shares
|
Average
|
Remaining
|
Aggregate
|
||||||||||
Subject
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||
to Option
|
Prices
|
Term
|
Value
|
||||||||||
Balance at December 31, 2011
|
2,251,455
|
$
|
27.62
|
||||||||||
Granted
|
919,500
|
$
|
23.20
|
||||||||||
Exercised
|
–
|
$
|
–
|
$
|
–
|
||||||||
Cancelled
|
(593,455
|
)
|
$
|
27.42
|
|||||||||
Balance at December 31, 2012
|
2,577,500
|
$
|
26.10
|
||||||||||
Granted
|
51,432
|
$
|
26.06
|
||||||||||
Exercised
|
(184,276
|
)
|
$
|
24.65
|
$
|
603,000
|
|||||||
Cancelled
|
(27,408
|
)
|
$
|
38.68
|
|||||||||
Balance at December 31, 2013
|
2,417,248
|
$
|
25.64
|
||||||||||
Granted
|
–
|
$
|
–
|
||||||||||
Exercised
|
(35,536
|
)
|
$
|
22.87
|
$
|
58,000
|
|||||||
Cancelled
|
(741,678
|
)
|
$
|
27.39
|
|||||||||
Balance at December 31, 2014
|
1,640,034
|
$
|
24.91
|
2.9 years
|
$
|
9,000
|
|||||||
Exercisable at December 31, 2014
|
946,193
|
$
|
25.42
|
2.6 years
|
$
|
8,000
|
2013
|
2012
|
|||||||
Options
|
Options
|
|||||||
Risk free interest rate
|
1.26
|
%
|
.53
|
%
|
||||
Expected volatility
|
39.17
|
%
|
37.66
|
%
|
||||
Expected dividend yield
|
.85
|
%
|
1.08
|
%
|
||||
Expected life
|
4.0 years
|
4.0 years
|
||||||
Weighted-average fair value per grant
|
$
|
7.67
|
$
|
5.97
|
Weighted Average
|
||||||||
Grant Date
|
||||||||
Fair Value
|
||||||||
Balance at January 1, 2013
|
–
|
$
|
–
|
|||||
Converted in connection with the Jefferies acquisition
|
6,895
|
$
|
26.90
|
|||||
Grants
|
462
|
$
|
27.38
|
|||||
Forfeited
|
(144
|
)
|
$
|
26.90
|
||||
Fulfillment of service requirement
|
(1,971
|
)
|
$
|
26.90
|
||||
Balance at December 31, 2013
|
5,242
|
$
|
26.94
|
|||||
Grants
|
864
|
$
|
27.03
|
|||||
Forfeited
|
(202
|
)
|
$
|
26.90
|
||||
Fulfillment of service requirement
|
(2,521
|
)
|
$
|
26.89
|
||||
Balance at December 31, 2014
|
3,383
|
$
|
27.00
|
Future
|
No Future
|
Future
|
No Future
|
|||||||||||||
Service
|
Service
|
Service
|
Service
|
|||||||||||||
Required
|
Required
|
Required
|
Required
|
|||||||||||||
Balance at January 1, 2013
|
–
|
–
|
$
|
–
|
$
|
–
|
||||||||||
Converted in connection with the Jefferies acquisition
|
5,167
|
9,527
|
$
|
26.90
|
$
|
26.90
|
||||||||||
Grants
|
–
|
145
|
$
|
–
|
$
|
24.32
|
||||||||||
Distributions of underlying shares
|
–
|
(1,603
|
)
|
$
|
–
|
$
|
26.90
|
|||||||||
Forfeited
|
(106
|
)
|
(21
|
)
|
$
|
26.90
|
$
|
26.83
|
||||||||
Fulfillment of service requirement
|
(268
|
)
|
268
|
$
|
26.90
|
$
|
26.90
|
|||||||||
Balance at December 31, 2013
|
4,793
|
8,316
|
$
|
26.90
|
$
|
26.86
|
||||||||||
Grants
|
–
|
97
|
$
|
–
|
$
|
20.89
|
||||||||||
Distributions of underlying shares
|
–
|
(366
|
)
|
$
|
–
|
$
|
26.85
|
|||||||||
Forfeited
|
(135
|
)
|
–
|
$
|
26.90
|
$
|
–
|
|||||||||
Fulfillment of service requirement
|
(420
|
)
|
420
|
$
|
26.90
|
$
|
26.90
|
|||||||||
Balance at December 31, 2014
|
4,238
|
8,467
|
$
|
26.90
|
$
|
26.79
|
2014
|
2013
|
2012
|
||||||||||
Net unrealized gains on available for sale securities
|
$
|
577,588
|
$
|
589,393
|
$
|
803,430
|
||||||
Net unrealized foreign exchange gains (losses)
|
(26,771
|
)
|
16,803
|
(6,097
|
)
|
|||||||
Net unrealized losses on derivative instruments
|
–
|
(169
|
)
|
(154
|
)
|
|||||||
Net minimum pension liability
|
(103,735
|
)
|
(67,977
|
)
|
(92,050
|
)
|
||||||
$
|
447,082
|
$
|
538,050
|
$
|
705,129
|
Details about Accumulated Other Comprehensive Income
Components
|
Amount Reclassified from Accumulated Other Comprehensive Income
|
Affected Line Item in the
Consolidated Statement
of Operations
|
|||||||
2014
|
2013
|
||||||||
Net unrealized gains (losses) on available for
|
Net realized securities gains
|
||||||||
sale securities, net of income tax provision
|
|||||||||
of $1,631 and $118,292
|
$
|
2,939
|
$
|
213,058
|
|||||
Net unrealized foreign exchange gains, net of
income tax provision of $149 and $0
|
267
|
–
|
Loss from discontinued operations,
net of income tax (benefit)
|
||||||
Net unrealized losses on derivatives, net
of income tax benefit of $(95) and $0
|
(169
|
)
|
–
|
Income related to associated companies
|
|||||
Amortization of defined benefit pension
|
Compensation and benefits, which
|
||||||||
plan actuarial gains (losses), net of
|
includes pension expense. See the
|
||||||||
income tax benefit of $(1,676)
|
pension footnote for information
|
||||||||
and $(2,665)
|
(3,201
|
)
|
(4,799
|
)
|
on this component.
|
||||
Total reclassifications for the period,
|
|||||||||
net of tax
|
$
|
(164
|
)
|
$
|
208,259
|
2014
|
2013
|
|||||||
Change in projected benefit obligation:
|
||||||||
Projected benefit obligation, beginning of year
|
$
|
295,044
|
$
|
275,858
|
||||
Projected benefit obligation of Jefferies plan at date of acquisition
|
–
|
51,599
|
||||||
Interest cost
|
14,239
|
12,286
|
||||||
Actuarial (gains) losses
|
52,125
|
(36,197
|
)
|
|||||
Benefits paid
|
(9,282
|
)
|
(8,502
|
)
|
||||
Projected benefit obligation, end of year
|
$
|
352,126
|
$
|
295,044
|
||||
Change in plan assets:
|
||||||||
Fair value of plan assets, beginning of year
|
$
|
239,080
|
$
|
194,314
|
||||
Jefferies plan assets at date of acquisition
|
–
|
41,290
|
||||||
Actual return on plan assets
|
11,175
|
6,454
|
||||||
Employer contributions
|
–
|
6,475
|
||||||
Benefits paid
|
(9,282
|
)
|
(8,502
|
)
|
||||
Administrative expenses
|
(963
|
)
|
(951
|
)
|
||||
Fair value of plan assets, end of year
|
$
|
240,010
|
$
|
239,080
|
||||
Funded status at end of year
|
$
|
(112,116
|
)
|
$
|
(55,964
|
)
|
2014
|
2013
|
2012
|
||||||||||
Components of net periodic pension cost:
|
||||||||||||
Interest cost
|
$
|
14,239
|
$
|
12,286
|
$
|
10,886
|
||||||
Expected return on plan assets
|
(10,115
|
)
|
(9,746
|
)
|
(8,292
|
)
|
||||||
Actuarial losses
|
4,634
|
7,464
|
5,852
|
|||||||||
Net periodic pension cost
|
$
|
8,758
|
$
|
10,004
|
$
|
8,446
|
Amounts recognized in other comprehensive income (loss):
|
||||||||||||
Net (gain) loss arising during the period
|
$
|
52,027
|
$
|
(31,952
|
)
|
$
|
19,604
|
|||||
Amortization of net loss
|
(4,634
|
)
|
(7,464
|
)
|
(5,852
|
)
|
||||||
Total recognized in other comprehensive income (loss)
|
$
|
47,393
|
$
|
(39,416
|
)
|
$
|
13,752
|
|||||
Net amount recognized in net periodic benefit cost and other
|
||||||||||||
comprehensive income (loss)
|
$
|
56,151
|
$
|
(29,412
|
)
|
$
|
22,198
|
2014
|
2013
|
|||||||
WilTel Plan
|
||||||||
Discount rate used to determine benefit obligation
|
3.76
|
%
|
4.71
|
%
|
||||
Weighted-average assumptions used to determine
|
||||||||
net pension cost:
|
||||||||
Discount rate
|
4.71
|
%
|
3.85
|
%
|
||||
Expected long-term return on plan assets
|
4.00
|
%
|
4.00
|
%
|
||||
Jefferies Plan
|
||||||||
Discount rate used to determine benefit obligation
|
4.30
|
%
|
5.10
|
%
|
||||
Weighted-average assumptions used to determine
|
||||||||
net pension cost:
|
||||||||
Discount rate
|
5.10
|
%
|
4.40
|
%
|
||||
Expected long-term return on plan assets
|
6.75
|
%
|
6.75
|
%
|
2015
|
$
|
8,252
|
||
2016
|
10,493
|
|||
2017
|
10,815
|
|||
2018
|
10,786
|
|||
2019
|
12,367
|
|||
2020 – 2024
|
99,516
|
Fair Value Measurements Using
|
||||||||||||
Total
|
Level 1
|
Level 2
|
||||||||||
2014
|
||||||||||||
Cash and cash equivalents
|
$
|
14,669
|
$
|
14,669
|
$
|
–
|
||||||
Fixed income securities:
|
||||||||||||
U.S. Government and agencies
|
3,719
|
3,719
|
–
|
|||||||||
Public utilities
|
15,669
|
–
|
15,669
|
|||||||||
All other corporates
|
154,868
|
–
|
154,868
|
|||||||||
Total
|
$
|
188,925
|
$
|
18,388
|
$
|
170,537
|
||||||
2013
|
||||||||||||
Cash and cash equivalents
|
$
|
20,075
|
$
|
20,075
|
$
|
–
|
||||||
Fixed income securities:
|
||||||||||||
U.S. Government and agencies
|
4,860
|
4,860
|
–
|
|||||||||
Public utilities
|
13,243
|
–
|
13,243
|
|||||||||
All other corporates
|
153,486
|
–
|
153,486
|
|||||||||
Total
|
$
|
191,664
|
$
|
24,935
|
$
|
166,729
|
||||||
·
|
Plan assets are split into three separate portfolios, each with different duration and asset mixes. The Investment Grade (“IG”) portfolio consists of investment grade fixed income corporate bonds with a maximum portfolio duration of 5 years. The Fixed Income (“FI”) portfolio consists of short and medium term investment grade bonds, government instruments, and cash and cash equivalents with a maximum portfolio duration of 2 years. The High Yield (“HY”) portfolio consists of below investment grade corporate bonds with a maximum portfolio duration of 5 years.
|
·
|
Fixed income securities held within the IG and FI portfolios will all be rated BBB- or better at the time of purchase, there will be no more than 5% at market in any one security (U.S. government and agency positions excluded), no more than a 30-year maturity in any one security and investments in standard collateralized mortgage obligations are limited to securities that are currently paying interest, receiving principal, do not contain leverage and are limited to 10% of the market value of the portfolio. Securities purchased or held within the HY portfolio will all be rated B- or higher. However, the portfolio can hold up to 10% in CCC rated bonds that may result from credit downgrades.
|
Fair Value Measurements Using
|
||||||||||||
Total
|
Level 1
|
Level 2
|
||||||||||
2014
|
||||||||||||
Cash and cash equivalents
|
$
|
373
|
$
|
373
|
$
|
–
|
||||||
Listed equity securities
|
31,327
|
31,327
|
–
|
|||||||||
Fixed income securities:
|
||||||||||||
Corporate debt securities
|
6,482
|
–
|
6,482
|
|||||||||
Foreign corporate debt securities
|
1,321
|
–
|
1,321
|
|||||||||
U.S. Government securities
|
5,929
|
5,929
|
–
|
|||||||||
Agency mortgage-backed securities
|
3,883
|
–
|
3,883
|
|||||||||
Commercial mortgage-backed securities
|
1,080
|
–
|
1,080
|
|||||||||
Asset-backed securities
|
690
|
–
|
690
|
|||||||||
Total
|
$
|
51,085
|
$
|
37,629
|
$
|
13,456
|
||||||
2013
|
||||||||||||
Cash and cash equivalents
|
$
|
931
|
$
|
931
|
$
|
–
|
||||||
Listed equity securities
|
27,663
|
27,663
|
–
|
|||||||||
Fixed income securities:
|
||||||||||||
Corporate debt securities
|
7,743
|
–
|
7,743
|
|||||||||
Foreign corporate debt securities
|
1,140
|
–
|
1,140
|
|||||||||
U.S. Government securities
|
4,055
|
4,055
|
–
|
|||||||||
Agency mortgage-backed securities
|
3,949
|
–
|
3,949
|
|||||||||
Commercial mortgage-backed securities
|
1,280
|
–
|
1,280
|
|||||||||
Asset-backed securities
|
461
|
–
|
461
|
|||||||||
Other
|
194
|
–
|
194
|
|||||||||
Total
|
$
|
47,416
|
$
|
32,649
|
$
|
14,767
|
2014
|
2013
|
|||||||
Change in projected benefit obligation:
|
||||||||
Projected benefit obligation, beginning of year
|
$
|
26,368
|
$
|
–
|
||||
Projected benefit obligation at date of acquisition
|
–
|
24,494
|
||||||
Service cost
|
40
|
51
|
||||||
Interest cost
|
801
|
685
|
||||||
Actuarial losses
|
4,630
|
1,002
|
||||||
Currency adjustment
|
(2,212
|
)
|
1,053
|
|||||
Benefits paid
|
(1,193
|
)
|
(917
|
)
|
||||
Projected benefit obligation, end of year
|
$
|
28,434
|
$
|
26,368
|
||||
Components of net periodic pension cost:
|
||||||||
Service cost
|
$
|
40
|
$
|
51
|
||||
Interest cost
|
801
|
685
|
||||||
Net amortization
|
244
|
179
|
||||||
Net periodic pension cost
|
$
|
1,085
|
$
|
915
|
2014
|
2013
|
|||||||
Projected benefit obligation
|
||||||||
Discount rate
|
2.10
|
%
|
3.40
|
%
|
||||
Rate of compensation increase
|
3.00
|
%
|
3.00
|
%
|
||||
Net periodic pension benefit cost
|
||||||||
Discount rate
|
3.40
|
%
|
3.60
|
%
|
||||
Rate of compensation increase
|
3.00
|
%
|
3.00
|
%
|
2015
|
$
|
1,308
|
||
2016
|
1,324
|
|||
2017
|
1,304
|
|||
2018
|
1,300
|
|||
2019
|
1,275
|
|||
2020 – 2024
|
6,776
|
2014
|
2013
|
|||||||
Deferred Tax Asset:
|
||||||||
NOL carryover
|
$
|
1,266,972
|
$
|
1,283,947
|
||||
Compensation
|
334,576
|
400,002
|
||||||
Long-term debt
|
134,079
|
184,669
|
||||||
Other assets
|
160,586
|
118,914
|
||||||
Securities valuation reserves
|
25,499
|
51,597
|
||||||
Intangible assets, net and goodwill
|
13,842
|
17,349
|
||||||
Other liabilities
|
57,006
|
49,074
|
||||||
1,992,560
|
2,105,552
|
|||||||
Valuation allowance
|
(110,404
|
)
|
(132,607
|
)
|
||||
1,882,156
|
1,972,945
|
|||||||
Deferred Tax Liability:
|
||||||||
Unrealized gains on investments
|
(10,406
|
)
|
(23,851
|
)
|
||||
Amortization of intangible assets
|
(97,268
|
)
|
(98,798
|
)
|
||||
Property and equipment
|
(866
|
)
|
(3,822
|
)
|
||||
Other
|
(61,081
|
)
|
(36,531
|
)
|
||||
(169,621
|
)
|
(163,002
|
)
|
|||||
Net deferred tax asset
|
$
|
1,712,535
|
$
|
1,809,943
|
2014
|
2013
|
2012
|
||||||||||
State income taxes
|
$
|
47,939
|
$
|
32,917
|
$
|
35,489
|
||||||
Federal income taxes:
|
||||||||||||
Current
|
746
|
2,900
|
1,001
|
|||||||||
Deferred
|
119,393
|
82,173
|
490,474
|
|||||||||
Increase (decrease) in valuation allowance
|
(22,203
|
)
|
12,287
|
-
|
||||||||
Foreign income taxes
|
20,096
|
6,204
|
12,500
|
|||||||||
$
|
165,971
|
$
|
136,481
|
$
|
539,464
|
2014
|
2013
|
2012
|
||||||||||
Expected federal income tax
|
$
|
133,428
|
$
|
190,955
|
$
|
504,710
|
||||||
State income taxes, net of federal income tax benefit
|
31,160
|
21,396
|
24,120
|
|||||||||
Increase (decrease) in valuation allowance
|
(22,203
|
)
|
12,287
|
-
|
||||||||
Tax expense not provided on income recorded on the Jefferies
|
||||||||||||
investment prior to the acquisition
|
-
|
(63,952
|
)
|
-
|
||||||||
Reversal of prior years’ deferred tax liability related to Jefferies investment
|
-
|
(33,972
|
)
|
-
|
||||||||
Foreign rate differential
|
(14,305
|
)
|
(4,750
|
)
|
-
|
|||||||
Permanent differences
|
2,639
|
12,832
|
2,921
|
|||||||||
Nondeductible settlements
|
24,500
|
-
|
-
|
|||||||||
Foreign taxes
|
2,542
|
4,033
|
8,125
|
|||||||||
Other
|
8,210
|
(2,348
|
)
|
(412
|
)
|
|||||||
Actual income tax provision
|
$
|
165,971
|
$
|
136,481
|
$
|
539,464
|
Unrecognized
|
||||||||||||
Tax Benefits
|
Interest
|
Total
|
||||||||||
As of January 1, 2012
|
$
|
6,340
|
$
|
3,480
|
$
|
9,820
|
||||||
Increases based on tax positions related to current period
|
5,250
|
-
|
5,250
|
|||||||||
Interest expense recognized
|
-
|
700
|
700
|
|||||||||
Audit payments
|
-
|
-
|
-
|
|||||||||
Reductions as a result of the lapse of the statute of
|
||||||||||||
limitations
|
-
|
-
|
-
|
|||||||||
Balance, December 31, 2012
|
11,590
|
4,180
|
15,770
|
|||||||||
Jefferies amounts at date of acquisition
|
129,010
|
17,100
|
146,110
|
|||||||||
Increases based on tax positions related to current period
|
8,750
|
-
|
8,750
|
|||||||||
Increases based on tax positions related to prior periods
|
14,780
|
-
|
14,780
|
|||||||||
Decreases based on tax positions related to prior periods
|
(18,300
|
)
|
-
|
(18,300
|
)
|
|||||||
Interest expense recognized
|
-
|
7,000
|
7,000
|
|||||||||
Audit payments
|
(310
|
)
|
(110
|
)
|
(420
|
)
|
||||||
Reductions as a result of the lapse of the statute of
|
||||||||||||
limitations
|
-
|
-
|
-
|
|||||||||
Balance, December 31, 2013
|
145,520
|
28,170
|
173,690
|
|||||||||
Increases based on tax positions related to current period
|
5,630
|
-
|
5,630
|
|||||||||
Increases based on tax positions related to prior periods
|
4,340
|
-
|
4,340
|
|||||||||
Decreases based on tax positions related to prior periods
|
(3,940
|
)
|
-
|
(3,940
|
)
|
|||||||
Interest expense recognized
|
-
|
9,200
|
9,200
|
|||||||||
Audit payments
|
(2,960
|
)
|
(100
|
)
|
(3,060
|
)
|
||||||
Reductions as a result of the lapse of the statute of
|
||||||||||||
limitations
|
-
|
-
|
-
|
|||||||||
Balance, December 31, 2014
|
$
|
148,590
|
$
|
37,270
|
$
|
185,860
|
2014
|
2013
|
2012
|
||||||||||
Net realized gains on securities
|
$
|
30,686
|
$
|
245,262
|
$
|
592,978
|
||||||
Write-down of investments (a)
|
(111
|
)
|
(1,621
|
)
|
(2,461
|
)
|
||||||
Other
|
(181
|
)
|
316
|
64
|
||||||||
$
|
30,394
|
$
|
243,957
|
$
|
590,581
|
(a)
|
Consists of provisions to write down investments resulting from declines in fair values believed to be other than temporary.
|
2014
|
2013
|
2012
|
||||||||||
Manufacturing revenues
|
$
|
379,274
|
$
|
310,624
|
$
|
252,752
|
||||||
Dividend income
|
7,379
|
5,553
|
5,954
|
|||||||||
Income from associated companies classified as other revenues
|
90,242
|
92,180
|
–
|
|||||||||
Revenues of oil and gas exploration and production businesses
|
19,373
|
–
|
–
|
|||||||||
Gain on sale of equity interest
|
22,714
|
–
|
–
|
|||||||||
Income from FMG Note including gain recognized on redemption
|
–
|
–
|
642,993
|
|||||||||
Rental income
|
5,877
|
13,158
|
11,725
|
|||||||||
Winery revenues
|
–
|
8,301
|
47,801
|
|||||||||
Other
|
45,606
|
55,676
|
21,676
|
|||||||||
$
|
570,465
|
$
|
485,492
|
$
|
982,901
|
2014
|
2013
|
2012
|
||||||||||
Numerator for earnings (loss) per share:
|
||||||||||||
Net income attributable to Leucadia
|
||||||||||||
National Corporation common shareholders
|
$
|
204,306
|
$
|
369,240
|
$
|
854,466
|
||||||
Less: Allocation of earnings to participating securities (1)
|
(4,761
|
)
|
(4,919
|
)
|
–
|
|||||||
Net income attributable to Leucadia
|
||||||||||||
National Corporation common shareholders for
|
||||||||||||
basic earnings (loss) per share
|
199,545
|
364,321
|
854,466
|
|||||||||
Less: Adjustment to allocation of earnings to participating securities related to diluted shares (1)
|
(75
|
)
|
(110
|
)
|
–
|
|||||||
Mandatorily redeemable convertible preferred share
|
||||||||||||
dividends
|
–
|
3,397
|
–
|
|||||||||
Interest on 3.75% Convertible Notes
|
739
|
2,635
|
2,626
|
|||||||||
Net income attributable to Leucadia
|
||||||||||||
National Corporation common shareholders for
|
||||||||||||
diluted earnings (loss) per share
|
$
|
200,209
|
$
|
370,243
|
$
|
857,092
|
||||||
Denominator for earnings (loss) per share:
|
||||||||||||
Denominator for basic earnings (loss) per share –
|
||||||||||||
weighted average shares
|
371,889
|
339,673
|
244,583
|
|||||||||
Stock options
|
29
|
55
|
–
|
|||||||||
Warrants
|
–
|
–
|
–
|
|||||||||
Mandatorily redeemable convertible preferred shares
|
–
|
3,468
|
–
|
|||||||||
3.875% Convertible Senior Debentures
|
–
|
–
|
–
|
|||||||||
3.75% Convertible Notes
|
1,415
|
4,538
|
4,331
|
|||||||||
Denominator for diluted earnings (loss) per share
|
373,333
|
347,734
|
248,914
|
(1)
|
Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Net losses are not allocated to participating securities. Participating securities represent restricted stock and RSUs for which requisite service has not yet been rendered and amounted to weighted average shares of 9,040,900 and 9,353,400 for the years ended December 31, 2014 and 2013, respectively. Dividends declared on participating securities during the years ended December 31, 2014 and 2013 were $2.2 million and $2.8 million, respectively. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
|
2015
|
$
|
67,549
|
||
2016
|
70,453
|
|||
2017
|
67,300
|
|||
2018
|
62,641
|
|||
2019
|
59,434
|
|||
Thereafter
|
453,842
|
|||
781,219
|
||||
Less: sublease income
|
(8,308
|
)
|
||
$
|
772,911
|
|
Expected Maturity Date
|
|||||||||||||||||||||||
|
2015
|
2016
|
2017
and
2018
|
2019
and
2020
|
2021
and
Later
|
Maximum
Payout
|
||||||||||||||||||
Equity commitments (1)
|
$
|
–
|
$
|
9.3
|
$
|
.8
|
$
|
–
|
$
|
216.3
|
$
|
226.4
|
||||||||||||
Loan commitments (1)
|
50.7
|
440.2
|
283.1
|
20.7
|
.2
|
794.9
|
||||||||||||||||||
Mortgage-related and other purchase commitments
|
1,058.5
|
1,165.8
|
117.6
|
–
|
–
|
2,341.9
|
||||||||||||||||||
Forward starting reverse repos and repos
|
5,127.2
|
–
|
–
|
–
|
–
|
5,127.2
|
||||||||||||||||||
Other unfunded commitments (1)
|
6.3
|
–
|
–
|
–
|
23.0
|
29.3
|
||||||||||||||||||
|
$
|
6,242.7
|
$
|
1,615.3
|
$
|
401.5
|
$
|
20.7
|
$
|
239.5
|
$
|
8,519.7
|
(1)
|
Equity, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however available on demand.
|
Credit Ratings
|
0 - 12
Months |
1 - 5
Years |
Greater
Than 5 Years |
Total
Corporate Lending Exposure (1) |
Corporate
Lending Exposure at Fair Value (2) |
Corporate
Lending Commitments (3) |
||||||||||||||||||
Investment grade
|
$
|
–
|
$
|
55.1
|
$
|
–
|
$
|
55.1
|
$
|
–
|
$
|
55.1
|
||||||||||||
Non-investment grade
|
–
|
191.3
|
–
|
191.3
|
18.9
|
172.4
|
||||||||||||||||||
Unrated
|
129.3
|
620.9
|
2.2
|
752.4
|
185.0
|
567.4
|
||||||||||||||||||
Total
|
$
|
129.3
|
$
|
867.3
|
$
|
2.2
|
$
|
998.8
|
$
|
203.9
|
$
|
794.9
|
(1) | Total corporate lending exposure represents the potential loss assuming the fair value of funded loans and lending commitments were zero. |
(2) | The corporate lending exposure at fair value includes $22.6 million of funded loans included in Trading assets and a $18.7 million net liability related to lending commitments recorded in Trading liabilities in the Consolidated Statement of Financial Condition as of December 31, 2014. |
(3) | Amounts represent the notional amount of unfunded lending commitments. |
|
Expected Maturity Date
|
|||||||||||||||||||||||
Guarantee Type
|
2015
|
2016
|
2017
and
2018
|
2019
and
2020
|
2021
and
Later
|
Notional/
Maximum
Payout
|
||||||||||||||||||
Derivative contracts – non-credit related
|
$
|
59,875.6
|
$
|
229.6
|
$
|
252.1
|
$
|
721.8
|
$
|
487.7
|
$
|
61,566.8
|
||||||||||||
Written derivative contracts – credit related
|
–
|
–
|
–
|
485.0
|
–
|
485.0
|
||||||||||||||||||
Total derivative contracts
|
$
|
59,875.6
|
$
|
229.6
|
$
|
252.1
|
$
|
1,206.8
|
$
|
487.7
|
$
|
62,051.8
|
|
External Credit Rating
|
|||||||||||||||||||||||||||
|
AAA/
Aaa
|
AA/
Aa
|
A
|
|
BBB/Baa
|
Below
Investment
Grade
|
Unrated
|
Notional/
Maximum
Payout
|
||||||||||||||||||||
Credit related derivative contracts:
|
||||||||||||||||||||||||||||
Index credit default swaps
|
$
|
480.0
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
–
|
$
|
480.0
|
||||||||||||||
Single name credit default swaps
|
–
|
–
|
–
|
5.0
|
–
|
–
|
5.0
|
|
Net Capital
|
Excess
Net Capital
|
||||||
Jefferies LLC
|
$
|
1,025,113
|
$
|
913,465
|
||||
Jefferies Execution
|
6,150
|
5,900
|
December 31, 2014
|
December 31, 2013
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Other Assets:
|
||||||||||||||||
Notes and loans receivable (a)
|
$
|
213,174
|
$
|
217,171
|
$
|
95,042
|
$
|
95,606
|
||||||||
Financial Liabilities:
|
||||||||||||||||
Short-term borrowings (b)
|
12,000
|
12,000
|
12,000
|
12,000
|
||||||||||||
Long-term debt (b)
|
8,527,929
|
8,806,700
|
8,180,865
|
8,230,191
|
(a) | Notes and loans receivable: The fair values are primarily measured using Level 2 and 3 inputs principally based on discounted future cash flows using market interest rates for similar instruments. |
(b) | Short-term borrowings and long-term debt: The fair values of short term borrowings are estimated to be the carrying amount. The fair values of non-variable rate debt are estimated using quoted prices and estimated rates that would be available for debt with similar terms. The fair value of variable rate debt is estimated to be the carrying amount. |
2014
|
2013
|
2012
|
||||||||||
Revenues and other income:
|
||||||||||||
Oil and gas drilling services
|
$
|
–
|
$
|
–
|
$
|
95,674
|
||||||
Gaming entertainment
|
67,739
|
114,844
|
119,330
|
|||||||||
Investment and other income
|
4,700
|
4,691
|
5,716
|
|||||||||
72,439
|
119,535
|
220,720
|
||||||||||
Expenses:
|
||||||||||||
Direct operating expenses:
|
||||||||||||
Oil and gas drilling services
|
–
|
–
|
79,143
|
|||||||||
Gaming entertainment
|
48,877
|
85,233
|
88,127
|
|||||||||
Compensation and benefits
|
4,503
|
19,534
|
24,409
|
|||||||||
Depreciation and amortization
|
5,208
|
8,919
|
28,475
|
|||||||||
Selling, general and other expenses
|
41,378
|
98,178
|
60,997
|
|||||||||
99,966
|
211,864
|
281,151
|
||||||||||
Loss from discontinued
|
||||||||||||
operations before income taxes
|
(27,527
|
)
|
(92,329
|
)
|
(60,431
|
)
|
||||||
Income tax (benefit)
|
(9,634
|
)
|
(32,303
|
)
|
(20,971
|
)
|
||||||
Loss from discontinued
|
||||||||||||
operations after income taxes
|
$
|
(17,893
|
)
|
$
|
(60,026
|
)
|
$
|
(39,460
|
)
|
2013
|
||||
Real estate
|
$
|
112,016
|
||
Investment in associated company
|
30,793
|
|||
Other, net
|
17,310
|
|||
$
|
160,119
|
2014
|
2013
|
2012
|
||||||||||
(In thousands)
|
||||||||||||
Net Revenues:
|
||||||||||||
Reportable Segments:
|
||||||||||||
Jefferies
|
$
|
2,986,325
|
$
|
2,134,002
|
$
|
–
|
||||||
National Beef
|
7,832,424
|
7,487,724
|
7,480,934
|
|||||||||
Corporate and other
|
60,720
|
50,190
|
67,039
|
|||||||||
Total net revenues related to reportable
|
||||||||||||
segments
|
10,879,469
|
9,671,916
|
7,547,973
|
|||||||||
All other
|
607,016
|
753,830
|
1,856,611
|
|||||||||
Total consolidated net revenues
|
$
|
11,486,485
|
$
|
10,425,746
|
$
|
9,404,584
|
||||||
Pre-tax income (loss) from continuing
operations:
|
||||||||||||
Reportable Segments:
|
||||||||||||
Jefferies
|
$
|
358,396
|
$
|
260,984
|
$
|
–
|
||||||
National Beef
|
(40,303
|
)
|
(42,358
|
)
|
59,048
|
|||||||
Corporate and other
|
(144,508
|
)
|
(91,917
|
)
|
(122,476
|
)
|
||||||
Pre-tax income (loss) from continuing
|
||||||||||||
operations related to reportable segments
|
173,585
|
126,709
|
(63,428
|
)
|
||||||||
All other
|
305,752
|
491,093
|
1,585,607
|
|||||||||
Parent Company interest
|
(98,115
|
)
|
(72,217
|
)
|
(80,150
|
)
|
||||||
Total consolidated pre-tax income from
|
||||||||||||
continuing operations
|
$
|
381,222
|
$
|
545,585
|
$
|
1,442,029
|
||||||
Depreciation and amortization expenses:
|
||||||||||||
Reportable Segments:
|
||||||||||||
Jefferies
|
$
|
78,566
|
$
|
59,631
|
$
|
–
|
||||||
National Beef
|
85,305
|
88,483
|
83,063
|
|||||||||
Corporate and other
|
5,627
|
9,924
|
12,785
|
|||||||||
Total depreciation and amortization
|
||||||||||||
expenses related to reportable segments
|
169,498
|
158,038
|
95,848
|
|||||||||
All other
|
16,495
|
9,387
|
20,540
|
|||||||||
Total consolidated depreciation and
|
||||||||||||
amortization expenses
|
$
|
185,993
|
$
|
167,425
|
$
|
116,388
|
||||||
Identifiable assets employed:
|
||||||||||||
Reportable Segments:
|
||||||||||||
Jefferies (1)
|
$
|
44,563,808
|
$
|
40,168,572
|
$
|
–
|
||||||
National Beef
|
1,718,521
|
1,703,662
|
1,797,152
|
|||||||||
Corporate and other
|
3,192,877
|
4,495,819
|
3,958,327
|
|||||||||
Identifiable assets employed related to
|
||||||||||||
reportable segments
|
49,475,206
|
46,368,053
|
5,755,479
|
|||||||||
All other
|
2,209,275
|
942,260
|
2,786,165
|
|||||||||
Loans to and investments in associated
|
||||||||||||
companies
|
939,427
|
556,468
|
807,474
|
|||||||||
Total consolidated assets
|
$
|
52,623,908
|
$
|
47,866,781
|
$
|
9,349,118
|
For the period
from the
|
||||||||
For the year ended
|
Jefferies acquisition through
|
|||||||
December 31, 2014
|
December 31, 2013
|
|||||||
Americas (2)
|
$
|
2,257,870
|
$
|
1,645,110
|
||||
Europe (3)
|
634,358
|
441,795
|
||||||
Asia
|
94,097
|
47,097
|
||||||
$
|
2,986,325
|
$
|
2,134,002
|
(1)
|
At December 31, 2014 and 2013, includes $773.1 million and $701.9 million, respectively, of Jefferies loans to and investments in associated companies and $399.6 million and $524.8 million, respectively, of Jefferies deferred tax asset, net.
|
(2)
|
Substantially all relates to United States results.
|
(3)
|
Substantially all relates to United Kingdom results.
