Jefferies Reports Third Quarter Financial Results

NEW YORK & LONDON--()--Jefferies Group, Inc. (NYSE: JEF) today announced financial results for its fiscal third quarter ended August 31, 2010.

Highlights for the three months ended August 31, 2010 versus the three months ended September 30, 2009:

  • Net revenues of $520 million, versus $700 million.
  • Net income to Common Shareholders of $46 million, versus $86 million.
  • Net earnings per common share of $0.23, versus $0.42.
  • Investment Banking revenues of $246 million, versus $123 million.

Highlights for the eight months ended August 31, 2010 versus the nine months ended September 30, 2009:

  • Net revenues in the eight month period of $1,519 million, versus $1,633 million in the prior year nine month period.
  • Net income to Common Shareholders of $165 million in the eight month period, versus $187 million in the prior year nine month period.
  • Net earnings per common share of $0.81 in the eight month period, versus $0.92 in the prior year nine month period.
  • Investment banking revenues of $598 million in the eight month period, versus $280 million in the prior year nine month period.

“Trading volumes across the board were painfully slow during the months of June, July and August. The normal seasonal slowdown was exacerbated by continued concerns over the state of the global economy. Jefferies Investment Banking results were solid for the quarter and reflect our ability to serve a broader and more global client base. We have made continued progress during the summer to diversify further by building upon the many initiatives we began during the global financial crises. We are in a strong position to finish 2010 and look forward to building upon our broad foundation in the years ahead,” commented Richard B. Handler, Chairman and Chief Executive Officer of Jefferies.

Conference Call

A conference call with management discussion of these financial results will be held today, September 22, 2010, at 9:00 AM Eastern. Investors and securities industry professionals may access the management discussion by calling 877-710-9938 or 702-928-7183. A one-week replay of the call will also be available at 800-642-1687 or 706-645-9291 (conference ID #97825015). A live audio webcast and delayed replay can be accessed at Jefferies.com.

About Jefferies

Jefferies, a global securities and investment banking firm, has served companies and their investors for more than 48 years. Jefferies & Company, Inc. is the principal US operating subsidiary of Jefferies Group, Inc. (NYSE: JEF: www.jefferies.com), and Jefferies International Limited is the principal UK operating subsidiary. Jefferies International Limited, a UK-incorporated company, is authorised and regulated by the UK Financial Services Authority.

JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
  Three Months Ended  

Eight Months
Ended

 

Nine Months
Ended

Aug 31, 2010   Sep 30, 2009 Aug 31, 2010   Sep 30, 2009
Revenues:    
Commissions $ 118,571 $ 127,800 $ 347,527 $ 395,085
Principal transactions 74,282 338,552 324,037 711,165
Investment banking 246,193 122,529 598,450 280,446

Asset management fees and investment income from managed funds

786 20,966 11,804 21,485
Interest 152,546 161,091 430,902 413,777
Other   16,879       6,239     44,241       28,699  
Total revenues 609,257 777,177 1,756,961 1,850,657
Interest expense   89,159       76,756     237,493       218,086  
Net revenues 520,098 700,421 1,519,468 1,632,571

Interest on mandatorily redeemable preferred interest of consolidated subsidiaries

  (2,537 )     23,596     (26 )     30,620  

Net revenues, less mandatorily redeemable preferred interest

  522,635       676,825     1,519,494       1,601,951  
 
Non-interest expenses:
Compensation and benefits 308,797 395,031 877,204 956,619
Floor brokerage and clearing fees 30,244 20,677 84,702 54,007
Technology and communications 46,135 36,141 114,189 104,508
Occupancy and equipment rental 18,433 18,121 49,448 52,168
Business development 17,420 10,293 42,405 29,273
Professional services 13,008 8,874 34,702 29,883
Other   9,404       12,658     37,224       28,953  
Total non-interest expenses   443,441       501,795     1,239,874       1,255,411  
Earnings before income taxes 79,194 175,030 279,620 346,540
Income tax expense   35,067       65,210     112,960       130,299  
Net earnings 44,127 109,820 166,660 216,241
Net (loss) earnings to noncontrolling interests   (2,129 )     23,534     1,865       29,718  
Net earnings to common shareholders $ 46,256     $ 86,286   $ 164,795     $ 186,523  
Earnings per common share:
Basic $ 0.23     $ 0.42   $ 0.81     $ 0.92  
Diluted $ 0.23     $ 0.42   $ 0.81     $ 0.92  
 
