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Notes to Consolidated Financial Statements
Note 1. Nature of Operations
Jefferies Financial Group Inc. ("Jefferies," "we," "our" or the "Company") is engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC ("Jefferies Group"), our largest subsidiary, was established in 1962 and is now the largest independent full-service global investment banking firm headquartered in the U.S.
In the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30, consistent with the fiscal year of Jefferies Group. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Jefferies Group has a November 30 year end. Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results.
Jefferies Group operates in two business segments: Investment Banking and Capital Markets, and Asset Management. Investment Banking and Capital Markets includes investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance.
Through Jefferies Group, we own 50% of Jefferies Finance LLC ("Jefferies Finance"), Jefferies Group's joint venture with Massachusetts Mutual Life Insurance Company ("MassMutual"). Jefferies Finance is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Through Jefferies Group, we also have an interest in Berkadia Commercial Mortgage Holding LLC ("Berkadia"), Jefferies Group's 50-50 equity method joint venture with Berkshire Hathaway Inc. Berkadia is a U.S. commercial real estate finance company providing capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial properties.
Our Asset Management segment includes both the operations of Leucadia Asset Management ("LAM") as well as the asset management operations within Jefferies Group. Within Asset Management, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. Asset Management offers institutional clients an innovative range of investment strategies through its affiliated managers.
Merchant Banking is where we own a portfolio of businesses and investments including Linkem (fixed wireless broadband services in Italy); Vitesse Energy, LLC ("Vitesse Energy Finance") and JETX Energy, LLC ("JETX Energy") (oil and gas production and development); real estate, primarily HomeFed LLC ("HomeFed"); Idaho Timber (manufacturing) and FXCM Group, LLC ("FXCM") (provider of online foreign exchange trading services). Our Merchant Banking businesses and investments also included National Beef Packing Company, LLC ("National Beef") (beef processing), prior to its sale in November 2019; Spectrum Brands Holdings, Inc. ("Spectrum Brands") (consumer products), prior to its distribution to shareholders in October 2019; Berkadia (commercial mortgage banking, investment sales and servicing), prior to its transfer to Jefferies Group in the fourth quarter of 2018; and Garcadia (automobile dealerships), prior to its sale in August 2018. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings.
On June 5, 2018, we completed the sale of 48% of National Beef to Marfrig Global Foods S.A. ("Marfrig"), reducing our then ownership in National Beef from 79% to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining 31% interest in National Beef under the equity method of accounting. We classified the results of National Beef prior to June 5, 2018 as discontinued operations in the Consolidated Statements of Operations. See Note 26 for more information. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders and received a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. As of November 30, 2019, we no longer hold an equity interest in National Beef.
Prior to October 11, 2019, we owned approximately 15% of Spectrum Brands, a publicly traded global consumer products company on the NYSE (NYSE: SPB), and we reflected this investment at fair value based on quoted market prices. We distributed all of our 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of record as of the close of business on September 30, 2019.
We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares and warrants. If all of our convertible preferred stock was converted and warrants exercised, it would increase our ownership to approximately 56% of Linkem's common equity at November 30, 2020. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem launched its first 5G towers in late 2020 and plans to rapidly increase its network coverage and service offerings over the coming years as it upgrades to 5G, adds subscribers and leverages its assets. Linkem is accounted for under the equity method.
Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires, invests and monetizes non-operated working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas.
HomeFed is our 100% owned consolidated subsidiary that owns and develops residential and mixed use real estate properties. Prior to July 1, 2019, we owned approximately 70% of HomeFed and accounted for it under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued, which were valued at $178.8 million at closing based on the market price of our common shares. As an offset to these issued shares, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market.
The HomeFed acquisition was accounted for as a business combination. The fair value of the shares issued to acquire the remaining common shares of HomeFed implied an aggregate fair value of $596.4 million for 100% of HomeFed's equity balance. In accordance with purchase accounting, we allocated the $596.4 million fair value for 100% of HomeFed to its assets, liabilities and noncontrolling interests. We recorded $101.7 million of cash, $413.2 million of real estate, $198.3 million of investments in associated companies, $37.4 million of deferred tax assets, $15.3 million of goodwill and intangibles, $6.6 million of other assets, $125.5 million of long-term debt, $46.7 million of payables, expense accruals and other liabilities and $3.9 million of noncontrolling interests. In addition, associated with the acquisition, we also recorded $32.4 million of goodwill generated by the establishment of $32.4 million of deferred tax liabilities related to allocated value exceeding the tax basis of some of the HomeFed net assets. The estimated weighted average useful lives for the amortizable intangibles were 4 years at time of acquisition. Our allocation of the acquisition price is based on our estimate of fair value for each of the acquired assets and liabilities, which were developed primarily utilizing discounted cash flow models. In connection with the acquisition of the remaining interest of HomeFed, we recognized a $72.1 million non-cash pre-tax gain in Other revenues on the revaluation of our 70% interest in HomeFed to fair value. The fair value of our 70% interest in HomeFed was based on the implied $596.4 million equity value for 100% of HomeFed.
Idaho Timber is our 100% owned consolidated subsidiary engaged in the manufacture and distribution of various wood products.
Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at November 30, 2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM.
Garcadia was an equity method joint venture that owned and operated automobile dealerships. During the third quarter of 2018, we sold our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million during the third quarter of 2018, is classified as Other revenue.
Note 2. Significant Accounting Policies
We prepare these financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"), which requires us to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. The following represents our significant accounting policies.
Consolidation
Our policy is to consolidate all entities in which we can vote 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. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to noncontrolling interests. All intercompany transactions and balances are eliminated in consolidation.
In situations in which we have significant influence, but not control, of an entity that does not qualify as a VIE, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under GAAP. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies. Our subsidiaries may 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.
Revenue Recognition Policies
Commissions and Other Fees. All customer securities transactions are reported in 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 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 acting as an agent in these arrangements, netted against commission revenues in the Consolidated Statements of Operations. In addition, we earn asset-based fees associated with the management and supervision of assets, account services and administration related to customer accounts.
Principal Transactions. Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations, except for derivatives accounted for as hedges (see Hedge Accounting section, herein and Note 5). Fees received on loans carried at fair value are also recorded in Principal transactions revenues.
Investment Banking. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring advisory engagements, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by clients are recognized as Investment banking revenues.
Underwriting and placement agent revenues are recognized at a point in time on trade-date. Costs associated with underwriting activities are deferred until the related revenue is recognized or the engagement is otherwise concluded and are recorded on a gross basis in Selling, general and other expenses in the Consolidated Statements of Operations.
Asset Management Fees and Revenues. Asset management fees and revenues consist of asset management fees, as well as revenues from affiliated asset managers, which entitle us to portions of our partners' management company revenues and/or partners' profits and perpetual rights to certain defined revenues for a given revenue share period. Revenue from affiliated asset managers is recognized at the end of the defined revenue or profit share period when the revenues have been realized and all contingencies have been resolved.
Management and administrative fees are generally recognized over the period that the related service is provided. Performance fee revenue is generally recognized only at the end of the performance period to the extent that the benchmark return has been met.
Interest Revenue and Expense. Interest expense that is deducted from Revenues to arrive at Net revenues is related to Jefferies Group's operations. Contractual interest on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value is recognized on an accrual basis as a component of Interest income and Interest expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transactions revenues in the Consolidated Statements of Operations rather than as a component of interest income or expense. Interest on short- and long-term borrowings is accounted for on an accrual basis, except for those for which we have elected the fair value option, with related interest recorded as Interest expense. Discounts/premiums arising on long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. Interest revenue related to Securities borrowed and Securities purchased under agreements to resell activities and interest expense related to Securities loaned and Securities sold under agreements to repurchase activities are recognized on an accrual basis. In addition, we recognize interest income as earned on brokerage customer margin balances and interest expense as incurred on credit balances.
Manufacturing Revenues. Manufacturing revenues are from Idaho Timber, which manufactures and distributes an extensive range of quality wood products to markets across North America. Idaho Timber's primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product.
Cash Equivalents
Cash equivalents include highly liquid investments, including money market funds and certificates of deposit, not held for resale with original maturities of three months or less.
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 LLC, which is a wholly-owned subsidiary of Jefferies Group, 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. 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. In addition, certain exchange and/or clearing organizations require cash and/or securities to be deposited by us to conduct day to day activities.
Financial Instruments and Fair Value
Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value 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 on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recognized in Principal transactions revenues in the Consolidated Statements of Operations. 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:
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Level 1:
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Quoted prices are available in active markets for identical assets or liabilities at the reported date. Valuation adjustments and block discounts are not applied to Level 1 instruments.
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Level 2:
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Pricing inputs other than quoted prices in active markets, which are either directly or indirectly observable at the reported date. The nature of these financial instruments includes cash instruments for which quoted prices are available but traded less frequently, derivative instruments for which fair values have been derived using model inputs that 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.
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Level 3:
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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.
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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 on the best available information, taking into account the types of financial instruments, current financial information, restrictions (if any) 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 are permitted based on management's judgment, which takes into consideration the features of the financial instrument such as its complexity, the market in which the financial instrument is traded and underlying risk uncertainties about market conditions. 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.
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. The degree of judgment exercised in determining fair value is greatest for instruments categorized within Level 3.
Loans to and Investments in Associated Companies
Loans to and investments in associated companies include investments in private equity and other operating entities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such investments. Loans to and investments in associated companies are accounted for using the equity method. See Note 9 for additional information regarding certain of these investments.
Under the equity method of accounting, our share of the investee's underlying net income or loss is recorded as Income (loss) related to associated companies, or as part of Other revenues if such investees are considered to be an extension of our business. Income (loss) for investees for which the fair value option was elected is reported as Principal transactions revenues.
Receivables
At November 30, 2020 and 2019, Receivables include receivables from brokers, dealers and clearing organizations of $4,161.8 million and $3,011.0 million, respectively, and receivables from customers of securities operations of $1,286.9 million and $1,490.9 million, respectively.
Our subsidiary, Foursight Capital, had auto loan receivables of $694.2 million and $741.2 million at November 30, 2020 and 2019, respectively. Of these amounts, $532.4 million and $621.2 million at November 30, 2020 and 2019, respectively, were in securitized vehicles. See Notes 7 and 8 for additional information on Foursight Capital's securitization activities. Based primarily on Beacon credit scores, Foursight Capital classifies its auto loan receivables as prime, near-prime and sub-prime based on the perceived credit risk at origination and generally considers prime receivables as those with a Beacon score of 680 and above, near-prime with scores between 620 and 679 and sub-prime with scores below 620. The credit quality classification at November 30, 2020 and 2019 was approximately 14% and 15% prime, 54% and 53% near-prime and 32% and 32% sub-prime, respectively.
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. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another party, that party provides cash to us as collateral, which is reflected in the 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 revenue and Interest expense in the Consolidated Statements of Operations on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis by counterparty, where permitted by GAAP. The fair value of the underlying securities is monitored 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.
Offsetting of Derivative Financial Instruments and Securities Financing Agreements
To manage exposure to credit risk associated with derivative activities and securities financing transactions, we may enter into International Swaps and Derivative Association, Inc. ("ISDA") master netting agreements, master securities lending agreements, master repurchase agreements or similar agreements and collateral arrangements 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. 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 contracts or transactions. See Notes 5 and 6 for further information.
Hedge Accounting
Hedge accounting is applied using interest rate swaps designated as fair value hedges of changes in the benchmark interest rate of fixed rate senior long-term debt. The interest rate swaps are included as derivative contracts in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. We use regression analysis to perform ongoing prospective and retrospective assessments of the effectiveness of these hedging relationships. A hedging relationship is deemed effective if the change in fair value of the interest rate swap and the change in the fair value of the long-term debt due to changes in the benchmark interest rate offset within a range of 80% to 125%. The impact of valuation adjustments related to Jefferies Group's own credit spreads and counterparty credit spreads are included in the assessment of effectiveness.
For qualifying fair value hedges of benchmark interest rates, the change in the fair value of the derivative and the change in fair value of the long-term debt provide offset of one another and, together with any resulting ineffectiveness, are recorded in Interest expense.
We seek to reduce the impact of fluctuations in foreign exchange rates on our net investments in certain non-U.S. operations through the use of foreign exchange contracts. The foreign exchange contracts are included as derivative contracts in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. For foreign exchange contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For qualifying net investment hedges, all gains or losses on the hedging instruments are included in Accumulated other comprehensive income (loss).
See Note 5 for further information.
Other Investments
At November 30, 2020 and 2019, the Company had other investments (classified as Other assets and Loans to and investments in associated companies) in which fair values are not readily determinable, aggregating $90.2 million and $172.8 million, respectively. Impairments recognized on these investments were $20.4 million, $5.5 million and $0.2 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Realized gains of $2.1 million, $13.8 million and $0.2 million were recognized on these investments during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. There were no unrealized gains or losses recognized on these investments during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018.
Capitalization of Interest
In connection with the acquisition of HomeFed in 2019, we began capitalizing interest on qualifying real estate assets. During the twelve months ended November 30, 2020 and 2019, capitalized interest of $8.6 million and $6.2 million, respectively, was allocated among all of HomeFed's projects that are currently under development.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets or, if less, the term of the underlying lease.
Lease Accounting
We adopted the Financial Accounting Standards Board ("FASB") guidance on leases on December 1, 2019. These lease policy updates were applied using a modified retrospective approach. Reported financial information for the historical comparable periods were not revised and continues to be reported under the accounting standards in effect during the historical periods.
For leases with an original term longer than one year, lease liabilities are initially recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term, including non-lease components such as fixed common area maintenance costs and other fixed costs for generally all leases. A corresponding right of use ("ROU") asset is initially recognized equal to the lease liability adjusted for any lease prepayments, initial direct costs and lease incentives.