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
Quarter
|
Quarter
|
Quarter
|
Quarter
|
|||||||||||||
(In thousands, except per share amounts)
|
||||||||||||||||
2014
|
||||||||||||||||
Net revenues
|
$
|
2,942,524
|
$
|
2,851,963
|
$
|
3,003,643
|
$
|
2,688,355
|
||||||||
Income (loss) from continuing operations
|
$
|
100,846
|
$
|
70,190
|
$
|
58,253
|
$
|
(14,038
|
)
|
|||||||
Income (loss) from discontinued operations, net of taxes
|
$
|
(8,909
|
)
|
$
|
(4,240
|
)
|
$
|
(5,676
|
)
|
$
|
932
|
|||||
Gain (loss) on disposal of discontinued operations, net of taxes
|
$
|
-
|
$
|
500
|
$
|
7,685
|
$
|
(6,518
|
)
|
|||||||
Net (income) loss attributable to the noncontrolling interest
|
$
|
(2,537
|
)
|
$
|
912
|
$
|
1,058
|
$
|
1,294
|
|||||||
Net (income) loss attributable to the redeemable noncontrolling interests
|
$
|
5,932
|
$
|
(1,273
|
)
|
$
|
(5,625
|
)
|
$
|
9,582
|
||||||
Preferred stock dividends
|
$
|
(1,016
|
)
|
$
|
(1,015
|
)
|
$
|
(1,016
|
)
|
$
|
(1,015
|
)
|
||||
Net income (loss) attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders
|
$
|
94,316
|
$
|
65,074
|
$
|
54,679
|
$
|
(9,763
|
)
|
|||||||
Basic earnings (loss) per common share attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders:
|
||||||||||||||||
Income (loss) from continuing operations
|
$
|
.27
|
$
|
.18
|
$
|
.14
|
$
|
(.01
|
)
|
|||||||
Income (loss) from discontinued operations
|
(.02
|
)
|
(.01
|
)
|
(.02
|
)
|
-
|
|||||||||
Gain (loss) on disposal of discontinued operations
|
-
|
-
|
.02
|
(.02
|
)
|
|||||||||||
Net income (loss)
|
$
|
.25
|
$
|
.17
|
$
|
.14
|
$
|
(.03
|
)
|
|||||||
Number of shares used in calculation
|
368,487
|
371,979
|
373,347
|
373,617
|
||||||||||||
Diluted earnings (loss) per common share attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders:
|
||||||||||||||||
Income (loss) from continuing operations
|
$
|
.27
|
$
|
.18
|
$
|
.14
|
$
|
(.01
|
)
|
|||||||
Income (loss) from discontinued operations
|
(.02
|
)
|
(.01
|
)
|
(.02
|
)
|
-
|
|||||||||
Gain (loss) on disposal of discontinued operations
|
-
|
-
|
.02
|
(.02
|
)
|
|||||||||||
Net income (loss)
|
$
|
.25
|
$
|
.17
|
$
|
.14
|
$
|
(.03
|
)
|
|||||||
Number of shares used in calculation
|
377,348
|
373,179
|
373,375
|
373,617
|
||||||||||||
2013
|
||||||||||||||||
Net revenues
|
$
|
2,297,421
|
$
|
2,675,449
|
$
|
2,532,052
|
$
|
2,920,824
|
||||||||
Income from continuing operations
|
$
|
310,037
|
$
|
67,918
|
$
|
29,974
|
$
|
1,175
|
||||||||
Loss from discontinued operations, net of taxes
|
$
|
(9,423
|
)
|
$
|
(9,767
|
)
|
$
|
(19,751
|
)
|
$
|
(21,085
|
)
|
||||
Gain (loss) on disposal of discontinued operations, net of taxes
|
$
|
(325
|
)
|
$
|
385
|
$
|
4,160
|
$
|
8,895
|
|||||||
Net (income) loss attributable to the noncontrolling interest
|
$
|
622
|
$
|
729
|
$
|
(253
|
)
|
$
|
64
|
|||||||
Net (income) loss attributable to the redeemable noncontrolling interests
|
$
|
4,531
|
$
|
(5,638
|
)
|
$
|
(10,132
|
)
|
$
|
20,521
|
||||||
Preferred stock dividends
|
$
|
(339
|
)
|
$
|
(1,015
|
)
|
$
|
(1,027
|
)
|
$
|
(1,016
|
)
|
||||
Net income attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders
|
$
|
305,103
|
$
|
52,612
|
$
|
2,971
|
$
|
8,554
|
||||||||
Basic earnings (loss) per common share attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders:
|
||||||||||||||||
Income from continuing operations
|
$
|
1.13
|
$
|
.16
|
$
|
.05
|
$
|
.05
|
||||||||
Loss from discontinued operations
|
(.03
|
)
|
(.02
|
)
|
(.05
|
)
|
(.05
|
)
|
||||||||
Gain (loss) on disposal of discontinued operations
|
-
|
-
|
.01
|
.02
|
||||||||||||
Net income
|
$
|
1.10
|
$
|
.14
|
$
|
.01
|
$
|
.02
|
||||||||
Number of shares used in calculation
|
275,735
|
367,752
|
367,641
|
368,146
|
||||||||||||
Diluted earnings (loss) per common share attributable to
|
||||||||||||||||
Leucadia National Corporation common shareholders:
|
||||||||||||||||
Income from continuing operations
|
$
|
1.11
|
$
|
.16
|
$
|
.05
|
$
|
.05
|
||||||||
Loss from discontinued operations
|
(.03
|
)
|
(.02
|
)
|
(.05
|
)
|
(.05
|
)
|
||||||||
Gain (loss) on disposal of discontinued operations
|
-
|
-
|
.01
|
.02
|
||||||||||||
Net income
|
$
|
1.08
|
$
|
.14
|
$
|
.01
|
$
|
.02
|
||||||||
Number of shares used in calculation
|
281,587
|
367,837
|
367,687
|
368,262
|
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Member of Jefferies Group LLC
In our opinion, the accompanying consolidated statement of financial condition as of November 30, 2014 and 2013 and the related consolidated statements of earnings, of comprehensive income, of changes in equity, and of cash flows for the year ended November 30, 2014 and the nine months ended November 30, 2013 present fairly, in all material respects, the financial position of Jefferies Group LLC and its subsidiaries (Successor company) at November 30, 2014 and 2013 and the results of their operations and their cash flows for the year ended November 30, 2014 and the nine months ended November 30, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of November 30, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Tredway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 28, 2015
JEF-1
Table of Contents
Report of Independent Registered Public Accounting Firm
To Board of Directors and Shareholders of Jefferies Group, Inc.
In our opinion, the consolidated statements of earnings, of comprehensive income, of changes in equity and of cash flows of Jefferies Group, Inc. and its subsidiaries (Predecessor company) for the three months ended February 28, 2013 present fairly, in all material respects, the results of operations and cash flows of Jefferies Group, Inc. and its subsidiaries for the three months ended February 28, 2013, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 28,2015
JEF-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Member of Jefferies Group LLC:
We have audited the consolidated statement of earnings, comprehensive income, stockholders’ equity, and cash flow of Jefferies Group LLC (formerly Jefferies Group, Inc.) and subsidiaries (the “Company”) for the year ended November 30, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the results of Jefferies Group LLC operations and cash flows for the years ended November 30, 2012, in conformity with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
New York, New York
January 28, 2013 (January 28, 2014 as to the effects discussed in Note 1—Immaterial Prior Year Adjustments included in the Annual Report on Form 10-K of Jefferies Group LLC and its subsidiaries for the year ended November 30, 2013)
JEF-3
Table of Contents
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands)
November 30, | November 30, | |||||||
2014 | 2013 | |||||||
ASSETS |
||||||||
Cash and cash equivalents ($178 and $176 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
$ | 4,079,968 | $ | 3,561,119 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations |
3,444,674 | 3,616,602 | ||||||
Financial instruments owned, at fair value, (including securities pledged of $14,794,488 and $13,253,537 at November 30, 2014 and November 30, 2013, respectively; and $62,990 and $97,912 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
18,636,612 | 16,650,043 | ||||||
Investments in managed funds |
74,365 | 57,285 | ||||||
Loans to and investments in related parties |
773,141 | 701,873 | ||||||
Securities borrowed |
6,853,103 | 5,359,846 | ||||||
Securities purchased under agreements to resell |
3,926,858 | 3,746,920 | ||||||
Securities received as collateral |
5,418 | 11,063 | ||||||
Receivables: |
||||||||
Brokers, dealers and clearing organizations |
2,164,006 | 2,207,978 | ||||||
Customers |
1,250,520 | 958,246 | ||||||
Fees, interest and other ($363 and $0 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
262,437 | 251,072 | ||||||
Premises and equipment |
251,957 | 202,467 | ||||||
Goodwill |
1,662,636 | 1,722,346 | ||||||
Other assets ($0 and $2,275 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
1,131,953 | 1,130,136 | ||||||
|
|
|
|
|||||
Total assets |
$ | 44,517,648 | $ | 40,176,996 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Short-term borrowings |
$ | 12,000 | $ | 12,000 | ||||
Financial instruments sold, not yet purchased, at fair value |
8,881,268 | 7,271,613 | ||||||
Collateralized financings: |
||||||||
Securities loaned |
2,598,487 | 2,506,122 | ||||||
Securities sold under agreements to repurchase |
10,672,157 | 10,779,845 | ||||||
Other secured financings ($597,999 and $226,000 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
605,824 | 234,711 | ||||||
Obligation to return securities received as collateral |
5,418 | 11,063 | ||||||
Payables: |
||||||||
Brokers, dealers and clearing organizations |
2,280,103 | 1,320,700 | ||||||
Customers |
6,241,965 | 5,169,321 | ||||||
Accrued expenses and other liabilities ($589 and $706 at November 30, 2014 and November 30, 2013, respectively, related to consolidated VIEs) |
1,273,378 | 1,217,141 | ||||||
Long-term debt |
6,483,617 | 6,232,806 | ||||||
|
|
|
|
|||||
Total liabilities |
39,054,217 | 34,755,322 | ||||||
|
|
|
|
|||||
EQUITY |
||||||||
Member’s paid-in capital |
5,439,256 | 5,280,420 | ||||||
Accumulated other comprehensive income: |
||||||||
Currency translation adjustments |
(9,654 | ) | 21,341 | |||||
Additional minimum pension liability |
(5,019 | ) | 2,759 | |||||
|
|
|
|
|||||
Total accumulated other comprehensive income |
(14,673 | ) | 24,100 | |||||
|
|
|
|
|||||
Total member’s equity |
5,424,583 | 5,304,520 | ||||||
Noncontrolling interests |
38,848 | 117,154 | ||||||
|
|
|
|
|||||
Total equity |
5,463,431 | 5,421,674 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 44,517,648 | $ | 40,176,996 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
JEF-4
Table of Contents
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Revenues: |
||||||||||||||||
Commissions |
$ | 668,801 | $ | 472,596 | $ | 146,240 | $ | 548,437 | ||||||||
Principal transactions |
532,292 | 399,091 | 300,278 | 1,035,974 | ||||||||||||
Investment banking |
1,529,274 | 1,003,517 | 288,278 | 1,125,883 | ||||||||||||
Asset management fees and investment income from managed funds |
17,047 | 36,093 | 10,883 | 26,966 | ||||||||||||
Interest |
1,019,970 | 714,248 | 249,277 | 1,031,839 | ||||||||||||
Other |
78,881 | 94,195 | 27,004 | 164,974 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenues |
3,846,265 | 2,719,740 | 1,021,960 | 3,934,073 | ||||||||||||
Interest expense |
856,127 | 579,059 | 203,416 | 872,421 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net revenues |
2,990,138 | 2,140,681 | 818,544 | 3,061,652 | ||||||||||||
Interest on mandatorily redeemable preferred interests of consolidated subsidiaries |
— | 3,368 | 10,961 | 42,883 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net revenues, less interest on mandatorily redeemable preferred interests of consolidated subsidiaries |
2,990,138 | 2,137,313 | 807,583 | 3,018,769 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Non-interest expenses: |
||||||||||||||||
Compensation and benefits |
1,698,530 | 1,213,908 | 474,217 | 1,770,798 | ||||||||||||
Non-compensation expenses: |
||||||||||||||||
Floor brokerage and clearing fees |
215,329 | 150,774 | 46,155 | 183,013 | ||||||||||||
Technology and communications |
268,212 | 193,683 | 59,878 | 244,511 | ||||||||||||
Occupancy and equipment rental |
107,767 | 86,701 | 24,309 | 97,397 | ||||||||||||
Business development |
106,984 | 63,115 | 24,927 | 95,330 | ||||||||||||
Professional services |
109,601 | 72,802 | 24,135 | 73,427 | ||||||||||||
Bad debt provision |
55,355 | 179 | 1,945 | 1,152 | ||||||||||||
Goodwill impairment |
54,000 | — | — | — | ||||||||||||
Other |
71,339 | 91,856 | 12,530 | 61,346 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-compensation expenses |
988,587 | 659,110 | 193,879 | 756,176 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-interest expenses |
2,687,117 | 1,873,018 | 668,096 | 2,526,974 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings before income taxes |
303,021 | 264,295 | 139,487 | 491,795 | ||||||||||||
Income tax expense |
142,061 | 94,686 | 48,645 | 168,646 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings |
160,960 | 169,609 | 90,842 | 323,149 | ||||||||||||
Net earnings attributable to noncontrolling interests |
3,400 | 8,418 | 10,704 | 40,740 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net earnings attributable to Jefferies Group LLC/common stockholders |
$ | 157,560 | $ | 161,191 | $ | 80,138 | $ | 282,409 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Earnings per common share: |
||||||||||||||||
Basic |
N/A | N/A | $ | 0.35 | $ | 1.23 | ||||||||||
Diluted |
N/A | N/A | $ | 0.35 | $ | 1.22 | ||||||||||
Dividends declared per common share |
N/A | N/A | $ | 0.075 | $ | 0.300 | ||||||||||
Weighted average common shares: |
||||||||||||||||
Basic |
N/A | N/A | 213,732 | 215,989 | ||||||||||||
Diluted |
N/A | N/A | 217,844 | 220,101 |
See accompanying notes to consolidated financial statements.
JEF-5
Table of Contents
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Net earnings |
$ | 160,960 | $ | 169,609 | $ | 90,842 | $ | 323,149 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss), net of tax: |
||||||||||||||||
Currency translation adjustments |
(30,995 | ) | 21,341 | (10,018 | ) | 1,511 | ||||||||||
Minimum pension liability adjustments, net of tax (1) |
(7,778 | ) | 2,759 | — | (4,158 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total other comprehensive income (loss), net of tax (2) |
(38,773 | ) | 24,100 | (10,018 | ) | (2,647 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income: |
122,187 | 193,709 | 80,824 | 320,502 | ||||||||||||
Net earnings attributable to noncontrolling interests |
3,400 | 8,418 | 10,704 | 40,740 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income attributable to Jefferies Group LLC/common stockholders |
$ | 118,787 | $ | 185,291 | $ | 70,120 | $ | 279,762 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes income tax benefit of $0.5 million, $2.5 million, $-0- and $0.2 million for the year ended November 30, 2014, nine months ended November 30, 2013, three months ended February 28, 2013, and for the year ended November 30, 2012. |
(2) | None of the components of other comprehensive income (loss) are attributable to noncontrolling interests. |
See accompanying notes to consolidated financial statements.
JEF-6
Table of Contents
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share amount)
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Common stock, par value $0.0001 per share |
|
|||||||||||||||
Balance, beginning of period |
$ | — | $ | — | $ | 20 | $ | 20 | ||||||||
Issued |
— | — | 1 | 1 | ||||||||||||
Retired |
— | — | — | (1 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | — | $ | — | $ | 21 | $ | 20 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Member’s paid-in capital |
||||||||||||||||
Balance, beginning of period |
$ | 5,280,420 | $ | 4,754,101 | $ | — | $ | — | ||||||||
Contributions |
— | 362,255 | — | — | ||||||||||||
Net earnings to Jefferies Group LLC |
157,560 | 161,191 | — | — | ||||||||||||
Tax benefit for issuance of share-based awards |
1,276 | 2,873 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 5,439,256 | $ | 5,280,420 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Additional paid-in capital |
||||||||||||||||
Balance, beginning of period |
$ | — | $ | — | $ | 2,219,959 | $ | 2,207,410 | ||||||||
Benefit plan share activity (1) |
— | — | 3,138 | 12,076 | ||||||||||||
Share-based expense, net of forfeitures and clawbacks |
— | — | 22,288 | 83,769 | ||||||||||||
Proceeds from exercise of stock options |
— | — | 57 | 104 | ||||||||||||
Acquisitions and contingent consideration |
— | — | 2,535 | — | ||||||||||||
Tax (deficiency) benefit for issuance of share-based awards |
— | — | (17,965 | ) | 19,789 | |||||||||||
Equity component of convertible debt, net of tax |
— | — | — | (427 | ) | |||||||||||
Dividend equivalents on share-based plans |
— | — | 1,418 | 6,531 | ||||||||||||
Retirement of treasury stock |
— | — | — | (109,293 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | — | $ | — | $ | 2,231,430 | $ | 2,219,959 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Retained earnings |
||||||||||||||||
Balance, beginning of period |
$ | — | $ | — | $ | 1,281,855 | $ | 1,067,858 | ||||||||
Net earnings to common shareholders |
— | — | 80,138 | 282,409 | ||||||||||||
Dividends |
— | — | (17,217 | ) | (68,412 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | — | $ | — | $ | 1,344,776 | $ | 1,281,855 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Accumulated other comprehensive income (loss) (2) (3) |
||||||||||||||||
Balance, beginning of period |
$ | 24,100 | $ | — | $ | (53,137 | ) | $ | (50,490 | ) | ||||||
Currency adjustment |
(30,995 | ) | 21,341 | (10,018 | ) | 1,511 | ||||||||||
Pension adjustment, net of tax |
(7,778 | ) | 2,759 | — | (4,158 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | (14,673 | ) | $ | 24,100 | $ | (63,155 | ) | $ | (53,137 | ) | |||||
|
|
|
|
|
|
|
|
|||||||||
Treasury stock, at cost |
||||||||||||||||
Balance, beginning of period |
$ | — | $ | — | $ | (12,682 | ) | $ | (486 | ) | ||||||
Purchases |
— | — | (166,541 | ) | (113,562 | ) | ||||||||||
Returns / forfeitures |
— | — | (1,922 | ) | (7,928 | ) | ||||||||||
Retirement of treasury stock |
— | — | — | 109,294 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | — | $ | — | $ | (181,145 | ) | $ | (12,682 | ) | ||||||
|
|
|
|
|
|
|
|
|||||||||
Total member’s / common stockholders’ equity |
$ | 5,424,583 | $ | 5,304,520 | $ | 3,331,927 | $ | 3,436,015 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Noncontrolling interests |
||||||||||||||||
Balance, beginning of period |
$ | 117,154 | $ | 356,180 | $ | 346,738 | $ | 312,663 | ||||||||
Net earnings attributable to noncontrolling interests |
3,400 | 8,418 | 10,704 | 40,740 | ||||||||||||
Contributions |
39,075 | 100,210 | — | — | ||||||||||||
Distributions |
— | (25 | ) | (1,262 | ) | (13,570 | ) | |||||||||
Redemptions |
— | (347,629 | ) | — | — | |||||||||||
(Deconsolidation) Consolidation of asset management entity |
(120,781 | ) | — | — | 6,905 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 38,848 | $ | 117,154 | $ | 356,180 | $ | 346,738 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total equity |
$ | 5,463,431 | $ | 5,421,674 | $ | 3,688,107 | $ | 3,782,753 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes grants related to the Incentive Plan, Deferred Compensation Plan and Directors’ Plan. |
(2) | The components of other comprehensive income (loss) are attributable to Jefferies Group LLC (formerly Jefferies Group, Inc.). None of the components of other comprehensive income (loss) are attributable to noncontrolling interests. |
(3) | There were no reclassifications out of Accumulated other comprehensive income during the year ended November 30, 2014 and nine months ended November 30, 2013. |
See accompanying notes to consolidated financial statements.
JEF-7
Table of Contents
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net earnings |
$ | 160,960 | $ | 169,609 | $ | 90,842 | $ | 323,149 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities: |
||||||||||||||||
Depreciation and amortization |
691 | (2,509 | ) | 17,393 | 72,692 | |||||||||||
Goodwill impairment |
54,000 | — | — | — | ||||||||||||
Gain on repurchase of long-term debt |
— | — | — | (9,898 | ) | |||||||||||
Gain on sale of mortgage servicing rights |
— | — | — | (23,826 | ) | |||||||||||
Interest on mandatorily redeemable preferred interests of consolidated subsidiaries |
— | 3,368 | 10,961 | 42,883 | ||||||||||||
Accruals related to various benefit plans and stock issuances, net of forfeitures |
— | — | 23,505 | 87,918 | ||||||||||||
Deferred income taxes |
122,195 | 31,284 | 30,835 | 84,643 | ||||||||||||
Income on loans to and investments in related parties |
(90,243 | ) | (92,181 | ) | — | — | ||||||||||
Distributions received on investments in related parties |
53,985 | 37,742 | — | — | ||||||||||||
Other adjustments |
(78,064 | ) | (14,740 | ) | (1,154 | ) | (7,462 | ) | ||||||||
Net change in assets and liabilities: |
||||||||||||||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations |
166,108 | 113,754 | 352,891 | (738,117 | ) | |||||||||||
Receivables: |
||||||||||||||||
Brokers, dealers and clearing organizations |
11,872 | 506,774 | (1,225,840 | ) | (101,903 | ) | ||||||||||
Customers |
(294,412 | ) | (170,286 | ) | 67,626 | 200,679 | ||||||||||
Fees, interest and other |
(12,062 | ) | (29,388 | ) | (29,149 | ) | (33,694 | ) | ||||||||
Securities borrowed |
(1,497,438 | ) | (41,678 | ) | (224,557 | ) | 75,379 | |||||||||
Financial instruments owned |
(2,243,053 | ) | (200,974 | ) | 229,394 | 52,737 | ||||||||||
Loans to and investments in related parties |
— | — | (197,166 | ) | 7,302 | |||||||||||
Investments in managed funds |
13,473 | 2,674 | (2,213 | ) | 12,977 | |||||||||||
Securities purchased under agreements to resell |
(200,568 | ) | (156,197 | ) | (224,418 | ) | (463,829 | ) | ||||||||
Other assets |
(146,114 | ) | 47,296 | (5,346 | ) | (22,178 | ) | |||||||||
Payables: |
||||||||||||||||
Brokers, dealers and clearing organizations |
968,615 | (532,255 | ) | (1,018,241 | ) | (82,031 | ) | |||||||||
Customers |
1,089,423 | (224,772 | ) | (124,233 | ) | 804,539 | ||||||||||
Securities loaned |
95,607 | 600,539 | (28,138 | ) | 227,737 | |||||||||||
Financial instruments sold, not yet purchased |
1,832,930 | (2,511,777 | ) | 2,327,667 | 801,971 | |||||||||||
Securities sold under agreements to repurchase |
(84,303 | ) | 2,794,412 | (197,493 | ) | (1,439,130 | ) | |||||||||
Accrued expenses and other liabilities |
69,459 | 414,515 | (267,336 | ) | 316,367 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by operating activities |
(6,939 | ) | 745,210 | (394,170 | ) | 188,905 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash flows from investing activities: |
||||||||||||||||
Contributions to loans to and investments in related parties |
(2,786,394 | ) | (2,241,232 | ) | — | — | ||||||||||
Distributions from loans to and investments in related parties |
2,751,384 | 2,360,691 | — | — | ||||||||||||
Net payments on premises and equipment |
(110,536 | ) | (48,534 | ) | (10,706 | ) | (63,236 | ) | ||||||||
Cash received in connection with acquisition during the period, net of cash acquired |
— | — | — | 2,257 | ||||||||||||
Cach disposed in connection with disposal of reporting units, net of cash received |
— | (4,939 | ) | — | — | |||||||||||
Cash received from sales of mortgage servicing rights |
— | — | — | 30,851 | ||||||||||||
(Deconsolidation) consolidation of asset management entity |
(137,856 | ) | — | — | 9,711 | |||||||||||
Cash received from contingent consideration |
6,253 | 3,796 | 1,203 | 4,104 | ||||||||||||
Cash paid from contingent consideration |
— | — | — | (1,172 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net cash (used in) provided by investing activities |
(277,149 | ) | 69,782 | (9,503 | ) | (17,485 | ) | |||||||||
|
|
|
|
|
|
|
|
Continued on next page.
JEF-8Table of Contents
JEFFERIES GROUP LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED
(In thousands)
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Cash flows from financing activities: |
||||||||||||||||
Excess tax benefits from the issuance of share-based awards |
$ | 1,921 | $ | 3,054 | $ | 5,682 | $ | 31,413 | ||||||||
Proceeds from short-term borrowings |
18,965,163 | 13,623,650 | 6,744,000 | 12,912,063 | ||||||||||||
Payments on short-term borrowings |
(18,965,163 | ) | (13,711,650 | ) | (6,794,000 | ) | (12,819,557 | ) | ||||||||
Proceeds from secured credit facility |
2,819,000 | 920,000 | 900,000 | 1,325,000 | ||||||||||||
Payments on secured credit facility |
(2,849,000 | ) | (980,000 | ) | (990,007 | ) | (1,075,000 | ) | ||||||||
Repayment of long-term debt |
(250,000 | ) | — | — | (253,232 | ) | ||||||||||
Net proceeds from other secured financings |
371,113 | 114,711 | 60,000 | — | ||||||||||||
Payments on repurchase of long-term debt |
— | — | — | (1,435 | ) | |||||||||||
Payments on mandatorily redeemable preferred interest of consolidated subsidiaries |
— | (64 | ) | (61 | ) | (5,366 | ) | |||||||||
Payments on repurchase of common stock |
— | — | (166,541 | ) | (113,562 | ) | ||||||||||
Payments on dividends |
— | — | (15,799 | ) | (61,881 | ) | ||||||||||
Proceeds from exercise of stock options, not including tax benefits |
— | — | 57 | 104 | ||||||||||||
Net proceeds from issuance of senior notes, net of issuance costs |
681,222 | — | 991,469 | 201,010 | ||||||||||||
Proceeds from contributions of noncontrolling interests |
39,075 | 100,210 | — | — | ||||||||||||
Payments on distributions to noncontrolling interests |
— | (347,654 | ) | (1,262 | ) | (13,570 | ) | |||||||||
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Net cash provided by (used in) financing activities |
813,331 | (277,743 | ) | 733,538 | 125,987 | |||||||||||
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Effect of exchange rate changes on cash and cash equivalents |
(10,394 | ) | 5,912 | (4,502 | ) | 1,391 | ||||||||||
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Net increase in cash and cash equivalents |
518,849 | 543,161 | 325,363 | 298,798 | ||||||||||||
Cash and cash equivalents at beginning of period |
3,561,119 | 3,017,958 | 2,692,595 | 2,393,797 | ||||||||||||
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Cash and cash equivalents at end of period |
$ | 4,079,968 | $ | 3,561,119 | $ | 3,017,958 | $ | 2,692,595 | ||||||||
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Supplemental disclosures of cash flow information: |
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Cash paid (received) during the period for: |
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Interest |
$ | 922,194 | $ | 638,657 | $ | 178,836 | $ | 869,354 | ||||||||
Income taxes paid (refunds), net |
120,703 | 55,251 | (34,054 | ) | 43,113 |
Noncash financing activities:
In connection with the transaction with Leucadia National Corporation, Jefferies Group LLC recorded accounting adjustments for the Leucadia Transaction, which resulted in changes to equity. Refer to Note 4, Leucadia and Related Transactions, for further details.
On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH to Jefferies Group, LLC. The contribution was recorded as a capital contribution and increased member’s equity by $362.3 million. Refer to Note 4, Leucadia and Related Transactions, for further details.
See accompanying notes to consolidated financial statements.
