Jefferies Group LLC - FORM 8-K - EX-99 - EXHIBIT 99 - December 20, 2010

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8-K - JEFFERIES GROUP, INC. 8-K - Jefferies Group LLCa6550777.htm

Exhibit 99

Jefferies Reports Preliminary Fourth Quarter and 11-Month 2010 Fiscal Year Financial Results

NEW YORK--(BUSINESS WIRE)--December 20, 2010--Jefferies Group, Inc. (NYSE: JEF) announced today preliminary financial results for its fiscal fourth quarter and 11-month fiscal year ended November 30, 2010. These results are preliminary pending resolution of the item described below.

Preliminary highlights for the three months ended November 30, 2010 versus the three months ended December 31, 2009:

  • Net revenues of $695 million, versus $538 million.
  • Net income to Common Shareholders of $71 million, versus $94 million.
  • Net earnings per common share of $0.35, versus $0.46.
  • Investment Banking revenues of $292 million, versus $194 million.

Preliminary highlights for the 11-month fiscal year ended November 30, 2010 versus the twelve months ended December 31, 2009:

  • Net revenues in the 11-month period of $2,214 million, versus $2,171 million in the prior year 12-month period.
  • Net income to Common Shareholders of $236 million in the 11-month period, versus $280 million in the prior year 12-month period.
  • Net earnings per common share of $1.15 in the 11-month period, versus $1.38 in the prior year 12-month period.
  • Investment banking revenues of $890 million in the 11-month period, versus $474 million in the prior year 12-month period.

During the fourth quarter, we began self-clearing a further portion of our fixed-income business. We are in the process of collecting final proceeds from the clearing bank that cleared these types of trades since 2005. During the course of 2010 and earlier, there have been varying differences between our records and the bank’s statements of account, with most of the 2010 differences appearing to be in our favor. The bank’s most recent statement of account differs from our records by $39 million in favor of the bank. Before finalizing our results, we are attempting to reconcile the current difference. Were it to be determined that the bank’s recent statement of account is fully correct and were the entire difference to be charged against the 11 months ended November 30, 2010, after considering the impact of offsetting expense reductions and taxes, our 2010 earnings per share may be reduced by $0.07 from $1.15 to $1.08, although some or all of this amount might ultimately be required to be allocated to prior periods.

A conference call with management discussion of these financial results will be held today, December 20, 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 # 28734585). A live audio webcast and delayed replay can be accessed at Jefferies.com.

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 Eleven Months

Ended

Twelve Months

Ended

Nov 30, 2010   Dec 31, 2009 Nov 30, 2010   Dec 31, 2009
Revenues:
Commissions $ 118,719 $ 117,209 $ 466,246 $ 512,293
Principal transactions 205,778 132,685 529,815 843,851
Investment banking 291,884 193,869 890,333 474,315
Asset management fees and

investment income from managed funds

4,981 14,402 16,785 35,887
Interest 175,043 153,661 605,945 567,438
Other 18,175   10,219 62,417   38,918
Total revenues 814,580 622,045 2,571,541 2,472,702
Interest expense 119,701   83,839 357,194   301,925
Net revenues 694,879 538,206 2,214,347 2,170,777
Interest on mandatorily redeemable preferred interest of

consolidated subsidiaries

14,942   6,628 14,916   37,248
Net revenues, less mandatorily redeemable preferred

interest

679,937   531,578 2,199,431   2,133,529
 
Non-interest expenses:
Compensation and benefits 407,564 239,352 1,284,768 1,195,971
Floor brokerage and clearing fees 26,003 26,414 110,705 80,422
Technology and communications 46,797 36,725 160,987 141,233
Occupancy and equipment rental 18,636 20,656 68,085 72,824
Business development 19,610 8,341 62,015 37,614
Professional services 14,378 11,241 49,080 41,125
Other 9,795   19,768 47,017   48,719
Total non-interest expenses 542,783   362,497 1,782,657   1,617,908
Earnings before income taxes 137,154 169,081 416,774 515,621
Income tax expense 51,702   68,742 164,661   199,041
Net earnings 85,452 100,339 252,113 316,580
Net earnings to noncontrolling interests 14,735   6,819 16,601   36,537
Net earnings to common shareholders $ 70,717   $ 93,520 $ 235,512   $ 280,043
Earnings per common share:
Basic $ 0.35   $ 0.47 $ 1.16   $ 1.39
Diluted $ 0.35   $ 0.46 $ 1.15   $ 1.38
 