The ROU assets are included in Property, equipment and leasehold improvements, net and the lease liabilities are included in Lease liabilities in the Consolidated Statement of Financial Condition.
The discount rates used in determining the present value of leases represent our collateralized borrowing rate considering each lease's term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain leases have renewal options that can be exercised at the discretion of the Company. Lease expense is generally recognized on a straight-line basis over the lease term and included in Selling, general and other expenses in the Consolidated Statement of Operations. See Note 13 for further information.
Impairment of Long-Lived Assets
We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management's estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value.
Substantially all of our operating businesses sell products or services that are impacted by general economic conditions in the U.S. and to a lesser extent internationally. A worsening of current economic conditions could cause a decline in estimated future cash flows expected to be generated by our operations and investments. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in intangible assets, property and equipment and other long-lived assets (for example, Jefferies Group, manufacturing and oil and gas production and development), impairment charges would have to be recorded.
Intangible Assets, Net and Goodwill
Intangible Assets. Intangible assets deemed to have finite lives are generally 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. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded.
An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances occur indicating an assessment for impairment is necessary. 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. Fair value will be determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies Group acquisition, and our annual impairment testing date for these assets is August 1.
Goodwill. At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies Group acquisition.
At least annually, and more frequently if warranted, we will assess whether goodwill has been impaired. 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 unit's goodwill. The fair values will be 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 fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of merger and
acquisitions of similar businesses and/or projected cash flows. 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. Our annual goodwill impairment testing date related to the Investment Banking and Capital Markets and Asset Management segments is as of August 1. Our annual impairment testing date for all other operations is November 30.
Inventories and Cost of Sales
Manufacturing inventories are stated at the lower of cost or net realizable value, with cost principally determined under the first-in-first-out method. Manufacturing cost of sales principally includes product and manufacturing costs, inbound and outbound shipping costs and handling costs. Inventories are classified as Other assets in the Consolidated Statements of Financial Condition.
Payables, expense accruals and other liabilities
At November 30, 2020 and 2019, Payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $3,325.8 million and $2,621.7 million, respectively, and payables to customers of securities operations of $4,249.7 million and $3,808.6 million, respectively.
Income Taxes
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. 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.
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.
The Company uses the portfolio approach relating to the release of stranded tax effects recorded in accumulated other comprehensive income (loss). Under the portfolio approach, the net unrealized gains or losses recorded in accumulated other comprehensive income (loss) would be eliminated only on the date the entire portfolio of available for sale securities is sold or otherwise disposed of.
Share-based Compensation
Share-based awards are measured based on the fair value of the award as determined in accordance with GAAP and recognized over the required service or vesting period. Certain executive share-based awards contain market, performance and service conditions. Market conditions are incorporated into the grant-date fair value using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved. The fair value of options are estimated at the date of grant using the Black-Scholes option pricing model. We account for forfeitures as they occur, which results in dividends and dividend equivalents originally charged against retained earnings for forfeited shares to be reclassified to compensation expense in the period in which the forfeiture occurs.
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 the relevant 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 Accumulated other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) and classified as Accumulated other comprehensive income (loss) in the Consolidated Statements of Financial
Condition and Consolidated Statements of Changes in Equity. Gains or losses resulting from Jefferies Group's foreign currency transactions are included in Principal transactions revenues in the Consolidated Statements of Operations.
Earnings per Common Share
Basic earnings per share is 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. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units ("RSUs") for which no future service is required. Diluted earnings per share is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred shares and interest on convertible notes 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 earnings per share. Restricted stock and RSUs granted as part of 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, we calculate basic and diluted earnings per share under the two-class method. RSUs granted under the senior executive compensation plan are not considered participating securities as the rights to dividend equivalents are forfeitable. See Note 15 for more information regarding the senior executive compensation plan.
Securitization Activities
We engage in securitization activities related to corporate loans, consumer loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Transfers of financial assets to secured funding vehicles 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 in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized in Principal transactions revenues in the Consolidated Statements of Operations. When a transfer of assets does not meet the criteria of a sale, the transfer is accounted for as a secured borrowing in Financial instruments owned, at fair value and we continue to recognize the assets of a secured borrowing, and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition.
Another of our subsidiaries utilizes special purpose entities to securitize automobile loans receivables. These special purpose entities are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary's general credit.
Contingencies
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 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, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are
in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 22.
Supplemental Cash Flow Information
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Twelve Months Ended November 30, 2020
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Twelve Months Ended November 30, 2019
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Eleven Months Ended November 30, 2018
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(In thousands)
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Cash paid during the year for:
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Interest, net of amounts capitalized
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$
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1,080,368
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$
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1,563,152
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$
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1,377,781
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Income tax payments (refunds), net
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$
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25
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$
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24,587
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$
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37,559
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In June 2019, we entered into a Membership Interest Purchase Agreement, which provided for each of the then owners of National Beef to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC ("Iowa Premium"). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in the Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity.
During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed.
During the twelve months ended November 30, 2019, we had $16.4 million non-cash investing activities related to the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company's Chairman and certain of his family trusts in exchange for 780,315 shares of the Company's common stock, at a price of $21.03 per share.
During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of all of our Spectrum Brands shares through a special pro rata dividend to our stockholders.
During the twelve months ended November 30, 2019, we had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months ended November 30, 2018, we had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018.
Note 3. Accounting Developments
Accounting Developments - Accounting Standards Adopted in Current Annual Reporting Period
Leases. We adopted the new lease standard on December 1, 2019 using a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in effect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the lease classification and initial direct costs of existing leases upon transition. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of operating ROU assets of $545.8 million and operating lease liabilities of $614.9 million reflected in Property, equipment and leasehold improvements, net and Lease liabilities in the Consolidated Statement of Financial Condition, respectively. Finance lease ROU assets and finance lease liabilities were not material and are reflected in Property, equipment and leasehold improvements, net and Lease liabilities in the Consolidated Statement of Financial Condition, respectively.
Derivatives and Hedging. In August 2017, the FASB issued new guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. We adopted the guidance in the first quarter of fiscal 2020 and the adoption did not have a material impact on our consolidated financial statements.
Reference Rate Reform. In March 2020, the FASB issued new guidance which provides optional exceptions for applying GAAP to contracts, hedge accounting relationships or other transactions affected by reference rate reform. We adopted the guidance on September 1, 2020 and the adoption had no impact on our consolidated financial statements.
Accounting Developments - Accounting Standards to be Adopted in Future Periods
Financial Instruments - Credit Losses. In June 2016, the FASB issued new guidance which provides for estimating credit losses on financial assets measured at amortized cost by introducing an approach based on expected losses over the financial asset's entire life, recorded at inception or purchase. We adopted the new credit loss guidance on December 1, 2020 and applied a modified retrospective approach through a cumulative-effect adjustment to retained earnings upon adoption. At transition on December 1, 2020, the new accounting guidance's adoption resulted in an increase in the allowance for credit losses of $26.5 million with a corresponding decrease in retained earnings of $19.9 million, net of tax. The increase is primarily attributable to a $30.1 million increase in the allowance for credit losses in Foursight Capital's portfolio of held to maturity auto finance receivables. Foursight Capital estimates expected credit losses on its portfolio using analysis of historical portfolio performance data as well as external economic factors that management considers to be relevant to the credit losses expected in the portfolio. This is partially offset by a $3.6 million decrease in the allowance for credit losses at Jefferies Group that is attributable to applying a revised provisioning methodology based on historical loss experience for its investment banking fee receivables.
We have determined expected credit losses to be immaterial upon adoption for our other financial instruments within the scope of the guidance. A significant portion of our financial instruments within the scope of the guidance represent secured financing receivables (reverse repurchase, secured borrowing, and margin loan agreements) that are substantially collateralized. For our secured financing receivables, we have concluded that the impact upon adoption was immaterial because the contractual collateral maintenance provisions require that the counterparty continually adjust the amount of collateralization securing the credit exposure on these contracts. Collateralization levels for our secured financing receivables are initially established based upon the counterparty, the type of acceptable collateral that is monitored daily and adjusted to mitigate the potential of any credit losses. For the remaining financial instruments within the guidance's scope, the expected credit losses were also determined to be immaterial considering the counterparty's credit quality, an insignificant history of credit losses, or the short-term nature of the credit exposures.
Goodwill. In January 2017, the FASB issued new guidance which simplifies goodwill impairment testing. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Defined Benefit Plans. In August 2018, the FASB issued new guidance to improve the effectiveness of disclosure requirements on defined benefit pension plans and other post-retirement plans. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Internal-Use Software. In August 2018, the FASB issued new guidance which amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. We adopted the guidance in the first quarter of fiscal 2021 and elected to apply the guidance prospectively to implementation costs incurred after the adoption date. The adoption did not have an impact on our consolidated financial statements on the adoption date.
Consolidation. In October 2018, the FASB issued new guidance which requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements.
Income Taxes. In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The guidance is effective in the first quarter of fiscal 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Note 4. 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, excluding Investments at fair value based on net asset value ("NAV") of $965.4 million and $586.9 million at November 30, 2020 and 2019, respectively, by level within the fair value hierarchy (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Counterparty
and
Cash
Collateral
Netting (1)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
2,475,887
|
|
|
$
|
58,159
|
|
|
$
|
75,904
|
|
|
$
|
—
|
|
|
$
|
2,609,950
|
|
Corporate debt securities
|
—
|
|
|
2,954,236
|
|
|
23,146
|
|
|
—
|
|
|
2,977,382
|
|
Collateralized debt obligations and
collateralized loan obligations
|
—
|
|
|
64,155
|
|
|
17,972
|
|
|
—
|
|
|
82,127
|
|
U.S. government and federal agency securities
|
2,840,025
|
|
|
91,653
|
|
|
—
|
|
|
—
|
|
|
2,931,678
|
|
Municipal securities
|
—
|
|
|
453,881
|
|
|
—
|
|
|
—
|
|
|
453,881
|
|
Sovereign obligations
|
1,962,346
|
|
|
591,342
|
|
|
—
|
|
|
—
|
|
|
2,553,688
|
|
Residential mortgage-backed securities
|
—
|
|
|
1,100,849
|
|
|
21,826
|
|
|
—
|
|
|
1,122,675
|
|
Commercial mortgage-backed securities
|
—
|
|
|
736,291
|
|
|
2,003
|
|
|
—
|
|
|
738,294
|
|
Other asset-backed securities
|
—
|
|
|
103,611
|
|
|
79,995
|
|
|
—
|
|
|
183,606
|
|
Loans and other receivables
|
—
|
|
|
2,610,746
|
|
|
134,636
|
|
|
—
|
|
|
2,745,382
|
|
Derivatives
|
1,523
|
|
|
2,013,942
|
|
|
21,678
|
|
|
(1,556,136)
|
|
|
481,007
|
|
Investments at fair value
|
—
|
|
|
6,122
|
|
|
213,946
|
|
|
—
|
|
|
220,068
|
|
FXCM term loan
|
—
|
|
|
—
|
|
|
59,455
|
|
|
—
|
|
|
59,455
|
|
|
|
|
|
|
|
|
|
|
|
Total financial instruments owned, at fair value, excluding investments at fair value based on NAV
|
$
|
7,279,781
|
|
|
$
|
10,784,987
|
|
|
$
|
650,561
|
|
|
$
|
(1,556,136)
|
|
|
$
|
17,159,193
|
|
|
|
|
|
|
|
|
|
|
|
Loans to and investments in associated
companies
|
$
|
—
|
|
|
$
|
8,603
|
|
|
$
|
40,185
|
|
|
$
|
—
|
|
|
$
|
48,788
|
|
|
|
|
|
|
|
|
|
|
|
Securities received as collateral, at fair value
|
$
|
7,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,517
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
2,046,441
|
|
|
$
|
9,046
|
|
|
$
|
4,434
|
|
|
$
|
—
|
|
|
$
|
2,059,921
|
|
Corporate debt securities
|
—
|
|
|
1,237,631
|
|
|
141
|
|
|
—
|
|
|
1,237,772
|
|
U.S. government and federal agency securities
|
2,609,660
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,609,660
|
|
|
|
|
|
|
|
|
|
|
|
Sovereign obligations
|
1,050,771
|
|
|
624,740
|
|
|
—
|
|
|
—
|
|
|
1,675,511
|
|
Residential mortgage-backed securities
|
—
|
|
|
477
|
|
|
—
|
|
|
—
|
|
|
477
|
|
Commercial mortgage-backed securities
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Loans
|
—
|
|
|
1,776,446
|
|
|
16,635
|
|
|
—
|
|
|
1,793,081
|
|
Derivatives
|
551
|
|
|
2,391,556
|
|
|
47,695
|
|
|
(1,798,659)
|
|
|
641,143
|
|
Total financial instruments sold, not yet purchased, at fair value
|
$
|
5,707,423
|
|
|
$
|
6,039,896
|
|
|
$
|
68,940
|
|
|
$
|
(1,798,659)
|
|
|
$
|
10,017,600
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
5,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,067
|
|
Other secured financings
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,543
|
|
|
$
|
—
|
|
|
$
|
1,543
|
|
Long-term debt
|
$
|
—
|
|
|
$
|
1,036,217
|
|
|
$
|
676,028
|
|
|
$
|
—
|
|
|
$
|
1,712,245
|
|
Obligation to return securities received as collateral, at fair value
|
$
|
7,517
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Counterparty
and
Cash
Collateral
Netting (1)
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
|
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
2,507,164
|
|
|
$
|
218,403
|
|
|
$
|
58,426
|
|
|
$
|
—
|
|
|
$
|
2,783,993
|
|
Corporate debt securities
|
—
|
|
|
2,472,245
|
|
|
7,490
|
|
|
—
|
|
|
2,479,735
|
|
Collateralized debt obligations and
collateralized loan obligations
|
—
|
|
|
124,225
|
|
|
28,788
|
|
|
—
|
|
|
153,013
|
|
U.S. government and federal agency securities
|
2,101,624
|
|
|
158,618
|
|
|
—
|
|
|
—
|
|
|
2,260,242
|
|
Municipal securities
|
—
|
|
|
742,326
|
|
|
—
|
|
|
—
|
|
|
742,326
|
|
Sovereign obligations
|
1,330,026
|
|
|
1,405,827
|
|
|
—
|
|
|
—
|
|
|
2,735,853
|
|
Residential mortgage-backed securities
|
—
|
|
|
1,069,066
|
|
|
17,740
|
|
|
—
|
|
|
1,086,806
|
|
Commercial mortgage-backed securities
|
—
|
|
|
424,060
|
|
|
6,110
|
|
|
—
|
|
|
430,170
|
|
Other asset-backed securities
|
—
|
|
|
303,847
|
|
|
42,563
|
|
|
—
|
|
|
346,410
|
|
Loans and other receivables
|
—
|
|
|
2,460,551
|
|
|
114,080
|
|
|
—
|
|
|
2,574,631
|
|
Derivatives
|
2,809
|
|
|
1,833,907
|
|
|
14,889
|
|
|
(1,433,197)
|
|
|
418,408
|
|
Investments at fair value
|
—
|
|
|
32,688
|
|
|
205,412
|
|
|
—
|
|
|
238,100
|
|
FXCM term loan
|
—
|
|
|
—
|
|
|
59,120
|
|
|
—
|
|
|
59,120
|
|
Total financial instruments owned, at fair value, excluding investments at fair value based on NAV
|
$
|
5,941,623
|
|
|
$
|
11,245,763
|
|
|
$
|
554,618
|
|
|
$
|
(1,433,197)
|
|
|
$
|
16,308,807
|
|
|
|
|
|
|
|
|
|
|
|
Securities purchased under agreements to resell
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,000
|
|
|
$
|
—
|
|
|
$
|
25,000
|
|
Securities received as collateral, at fair value
|
$
|
9,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
2,755,601
|
|
|
$
|
7,438
|
|
|
$
|
4,487
|
|
|
$
|
—
|
|
|
$
|
2,767,526
|
|
Corporate debt securities
|
—
|
|
|
1,471,142
|
|
|
340
|
|
|
—
|
|
|
1,471,482
|
|
U.S. government and federal agency securities
|
1,851,981
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,851,981
|
|
Sovereign obligations
|
1,363,475
|
|
|
941,065
|
|
|
—
|
|
|
—
|
|
|
2,304,540
|
|
Commercial mortgage-backed securities
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
35
|
|
Loans
|
—
|
|
|
1,600,228
|
|
|
9,463
|
|
|
—
|
|
|
1,609,691
|
|
Derivatives
|
871
|
|
|
2,066,455
|
|
|
92,057
|
|
|
(1,632,178)
|
|
|
527,205
|
|
Total financial instruments sold, not yet purchased, at fair value
|
$
|
5,971,928
|
|
|
$
|
6,086,328
|
|
|
$
|
106,382
|
|
|
$
|
(1,632,178)
|
|
|
$
|
10,532,460
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
20,981
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,981
|
|
Long-term debt
|
$
|
—
|
|
|
$
|
735,216
|
|
|
$
|
480,069
|
|
|
$
|
—
|
|
|
$
|
1,215,285
|
|
Obligation to return securities received as collateral, at fair value
|
$
|
9,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,500
|
|
(1)Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.