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JEFFERIES GROUP LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Note 1. Organization and Basis of Presentation
Organization
Jefferies Group LLC and its subsidiaries operate as a global full service, integrated securities and investment banking firm. Jefferies Group LLC was previously known as Jefferies Group, Inc., which on March 1, 2013 was converted into a limited liability company and renamed Jefferies Group LLC. In addition, certain subsidiaries of Jefferies Group, Inc. also converted into limited liability companies. The accompanying Consolidated Financial Statements therefore refer to Jefferies Group LLC and represent the accounts of Jefferies Group, Inc., as it was formerly known, and all our subsidiaries (together “we” or “us”). The subsidiaries of Jefferies Group LLC include Jefferies LLC (“Jefferies”), Jefferies Execution Services, Inc. (“Jefferies Execution”), Jefferies International Limited, Jefferies Bache Limited, Jefferies Hong Kong Limited, Jefferies Bache Financial Services, Inc., Jefferies Mortgage Funding, LLC and Jefferies Leveraged Credit Products, LLC and all other entities in which we have a controlling financial interest or are the primary beneficiary.
On March 1, 2013, Jefferies Group LLC, through a series of transactions, became an indirect wholly owned subsidiary of Leucadia National Corporation (“Leucadia”) (referred to herein as the “Leucadia Transaction”). Each outstanding share of Jefferies Group LLC was converted into 0.81 of a share of Leucadia common stock (the “Exchange Ratio”). Leucadia did not assume nor guarantee any of our outstanding debt securities. Our 3.875% Convertible Senior Debentures due 2029 are now convertible into Leucadia common shares at a price that reflects the Exchange Ratio and the 3.25% Series A Convertible Cumulative Preferred Stock of Jefferies Group, Inc. was exchanged for a comparable series of convertible preferred shares of Leucadia. Jefferies Group LLC continues to operate as a full-service investment banking firm and as the holding company of its various regulated and unregulated operating subsidiaries, retain a credit rating separate from Leucadia and remain a Securities and Exchange Commission (“SEC”) reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is also the Chief Executive Officer of Leucadia, as well as a Director of Leucadia. Brian P. Friedman, our Chairman of the Executive Committee, is also Leucadia’s President and a Director of Leucadia.
We operate in two business segments, Capital Markets and Asset Management. Capital Markets, which represents substantially our entire business, includes our securities, commodities, futures and foreign exchange trading and investment banking activities, which provides the research, sales, trading, origination and advisory effort for various equity, fixed income and advisory products and services. Asset Management provides investment management services to various private investment funds and separate accounts.
On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies (a broker-dealer in the United States of America (“U.S.”)), with Jefferies as the surviving entity. In addition, on April 1, 2013, we merged Jefferies High Yield Trading, LLC (our high yield trading broker-dealer) with Jefferies and our high yield activities are now conducted by Jefferies. In addition, during the three months ended May 31, 2013, we redeemed the third party interests in our high yield joint venture.
Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for financial information.
As more fully described in Note 4, Leucadia and Related Transactions, the Leucadia Transaction is accounted for using the acquisition method of accounting, which requires that the assets, including identifiable intangible assets, and liabilities of Jefferies Group LLC be recorded at their fair values. The application of the acquisition method of accounting has been pushed down and reflected in the financial statements of Jefferies Group LLC as a wholly-owned subsidiary of Leucadia. The application of push down accounting represents the termination of the prior reporting entity and the creation of a new reporting entity, which do not have the same bases of accounting. As a result, our consolidated financial statements are presented for periods subsequent to March 1, 2013 for the new reporting entity (the “Successor”), and before March 1, 2013 for the prior reporting entity (the “Predecessor.”) The Predecessor and Successor periods are separated by a vertical line to highlight the fact that the financial information for such periods has been prepared under two different cost bases of accounting.
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We have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, goodwill and intangible assets, the ability to realize deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.
Cash Flow Statement Presentation
Amounts relating to loans and investments in related parties are classified as components of investing activities on the Consolidated Statements of Cash Flows to conform to the presentation of our Parent company in connection with the establishment of a new accounting entity through the application of push down accounting. These amounts are classified by the Predecessor entity as operating activities for reporting periods prior to the Leucadia Transaction.
Consolidation
Our policy is to consolidate all entities in which we control by ownership a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity (“VIE”) for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third-party’s holding of equity interest is presented as Noncontrolling interests in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests is presented as Net earnings to noncontrolling interests in the Consolidated Statements of Earnings.
In situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under U.S. GAAP, with our portion of net earnings or gains and losses recorded within Other revenues or Principal transaction revenues, respectively. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. We act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or “kick-out” rights.
Intercompany accounts and transactions are eliminated in consolidation.
Immaterial Adjustments
We have made correcting adjustments (referred to as “adjustments”) to our financial statements at November 30, 2013. The first adjustment relates to a decrease of $88.7 million to Receivables from customers and a corresponding increase to Receivables from brokers, dealers and clearing organizations. The second adjustment relates to a decrease of $39.4 million to Payables from customers and a corresponding increase to Payables from brokers, dealers and clearing organizations. There was no change to Total assets or Total liabilities at November 30, 2013 as a result of these adjustments. The adjustments had the impact of increasing the Net change in Receivables: Brokers, dealers and clearing organizations by $170.5 million, decreasing the Net change in Receivables: Customers by $170.5 million, decreasing the Net change in Payables: Brokers, dealers and clearing organizations by $24.5 million, and increasing the Net change in Payables: Customers by $24.5 million on the Consolidated Statements of Cash Flows for the nine months ended November 30, 2013. The adjustments had the impact of decreasing the Net change in Receivables: Brokers, dealers and clearing organizations by $198.2 million, increasing the Net change in Receivables: Customers by $198.2 million, increasing the Net change in Payables: Brokers, dealers and clearing organizations by $13.1 million, and decreasing the Net change in Payables: Customers by $13.1 million on the Consolidated Statements of Cash Flows for the three months ended February, 2013. There was no impact on Net cash (used in) provided by operating activities on the Consolidated Statements of Cash Flows for the nine months ended November 30, 2013 and the three months ended February 28, 2013. These adjustments were made in order to classify amounts arising from unsettled securities transactions with other broker dealers. We do not believe these adjustments are material to our financial statements for any previously reported period.
Note 2. Summary of Significant Accounting Policies
Revenue Recognition Policies
Commissions. All customer securities transactions are reported on the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade-date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided
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by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are not the primary obligor for these arrangements, netted against commission revenues in the Consolidated Statements of Earnings. The commissions and related expenses on client transactions executed by Jefferies, a futures commission merchant (“FCM”), are recorded on a half-turn basis.
Principal Transactions. Financial instruments owned and Financial instruments sold, but not yet purchased (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transaction revenues in the Consolidated Statements of Earnings on a trade-date basis. Fees received on loans carried at fair value are also recorded within Principal transaction revenues.
Investment Banking. Underwriting revenues and fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Business development and Professional services expenses in the Consolidated Statements of Earnings.
Asset Management Fees and Investment Income From Managed Funds. Asset management fees and investment income from managed funds include revenues we earn from management, administrative and performance fees from funds and accounts managed by us, revenues from management and performance fees we earn from related-party managed funds and investment income from our investments in these funds. We earn fees in connection with management and investment advisory services performed for various funds and managed accounts. These fees are based on assets under management or an agreed upon notional amount and may include performance fees based upon the performance of the funds. Management and administrative fees are generally recognized over the period that the related service is provided. Generally, performance fees are earned when the return on assets under management exceeds certain benchmark returns, “high-water marks” or other performance targets. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. Performance fees are not subject to adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized.
Interest Revenue and Expense. We recognize contractual interest on Financial instruments owned and Financial instruments sold, but not yet purchased, on an accrual basis as a component of interest revenue and expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transaction revenues in the Consolidated Statements of Earnings rather than as a component of interest revenue or expense. We account for our short- and long-term borrowings on an accrual basis with related interest recorded as Interest expense. Discounts/premiums arising on our long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. In addition, we recognize interest revenue related to our securities borrowed and securities purchased under agreements to resell activities and interest expense related to our securities loaned and securities sold under agreements to repurchase activities on an accrual basis.
Cash Equivalents
Cash equivalents include highly liquid investments, including certificates of deposit and money market funds, not held for resale with original maturities of three months or less.
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Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited With Clearing and Depository Organizations
In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. In addition, certain financial instruments used for initial and variation margin purposes with clearing and depository organizations are recorded in this caption. Jefferies as a futures commission merchant, is obligated by rules mandated by the Commodities Futures Trading Commission under the Commodities Exchange Act, to segregate or set aside cash or qualified securities to satisfy such regulations, which regulations have been promulgated to protect customer assets. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets.
Financial Instruments and Fair Value
Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. These instruments primarily represent our trading activities and include both cash and derivative products. Gains and losses are recognized in Principal transaction revenues in our Consolidated Statements of Earnings. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).
Fair Value Hierarchy
In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows:
Level 1: | Quoted prices are available in active markets for identical assets or liabilities at the reported date. |
Level 2: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. |
Level 3: | Instruments that have little to no pricing observability at the reported date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, the financial instrument is valued at the point within the bid-ask range that meets our best estimate of fair value. We use prices and inputs that are current at the measurement date. For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based upon consideration of available information, including types of financial instruments, current financial information, restrictions on dispositions, fair values of underlying financial instruments and quotations for similar instruments.
The valuation of financial instruments may include the use of valuation models and other techniques. Adjustments to valuations derived from valuation models may be made when, in management’s judgment, features of the financial instrument such as its complexity, the market in which the financial instrument is traded and risk uncertainties about market conditions require that an adjustment be made to the value derived from the models. Adjustments from the price derived from a valuation model reflect management’s judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.
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The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. Transfers among the levels are recognized at the beginning of each period. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
Valuation Process for Financial Instruments
Our Independent Price Verification (“IPV”) Group, which is part of our Finance department, in partnership with Risk Management, is responsible for establishing our valuation policies and procedures. The IPV Group and Risk Management, which are independent of our business functions, play an important role and serve as a control function in determining that our financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. The IPV Group reports to the Global Controller and is subject to the oversight of the IPV Committee, which is comprised of our Chief Financial Officer, Global Controller, Chief Risk Officer and Principal Accounting Officer, among other personnel. Our independent price verification policies and procedures are reviewed, at a minimum, annually and changes to the policies require the approval of the IPV Committee.
Price Testing Process. The business units are responsible for determining the fair value of our financial instruments using approved valuation models and methodologies. In order to ensure that the business unit valuations represent a fair value exit price, the IPV Group tests and validates the fair value of our financial instruments inventory. In the testing process, the IPV Group obtains prices and valuation inputs from independent sources, consistently adheres to established procedures set forth in our valuation policies for sourcing prices and valuation inputs and utilizing valuation methodologies. Sources used to validate fair value prices and inputs include, but are not limited to, exchange data, recently executed transactions, pricing data obtained from third party vendors, pricing and valuation services, broker quotes and observed comparable transactions.
To the extent discrepancies between the business unit valuations and the pricing or valuations resulting from the price testing process are identified, such discrepancies are investigated by the IPV Group and fair values are adjusted, as appropriate. The IPV Group maintains documentation of its testing, results, rationale and recommendations and prepares a monthly summary of its valuation results. This process also forms the basis for our classification of fair values within the fair value hierarchy (i.e., Level 1, Level 2 or Level 3). The IPV Group utilizes the additional expertise of Risk Management personnel in valuing more complex financial instruments and financial instruments with less or limited pricing observability. The results of the valuation testing are reported to the IPV Committee on a monthly basis, which discusses the results and is charged with the final conclusions as to the financial instrument fair values in the consolidated financial statements. This process specifically assists the Chief Financial Officer in asserting as to the fair presentation of our financial condition and results of operations as included within our Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. At each quarter end, the overall valuation results, as concluded upon by the IPV Committee, are presented to the Audit Committee.
Judgment exercised in determining Level 3 fair value measurements is supplemented by daily analysis of profit and loss performed by the Product Control functions. Gains and losses, which result from changes in fair value, are evaluated and corroborated daily based on an understanding of each of the trading desks’ overall risk positions and developments in a particular market on the given day. Valuation techniques generally rely on recent transactions of suitably comparable financial instruments and use the observable inputs from those comparable transactions as a validation basis for Level 3 inputs. Level 3 fair value measurements are further validated through subsequent sales testing and market comparable sales, if such information is available. Level 3 fair value measurements require documentation of the valuation rationale applied, which is reviewed for consistency in application from period to period; and the documentation includes benchmarking the assumptions underlying the valuation rationale against relevant analytic data.
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Third Party Pricing Information. Pricing information obtained from external data providers (including independent pricing services and brokers) may incorporate a range of market quotes from dealers, recent market transactions and benchmarking model derived prices to quoted market prices and trade data for comparable securities. External pricing data is subject to evaluation for reasonableness by the IPV Group using a variety of means including comparisons of prices to those of similar product types, quality and maturities, consideration of the narrowness or wideness of the range of prices obtained, knowledge of recent market transactions and an assessment of the similarity in prices to comparable dealer offerings in a recent time period. We have a process whereby we challenge the appropriateness of pricing information obtained from external data providers (including independent pricing services and brokers) in order to validate the data for consistency with the definition of a fair value exit price. Our process includes understanding and evaluating the external data providers’ valuation methodologies. For corporate, U.S. government and agency and municipal debt securities, and loans, to the extent independent pricing services or broker quotes are utilized in our valuation process, the vendor service providers are collecting and aggregating observable market information as to recent trade activity and active bid-ask submissions. The composite pricing information received from the independent pricing service is thus not based on unobservable inputs or proprietary models. For mortgage- and other asset-backed securities and collateralized debt obligations, our independent pricing service uses a matrix evaluation approach incorporating both observable yield curves and market yields on comparable securities as well as implied inputs from observed trades for comparable securities in order to determine prepayment speeds, cumulative default rates and loss severity. Further, we consider pricing data from multiple service providers as available as well as compare pricing data to prices we have observed for recent transactions, if any, in order to corroborate our valuation inputs.
Model Review Process. Where a pricing model is to be used to determine fair value, the pricing model is reviewed for theoretical soundness and appropriateness by Risk Management, independent from the trading desks, and then approved by Risk Management to be used in the valuation process. Review and approval of a model for use may include benchmarking the model against relevant third party valuations, testing sample trades in the model, backtesting the results of the model against actual trades and stress-testing the sensitivity of the pricing model using varying inputs and assumptions. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. Models are independently reviewed and validated by Risk Management annually or more frequently if market conditions or use of the valuation model changes.
Investments in Managed Funds
Investments in managed funds include our investments in funds managed by us and our investments in related-party managed funds in which we are entitled to a portion of the management and/or performance fees. Investments in nonconsolidated managed funds are accounted for at fair value with gains or losses included in Asset management fees and investment income from managed funds in the Consolidated Statements of Earnings.
Loans to and Investments in Related Parties
Loans to and investments in related parties include investments in private equity and other operating entities made in connection with our capital markets activities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such activities. Loans to and investments in related parties are accounted for using the equity method or at cost, as appropriate. Revenues on Loans to and investments in related parties are included in Other revenues in the Consolidated Statements of Earnings. (See Note 11, Investments, and Note 25, Related Party Transactions, for additional information regarding certain of these investments.)
Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, we borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. We have an active securities borrowed and lending matched book business in which we borrow securities from one party and lend them to another party. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in our Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another
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party, that party provides cash to us as collateral, which is reflected in our Consolidated Statements of Financial Condition as Securities loaned. We pay interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
Securities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively “repos”) are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. We earn and incur interest over the term of the repo, which is reflected in Interest income and Interest expense on our Consolidated Statements of Earnings on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis by counterparty, where permitted by generally accepted accounting principles. We monitor the fair value of the underlying securities daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate.
Premises and Equipment
Premises and equipment are depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to ten years). Leasehold improvements are amortized using the straight-line method over the term of the related leases or the estimated useful lives of the assets, whichever is shorter. Premises and equipment includes internally developed software, which was increased to its fair market value in the allocation of the purchase price on March 1, 2013. The revised carrying values of internally developed software ready for its intended use are depreciated over the remaining useful life. (See Note 4, Leucadia and Related Transactions for more information regarding the allocation of the purchase price.)
At November 30, 2014 and November 30, 2013, furniture, fixtures and equipment, including amounts under capital leases, amounted to $351.1 million and $278.5 million, respectively, and leasehold improvements amounted to $156.9 million and $134.1 million, respectively. Accumulated depreciation and amortization was $256.0 million and $210.1 million at November 30, 2014 and November 30, 2013, respectively.
Depreciation and amortization expense amounted to $58.0 million for the year ended November 30, 2014, $38.8 million for the nine months ended November 30, 2013, $12.9 million for the three months ended February 28, 2013, and $50.5 million for the year ended November 30, 2012, respectively.
Goodwill and Intangible Assets
Goodwill. Goodwill represents the excess acquisition cost over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing on August 1 or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If we conclude otherwise, we are required to perform the two-step impairment test. The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting units goodwill.
The fair value of reporting units are based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating the fair value of reporting units include market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable
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exchange traded companies and multiples of merger and acquisitions of similar businesses and discounted cash flow methodologies that incorporate an appropriate risk-adjusted discount rate. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.
Intangible Assets. Intangible assets deemed to have finite lives are amortized on a straight line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the carrying amount of the intangible asset exceeds its fair value. At least annually, the remaining useful life is evaluated.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If we conclude otherwise, we are required to perform a quantitative impairment test. Our annual indefinite-lived intangible asset impairment testing date is August 1.
To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset that is amortized over the remaining useful life of that asset, if any. Subsequent reversal of impairment losses is not permitted.
Refer to Note 12, Goodwill and Other Intangible Assets, for further information.
Income Taxes
Prior to the Leucadia Transaction, we filed a consolidated U.S. federal income tax return, which included all of our qualifying subsidiaries. Subsequently, our results of operations are included in the consolidated federal and applicable state income tax returns filed by Leucadia. In states that neither accept nor require combined or unitary tax returns, certain subsidiaries file separate state income tax returns. We also are subject to income tax in various foreign jurisdictions in which we operate. We account for our provision for income taxes using a “separate return” method. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. Pursuant to a tax sharing agreement entered into between us and Leucadia, payments are between us and Leucadia settle current tax assets and liabilities.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Under acquisition accounting, the recognition of certain assets and liabilities at fair value created a change in the financial reporting basis for our assets and liabilities, while the tax basis of our assets and liabilities remained the same. As a result, deferred tax assets and liabilities were recognized for the change in the basis differences. Jefferies provides deferred taxes on its temporary differences and on any carryforwards that it could claim on its hypothetical tax return. The realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of its projected separate return results. The tax benefit related to Leucadia dividends and dividend equivalents paid on nonvested share-based payment awards are recognized as an increase to Additional paid-in capital. These amounts are included in tax benefits for issuance of share-based awards on the Consolidated Statements of Changes in Equity.
We record uncertain tax positions using a two-step process: (i) we determine whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
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Legal Reserves
In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions.
We recognize a liability for a contingency in Accrued expenses and other liabilities when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management. At November 30, 2014, we have reserved approximately $1.9 million for remaining payments under a non-prosecution agreement with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC, both with respect to an investigation of certain purchases and sales of mortgage-backed securities. We believe that any other matters for which we have determined a loss to be probable and reasonably estimable are not material to the consolidated financial statements.
In many instances, it is not possible to determine whether any loss is probable or even possible or to estimate the amount of any loss or the size of any range of loss. We believe that, in the aggregate, the pending legal actions or regulatory proceedings and any other exams, investigations or similar reviews (both formal and informal) should not have a material adverse effect on our consolidated results of operations, cash flows or financial condition. In addition, we believe that any amount that could be reasonably estimated of potential loss or range of potential loss in excess of what has been provided in the consolidated financial statements is not material.
Share-based Compensation
Share-based awards are measured based on the grant-date fair value of the award and recognized over the period from the service inception date through the date the employee is no longer required to provide service to earn the award. Expected forfeitures are included in determining share-based compensation expense.
Foreign Currency Translation
Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Other comprehensive income. Gains or losses resulting from foreign currency transactions are included in Principal transaction revenues in the Consolidated Statements of Earnings.
Securitization Activities
We engage in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Such transfers of financial assets are accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included within Financial instruments owned in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized within Principal transactions revenues in the Consolidated Statements of Earnings.
When a transfer of assets does not meet the criteria of a sale, we account for the transfer as a secured borrowing and continue to recognize the assets of a secured borrowing in Financial instruments owned and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition.
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Earnings per Common Share
As a single member limited liability company, earnings per share is not calculated for Jefferies Group LLC (the Successor company).
Prior to the Leucadia Transaction, Jefferies Group, Inc. (the Predecessor company) had common shares and other common share equivalents outstanding. For the Predecessor periods, basic earnings per share (“EPS”) was computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. For Predecessor periods, diluted EPS was computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred stock by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earning per share. Restricted stock and Restricted stock units (“RSUs”) granted as part of our share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, Basic and Diluted earnings per share were calculated under the two-class method.
Note 3. Accounting Developments
Accounting Standards to be Adopted in Future Periods
Repurchase Agreements. In June 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The accounting guidance changes the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The guidance also requires new disclosures about transfers that are accounted for as sales in transactions that are economically similar to repurchase agreements and increased transparency about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The guidance is effective prospectively in the second quarter of fiscal 2015. We do not expect this guidance to significantly affect our results of operations, financial condition or cash flows and we will provide the additional disclosures in our consolidated financial statements.
Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The accounting guidance defines how companies report revenues from contracts with customers, and also requires enhanced disclosures. The guidance is effective beginning in the first quarter of fiscal 2017. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Discontinued Operations. In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The guidance changes the criteria for disposals to qualify as discontinued operations and requires new disclosures about disposals of both discontinued operations and certain other disposals that do not meet the new definition. The guidance is effective beginning in the first quarter of 2015. We do not expect the guidance to have a significant impact on our consolidated financial position or results of operations upon adoption.
Income Taxes. In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The guidance requires an entity to net their unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements against a deferred tax asset for a net operating loss carryforward, a similar tax loss or tax credit carryforward, unless such tax loss or credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes resulting from the disallowance of a tax position. In the event that the tax position is disallowed or the tax law of the applicable jurisdiction does not require the entity to
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use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2013, and is to be applied prospectively to all unrecognized tax benefits that exist at the effective date. We do not expect that the adoption of this update will have a material effect on our consolidated financial statements.
Adopted Accounting Standards
Balance Sheet Offsetting Disclosures. In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities and in January 2013 the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The updates require new disclosures regarding balance sheet offsetting and related arrangements. For derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions, the updates require disclosure of gross asset and liability amounts, amounts offset on the balance sheet, and amounts subject to the offsetting requirements but not offset on the balance sheet. We adopted the guidance effective December 1, 2013, presenting the additional disclosures in our notes to consolidated financial statements. This guidance did not amend the existing guidance on when it is appropriate to offset; as a result, the adoption of this guidance did not affect our financial condition, results of operations or cash flows.
Accumulated Other Comprehensive Income. In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. GAAP to be reclassified in its entirety to net income. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety from accumulated other comprehensive income to net income in the same reporting period, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. We adopted the guidance effective March 1, 2013, presenting the additional disclosures within our Consolidated Statements of Changes in Equity. Adoption did not affect our results of operations, financial condition or cash flows.
Indefinite-Lived Intangible Asset Impairment. In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. The guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset, other than goodwill, is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. The update does not revise the requirement to test indefinite-lived intangible assets annually for impairment, or more frequently if deemed appropriate. The adoption of this guidance on December 1, 2012 did not affect our financial condition, results of operations or cash flows as it did not affect how impairment is calculated.
Goodwill Testing. In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment. The update outlines amendments to the two step goodwill impairment test permitting an entity to first assess qualitative factors in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step quantitative goodwill impairment test. We adopted this guidance on December 1, 2012, which did not change how goodwill impairment is calculated nor assigned to reporting units and therefore had no effect on our financial condition, results of operations or cash flows.
Comprehensive Income. In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The update requires entities to report comprehensive income either (1) in a single continuous statement of comprehensive income or (2) in two separate but consecutive statements. We adopted the guidance on March 1, 2012, and elected the two separate but consecutive statements approach. Accordingly, we now present our Consolidated Statements of Comprehensive Income immediately following our Consolidated Statements of Earnings within our consolidated financial statements.
Fair Value Measurements and Disclosures. In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The amendments prohibit the use of blockage factors at all levels of the fair value hierarchy and provide guidance on measuring financial instruments that are managed on a net portfolio basis. Additional disclosure requirements include transfers between Levels 1 and 2; and for Level 3 fair value measurements, a description of our valuation processes and additional information about unobservable inputs impacting Level 3 measurements. We adopted this guidance on March 1, 2012 and have reflected the new disclosures in our consolidated financial statements. The adoption of this guidance did not have an impact on our financial condition, results of operations or cash flows.
Reconsideration of Effective Control for Repurchase Agreements. In April 2011, the FASB issued ASU No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements. In assessing whether to account for repurchase and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity as sales or as secured financing, this guidance removes from the assessment of effective control 1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms and 2) the collateral maintenance implementation guidance related to that criterion.
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The adoption of this guidance for transactions beginning on or after January 1, 2012 did not have an impact on our financial condition, results of operations or cash flows.
Note 4. Leucadia and Related Transactions
Leucadia Transaction
On March 1, 2013, Jefferies Group LLC completed a business combination with Leucadia and became a wholly-owned subsidiary of Leucadia as described in Note 1, Organization and Basis of Presentation. Each share of Jefferies Group Inc.’s common stock outstanding was converted into common shares of Leucadia at an Exchange Ratio of 0.81 of a Leucadia common share for each share of Jefferies Group, Inc. (the “Exchange Ratio”). Leucadia exchanged Jefferies Group, Inc.’s $125.0 million 3.25% Series A-1 Convertible Cumulative Preferred Stock for a new series of Leucadia $125.0 million 3.25% Cumulative Convertible Preferred Shares. In addition, each restricted share and restricted stock unit of Jefferies Group, Inc. common stock was converted at the Exchange Ratio, into an equivalent award of shares of Leucadia, with all such awards for Leucadia shares subject to the same terms and conditions, including, without limitation, vesting and, in the case of performance-based restricted stock units, performance being measured at existing targets.
Leucadia did not assume or guarantee any of our outstanding debt securities, but our 3.875% Convertible senior Debentures due 2029 with an aggregate principal amount of $345.0 million became convertible into common shares of Leucadia. Other than the conversion into Leucadia common shares, the terms of the debenture remain the same.
The Leucadia Transaction resulted in a change in our ownership and was recorded under the acquisition method of accounting by Leucadia and pushed-down to us by allocating the total purchase consideration of $4.8 billion to the cost of the assets acquired, including intangible assets, and liabilities assumed based on their estimated fair values. The excess of the total purchase price over the fair value of assets acquired and the liabilities assumed is recorded as goodwill. The goodwill arising from the Leucadia Transaction consists largely of our commercial potential and the value of our assembled workforce.
In connection with the Leucadia Transaction, we recognized $11.5 million, $2.1 million and $4.7 million in transaction costs during the nine months ended November 30, 2013, three months ended February 28, 2013, and the year ended November 30, 2012, respectively.
The summary computation of the purchase price and the fair values assigned to the assets and liabilities are presented as follows (in thousands except share amounts):
Purchase Price |
||||
Jefferies common stock outstanding |
205,368,031 | |||
Less: Jefferies common stock owned by Leucadia |
(58,006,024 | ) | ||
|
|
|||
Jefferies common stock acquired by Leucadia |
147,362,007 | |||
Exchange ratio |
0.81 | |||
|
|
|||
Leucadia’s shares issued (excluding for Jefferies shares held by Leucadia) |
119,363,226 | |||
Less: restricted shares issued for share-based payment awards (1) |
(6,894,856 | ) | ||
|
|
|||
Leucadia’s shares issued, excluding share-based payment awards |
112,468,370 | |||
Closing price of Leucadia’s common stock (2) |
$ | 26.90 | ||
|
|
|||
Fair value of common shares acquired by Leucadia |
3,025,399 | |||
Fair value of 3.25% cumulative convertible preferred shares (3) |
125,000 | |||
Fair value of shares-based payment awards (4) |
343,811 | |||
Fair value of Jefferies shares owned by Leucadia (5) |
1,259,891 | |||
|
|
|||
Total purchase price |
$ | 4,754,101 | ||
|
|
(1) | Represents shares of restricted stock included in Jefferies common stock outstanding that contained a future service requirement at March 1, 2013. |
(2) | The value of the shares of common stock exchanged with Jefferies shareholders was based upon the closing price of Leucadia’s common stock at February 28, 2013, the last trading day prior to the date of acquisition. |
(3) | Represents Leucadia’s 3.25% Cumulative Convertible Preferred Shares issued in exchange for Jefferies Group, Inc.’s 3.25% Series A-1 Convertible Cumulative Preferred Stock. |
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(4) | The fair value of share-based payment awards is calculated in accordance with ASC 718, Compensation – Stock Compensation. Share-based payment awards attributable to pre-combination service are included as part of the total purchase price. Share-based payment awards attributable to pre-combination service is estimated based on the ratio of the pre-combination service performed to the original service period of the award. |
(5) | The fair value of Jefferies shares owned by Leucadia was based upon a price of $21.72, the closing price of Jefferies common stock at February 28, 2013. |
Assets acquired: |
|
|||
Cash and cash equivalents |
$ | 3,017,958 | ||
Cash and securities segregated |
3,728,742 | |||
Financial instruments owned, at fair value |
16,413,535 | |||
Investments in managed funds |
59,976 | |||
Loans to and investments in related parties |
766,893 | |||
Securities borrowed |
5,315,488 | |||
Securities purchased under agreements to resell |
3,578,366 | |||
Securities received as collateral |
25,338 | |||
Receivables: |
||||
Brokers, dealers and clearing organizations |
2,444,085 | |||
Customers |
1,045,251 | |||
Fees, interest and other |
225,555 | |||
Premises and equipment |
192,603 | |||
Indefinite-lived intangible exchange memberships and licenses (1) |
15,551 | |||
Finite-lived intangible customer relationships (1) |
136,002 | |||
Finite-lived trade name (1) |
131,299 | |||
Other assets |
939,600 | |||
|
|
|||
Total assets |
$ | 38,036,242 | ||
|
|
|||
Liabilities assumed: |
|
|||
Short-term borrowings |
$ | 100,000 | ||
Financial instruments sold, not yet purchased, at fair value |
9,766,876 | |||
Securities loaned |
1,902,687 | |||
Securities sold under agreements to repurchase |
7,976,492 | |||
Other secured financings |
122,294 | |||
Obligation to return securities received as collateral |
25,338 | |||
Payables: |
||||
Brokers, dealers and clearing organizations |
1,787,055 | |||
Customers |
5,450,781 | |||
Accrued expenses and other liabilities |
793,843 | |||
Long-term debt |
6,362,024 | |||
Mandatorily redeemable preferred interests |
358,951 | |||
|
|
|||
Total liabilities |
$ | 34,646,341 | ||
|
|
|||
Noncontrolling interests |
356,180 | |||
|
|
|||
Fair value of net assets acquired, excluding goodwill |
$ | 3,033,721 | ||
|
|
|||
Goodwill |
$ | 1,720,380 | ||
|
|
(1) | Intangible assets are recorded within Other assets on the Consolidated Statements of Financial Condition. |
The goodwill of $1.7 billion is not deductible for tax purposes.