Weighted average common shares:
Basic 194,901 196,255 196,393 200,446
Diluted 199,017 200,383 200,511 204,572
 
Effective tax rate 38% 41% 40% 39%
 
Jefferies Group, Inc. And Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
           
Quarters Ended
11/30/2010   8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009

Statement of Earnings

Net revenues, less mandatorily redeemable preferred

interest

$ 679,937 $ 522,635 $ 667,512 $ 581,194 $ 531,578 $ 676,825
 
Non-interest expenses:
Compensation and benefits 407,564 308,797 384,311 319,801 239,352 395,031
Non-compensation expenses 135,219   134,644   137,868   135,843   123,145   106,764
Earnings before income taxes 137,154 79,194 145,333 125,550 169,081 175,030
Income tax expense 51,702   35,067   56,836   47,541   68,742   65,210
Net earnings 85,452 44,127 88,497 78,009 100,339 109,820
Net earnings (loss) to noncontrolling interests 14,735   (2,129)   3,665   3,943   6,819   23,534
Net earnings to common shareholders $ 70,717   $ 46,256   $ 84,832   $ 74,066   $ 93,520   $ 86,286
Diluted earnings per common share $ 0.35   $ 0.23   $ 0.41   $ 0.36   $ 0.46   $ 0.42
 

Financial Ratios

Pretax operating margin 20% 15% 22% 22% 32% 26%
Compensation and benefits / net revenues 59% 59% 57% 55% 44% 56%
Effective tax rate 38% 44% 39% 38% 41% 37%
 
Jefferies Group, Inc. And Subsidiaries
Selected Statistical Information
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
           
Quarters Ended
11/30/2010   8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009

Revenues by Source

Equities $ 145,870 $ 101,935 $ 168,730 $ 164,825 $ 106,939 $ 138,916
Fixed Income 252,144   171,184   230,913   213,481   222,996   418,010
Total 398,014 273,119 399,643 378,306 329,935 556,926
 
 
Equity 46,046 15,911 55,064 34,099 25,177 24,201
Debt 89,137   80,804   128,380   101,964   80,056   54,772
Capital markets 135,183 96,715 183,444 136,063 105,233 78,973
Advisory 156,701   149,478   72,514   62,274   88,636   43,556
Investment banking 291,884 246,193 255,958 198,337 193,869 122,529
 
Asset management fees and investment income / (loss)

from managed funds:

Asset management fees 6,083 3,996 7,165 4,017 8,472 12,564
Investment (loss) / income from managed funds (1,102)   (3,210)   6,764   2,582   5,930   8,402
Total 4,981   786   13,929   6,599   14,402   20,966
Net revenues 694,879   520,098   669,530   583,242   538,206   700,421
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries 14,942   (2,537)   2,018   2,048   6,628   23,596
Net Revenues, less mandatorily redeemable preferred interest $ 679,937   $ 522,635   $ 667,512   $ 581,194   $ 531,578   $ 676,825
 

Other Data

Number of trading days 63 65 64 61 64 64
Full time employees (end of period) 3,084 2,971 2,821 2,729 2,628 2,513
Common shares outstanding 171,694 171,241 171,591 171,845 165,638 169,332
Weighted average common shares:

  Basic

194,901 195,601 196,944 198,507 196,255 200,609

  Diluted

199,017 195,612 201,064 202,630 200,383 204,736
 
Jefferies Group, Inc. And Subsidiaries
Common Shares Outstanding and Common Shares for Basic and Diluted EPS Calculations
(Unaudited)
       
 
November 30, 2010
 
Common shares outstanding 171,694,146
Outstanding restricted stock units 28,734,563
Adjusted shares outstanding 200,428,709
 

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

 
Three months ended Eleven months ended
November 30, 2010 November 30, 2010
 
Shares outstanding (weighted average) (1) 171,469,594 171,018,282
Unearned restricted stock (2) (5,023,654) (3,906,829)
Earned restricted stock units (3) 24,654,154 25,109,367
Other issuable shares (4) 3,800,758 4,171,899
Common Shares for Basic EPS 194,900,852 196,392,719
 
Stock options (5) 10,529 13,075
Mandatorily redeemable convertible preferred stock (6) 4,105,138 4,105,138
Convertible debt (7) - -
Common Shares for Diluted EPS 199,016,519 200,510,932
(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.
 