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 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.
•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 from 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/Earnings before interest, taxes, depreciation and amortization ("EBITDA"), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by Jefferies Group. 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 measured primarily from observed prices on recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and can be measured using third-party valuation services or 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
•Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from 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. Investment grade 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. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade 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 from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer's subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.
Collateralized Debt Obligations and Collateralized Loan Obligations
Collateralized debt obligations ("CDOs") and collateralized loan obligations ("CLOs") are measured based on prices observed from 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 transactions 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 loss severity.
U.S. Government and Federal Agency Securities
•U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices obtained from external pricing services and categorized within Level 1 of the fair value hierarchy.
•U.S. Agency Debt Securities: Callable and non-callable U.S. agency 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, where available, or recently
executed independent transactions of comparable size and are generally categorized within Level 2 of the fair value hierarchy.
Sovereign Obligations
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. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy.
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 principal-only and interest-only (including inverse interest-only) securities. Agency residential mortgage-backed securities are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.
•Non-Agency Residential Mortgage-Backed Securities: The fair value of non-agency residential mortgage-backed securities is 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. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.
Commercial Mortgage-Backed Securities
•Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association ("GNMA") project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures. Federal National Mortgage Association ("FNMA") Delegated Underwriting and Servicing ("DUS") mortgage-backed securities are generally measured by using prices observed from 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, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.
Other Asset-Backed Securities
Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.
Loans and Other Receivables
•Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, for example, derived using market prices for debt securities of the same creditor and estimates of future cash flows 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 and data provider pricing. 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 with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. 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 and incorporating 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 Claim Receivables: Escrow and 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 claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.
Derivatives
•Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.
•Over-the-Counter ("OTC") Derivative Contracts: 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 transaction. Where available, valuation inputs are calibrated from observable 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.
OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, 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. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally 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.
•Oil Futures Derivatives: Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value, which are classified as either Level 1 or Level 2 within the fair value hierarchy. Fair values classified as Level 1 are measured based on quoted closing exchange prices obtained from external pricing services and Level 2 are determined under the income valuation technique using an option-pricing model that is based on directly or indirectly observable inputs.
Investments at Fair Value
Investments at fair value include investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from 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, contingent claims analysis 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.
The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value (1)
|
|
Unfunded
Commitments
|
|
|
November 30, 2020
|
|
|
|
|
|
Equity Long/Short Hedge Funds (2)
|
$
|
328,096
|
|
|
$
|
—
|
|
|
|
Equity Funds (3)
|
33,221
|
|
|
12,408
|
|
|
|
Commodity Fund (4)
|
17,747
|
|
|
—
|
|
|
|
Multi-asset Funds (5)
|
561,236
|
|
|
—
|
|
|
|
Other Funds (6)
|
25,084
|
|
|
5,000
|
|
|
|
Total
|
$
|
965,384
|
|
|
$
|
17,408
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
Equity Long/Short Hedge Funds (2)
|
$
|
291,593
|
|
|
$
|
—
|
|
|
|
Equity Funds (3)
|
44,576
|
|
|
14,621
|
|
|
|
Commodity Fund (4)
|
16,025
|
|
|
—
|
|
|
|
Multi-asset Funds (5)
|
234,583
|
|
|
—
|
|
|
|
Other Funds (6)
|
157
|
|
|
—
|
|
|
|
Total
|
$
|
586,934
|
|
|
$
|
14,621
|
|
|
|
(1)Where fair value is calculated based on NAV, 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, primarily in both public and private equity securities in domestic and international markets. At both November 30, 2020 and 2019, approximately 94% of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption in the first 36 months after acquisition. At both November 30, 2020 and 2019, approximately 6% of the fair value of investments in this category are redeemable quarterly with 60 days prior written notice.
(3)The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds which are primarily expected to be liquidated in approximately one to eight years.
(4)This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.
(5)This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At November 30, 2020 and 2019, investments representing approximately 57% and 5%, respectively, of the fair value of investments in this category are redeemable monthly with 30 or 60 days prior written notice.
(6)At November 30, 2020, this category primarily includes an investment in a fund that invests in short-term trade receivables and payables that are expected to generally be outstanding between 90 to 120 days and short-term credit instruments. These investments are redeemable quarterly with 90 days prior written notice. At both November 30, 2020 and 2019, this category also includes investments in a fund of funds that invests in various private equity funds that are managed by us
and have no redemption provisions. Investments in the fund of funds are gradually being liquidated, however, the timing of when the proceeds will be received is uncertain.
Investments at fair value also include our investment in WeWork. We invested $9.0 million in WeWork in 2013 and currently own less than 1% of WeWork. Our interest in WeWork is reflected in Financial instruments owned, at fair value of $10.8 million and $53.8 million at November 30, 2020 and 2019, respectively.
Investment in FXCM
Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at November 30, 2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Our investment in the FXCM term loan is reported within Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. We classify our equity investment in FXCM in the Consolidated Statements of Financial Condition as Loans to and investments in associated companies, as we have the ability to significantly influence FXCM through our seats on the board of directors.
We estimate the fair value of our term loan by using a valuation model with inputs including management's assumptions concerning the amount and timing of expected cash flows, the loan's implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy.
Loans to and Investments in Associated Companies
Corporate bonds are measured primarily using pricing data from external pricing services and are categorized within Level 2 of the fair value hierarchy. Non-exchange-traded equity warrants with no pricing from external pricing services are generally categorized within Level 3 of the fair value hierarchy. The warrants are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, interest rate curve, strike price and maturity date.
Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the embedded derivative and unobservable credit spreads.
Other Secured Financings
Other secured financings that are accounted for at fair value are classified within Level 3 of the fair value hierarchy. Fair value is based on estimates of future cash flows incorporating assumptions regarding recovery rates.
Securities Received as Collateral and Obligations to Return Securities Received 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. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy.
Short-term Borrowings and Long-term Debt
Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, equity-linked notes, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate Jefferies Group's own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy, where market trades have been observed during the period of model pricing is available, otherwise the notes are categorized within Level 3.
Nonrecurring Fair Value Measurements
HomeFed has a 49% membership interest in the RedSky JZ Fulton Investors ("RedSky JZ Fulton Mall") joint venture, which owns a property in Brooklyn, New York. The property consists of 14 separate tax lots, divided into two development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the three months ended February 29, 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed's equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during the first quarter of 2020, which represented all of its carrying value in the joint venture.
Due to a decline in oil and gas prices during the first quarter of 2020, JETX Energy performed an impairment analysis for its oil and gas properties in the East Eagle Ford. JETX Energy first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of February 29, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the proven properties. As the undiscounted future net cash flows were lower than the carrying value, JETX Energy then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, JETX Energy used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of JETX Energy's proven oil and gas properties in the East Eagle Ford totaled $9.6 million, which was $33.0 million lower than the carrying value as of the end of first quarter of 2020. As a result, an impairment charge of $33.0 million was recorded in Selling, general and other expenses during the first quarter of 2020.
Due to a decline in oil and gas prices during the second quarter of 2020, Vitesse Energy Finance performed impairment analyses on its proven oil and gas properties in the Denver-Julesburg Basin ("DJ Basin") of Wyoming and Colorado and the Bakken Shale oil field in North Dakota. Vitesse Energy Finance first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of May 31, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the oil and gas properties. No impairment of the Bakken Shale oil field assets was necessary as the undiscounted future net cash flows significantly exceeded the carrying value of these assets. As undiscounted future net cash flows were lower than the carrying value of the DJ Basin properties, Vitesse Energy Finance then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, Vitesse Energy Finance used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of Vitesse Energy Finance's proven oil and gas properties in the DJ Basin totaled $26.8 million, which was $13.2 million lower than the carrying value as of the end of the second quarter of 2020. As a result, an impairment charge of $13.2 million was recorded in Selling, general and other expenses during the second quarter of 2020.
As described further in Note 9, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen Mining Company, LLC ("Golden Queen"). Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our carrying value. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the third quarter of 2018.
As discussed further in Note 9, during the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. We engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our fourth quarter estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future FXCM cash flows and a discount rate of 18.5%. The estimated fair value of our equity investment in FXCM was $75.0 million, which was $62.1 million lower than our carrying value. As a result, an impairment charge of $62.1 million was recorded in Income (loss) related to associated companies in the fourth quarter of 2018.