Weighted average common shares:
Basic 195,601 200,609 196,943 201,860
Diluted 195,612 204,736 201,062 205,986
 
Effective tax rate 44 % 37 % 40 % 38 %

 
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
  Quarters Ended
8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009   6/30/2009

Statement of Earnings

         

Net revenues, less mandatorily redeemable preferred interest

$ 522,635 $ 667,512 $ 581,194 $ 531,578 $ 676,825 $ 577,866
 
Non-interest expenses:
Compensation and benefits 308,797 384,311 319,801 239,352 395,031 348,207
Non-compensation expenses   134,644       137,868       135,843       123,145       106,764       107,331  
Earnings before income taxes 79,194 145,333 125,550 169,081 175,030 122,328
 
Income tax expense   35,067       56,836       47,541       68,742       65,210       48,333  
 
Net earnings 44,127 88,497 78,009 100,339 109,820 73,995
Net (loss) / earnings to noncontrolling interests   (2,129 )     3,665       3,943       6,819       23,534       12,095  
 
Net earnings to common shareholders $ 46,256     $ 84,832     $ 74,066     $ 93,520     $ 86,286     $ 61,900  
 
Diluted earnings per common share $ 0.23     $ 0.41     $ 0.36     $ 0.46     $ 0.42     $ 0.30  
 

Financial Ratios

Pretax operating margin 15 % 22 % 22 % 32 % 26 % 21 %
Compensation and benefits / net revenues 59 % 57 % 55 % 44 % 56 % 59 %
Effective tax rate 44 % 39 % 38 % 41 % 37 % 40 %

 
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
  Quarters Ended
8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009   6/30/2009

Revenues by Source

         
Equities $ 101,935 $ 168,730 $ 164,825 $ 106,939 $ 138,916 $ 123,070
Fixed Income 171,184 230,913 213,481 222,996 418,010 344,098
Other   -       -     -     -     -     1,638  
Total 273,119 399,643 378,306 329,935 556,926 468,806
 
 
Equity 15,911 55,064 34,099 25,177 24,201 38,645
Debt   80,804       128,380     101,964     80,056     54,772     45,572  
Capital markets 96,715 183,444 136,063 105,233 78,973 84,217
Advisory   149,478       72,514     62,274     88,636     43,556     36,614  
Investment banking 246,193 255,958 198,337 193,869 122,529 120,831
 

Asset management fees and investment income / (loss) from managed funds:

Asset management fees 3,996 7,165 4,017 8,472 12,564 3,714
Investment (loss) / income from managed funds   (3,210 )     6,764     2,582     5,930     8,402     (3,158 )
Total   786       13,929     6,599     14,402     20,966     556  
Net revenues   520,098       669,530     583,242     538,206     700,421     590,193  
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries   (2,537 )     2,018     2,048     6,628     23,596     12,327  
Net Revenues, less mandatorily redeemable preferred interest $ 522,635     $ 667,512   $ 581,194   $ 531,578   $ 676,825   $ 577,866  
 

Other Data

Number of trading days 65 64 61 64 64 63
Full time employees (end of period) 2,971 2,821 2,729 2,628 2,513 2,307
Common shares outstanding 171,241 171,591 171,845 165,638 169,332 171,927
Weighted average common shares:
Basic 195,601 196,944 198,507 196,255 200,609 201,902
Diluted 195,612 201,064 202,630 200,383 204,736 206,027

 
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMMON SHARES OUTSTANDING AND COMMON SHARES FOR BASIC AND DILUTED EPS CALCULATIONS
(UNAUDITED)
 
    August 31, 2010  
 
Common shares outstanding 171,240,809
Outstanding restricted stock units 28,626,663  
Adjusted shares outstanding 199,867,472
 

Note - All share information below for EPS purposes is based upon weighted-average balances for the applicable period.

 
Three months ended Eight months ended
August 31, 2010 August 31, 2010
 
Shares outstanding (weighted average) (1) 171,367,173 170,849,273
Unearned restricted stock (2) (4,068,957 ) (3,481,555 )
Earned restricted stock units (3) 24,710,041 25,271,600
Other issuable shares (4) 3,593,077   4,303,847  
Common Shares for Basic EPS 195,601,334 196,943,165
 
Stock options (5) 10,472 14,108
Mandatorily redeemable convertible preferred stock (6) - 4,105,138
Convertible debt (7) -   -  
Common Shares for Diluted EPS 195,611,806 201,062,411
 
 
(1)

Shares outstanding represents shares issued less shares repurchased in treasury stock.  Shares issued includes public and private offerings, earned and unearned restricted stock, distributions related to restricted stock units, deferred compensation plans, employee stock purchase plan and stock option exercises.  Shares issued does not include undistributed earned and unearned restricted stock units.