Reorganization of Jefferies High Yield Holdings, LLC
On March 1, 2013, we commenced a reorganization of our high yield joint venture with Leucadia, conducted through Jefferies High Yield Holdings, LLC (“JHYH”) (the parent of Jefferies High Yield Trading, LLC (our high yield trading broker-dealer)). On March 1, 2013, we redeemed the outstanding third party noncontrolling interests in JHYH of $347.6 million. On March 31, 2013, Leucadia contributed its mandatorily redeemable preferred interests in JHYH of $362.3 million to Jefferies Group LLC as member’s equity. On April 1, 2013, we redeemed the mandatorily redeemable preferred interests in JHYH received from Leucadia. In addition, on April 1, 2013, our high yield trading broker-dealer was merged into Jefferies LLC (our U.S. securities broker-dealer).
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Hoare Govett
On February 1, 2012, we acquired the corporate broking business of Hoare Govett from RBS. Total cash consideration paid by us to RBS for the acquisition was £1. In addition, under the terms of the purchase agreement RBS agreed to pay us approximately £1.9 million towards retention payments made to certain employees, which constituted a reduction of the final purchase price. The business acquired represents the corporate broking business carried on under the name RBS Hoare Govett in the United Kingdom and comprised corporate broking advice and services, as well as certain equity sales and trading activities. The acquisition included the Hoare Govett trade name, domain name, client agreements and the exclusive right to carry on the business in succession to RBS.
We accounted for the acquisition under the acquisition method of accounting. Accordingly, the assets acquired, including identifiable intangible assets, and liabilities assumed were recorded at their respective fair values as of the date of acquisition. The fair values of the net assets acquired, including identifiable intangible assets, specifically the Hoare Govett trademark/trade name, was approximately $0.3 million, which exceeded the negative purchase price of $3.1 million (cash consideration paid of £1 less remittance from RBS of £1.9 million), resulting in a bargain purchase gain of approximately $3.4 million. The bargain purchase gain is included within Other revenues in the Consolidated Statement of Earnings for the year ended November 30, 2012 and is reported within the Capital Markets business segment. Approximately $0.4 million was recognized at the date of acquisition as the fair value of the Hoare Govett trade name. (See Note 12, Goodwill and Other Intangible Assets for further details.) Additionally, on February 1, 2012, we recognized a deferred tax liability of approximately $0.1 million, recorded within Accrued expenses and other liabilities on the Consolidated Statement of Financial Condition.
Our results of operations for the year ended November 30, 2012 include the results of operations of Hoare Govett for ten months for the period from February 1, 2012 to November 30, 2012. The acquisition closed on February 29, 2012.
Note 6. Fair Value Disclosures
The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis at November 30, 2014 and November 30, 2013 by level within the fair value hierarchy (in thousands):
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November 30, 2014 | ||||||||||||||||||||
Level 1(1) | Level 2(1) | Level 3 | Counterparty and Cash Collateral Netting (2) |
Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Financial instruments owned: |
||||||||||||||||||||
Corporate equity securities |
$ | 2,178,837 | $ | 226,441 | $ | 20,964 | $ | — | $ | 2,426,242 | ||||||||||
Corporate debt securities |
— | 3,342,276 | 55,918 | — | 3,398,194 | |||||||||||||||
Collateralized debt obligations |
— | 306,218 | 91,498 | — | 397,716 | |||||||||||||||
U.S. government and federal agency securities |
2,694,268 | 81,273 | — | — | 2,775,541 | |||||||||||||||
Municipal securities |
— | 590,849 | — | — | 590,849 | |||||||||||||||
Sovereign obligations |
1,968,747 | 790,764 | — | — | 2,759,511 | |||||||||||||||
Residential mortgage-backed securities |
— | 2,879,954 | 82,557 | — | 2,962,511 | |||||||||||||||
Commercial mortgage-backed securities |
— | 966,651 | 26,655 | — | 993,306 | |||||||||||||||
Other asset-backed securities |
— | 137,387 | 2,294 | — | 139,681 | |||||||||||||||
Loans and other receivables |
— | 1,458,760 | 97,258 | — | 1,556,018 | |||||||||||||||
Derivatives |
65,145 | 5,046,278 | 54,190 | (4,759,345 | ) | 406,268 | ||||||||||||||
Investments at fair value |
— | 73,152 | 95,389 | — | 168,541 | |||||||||||||||
Physical commodities |
— | 62,234 | — | — | 62,234 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total financial instruments owned |
$ | 6,906,997 | $ | 15,962,237 | $ | 526,723 | $ | (4,759,345 | ) | $ | 18,636,612 | |||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cash and cash equivalents |
$ | 4,079,968 | $ | — | $ | — | $ | — | $ | 4,079,968 | ||||||||||
Investments in managed funds |
$ | — | $ | 19,383 | $ | 54,982 | $ | — | $ | 74,365 | ||||||||||
Cash and securities segregated and on deposit for regulatory purposes (3) |
$ | 3,444,674 | $ | — | $ | — | $ | — | $ | 3,444,674 | ||||||||||
Securities received as collateral |
$ | 5,418 | $ | — | $ | — | $ | — | $ | 5,418 | ||||||||||
|
|
|||||||||||||||||||
Total Level 3 assets |
$ | 581,705 | ||||||||||||||||||
|
|
|||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Financial instruments sold, not yet purchased: |
||||||||||||||||||||
Corporate equity securities |
$ | 1,911,145 | $ | 74,681 | $ | 38 | $ | — | $ | 1,985,864 | ||||||||||
Corporate debt securities |
— | 1,611,994 | 223 | — | 1,612,217 | |||||||||||||||
Collateralized debt obligations |
— | 4,557 | — | — | 4,557 | |||||||||||||||
U.S. government and federal agency securities |
2,253,055 | — | — | — | 2,253,055 | |||||||||||||||
Sovereign obligations |
1,217,075 | 574,010 | — | — | 1,791,085 | |||||||||||||||
Loans |
— | 856,525 | 14,450 | — | 870,975 | |||||||||||||||
Derivatives |
52,778 | 5,117,803 | 49,552 | (4,856,618 | ) | 363,515 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total financial instruments sold, not yet purchased |
$ | 5,434,053 | $ | 8,239,570 | $ | 64,263 | $ | (4,856,618 | ) | $ | 8,881,268 | |||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Obligation to return securities received as collateral |
$ | 5,418 | $ | — | $ | — | $ | — | $ | 5,418 | ||||||||||
Other secured financings |
$ | — | $ | — | $ | 30,825 | $ | — | $ | 30,825 | ||||||||||
Embedded conversion option |
$ | — | $ | — | $ | 693 | $ | — | $ | 693 |
(1) | As of December 1, 2013, equity options presented within Financial instruments owned and Financial instruments sold, not yet purchased of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value. |
(2) | Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
(3) | Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $453.7 million and Commodities Futures Trading Commission (“CFTC”) approved money market funds with a fair value of $545.0 million. |
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November 30, 2013 | ||||||||||||||||||||
Level 1 (1) | Level 2 (1) | Level 3 | Counterparty and Cash Collateral Netting (2) |
Total | ||||||||||||||||
Assets: |
||||||||||||||||||||
Financial instruments owned: |
||||||||||||||||||||
Corporate equity securities |
$ | 1,913,220 | $ | 175,493 | $ | 9,884 | $ | — | $ | 2,098,597 | ||||||||||
Corporate debt securities |
— | 2,957,102 | 25,666 | — | 2,982,768 | |||||||||||||||
Collateralized debt obligations |
— | 182,095 | 37,216 | — | 219,311 | |||||||||||||||
U.S. government and federal agency securities |
2,293,221 | 40,389 | — | — | 2,333,610 | |||||||||||||||
Municipal securities |
— | 664,054 | — | — | 664,054 | |||||||||||||||
Sovereign obligations |
1,458,803 | 889,685 | — | — | 2,348,488 | |||||||||||||||
Residential mortgage-backed securities |
— | 2,932,268 | 105,492 | — | 3,037,760 | |||||||||||||||
Commercial mortgage-backed securities |
— | 1,130,410 | 17,568 | — | 1,147,978 | |||||||||||||||
Other asset-backed securities |
— | 55,475 | 12,611 | — | 68,086 | |||||||||||||||
Loans and other receivables |
— | 1,203,238 | 145,890 | — | 1,349,128 | |||||||||||||||
Derivatives |
40,952 | 2,472,237 | 1,493 | (2,253,589 | ) | 261,093 | ||||||||||||||
Investments at fair value |
— | 40 | 101,242 | — | 101,282 | |||||||||||||||
Physical commodities |
— | 37,888 | — | — | 37,888 | |||||||||||||||
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|
|
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|
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|
|||||||||||
Total financial instruments owned |
$ | 5,706,196 | $ | 12,740,374 | $ | 457,062 | $ | (2,253,589 | ) | $ | 16,650,043 | |||||||||
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|||||||||||||
Cash and cash equivalents |
$ | 3,561,119 | $ | — | $ | — | $ | — | $ | 3,561,119 | ||||||||||
Investments in managed funds |
$ | — | $ | — | $ | 57,285 | $ | — | $ | 57,285 | ||||||||||
Cash and securities segregated and on deposit for regulatory purposes (3) |
$ | 3,616,602 | $ | — | $ | — | $ | — | $ | 3,616,602 | ||||||||||
Securities received as collateral |
$ | 11,063 | $ | — | $ | — | $ | — | $ | 11,063 | ||||||||||
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|
|||||||||||||||||||
Total Level 3 assets |
$ | 514,347 | ||||||||||||||||||
|
|
|||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Financial instruments sold, not yet purchased: |
||||||||||||||||||||
Corporate equity securities |
$ | 1,782,903 | $ | 40,358 | $ | 38 | $ | — | $ | 1,823,299 | ||||||||||
Corporate debt securities |
— | 1,346,078 | — | — | 1,346,078 | |||||||||||||||
U.S. government and federal agency securities |
1,324,326 | — | — | — | 1,324,326 | |||||||||||||||
Sovereign obligations |
1,360,269 | 471,088 | — | — | 1,831,357 | |||||||||||||||
Residential mortgage-backed securities |
— | 34,691 | — | — | 34,691 | |||||||||||||||
Loans |
— | 672,838 | 22,462 | — | 695,300 | |||||||||||||||
Derivatives |
43,829 | 2,480,463 | 8,398 | (2,352,611 | ) | 180,079 | ||||||||||||||
Physical commodities |
— | 36,483 | — | — | 36,483 | |||||||||||||||
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Total financial instruments sold, not yet purchased |
$ | 4,511,327 | $ | 5,081,999 | $ | 30,898 | $ | (2,352,611 | ) | $ | 7,271,613 | |||||||||
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Obligation to return securities received as collateral |
$ | 11,063 | $ | — | $ | — | $ | — | $ | 11,063 | ||||||||||
Other secured financings |
$ | — | $ | 31,000 | $ | 8,711 | $ | — | $ | 39,711 | ||||||||||
Embedded conversion option |
$ | — | $ | — | $ | 9,574 | $ | — | $ | 9,574 |
(1) | During the nine months ended November 30, 2013, we transferred listed equity options with a fair value of $403.0 million within Financial instruments owned and $423.0 million within Financial instruments sold, not yet purchased from Level 1 to Level 2 as adjustments to the exchange closing price are necessary to best reflect the fair value of the population at its exit price. |
(2) | Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
(3) | Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $304.2 million. |
JEF-26
Table of Contents
The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:
Corporate Equity Securities
• | Exchange Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 or Level 3 of the fair value hierarchy. |
• | Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration). |
• | Equity warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. |
Corporate Debt Securities
• | Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds. |
• | High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers. |
Collateralized Debt Obligations
Collateralized debt obligations are measured based on prices observed for recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transitions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including but not limited to collateral type, tranche type, rating, origination year, prepayment rates, default rates, and severities.
JEF-27
Table of Contents
U.S. Government and Federal Agency Securities
• | U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy. |
• | U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy. |
Municipal Securities
Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.
Sovereign Obligations
Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.
Residential Mortgage-Backed Securities
• | Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy. |
• | Agency Residential Interest-Only and Inverse Interest-Only Securities (“Agency Inverse IOs”): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate. |
• | Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. |
Commercial Mortgage-Backed Securities
• | Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy. |
JEF-28
Table of Contents
• | Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy. |
Other Asset-Backed Securities
Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables and student loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are determined using pricing data obtained from external pricing services and prices observed for recently executed market transactions.
Loans and Other Receivables
• | Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure. |
• | Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing. |
• | Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions. |
• | Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy. |
• | Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security. |
Derivatives
• | Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy. |
• | OTC Derivative Contracts: Over-the-counter (“OTC”) derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy. |
JEF-29
Table of Contents
OTC options include OTC equity, foreign exchange and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.
Physical Commodities
Physical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as Principal transaction revenues on the Consolidated Statements of Earnings.
Investments at Fair Value and Investments in Managed Funds
Investments at fair value and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity funds, which are measured at fair value based on the net asset value of the funds provided by the fund managers and are categorized within Level 2 or Level 3 of the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy.
JEF-30
Table of Contents
The following tables present information about our investments in entities that have the characteristics of an investment company at November 30, 2014 and November 30, 2013 (in thousands):
November 30, 2014 | ||||||||||
Fair Value (1) | Unfunded Commitments |
Redemption Frequency (if currently eligible) |
||||||||
Equity Long/Short Hedge Funds (2) |
$ | 44,983 | $ | — | Monthly, Quarterly | |||||
High Yield Hedge Funds (3) |
204 | — | — | |||||||
Fund of Funds (4) |
323 | 94 | — | |||||||
Equity Funds (5) |
65,216 | 26,023 | — | |||||||
Convertible Bond Funds (6) |
3,355 | — | At Will | |||||||
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Total (7) |
$ | 114,081 | $ | 26,117 | ||||||
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November 30, 2013 | ||||||||||
Fair Value (1) | Unfunded Commitments |
Redemption Frequency (if currently eligible) |
||||||||
Equity Long/Short Hedge Funds (2) |
$ | 20,927 | $ | — | Monthly, Quarterly | |||||
High Yield Hedge Funds (3) |
244 | — | — | |||||||
Fund of Funds (4) |
494 | 94 | — | |||||||
Equity Funds (5) |
66,495 | 40,816 | — | |||||||
Convertible Bond Funds (6) |
3,473 | — | At Will | |||||||
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Total (7) |
$ | 91,633 | $ | 40,910 | ||||||
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(1) | Where fair value is calculated based on net asset value, fair value has been derived from each of the funds’ capital statements. |
(2) | This category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At November 30, 2014 and November 30, 2013, investments representing approximately 99% and 98%, respectively, of the fair value of investments in this category are redeemable with 30—90 days prior written notice. |
(3) | Includes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated. |
(4) | Includes investments in fund of funds that invest in various private equity funds. At November 30, 2014 and November 30, 2013, approximately 95% and 98%, respectively, of the fair value of investments in this category are managed by us and have no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments we have requested redemption; however, we are unable to estimate when these funds will be received. |
(5) | At November 30, 2014 and November 30, 2013, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated. |
(6) | This category represents an investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice. |
(7) | Investments at fair value in the Consolidated Statements of Financial Condition at November 30, 2014 and November 30, 2013 include $128.8 million and $66.9 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table. |
JEF-31
Table of Contents
Other Secured Financings
Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. In addition, at November 30, 2014 and November 30, 2013, Other secured financings includes $7.8 million and $8.7 million, respectively, related to transfers of loans accounted for as secured financings rather than as sales and classified as Level 3 within the fair value hierarchy.
Embedded Conversion Option
The embedded conversion option presented within long-term debt represents the fair value of the conversion option on Leucadia shares within our 3.875% Convertible Senior Debentures, due November 1, 2029 and categorized as Level 3 within the fair value hierarchy. The conversion option was valued using a convertible bond model using as inputs the price of Leucadia’s common stock, the conversion strike price, 252-day historical volatility, a maturity date of November 1, 2017 (the first put date), dividend yield and the risk-free interest rate curve.
Pricing Information
At November 30, 2014 and November 30, 2013, our Financial instruments owned and Financial instruments sold, not yet purchased are measured using different valuation bases as follows:
November 30, 2014 | November 30, 2013 | |||||||||||||||
Financial Instruments Owned |
Financial Instruments Sold, Not Yet Purchased |
Financial Instruments Owned |
Financial Instruments Sold, Not Yet Purchased |
|||||||||||||
Exchange closing prices |
12 | % | 20 | % | 12 | % | 25 | % | ||||||||
Recently observed transaction prices |
4 | % | 2 | % | 5 | % | 4 | % | ||||||||
External pricing services |
71 | % | 69 | % | 68 | % | 66 | % | ||||||||
Broker quotes |
4 | % | 3 | % | 3 | % | 3 | % | ||||||||
Valuation techniques |
9 | % | 6 | % | 12 | % | 2 | % | ||||||||
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100 | % | 100 | % | 100 | % | 100 | % | |||||||||
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JEF-32
Table of Contents
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the year ended November 30, 2014 (in thousands):
Successor | ||||||||||||||||||||||||||||||||||||
Year Ended November 30, 2014 | ||||||||||||||||||||||||||||||||||||
Balance at November 30, 2013 |
Total gains/ losses (realized and unrealized) (1) |
Purchases | Sales | Settlements | Issuances | Net transfers into/(out of) Level 3 |
Balance at November 30, 2014 |
Change in unrealized gains/(losses) relating to instruments still held at November 30, 2014 (1) |
||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||||||
Financial instruments owned: |
||||||||||||||||||||||||||||||||||||
Corporate equity securities |
$ | 9,884 | $ | 957 | $ | 18,138 | $ | (12,826 | ) | $ | — | $ | — | $ | 4,811 | $ | 20,964 | $ | 2,324 | |||||||||||||||||
Corporate debt securities |
25,666 | 2,456 | 62,933 | (51,094 | ) | — | — | 15,867 | 55,918 | 16,000 | ||||||||||||||||||||||||||
Collateralized debt obligations |
37,216 | (2,303 | ) | 179,720 | (170,991 | ) | (1,297 | ) | — | 49,153 | 91,498 | 8,159 | ||||||||||||||||||||||||
U.S government and federal agency securities |
— | 13 | 2,505 | (2,518 | ) | — | — | — | — | — | ||||||||||||||||||||||||||
Residential mortgage-backed securities |
105,492 | (9,870 | ) | 42,632 | (61,689 | ) | (1,847 | ) | — | 7,839 | 82,557 | (4,679 | ) | |||||||||||||||||||||||
Commercial mortgage-backed securities |
17,568 | (4,237 | ) | 49,159 | (51,360 | ) | (782 | ) | — | 16,307 | 26,655 | (2,384 | ) | |||||||||||||||||||||||
Other asset-backed securities |
12,611 | 1,784 | 4,987 | (18,002 | ) | — | — | 914 | 2,294 | 1,484 | ||||||||||||||||||||||||||
Loans and other receivables |
145,890 | (31,311 | ) | 130,169 | (92,140 | ) | (60,390 | ) | — | 5,040 | 97,258 | (26,864 | ) | |||||||||||||||||||||||
Investments, at fair value |
101,242 | 16,522 | 34,993 | (46,315 | ) | (1,243 | ) | — | (9,810 | ) | 95,389 | 865 | ||||||||||||||||||||||||
Investments in managed funds |
57,285 | (13,541 | ) | 14,876 | (315 | ) | — | — | (3,323 | ) | 54,982 | (13,541 | ) | |||||||||||||||||||||||
Liabilities: |
||||||||||||||||||||||||||||||||||||
Financial instruments sold, not yet purchased: |
||||||||||||||||||||||||||||||||||||
Corporate equity securities |
$ | 38 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 38 | $ | — | ||||||||||||||||||
Corporate debt securities |
— | (149 | ) | (565 | ) | 960 | — | — | (23 | ) | 223 | (8 | ) | |||||||||||||||||||||||
Net derivatives (2) |
6,905 | 15,055 | (24,682 | ) | 1,094 | 322 | — | (3,332 | ) | (4,638 | ) | (15,615 | ) | |||||||||||||||||||||||
Loans |
22,462 | — | (18,332 | ) | 11,338 | — | — | (1,018 | ) | 14,450 | — | |||||||||||||||||||||||||
Other secured financings |
8,711 | — | — | — | (17,525 | ) | 39,639 | — | 30,825 | — | ||||||||||||||||||||||||||
Embedded conversion option |
9,574 | (8,881 | ) | — | — | — | — | — | 693 | 8,881 |
(1) | Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings. |
(2) | Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives. |
Analysis of Level 3 Assets and Liabilities for the Year Ended November 30, 2014
During the year ended November 30, 2014, transfers of assets of $145.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
• | Non-agency residential mortgage-backed securities of $30.3 million and commercial mortgage-backed securities of $16.6 million for which no recent trade activity was observed for purposes of determining observable inputs; |
• | Loans and other receivables of $8.5 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2; |
• | Collateralized debt obligations of $49.6 million which have little to no transparency related to trade activity; |
• | Corporate debt securities of $23.4 million, corporate equity securities of $9.7 million and investments at fair value of $5.8 million due to a lack of observable market transactions. |
During the year ended November 30, 2014, transfers of assets of $58.2 million from Level 3 to Level 2 are primarily attributed to:
• | Non-agency residential mortgage-backed securities of $22.4 million for which market trades were observed in the period for either identical or similar securities; |
• | Loans and other receivables of $3.5 million and investments at fair value of $15.6 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; |
• | Corporate equity securities of $4.9 million, corporate debt securities of $7.5 million and investments in managed funds $3.5 million due to an increase in observable market transactions. |
JEF-33
Table of Contents
There were $1.0 million transfers of loan liabilities from Level 3 to Level 2 and $3.3 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs in the valuation and an increase in observable inputs used in the valuing of derivative contracts, respectively.
Net losses on Level 3 assets were $39.4 million and net losses on Level 3 liabilities were $6.0 million for the year ended November 30, 2014. Net losses on Level 3 assets were primarily due to a decrease in valuation of certain loans and other receivables, residential and commercial mortgage-backed securities and investments in managed funds, partially offset by increased valuations of certain investments at fair value and corporate debt securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives, partially offset by decreased valuations of the embedded conversion option.
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the nine months ended November 30, 2013 (in thousands):
Successor | ||||||||||||||||||||||||||||||||||||
Nine Months Ended November 30, 2013 | ||||||||||||||||||||||||||||||||||||
Balance, February 28, 2013 |
Total gains/losses (realized and unrealized) (1) |
Purchases | Sales | Settlements | Issuances | Net transfers into/(out of) Level 3 |
Balance, November 30, 2013 |
Change in unrealized gains/ (losses) relating to instruments still held at November 30, 2013 (1) |
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Assets: |
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Financial instruments owned: |
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Corporate equity securities |
$ | 13,234 | $ | 1,551 | $ | 3,583 | $ | (7,141 | ) | $ | — | $ | — | $ | (1,343 | ) | $ | 9,884 | $ | (419 | ) | |||||||||||||||
Corporate debt securities |
31,820 | (2,454 | ) | 31,014 | (34,125 | ) | — | — | (589 | ) | 25,666 | (2,749 | ) | |||||||||||||||||||||||
Collateralized debt obligations |
24,736 | (2,309 | ) | 45,437 | (32,874 | ) | — | — | 2,226 | 37,216 | (8,384 | ) | ||||||||||||||||||||||||
Residential mortgage-backed securities |
169,426 | (4,897 | ) | 89,792 | (150,807 | ) | (11,007 | ) | — | 12,985 | 105,492 | (6,932 | ) | |||||||||||||||||||||||
Commercial mortgage-backed securities |
17,794 | (4,469 | ) | 20,130 | (13,538 | ) | (100 | ) | — | (2,249 | ) | 17,568 | (3,794 | ) | ||||||||||||||||||||||
Other asset-backed securities |
1,292 | (4,535 | ) | 105,291 | (104,711 | ) | — | — | 15,274 | 12,611 | (3,497 | ) | ||||||||||||||||||||||||
Loans and other receivables |
170,986 | 15,008 | 287,757 | (115,231 | ) | (211,805 | ) | — | (825 | ) | 145,890 | 13,402 | ||||||||||||||||||||||||
Investments, at fair value |
75,067 | 1,678 | 28,594 | (102 | ) | (5,012 | ) | — | 1,017 | 101,242 | 1,705 | |||||||||||||||||||||||||
Investments in managed funds |
59,976 | 9,863 | 15,651 | (17 | ) | (28,188 | ) | — | — | 57,285 | 9,863 | |||||||||||||||||||||||||
Liabilities: |
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Financial instruments sold, not yet purchased: |
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Corporate equity securities |
$ | 38 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 38 | $ | — | ||||||||||||||||||
Residential mortgage-backed securities |
1,542 | (1,542 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||
Net derivatives (2) |
11,185 | 4,408 | — | (300 | ) | (8,515 | ) | — | 127 | 6,905 | 1,609 | |||||||||||||||||||||||||
Loans |
7,398 | 2,959 | (16,027 | ) | 28,065 | 67 | — | — | 22,462 | (2,970 | ) | |||||||||||||||||||||||||
Other secured financings |
— | — | — | — | — | 8,711 | — | 8,711 | — | |||||||||||||||||||||||||||
Embedded conversion option (3) |
16,488 | (6,914 | ) | — | — | — | — | — | 9,574 | 6,914 |
(1) | Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings. |
(2) | Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives. |
(3) | The embedded conversion option of $16.5 million is at March 1, 2013, upon completion of the Leucadia Transaction (See Note 14.) |
JEF-34
Table of Contents
Analysis of Level 3 Assets and Liabilities for the Nine Months Ended November 30, 2013
During the nine months ended November 30, 2013, transfers of assets of $82.4 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
• | Non-agency residential mortgage-backed securities of $58.8 million and other asset-backed securities of $16.4 million for which no recent trade activity was observed for purposes of determining observable inputs; |
• | Loans and other receivables of $0.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2. |
• | Corporate equity securities of $2.3 million, corporate debt securities of $0.2 million and investments at fair value of $1.0 million due to lack of observable market transactions; |
• | Collateralized debt obligations of $2.8 million which have little to no transparency in trade activity; |
During the nine months ended November 30, 2013, transfers of assets of $55.9 million from Level 3 to Level 2 are attributed to:
• | Non-agency residential mortgage-backed securities of $45.9 million, commercial mortgage-backed securities of $2.2 million and other asset-backed securities of $1.1 million for which market trades were observed in the period for either identical or similar securities; |
• | Collateralized debt obligations of $0.6 million and loans and other receivables of $1.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; |
• | Corporate equity securities of $3.6 million and corporate debt securities of $0.8 million due to an increase in observable market transactions. |
During the nine months ended November 30, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.1 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs used in the valuing of derivative contracts.
Net gains on Level 3 assets were $9.4 million and net losses on Level 3 liabilities were $1.1 million for the nine months ended November 30, 2013, respectively. Net gains on Level 3 assets were primarily due to increased valuations of certain corporate equity securities, loans and other receivables, investments at fair value and investments in managed funds, partially offset by a decrease in valuation of certain corporate debt securities, collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments and loan positions.
JEF-35
Table of Contents
The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 28, 2013 (in thousands):
Predecessor | ||||||||||||||||||||||||||||||||
Three Months Ended February 28, 2013 (1) | ||||||||||||||||||||||||||||||||
Balance at November 30, 2012 |
Total gains/ losses (realized and unrealized) (2) |
Purchases | Sales | Settlements | Net transfers into/(out of) Level 3 |
Balance at February 28, 2013 |
Change in unrealized gains/(losses) relating to instruments still held at February 28, 2013 (2) |
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Assets: |
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Financial instruments owned: |
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Corporate equity securities |
$ | 16,815 | $ | 200 | $ | 707 | $ | 109 | $ | — | $ | (4,597 | ) | $ | 13,234 | $ | 172 | |||||||||||||||
Corporate debt securities |
3,631 | 7,836 | 11,510 | (1,918 | ) | — | 10,761 | 31,820 | 7,833 | |||||||||||||||||||||||
Collateralized debt obligations |
31,255 | 3,584 | 4,406 | (17,374 | ) | — | 2,865 | 24,736 | (1,165 | ) | ||||||||||||||||||||||
Residential mortgage-backed securities |
156,069 | 11,906 | 132,773 | (130,143 | ) | (6,057 | ) | 4,878 | 169,426 | 4,511 | ||||||||||||||||||||||
Commercial mortgage-backed securities |
30,202 | (995 | ) | 2,280 | (2,866 | ) | (1,188 | ) | (9,639 | ) | 17,794 | (2,059 | ) | |||||||||||||||||||
Other asset-backed securities |
1,114 | 90 | 1,627 | (1,342 | ) | (19 | ) | (178 | ) | 1,292 | 39 | |||||||||||||||||||||
Loans and other receivables |
180,393 | (8,682 | ) | 105,650 | (29,828 | ) | (61,407 | ) | (15,140 | ) | 170,986 | (12,374 | ) | |||||||||||||||||||
Investments, at fair value |
83,897 | 961 | 5,952 | (4,923 | ) | (9,721 | ) | (1,099 | ) | 75,067 | 1,171 | |||||||||||||||||||||
Investments in managed funds |
57,763 | (363 | ) | 11,068 | — | (8,492 | ) | — | 59,976 | (363 | ) | |||||||||||||||||||||
Liabilities: |
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Financial instruments sold, not yet purchased: |
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Corporate equity securities |
$ | 38 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 38 | $ | — | ||||||||||||||||
Residential mortgage-backed securities |
— | 25 | (73,846 | ) | 75,363 | — | — | 1,542 | (19 | ) | ||||||||||||||||||||||
Net derivatives (3) |
9,188 | 2,648 | — | — | — | (651 | ) | 11,185 | (2,648 | ) | ||||||||||||||||||||||
Loans |
1,711 | — | (1,711 | ) | 7,398 | — | — | 7,398 | — |
(1) | There were no issuances during the three months ended February 28, 2013. |
(2) | Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings. |
(3) | Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives. |
Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2013
During the three months ended February 28, 2013, transfers of assets of $100.5 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
• | Non-agency residential mortgage-backed securities of $78.4 million and commercial mortgage-backed securities of $1.3 million for which no recent trade activity was observed for purposes of determining observable inputs; |
• | Corporate debt securities of $10.8 million and corporate equity securities of $0.1 million due to lack of observable market transactions; |
• | Collateralized debt obligations of $5.3 million which have little to no transparency in trade activity; |
• | Loans and other receivables of $4.8 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2. |
JEF-36
Table of Contents
During the three months ended February 28, 2013, transfers of assets of $112.7 million from Level 3 to Level 2 are attributed to:
• | Non-agency residential mortgage-backed securities of $73.5 million, commercial mortgage-backed securities of $10.9 million and $0.2 million of other asset-backed securities for which market trades were observed in the period for either identical or similar securities; |
• | Loans and other receivables of $19.9 million and collateralized debt obligations of $2.4 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; |
• | Corporate equity securities of $4.7 million due to an increase in observable market transactions. |
During the three months ended February 28, 2013, there were no transfers of liabilities from Level 2 to Level 3 and there were $0.7 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable significant inputs used in valuing the derivative contracts.
Net gains on Level 3 assets were $14.5 million and net losses on Level 3 liabilities were $2.7 million for the three months ended February 28, 2013. Net gains on Level 3 assets were primarily due to increased valuations of certain residential mortgage-backed securities, corporate debt securities, collateralized debt obligations and investments at fair value, partially offset by a decrease in valuation of certain loans and other receivables, commercial mortgage-backed securities and investments in managed funds. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.
Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at November 30, 2014 and November 30, 2013
The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.
For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.