Level 3 Rollforwards
The following is a summary of changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended November 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Balance, November 30, 2019
|
|
Total gains (losses)
(realized and unrealized) (1)
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Issuances
|
|
Net transfers
into (out of)
Level 3
|
|
Balance, November 30, 2020
|
|
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
November 30, 2020 (1)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
58,426
|
|
|
$
|
(4,086)
|
|
|
$
|
31,885
|
|
|
$
|
(37,706)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,385
|
|
|
$
|
75,904
|
|
|
$
|
(652)
|
|
Corporate debt securities
|
7,490
|
|
|
83
|
|
|
1,607
|
|
|
(391)
|
|
|
(602)
|
|
|
—
|
|
|
14,959
|
|
|
23,146
|
|
|
(270)
|
|
CDOs and CLOs
|
28,788
|
|
|
(3,821)
|
|
|
10,913
|
|
|
(14,389)
|
|
|
(5,201)
|
|
|
—
|
|
|
1,682
|
|
|
17,972
|
|
|
(17,212)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
17,740
|
|
|
(934)
|
|
|
7,887
|
|
|
(969)
|
|
|
(1,053)
|
|
|
—
|
|
|
(845)
|
|
|
21,826
|
|
|
(599)
|
|
Commercial mortgage-backed securities
|
6,110
|
|
|
(827)
|
|
|
393
|
|
|
(1,856)
|
|
|
(1,787)
|
|
|
—
|
|
|
(30)
|
|
|
2,003
|
|
|
(295)
|
|
Other asset-backed securities
|
42,563
|
|
|
(3,848)
|
|
|
69,701
|
|
|
(1,638)
|
|
|
(43,072)
|
|
|
—
|
|
|
16,289
|
|
|
79,995
|
|
|
(5,945)
|
|
Loans and other receivables
|
114,080
|
|
|
(12,341)
|
|
|
123,485
|
|
|
(36,929)
|
|
|
(57,455)
|
|
|
—
|
|
|
3,796
|
|
|
134,636
|
|
|
(11,153)
|
|
Investments at fair value
|
205,412
|
|
|
(31,666)
|
|
|
55,836
|
|
|
(167)
|
|
|
(17,298)
|
|
|
—
|
|
|
1,829
|
|
|
213,946
|
|
|
(33,514)
|
|
FXCM term loan
|
59,120
|
|
|
335
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
59,455
|
|
|
335
|
|
Loans to and investments in associated companies
|
—
|
|
|
5,497
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34,688
|
|
|
40,185
|
|
|
5,497
|
|
Securities purchased under agreements to resell
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25,000)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
4,487
|
|
|
$
|
456
|
|
|
$
|
(513)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
4,434
|
|
|
$
|
(81)
|
|
Corporate debt securities
|
340
|
|
|
(268)
|
|
|
(325)
|
|
|
394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
141
|
|
|
27
|
|
Commercial mortgage-backed securities
|
35
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
35
|
|
|
—
|
|
Loans
|
9,463
|
|
|
(520)
|
|
|
(6,061)
|
|
|
13,851
|
|
|
—
|
|
|
—
|
|
|
(98)
|
|
|
16,635
|
|
|
360
|
|
Net derivatives (2)
|
77,168
|
|
|
(40)
|
|
|
(7,446)
|
|
|
19,376
|
|
|
(2,216)
|
|
|
—
|
|
|
(60,825)
|
|
|
26,017
|
|
|
(1,805)
|
|
Other secured financings
|
—
|
|
|
(2,475)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,018
|
|
|
—
|
|
|
1,543
|
|
|
2,475
|
|
Long-term debt (1)
|
480,069
|
|
|
84,930
|
|
|
—
|
|
|
—
|
|
|
(57,088)
|
|
|
248,718
|
|
|
(80,601)
|
|
|
676,028
|
|
|
(51,567)
|
|
(1)Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2020 were losses of $33.4 million.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.
Analysis of Level 3 Assets and Liabilities for the twelve months ended November 30, 2020
During the twelve months ended November 30, 2020, transfers of assets of $88.0 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
•Corporate equity securities of $32.5 million, other asset-backed securities of $23.0 million, corporate debt securities of $18.0 million and loans and other receivables of $10.9 million due to reduced pricing transparency.
During the twelve months ended November 30, 2020, transfers of assets into Level 3 also include $34.7 million related to loans to and investments in associated companies.
During the twelve months ended November 30, 2020, transfers of assets of $24.7 million from Level 3 to Level 2 are primarily attributed to:
•Loans and other receivables of $7.1 million, other asset-backed securities of $6.8 million, corporate equity securities of $5.1 million and corporate debt securities of $3.0 million due to greater pricing transparency supporting classification into Level 2.
During the twelve months ended November 30, 2020, transfers of liabilities of $1.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:
•Loans of $1.8 million due to reduced pricing transparency.
During the twelve months ended November 30, 2020, transfers of liabilities of $143.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:
•Structured notes within long-term debt of $80.6 million and net derivatives of $60.8 million due to greater market and pricing transparency.
Net losses on Level 3 assets were $51.6 million and net losses on Level 3 liabilities were $82.1 million for the twelve months ended November 30, 2020. Net losses on Level 3 assets were primarily due to a decreased market values of investments at fair value and loans and other receivables, partially offset by increased valuations of loans to and investments in associated companies. Net losses on Level 3 liabilities were primarily due to increased market valuations of certain structured notes within long-term debt, partially offset by decreased values of other secured financings.
The following is a summary of changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended November 30, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2019
|
|
Balance, November 30, 2018
|
|
Total gains (losses)
(realized and unrealized) (1)
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Issuances
|
|
Net transfers
into (out of)
Level 3
|
|
Balance, November 30, 2019
|
|
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
November 30, 2019 (1)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
52,192
|
|
|
$
|
(11,407)
|
|
|
$
|
69,065
|
|
|
$
|
(28,159)
|
|
|
$
|
(18,208)
|
|
|
$
|
—
|
|
|
$
|
(5,057)
|
|
|
$
|
58,426
|
|
|
$
|
(13,848)
|
|
Corporate debt securities
|
9,484
|
|
|
(4,860)
|
|
|
8,900
|
|
|
(13,854)
|
|
|
(379)
|
|
|
—
|
|
|
8,199
|
|
|
7,490
|
|
|
(6,176)
|
|
CDOs and CLOs
|
36,105
|
|
|
(514)
|
|
|
49,658
|
|
|
(38,147)
|
|
|
(12,494)
|
|
|
—
|
|
|
(5,820)
|
|
|
28,788
|
|
|
(2,330)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
19,603
|
|
|
(1,669)
|
|
|
1,954
|
|
|
(2,472)
|
|
|
(152)
|
|
|
—
|
|
|
476
|
|
|
17,740
|
|
|
(530)
|
|
Commercial mortgage-backed securities
|
10,886
|
|
|
(2,888)
|
|
|
206
|
|
|
(2,346)
|
|
|
(5,317)
|
|
|
—
|
|
|
5,569
|
|
|
6,110
|
|
|
(2,366)
|
|
Other asset-backed securities
|
53,175
|
|
|
433
|
|
|
104,097
|
|
|
(73,335)
|
|
|
(51,374)
|
|
|
—
|
|
|
9,567
|
|
|
42,563
|
|
|
(98)
|
|
Loans and other receivables
|
46,985
|
|
|
(4,507)
|
|
|
106,965
|
|
|
(48,350)
|
|
|
(5,788)
|
|
|
—
|
|
|
18,775
|
|
|
114,080
|
|
|
(2,321)
|
|
Investments at fair value
|
396,254
|
|
|
(183,480)
|
|
|
11,236
|
|
|
(28,749)
|
|
|
—
|
|
|
—
|
|
|
10,151
|
|
|
205,412
|
|
|
(180,629)
|
|
FXCM term loan
|
73,150
|
|
|
(8,139)
|
|
|
1,500
|
|
|
—
|
|
|
(7,391)
|
|
|
—
|
|
|
—
|
|
|
59,120
|
|
|
(8,139)
|
|
Securities purchased under agreements to resell
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25,000
|
|
|
—
|
|
|
25,000
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
—
|
|
|
$
|
(2,649)
|
|
|
$
|
(4,322)
|
|
|
$
|
11,458
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,487
|
|
|
$
|
1,928
|
|
Corporate debt securities
|
522
|
|
|
(381)
|
|
|
(457)
|
|
|
—
|
|
|
(524)
|
|
|
—
|
|
|
1,180
|
|
|
340
|
|
|
383
|
|
Commercial mortgage-backed securities
|
—
|
|
|
35
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
35
|
|
Loans
|
6,376
|
|
|
(1,382)
|
|
|
(2,573)
|
|
|
6,494
|
|
|
—
|
|
|
—
|
|
|
548
|
|
|
9,463
|
|
|
1,382
|
|
Net derivatives (2)
|
21,614
|
|
|
(21,452)
|
|
|
(4,323)
|
|
|
36,144
|
|
|
2,227
|
|
|
—
|
|
|
42,958
|
|
|
77,168
|
|
|
12,098
|
|
Long-term debt (1)
|
200,745
|
|
|
(18,662)
|
|
|
—
|
|
|
—
|
|
|
(11,250)
|
|
|
348,275
|
|
|
(39,039)
|
|
|
480,069
|
|
|
29,656
|
|
(1)Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2019 were losses of $11.0 million.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.
Analysis of Level 3 Assets and Liabilities for the twelve months ended November 30, 2019
During the twelve months ended November 30, 2019, transfers of assets of $68.6 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
•Loans and other receivables of $27.4 million, other asset-backed securities of $12.1 million, investments at fair value of $10.2 million, corporate debt securities of $8.9 million, commercial mortgage-backed securities of $5.6 million and CDOs and CLOs of $3.0 million due to reduced pricing transparency.
During the twelve months ended November 30, 2019, transfers of assets of $26.7 million from Level 3 to Level 2 are primarily attributed to:
•CDOs and CLOs of $8.8 million, loans and other receivables of $8.6 million, corporate equity securities of $6.0 million and other asset-backed securities of $2.6 million due to greater pricing transparency supporting classification into Level 2.
During the twelve months ended November 30, 2019, there were transfers of net derivatives of $57.2 million from Level 2 to Level 3 due to reduced observability of inputs and market data. Transfers of net derivatives from Level 3 to Level 2 were $14.3 million for the twelve months ended November 30, 2019 due to greater observability of inputs and market data.
During the twelve months ended November 30, 2019, there were transfers of structured notes within long-term debt of $22.6 million from Level 2 to Level 3 due to reduced market transparency. Transfers of structured notes within long-term debt from Level 3 to Level 2 were $61.7 million for the twelve months ended November 30, 2019 due to greater market transparency.
Net losses on Level 3 assets were $217.0 million and net gains on Level 3 liabilities were $44.5 million for the twelve months ended November 30, 2019. Net losses on Level 3 assets were primarily due to a decreased valuation of investments at fair value, corporate equity securities, loans and other receivables, corporate debt securities, commercial mortgage-backed securities, CDOs and CLOs and our FXCM term loan. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives and valuations of certain structured notes within long-term debt.
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 eleven months ended November 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven Months Ended November 30, 2018
|
|
Balance, December 31, 2017
|
|
Total gains (losses)
(realized and unrealized) (1)
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Issuances
|
|
Net transfers
into (out of)
Level 3
|
|
Balance, November 30, 2018
|
|
Changes in
unrealized gains/losses included in earnings relating to instruments still held at
November 30, 2018 (1)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
22,270
|
|
|
$
|
24,914
|
|
|
$
|
31,669
|
|
|
$
|
(22,759)
|
|
|
$
|
(3,977)
|
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
52,192
|
|
|
$
|
23,665
|
|
Corporate debt securities
|
26,036
|
|
|
(439)
|
|
|
10,352
|
|
|
(23,364)
|
|
|
(1,679)
|
|
|
—
|
|
|
(1,422)
|
|
|
9,484
|
|
|
(2,606)
|
|
CDOs and CLOS
|
42,184
|
|
|
(16,258)
|
|
|
356,650
|
|
|
(353,330)
|
|
|
(10,247)
|
|
|
—
|
|
|
17,106
|
|
|
36,105
|
|
|
(9,495)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
26,077
|
|
|
(6,970)
|
|
|
3,118
|
|
|
(12,816)
|
|
|
(513)
|
|
|
—
|
|
|
10,707
|
|
|
19,603
|
|
|
521
|
|
Commercial mortgage-backed securities
|
12,419
|
|
|
(2,186)
|
|
|
1,436
|
|
|
(471)
|
|
|
(16,624)
|
|
|
—
|
|
|
16,312
|
|
|
10,886
|
|
|
(4,000)
|
|
Other asset-backed securities
|
61,129
|
|
|
(9,934)
|
|
|
706,846
|
|
|
(677,220)
|
|
|
(27,641)
|
|
|
—
|
|
|
(5)
|
|
|
53,175
|
|
|
(5,283)
|
|
Loans and other receivables
|
47,304
|
|
|
(5,137)
|
|
|
149,228
|
|
|
(130,832)
|
|
|
(15,311)
|
|
|
—
|
|
|
1,733
|
|
|
46,985
|
|
|
(8,457)
|
|
Investments at fair value
|
329,944
|
|
|
76,636
|
|
|
9,798
|
|
|
(17,570)
|
|
|
—
|
|
|
—
|
|
|
(2,554)
|
|
|
396,254
|
|
|
76,042
|
|
FXCM term loan
|
72,800
|
|
|
18,616
|
|
|
—
|
|
|
—
|
|
|
(18,266)
|
|
|
—
|
|
|
—
|
|
|
73,150
|
|
|
7,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(48)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Corporate debt securities
|
522
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
522
|
|
|
—
|
|
Commercial mortgage-backed securities
|
105
|
|
|
(105)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Loans
|
3,486
|
|
|
84
|
|
|
(4,626)
|
|
|
7,432
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,376
|
|
|
(28)
|
|
Net derivatives (2)
|
6,746
|
|
|
(3,237)
|
|
|
(17)
|
|
|
14,920
|
|
|
(1,335)
|
|
|
—
|
|
|
4,537
|
|
|
21,614
|
|
|
(646)
|
|
Long-term debt (1)
|
—
|
|
|
(30,347)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
84,860
|
|
|
146,232
|
|
|
200,745
|
|
|
10,951
|
|
(1)Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2018 were gains of $19.4 million.
(2)Net derivatives represent Financial instruments owned, at fair value - Derivatives and Financial instruments sold, not yet purchased, at fair value - Derivatives.
Analysis of Level 3 Assets and Liabilities for the eleven months ended November 30, 2018
During the eleven months ended November 30, 2018, transfers of assets of $57.8 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:
•Commercial mortgage-backed securities of $16.3 million, residential mortgage-backed securities of $15.3 million and CDOs and CLOs of $17.3 million due to reduced pricing transparency.
During the eleven months ended November 30, 2018, transfers of assets of $12.3 million from Level 3 to Level 2 are attributed to:
•Residential mortgage-backed securities of $4.6 million, corporate debt securities of $3.6 million and corporate equity securities of $2.9 million due to greater pricing transparency supporting classification into Level 2.
During the eleven months ended November 30, 2018, there were transfers of structured notes within long-term debt of $146.2 million from Level 2 to Level 3 due to reduced market transparency.