 
(2) As certain restricted stock is contingent upon a future service condition, unearned shares are removed from shares outstanding in the calculation of basic EPS as Jefferies' obligation to issue these shares remains contingent.
 
(3) As earned restricted stock units are no longer contingent upon a future service condition and are issuable upon a certain date in the future, earned restricted stock units are added to shares outstanding in the calculation of basic EPS.
 
(4) Other shares issuable not pursuant to any contingency include shares issuable to settle previously granted restricted stock awards and shares issuable under certain deferred compensation plans.
 
(5) Calculated under the treasury stock method. The treasury stock method assumes the issuance of only a net incremental number of shares as proceeds from issuance are assumed to be used to repurchase shares at the average stock price for the period.
 
(6)

Calculated under the if-converted method.  The if-converted method assumes the conversion of convertible securities at the beginning of the period.  The conversion of our mandatorily redeemable convertible preferred stock is considered anti-dilutive to our three month EPS results and not included in Diluted EPS shares.  If dilutive, the conversion would result in 4,105,138 shares for the three month EPS results.

 
(7) Represents the potential common shares issuable under the conversion spread (the excess conversion value over the accreted debt value) based on the average stock price for the period.

 
Jefferies Group, Inc. And Subsidiaries
Financial Highlights
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
 
  Quarters Ended
8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009   6/30/2009
         
 
Net earnings to common shareholders $ 46,256 $ 84,832 $ 74,066 $ 93,520 $ 86,286 $ 61,900
Basic EPS (1) $ 0.23 $ 0.42 $ 0.36 $ 0.47 $ 0.42 $ 0.31
Diluted EPS (1) $ 0.23 $ 0.41 $ 0.36 $ 0.46 $ 0.42 $ 0.30
Effective tax rate 44 % 39 % 38 % 41 % 37 % 40 %
 
Total assets (in millions) (2) $ 31,636 $ 32,117 $ 32,912 $ 28,189 $ 27,863 $ 26,264
Average total assets for quarter (in millions) (2) $ 36,560 $ 37,597 $ 35,319 $ 31,792 $ 29,379 $ 29,245
Cash and cash equivalents (in millions) $ 2,090 $ 994 $ 1,029 $ 1,853 $ 1,405 $ 964
Level 3 assets (in millions) (2) (3) $ 488 $ 512 $ 657 $ 884 $ 842 $ 661
Level 3 assets - % total assets (2) 1.5 % 1.6 % 2.0 % 3.1 % 3.0 % 2.5 %
Level 3 assets - % total financial instruments owned (2) 3.4 % 3.7 % 5.1 % 9.3 % 8.6 % 7.9 %
Level 3 assets - % common stockholders' equity (2) 20.9 % 22.4 % 28.4 % 38.3 % 39.3 % 30.9 %
 
Total common stockholders' equity (in millions) $ 2,340 $ 2,288 $ 2,317 $ 2,309 $ 2,145 $ 2,140
Common book value per share (4) $ 13.67 $ 13.33 $ 13.48 $ 13.94 $ 12.66 $ 12.45
Tangible common book value per share (5) $ 11.52 $ 11.20 $ 11.34 $ 11.71 $ 10.54 $ 10.36
 
Total capitalization (in millions) (6) $ 6,358 $ 5,762 $ 5,821 $ 5,802 $ 5,348 $ 4,983
Leverage ratio (2) (7) 12.0 12.3 12.4 10.7 11.3 10.8
Adjusted leverage ratio (2) (8) 12.2 12.3 11.2 9.0 9.8 8.3
 
Average firmwide VaR (in millions) (9) $ 8.62 $ 8.25 $ 11.21 $ 6.46 $ 7.51 $ 6.17
 
Common shares outstanding 171,241 171,591 171,845 165,638 169,332 171,927
Share issued during quarter 372 1,659 8,682 819 1,039 2,680
Shares purchased during the quarter 525 1,620 2,474 4,479 3,532 72
 
Number of employees 2,971 2,821 2,729 2,628 2,513 2,307

   
Footnotes
 

(1)

The following details the calculation of basic and diluted earnings per share as included in our quarterly and annual reports.