JEF-37
Table of Contents
November 30, 2014 |
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Financial Instruments Owned |
Fair Value (in thousands) |
Valuation Technique |
Significant Unobservable Input(s) |
Input / Range | Weighted Average |
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Corporate equity securities |
$ | 19,814 | ||||||||||||
Non-exchange traded securities |
Market approach | EBITDA (a) multiple | 3.4 to 4.7 | 3.6 | ||||||||||
Scenario analysis | Estimated recovery percentage | 24% | — | |||||||||||
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Corporate debt securities |
$ | 22,766 | Convertible bond model | Discount rate/yield | 32% | — | ||||||||
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Collateralized debt obligations |
$ | 41,784 | Discounted cash flows | Constant prepayment rate | 0% to 20% | 13 | % | |||||||
Constant default rate | 0% to 2% | 2 | % | |||||||||||
Loss severity | 0% to 70% | 39 | % | |||||||||||
Yield | 2% to 51% | 16 | % | |||||||||||
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Residential mortgage-backed securities |
$ | 82,557 | Discounted cash flows | Constant prepayment rate | 1% to 50% | 13 | % | |||||||
Constant default rate | 1% to 100% | 14 | % | |||||||||||
Loss severity | 20% to 80% | 50 | % | |||||||||||
Yield | 3% to 13% | 7 | % | |||||||||||
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Commercial mortgage-backed securities |
$ | 26,655 | Discounted cash flows | Yield | 8% to 12% | 11 | % | |||||||
Cumulative loss rate | 4% to 72% | 15 | % | |||||||||||
Scenario analysis | Estimated recovery percentage | 90% | — | |||||||||||
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Other asset-backed securities |
$ | 2,294 | Discounted cash flows | Constant prepayment rate | 8% | — | ||||||||
Constant default rate | 3% | — | ||||||||||||
Loss severity | 70% | — | ||||||||||||
Yield | 7% | — | ||||||||||||
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Loans and other receivables |
$ | 88,154 | Comparable pricing | Comparable loan price | $100 to $101 | $ | 100.3 | |||||||
Market approach | Yield | 3% to 5% | 4 | % | ||||||||||
EBITDA (a) multiple | 3.4 to 8.2 | 7.6 | ||||||||||||
Scenario analysis | Estimated recovery percentage | 10% to 41% | 36 | % | ||||||||||
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Derivatives |
$ | 54,190 | ||||||||||||
Foreign exchange options |
Option model | Volatility | 13% to 23% | 17 | % | |||||||||
Commodity forwards |
Discounted cash flows | Discount rate | 17% | — | ||||||||||
Loan commitments |
Comparable pricing | Comparable loan price | $100 | — | ||||||||||
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Investments at fair value |
$ | 8,500 | ||||||||||||
Private equity securities |
Market approach | Transaction Level | $50 | — | ||||||||||
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Liabilities |
Fair Value (in thousands) |
Valuation Technique |
Significant Unobservable Input(s) |
Input / Range | Weighted Average |
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Financial Instruments Sold, Not Yet Purchased: |
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Derivatives |
$ | 49,552 | ||||||||||||
FX options |
Option model | Volatility | 13% to 23% | 17 | % | |||||||||
Unfunded commitment |
Comparable pricing | Comparable loan price | $89 to $100 | $ | 92.0 | |||||||||
Credit spread | 45bps | — | ||||||||||||
Market approach | Yield | 5% | — | |||||||||||
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Loans and other receivables |
$ | 14,450 | Comparable pricing | Comparable loan price | $100 | — | ||||||||
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Other secured financings |
$ | 30,825 | Comparable pricing | Comparable loan price | $81-$100 | $ | 98.7 | |||||||
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Embedded conversion option |
$ | 693 | Option valuation model | Historical volatility | 18.9% | — | ||||||||
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(a) | Earnings before interest, taxes, depreciation and amortization (“EBITDA”). |
JEF-38
Table of Contents
November 30, 2013 |
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Financial Instruments Owned |
Fair Value (in thousands) |
Valuation Technique |
Significant Unobservable Input(s) |
Input / Range | Weighted Average |
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Corporate equity securities |
$ | 8,034 | ||||||||||||
Non-exchange traded securities |
Market approach | EBITDA multiple | 4.0 to 5.5 | 4.53 | ||||||||||
Warrants |
Option model | Volatility | 36% | — | ||||||||||
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Corporate debt securities |
$ | 17,699 | Scenario analysis | Estimated recovery percentage | 24% | — | ||||||||
Comparable pricing | Comparable bond or loan price | $69.10 to $70.50 | $ | 69.91 | ||||||||||
Market approach | Yield | 13% | — | |||||||||||
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Collateralized debt obligations |
$ | 34,316 | Discounted cash flows | Constant prepayment rate | 0% to 20% | 13 | % | |||||||
Constant default rate | 2% to 3% | 2 | % | |||||||||||
Loss severity | 30% to 85% | 38 | % | |||||||||||
Yield | 3% to 91% | 28 | % | |||||||||||
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Residential mortgage-backed securities |
$ | 105,492 | Discounted cash flows | Constant prepayment rate | 2% to 50% | 11 | % | |||||||
Constant default rate | 1% to 100% | 17 | % | |||||||||||
Loss severity | 30% to 90% | 48 | % | |||||||||||
Yield | 0% to 20% | 7 | % | |||||||||||
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Commercial mortgage-backed securities |
$ | 17,568 | Discounted cash flows | Yield | 12% to 20% | 14 | % | |||||||
Cumulative loss rate | 5% to 28.2% | 11 | % | |||||||||||
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Other asset-backed securities |
$ | 12,611 | Discounted cash flows | Constant prepayment rate | 4% to 30% | 17 | % | |||||||
Constant default rate | 2% to 11% | 7 | % | |||||||||||
Loss severity | 40% to 92% | 64 | % | |||||||||||
Yield | 3% to 29% | 18 | % | |||||||||||
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Loans and other receivables |
$ | 101,931 | Comparable pricing | Comparable bond or loan price | $91 to $101 | $ | 98.90 | |||||||
Market approach | Yield | 8.75% to 13.5% | 10 | % | ||||||||||
EBITDA (a) multiple | 6.9 | — | ||||||||||||
Scenario analysis | Estimated recovery percentage | 16.9% to 92% | 74 | % | ||||||||||
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Derivatives |
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Loan commitments |
$ | 1,493 | Comparable pricing | Comparable bond or loan price | $100.875 | — | ||||||||
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Investments at fair value |
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Private equity securities |
$ | 30,203 | Comparable pricing | Comparable share price | $414 | — | ||||||||
Market approach | Discount rate | 15% to 30% | 23 | % | ||||||||||
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Liabilities |
Fair Value (in thousands) |
Valuation Technique |
Significant Unobservable Input(s) |
Input / Range | Weighted Average |
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Financial Instruments Sold, Not Yet Purchased: |
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Derivatives |
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Equity options |
$ | 8,398 | Option model | Volatility | 36.25% to 41% | 39 | % | |||||||
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Loans |
$ | 8,106 | Comparable pricing | Comparable bond or loan price | $101.88 | — | ||||||||
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Other secured financings |
$ | 8,711 | Comparable pricing | Comparable loan price | $99-$103 | $ | 101.7 | |||||||
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Embedded conversion option |
$ | 9,574 | Option valuation model | Historical volatility | 22.55% | — | ||||||||
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The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2014 and November 30, 2013, asset exclusions consisted of $180.0 million and $127.7 million, respectively, primarily comprised of investments in non-exchange traded securities, private equity securities, investments in reinsurance contracts, derivatives and certain corporate loans. At November 30, 2014, liability exclusions consisted of $0.3 million comprised of corporate equity and debt securities. At November 30, 2013, liability exclusions consisted of $14.4 million of corporate loan commitments.
Sensitivity of Fair Values to Changes in Significant Unobservable Inputs
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
• | Private equity securities, corporate debt securities, other asset-backed securities, loans and other receivables and loan commitments using comparable pricing valuation techniques. A significant increase (decrease) in the comparable share, bond or loan price in isolation would result in a significant higher (lower) fair value measurement. |
JEF-39
Table of Contents
• | Non-exchange traded securities and loans and other receivables using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate of a private equity security would result in a significantly lower (higher) fair value measurement. |
• | Corporate debt securities and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument. |
• | Collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, and loss severities or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significant lower (higher) fair value measurement. |
• | Derivative equity options and equity warrants using an option model. A significant increase (decrease) in volatility would result in a significant higher (lower) fair value measurement. |
• | Private equity securities using a net asset value technique. A significant increase (decrease) in the discount applied to net asset value would result in a significant (lower) higher fair value measurement. |
Fair Value Option Election
We have elected the fair value option for all loans and loan commitments made by our capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage- and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives on the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in related parties on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have elected the fair value option for our investment in Knight Capital, which is included in Financial Instruments owned – Corporate equity securities on the Consolidated Statement of Financial Condition. (See Note 11, Investments for further details regarding our investment in Knight Capital.) We have also elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables—Brokers, dealers and clearing organizations, Receivables—Customers, Receivables—Fees, interest and other, Payables—Brokers, dealers and clearing organizations and Payables—Customers are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.
JEF-40
Table of Contents
The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option (in thousands):
Successor | Predecessor | |||||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||||
Financial Instruments Owned: |
||||||||||||||||||
Loans and other receivables |
$ | (24,785 | ) | $ | 15,327 | $ | 3,924 | $ | 24,547 | |||||||||
Financial Instruments Sold: |
||||||||||||||||||
Loans |
$ | (585 | ) | $ | (32 | ) | $ | — | $ | (55 | ) | |||||||
Loan commitments |
(15,459 | ) | (1,007 | ) | (2,746 | ) | (7,155 | ) |
The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):
November 30, 2014 | November 30, 2013 | |||||||
Financial Instruments Owned: |
||||||||
Loans and other receivables (1) |
$ | 403,119 | $ | 264,896 | ||||
Loans and other receivables greater than 90 days past due (1) |
5,594 | — | ||||||
Loans and other receivables on nonaccrual status (1)(2) |
(22,360 | ) | — |
(1) | Interest income is recognized separately from other changes in fair value and is included within Interest revenues on the Consolidated Statements of Earnings. |
(2) | Amount includes all loans and other receivables greater than 90 or more days past due. |
The aggregate fair value of loans and other receivables that were 90 or more days past due was $-0- million and $-0- at November 30, 2014 and November 30, 2013, respectively.
The aggregate fair value of loans and other receivables on nonaccrual status, which includes all loans and other receivables greater than 90 or more days past due, was $274.6 million at November 30, 2014. There were no loan receivables on nonaccrual status at November 30, 2013.
Assets and Liabilities Measured at Fair Value on a Non-recurring Basis
Certain assets were measured at fair value on a non-recurring basis and are not included in the tables above. These assets include goodwill and intangible assets. The following table presents those assets measured at fair value on a non-recurring basis for which the Company recognized a non-recurring fair value adjustment during the year ended November 30, 2014 (in thousands):
Carrying Value at November 30, 2014 |
Level 2 | Level 3 | Impairment Losses for the Year Ended November 30, 2014 |
|||||||||||||
Futures Reporting Unit (1): |
||||||||||||||||
Goodwill (2) |
$ | — | $ | — | $ | — | $ | 51,900 | ||||||||
Intangible assets (3) |
— | — | — | 7,534 | ||||||||||||
Exchange ownership interests (4) |
5,608 | 5,608 | — | 178 | ||||||||||||
International Asset Management Reporting Unit (5): |
||||||||||||||||
Goodwill (6) |
$ | — | $ | — | $ | — | $ | 2,100 | ||||||||
Intangible assets (7) |
— | — | — | 60 |
(1) | Given management’s decision to pursue strategic alternatives for our Futures business, including possible disposal, as a result of recent operating performance and margin challenges experienced by the business, an impairment analysis of the carrying amounts of goodwill, intangible assets and certain other assets employed directly by the business was performed at November 30, 2014. (See Note 12, Goodwill and Other Intangible Assets.) |
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(2) | An impairment loss for goodwill allocated to our Futures business with a carrying amount of $51.9 million was recognized for the year ended November 30, 2014. The fair value of the Futures business was estimated 1) by comparison to similar companies using publicly traded price-to-tangible book multiples as the basis for valuation and 2) by utilizing a discounted cash flow methodology based on internally developed forecasts of profitability and an appropriate risk-adjusted discount rate. |
(3) | Intangible assets relate primarily to customer relationship intangibles. An impairment loss for customer relationships within our Futures business with a carrying amount of $7.5 million was recognized in Other expenses for the year ended November 30, 2014. Fair value was estimated utilizing a discounted cash flow methodology based on projected future cash flows and operating margins and an appropriate risk-adjusted discount rate. |
(4) | Exchange memberships, which represent ownership interests in market exchanges on which trading business is conducted, were written down to their fair value during the year ended November 30, 2014 resulting in impairment losses of $0.2 million recognized in Other expenses. The fair value of these exchange memberships is based on observed quoted sales prices for each individual membership. |
(5) | Given management’s decision to liquidate our International Asset Management business, an impairment analysis of the carrying amounts of goodwill, intangible assets and certain other assets employed directly by the business was performed at November 30, 2014. (See Note 12, Goodwill and Other Intangible Assets.) |
(6) | An impairment loss for goodwill allocated to our International Asset Management business with a carrying amount of $2.1 million was recognized for the year ended November 30, 2014. Fair value was estimated by utilizing a discounted cash flow methodology based on internally developed forecasts of profitability and an appropriate risk-adjusted discount rate. |
(7) | Intangible assets relate to customer relationship intangibles. Impairment losses of $0.1 million were recognized in Other expenses for the year ended November 30, 2014. Fair values were estimated utilizing a discounted cash flow methodology based on projected future cash flows and operating margins and an appropriate risk-adjusted discount rate. |
There were no assets measured at fair value on a non-recurring basis, which utilized Level 1 inputs during the year ended November 30, 2014. There were no liabilities measured at fair value on a non-recurring basis during the year ended November 30, 2014. There were no significant assets or liabilities measured at fair value on a non-recurring basis during the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012.
Note 7. Derivative Financial Instruments
Off-Balance Sheet Risk
We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.
Derivative Financial Instruments
Our derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned – derivatives and Financial instruments sold, not yet purchased – derivatives net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Net realized and unrealized gains and losses are recognized in Principal transaction revenues in the Consolidated Statements of Earnings on a trade date basis and as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Acting in a trading capacity, we may enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. (See Note 6, Fair Value Disclosures and Note 22, Commitments, Contingencies and Guarantees for additional disclosures about derivative financial instruments.)
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Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies.
In connection with our derivative activities, we may enter into International Swaps and Derivative Association, Inc. (“ISDA”) master netting agreements or similar agreements with counterparties. A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. In addition, we enter into customized bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.
Under our ISDA master netting agreements, we typically also execute credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted by or paid to a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of the counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.
The conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. In cases where we have not determined an agreement to be enforceable, the related amounts are not offset. Master netting agreements are a critical component of our risk management processes as part of reducing counterparty credit risk and managing liquidity risk.
We are also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open derivative contracts.
The following tables present the fair value and related number of derivative contracts at November 30, 2014 and November 30, 2013 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. (See Note 8, Collateralized Transactions, for information related to offsetting of certain secured financing transactions.) The following tables also provide information regarding 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts).
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November 30, 2014 (1) | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Fair Value | Number of Contracts |
Fair Value | Number of Contracts |
|||||||||||||
Interest rate contracts |
||||||||||||||||
Exchange-traded |
$ | 2,450 | 67,437 | $ | 1,400 | 87,008 | ||||||||||
Cleared OTC |
1,425,375 | 2,160 | 1,481,329 | 2,124 | ||||||||||||
Bilateral OTC |
871,982 | 1,908 | 809,962 | 729 | ||||||||||||
Foreign exchange contracts |
||||||||||||||||
Exchange-traded |
— | 1,562 | — | 1,821 | ||||||||||||
Bilateral OTC |
1,514,881 | 11,299 | 1,519,349 | 10,931 | ||||||||||||
Equity contracts |
||||||||||||||||
Exchange-traded |
1,011,101 | 2,269,044 | 987,531 | 2,049,513 | ||||||||||||
Bilateral OTC |
39,889 | 2,463 | 70,484 | 1,956 | ||||||||||||
Commodity contracts |
||||||||||||||||
Exchange-traded |
62,091 | 1,027,542 | 51,145 | 1,015,894 | ||||||||||||
Bilateral OTC |
214,635 | 4,026 | 252,061 | 4,524 | ||||||||||||
Credit contracts |
||||||||||||||||
Cleared OTC |
17,831 | 27 | 23,264 | 22 | ||||||||||||
Bilateral OTC |
5,378 | 18 | 23,608 | 27 | ||||||||||||
|
|
|
|
|||||||||||||
Total gross derivative assets/ liabilities: |
||||||||||||||||
Exchange-traded |
1,075,642 | 1,040,076 | ||||||||||||||
Cleared OTC |
1,443,206 | 1,504,593 | ||||||||||||||
Bilateral OTC |
2,646,765 | 2,675,464 | ||||||||||||||
Amounts offset in the Consolidated Statements of Financial Condition (2): |
||||||||||||||||
Exchange-traded |
(1,038,992 | ) | (1,038,992 | ) | ||||||||||||
Cleared OTC |
(1,416,613 | ) | (1,416,613 | ) | ||||||||||||
Bilateral OTC |
(2,303,740 | ) | (2,401,013 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Net amounts per Consolidated Statements of Financial Condition (3) |
$ | 406,268 | $ | 363,515 | ||||||||||||
|
|
|
|
(1) | Exchange traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty. |
(2) | Amounts netted include both netting by counterparty and for cash collateral paid or received. |
(3) | We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition. |
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November 30, 2013 (1) | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Fair Value | Number of Contracts |
Fair Value | Number of Contracts |
|||||||||||||
Interest rate contracts |
||||||||||||||||
Exchange-traded |
$ | 8,696 | 57,344 | $ | 3,846 | 68,268 | ||||||||||
Cleared OTC |
432,667 | 5,402 | 396,422 | 7,730 | ||||||||||||
Bilateral OTC |
724,613 | 1,221 | 730,897 | 1,340 | ||||||||||||
Foreign exchange contracts |
||||||||||||||||
Exchange-traded |
33 | 111,229 | 40 | 104,205 | ||||||||||||
Bilateral OTC |
653,739 | 7,478 | 693,618 | 8,212 | ||||||||||||
Equity contracts |
||||||||||||||||
Exchange-traded |
495,069 | 1,742,195 | 465,110 | 1,800,467 | ||||||||||||
Bilateral OTC |
6,715 | 148 | 9,875 | 136 | ||||||||||||
Commodity contracts |
||||||||||||||||
Exchange-traded |
27,185 | 785,718 | 33,661 | 780,358 | ||||||||||||
Bilateral OTC |
114,095 | 11,811 | 139,458 | 8,359 | ||||||||||||
Credit contracts |
||||||||||||||||
Cleared OTC |
49,531 | 49 | 51,632 | 46 | ||||||||||||
Bilateral OTC |
2,339 | 16 | 8,131 | 19 | ||||||||||||
|
|
|
|
|||||||||||||
Total gross derivative assets/ liabilities: |
||||||||||||||||
Exchange-traded |
530,983 | 502,657 | ||||||||||||||
Cleared OTC |
482,198 | 448,054 | ||||||||||||||
Bilateral OTC |
1,501,501 | 1,581,979 | ||||||||||||||
Amounts offset in the Consolidated Statements of Financial Condition (2): |
||||||||||||||||
Exchange-traded |
(489,375 | ) | (489,375 | ) | ||||||||||||
Cleared OTC |
(446,520 | ) | (445,106 | ) | ||||||||||||
Bilateral OTC |
(1,317,694 | ) | (1,418,130 | ) | ||||||||||||
|
|
|
|
|||||||||||||
Net amounts per Consolidated Statements of Financial Condition (3) |
$ | 261,093 | $ | 180,079 | ||||||||||||
|
|
|
|
(1) | Exchange traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty. |
(2) | Amounts netted include both netting by counterparty and for cash collateral paid or received. |
(3) | We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition. |
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The following table presents unrealized and realized gains (losses) on derivative contracts for year ended November 30, 2014, the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012 (in thousands):
Successor | Predecessor | |||||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||||
Gains (Losses) | November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | ||||||||||||||
Interest rate contracts |
$ | (149,587 | ) | $ | 132,397 | $ | 45,875 | $ | (146,439 | ) | ||||||||
Foreign exchange contracts |
39,872 | 5,514 | 12,228 | 9,076 | ||||||||||||||
Equity contracts |
(327,978 | ) | (21,216 | ) | (20,938 | ) | (138,622 | ) | ||||||||||
Commodity contracts |
58,746 | 45,546 | 19,585 | 77,285 | ||||||||||||||
Credit contracts |
(23,934 | ) | (18,098 | ) | (3,886 | ) | (25,086 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | (402,881 | ) | $ | 144,143 | $ | 52,864 | $ | (223,786 | ) | ||||||||
|
|
|
|
|
|
|
|
OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at November 30, 2014 (in thousands):
OTC Derivative Assets (1) (2) (3) | ||||||||||||||||||||
0 – 12 Months | 1 – 5 Years | Greater Than 5 Years |
Cross-Maturity Netting (4) |
Total | ||||||||||||||||
Commodity swaps, options and forwards |
$ | 62,275 | $ | 6,604 | $ | 23,387 | $ | (6,249 | ) | $ | 86,017 | |||||||||
Equity swaps and options |
2,291 | — | 20,128 | — | 22,419 | |||||||||||||||
Credit default swaps |
— | 2,936 | — | — | 2,936 | |||||||||||||||
Total return swaps |
12,668 | 1 | — | (44 | ) | 12,625 | ||||||||||||||
Foreign currency forwards, swaps and options |
277,134 | 34,344 | 81 | (28,294 | ) | 283,265 | ||||||||||||||
Interest rate swaps, options and forwards |
74,804 | 111,810 | 158,530 | (61,665 | ) | 283,479 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 429,172 | $ | 155,695 | $ | 202,126 | $ | (96,252 | ) | 690,741 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cross product counterparty netting |
(19,237 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Total OTC derivative assets included in Financial instruments owned |
$ | 671,504 | ||||||||||||||||||
|
|
(1) | At November 30, 2014, we held exchange traded derivative assets and other credit agreements with a fair value of $44.5 million, which are not included in this table. |
(2) | OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received on the Consolidated Statements of Financial Condition. At November 30, 2014, cash collateral received was $309.7 million. |
(3) | Derivative fair values include counterparty netting within product category. |
(4) | Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. |
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OTC Derivative Liabilities (1) (2) (3) | ||||||||||||||||||||
0 – 12 Months | 1 – 5 Years | Greater Than 5 Years |
Cross-Maturity Netting (4) |
Total | ||||||||||||||||
Commodity swaps, options and forwards |
$ | 120,863 | $ | 3,105 | $ | 5,722 | $ | (6,249 | ) | $ | 123,441 | |||||||||
Credit default swaps |
— | 1,220 | 6,709 | — | 7,929 | |||||||||||||||
Equity swaps and options |
5,438 | 38,076 | 10,414 | — | 53,928 | |||||||||||||||
Total return swaps |
10,179 | 277 | — | (44 | ) | 10,412 | ||||||||||||||
Foreign currency forwards, swaps and options |
275,902 | 40,126 | — | (28,294 | ) | 287,734 | ||||||||||||||
Interest rate swaps, options and forwards |
58,328 | 77,487 | 210,161 | (61,665 | ) | 284,311 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 470,710 | $ | 160,291 | $ | 233,006 | $ | (96,252 | ) | 767,755 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
Cross product counterparty netting |
(19,237 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased |
$ | 748,518 | ||||||||||||||||||
|
|
(1) | At November 30, 2014, we held exchange traded derivative liabilities and other credit agreements with a fair value of $21.9 million, which are not included in this table. |
(2) | OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged on the Consolidated Statements of Financial Condition. At November 30, 2014, cash collateral pledged was $406.9 million. |
(3) | Derivative fair values include counterparty netting within product category. |
(4) | Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. |
At November 30, 2014, the counterparty credit quality with respect to the fair value of our OTC derivatives assets was as follows (in thousands):
Counterparty credit quality (1): |
||||
A- or higher |
$ | 397,655 | ||
BBB- to BBB+ |
59,010 | |||
BB+ or lower |
127,332 | |||
Unrated |
87,507 | |||
|
|
|||
Total |
$ | 671,504 | ||
|
|
(1) | We utilize internal credit ratings determined by our Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies. |
Contingent Features
Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at November 30, 2014 and November 30, 2013 is $269.0 million and $170.2 million, respectively, for which we have posted collateral of $234.6 million and $127.7 million, respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on November 30, 2014 and November 30, 2013, we would have been required to post an additional $55.1 million and $49.4 million, respectively, of collateral to our counterparties.
Note 8. Collateralized Transactions
We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of our dealer operations. We monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and
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request additional collateral or return excess collateral, as appropriate. We pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included within Financial instruments owned and noted parenthetically as Securities pledged on our Consolidated Statements of Financial Condition.
We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. We also receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities. In many instances, we are permitted by contract or custom to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At November 30, 2014 and November 30, 2013, the approximate fair value of securities received as collateral by us that may be sold or repledged was $25.8 billion and $21.9 billion, respectively. At November 30, 2014 and November 30, 2013, a substantial portion of the securities received by us had been sold or repledged.
In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral in the Consolidated Statements of Financial Condition. At November 30, 2014 and November 30, 2013, $5.4 million and $11.1 million, respectively, were reported as Securities received as collateral and as Obligation to return securities received as collateral.
Offsetting of Securities Financing Agreements
To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. In addition, we enter into customized bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.
In the event of the counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.
The conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. Master netting agreements are a critical component of our risk management processes as part of reducing counterparty credit risk and managing liquidity risk.
We are also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open repurchase and/or securities lending transactions.
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The following tables provide information regarding repurchase agreements and securities borrowing and lending arrangements that are recognized in the Consolidated Statements of Financial Condition and 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands). (See Note 7, Derivative Financial Instruments, for information related to offsetting of derivatives.)
November 30, 2014 | ||||||||||||||||||||||||
Gross Amounts | Netting in Consolidated Statement of Financial Condition |
Net Amounts in Consolidated Statement of Financial Condition |
Additional Amounts Available for Setoff (1) |
Available Collateral (2) |
Net Amount (3) | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Securities borrowing arrangements |
$ | 6,853,103 | $ | — | $ | 6,853,103 | $ | (680,222 | ) | $ | (1,274,196 | ) | $ | 4,898,685 | ||||||||||
Reverse repurchase agreements |
14,059,133 | (10,132,275 | ) | 3,926,858 | (634,568 | ) | (3,248,817 | ) | 43,473 | |||||||||||||||
Liabilities |
||||||||||||||||||||||||
Securities lending arrangements |
$ | 2,598,487 | $ | — | $ | 2,598,487 | $ | (680,222 | ) | $ | (1,883,140 | ) | $ | 35,125 | ||||||||||
Repurchase agreements |
20,804,432 | (10,132,275 | ) | 10,672,157 | (634,568 | ) | (8,810,770 | ) | 1,226,819 |
November 30, 2013 | ||||||||||||||||||||||||
Gross Amounts | Netting in Consolidated Statement of Financial Condition |
Net Amounts in Consolidated Statement of Financial Condition |
Additional Amounts Available for Setoff (1) |
Available Collateral (2) |
Net Amount (4) | |||||||||||||||||||
Assets |
||||||||||||||||||||||||
Securities borrowing arrangements |
$ | 5,359,846 | $ | — | $ | 5,359,846 | $ | (530,293 | ) | $ | (957,140 | ) | $ | 3,872,413 | ||||||||||
Reverse repurchase agreements |
12,715,449 | (8,968,529 | ) | 3,746,920 | (590,754 | ) | (3,074,540 | ) | 81,626 | |||||||||||||||
Liabilities |
||||||||||||||||||||||||
Securities lending arrangements |
$ | 2,506,122 | $ | — | $ | 2,506,122 | $ | (530,293 | ) | $ | (1,942,271 | ) | $ | 33,558 | ||||||||||
Repurchase agreements |
19,748,374 | (8,968,529 | ) | 10,779,845 | (590,754 | ) | (8,748,641 | ) | 1,440,450 |
(1) | Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty’s default, but which are not netted in the balance sheet because other netting provisions of U.S. GAAP are not met. |
(2) | Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. |
(3) | Amounts include $4,847.4 million of securities borrowing arrangements, for which we have received securities collateral of $4,694.0 million, and $1,201.9 million of repurchase agreements, for which we have pledged securities collateral of $1,238.4 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable. |
(4) | Amounts include $3,818.4 million of securities borrowing arrangements, for which we have received securities collateral of $3,721.8 million, and $1,410.0 million of repurchase agreements, for which we have pledged securities collateral of $1,438.9 million, which are subject to master netting agreements but we have not yet determined the agreements to be legally enforceable. |
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Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations
Cash and securities deposited with clearing and depository organizations and segregated in accordance with regulatory regulations totaled $3,444.7 million and $3,616.6 million at November 30, 2014 and November 30, 2013, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers, and with the Commodity Exchange Act, which subjects Jefferies as an FCM to segregation requirements.
Note 9. Securitization Activities
We engage in securitization activities related to corporate loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. In our securitization transactions, we transfer these assets to special purpose entities (“SPEs”) and act as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of our securitization transactions are securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of variable interest entities; however we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. (See Note 10, Variable Interest Entities for further discussion on variable interest entities and our determination of the primary beneficiary.)
We account for our securitization transactions as sales provided we have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in the Consolidated Statement of Earnings prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage- and other-asset backed securities or collateralized loan obligations), which are included within Financial instruments owned and are generally initially categorized as Level 2 within the fair value hierarchy. We apply fair value accounting to the securities.
The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended |
Three Months Ended |
Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Transferred assets |
$ | 6,112.6 | $ | 4,592.5 | $ | 2,735.2 | $ | 10,869.8 | ||||||||
Proceeds on new securitizations |
6,221.1 | 4,609.0 | 2,751.3 | 10,910.8 | ||||||||||||
Cash flows received on retained interests |
46.3 | 35.6 | 32.3 | 64.3 |
We have no explicit or implicit arrangements to provide additional financial support to these SPEs, have no liabilities related to these SPEs and do not have any outstanding derivative contracts executed in connection with these securitization activities at November 30, 2014 and November 30, 2013.
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The following tables summarize our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions):
November 30, 2014 | ||||||||
Securitization Type |
Total Assets | Retained Interests | ||||||
U.S. government agency residential mortgage-backed securities |
$ | 19,196.9 | $ | 226.9 | ||||
U.S. government agency commercial mortgage-backed securities |
5,848.5 | 204.7 | ||||||
Collateralized loan obligations |
4,511.8 | 108.4 | ||||||
November 30, 2013 | ||||||||
Securitization Type |
Total Assets | Retained Interests | ||||||
U.S. government agency residential mortgage-backed securities |
$ | 11,518.4 | $ | 281.3 | ||||
U.S. government agency commercial mortgage-backed securities |
5,385.6 | 96.8 | ||||||
Collateralized loan obligations |
728.5 | 9.0 |
Total assets represent the unpaid principal amount of assets in the SPEs in which we have continuing involvement and are presented solely to provide information regarding the size of the transaction and the size of the underlying assets supporting our retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Our risk of loss is limited to this fair value amount which is included within total Financial instruments owned on our Consolidated Statements of Financial Condition.
Although not obligated, in connection with secondary market-making activities we may make a market in the securities issued by these SPEs. In these market-making transactions, we buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs, although the securities are included in Financial instruments owned. To the extent we purchased securities through these market-marking activities and we are not deemed to be the primary beneficiary of the variable interest entity, these securities are included in agency and non-agency mortgage- and asset-backed securitizations in the nonconsolidated variable interest entities section presented in Note 10, Variable Interest Entities.