Net gains on Level 3 assets were $79.2 million and net gains on Level 3 liabilities were $33.6 million for the eleven months ended November 30, 2018. Net gains on Level 3 assets were primarily due to increased valuations of investments at fair value and our FXCM term loan, and increased market values in corporate equity securities, partially offset by decreased valuations of CDOs and CLOs, other asset-backed securities, residential mortgage-backed securities and certain loans and other
receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes within long-term debt.
Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
|
Fair Value
(in thousands)
|
|
Valuation
Technique
|
|
Significant
Unobservable Input(s)
|
|
Input/Range
|
|
Weighted
Average
|
Financial instruments owned, at fair value
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
75,409
|
|
|
|
|
|
|
|
|
|
|
|
Non-exchange-traded
securities
|
|
|
|
Market approach
|
|
Price
|
|
$1
|
to
|
$213
|
|
$86
|
|
|
|
|
|
|
EBITDA multiple
|
|
4.0
|
to
|
8.0
|
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
23,146
|
|
|
Market approach
|
|
Price
|
|
$69
|
|
—
|
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
20
|
%
|
to
|
44%
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDOs and CLOs
|
|
$
|
17,972
|
|
|
Discounted cash flows
|
|
Constant prepayment rate
|
|
20%
|
|
—
|
|
|
|
|
|
|
|
Constant default rate
|
|
2%
|
|
—
|
|
|
|
|
|
|
|
Loss severity
|
|
25
|
%
|
to
|
30%
|
|
26
|
%
|
|
|
|
|
|
|
Discount rate/yield
|
|
14
|
%
|
to
|
28%
|
|
20
|
%
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
2
|
%
|
to
|
34%
|
|
23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-
backed securities
|
|
$
|
21,826
|
|
|
Discounted cash flows
|
|
Cumulative loss rate
|
|
2
|
%
|
to
|
3%
|
|
3
|
%
|
|
|
|
|
|
|
Loss severity
|
|
35
|
%
|
to
|
50%
|
|
36
|
%
|
|
|
|
|
|
|
Duration (years)
|
|
2.0 years
|
to
|
12.9 years
|
|
5.1 years
|
|
|
|
|
|
|
Discount rate/yield
|
|
3
|
%
|
to
|
12%
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other asset-backed securities
|
|
$
|
67,816
|
|
|
Discounted cash flows
|
|
Cumulative loss rate
|
|
1
|
%
|
to
|
28%
|
|
11
|
%
|
|
|
|
|
|
|
Loss severity
|
|
50
|
%
|
to
|
85%
|
|
54
|
%
|
|
|
|
|
|
|
Duration (years)
|
|
0.2 years
|
to
|
2.1 years
|
|
1.3 years
|
|
|
|
|
|
|
Discount rate/yield
|
|
1
|
%
|
to
|
16%
|
|
9
|
%
|
|
|
|
|
Market approach
|
|
Price
|
|
$100
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and other receivables
|
|
$
|
76,049
|
|
|
Market approach
|
|
Price
|
|
$31
|
to
|
$100
|
|
$84
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
19
|
%
|
to
|
100%
|
|
52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
19,951
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
|
Volatility benchmarking
|
|
Volatility
|
|
47%
|
|
—
|
|
Interest rate swaps
|
|
|
|
Market approach
|
|
Basis points upfront
|
|
1.2
|
to
|
8.0
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
96,906
|
|
|
|
|
|
|
|
|
|
|
|
Private equity securities
|
|
|
|
Market approach
|
|
Price
|
|
$1
|
to
|
$169
|
|
$29
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
17%
|
|
—
|
|
|
|
|
|
|
|
Discount rate/yield
|
|
19
|
%
|
to
|
21%
|
|
20
|
%
|
|
|
|
|
|
|
Revenue growth
|
|
0%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in FXCM
|
|
$
|
59,455
|
|
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
|
Discounted cash flows
|
|
Term based on the pay off (years)
|
|
0 months
|
to
|
1.2 years
|
|
1.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to and investments in associated companies
|
|
|
|
|
|
|
|
|
Non-exchange-traded warrants
|
|
$
|
40,185
|
|
|
Market approach
|
|
Underlying stock price
|
|
$778
|
to
|
$805
|
|
$792
|
|
|
|
|
|
|
Underlying stock price
|
|
€15
|
to
|
€19
|
|
€16
|
|
|
|
|
|
|
Volatility
|
|
25
|
%
|
to
|
55%
|
|
30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
4,434
|
|
|
Market approach
|
|
Price
|
|
$1
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
141
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
20%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
16,635
|
|
|
Market approach
|
|
Price
|
|
$31
|
to
|
$99
|
|
$55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
46,971
|
|
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
|
Volatility benchmarking
|
|
Volatility
|
|
33
|
%
|
to
|
50%
|
|
42
|
%
|
Interest rate swaps
|
|
|
|
Market approach
|
|
Basis points upfront
|
|
1.2
|
to
|
8.0
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other secured financings
|
|
$
|
1,543
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
19
|
%
|
to
|
55%
|
|
45
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured notes
|
|
$
|
676,028
|
|
|
Market approach
|
|
Price
|
|
$100
|
|
—
|
|
|
|
|
|
|
|
Price
|
|
€76
|
to
|
€113
|
|
€99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
Fair Value
(in thousands)
|
|
Valuation
Technique
|
|
Significant
Unobservable Input(s)
|
|
Input/Range
|
|
Weighted
Average
|
Financial instruments owned, at fair value
|
|
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
29,017
|
|
|
|
|
|
|
|
|
|
|
|
Non-exchange traded securities
|
|
|
|
Market approach
|
|
Price
|
|
$1
|
to
|
$140
|
|
$55
|
|
|
|
|
|
|
Underlying stock price
|
|
$3
|
to
|
$5
|
|
$4
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
7,490
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
23
|
%
|
to
|
85%
|
|
46
|
%
|
|
|
|
|
|
|
Volatility
|
|
44%
|
|
—
|
|
|
|
|
|
|
|
Credit spread
|
|
750
|
|
—
|
|
|
|
|
|
|
|
Underlying stock price
|
|
£0.4
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
CDOs and CLOs
|
|
$
|
28,788
|
|
|
Discounted cash flows
|
|
Constant prepayment rate
|
|
20%
|
|
—
|
|
|
|
|
|
|
|
Constant default rate
|
|
1
|
%
|
to
|
2%
|
|
2
|
%
|
|
|
|
|
|
|
Loss severity
|
|
25
|
%
|
to
|
37%
|
|
29
|
%
|
|
|
|
|
|
|
Discount rate/yield
|
|
12
|
%
|
to
|
21%
|
|
15
|
%
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
3.25
|
%
|
to
|
36.5%
|
|
25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities
|
|
$
|
17,740
|
|
|
Discounted cash flows
|
|
Cumulative loss rate
|
|
2%
|
|
—
|
|
|
|
|
|
|
|
Duration (years)
|
|
6.3 years
|
|
—
|
|
|
|
|
|
|
|
Discount rate/yield
|
|
3%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgage-backed securities
|
|
$
|
6,110
|
|
|
Discounted cash flows
|
|
Cumulative loss rate
|
|
7.3%
|
|
—
|
|
|
|
|
|
|
|
Duration (years)
|
|
0.2 years
|
|
—
|
|
|
|
|
|
|
|
Discount rate/yield
|
|
85%
|
|
—
|
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
44%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other asset-backed securities
|
|
$
|
42,563
|
|
|
Discounted cash flows
|
|
Cumulative loss rate
|
|
7
|
%
|
to
|
31%
|
|
16
|
%
|
|
|
|
|
|
|
Duration (years)
|
|
0.5 years
|
to
|
3 years
|
|
1.5 years
|
|
|
|
|
|
|
Discount rate/yield
|
|
7
|
%
|
to
|
15%
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Loans and other receivables
|
|
$
|
112,574
|
|
|
Market approach
|
|
Price
|
|
$36
|
to
|
$100
|
|
$90
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
87
|
%
|
to
|
104%
|
|
99
|
%
|
|
|
|
|
Discounted cash flows
|
|
Term based on the pay off (years)
|
|
0 months
|
to
|
0.1 years
|
|
0.1 years
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
13,826
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
Market approach
|
|
Basis points upfront
|
|
0
|
to
|
16
|
|
6
|
Unfunded commitments
|
|
|
|
|
|
Price
|
|
$88
|
|
—
|
|
Equity options
|
|
|
|
Volatility benchmarking
|
|
Volatility
|
|
45%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at fair value
|
|
$
|
157,504
|
|
|
|
|
|
|
|
|
|
Private equity securities
|
|
|
|
Market approach
|
|
Price
|
|
$8
|
to
|
$250
|
|
$80
|
|
|
|
|
Scenario analysis
|
|
Discount rate/yield
|
|
19
|
%
|
to
|
21%
|
|
20
|
%
|
|
|
|
|
|
|
Revenue growth
|
|
0%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in FXCM
|
|
$
|
59,120
|
|
|
|
|
|
|
|
|
|
Term loan
|
|
|
|
Discounted cash flows
|
|
Term based on the pay off (years)
|
|
0 months
|
to
|
1.2 years
|
|
1.2 years
|
|
|
|
|
|
|
|
|
|
|
|
Securities purchased under agreements to resell
|
|
$
|
25,000
|
|
|
Market approach
|
|
Spread to 6 month LIBOR
|
|
500
|
|
—
|
|
|
|
|
|
|
|
Duration (years)
|
|
1.5 years
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
4,487
|
|
|
Market approach
|
|
Transaction level
|
|
$1
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
9,463
|
|
|
Market approach
|
|
Price
|
|
$50
|
to
|
$100
|
|
$88
|
|
|
|
|
Scenario analysis
|
|
Estimated recovery percentage
|
|
1%
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
$
|
92,057
|
|
|
|
|
|
|
|
|
|
Equity options
|
|
|
|
Volatility benchmarking
|
|
Volatility
|
|
21
|
%
|
to
|
61%
|
|
43
|
%
|
Interest rate swaps
|
|
|
|
Market approach
|
|
Basis points upfront
|
|
0
|
to
|
22
|
|
13
|
Cross currency swaps
|
|
|
|
|
|
Basis points upfront
|
|
2
|
|
—
|
|
Unfunded commitments
|
|
|
|
|
|
Price
|
|
$88
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
Structured notes
|
|
$
|
480,069
|
|
|
Market approach
|
|
Price
|
|
$84
|
to
|
$108
|
|
$96
|
|
|
|
|
|
|
Price
|
|
€74
|
to
|
€103
|
|
€91
|
The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2020 and 2019, asset exclusions consisted of $192.0 million and $79.9 million, respectively, primarily comprised of certain investments at fair value, other asset-backed securities, commercial mortgage-backed securities, certain derivatives, loans and other receivables and corporate equity securities. At November 30, 2020 and 2019, liability exclusions consisted of $0.8 million and $0.4 million, respectively, primarily comprised of certain derivatives, commercial mortgage-backed securities and corporate debt.
Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs
For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:
•Corporate equity securities, corporate debt securities, other asset-backed securities, loans and other receivables, certain derivatives, private equity securities, loans to and investments in associated companies, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange-traded securities, unfunded commitments, corporate debt securities, other asset-backed securities, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the EBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of corporate equity securities or non-exchange-traded warrants would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price of non-exchange-traded warrants would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield or duration, in isolation, of securities purchased under agreements to resell would result in a significantly lower (higher) fair value measurement. Depending on whether we are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of cross currency and interest rate swaps.
•Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities, corporate debt securities, private equity securities and other secured financings using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument would result in a significantly higher (lower) fair value measurement for the financial instrument. A significant increase (decrease) in the price of the underlying assets of the financial instrument would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of the financial instrument would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate/yield underlying the investment would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the revenue growth underlying the investment would result in a significantly higher (lower) fair value measurement.
•CDOs and CLOs, residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities, loans and other receivables and the FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in term based on the time to pay off the loan would result in a lower (higher) fair value measurement.
•Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.
Fair Value Option Election
We have elected the fair value option for all loans and loan commitments made by our investment banking and 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 our bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed 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, at fair
value and loan commitments are included in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in 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 in Loans to and investments in associated companies in the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes, which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings in the Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed on a fair value basis. The fair value option has been elected for certain other secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, other receivables, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, 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.
The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on short-term borrowings, other secured financings and long-term debt measured at fair value under the fair value option (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Financial instruments owned, at fair value:
|
|
|
|
|
|
Loans and other receivables
|
$
|
(25,623)
|
|
|
$
|
(2,072)
|
|
|
$
|
(3,856)
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
Loans
|
$
|
—
|
|
|
$
|
656
|
|
|
$
|
(46)
|
|
Loan commitments
|
464
|
|
|
(1,089)
|
|
|
(739)
|
|
|
|
|
|
|
|
Short-term borrowings:
|
|
|
|
|
|
Changes in instrument specific credit risk (1)
|
$
|
—
|
|
|
$
|
114
|
|
|
$
|
—
|
|
Other changes in fair value (2)
|
(48)
|
|
|
(863)
|
|
|
—
|
|
|
|
|
|
|
|
Other secured financings:
|
|
|
|
|
|
Other changes in fair value (2)
|
$
|
2,475
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
Changes in instrument specific credit risk (1)
|
$
|
70,201
|
|
|
$
|
(20,332)
|
|
|
$
|
38,064
|
|
Other changes in fair value (2)
|
(84,116)
|
|
|
(25,144)
|
|
|
48,748
|
|
(1) Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of taxes.
(2) Other changes in fair value are included in Principal transactions revenues in the Consolidated Statements of Operations.