(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
11/30/2010   8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009
 
 
Net earnings to common shareholders $ 70,717 $ 46,256 $ 84,832 $ 74,066 $ 93,520 $ 86,286
Basic EPS (1) $ 0.35 $ 0.23 $ 0.42 $ 0.36 $ 0.47 $ 0.42
Diluted EPS (1) $ 0.35 $ 0.23 $ 0.41 $ 0.36 $ 0.46 $ 0.42
Effective tax rate 38% 44% 39% 38% 41% 37%
 
Total assets (in millions) (2) $ 35,206 $ 31,636 $ 32,117 $ 32,912 $ 28,189 $ 27,863
Average total assets for quarter (in millions) (2) $ 39,241 $ 36,560 $ 37,597 $ 35,319 $ 31,792 $ 29,379
Cash and cash equivalents (in millions) $ 2,189 $ 2,090 $ 994 $ 1,029 $ 1,853 $ 1,405
Level 3 assets (in millions) (2) (3) $ 576 $ 486 $ 512 $ 657 $ 884 $ 842
Level 3 assets - % total assets (2) 1.6% 1.5% 1.6% 2.0% 3.1% 3.0%
Level 3 assets - % total financial instruments owned (2) 3.6% 3.4% 3.7% 5.1% 9.3% 8.6%
Level 3 assets - % common stockholders' equity (2) 23.0% 20.9% 22.4% 28.4% 38.3% 39.3%
 
Total common stockholders' equity (in millions) $ 2,500 $ 2,340 $ 2,288 $ 2,317 $ 2,309 $ 2,145
Adjusted common stockholders' equity (in millions) (4) $ 2,661 $ 2,484 $ 2,429 $ 2,448 $ 2,362 $ 2,192
Common book value per share (5) $ 14.56 $ 13.67 $ 13.33 $ 13.48 $ 13.94 $ 12.66
Adjusted book value per share (6) $ 13.28 $ 12.43 $ 12.13 $ 12.17 $ 12.24 $ 11.15
Tangible common book value per share (7) $ 12.42 $ 11.52 $ 11.20 $ 11.34 $ 11.71 $ 10.54
Adjusted tangible book value per share (6) $ 11.44 $ 10.59 $ 10.30 $ 10.34 $ 10.33 $ 9.32
 
Total capitalization (in millions) (8) $ 7,053 $ 6,358 $ 5,762 $ 5,821 $ 5,802 $ 5,348
Leverage ratio (2) (9) 12.4 11.9 12.3 12.4 10.7 11.3
Adjusted leverage ratio (2) (10) 13.0 12.1 12.3 11.2 9.0 9.8
 
Average firmwide VaR (in millions) (11) $ 6.45 $ 8.64 $ 8.25 $ 11.21 $ 6.46 $ 7.51
 
Common shares outstanding 171,694 171,241 171,591 171,845 165,638 169,332
Adjusted shares outstanding (12) 200,429 199,867 200,286 201,101 193,042 196,613
Share issued during quarter 1,888 372 1,659 8,682 819 1,039
Shares purchased during the quarter 1,082 525 1,620 2,474 4,479 3,532
 
Number of employees 3,084 2,971 2,821 2,729 2,628 2,513
 
Footnotes
           
(1) The following details the calculation of basic and diluted earnings per share as included in our quarterly and annual reports.
 