If we have not relinquished control over the transferred assets, the assets continue to be recognized in Financial instruments owned and a corresponding liability is recognized in Other secured financings. The carrying value of assets and liabilities resulting from transfers of financial assets treated as secured financings was $7.8 million and $7.8 million, respectively, at November 30, 2014 and $8.7 million and $8.7 million, respectively, at November 30, 2013. The related liabilities do not have recourse to our general credit.
Note 10. Variable Interest Entities
Variable interest entities (“VIEs”) are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.
Our variable interests in VIEs include debt and equity interests, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from:
• | Purchases of securities in connection with our trading and secondary market making activities, |
• | Retained interests held as a result of securitization activities, including the resecuritization of mortgage- and other asset-backed securities and the securitization of commercial mortgage and corporate loans, |
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• | Acting as placement agent and/or underwriter in connection with client-sponsored securitizations, |
• | Financing of agency and non-agency mortgage- and other asset-backed securities, |
• | Warehousing funding arrangements for client-sponsored consumer loan vehicles and collateralized loan obligations (“CLOs”) through participation certificates and revolving loan commitments, and |
• | Loans to, investments in and fees from various investment fund vehicles. |
We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires significant judgment. Our considerations in determining the VIE’s most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE’s purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE’s initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE’s most significant activities is shared, we assess whether we are the party with the power over the majority of the significant activities. If we are the party with the power over the majority of the significant activities, we meet the “power” criteria of the primary beneficiary. If we do not have the power over a majority of the significant activities or we determine that decisions require consent of each sharing party, we do not meet the “power” criteria of the primary beneficiary.
We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires significant judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests.
Consolidated VIEs
The following table presents information about our consolidated VIEs at November 30, 2014 and November 30, 2013 (in millions). The assets and liabilities in the tables below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.
November 30, 2014 | November 30, 2013 | |||||||||||||||
Securitization Vehicles |
Other | Securitization Vehicles |
Other | |||||||||||||
Cash |
$ | — | $ | 0.2 | $ | — | $ | 0.2 | ||||||||
Financial instruments owned |
62.7 | 0.3 | 97.5 | 0.4 | ||||||||||||
Securities purchased under agreement to resell (1) |
575.2 | — | 195.1 | — | ||||||||||||
Fees, interest and other receivables |
0.4 | — | — | — | ||||||||||||
Other assets |
— | — | 2.3 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 638.3 | $ | 0.5 | $ | 294.9 | $ | 0.6 | |||||||||
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|
|
|
|
|
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Other secured financings (2) |
$ | 637.7 | $ | — | $ | 292.5 | $ | — | ||||||||
Other liabilities |
0.6 | 0.2 | 2.1 | 0.2 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 638.3 | $ | 0.2 | $ | 294.6 | $ | 0.2 | |||||||||
|
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|
|
|
|
|
|
(1) | Securities purchased under agreement to resell represent an amount due under a collateralized transaction on a related consolidated entity, which is eliminated in consolidation. |
(2) | Approximately $39.7 million and $66.5 million of the secured financing represents an amount held by us in inventory and is eliminated in consolidation at November 30, 2014 and November 30, 2013, respectively. |
Securitization Vehicles. We are the primary beneficiary of a securitization vehicle to which we transferred term loans backed by consumer installment receivables and retained a portion of the securities issued by the securitization vehicle. In the creation of the securitization vehicle, we were involved in the decisions made during the establishment and design of the entity and hold variable interests consisting of the securities retained that could potentially be significant. The assets of the VIE consist of the term loans backed by consumer installment receivables, which are available for the benefit of the vehicle’s beneficial interest holders. The creditors of the VIE do not have recourse to our general credit and the assets of the VIE are not available to satisfy any other debt.
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We are also the primary beneficiary of mortgage-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage-backed securities pursuant to the terms of a master repurchase agreement. We manage the assets within these vehicles. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders. The creditors of these VIEs do not have recourse to our general credit and each such VIE’s assets are not available to satisfy any other debt.
At November 30, 2013, we were the primary beneficiary of a securitization vehicle to which we transferred a corporate loan and retained a portion of the securities issued by the securitization vehicle. During the second quarter of 2014, the loan was repaid, the securities issued by the securitization vehicle were redeemed and the securitization vehicle was terminated. As a result, the securitization vehicle is no longer consolidated by us at November 30, 2014 and no gain or loss was recognized upon deconsolidation.
Other. We are the primary beneficiary of certain investment vehicles set up for the benefit of our employees. We manage and invest alongside our employees in these vehicles. The assets of these VIEs consist of private equity securities, and are available for the benefit of the entities’ equity holders. Our variable interests in these vehicles consist of equity securities. The creditors of these VIEs do not have recourse to our general credit and each such VIE’s assets are not available to satisfy any other debt.
Nonconsolidated VIEs
The following tables present information about our variable interests in nonconsolidated VIEs (in millions).
November 30, 2014 | ||||||||||||||||
Carrying Amount | Maximum | |||||||||||||||
Assets | Liabilities | Exposure to loss | VIE Assets | |||||||||||||
Collateralized loan obligations |
$ | 134.0 | $ | — | $ | 926.9 | $ | 7,737.1 | ||||||||
Consumer loan financing vehicles |
170.6 | — | 797.8 | 485.2 | ||||||||||||
Asset management vehicles (1) |
11.3 | — | 11.3 | 432.3 | ||||||||||||
Private equity vehicles (2) |
44.3 | — | 59.2 | 92.8 | ||||||||||||
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Total |
$ | 360.2 | $ | — | $ | 1,795.2 | $ | 8,747.4 | ||||||||
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November 30, 2013 | ||||||||||||||||
Carrying Amount | Maximum | |||||||||||||||
Assets | Liabilities | Exposure to loss | VIE Assets | |||||||||||||
Collateralized loan obligations |
$ | 11.9 | $ | 0.2 | $ | 88.8 | $ | 1,122.3 | ||||||||
Asset management vehicle (1) |
5.1 | — | 5.1 | 454.2 | ||||||||||||
Private equity vehicles (2) |
40.8 | — | 68.8 | 89.4 | ||||||||||||
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Total |
$ | 57.8 | $ | 0.2 | $ | 162.7 | $ | 1,665.9 | ||||||||
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(1) | Assets consist of equity interests, which are included within Investments in managed funds, and accrued management and performance fees, which are included within Receivables: Fees, interest and other. |
(2) | Assets consist of equity interests, which are included within Investments in managed funds. |
Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of our variable interests in the VIEs and is limited to the notional amounts of certain loan commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with our variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE.
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Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. We underwrite securities issued in CLO transactions on behalf of unaffiliated sponsors and provide advisory services to the unaffiliated sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with collateralized loan obligations where we have been involved in providing underwriting and/or advisory services consist of the following:
• | Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs, |
• | Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests, |
• | Trading positions in securities issued in a CLO transaction, |
• | Investments in variable funding notes issued by CLOs, |
• | A guarantee to a CLO managed by Jefferies Finance, whereby we guarantee certain of the obligations of Jefferies Finance to the CLO. |
In addition, we own variable interests in CLOs previously managed by us. Our variable interests consist of debt securities and a right to a portion of the CLOs’ management and incentive fees. Our exposure to loss from these CLOs is limited to our investments in the debt securities held. Management and incentives fees are accrued as the amounts become realizable. These CLOs represent interests in assets consisting primarily of senior secured loans, unsecured loans and high yield bonds.
Consumer Loan Financing Vehicles. The underlying assets, which are collateralizing the vehicles, are primarily comprised of unsecured consumer installment loans. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities and forward purchase agreements. In addition, we may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. We do not control the activities of these entities.
Asset Management Vehicles. We manage asset management vehicles that provide investors with exposure to investment strategies consistent with the investment objectives of each vehicle. The vehicles consist of an “umbrella structure” company that invests primarily in convertible bonds and a fund that invests in absolute return strategies. Accounting changes to consolidation standards under generally accepted accounting principles have been deferred for entities that are considered to be investment companies; accordingly, consolidation continues to be determined under a risk and reward model. These asset management vehicles are subject to the deferral guidance and we are not the primary beneficiary at November 30, 2014 and November 30, 2013 under the risk and reward model. Our variable interests in these asset management vehicles consist of equity interests, management fees and performance fees.
Private Equity Vehicles. On July 26, 2010, we committed to invest equity of up to $75.0 million in Jefferies SBI USA Fund L.P. (the “SBI USA Fund”). At November 30, 2014 and November 30, 2013, we funded approximately $60.1 million and $47.0 million, respectively, of our commitment. The carrying amount of our equity investment was $43.1 million and $39.2 million at November 30, 2014 and November 30, 2013, respectively. Our exposure to loss is limited to our equity commitment. The SBI USA Fund has assets consisting primarily of private equity and equity related investments.
We have a variable interest in Jefferies Employees Partners IV, LLC (“JEP IV”) consisting of an equity investment. The carrying amount of our equity investment was $1.2 million and $1.6 million at November 30, 2014 and November 30, 2013, respectively. Our exposure to loss is limited to our equity investment. JEP IV has assets consisting primarily of private equity and equity related investments.
Mortgage- and Other Asset-Backed Securitization Vehicles. In connection with our secondary trading and market making activities, we buy and sell agency and nonagency mortgage- backed securities and other asset-backed securities, which are issued by third party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, collateralized debt obligations and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Financial instruments owned on our Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities.
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We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (Fannie Mae, Freddie Mac and Ginnie Mae) or nonagency sponsored SPEs and may purchase loans or mortgage-backed securities from third parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. We do not consolidate agency sponsored securitizations as we do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, we are not the servicer of nonagency-sponsored securitizations and therefore do not have power to direct the most significant activities of the SPEs and accordingly, do not consolidate these entities. We may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.
We transfer existing securities, typically mortgage-backed securities, into resecuritization vehicles. These transactions in which debt securities are transferred to a VIE in exchange for new beneficial interests occur in connection with both agency and nonagency sponsored VIEs. Our consolidation analysis is largely dependent on our role and interest in the resecuritization trusts. Most resecuritizations in which we are involved are in connection with investors seeking securities with specific risk and return characteristics. As such, we have concluded that the decision-making power is shared between us and the investor(s), considering the joint efforts involved in structuring the trust and selecting the underlying assets as well as the level of security interests the investor(s) hold in the SPE; therefore, we do not consolidate the resecuritization VIEs.
At November 30, 2014 and November 30, 2013, we held $3,186.9 million and $3,476.2 million of agency mortgage-backed securities, respectively, and $1,120.0 million and $985.0 million of nonagency mortgage- and other asset-backed securities, respectively, as a result of our secondary trading and market making activities, underwriting, placement and structuring activities and resecuritization activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. Mortgage- and other asset-backed securitization vehicles discussed within this section are not included in the above table containing information about our variable interests in nonconsolidated VIEs.
We have investments in Jefferies Finance, LLC (“Jefferies Finance”), Jefferies LoanCore LLC (“Jefferies LoanCore”) and KCG Holdings, Inc. (“Knight”). Our investment in Knight is accounted for at fair value by electing the fair value option available under U.S. GAAP and is included in Financial instruments owned, at fair value – Corporate equity securities on the Consolidated Statements of Financial Condition with changes in fair value recognized in Principal transaction revenues on the Consolidated Statements of Earnings. Our investments in Jefferies Finance and Jefferies LoanCore are accounted for under the equity method and are included in Loans to and investments in related parties on the Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in the Consolidated Statements of Earnings.
Jefferies Finance
On October 7, 2004, we entered into an agreement with Babson Capital Management LLC (“Babson Capital”) and Massachusetts Mutual Life Insurance Company (“MassMutual”) to form Jefferies Finance, a joint venture entity. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt to middle market and growth companies in the form of term and revolving loans. Loans are originated primarily through the investment banking efforts of Jefferies, with Babson Capital providing primary credit analytics and portfolio management services. Jefferies Finance can also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market, including loans that are performing, stressed and distressed loan obligations.
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At November 30, 2014, we and MassMutual each have equity commitments to Jefferies Finance of $600.0 million for a combined total commitment of $1.2 billion. At November 30, 2014, we have funded $496.0 million of our $600.0 million commitment, leaving $104.0 million unfunded. The investment commitment is scheduled to expire on March 1, 2016 with automatic one year extensions absent a 60 day termination notice by either party.
Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance. The Secured Revolving Credit Facility bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total committed Secured Revolving Credit Facility is $1.0 billion, comprised of committed and discretionary advances totaling $700.0 million and $300.0 million, respectively, at November 30, 2014. Committed advances are shared equally between us and MassMutual but discretionary advances may be funded in unequal amounts if agreed between MassMutual and us. The facility is scheduled to mature on March 1, 2016 with automatic one year extensions absent a 60 day termination notice by either party. At November 30, 2014 and November 30, 2013, we have funded $-0- and $123.8 million, respectively, of our $350.0 million commitment. During the year ended November 30, 2014, $2.0 million of interest income and $1.9 million of unfunded commitment fees are included in the Consolidated Statement of Earnings related to the Secured Revolving Credit Facility. During the nine months ended November 30, 2013, the three months ended February 28, 2013, and the year ended November 30, 2012 we earned interest income of $1.5 million, $4.1 million, and $8.4 million, respectively and unfunded commitment fees of $1.2 million, $0.3 million, and $1.8 million, respectively.
The following is a summary of selected financial information for Jefferies Finance (in millions):
November 30, 2014 |
November 30, 2013 |
|||||||
Total assets |
$ | 5,954.0 | $ | 3,271.9 | ||||
Total liabilities |
4,961.7 | 2,597.0 | ||||||
Total equity |
992.3 | 674.9 | ||||||
Our total equity balance |
496.0 | 337.3 |
Separate financial statements for Jefferies Finance is included in this Annual Report on Form 10-K. The net earnings of Jefferies Finance were $138.6 million, $132.7 million and $128.6 million for the years ended November 30, 2014 and November 30, 2013 and November 30, 2012, respectively.
We engage in debt capital markets transactions with Jefferies Finance related to the originations of loans by Jefferies Finance. In connection with such transactions, we earned net underwriting fees of $199.5 million for the year ended November 30, 2014, and $125.8 million, $39.9 million and $123.1 million during the nine months ended November 30, 2013, the three months ended February 28, 2013, and the year ended November 30, 2012, respectively, which are recognized in Investment banking revenues on the Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance regarding certain loans originated by Jefferies Finance of $10.6 million during the year ended November 30, 2014, and $12.0 million, $0.8 million and $8.7 million during the nine months ended November 30, 2013, the three months ended February 28, 2013, and the year ended November 30, 2012, respectively, which are recognized as Business development expenses on the Consolidated Statements of Earnings.
During the years ended November 30, 2014 and November 30, 2013, we acted as placement agent in connection with CLOs managed by Jefferies Finance, for which we recognized fees of $4.6 million and $1.9 million, respectively, which are included in Investment banking revenues on the Consolidated Statements of Earnings. As part of the transactions, we purchased securities issued by the CLOs, which are included within Financial instruments owned and provided a guarantee, whereby we are required to make certain payments to a CLO in the event that Jefferies Finance is unable to meet its obligations to the CLO. Additionally, we have entered into a derivative contract with Jefferies Finance whose underlying is based on certain securities issued by the CLO for which we have recognized revenue of $0.7 million during the year ended November 30, 2014.
During the years ended November 30, 2014 and November 30, 2013, we acted as underwriter in connection with senior notes issued by Jefferies Finance, for which we recognized net underwriting fees of $7.7 million and $6.0 million, respectively, which are included in Investment banking revenues on the Consolidated Statements of Earnings.
Under a service agreement, we charged Jefferies Finance $41.6 million for services provided during the year ended November 30, 2014, and $14.2 million, $15.7 million and $26.8 million for the nine months ended November 30, 2013, the three months ended February 28, 2013 and the year ended November 30, 2012, respectively. Receivables from Jefferies Finance, included within Other assets on the Consolidated Statements of Financial Condition, were $41.5 million and $31.1 million at November 30, 2014 and November 30, 2013, respectively.
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Jefferies LoanCore
On February 23, 2011, we entered into a joint venture agreement with the Government of Singapore Investment Corporation and LoanCore, LLC and formed Jefferies LoanCore, a commercial real estate finance company. Jefferies LoanCore originates and purchases commercial real estate loans throughout the U.S. with the support of the investment banking and securitization capabilities of Jefferies and the real estate and mortgage investment expertise of the Government of Singapore Investment Corporation and LoanCore, LLC. Jefferies LoanCore has aggregate equity commitments of $600.0 million. At November 30, 2014 and November 30, 2013, we have funded $200.9 million and $175.5 million, respectively, of our $291.0 million equity commitment and have a 48.5% voting interest in Jefferies LoanCore.
The following is a summary of selected financial information for Jefferies LoanCore (in millions):
November 30, 2014 |
November 30, 2013 |
|||||||
Total assets |
$ | 1,500.9 | $ | 975.1 | ||||
Total liabilities |
962.7 | 508.2 | ||||||
Total equity |
538.2 | 466.9 | ||||||
Our total equity balance |
261.0 | 226.5 |
The net earnings of Jefferies LoanCore were $38.1 million, $85.1 million and $84.2 million for the years ended November 30, 2014, November 30, 2013 and November 30, 2012, respectively.
Under a service agreement, we charged Jefferies LoanCore $0.1 million for year ended November 30, 2014, $0.5 million for the nine months ended November 30, 2013, $0.6 million for the three months ended February 28, 2013, and $0.5 million for the year ended November 30, 2012, respectively, for administrative services. Receivables from Jefferies LoanCore, included within Other assets on the Consolidated Statements of Financial Condition, were $8,900 and $230,000 at November 30, 2014 and November 30, 2013, respectively.
In connection with the securitization of commercial real estate loans originated by Jefferies LoanCore, we earned placement fees $1.6 million during the year ended November 30, 2014.
On derivative transactions with Jefferies LoanCore, we recognized $-0- during the year ended November 30, 2014, a net gain of $3.6 million for the nine months ended November 30, 2013, a net gain of $0.2 million during the three months ended February 28, 2013 and a net gain of $25.6 million during the year ended November 30, 2012, which are included in Principal transactions revenue on the Consolidated Statements of Earnings.
Knight Capital
On August 6, 2012, we entered into a Securities Purchase Agreement with Knight Capital Group, Inc., a publicly-traded global financial services firm, (the “Agreement”). Under the Agreement, we purchased preferred stock, which contained certain conversion options, in exchange for cash consideration of $125.0 million. On August 29, 2012, we exercised our conversion options and converted our holding of Series A Securities to common stock. On July 1, 2013, Knight Capital Group, Inc. merged with GETCO Holding Company, LLC (the merged company referred to as “KCG Holdings, Inc.”). In connection with the consummation of the merger, we received cash consideration of $3.75 per share, or approximately $192.0 million, with respect to approximately 63% of our holdings in Knight Capital Group, Inc. and stock consideration of one third of a share of KCG Holdings, Inc. common stock for each share of Knight Capital Group Inc. common stock for the remainder of our holdings. At November 30, 2014, we owned approximately 19% of the outstanding common stock of Knight.
We elected to record our investment in Knight at fair value under the fair value option as the investment was acquired as part of our capital markets activities. The valuation of our investment at November 30, 2014 is based on the closing exchange price of Knight’s common stock and included within Level 1 of the fair value hierarchy. Changes in the fair value of our investment of $(14.7) million for the year ended November 30, 2014, and $19.5 million, $26.5 million and $151.9 million, for the nine months ended November 30, 2013, the three months ended February 28, 2013 and for the year ended November 30, 2012, respectively, are recognized in Principal transactions revenues on the Consolidated Statement of Earnings.
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The following is a summary of selected financial information for Knight at September 30, 2014, the most recently available public financial information for the company, and at December 31, 2013 (in millions):
September 30, 2014 |
December 31, 2013 |
|||||||
Total assets |
$ | 7,515.2 | $ | 6,997.0 | ||||
Total liabilities |
6,029.4 | 5,487.5 | ||||||
Total equity |
1,485.8 | 1,509.5 |
For the nine months ended September 30, 2014 and for the year ended December 31, 2013, Knight reported net income of $35.0 million and $141.7 million, respectively.
We have separately entered into securities lending transactions with Knight in the normal course of our capital markets activities. The balances of securities borrowed and securities loaned were $4.8 million and $9.5 million, respectively, at November 30, 2014 and $11.0 million and $22.7 million, respectively, at November 30, 2013.
Note 12. Goodwill and Other Intangible Assets
In connection with the Leucadia Transaction, goodwill of $1.7 billion was recorded on March 1, 2013. In addition, at March 1, 2013, certain existing intangible assets and new intangible assets were identified and recorded at their fair values. (See Note 4, Leucadia and Related Transactions for further information.)
Goodwill
Goodwill resulting from the Leucadia Transaction attributed to our reportable segments is as follows (in thousands):
November 30, 2014 | November 30, 2013 | |||||||
Capital Markets |
$ | 1,659,636 | $ | 1,717,246 | ||||
Asset Management |
3,000 | 5,100 | ||||||
|
|
|
|
|||||
Total goodwill |
$ | 1,662,636 | $ | 1,722,346 | ||||
|
|
|
|
The following table is a summary of the changes to goodwill for the year ended November 30, 2014, the nine months ended November 30, 2013 and the three months ended February 28, 2013 (in thousands):
Successor | Predecessor | |||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
||||||||||
Balance, at beginning of period |
$ | 1,722,346 | $ | 1,720,380 | $ | 365,670 | ||||||
Less: Impairment loss |
(54,000 | ) (1) | — | — | ||||||||
Less: Disposal |
— | (5,700 | ) (2) | — | ||||||||
Add: Contingent consideration |
— | — | 2,394 | (3) | ||||||||
Add: Translation adjustments |
(5,710 | ) | 7,666 | (1,287 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, at end of period |
$ | 1,662,636 | $ | 1,722,346 | $ | 366,777 | (4) | |||||
|
|
|
|
|
|
(1) | Activity represents impairment losses of $51.9 million related to the Futures reporting unit and $2.1 million related to our International Asset Management business. |
(2) | As a result of a restructuring of our ownership interest in the commodities asset management business, we no longer hold a controlling interest and accordingly do not consolidate this business. In addition, we sold Jefferies International Management Limited to Leucadia. Goodwill associated with these entities was included in the net assets disposed of in the transactions. |
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(3) | Contingent consideration recorded during the three months ended February 28, 2013 relates to the lapse of certain conditions as specified in the purchase agreements associated with an acquisition in 2007. |
(4) | Predecessor Company goodwill at February 28, 2013 was reduced to $-0- at March 1, 2013, as a result of purchase accounting adjustments. |
Goodwill Impairment Testing
Goodwill is allocated to related reporting units, which are determined based on financial information provided to management in connection with its management of the businesses and represent an operating segment or one level below an operating segment. The results of our annual goodwill impairment testing at August 1 did not indicate any impairment in any of our reporting units.
Allocated equity plus allocated goodwill and allocated intangible assets are used as a proxy for the carrying amount of each reporting unit. The amount of equity allocated to a reporting unit is based on our cash capital model deployed in managing our businesses, which seeks to approximate the capital a business would require if it were operating independently. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit’s benefit from the intangible asset in order to generate results.
Estimating the fair value of a reporting unit requires management judgment. Estimated fair values for our reporting units were determined using a market valuation method that incorporate price-to-earnings and price-to-book multiples of comparable public companies, as well as discounted cash flow valuation methodologies. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of each reporting unit on a controlling basis. We engaged an independent valuation specialist to assist us in our valuation process at August 1, 2014.
During the fourth quarter of 2014, management decided to pursue alternative strategies for our Futures business (which constitutes a reporting unit), including possible divesture, given the recent operating performance and margin challenges of the business. In employing a discounted cash flow methodology to estimate the fair value of the reporting unit, a discount rate reflective of the uncertainty associated with achieving future performance targets was incorporated. Further, a fair value using a market valuation approach was also estimated and a multiple was calibrated from guideline companies, which is reflective of the business’ now expected return on tangible equity. A goodwill impairment loss of $51.9 million was recognized in the Futures reporting unit at November 30, 2014 and the remaining goodwill allocated to the reporting unit is $-0-. In addition, during the fourth quarter of 2014, management decided to liquidate our International Asset Management business, which constitutes a reporting unit. Considering management’s plans to liquidate this business within the next 12 months, future cash flows are not expected to be generated that will support its carrying value. A goodwill impairment loss of $2.1 million was recognized in the International Asset Management reporting unit at November 30, 2014 and the remaining goodwill allocated to the reporting unit is $-0-.
Substantially all of our remaining goodwill is allocated to our Investment Banking, Equities and Fixed Income reporting units for which the results of our assessment at August 1, 2014 indicated that these reporting units had a fair value substantially in excess of their carrying amounts based on current projections. Goodwill allocated to these reporting units is $1,659.6 million of total goodwill of $1,662.6 million at November 30, 2014.
Intangible Assets
The following tables present the gross carrying amount, impairment losses, accumulated amortization, net carrying amount and weighted average amortization period of identifiable intangible assets at November 30, 2014 and November 30, 2013 (in thousands):
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November 30, 2014 | ||||||||||||||||||||
Gross cost | Impairment losses |
Accumulated amortization |
Net carrying amount |
Weighted average remaining lives (years) |
||||||||||||||||
Customer relationships |
$ | 135,926 | $ | (7,603 | ) (1) | $ | (26,402 | ) | $ | 101,921 | 13.7 | |||||||||
Trade name |
132,009 | — | (6,677 | ) | 125,332 | 33.3 | ||||||||||||||
Exchange and clearing organization membership interests and registrations |
14,706 | (178 | ) | — | 14,528 | N/A | ||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
$ | 282,641 | $ | (7,781 | ) | $ | (33,079 | ) | $ | 241,781 | |||||||||||
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|
|
|
(1) | Activity primarily represents impairment losses related to the Futures reporting unit. The impairment charge is included within Other expenses in the Consolidated Statements of Earnings. |
November 30, 2013 | ||||||||||||||||||||
Gross cost | Impairment losses |
Accumulated amortization |
Net carrying amount |
Weighted average remaining lives (years) |
||||||||||||||||
Customer relationships |
$ | 136,740 | $ | — | $ | (17,567 | ) | $ | 119,173 | 14.8 | ||||||||||
Trade name |
132,967 | — | (2,966 | ) | 130,001 | 34.3 | ||||||||||||||
Exchange and clearing organization membership interests and registrations |
15,294 | (378 | ) | — | 14,916 | N/A | ||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
$ | 285,001 | $ | (378 | ) | $ | (20,533 | ) | $ | 264,090 | |||||||||||
|
|
|
|
|
|
|
|
Impairment Testing
We performed our annual impairment testing of indefinite-life intangible assets, which consists of exchange and clearing organization membership interests and registrations, at August 1, 2014. We elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices, and a qualitative assessment of the remainder of our intangible assets. In applying our quantitative assessment, we recognized an impairment loss of $178,000 on certain exchange memberships based on a decline in fair value at August 1, 2014 as observed based on quoted sales prices. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we have concluded that it was not more likely than not that the intangible assets were impaired. In applying our quantitative assessment at August 1, 2013 we recognized an impairment loss of $378,000 on certain exchange memberships based on a decline in fair value as observed based on quoted sales prices.
As a result of management’s decisions during the fourth quarter of 2014 to pursue strategic alternatives for our Futures business and to liquidate our International Asset Management business, we performed additional impairment testing of indefinite- and finite-life intangible assets that are associated with those reporting units. Estimating the fair value of customer relationship intangible assets using a discounted cash flow methodology, we recognized impairment losses at November 30, 2014 of $7.5 million and $0.1 million in the Futures business and the International Asset Management business, respectively, which are recognized in Other expenses on the Consolidated Statement of Earnings.
Amortization Expense
For finite-life intangible assets, aggregate amortization expense amounted to $12.8 million for the year ended November 30, 2014, $20.5 million, $0.4 million and $2.3 million for the nine months ended November 30, 2013, the three months ended February 28, 2013 and for the year ended November 30, 2012, respectively. These expenses are included in Other expenses on the Consolidated Statements of Earnings.
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The estimated future amortization expenses for the five succeeding fiscal years are as follows (in thousands):
Year ended November 30, 2015 |
12,198 | |||
Year ended November 30, 2016 |
12,198 | |||
Year ended November 30, 2017 |
12,198 | |||
Year ended November 30, 2018 |
12,198 | |||
Year ended November 30, 2019 |
12,198 |
Note 13. Short-Term Borrowings
Short-term borrowings include bank loans that are payable on demand, as well as borrowings under revolving credit facilities which must be repaid within one year or less. Bank loans are typically overnight loans used to finance financial instruments owned or clearing related balances, but are not part of our systemic funding model and generally bear interest at a spread over the federal funds rate. Short-term borrowings at November 30, 2014 and November 30, 2013 were $12.0 million and $12.0 million, respectively. At November 30, 2014, the interest rate on short-term borrowings outstanding is 0.63% per annum. Average daily short-term borrowings outstanding for the year ended November 30, 2014, the nine months ended November 30, 2013 and the three months ended February 28, 2013 were $81.7 million, $43.3 million and $110.0 million, respectively.
As a result of the Leucadia Transaction, we recorded our long-term debt at its fair value of $6.1 billion on the acquisition date, which included $536.5 million of excess of the fair value over the total principal amount of our debt at March 1, 2013, in aggregate. The premium is being amortized to interest expense using the effective yield method over the remaining lives of the underlying debt obligations. (See Note 4, Leucadia and Related Transactions for further information.)
The following summarizes our long-term debt carrying values (including unamortized discounts and premiums and valuation adjustment, where applicable) at November 30, 2014 and November 30, 2013 (in thousands):
November 30, 2014 |
November 30, 2013 |
|||||||
Unsecured Long-Term Debt |
||||||||
5.875% Senior Notes, due June 8, 2014 (effective interest rate of 1.51%) |
$ | — | $ | 255,676 | ||||
3.875% Senior Notes, due November 9, 2015 (effective interest rate of 2.17%) |
507,944 | 516,204 | ||||||
5.5% Senior Notes, due March 15, 2016 (effective interest rate of 2.52%) |
363,229 | 373,178 | ||||||
5.125% Senior Notes, due April 13, 2018 (effective interest rate of 3.46%) |
842,359 | 854,011 | ||||||
8.5% Senior Notes, due July 15, 2019 (effective interest rate of 4.00%) |
832,797 | 858,425 | ||||||
2.375% Euro Medium Term Notes, due May 20, 2020 (effective rate of 2.42%) |
620,725 | — | ||||||
6.875% Senior Notes, due April 15, 2021 (effective interest rate of 4.40%) |
853,091 | 866,801 | ||||||
2.25% Euro Medium Term Notes, due July 13, 2022 (effective rate of 4.08%) |
4,379 | 4,792 | ||||||
5.125% Senior Notes, due January 20, 2023 (effective interest rate of 4.55%) |
623,311 | 625,626 | ||||||
6.45% Senior Debentures, due June 8, 2027 (effective interest rate of 5.46%) |
381,515 | 383,224 | ||||||
3.875% Convertible Senior Debentures, due November 1, 2029 (effective interest rate of 3.50%) (1) |
349,261 | 359,281 | ||||||
6.25% Senior Debentures, due January 15, 2036 (effective interest rate of 6.03%) |
513,046 | 513,343 | ||||||
6.50% Senior Notes, due January 20, 2043 (effective interest rate of 6.09%) |
421,960 | 422,245 | ||||||
|
|
|
|
|||||
$ | 6,313,617 | $ | 6,032,806 | |||||
|
|
|
|
|||||
Secured Long-Term Debt |
||||||||
Credit facility |
170,000 | 200,000 | ||||||
|
|
|
|
|||||
$ | 6,483,617 | $ | 6,232,806 | |||||
|
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|
|
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(1) | As a result of the Leucadia Transaction on March 1, 2013, the value of the 3.875% Convertible Senior debentures at November 30, 2014 and November 30, 2013, includes the fair value of the conversion feature of $0.7 million and $9.6 million, respectively. The change in fair value of the conversion feature is included within Principal transactions revenues in the Consolidated Statements of Earnings and amounted to a gain of $8.9 million and a gain of $6.9 million for the year ended November 30, 2014 and the nine months ended November 30, 2013, respectively. |
On May 20, 2014, under our $2.0 billion Euro Medium Term Note Program we issued senior unsecured notes with a principal amount of €500.0 million, due 2020, which bear interest at 2.375% per annum. Proceeds amounted to €498.7 million. On January 15, 2013, we issued $1.0 billion in senior unsecured long-term debt, comprising 5.125% Senior Notes, due 2023 and 6.5% Senior Notes, due 2043. The 5.125% Senior Notes were issued with a principal amount of $600.0 million and we received proceeds of $595.6 million. The 6.5% Senior Notes were issued with a principal amount of $400.0 million and we received proceeds of $391.7 million.