The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables, long-term debt and short-term borrowings, and other secured financings measured at fair value under the fair value option (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
Financial instruments owned, at fair value:
|
|
|
|
Loans and other receivables (1)
|
$
|
1,662,647
|
|
|
$
|
1,546,516
|
|
Loans and other receivables on nonaccrual status and/or 90 days or greater
past due (1) (2)
|
287,889
|
|
|
197,215
|
|
Long-term debt and short-term borrowings
|
(42,819)
|
|
|
74,408
|
|
Other secured financings
|
2,782
|
|
|
—
|
|
(1)Interest income is recognized separately from other changes in fair value and is included in Interest income in the Consolidated Statements of Operations.
(2)Amounts include all loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $30.0 million and $22.2 million at November 30, 2020 and 2019, respectively.
The aggregate fair value of our loans and other receivables on nonaccrual status and/or 90 days or greater past due was $69.7 million and $127.0 million at November 30, 2020 and 2019, respectively, which includes loans and other receivables 90 days or greater past due of $3.8 million and $24.8 million at November 30, 2020 and 2019, respectively.
As of November 30, 2018, we owned 7,514,477 common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares. The changes in the fair value of our investment in Spectrum Brands aggregated $80.0 million and $(418.8) million during the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively. We distributed all of our Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of record as of the close of business on September 30, 2019. We recorded a $451.1 million dividend as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time.
Financial Instruments Not Measured at Fair Value
Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented within Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $34.2 million and $35.0 million at November 30, 2020 and 2019, respectively. See Note 24 for additional information related to financial instruments not measured at fair value.
Note 5. Derivative Financial Instruments
Derivative Financial Instruments
Derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value, 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. Predominantly, we 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. In addition, we apply hedge accounting to (1) interest rate swaps that have been designated as fair value hedges of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt, and (2) forward foreign exchange contracts designated as hedges to offset the change in the value of certain net investments in foreign operations. See Notes 4 and 22 for additional disclosures about derivative financial instruments.
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 ISDA master netting agreements or similar agreements with counterparties. See Note 2 for additional information regarding the offsetting of derivative contracts.
The following tables present the fair value and related number of derivative contracts at November 30, 2020 and 2019 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. 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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Fair Value
|
|
Number of
Contracts (2)
|
|
Fair Value
|
|
Number of
Contracts (2)
|
November 30, 2020 (1)
|
|
|
|
|
|
|
|
Derivatives designated as accounting hedges:
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
Cleared OTC
|
$
|
67,381
|
|
|
1
|
|
|
$
|
6,891
|
|
|
1
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Bilateral OTC
|
—
|
|
|
—
|
|
|
3,306
|
|
|
11
|
|
Total derivatives designated as accounting hedges
|
67,381
|
|
|
|
|
10,197
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting hedges:
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
2,442
|
|
|
52,620
|
|
|
439
|
|
|
42,611
|
|
Cleared OTC
|
17,379
|
|
|
3,785
|
|
|
114,524
|
|
|
4,307
|
|
Bilateral OTC
|
626,210
|
|
|
1,493
|
|
|
317,534
|
|
|
466
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
—
|
|
|
—
|
|
|
—
|
|
|
180
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
297,165
|
|
|
15,005
|
|
|
277,706
|
|
|
15,050
|
|
Equity contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
558,304
|
|
|
1,147,486
|
|
|
564,951
|
|
|
971,938
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
429,304
|
|
|
2,374
|
|
|
1,125,944
|
|
|
2,421
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
64
|
|
|
3,207
|
|
|
—
|
|
|
2,654
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
13,190
|
|
|
1,556
|
|
|
—
|
|
|
—
|
|
Credit contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleared OTC
|
24,696
|
|
|
39
|
|
|
26,298
|
|
|
31
|
|
Bilateral OTC
|
1,008
|
|
|
11
|
|
|
2,209
|
|
|
11
|
|
Total derivatives not designated as accounting hedges
|
1,969,762
|
|
|
|
|
2,429,605
|
|
|
|
|
|
|
|
|
|
|
|
Total gross derivative assets/ liabilities:
|
|
|
|
|
|
|
|
Exchange-traded
|
560,810
|
|
|
|
|
565,390
|
|
|
|
Cleared OTC
|
109,456
|
|
|
|
|
147,713
|
|
|
|
Bilateral OTC
|
1,366,877
|
|
|
|
|
1,726,699
|
|
|
|
|
|
|
|
|
|
|
|
Amounts offset in the Consolidated Statement of Financial Condition (3):
|
|
|
|
|
|
|
|
Exchange-traded
|
(546,989)
|
|
|
|
|
(546,989)
|
|
|
|
Cleared OTC
|
(109,228)
|
|
|
|
|
(111,654)
|
|
|
|
Bilateral OTC
|
(899,919)
|
|
|
|
|
(1,140,016)
|
|
|
|
Net amounts in the Consolidated Statement of Financial Condition (4)
|
$
|
481,007
|
|
|
|
|
$
|
641,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
Fair Value
|
|
Number of
Contracts (2)
|
|
Fair Value
|
|
Number of
Contracts (2)
|
November 30, 2019 (1)
|
|
|
|
|
|
|
|
Derivatives designated as accounting hedges:
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
Cleared OTC
|
$
|
28,663
|
|
|
1
|
|
|
$
|
—
|
|
|
—
|
|
Total derivatives designated as accounting hedges
|
28,663
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting hedges:
|
|
|
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
1,191
|
|
|
65,226
|
|
|
103
|
|
|
38,464
|
|
Cleared OTC
|
213,224
|
|
|
3,329
|
|
|
284,433
|
|
|
3,443
|
|
Bilateral OTC
|
421,700
|
|
|
1,325
|
|
|
258,857
|
|
|
738
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
—
|
|
|
256
|
|
|
—
|
|
|
199
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
191,218
|
|
|
9,257
|
|
|
187,836
|
|
|
9,187
|
|
Equity contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
717,494
|
|
|
1,714,538
|
|
|
962,535
|
|
|
1,481,388
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
248,720
|
|
|
4,731
|
|
|
445,241
|
|
|
4,271
|
|
Commodity contracts:
|
|
|
|
|
|
|
|
Exchange-traded
|
—
|
|
|
5,524
|
|
|
—
|
|
|
4,646
|
|
|
|
|
|
|
|
|
|
Bilateral OTC
|
20,600
|
|
|
4,084
|
|
|
391
|
|
|
359
|
|
Credit contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cleared OTC
|
2,514
|
|
|
13
|
|
|
5,768
|
|
|
12
|
|
Bilateral OTC
|
6,281
|
|
|
25
|
|
|
14,219
|
|
|
28
|
|
Total derivatives not designated as accounting hedges
|
1,822,942
|
|
|
|
|
2,159,383
|
|
|
|
|
|
|
|
|
|
|
|
Total gross derivative assets/ liabilities:
|
|
|
|
|
|
|
|
Exchange-traded
|
718,685
|
|
|
|
|
962,638
|
|
|
|
Cleared OTC
|
244,401
|
|
|
|
|
290,201
|
|
|
|
Bilateral OTC
|
888,519
|
|
|
|
|
906,544
|
|
|
|
|
|
|
|
|
|
|
|
Amounts offset in the Consolidated Statement of Financial Condition (3):
|
|
|
|
|
|
|
|
Exchange-traded
|
(688,871)
|
|
|
|
|
(688,871)
|
|
|
|
Cleared OTC
|
(222,869)
|
|
|
|
|
(266,900)
|
|
|
|
Bilateral OTC
|
(521,457)
|
|
|
|
|
(676,407)
|
|
|
|
Net amounts in the Consolidated Statement of Financial Condition (4)
|
$
|
418,408
|
|
|
|
|
$
|
527,205
|
|
|
|
(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) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables and Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.
(3) Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4) 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.
The following table provides information related to gains (losses) recognized in Interest expense of Jefferies Group in the Consolidated Statements of Operations on a fair value hedge (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Interest rate swaps
|
$
|
41,524
|
|
|
$
|
56,385
|
|
|
$
|
(25,539)
|
|
Long-term debt
|
(36,668)
|
|
|
(58,931)
|
|
|
27,363
|
|
Total
|
$
|
4,856
|
|
|
$
|
(2,546)
|
|
|
$
|
1,824
|
|
The following table provides information related to gains (losses) on net investment hedges recognized in Net unrealized foreign exchange gains (losses), a component of Other comprehensive income (loss), in the Consolidated Statements of Comprehensive Income (Loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Foreign exchange contracts
|
$
|
(3,306)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Total
|
$
|
(3,306)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
(52,331)
|
|
|
$
|
(188,605)
|
|
|
$
|
67,291
|
|
Foreign exchange contracts
|
2,266
|
|
|
(822)
|
|
|
226
|
|
Equity contracts
|
47,631
|
|
|
(108,961)
|
|
|
(267,187)
|
|
Commodity contracts
|
45,491
|
|
|
(5,630)
|
|
|
21,785
|
|
Credit contracts
|
15,218
|
|
|
9,147
|
|
|
449
|
|
Total
|
$
|
58,275
|
|
|
$
|
(294,871)
|
|
|
$
|
(177,436)
|
|
The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework.
OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as reflected in the Consolidated Statement of Financial Condition at November 30, 2020 (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
|
$
|
10,885
|
|
|
$
|
2,305
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,190
|
|
Equity options and forwards
|
32,766
|
|
|
951
|
|
|
16,650
|
|
|
(24,685)
|
|
|
25,682
|
|
Credit default swaps
|
—
|
|
|
750
|
|
|
11
|
|
|
—
|
|
|
761
|
|
Total return swaps
|
140,394
|
|
|
25,110
|
|
|
1,321
|
|
|
(2,975)
|
|
|
163,850
|
|
Foreign currency forwards, swaps and options
|
62,249
|
|
|
18,460
|
|
|
517
|
|
|
(5,746)
|
|
|
75,480
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps, options and forwards
|
80,949
|
|
|
168,430
|
|
|
204,467
|
|
|
(40,131)
|
|
|
413,715
|
|
Total
|
$
|
327,243
|
|
|
$
|
216,006
|
|
|
$
|
222,966
|
|
|
$
|
(73,537)
|
|
|
692,678
|
|
Cross product counterparty netting
|
|
|
|
|
|
|
|
|
(24,723)
|
|
Total OTC derivative assets included in Financial instruments owned, at fair value
|
|
|
|
|
|
|
|
|
$
|
667,955
|
|
(1)At November 30, 2020, we held net exchange-traded derivative assets, other derivatives assets and other credit agreements with a fair value of $29.8 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 November 30, 2020, cash collateral received was $216.8 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity options and forwards
|
|
$
|
23,278
|
|
|
$
|
491,595
|
|
|
$
|
119,988
|
|
|
$
|
(24,685)
|
|
|
$
|
610,176
|
|
Credit default swaps
|
|
—
|
|
|
596
|
|
|
1,615
|
|
|
—
|
|
|
2,211
|
|
Total return swaps
|
|
88,130
|
|
|
190,616
|
|
|
22
|
|
|
(2,975)
|
|
|
275,793
|
|
Foreign currency forwards, swaps and options
|
|
51,027
|
|
|
13,376
|
|
|
—
|
|
|
(5,746)
|
|
|
58,657
|
|
Fixed income forwards
|
|
213
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
213
|
|
Interest rate swaps, options and forwards
|
|
61,558
|
|
|
65,934
|
|
|
68,252
|
|
|
(40,131)
|
|
|
155,613
|
|
Total
|
|
$
|
224,206
|
|
|
$
|
762,117
|
|
|
$
|
189,877
|
|
|
$
|
(73,537)
|
|
|
1,102,663
|
|
Cross product counterparty netting
|
|
|
|
|
|
|
|
|
|
(24,723)
|
|
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased, at fair value
|
|
|
|
|
|
|
|
|
|
$
|
1,077,940
|
|
(1)At November 30, 2020, we held net exchange-traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $22.5 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 November 30, 2020, cash collateral pledged was $459.3 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, 2020, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands):
|
|
|
|
|
|
Counterparty credit quality (1):
|
|
A- or higher
|
$
|
177,908
|
|
BBB- to BBB+
|
19,628
|
|
BB+ or lower
|
316,361
|
|
Unrated
|
154,058
|
|
Total
|
$
|
667,955
|
|
(1)We utilize internal credit ratings determined by the Jefferies Group's Risk Management department. Credit ratings determined by Jefferies Group Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
Credit Related Derivative Contracts
The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External Credit Rating
|
|
|
|
|
|
|
Investment Grade
|
|
Non-investment Grade
|
|
Unrated
|
|
Total Notional
|
November 30, 2020
|
|
|
|
|
|
|
|
|
Credit protection sold:
|
|
|
|
|
|
|
|
|
Index credit default swaps
|
|
$
|
62.0
|
|
|
$
|
262.8
|
|
|
$
|
—
|
|
|
$
|
324.8
|
|
Single name credit default swaps
|
|
—
|
|
|
6.2
|
|
|
0.2
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
Credit protection sold:
|
|
|
|
|
|
|
|
|
Index credit default swaps
|
|
$
|
3.0
|
|
|
$
|
32.0
|
|
|
$
|
—
|
|
|
$
|
35.0
|
|
Single name credit default swaps
|
|
3.4
|
|
|
29.0
|
|
|
1.5
|
|
|
33.9
|
|
Contingent Features
Certain of Jefferies Group's derivative instruments contain provisions that require its debt to maintain an investment grade credit rating from each of the major credit rating agencies. If Jefferies Group's debt was 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 the derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions).
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
|
|
|
Derivative instrument liabilities with credit-risk-related contingent features
|
$
|
284.6
|
|
|
$
|
42.9
|
|
Collateral posted
|
(129.8)
|
|
|
(3.1)
|
|
Collateral received
|
141.4
|
|
|
114.1
|
|
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)
|
296.2
|
|
|
154.0
|
|
(1) These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.