Quarters Ended
11/30/2010   8/31/2010   5/31/2010   3/31/2010   12/31/2009   9/30/2009
Earnings for basic earnings per common share:
Net earnings $ 85,452 $ 44,127 $ 88,497 $ 78,009 $ 100,339 $ 109,820
Net earnings (loss) to noncontrolling interests 14,735   (2,129)   3,665   3,943   6,819   23,534
Net earnings to common shareholders 70,717 46,256 84,832 74,066 93,520 86,286
Less: Allocation of earnings to participating securities (A) 2,988   1,731   2,875   2,163   1,451   1,108
Net earnings available to common shareholders $ 67,729   $ 44,525   $ 81,957   $ 71,903   $ 92,069   $ 85,178
Earnings for diluted earnings per common share:
Net earnings $ 85,452 $ 44,127 $ 88,497 $ 78,009 $ 100,339 $ 109,820
Net earnings (loss) to noncontrolling interests 14,735   (2,129)   3,665   3,943   6,819   23,534
Net earnings to common shareholders 70,717 46,256 84,832 74,066 93,520 86,286
Add: Convertible preferred stock dividends (B) 1,016 - 1,016 1,016 1,016 1,016
Less: Allocation of earnings to participating securities (A) 2,984   1,730   2,863   2,158   1,437   1,098
Net earnings available to common shareholders $ 68,749   $ 44,526   $ 82,985   $ 72,924   $ 93,099   $ 86,204
Weighted Average Common Shares:
Basic 194,901 195,601 196,944 198,507 196,255 200,609
Diluted 199,017 195,612 201,064 202,630 200,383 204,736
Earnings per common share:
Basic $ 0.35 $ 0.23 $ 0.42 $ 0.36 $ 0.47 $ 0.42
Diluted $ 0.35 $ 0.23 $ 0.41 $ 0.36 $ 0.46 $ 0.42
 
(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 8,599,000, 7,661,000, 6,780,000, 5,815,000, 3,092,000 and 2,609,000 for the three months ended November 30, 2010, August 31, 2010, May 31, 2010, March 31, 2010, December 31, 2009 and September 30, 2009, respectively. Dividends declared on participating securities during the three months ended November, 30, 2010, August 31, 2010, May 31, 2010 and March 31, 2010 amounted to approximately $632,000, $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 was 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 Annual Report on Form 10-K for the eleven months ended November 30, 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 $321 million at November 30, 2010, which is reflective of the portion of our Level 3 assets that are financed by nonrecourse secured financing attributable to third party or employee noncontrolling interests in certain consolidated entities.
 
(4) Adjusted common stockholders’ equity represents total common stockholders’ equity plus the unrecognized compensation cost related to nonvested share based awards, i.e. granted restricted stock and restricted stock units which contain future service requirements. As of November 30, 2010, unrecognized compensation cost related to nonvested share based awards was $160,960. We believe that adjusted common stockholders’ equity is a meaningful measure as it reflects the current capital outstanding to stockholders, including employee common shareholders, that would be required to be paid out in liquidation.
 
(5) Common book value per share equals common stockholders' equity divided by common shares outstanding.
 
(6) Adjusted book value per share equals adjusted common stockholders’ equity divided by adjusted shares outstanding. Adjusted tangible book value per share equals adjusted common stockholders’ equity less goodwill and identifiable intangible assets divided by adjusted common shares outstanding. As of November 30, 2010, goodwill and identifiable intangible assets equals $368,078. Previous quarters have been conformed to reflect this calculation. We believe these are meaningful measure as investors often incorporate the dilutive effects of outstanding capital in their valuations.
 
(7) Tangible common book value per share equals tangible common stockholders' equity divided by common shares outstanding. As of November 30, 2010, tangible common stockholders' equity equals common stockholders' equity of $2,500,284 less goodwill and identifiable intangible assets of $368,078. 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.
 
(8) Total capitalization includes our long-term debt, mandatorily redeemable convertible preferred stock, mandatorily redeemable preferred interest of consolidated subsidiaries and total stockholders' equity.
 
(9) Leverage ratio equals total assets divided by total stockholders' equity.
 
(10) 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 November 30, 2010, adjusted assets were $31,954,231. 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.
 
(11) 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 eight months ended August 31, 2010.
 
(12) Adjusted shares outstanding equals common shares outstanding plus outstanding restricted stock units.

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

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