Our U.S. broker-dealer, from time to time, makes a market in our long-term debt securities (i.e., purchases and sells our long-term debt securities). During November and December 2011, there was extreme volatility in the price of our debt and a significant amount of secondary trading volume through our market-making desk. Given the volume of activity and significant price volatility, purchases and sales of our Senior Notes due 2018 and Convertible Senior Debentures due 2029 were treated as debt extinguishments and reissuances of debt, respectively. We recognized a gain of $9.9 million on debt extinguishment, which is reported in Other revenues for the year ended November 30, 2012.
Upon completion of the Leucadia Transaction on March 1, 2013, our 3.875% convertible debentures due 2029 (principal amount of $345.0 million) (the “debentures”) remain issued and outstanding but are now convertible into common shares of Leucadia. Other than the conversion into Leucadia common shares, the terms of the debenture remain the same. At December 11, 2014, each $1,000 debenture is currently convertible into 22.1925 shares of Leucadia’s common stock (equivalent to a conversion price of approximately $45.06 per share of Leucadia’s common stock). The debentures are convertible at the holders’ option any time beginning on August 1, 2029 and convertible at any time if: 1) Leucadia’s common stock price is greater than or equal to 130% of the conversion price for at least 20 trading days in a period of 30 consecutive trading days; 2) if the trading price per debenture is less than 95% of the price of the common stock times the conversion ratio for any 10 consecutive trading days; 3) if the debentures are called for redemption; or 4) upon the occurrence of specific corporate actions. The debentures may be redeemed for par, plus accrued interest, on or after November 1, 2012 if the price of Leucadia’s common stock is greater than 130% of the conversion price for at least 20 days in a period of 30 consecutive trading days and we may redeem the debentures for par, plus accrued interest, at our election any time on or after November 1, 2017. Holders may require us to repurchase the debentures for par, plus accrued interest, on November 1, 2017, 2019 and 2024. In addition to ordinary interest, commencing November 1, 2017, contingent interest will accrue at 0.375% if the average trading price of a debenture for 5 trading days ending on and including the third trading day immediately preceding a six-month interest period equals or exceed $1,200 per $1,000 debenture. At March 1, 2013, the conversion option to Leucadia common shares embedded within the debentures meets the definition of a derivative contract, does not qualify to be accounted for within member’s equity and is not clearly and closely related to the economic interest rate or credit risk characteristics of our debt. Accordingly, the conversion option is accounted for on a standalone basis at fair value with changes in fair value recognized in Principal transactions revenues in the Consolidated Statements of Earnings and is presented within Long-term debt on the Consolidated Statement of Financial Condition.
Secured Long-Term Debt—On August 26, 2011, we entered into a committed senior secured revolving credit facility (“Credit Facility”) with a group of commercial banks in U.S. dollars, Euros and Sterling, for an aggregate committed amount of $950.0 million with availability subject to one or more borrowing bases and of which $250.0 million can be borrowed by Jefferies Bache Limited without a borrowing base requirement. On June 26, 2014, we amended and restated the Credit Facility for three years and reduced the committed amount to $750.0 million. The borrowers under the Credit Facility are Jefferies Bache Financial Services, Inc., Jefferies Bache, LLC and Jefferies Bache Limited, with a guarantee from Jefferies Group LLC. On September 1, 2014, Jefferies Bache, LLC merged with and into Jefferies (a U.S. broker-dealer). Jefferies is the surviving entity, and therefore, a borrower under the Credit Facility. The Credit Facility contains certain financial covenants, including, but not limited to, restrictions on future indebtedness of our subsidiaries, minimum tangible net worth and liquidity requirements and minimum capital requirements. Interest is based on, in the case of U.S. dollar borrowings, the Federal funds rate or the London Interbank Offered Rate or, in
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the case of Euro and Sterling borrowings, the Euro Interbank Offered Rate and the London Interbank Offered Rate, respectively. The obligations of each borrower under the Credit Facility are secured by substantially all the assets of such borrower, but none of the borrowers is responsible for any obligations of any other borrower. At November 30, 2014 and November 30, 2013, borrowings under the Credit Facility were denominated in U.S. dollars and we were in compliance with debt covenants under the Credit Facility.
Note 15. Mandatorily Redeemable Convertible Preferred Stock
As of February 28, 2013 and November 30, 2012, we had issued and outstanding 125,000 shares of 3.25% Series A Convertible Cumulative Preferred Stock, all of which were held by controlled affiliates of MassMutual. The preferred stock was callable beginning in 2016 at a price of $1,000 per share plus accrued interest and matured in 2036. Dividends paid on the Series A Convertible Cumulative Preferred Stock were recorded as a component of Interest expense as the preferred stock is treated as debt for accounting purposes. For tax purposes, the dividend is not tax-deductible because the Series A Convertible Cumulative Preferred Stock are considered “equity”.
On March 1, 2013, pursuant to the Leucadia Transaction, the Series A Convertible Cumulative Preferred Stock was exchanged for a comparable series of convertible preferred shares of Leucadia. The assumption by Leucadia of our convertible cumulative preferred stock is considered part of the purchase price and resulted in an increase in member’s equity. (See Note 4. Leucadia and Related Transactions for further details.)
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Note 16. Noncontrolling Interests and Mandatorily Redeemable Preferred Interests of Consolidated Subsidiaries
Noncontrolling Interests
Noncontrolling interests represent equity interests in consolidated subsidiaries, comprised primarily of asset management entities and investment vehicles set up for the benefit of our employees, that are not attributable, either directly or indirectly, to us (i.e., minority interests). The following table presents noncontrolling interests at November 30, 2014 and November 30, 2013 (in thousands):
November 30, 2014 |
November 30, 2013 |
|||||||
Jefferies Structured Alpha Fund B, LLC (1) |
$ | — | $ | 115,958 | ||||
Global Equity Event Opportunity Fund, LLC (2) |
33,303 | — | ||||||
Other |
5,545 | 1,196 | ||||||
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|
|||||
Noncontrolling interests |
$ | 38,848 | $ | 117,154 | ||||
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(1) | During the first quarter of 2014, the Jefferies Structured Alpha Fund B, LLC was deconsolidated due to substantive investments in the entity by third parties. No gain or loss was recognized upon deconsolidation. At November 30, 2013, noncontrolling interests included $80.4 million attributed to Leucadia. |
(2) | At November 30, 2014, $25.4 million of the total noncontrolling interests of $33.3 million are attributed to Leucadia. |
Noncontrolling ownership interests in consolidated subsidiaries are presented in the accompanying Consolidated Statements of Financial Condition within Equity as a component separate from Member’s equity. Net Earnings in the accompanying Consolidated Statements of Earnings includes earnings attributable to both our equity investor and the noncontrolling interests.
Mandatorily Redeemable Preferred Interests of Consolidated Subsidiaries
Interests in consolidated subsidiaries that meet the definition of mandatorily redeemable financial instruments require liability classification and remeasurement at the estimated amount of cash that would be due and payable to settle such interests under the applicable entity’s organization agreement. Changes to mandatorily redeemable financial instruments are reflected as Interest on mandatorily redeemable preferred interests of consolidated subsidiaries within Net revenues in our Consolidated Statements of Earnings.
On April 1, 2013, mandatorily redeemable financial instruments, representing Leucadia’s member’s equity interests in Jefferies High Yield Holdings, LLC (“JHYH”), were redeemed and subsequently contributed back to us by Leucadia as additional equity in Jefferies Group LLC. Prior to redemption, the mandatorily redeemable financial instruments represented interests held in JHYH.
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U.S. Pension Plan
We maintain a defined benefit pension plan, Jefferies Group LLC Employees’ Pension Plan (the “U.S. Pension Plan”), which is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended, and covers certain of our employees. Under the U.S. Pension Plan, benefits to participants are based on years of service and the employee’s career average pay. Effective December 31, 2005, benefits under the U.S. Pension Plan were frozen with no further benefit accruing to participants for future service after December 31, 2005.
Employer Contributions – Our funding policy is to contribute to the U.S. Pension Plan at least the minimum amount required for funding purposes under applicable employee benefit and tax laws. We did not make any contributions to the U.S. Pension Plan during the year ended November 30, 2014. We do not expect to make any contributions in the year ended November 30, 2015.
The following tables summarize the changes in the projected benefit obligation, the fair value of the assets and the funded status of the plan (in thousands):
Year Ended November 30, | ||||||||
2014 | 2013 | |||||||
Change in projected benefit obligation: |
||||||||
Projected benefit obligation, beginning of period. |
$ | 48,255 | $ | 53,433 | ||||
Service cost |
250 | 225 | ||||||
Interest cost |
2,429 | 2,201 | ||||||
Actuarial losses (gains) |
5,834 | (5,046 | ) | |||||
Administrative expenses paid |
(196 | ) | (296 | ) | ||||
Benefits paid |
(1,310 | ) | (2,262 | ) | ||||
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Projected benefit obligation, end of period |
$ | 55,262 | $ | 48,255 | ||||
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|
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Change in plan assets: |
||||||||
Fair value of assets, beginning of period |
$ | 47,416 | $ | 39,902 | ||||
Employer contributions |
— | 3,000 | ||||||
Benefit payments made |
(1,310 | ) | (2,262 | ) | ||||
Administrative expenses paid |
(196 | ) | (296 | ) | ||||
Actual return on plan assets |
5,175 | 7,072 | ||||||
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Fair value of assets, end of period |
$ | 51,085 | $ | 47,416 | ||||
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Funded status at end of period |
$ | (4,177 | ) | $ | (839 | ) | ||
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The amounts recognized in our Consolidated Statements of Financial Condition are as follows (in thousands):
November 30, | ||||||||
2014 | 2013 | |||||||
Consolidated statements of financial condition: |
||||||||
Liabilities |
$ | (4,177 | ) | $ | (839 | ) | ||
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|
|
|||||
Accumulated other comprehensive income (loss), before taxes: |
||||||||
Net gain (loss) |
$ | 2,390 | $ | 6,268 | ||||
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The following tables summarize the components of net periodic pension cost and other amounts recognized in other comprehensive income excluding taxes (in thousands):
Year Ended November 30, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Components of net periodic pension cost: |
||||||||||||
Service cost |
$ | 250 | $ | 225 | $ | 175 | ||||||
Interest cost on projected benefit obligation |
2,429 | 2,201 | 2,342 | |||||||||
Expected return on plan assets |
(3,125 | ) | (2,698 | ) | (2,513 | ) | ||||||
Net amortization |
(94 | ) | 326 | 1,334 | ||||||||
Settlement losses (1) |
— | — | 1,051 | |||||||||
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|
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|
|||||||
Net periodic pension cost |
$ | (540 | ) | $ | 54 | $ | 2,389 | |||||
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|
|
(1) | Of the $2.4 million in net periodic pension cost for the year ended November 30, 2012, $1.1 million is due to previously unrecognized losses associated with the projected pension obligation as the cost of all settlements in fiscal 2012 for terminated employees exceeded current year interest and service costs. |
2014 | 2013 | 2012 | ||||||||||
Amounts recognized in other comprehensive income: |
||||||||||||
Net (gain) loss arising during the period |
$ | 3,784 | $ | (9,419 | ) | $ | 1,498 | |||||
Amortization of net loss |
94 | (326 | ) | (1,334 | ) | |||||||
Settlements during the period |
— | — | (1,051 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total recognized in Other comprehensive income |
$ | 3,878 | $ | (9,745 | ) | $ | (887 | ) | ||||
|
|
|
|
|
|
|||||||
Net amount recognized in net periodic benefit cost and Other comprehensive income |
$ | 3,338 | $ | (9,691 | ) | $ | 1,502 | |||||
|
|
|
|
|
|
On a weighted average basis, the following are assumptions used to determine the actuarial present value of the projected benefit obligation and net periodic pension benefit cost:
2014 | 2013 | 2012 | ||||||||||
Discount rate |
4.30 | % | 5.10 | % | 4.00 | % | ||||||
Expected long-term rate of return on plan assets |
6.75 | % | 6.75 | % | 6.75 | % |
Expected Benefit Payments - Expected benefit payments for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in thousands):
2015 |
$ | 1,671 | ||
2016 |
2,849 | |||
2017 |
2,216 | |||
2018 |
2,126 | |||
2019 |
2,947 | |||
2020 through 2024 |
18,147 |
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Table of Contents
Plan Assets - The following table presents the fair value of plan assets at November 30, 2014 and November 30, 2013 by level within the fair value hierarchy (in thousands):
At November 30, 2014 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Plan assets (1): |
||||||||||||
Cash and cash equivalents |
$ | 373 | $ | — | $ | 373 | ||||||
Listed equity securities (2) |
31,327 | — | 31,327 | |||||||||
Fixed income securities: |
||||||||||||
Corporate debt securities |
— | 6,482 | 6,482 | |||||||||
Foreign corporate debt securities |
— | 1,321 | 1,321 | |||||||||
U.S. government securities |
5,929 | — | 5,929 | |||||||||
Agency mortgage-backed securities |
— | 3,883 | 3,883 | |||||||||
Commercial mortgage-backed securities. |
— | 1,080 | 1,080 | |||||||||
Asset-backed securities |
— | 690 | 690 | |||||||||
|
|
|
|
|
|
|||||||
$ | 37,629 | $ | 13,456 | $ | 51,085 | |||||||
|
|
|
|
|
|
(1) | There are no plan assets classified within Level 3 of the fair value hierarchy. |
(2) | Listed equity securities are diversified across a spectrum of primarily U.S. large-cap companies. |
At November 30, 2013 | ||||||||||||
Level 1 | Level 2 | Total | ||||||||||
Plan assets (1): |
||||||||||||
Cash and cash equivalents |
$ | 931 | $ | — | $ | 931 | ||||||
Listed equity securities (2) |
27,663 | — | 27,663 | |||||||||
Fixed income securities: |
||||||||||||
Corporate debt securities |
— | 7,743 | 7,743 | |||||||||
Foreign corporate debt securities |
— | 1,140 | 1,140 | |||||||||
U.S. government securities |
4,055 | — | 4,055 | |||||||||
Agency mortgage-backed securities |
— | 3,949 | 3,949 | |||||||||
Commercial mortgage-backed securities. |
— | 1,280 | 1,280 | |||||||||
Asset-backed securities |
— | 461 | 461 | |||||||||
Other |
— | 194 | 194 | |||||||||
|
|
|
|
|
|
|||||||
$ | 32,649 | $ | 14,767 | $ | 47,416 | |||||||
|
|
|
|
|
|
(1) | There are no plan assets classified within Level 3 of the fair value hierarchy. |
(2) | Listed equity securities are diversified across a spectrum of primarily U.S. large-cap companies. |
Valuation technique and inputs - The following is a description of the valuation techniques and inputs used in measuring plan assets accounted for at fair value on a recurring basis:
• | Cash equivalents are valued at cost, which approximates fair value and are categorized in Level 1 of the fair value hierarchy; |
• | Listed equity securities are valued using the quoted prices in active markets for identical assets; |
• | Fixed income securities: |
• | Corporate debt, mortgage- and asset-backed securities and other securities valuations use data readily available to all market participants and use inputs available for substantially the full term of the security. Valuation inputs include benchmark yields, reported trades, broker dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers, reference data, and industry and economic events; |
• | U.S. government and agency securities valuations generally include quoted bid prices in active markets for identical or similar assets. |
Investment Policies and Strategies - Assets in the plan are invested under guidelines adopted by the Administrative Committee of the Plan. Because the Plan exists to provide a vehicle for funding future benefit obligations, the investment objectives of the portfolio take into account the nature and timing of future plan liabilities. The policy recognizes that the portfolio’s long-term investment performance and its ability to meet the plan’s overall objectives are dependent on the strategic asset allocation which includes adequate diversification among assets classes.
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Table of Contents
The target allocation of plan assets for 2015 is approximately 50% equities and 50% fixed income securities. The target asset allocation was determined based on the risk tolerance characteristics of the plan and, at times, may be adjusted to achieve the plan’s investment objective and to minimize any concentration of investment risk. The Administrative Committee evaluates the asset allocation strategy and adjusts the allocation if warranted based upon market conditions and the impact of the investment strategy on future contribution requirements. The expected long-term rate of return assumption is based on an analysis of historical experience of the portfolio and the summation of prospective returns for each asset class in proportion to the fund’s current asset allocation.
The equity portfolio may invest up to 5% of the market value of the portfolio in any one company and may invest up to 10% of the market value of the portfolio in any one sector or up to two times the percentage weighting of any one sector as defined by the S&P 500 or the Russell 1000 Value indices, whichever is higher. Permissible investments specified under the equity portfolio of the plan include equity securities of U.S. and non-U.S. incorporated entities and private placement securities issued pursuant to Rule 144A. At least 75% of the market value of the fixed income portfolio must be invested in investment grade securities rated BBB-/Baa3, including cash and cash equivalents. Permissible investments specified under the fixed income portfolio of the plan include: public or private debt obligations issued or guaranteed by U.S. or foreign issuers; preferred, hybrid, mortgage or asset-backed securities; senior loans; and derivatives and foreign currency exchange contracts.
German Pension Plan
In connection with the acquisition of Jefferies Bache from Prudential on July 1, 2011, we acquired a defined benefits pension plan located in Germany (the “German Pension Plan”) for the benefit of eligible employees of Jefferies Bache in that territory. The German Pension Plan has no plan assets and is therefore unfunded. We have purchased insurance contracts from multi-national insurers held in the name of Jefferies Bache Limited to provide for the plan’s future obligations. The investments in these insurance contracts are included in Financial Instruments owned – Investments at fair value in the Consolidated Statements of Financial Condition and have a fair value of $18.1 million and $19.7 million at November 30, 2014 and November 30, 2013, respectively. We expect to pay our pension obligations from the cash flows available to us under the insurance contracts. All costs relating to the plan (including insurance premiums and other costs as computed by the insurers) are paid by us. In connection with the acquisition, it was agreed with Prudential that any insurance premiums and funding obligations related to pre-acquisition date service will be reimbursed to us by Prudential.
The provisions and assumptions used in the German Pension Plan are based on local conditions in Germany. We did not contribute to the plan during the years ended November 30, 2014 and November 30, 2013.
The following tables summarize the changes in the projected benefit obligation and the components of net periodic pension cost (in thousands):
Year Ended November 30, | ||||||||
2014 | 2013 | |||||||
Change in projected benefit obligation: |
||||||||
Projected benefit obligation, beginning of period |
$ | 26,368 | $ | 24,509 | ||||
Service cost |
40 | 67 | ||||||
Interest cost |
801 | 902 | ||||||
Actuarial losses |
4,630 | 1,033 | ||||||
Benefits paid |
(1,193 | ) | (1,245 | ) | ||||
Currency adjustment |
(2,212 | ) | 1,102 | |||||
|
|
|
|
|||||
Projected benefit obligation, end of period |
$ | 28,434 | $ | 26,368 | ||||
|
|
|
|
|||||
Funded status at end of period (1) |
$ | (28,434 | ) | $ | (26,368 | ) | ||
|
|
|
|
JEF-68
Table of Contents
The amounts recognized in our Consolidated Statements of Financial Condition are as follows (in thousands):
November 30, | ||||||||
2014 | 2013 | |||||||
Consolidated statements of financial condition: |
||||||||
Liabilities |
$ | 28,434 | $ | 26,368 | ||||
|
|
|
|
|||||
Accumulated other comprehensive income (loss), before taxes: |
||||||||
Net gain (loss) |
$ | (5,281 | ) | $ | (894 | ) | ||
|
|
|
|
The following tables summarize the components of net periodic pension cost and other amounts recognized in other comprehensive income excluding taxes (in thousands):
Year Ended November 30, | ||||||||||||
2014 | 2013 | 2012 | ||||||||||
Components of net periodic pension cost: |
||||||||||||
Service cost |
$ | 40 | $ | 67 | $ | 36 | ||||||
Interest cost on projected benefit obligation |
801 | 902 | 1,027 | |||||||||
Net amortization |
244 | 179 | — | |||||||||
|
|
|
|
|
|
|||||||
Net periodic pension cost |
$ | 1,085 | $ | 1,148 | $ | 1,063 | ||||||
|
|
|
|
|
|
|||||||
2014 | 2013 | 2012 | ||||||||||
Amounts recognized in other comprehensive income: |
||||||||||||
Net (gain) loss arising during the period |
4,630 | $ | — | $ | — | |||||||
Amortization of net loss |
(243 | ) | — | — | ||||||||
|
|
|
|
|
|
|||||||
Total recognized in Other comprehensive income |
4,387 | $ | — | $ | — | |||||||
|
|
|
|
|
|
|||||||
Net amount recognized in net periodic benefit cost and Other comprehensive income |
5,472 | $ | — | $ | — | |||||||
|
|
|
|
|
|
The following are assumptions used to determine the actuarial present value of the projected benefit obligation and net periodic pension benefit cost for the years ended November 30, 2014 and November 30, 2013:
Year Ended November 30, | ||||||||
2014 | 2013 | |||||||
Projected benefit obligation |
||||||||
Discount rate |
2.10 | % | 3.40 | % | ||||
Rate of compensation increase |
3.00 | % | 3.00 | % | ||||
Net periodic pension benefit cost |
||||||||
Discount rate |
3.40 | % | 3.60 | % | ||||
Rate of compensation increase |
3.00 | % | 3.00 | % |
Expected Benefit Payments - Expected benefit payments for each of the next five fiscal years and in the aggregate for the five fiscal years thereafter are as follows (in thousands):
2015 |
$ | 1,308 | ||
2016 |
1,324 | |||
2017 |
1,304 | |||
2018 |
1,300 | |||
2019 |
1,275 | |||
2020 through 2024 |
6,776 |
JEF-69
Table of Contents
Prior to the Leucadia Transaction, we sponsored the following share-based compensation plans: incentive compensation plan, employee stock purchase plan and the deferred compensation plan. Subsequently, sponsorship of share-based compensation plans was transferred to Leucadia, with outstanding share-based awards relating to Leucadia common shares and future awards to relate to Leucadia common shares. The fair value of share-based awards is estimated on the date of grant based on the market price of the underlying common stock less the impact of selling restrictions subsequent to vesting, if any, and is amortized as compensation expense over the related requisite service periods. We are allocated costs associated with awards granted to our employees under such plans.
In addition, we sponsor non-share-based compensation plans. Non-share-based compensation plans sponsored by us include a profit sharing plan and other forms of restricted cash awards.
The components of total compensation cost associated with certain of our compensation plans are as follows (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
Year Ended November 30, 2012 |
|||||||||||||
Components of compensation cost: |
||||||||||||||||
Restricted cash awards |
$ | 193.7 | $ | 164.4 | $ | 48.2 | $ | 194.4 | ||||||||
Restricted stock and RSUs (1) |
84.5 | 64.4 | 22.3 | 83.8 | ||||||||||||
Profit sharing plan |
6.1 | 3.2 | 2.6 | 5.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total compensation cost |
$ | 284.3 | $ | 232.0 | $ | 73.1 | $ | 283.9 | ||||||||
|
|
|
|
|
|
|
|
(1) | Total compensation cost associated with restricted stock and RSUs includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. Additionally, we recognize compensation cost related to the discount provided to employees in electing to defer compensation in DCP shares. This compensation cost was approximately $268,000 for the year ended November 30, 2014, $111,000 and $72,000 for the nine months ended November 30, 2013 and three months ended February 28, 2013, respectively, and $197,000 for the year ended November 30, 2012. |
Remaining unamortized amounts related to certain compensation plans at November 30, 2014 is as follows:
Remaining Unamortized Amounts |
Weighted Average Vesting Period (in years) |
|||||||
Non-vested share-based awards |
$ | 95.4 | 1.9 | |||||
Restricted cash awards |
223.7 | 3 | ||||||
|
|
|||||||
Total |
$ | 319.1 | ||||||
|
|
The following are descriptions of the compensation plans.
Incentive Compensation Plan. The Incentive Compensation Plan (“Incentive Plan”) allows for awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, performance awards, restricted stock units, dividend equivalents or other share-based awards. RSUs give a participant the right to receive fully vested common shares at the end of a specified deferral period, allowing a participant to hold an interest tied to common stock on a tax deferred basis. Prior to settlement, RSUs carry no voting or dividend rights associated with the stock ownership, but dividend equivalents are accrued to the extent there are dividends declared on the underlying common shares as cash amounts or as deemed reinvestments in additional RSUs. In connection with the Leucadia Transaction, the Incentive Plan was amended to provide for awards to be issued relating to shares of Leucadia, our parent company at March 1, 2013. Share-based awards outstanding at March 1, 2013 were converted into awards for shares of Leucadia at the Exchange Ratio, with all such awards subject to the same terms and conditions that previously existed (except for the elimination of fractional shares).
JEF-70
Table of Contents
Restricted stock and RSUs may be granted to new employees as “sign-on” awards, to existing employees as “retention” awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting over a four-year service period and are amortized as compensation expense on a straight line basis over the related four years. Restricted stock and RSUs are granted to certain senior executives with both performance and service conditions. These awards granted to senior executives are amortized over the service period as we have determined that it is probable that the performance condition will be achieved.
The fair values of outstanding restricted stock and RSUs with future service requirements were remeasured as part of acquisition accounting for the Leucadia transaction, resulting in an increase of approximately $45.1 million to the unrecognized compensation cost allocated to us at March 1, 2013.
Employee Stock Purchase Plan. There is also an Employee Stock Purchase Plan (“ESPP”) which we consider noncompensatory effective January 1, 2007. The ESPP permits all regular full-time employees and employees who work part time over 20 hours per week to purchase, at a discount, Leucadia common shares (since the Leucadia Transaction) and permitted purchase of Jefferies Group, Inc. common stock (prior to the Leucadia Transaction). Annual employee contributions are limited to $21,250, are voluntary and made through payroll deduction. The stock purchase price is equal to 95% of the closing price of common stock on the last day of the applicable session (monthly).
Deferred Compensation Plan. There is also a Deferred Compensation Plan, which was established in 2001. Eligible employees are able to defer compensation on a pre-tax basis, with deferred amounts deemed invested at a discount in Leucadia common shares and, prior to the Leucadia Transaction, in Jefferies Group, Inc. common stock (“DCP shares”), or by allocating among any combination of other investment funds available under the Deferred Compensation Plan. In connection with the transaction with Leucadia on March 1, 2013, the Deferred Compensation Plan was amended and deferrals denominated as DCP shares became settleable by delivery of Leucadia common shares. We often invest directly, as a principal, in investments corresponding to the other investment funds, relating to our obligations to perform under the Deferred Compensation Plan. The compensation deferred by our employees is expensed in the period earned. The change in fair value of our investments in assets corresponding to the specified other investment funds are recognized in Principal transaction revenues and changes in the corresponding deferral compensation liability are reflected as Compensation and benefits expense in our Consolidated Statements of Earnings.
Profit Sharing Plan. We have a profit sharing plan, covering substantially all employees, which includes a salary reduction feature designed to qualify under Section 401(k) of the Internal Revenue Code.
Restricted Cash Awards. We provide compensation to new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements. We amortize these awards to compensation expense over the relevant service period.
JEF-71
Table of Contents
Note 19. Non-interest Expenses
The following table presents the components of noninterest expense (in thousands).
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended |
Three Months Ended |
Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Non-interest expenses: |
||||||||||||||||
Compensation and benefits |
$ | 1,698,530 | $ | 1,213,908 | $ | 474,217 | $ | 1,770,798 | ||||||||
Non-compensation expenses: |
||||||||||||||||
Floor brokerage and clearning fees |
215,329 | 150,774 | 46,155 | 183,013 | ||||||||||||
Technology and communications |
268,212 | 193,683 | 59,878 | 244,511 | ||||||||||||
Occupancy and equipment rental |
107,767 | 86,701 | 24,309 | 97,397 | ||||||||||||
Business development |
106,984 | 63,115 | 24,927 | 95,330 | ||||||||||||
Professional services |
109,601 | 72,802 | 24,135 | 73,427 | ||||||||||||
Bad debt provision (1) |
55,355 | 179 | 1,945 | 1,152 | ||||||||||||
Goodwill impairment (2) |
54,000 | — | — | — | ||||||||||||
Intangible assets amortization and impairment (3) |
20,569 | 20,784 | 384 | 5,134 | ||||||||||||
Other |
50,770 | 71,072 | 12,146 | 56,212 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-compensation expenses |
988,587 | 659,110 | 193,879 | 756,176 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total non-interest expenses |
$ | 2,687,117 | $ | 1,873,018 | $ | 668,096 | $ | 2,526,974 | ||||||||
|
|
|
|
|
|
|
|
(1) | During the fourth quarter of 2014, we recognized a bad debt provision, which primarily relates to a receivable of $52.3 million from a client to which we provided futures clearing and execution services, which declared bankruptcy. |
(2) | A goodwill impairment loss of $51.9 million and $2.1 million was recognized in the Futures and International Asset Management reporting units at November 30, 2014, respectively. (See Note 12, Goodwill and Other Intangible Assets for further information.) |
(3) | The amount for the year ended November 30, 2014 includes impairment losses at November 30, 2014 of $7.5 million and $0.1 million in the Futures business and the International Asset Management business, respectively. (See Note 12, Goodwill and Other Intangible Assets for further information.) |
Earnings per share data is not provided for periods subsequent to March 1, 2013, the date we became a limited liability company and wholly-owned subsidiary of Leucadia. The following is a reconciliation of the numerators and denominators of the Basic and Diluted earnings per common share computations for the three months ended February 28, 2013 and the year ended November 30, 2012 (in thousands, except per share amounts):
JEF-72
Table of Contents
Predecessor | ||||||||
Three Months Ended | Year Ended | |||||||
February 28, 2013 | November 30, 2012 | |||||||
Earnings for basic earnings per common share: |
||||||||
Net earnings |
$ | 90,842 | $ | 323,149 | ||||
Net earnings to noncontrolling interests |
10,704 | 40,740 | ||||||
|
|
|
|
|||||
Net earnings to common shareholders |
80,138 | 282,409 | ||||||
Less: Allocation of earnings to participating securities (1) |
5,890 | 17,392 | ||||||
|
|
|
|
|||||
Net earnings available to common shareholders |
$ | 74,248 | $ | 265,017 | ||||
|
|
|
|
|||||
Earnings for diluted earnings per common share: |
||||||||
Net earnings |
$ | 90,842 | $ | 323,149 | ||||
Net earnings to noncontrolling interests |
10,704 | 40,740 | ||||||
|
|
|
|
|||||
Net earnings to common shareholders |
80,138 | 282,409 | ||||||
Add: Mandatorily redeemable convertible preferred stock dividends |
1,016 | 4,063 | ||||||
Less: Allocation of earnings to participating securities (1) |
5,882 | 17,407 | ||||||
|
|
|
|
|||||
Net earnings available to common shareholders |
$ | 75,272 | $ | 269,065 | ||||
|
|
|
|
|||||
Shares: |
||||||||
Average common shares used in basic computation |
213,732 | 215,989 | ||||||
Stock options |
2 | 2 | ||||||
Mandatorily redeemable convertible preferred stock |
4,110 | 4,110 | ||||||
Convertible debt |
— | — | ||||||
|
|
|
|
|||||
Average common shares used in diluted computation |
217,844 | 220,101 | ||||||
|
|
|
|
|||||
Earnings per common share: |
||||||||
Basic |
$ | 0.35 | $ | 1.23 | ||||
Diluted |
$ | 0.35 | $ | 1.22 |
(1) | Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Net losses are not allocated to participating securities. Participating securities represent restricted stock and restricted stock units for which requisite service has not yet been rendered and amounted to weighted average shares of 16,756,000 and 14,123,000 for the three months ended February 28, 2013 and the year ended November 30, 2012, respectively. Dividends declared on participating securities during the three months ended February 28, 2013 and the year ended November 30, 2012 amounted to approximately $1.3 million and $4.3 million, respectively. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. |
Our ability to pay distributions to Leucadia is subject to the restrictions set forth in certain financial covenants associated with the Credit Facility as described in Note 14, Long-Term Debt and the governing provisions of the Delaware Limited Liability Company Act.