Other Derivatives
Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value. The gains and losses associated with the change in fair value of the derivatives are recorded in Other revenues.
Note 6. Collateralized Transactions
Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. 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 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 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 in Financial instruments owned, at fair value, and noted parenthetically as Securities pledged in the Consolidated Statements of Financial Condition.
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.
The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by class of collateral pledged and remaining contractual maturity (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral Pledged
|
|
Securities Lending Arrangements
|
|
Repurchase Agreements
|
|
Obligation to Return Securities Received as Collateral, at Fair Value
|
|
Total
|
November 30, 2020
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
1,371,978
|
|
|
$
|
157,912
|
|
|
$
|
7,517
|
|
|
$
|
1,537,407
|
|
Corporate debt securities
|
|
369,218
|
|
|
1,869,844
|
|
|
—
|
|
|
2,239,062
|
|
Mortgage-backed and asset-backed securities
|
|
—
|
|
|
1,547,140
|
|
|
—
|
|
|
1,547,140
|
|
U.S. government and federal agency securities
|
|
14,789
|
|
|
7,149,992
|
|
|
—
|
|
|
7,164,781
|
|
Municipal securities
|
|
—
|
|
|
278,470
|
|
|
—
|
|
|
278,470
|
|
Sovereign securities
|
|
54,763
|
|
|
2,763,032
|
|
|
—
|
|
|
2,817,795
|
|
Loans and other receivables
|
|
—
|
|
|
1,392,883
|
|
|
—
|
|
|
1,392,883
|
|
Total
|
|
$
|
1,810,748
|
|
|
$
|
15,159,273
|
|
|
$
|
7,517
|
|
|
$
|
16,977,538
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
Corporate equity securities
|
|
$
|
1,314,395
|
|
|
$
|
129,558
|
|
|
$
|
—
|
|
|
$
|
1,443,953
|
|
Corporate debt securities
|
|
191,311
|
|
|
1,730,526
|
|
|
—
|
|
|
1,921,837
|
|
Mortgage-backed and asset-backed securities
|
|
—
|
|
|
1,745,145
|
|
|
—
|
|
|
1,745,145
|
|
U.S. government and federal agency securities
|
|
19,434
|
|
|
10,863,997
|
|
|
9,500
|
|
|
10,892,931
|
|
Municipal securities
|
|
—
|
|
|
498,202
|
|
|
—
|
|
|
498,202
|
|
Sovereign securities
|
|
—
|
|
|
3,016,563
|
|
|
—
|
|
|
3,016,563
|
|
Loans and other receivables
|
|
—
|
|
|
772,926
|
|
|
—
|
|
|
772,926
|
|
Total
|
|
$
|
1,525,140
|
|
|
$
|
18,756,917
|
|
|
$
|
9,500
|
|
|
$
|
20,291,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Maturity
|
|
|
Overnight and Continuous
|
|
Up to 30 Days
|
|
31 to 90 Days
|
|
Greater than 90 Days
|
|
Total
|
November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
Securities lending arrangements
|
|
$
|
636,256
|
|
|
$
|
59,735
|
|
|
$
|
459,455
|
|
|
$
|
655,302
|
|
|
$
|
1,810,748
|
|
Repurchase agreements
|
|
5,510,476
|
|
|
1,747,526
|
|
|
5,019,885
|
|
|
2,881,386
|
|
|
15,159,273
|
|
Obligation to return securities received as collateral, at fair value
|
|
7,517
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,517
|
|
Total
|
|
$
|
6,154,249
|
|
|
$
|
1,807,261
|
|
|
$
|
5,479,340
|
|
|
$
|
3,536,688
|
|
|
$
|
16,977,538
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Securities lending arrangements
|
|
$
|
694,821
|
|
|
$
|
—
|
|
|
$
|
672,969
|
|
|
$
|
157,350
|
|
|
$
|
1,525,140
|
|
Repurchase agreements
|
|
6,614,026
|
|
|
1,556,260
|
|
|
8,988,528
|
|
|
1,598,103
|
|
|
18,756,917
|
|
Obligation to return securities received as collateral, at fair value
|
|
—
|
|
|
—
|
|
|
9,500
|
|
|
$
|
—
|
|
|
9,500
|
|
Total
|
|
$
|
7,308,847
|
|
|
$
|
1,556,260
|
|
|
$
|
9,670,997
|
|
|
$
|
1,755,453
|
|
|
$
|
20,291,557
|
|
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 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, 2020 and 2019, the approximate fair value of securities received as collateral by us that may be sold or repledged was $25.9 billion and $28.7 billion, respectively. At November 30, 2020 and 2019, a substantial portion of the securities received have been sold or repledged.
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).
The following table provides information regarding repurchase agreements, securities borrowing and lending arrangements and securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, 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 consolidated financial position.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
Gross
Amounts
|
|
Netting in Consolidated Statements of Financial Condition
|
|
Net Amounts in Consolidated Statements of Financial Condition
|
|
Additional Amounts Available for Setoff (1)
|
|
Available Collateral (2)
|
|
Net Amount (3)
|
Assets at November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Securities borrowing arrangements
|
$
|
6,934,762
|
|
|
$
|
—
|
|
|
$
|
6,934,762
|
|
|
$
|
(395,342)
|
|
|
$
|
(1,706,046)
|
|
|
$
|
4,833,374
|
|
Reverse repurchase agreements
|
11,939,773
|
|
|
(6,843,004)
|
|
|
5,096,769
|
|
|
(412,327)
|
|
|
(4,578,560)
|
|
|
105,882
|
|
Securities received as collateral, at fair value
|
7,517
|
|
|
—
|
|
|
7,517
|
|
|
—
|
|
|
—
|
|
|
7,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending arrangements
|
$
|
1,810,748
|
|
|
$
|
—
|
|
|
$
|
1,810,748
|
|
|
$
|
(395,342)
|
|
|
$
|
(1,397,550)
|
|
|
$
|
17,856
|
|
Repurchase agreements
|
15,159,273
|
|
|
(6,843,004)
|
|
|
8,316,269
|
|
|
(412,327)
|
|
|
(7,122,422)
|
|
|
781,520
|
|
Obligation to return securities received as collateral, at fair value
|
7,517
|
|
|
—
|
|
|
7,517
|
|
|
—
|
|
|
—
|
|
|
7,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Securities borrowing arrangements
|
$
|
7,624,642
|
|
|
$
|
—
|
|
|
$
|
7,624,642
|
|
|
$
|
(361,394)
|
|
|
$
|
(1,479,433)
|
|
|
$
|
5,783,815
|
|
Reverse repurchase agreements
|
15,551,845
|
|
|
(11,252,247)
|
|
|
4,299,598
|
|
|
(291,316)
|
|
|
(3,929,977)
|
|
|
78,305
|
|
Securities received as collateral, at fair value
|
9,500
|
|
|
—
|
|
|
9,500
|
|
|
—
|
|
|
—
|
|
|
9,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending arrangements
|
$
|
1,525,140
|
|
|
$
|
—
|
|
|
$
|
1,525,140
|
|
|
$
|
(361,394)
|
|
|
$
|
(970,799)
|
|
|
$
|
192,947
|
|
Repurchase agreements
|
18,756,917
|
|
|
(11,252,247)
|
|
|
7,504,670
|
|
|
(291,316)
|
|
|
(6,663,807)
|
|
|
549,547
|
|
Obligation to return securities received as collateral, at fair value
|
9,500
|
|
|
—
|
|
|
9,500
|
|
|
—
|
|
|
—
|
|
|
9,500
|
|
(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 a counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statements of Financial Condition because other netting provisions of 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)At November 30, 2020, amounts include $4,757.8 million of securities borrowing arrangements, for which we have received securities collateral of $4,617.0 million, and $720.0 million of repurchase agreements, for which we have pledged securities collateral of $733.9 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable. At November 30, 2019, amounts include $5,683.4 million of securities borrowing arrangements, for which we have received securities collateral of $5,523.6 million, and $439.7 million of repurchase agreements, for which we have pledged securities collateral of $447.5 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.
Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations
Cash and securities segregated in accordance with regulatory regulations and deposited with clearing and depository organizations totaled $604.3 million and $796.8 million at November 30, 2020 and 2019, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC 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.
Note 7. Securitization Activities
We engage in securitization activities related to corporate loans, mortgage loans, consumer 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 the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of VIEs; however, we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. See Note 8 for additional information regarding VIEs 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 Statements of Operations 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-backed and other asset-backed securities or CLOs). These securities are included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy. See Notes 2 and 4 for additional information regarding fair value measurement and the fair value hierarchy.
The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Transferred assets
|
$
|
6,556.2
|
|
|
$
|
4,780.9
|
|
|
$
|
7,159.3
|
|
Proceeds on new securitizations
|
6,556.2
|
|
|
4,852.8
|
|
|
7,165.3
|
|
Cash flows received on retained interests
|
26.8
|
|
|
48.3
|
|
|
48.5
|
|
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, 2020 and 2019.
The following table summarizes our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
Securitization Type
|
Total
Assets
|
|
Retained
Interests
|
|
Total
Assets
|
|
Retained
Interests
|
|
|
|
|
|
|
|
|
U.S. government agency residential mortgage-backed securities
|
$
|
562.5
|
|
|
$
|
7.8
|
|
|
$
|
10,671.7
|
|
|
$
|
103.3
|
|
U.S. government agency commercial mortgage-backed securities
|
2,461.2
|
|
|
205.2
|
|
|
1,374.8
|
|
|
45.8
|
|
CLOs
|
3,345.5
|
|
|
39.5
|
|
|
3,006.7
|
|
|
58.4
|
|
Consumer and other loans
|
1,290.6
|
|
|
56.6
|
|
|
1,149.3
|
|
|
71.8
|
|
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 transactions 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 in total Financial instruments owned, at fair value in the 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. To the extent we purchased securities through these market-making activities and we are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8.
Foursight Capital also utilizes SPEs to securitize automobile loans receivable. These SPEs are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary's general credit. See Note 8 for further information on securitization activities and VIEs.
Note 8. 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 VIE 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, equity interests in associated companies, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from the following activities, but also includes other activities discussed below:
•Purchases of securities in connection with our trading and secondary market-making activities;
•Retained interests held as a result of securitization activities;
•Acting as placement agent and/or underwriter in connection with client-sponsored securitizations;
•Financing of agency and non-agency mortgage-backed and other asset-backed securities;
•Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation agreements, forward sale agreements and revolving loan and note commitments; and
•Loans to, investments in and fees from various investment 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 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 significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the "power" criteria of the primary beneficiary. If we do not have the power over the most 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 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 (in millions). The assets and liabilities in the table below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
Secured Funding Vehicles
|
|
Other
|
|
Secured Funding Vehicles
|
|
Other
|
|
|
|
|
|
|
|
|
Cash (1)
|
$
|
—
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
$
|
1.2
|
|
Financial instruments owned, at fair value
|
—
|
|
|
5.2
|
|
|
—
|
|
|
0.3
|
|
Securities purchased under agreements to resell (2)
|
2,908.9
|
|
|
—
|
|
|
2,467.3
|
|
|
—
|
|
Receivables
|
510.6
|
|
|
12.9
|
|
|
605.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other (3)
|
46.4
|
|
|
0.1
|
|
|
38.7
|
|
|
—
|
|
Total assets
|
$
|
3,465.9
|
|
|
$
|
19.4
|
|
|
$
|
3,111.6
|
|
|
$
|
1.5
|
|
|
|
|
|
|
|
|
|
Financial instruments sold, not yet purchased, at fair
value
|
$
|
—
|
|
|
$
|
2.5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other secured financings (4)
|
3,425.0
|
|
|
—
|
|
|
3,068.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other liabilities (5)
|
1.8
|
|
|
0.4
|
|
|
20.1
|
|
|
0.2
|
|
Total liabilities
|
$
|
3,426.8
|
|
|
$
|
2.9
|
|
|
$
|
3,088.7
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)Approximately $0.7 million of the cash amount at November 30, 2020 represents cash on deposit with related consolidated entities and is eliminated in consolidation.
(2)Securities purchased under agreements to resell primarily represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation.
(3)Approximately $9.7 million of the other assets amount at November 30, 2020 represents intercompany receivables with related consolidated entities, which are eliminated in consolidation.
(4)Approximately $138.2 million of the other secured financings amount at November 30, 2020 is with related consolidated entities, which is eliminated in consolidation.
(5)Approximately $0.3 million and $17.7 million of the other liabilities amounts at November 30, 2020 and 2019, respectively, represent intercompany payables with related consolidated entities, which are eliminated in consolidation.
Secured Funding Vehicles. We are the primary beneficiary of asset-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage loans and asset-backed securities pursuant to the terms of a master repurchase agreement. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement, which we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle's debt holders.