 
Quarters Ended
8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009   6/30/2009
Earnings for basic earnings per common share:          
Net earnings $ 44,127 $ 88,497 $ 78,009 $ 100,339 $ 109,820 $ 73,995
Net earnings to noncontrolling interests   (2,129 )     3,665     3,943     6,819     23,534     12,095
Net earnings to common shareholders 46,256 84,832 74,066 93,520 86,286 61,900
Less: Allocation of earnings to participating securities (A)   1,731       2,875     2,163     1,451     1,108     236
Net earnings available to common shareholders $ 44,525     $ 81,957   $ 71,903   $ 92,069   $ 85,178   $ 61,664
Earnings for diluted earnings per common share:
Net earnings $ 44,127 $ 88,497 $ 78,009 $ 100,339 $ 109,820 $ 73,995
Net earnings to noncontrolling interests   (2,129 )     3,665     3,943     6,819     23,534     12,095
Net earnings to common shareholders 46,256 84,832 74,066 93,520 86,286 61,900
Add: Convertible preferred stock dividends (B) - 1,016 1,016 1,016 1,016 1,016
Less: Allocation of earnings to participating securities (A)   1,730       2,863     2,158     1,437     1,098     235

Net earnings available to common shareholders

$ 44,526     $ 82,985   $ 72,924   $ 93,099   $ 86,204   $ 62,681
Weighted Average Common Shares:
Basic 195,601 196,944 198,507 196,255 200,609 201,902
Diluted 195,612 201,064 202,630 200,383 204,736 206,027
Earnings per common share:
Basic $ 0.23 $ 0.42 $ 0.36 $ 0.47 $ 0.42 $ 0.31
Diluted $ 0.23 $ 0.41 $ 0.36 $ 0.46 $ 0.42 $ 0.30
 
 
(A) Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. 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 7,661,000, 6,780,000, 5,815,000, 3,092,000, 2,609,000, and 774,000 for the three months ended August 31, 2010, May 31, 2010, March 31, 2010, December 31, 2009, September 30, 2009 and June 30, 2009, respectively. Dividends declared on participating securities during the three months ended August 31, 2010, May 31, 2010 and March 31, 2010 amounted to approximately $559,000, $568,000 and $494,000, respectively. No dividends were declared during 2009. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
 
(B) The conversion of our mandatorily redeemable convertible preferred stock is considered anti-dilutive for our three-months ended August 31, 2010.
 

(2)

This amount represents a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the period ended

August 31, 2010.

 

(3)

Level 3 assets represent those financial instruments classified as such under ASC 820, accounted for at fair value and included within Financial instruments owned.

Level 3 assets for which we bear no economic exposure were $371 million at August 31, 2010, which is reflective of the portion of our Level 3 assets that are

attributable to third party and employee noncontrolling interests in certain consolidated entities.

 

(4)

Common book value per share equals common stockholders' equity divided by common shares outstanding.

 

(5)

Tangible common book value per share equals tangible common stockholders' equity divided by common shares outstanding. As of August 31, 2010, tangible

common stockholders' equity equals common stockholders' equity of $2,340,278 less goodwill and identifiable intangible assets of $367,705. We believe that

tangible common book value per share and tangible common stockholders' equity is meaningful as a valuation of financial companies are often measured as a

multiple of tangible common stockholders' equity making these ratios meaningful for investors.

 

(6)

Total capitalization includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated

subsidiaries and total stockholders' equity.

 

(7)

Leverage ratio equals total assets divided by total stockholders' equity.

 

(8)

Adjusted leverage ratio equals adjusted assets divided by tangible stockholders' equity. Adjusted assets equals total assets less securities borrowed, securities

purchased under agreements to resell, cash and securities segregated, goodwill and indentifiable intangibles plus financial instruments sold, not yet purchased (net of

derivative liabilities). As of August 31, 2010, adjusted assets were $27,737,413. We believe that adjusted assets is a meaningful measure as it excludes certain

assets that are considered of lower risk as they are generally self-financed by customer liabilities through our securities lending activities.

 

(9)

VaR is the potential loss in value of our trading positions due to adverse market movements over a one-day time horizon with a 95% confidence level. For a further

discussion of the calculation of VaR, see "Market Risk" in Part 1, Item 3 "Quantitative and Qualitative Disclosures About Market Risk" in our Quarterly Report on Form

10-Q for the period ended May 31, 2010.

Contacts

Jefferies Group, Inc.
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer

Contacts

Jefferies Group, Inc.
Peregrine C. Broadbent, 212-284-2338
Chief Financial Officer