Dividends per share of common stock declared during the quarter are reflected below:
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||
2013 |
$ | 0.075 | N/a | N/a | N/a | |||||||||||
2012 |
$ | 0.075 | $ | 0.075 | $ | 0.075 | $ | 0.075 |
Total income taxes for the year ended November 30, 2014, the nine months ended November 30, 2013, the three months ended February 28, 2013, and the year ended November 30, 2012 were allocated as follows (in thousands):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
Year Ended November 30, 2012 |
|||||||||||||
Income tax expense |
$ | 142,061 | $ | 94,686 | $ | 48,645 | $ | 168,646 | ||||||||
Stockholders’ equity, for compensation expense for tax purposes (in excess of)/less than amounts recognized for financial reporting purposes |
$ | (1,276 | ) | $ | (2,873 | ) | $ | 17,965 | $ | (19,789 | ) |
JEF-73
Table of Contents
The provision for income tax expense consists of the following components (in thousands):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, |
Nine Months Ended November 30, |
Three Months Ended February 28, |
Year Ended November 30, |
|||||||||||||
2014 | 2013 | 2013 | 2012 | |||||||||||||
Current: |
||||||||||||||||
U.S. Federal |
$ | 4,335 | $ | 50,089 | $ | 22,936 | $ | 62,710 | ||||||||
U.S. state and local |
4,056 | 6,263 | (3,176 | ) | 18,520 | |||||||||||
Foreign |
11,475 | 7,050 | (1,950 | ) | 2,773 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
19,866 | 63,402 | 17,810 | 84,003 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Deferred: |
||||||||||||||||
U.S. Federal |
87,293 | 25,262 | 17,392 | 79,224 | ||||||||||||
U.S. state and local |
27,181 | 8,868 | 9,761 | 13,006 | ||||||||||||
Foreign |
7,721 | (2,846 | ) | 3,682 | (7,587 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
122,195 | 31,284 | 30,835 | 84,643 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 142,061 | $ | 94,686 | $ | 48,645 | $ | 168,646 | |||||||||
|
|
|
|
|
|
|
|
Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate of 35% to earnings before income taxes as a result of the following (in thousands):
Successor | Predecessor | |||||||||||||||||||||||||||||||
Year Ended November 30, |
Nine Months Ended November 30, |
Three Months Ended February 28, |
Year Ended November 30, |
|||||||||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | |||||||||||||||||||||||||||||
Amount | Percent | Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||
Computed expected income taxes |
$ | 106,058 | 35.0 | % | $ | 92,504 | 35.0 | % | $ | 48,820 | 35.0 | % | $ | 172,128 | 35.0 | % | ||||||||||||||||
Increase (decrease) in income taxes resulting from: |
||||||||||||||||||||||||||||||||
State and city income taxes, net of Federal income tax benefit |
20,304 | 6.7 | 9,835 | 3.7 | 4,280 | 3.1 | 20,492 | 4.2 | ||||||||||||||||||||||||
Income alloacted to Noncontrolling interest, not subject to tax |
(1,190 | ) | (0.4 | ) | (2,946 | ) | (1.1 | ) | (3,553 | ) | (2.5 | ) | (14,161 | ) | (2.9 | ) | ||||||||||||||||
Foreign rate differential |
(9,024 | ) | (2.9 | ) | (4,750 | ) | (1.8 | ) | (2,993 | ) | (2.2 | ) | (7,528 | ) | (1.5 | ) | ||||||||||||||||
Tax exempt income |
(6,746 | ) | (2.2 | ) | (3,742 | ) | (1.4 | ) | (1,003 | ) | (0.7 | ) | (3,979 | ) | (0.8 | ) | ||||||||||||||||
Non deductible settlements |
3,850 | 1.3 | 4,900 | 1.9 | — | — | — | — | ||||||||||||||||||||||||
Valuation allowance related to Futures business |
4,655 | 1.5 | — | — | — | — | — | — | ||||||||||||||||||||||||
Goodwill impairment |
13,619 | 4.5 | — | — | — | — | — | — | ||||||||||||||||||||||||
Other, net |
10,535 | 3.4 | (1,115 | ) | (0.5 | ) | 3,094 | 2.2 | 1,694 | 0.3 | ||||||||||||||||||||||
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Total income taxes |
$ | 142,061 | 46.9 | % | $ | 94,686 | 35.8 | % | $ | 48,645 | 34.9 | % | $ | 168,646 | 34.3 | % | ||||||||||||||||
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The following table presents a reconciliation of gross unrecognized tax benefits (in thousands):
Successor | Predecessor | |||||||||||||||
Year Ended | Nine Months Ended | Three Months Ended | Year Ended | |||||||||||||
November 30, 2014 | November 30, 2013 | February 28, 2013 | November 30, 2012 | |||||||||||||
Balance at beginning of period |
$ | 126,844 | $ | 129,010 | $ | 110,539 | $ | 79,779 | ||||||||
Increases based on tax positions related to the current period |
4,831 | 8,748 | 7,185 | 30,671 | ||||||||||||
Increases based on tax positions related to prior periods |
1,624 | 7,383 | 15,356 | 7,549 | ||||||||||||
Decreases based on tax positions related to prior periods |
(1,709 | ) | (18,297 | ) | (4,070 | ) | (5,893 | ) | ||||||||
Decreases related to settlements with taxing authorities |
(4,928 | ) | — | — | (487 | ) | ||||||||||
Decreases related to a lapse of applicable statutes of limitation |
— | — | — | (1,080 | ) | |||||||||||
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Balance at end of period |
$ | 126,662 | $ | 126,844 | $ | 129,010 | $ | 110,539 | ||||||||
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The total amount of unrecognized benefit that, if recognized, would favorably affect the effective tax rate was $84.5 million and $85.5 million (net of federal benefits of taxes) at November 30, 2014 and November 30, 2013, respectively.
We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in the Consolidated Statements of Earnings. Net interest expense related to unrecognized tax benefits was $7.7 million and $5.8 million for year ended November 30, 2014 and the nine months ended November 30, 2013, respectively. For the three months ended February 28, 2013 and the year ended November 30, 2012, interest expense was $1.8 million and $4.5 million, respectively. At November 30, 2014 and November 30, 2013, we had interest accrued of approximately $30.6 million and $22.9 million, respectively, included in Accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the periods ended November 30, 2014 and November 30, 2013.
The cumulative tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at November 30, 2014 and November 30, 2013 are presented below (in thousands):
November 30, | November 30, | |||||||
2014 | 2013 | |||||||
Deferred tax assets: |
||||||||
Compensation and benefits |
$ | 302,072 | $ | 373,964 | ||||
Net operating loss |
17,830 | 24,147 | ||||||
Long-term debt |
140,685 | 191,274 | ||||||
Accrued expenses & other |
89,273 | 86,336 | ||||||
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Sub-total |
549,860 | 675,721 | ||||||
Valuation allowance |
(13,069 | ) | (11,140 | ) | ||||
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Total deferred tax assets |
536,791 | 664,581 | ||||||
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Deferred tax liabilities: |
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Amortization of intangibles |
97,268 | 98,798 | ||||||
Other |
26,454 | 30,842 | ||||||
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Total deferred tax liabilities |
123,722 | 129,640 | ||||||
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Net deferred tax asset, included in Other assets |
$ | 413,069 | $ | 534,941 | ||||
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The valuation allowance represents the portion of our deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. We believe that the realization of the net deferred tax asset of $413.1 million is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate.
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At November 30, 2014, we had gross net operating loss carryforwards in Asia, primarily Japan, and in Europe, primarily the United Kingdom (“U.K.”), of approximately $85.9 million, in aggregate. The Japanese losses begin to expire in the year 2018 while the U.K. losses have an unlimited carryforward period. A deferred tax asset of $2.4 million related to net operating losses in Asia has been fully offset by a valuation allowance while a $5.8 million deferred tax asset related to net operating losses in Europe has been fully offset by a valuation allowance. The remaining valuation allowance is attributable to deferred tax assets related to compensation and benefits, capital losses, and tax credits in the U.K.
Pursuant to a tax sharing agreement entered into between us and Leucadia, payments are made between us and Leucadia to settle current tax assets and liabilities. At November 30, 2014, there is a net current tax receivable of $77.0 million, which includes a gross receivable from Leucadia of $58.6 million. The remaining balance reflects receivables, net of payables, from various taxing authorities.
At November 30, 2014 and November 30, 2013, we had approximately $171.0 million and $134.0 million, respectively, of earnings attributable to foreign subsidiaries for which no U.S. Federal income tax provision has been recorded. Except to the extent such earnings can be repatriated tax efficiently, they are permanently invested abroad. Accordingly, a deferred tax liability of approximately $46.0 million and $35.0 million has not been recorded with respect to these earnings at November 30, 2014 and November 30, 2013, respectively.
We are currently under examination by the Internal Revenue Service and other major tax jurisdictions. We do not expect that resolution of these examinations will have a material effect on our consolidated financial position, but could have a material impact on the consolidated results of operations for the period in which resolution occurs. It is reasonably possible that, within the next twelve months, statutes of limitation will expire which would have the effect of reducing the balance of unrecognized tax benefits by $5.5 million.
The table below summarizes the earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate:
Jurisdiction |
Tax Year | |||
United States |
2006 | |||
United Kingdom |
2013 | |||
California |
2006 | |||
Connecticut |
2006 | |||
New Jersey |
2007 | |||
New York State |
2001 | |||
New York City |
2003 |
JEF-76
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Note 22. Commitments, Contingencies and Guarantees
Commitments
The following table summarizes our commitments associated with our capital market and asset management business activities at November 30, 2014 (in millions):
Expected Maturity Date | ||||||||||||||||||||||||
2015 | 2016 | 2017 and 2018 |
2019 and 2020 |
2021 and Later |
Maximum Payout |
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Equity commitments (1) |
$ | — | $ | 9.3 | $ | 0.8 | $ | — | $ | 216.3 | $ | 226.4 | ||||||||||||
Loan commitments (1) |
50.7 | 440.2 | 283.1 | 20.7 | 0.2 | 794.9 | ||||||||||||||||||
Mortgage-related and other purchase commitments |
1,058.5 | 1,165.8 | 117.6 | — | — | 2,341.9 | ||||||||||||||||||
Forward starting reverse repos and repos |
5,127.2 | — | — | — | — | 5,127.2 | ||||||||||||||||||
Other unfunded commitments (1) |
6.3 | — | — | — | 23.0 | 29.3 | ||||||||||||||||||
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$ | 6,242.7 | $ | 1,615.3 | $ | 401.5 | $ | 20.7 | $ | 239.5 | $ | 8,519.7 | |||||||||||||
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(1) | Equity, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however available on demand. |
The table below presents our credit exposure from our loan commitments, including funded amounts, summarized by period of expiration at November 30, 2014. Credit exposure is based on the external credit ratings of the underlyings or referenced assets of our loan commitments. Since commitments associated with these business activities may expire unused, they do not necessarily reflect the actual future cash funding requirements (in millions):
Credit Ratings |
2015 | 2016-2020 | 2021 and Later |
Total Corporate Lending Exposure (1) |
Corporate Lending Exposure at Fair Value (2) |
Corporate Lending Commitments (3) |
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Investment grade |
$ | — | $ | 55.1 | $ | — | $ | 55.1 | $ | — | $ | 55.1 | ||||||||||||
Non-investment grade |
— | 191.3 | — | 191.3 | 18.9 | 172.4 | ||||||||||||||||||
Unrated |
129.3 | 620.9 | 2.2 | 752.4 | 185.0 | 567.4 | ||||||||||||||||||
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Total |
$ | 129.3 | $ | 867.3 | $ | 2.2 | $ | 998.8 | $ | 203.9 | $ | 794.9 | ||||||||||||
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(1) | Total corporate lending exposure represents the potential loss assuming the fair value of funded loans and lending commitments were zero. |
(2) | The corporate lending exposure at fair value includes $222.6 million of funded loans included in Financial instruments owned—Loans and Loans to and investments in related parties, and a $18.7 million net liability related to lending commitments recorded in Financial instruments sold, not yet purchased—Derivatives and Financial instruments owned—Derivatives in the Consolidated Statement of Financial Condition at November 30, 2014. |
(3) | Represents the notional amount of unfunded lending commitments. |
Equity Commitments. Includes commitments to invest in our joint ventures, Jefferies Finance and Jefferies LoanCore, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by Brian P. Friedman, one of our directors and Chairman of the Executive Committee. At November 30, 2014, our outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds was $30.5 million. (See Note 11, Investments for additional information regarding our investments in Jefferies Finance and Jefferies LoanCore.)
Additionally, At November 30, 2014, we had other outstanding equity commitments to invest up to $1.8 million in various other investments.
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Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At November 30, 2014, we had $444.9 million of outstanding loan commitments to clients.
Loan commitments outstanding at November 30, 2014, also include our portion of the outstanding secured revolving credit facility provided to Jefferies Finance, to support loan underwritings by Jefferies Finance.
Mortgage-Related and Other Purchase Commitments. We enter into forward contracts to purchase mortgage participation certificates, mortgage-backed securities and consumer loans. The mortgage participation certificates evidence interests in mortgage loans insured by the Federal Housing Administration and the mortgage-backed securities are insured or guaranteed by the FNMA (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) or the GNMA (Ginnie Mae). We frequently securitize the mortgage participation certificates and mortgage-backed securities. The fair value of mortgage-related and other purchase commitments recorded in the Consolidated Statements of Financial Condition was $99.6 million at November 30, 2014.
Forward Starting Reverse Repos and Repos. We enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.
Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.
Leases. As lessee, we lease certain premises and equipment under noncancelable agreements expiring at various dates through 2029 which are operating leases. At November 30, 2014, future minimum aggregate annual lease payments under such leases (net of subleases) for fiscal years ended November 30, 2015 through 2019 and the aggregate amount thereafter, are as follows (in thousands):
Fiscal Year | Operating Leases | |||
2015 |
$ | 42,697 | ||
2016 |
53,056 | |||
2017 |
56,089 | |||
2018 |
56,038 | |||
2019 |
54,785 | |||
Thereafter |
443,361 | |||
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Total |
$ | 706,026 | ||
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The total minimum rentals to be received in the future under non-cancelable subleases at November 30, 2014 was $5.7 million.
Rental expense, net of subleases, amounted to $57.4 million, $43.2 million, $12.1 million, and $48.4 million for the year ended November 30, 2014, the nine months ended November 30, 2013, the three months ended February 28, 2013, and the year ended November 30, 2012, respectively.
During 2012, we entered into a master sale and leaseback agreement under which we sold and have leased back existing and additional new equipment supplied by the lessor. The transaction resulted in a gain of $2.0 million, which is being amortized into earnings in proportion to and is reflected net against the leased equipment. The lease may be terminated on September 30, 2017 for a termination cost of the present value of the remaining lease payments plus a residual value. If not terminated early, the lease term is approximately five years from the start of the supply of new and additional equipment, which commenced on various dates in 2013 and continues into 2014. At November 30, 2014, minimum future lease payments are as follows (in thousands):
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Fiscal Year | ||||
2015 |
$ | 3,887 | ||
2016 |
3,887 | |||
2017 |
3,887 | |||
2018 |
1,583 | |||
2019 |
167 | |||
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Net minimum lease payments |
13,411 | |||
Less amount representing interest |
927 | |||
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Present value of net minimum lease payments |
$ | 12,484 | ||
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Contingencies
Seven class-action lawsuits had been filed in New York and Delaware on behalf of a class consisting of Jefferies Group’s stockholders concerning the transaction through which Jefferies Group LLC became a wholly owned subsidiary of Leucadia National Corporation. The class actions named as defendants Leucadia, Jefferies Group, certain members of our board of directors, certain members of Leucadia’s board of directors and, in certain of the actions, certain transaction-related subsidiaries. On October 31, 2014, the remaining defendants in the Delaware litigation entered into a settlement agreement with the plaintiffs in the Delaware litigation. The terms of that agreement, which are subject to court approval, provide for an aggregate payment of $70.0 million by Leucadia, who will bear the costs of the settlement, to certain former equity holders of Jefferies Group, other than the defendants and certain of their affiliates, along with attorneys’ fees to be determined and approved by the court. The agreement further provides that the settlement will be paid, at Leucadia’s option, in either cash or Leucadia common shares. If approved by the court, the settlement will resolve all of the class-action claims in Delaware, and release the claims brought in New York.
During the first quarter of 2014, we reached a non-prosecution agreement with the United States Attorney for the District of Connecticut and a settlement agreement with the SEC relating to an investigation of purchases and sales of mortgage-backed securities. That investigation arose from a matter that came to light in late 2011, at which time we terminated a mortgage-backed-securities trader who was then indicted by the United States Attorney for the District of Connecticut in January 2013 and separately charged in a civil complaint by the SEC. Those agreements include an aggregate $25.0 million in payments, of which approximately $11.0 million are payments to trading counterparties impacted by those activities, approximately $10.0 million of which is a fine payable to the U.S. Attorney’s Office, and approximately $4.0 million of which is a fine payable to the SEC. All such amounts were recognized in our year-end 2013 financial statements. At November 30, 2014, the outstanding reserve with respect to remaining payments to be made under the agreements is approximately $1.9 million. Additionally, pursuant to an undertaking required by the SEC settlement, Jefferies has retained an Independent Compliance Consultant.
Guarantees
Derivative Contracts. As a dealer, we make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under U.S. GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts.
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The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under U.S. GAAP at November 30, 2014 (in millions):
Expected Maturity Date | ||||||||||||||||||||||||
Guarantee Type: |
2017 and |
2019 and |
2021 and |
Notional/ Maximum Payout |
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2015 | 2016 | 2018 | 2020 | Later | ||||||||||||||||||||
Derivative contracts—non-credit related |
$ | 59,875.6 | $ | 229.6 | $ | 252.1 | $ | 721.8 | $ | 487.7 | $ | 61,566.8 | ||||||||||||
Written derivative contracts—credit related |
— | — | — | 485.0 | — | 485.0 | ||||||||||||||||||
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Total derivative contracts |
$ | 59,875.6 | $ | 229.6 | $ | 252.1 | $ | 1,206.8 | $ | 487.7 | $ | 62,051.8 | ||||||||||||
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At November 30, 2014 the external credit ratings of the underlyings or referenced assets for our credit related derivatives contracts (in millions):
External Credit Rating | ||||||||||||||||||||||||||||
AAA/ Aaa |
AA/ Aa |
A | BBB/ Baa |
Below Investment Grade |
Unrated | Notional/ Maximum Payout |
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Credit related derivative contracts: |
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Index credit default swaps |
$ | 480.0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 480.0 | ||||||||||||||
Single name credit default swaps |
$ | — | $ | — | $ | — | $ | 5.0 | $ | — | $ | — | $ | 5.0 |
The derivative contracts deemed to meet the definition of a guarantee under U.S. GAAP are before consideration of hedging transactions and only reflect a partial or “one-sided” component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. At November 30, 2014, the fair value of derivative contracts meeting the definition of a guarantee is approximately $851.7 million.
Loan Guarantees. We have provided a guarantee to Jefferies Finance that matures in January 2021, whereby we are required to make certain payments to a SPE sponsored by Jefferies Finance in the event that Jefferies Finance is unable to meet its obligations to the SPE and a guarantee of a credit agreement with an indefinite term for a fund owned by employees. At November 30, 2014, the maximum amount payable under these guarantees is $31.0 million.
Stand by Letters of Credit. At November 30, 2014, we provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $47.8 million, which expire within one year. Stand by letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement.
Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business we provide guarantees to securities clearinghouses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote. Accordingly no liability has been recognized for these arrangements.
Note 23. Net Capital Requirements
As broker-dealers registered with the SEC and member firms of the Financial Industry Regulatory Authority (“FINRA”), Jefferies and Jefferies Execution are subject to the SEC Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, and have elected to calculate minimum capital requirements under the alternative method permitted by Rule 15c3-1 in calculating net capital. On September 1, 2014, Jefferies Bache, LLC (an FCM) merged with and into Jefferies. Jefferies, as the surviving entity, registered as an FCM and is subject to Rule 1.17 of the CFTC, which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.
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At November 30, 2014, Jefferies and Jefferies Execution’s net capital and excess net capital were as follows (in thousands):
Net Capital | Excess Net Capital | |||||||
Jefferies |
$ | 1,025,113 | $ | 913,465 | ||||
Jefferies Execution |
6,150 | 5,900 |
FINRA is the designated self-regulatory organization (“DSRO”) for our U.S. broker-dealers and the Chicago Mercantile Exchange is the DSRO for Jefferies as an FCM.
Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited and Jefferies Bache Limited, which are authorized and regulated by the Financial Conduct Authority in the U.K.
The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.
We operate in two principal segments – Capital Markets and Asset Management. The Capital Markets segment includes our securities, commodities, futures and foreign exchange brokerage trading activities and investment banking, which is comprised of underwriting and financial advisory activities. The Capital Markets reportable segment provides the sales, trading, origination and advisory effort for various fixed income, equity and advisory products and services. The Asset Management segment provides investment management services to investors in the U.S. and overseas.
Our reportable business segment information is prepared using the following methodologies:
• | Net revenues and expenses directly associated with each reportable business segment are included in determining earnings before taxes. |
• | Net revenues and expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors. |
• | Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization. |
JEF-81
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Our net revenues and expenses by segment are summarized below (in millions):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
Year Ended November 30, 2012 |
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Capital Markets: |
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Net revenues |
$ | 2,949.0 | $ | 2,074.1 | $ | 807.6 | $ | 3,034.7 | ||||||||
Expenses |
$ | 2,652.0 | $ | 1,840.4 | $ | 660.6 | $ | 2,496.4 | ||||||||
Asset Management: |
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Net revenues |
$ | 41.1 | $ | 66.6 | $ | 10.9 | $ | 27.0 | ||||||||
Expenses |
$ | 35.1 | $ | 32.6 | $ | 7.5 | $ | 30.6 | ||||||||
Total: |
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Net revenues |
$ | 2,990.1 | $ | 2,140.7 | $ | 818.5 | $ | 3,061.7 | ||||||||
Expenses |
$ | 2,687.1 | $ | 1,873.0 | $ | 668.1 | $ | 2,527.0 |
The following table summarizes our total assets by segment at November 30, 2014 and November 30, 2013 (in millions):
November 30, 2014 | November 30, 2013 | |||||||
Segment assets: |
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Capital Markets |
$ | 44,002.6 | $ | 39,276.8 | ||||
Asset Management |
515.0 | 900.2 | ||||||
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Total assets |
$ | 44,517.6 | $ | 40,177.0 | ||||
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Net Revenues by Geographic Region
Net revenues for the Capital Market segment are recorded in the geographic region in which the position was risk-managed or, in the case of investment banking, in which the senior coverage banker is located. For Asset Management, net revenues are allocated according to the location of the investment advisor. Net revenues by geographic region were as follows (in thousands):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
Year Ended November 30, 2012 |
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Americas (1) |
$ | 2,261,683 | $ | 1,651,789 | $ | 663,588 | $ | 2,507,839 | ||||||||
Europe (2) |
634,358 | 441,795 | 133,104 | 450,823 | ||||||||||||
Asia |
94,097 | 47,097 | 21,852 | 102,990 | ||||||||||||
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Net revenues |
$ | 2,990,138 | $ | 2,140,681 | $ | 818,544 | $ | 3,061,652 | ||||||||
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(1) | Substantially all relates to U.S. results. |
(2) | Substantially all relates to U.K. results. |
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Note 25. Related Party Transactions
Jefferies Capital Partners and JEP IV Related Funds. We have loans to and/or equity investments in private equity funds and in Jefferies Capital Partners, LLC, the manager of the Jefferies Capital Partners funds, which are managed by a team led by Brian P. Friedman, one of our directors and our Chairman of the Executive Committee (“Private Equity Related Funds”). At November 30, 2014 and November 30, 2013, loans to and/or equity investments in Private Equity Related Funds were in aggregate $60.7 million and $61.7 million, respectively. The following table presents interest income earned on loans to Private Equity Related Funds and other revenues and investment income (loss) related to net gains and losses on our investment in Private Equity Related Funds (in thousands):
Successor | Predecessor | |||||||||||||||
Year Ended November 30, 2014 |
Nine Months Ended November 30, 2013 |
Three Months Ended February 28, 2013 |
Year Ended November 30, 2012 |
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Interest income |
$ | — | $ | 852 | $ | 516 | $ | 3,100 | ||||||||
Other revenues and investment income (loss) |
(14,868 | ) | 9,294 | 947 | (8,500 | ) |
For further information regarding our commitments and funded amounts to Private Equity Related Funds, see Note 22, Commitments, Contingencies and Guarantees.
Berkadia Commercial Mortgage, LLC. At November 30, 2014 and November 30, 2013, we have commitments to purchase $344.8 million and $300.0 million, respectively, in agency commercial mortgage-backed securities from Berkadia Commercial Mortgage, LLC, which is partially owned by Leucadia.
Harbinger Group Inc. As part of our loan secondary trading activities we have unsettled purchases and sales of loans pertaining to portfolio companies within funds managed by Harbinger of $232.0 million.
National Beef Packaging Company, LLC (“National Beef”). We act as an FCM for National Beef, which is partially owned by Leucadia. At November 30, 2014, we had a customer payable to National Beef of $4.1 million and recognized commissions of $0.2 million during the year ended November 30, 2014.
Officers, Directors and Employees. At November 30, 2014 and November 30, 2013, we had $20.1 million and $13.9 million, respectively, of loans outstanding to certain of our employees (none of whom are executive officers or directors) that are included in Other assets on the Consolidated Statements of Financial Condition. Receivables from and payables to customers includes balances arising from officers, directors and employees individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms. During 2014, we sold private equity interests with a fair value of $4.0 million at their then fair value to a private equity fund owned by our employees and have also provided a guarantee of the fund’s credit agreement.
The following is a description of related party transactions with Leucadia:
• | Under a service agreement, we charge Leucadia for certain services which, for the year ended November 30, 2014 and nine months ended November 30, 2013 amounted to $22.3 million and $16.7 million, respectively. At November 30, 2014 and November 30, 2013, we had a receivable from Leucadia of $10.9 million and $2.3 million, respectively, which is included within Other assets on the Consolidated Statements of Financial Condition. At November 30, 2014 and November 30, 2013, we had a payable to Leucadia of $41.5 million and $6.7 million respectively, related to stock compensation arrangements and senior executive benefits provided by Leucadia, which is included within Other liabilities on the Consolidated Statements of Financial Condition. |
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• | We have a tax sharing agreement with Leucadia, for which any amounts outstanding are included in Other assets in the Consolidated Statements of Financial Condition. (See Note 21, Income Taxes) |
• | During 2013, we sold 100% of our interests in Jefferies Management Limited (“JIML”), our special situations asset management business, to Leucadia for consideration of $2.3 million in the form of an intercompany loan receivable from Leucadia. The net assets of JIML that were transferred were $2.3 million, including goodwill of $400,000. No gain or loss was recognized on the sale. |
• | At November 30, 2014 and November 30, 2013, $25.4 million and $80.5 million, respectively, of the total noncontrolling interests in asset management entities that are consolidated by us are attributed to Leucadia. |
• | During the year ended November 30, 2014, we received investment banking revenues for providing advisory and debt capital market services to Leucadia and its’ subsidiaries of $3.1 million, which is recorded in Investment banking revenues on the Consolidated Statement of Earnings. |
• | On March 18, 2014, we sold our investment in Harbinger Group Inc., consisting of approximately 18.6 million shares, to Leucadia at the closing price on that date. In addition, on February 28, 2014, we sold our ownership interest in CoreCommodity Capital, LLC (formerly CoreCommodity Management, LLC, our commodity asset management business) to Leucadia at a fair value. |
For information regarding the transaction on March 1, 2013, see Note 4, Leucadia and Related Transactions and for information regarding other investments by Leucadia, see Note 16, Noncontrolling Interests and Mandatorily Redeemable Preferred Interests of Consolidated Subsidiaries.
For information on transactions with our equity method investees, see Note 11, Investments.
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Note 26. Selected Quarterly Financial Data (Unaudited)
The following is a summary of unaudited quarterly statements of earnings for the year ended November 30, 2014, the nine months ended November 30, 2013 and the three months ended February 28, 2013 (in thousands, except per share amounts):
Successor | ||||||||||||||||
Three Months Ended | ||||||||||||||||
November 30, 2014 |
August 31, 2014 |
May 31, 2014 |
February 28, 2014 |
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Total revenues |
$ | 723,004 | $ | 1,055,435 | $ | 970,786 | $ | 1,097,040 | ||||||||
Net revenues |
524,809 | 843,309 | 722,992 | 899,028 | ||||||||||||
Earnings (loss) before income taxes |
(114,020 | ) | 135,635 | 99,137 | 182,269 | |||||||||||
Earnings (loss) attributable to Jefferies Group LLC |
(99,759 | ) | 83,561 | 61,326 | 112,432 | |||||||||||
Earnings per common share: |
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N/a | N/a | N/a | N/a | ||||||||||||
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Diluted |
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Three Months Ended | ||||||||||||||||
November 30, 2013 |
August 31, 2013 |
May 31, 2013 |
February 28, 2013 |
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Total revenues |
$ | 1,139,157 | $ | 710,682 | $ | 869,901 | $ | 1,021,960 | ||||||||
Net revenues |
950,548 | 531,695 | 658,438 | 818,544 | ||||||||||||
Earnings before income taxes |
175,660 | 23,382 | 65,253 | 139,487 | ||||||||||||
Earnings attributable to Jefferies Group LLC/common stockholders |
109,943 | 11,740 | 39,508 | 80,138 | ||||||||||||
Earnings per common share: |
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Basic |
N/a | N/a | N/a | $ | 0.35 | |||||||||||
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Diluted |
N/a | N/a | N/a | $ | 0.35 | |||||||||||
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