At November 30, 2020 and 2019, Foursight Capital is the primary beneficiary of SPEs it utilized to securitize automobile loans receivable. Foursight Capital acts as the servicer for which it receives a fee, and owns an equity interest in the SPEs. The notes issued by the SPEs are secured solely by the assets of the SPEs and do not have recourse to Foursight Capital's general credit and the assets of the VIEs are not available to satisfy any other debt. During the twelve months ended November 30, 2020, automobile loan receivables aggregating $223.3 million were securitized by Foursight Capital in connection with a secured borrowing offering. The majority of the proceeds from issuance of the secured borrowing were used to pay down Foursight Capital's two credit facilities.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Amount
|
|
Maximum
Exposure to Loss
|
|
VIE Assets
|
|
Assets
|
|
Liabilities
|
|
|
|
|
November 30, 2020
|
|
|
|
|
|
|
|
CLOs
|
$
|
60.7
|
|
|
$
|
0.2
|
|
|
$
|
642.7
|
|
|
$
|
6,849.1
|
|
Consumer loan and other asset-backed vehicles
|
251.6
|
|
|
—
|
|
|
377.2
|
|
|
2,462.7
|
|
Related party private equity vehicles
|
19.0
|
|
|
—
|
|
|
30.0
|
|
|
53.0
|
|
|
|
|
|
|
|
|
|
Other investment vehicles
|
899.9
|
|
|
—
|
|
|
1,042.9
|
|
|
15,735.5
|
|
Total
|
$
|
1,231.2
|
|
|
$
|
0.2
|
|
|
$
|
2,092.8
|
|
|
$
|
25,100.3
|
|
|
|
|
|
|
|
|
|
November 30, 2019
|
|
|
|
|
|
|
|
CLOs
|
$
|
152.6
|
|
|
$
|
0.6
|
|
|
$
|
505.3
|
|
|
$
|
7,845.0
|
|
Consumer loan and other asset-backed vehicles
|
358.3
|
|
|
—
|
|
|
490.6
|
|
|
2,354.8
|
|
Related party private equity vehicles
|
23.0
|
|
|
—
|
|
|
34.3
|
|
|
71.4
|
|
|
|
|
|
|
|
|
|
Other investment vehicles
|
574.0
|
|
|
—
|
|
|
766.1
|
|
|
9,255.0
|
|
Total
|
$
|
1,107.9
|
|
|
$
|
0.6
|
|
|
$
|
1,796.3
|
|
|
$
|
19,526.2
|
|
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 the variable interests in our VIEs and is limited to the notional amounts of certain loan and equity 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.
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 sponsors and provide advisory services to the sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with CLOs 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 CLO transactions; and
•Investments in variable funding notes issued by CLOs.
Asset-Backed Vehicles. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities, forward purchase agreements and reverse repurchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer loans, mortgage loans and trade claims. 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.
Related Party Private Equity Vehicles. We committed to invest in private equity funds (the "JCP Funds", including Jefferies Group's interests in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, "JCP Fund V")) managed by Jefferies Capital Partners, LLC (the "JCP Manager"). Additionally, we committed to invest in the general partners of the JCP Funds (the "JCP General Partners") and the JCP Manager. Our variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the "JCP Entities") consist of equity interests that, in total, provide us with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At November 30, 2020 and 2019, our total equity commitment in the JCP Entities was $133.0 million and $133.0 million, respectively, of which $122.0 million and $121.7 million, respectively, had been funded. The carrying value of our equity investments in the JCP Entities was $19.0 million and $23.0 million at November 30, 2020 and 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments.
Other Investment Vehicles. The carrying amount of our equity investment was $899.9 million and $574.0 million at November 30, 2020 and 2019, respectively. Our unfunded equity commitment related to these investments totaled $143.0 million and $192.1 million at November 30, 2020 and 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets.
Mortgage-Backed and Other Asset-Backed Secured Funding Vehicles. In connection with our secondary trading and market-making activities, we buy and sell agency and non-agency 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, CDOs 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, at fair value in the Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities.
We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA ("Fannie Mae"), Federal Home Loan Mortgage Corporation ("Freddie Mac") or GNMA ("Ginnie Mae")) or non-agency-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 non-agency-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.
At November 30, 2020 and 2019, we held $1,571.6 million and $1,453.5 million of agency mortgage-backed securities, respectively, and $252.0 million and $134.8 million of non-agency mortgage-backed and other asset-backed securities, respectively, as a result of our secondary trading and market-making activities, and underwriting, placement and structuring activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. These mortgage-backed and other asset-backed secured funding vehicles discussed are not included in the above table containing information about our variable interests in nonconsolidated VIEs.
FXCM is considered a VIE and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM and we account for our equity interest under the equity method as an investment in an associated company. FXCM reported total assets of $414.4 million in its latest financial statements. Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($59.5 million) and the investment in associated company ($73.9 million), which totaled $133.4 million at November 30, 2020. FXCM is not included in the above table containing information about our variable interests in nonconsolidated VIEs.
Note 9. Loans to and Investments in Associated Companies
A summary of Loans to and investments in associated companies accounted for under the equity method of accounting during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to and investments in associated companies as of November 30, 2019
|
|
Income (losses) related to associated companies
|
|
Other income (losses) related to associated companies (1)
|
|
Contributions to (distributions from) associated companies, net
|
|
Other, including foreign exchange and unrealized gains (losses)
|
|
Loans to and investments in associated companies as of November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Jefferies Finance
|
$
|
673,867
|
|
|
$
|
—
|
|
|
$
|
(54,256)
|
|
|
$
|
73,590
|
|
|
$
|
—
|
|
|
$
|
693,201
|
|
Berkadia (2)
|
268,949
|
|
|
—
|
|
|
68,902
|
|
|
(37,130)
|
|
|
431
|
|
|
301,152
|
|
FXCM (3)
|
70,223
|
|
|
3,604
|
|
|
—
|
|
|
—
|
|
|
93
|
|
|
73,920
|
|
Linkem (4)
|
194,847
|
|
|
(28,662)
|
|
|
—
|
|
|
34,955
|
|
|
(2,149)
|
|
|
198,991
|
|
Real estate associated companies (5) (6)
|
255,309
|
|
|
(46,050)
|
|
|
—
|
|
|
(40,581)
|
|
|
—
|
|
|
168,678
|
|
Golden Queen (4) (7)
|
78,196
|
|
|
(50)
|
|
|
—
|
|
|
2,610
|
|
|
—
|
|
|
80,756
|
|
Other
|
111,566
|
|
|
(4,325)
|
|
|
9,288
|
|
|
44,101
|
|
|
9,235
|
|
|
169,865
|
|
Total
|
$
|
1,652,957
|
|
|
$
|
(75,483)
|
|
|
$
|
23,934
|
|
|
$
|
77,545
|
|
|
$
|
7,610
|
|
|
$
|
1,686,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to and investments in associated companies as of November 30, 2018
|
|
Income (losses) related to associated companies
|
|
Other income (losses) related to associated companies (1)
|
|
Contributions to (distributions from) associated companies, net
|
|
Other, including foreign exchange and unrealized gains (losses)
|
|
Loans to and investments in associated companies as of November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Jefferies Finance
|
$
|
728,560
|
|
|
$
|
—
|
|
|
$
|
(1,286)
|
|
|
$
|
(53,407)
|
|
|
$
|
—
|
|
|
$
|
673,867
|
|
Berkadia (2)
|
245,228
|
|
|
—
|
|
|
88,174
|
|
|
(65,045)
|
|
|
592
|
|
|
268,949
|
|
National Beef (8)
|
653,630
|
|
|
232,042
|
|
|
—
|
|
|
(300,248)
|
|
|
(585,424)
|
|
|
—
|
|
FXCM (3)
|
75,031
|
|
|
(8,212)
|
|
|
—
|
|
|
3,500
|
|
|
(96)
|
|
|
70,223
|
|
Linkem (4)
|
165,157
|
|
|
(27,956)
|
|
|
—
|
|
|
66,996
|
|
|
(9,350)
|
|
|
194,847
|
|
HomeFed (5)
|
337,542
|
|
|
7,902
|
|
|
—
|
|
|
—
|
|
|
(345,444)
|
|
|
—
|
|
Real estate associated companies (5)
|
87,074
|
|
|
(353)
|
|
|
—
|
|
|
(29,685)
|
|
|
198,273
|
|
|
255,309
|
|
Golden Queen (4) (7)
|
63,956
|
|
|
6,740
|
|
|
—
|
|
|
7,500
|
|
|
—
|
|
|
78,196
|
|
Other
|
61,154
|
|
|
(7,168)
|
|
|
(1,719)
|
|
|
58,432
|
|
|
867
|
|
|
111,566
|
|
Total
|
$
|
2,417,332
|
|
|
$
|
202,995
|
|
|
$
|
85,169
|
|
|
$
|
(311,957)
|
|
|
$
|
(740,582)
|
|
|
$
|
1,652,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to and investments in associated companies as of December 31, 2017
|
|
Income (losses) related to associated companies
|
|
Other income (losses) related to associated companies (1)
|
|
Contributions to (distributions from) associated companies, net
|
|
Other, including foreign exchange and unrealized gains (losses)
|
|
Loans to and investments in associated companies as of November 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Jefferies Finance
|
$
|
655,467
|
|
|
$
|
—
|
|
|
$
|
59,138
|
|
|
$
|
13,955
|
|
|
$
|
—
|
|
|
$
|
728,560
|
|
Berkadia (2)
|
210,594
|
|
|
80,092
|
|
|
20,001
|
|
|
(65,197)
|
|
|
(262)
|
|
|
245,228
|
|
National Beef (8)
|
—
|
|
|
110,049
|
|
|
—
|
|
|
(48,656)
|
|
|
592,237
|
|
|
653,630
|
|
FXCM (3)
|
158,856
|
|
|
(83,174)
|
|
|
—
|
|
|
—
|
|
|
(651)
|
|
|
75,031
|
|
Garcadia Companies (9)
|
179,143
|
|
|
21,646
|
|
|
—
|
|
|
(26,962)
|
|
|
(173,827)
|
|
|
—
|
|
Linkem
|
192,136
|
|
|
(20,534)
|
|
|
—
|
|
|
542
|
|
|
(6,987)
|
|
|
165,157
|
|
HomeFed
|
341,874
|
|
|
(4,332)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
337,542
|
|
Real estate associated companies
|
123,010
|
|
|
11,288
|
|
|
—
|
|
|
(47,224)
|
|
|
—
|
|
|
87,074
|
|
Golden Queen (7) (10)
|
105,005
|
|
|
(51,990)
|
|
|
—
|
|
|
10,941
|
|
|
—
|
|
|
63,956
|
|
Other
|
100,744
|
|
|
(6,022)
|
|
|
(5,477)
|
|
|
(18,275)
|
|
|
(9,816)
|
|
|
61,154
|
|
Total
|
$
|
2,066,829
|
|
|
$
|
57,023
|
|
|
$
|
73,662
|
|
|
$
|
(180,876)
|
|
|
$
|
400,694
|
|
|
$
|
2,417,332
|
|
(1)Primarily related to Jefferies Group and classified in Other revenues.
(2)In the fourth quarter of 2018, we transferred our interest in Berkadia to Jefferies Group.
(3)As further described in Note 4, our investment in FXCM includes both our equity method investment in FXCM and our term loan with FXCM. Our equity method investment is included in Loans to and investments in associated companies and our term loan is included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. As described more fully below, Income (loss) related to associated companies for FXCM includes a non-cash impairment charge of $62.1 million for the eleven months ended November 30, 2018.
(4)Loans to and investments in associated companies at November 30, 2020 and 2019 include loans and debt securities aggregating $104.1 million and $70.2 million, respectively, related to Linkem and Golden Queen.
(5)During the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. From July 1, 2019, HomeFed's equity method investments are included in Real estate associated companies.
(6)Income (loss) related to Real estate associated companies for the twelve months ended November 30, 2020 includes a non-cash charge of $6.9 million to fully write off the value of HomeFed's interest in the Brooklyn Renaissance Plaza hotel due to the significant impact of the global novel coronavirus ("COVID-19") during the second quarter of 2020 and a non-cash charge of $55.6 million to fully write off the value of HomeFed's RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market.
(7)At November 30, 2020, 2019 and 2018, the balance reflects $15.2 million, $15.7 million and $15.1 million, respectively, related to a noncontrolling interest.
(8)As discussed more fully in Notes 1 and 26, in June 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. The carrying value of our retained 31% interest was adjusted to a fair value of $592.3 million on the date of sale. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders.
(9)During the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family.
(10)As described more fully below, Income (loss) related to associated companies for Golden Queen includes a non-cash impairment charge of $47.9 million for the eleven months ended November 30, 2018.
Jefferies Finance
Through Jefferies Group, we own 50% of Jefferies Finance, a joint venture entity pursuant to an agreement with MassMutual. Jefferies Finance is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. In addition, Jefferies Finance is a registered investment advisor under the Investment Advisers Act of 1940 and, through two of its wholly-owned subsidiaries, Apex Credit Partners LLC and JFIN Asset
Management LLC, acts as an investment advisor for various loan funds and CLOs managing direct lending and broadly syndicated loan products.
At November 30, 2020, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At November 30, 2020, $652.4 million of Jefferies Group's commitment was funded. The investment commitment is scheduled to expire on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party.
Jefferies Finance has executed a Secured Revolving Credit Facility with Jefferies Group and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which 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 Secured Revolving Credit Facility is a committed amount of $500.0 million at November 30, 2020. Advances are shared equally between Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party. At November 30, 2020, Jefferies Group had funded $50.0 million of its $250.0 million commitment. Jefferies Group recognized interest income and unfunded commitment fees related to the facility of $3.5 million, $1.3 million and $2.4 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively.
The following summarizes activity related to our other transactions with Jefferies Finance (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
|
Origination and syndication fee revenues (1)
|
|
$
|
198.1
|
|
|
$
|
176.3
|
|
|
$
|
377.7
|
|
Origination fee expenses (1)
|
|
27.3
|
|
|
27.6
|
|
|
56.6
|
|
CLO placement fee revenues (2)
|
|
1.7
|
|
|
6.0
|
|
|
3.7
|
|
Derivative losses (3)
|
|
—
|
|
|
—
|
|
|
(1.6)
|
|
Underwriting fees (4)
|
|
1.7
|
|
|
3.9
|
|
|
—
|
|
Service fees (5)
|
|
65.1
|
|
|
60.8
|
|
|
61.7
|
|
(1) Jefferies Group engages in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, Jefferies Group earned fees, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies Group paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized in Selling, general and other expenses in the Consolidated Statements of Operations.
(2) Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies Group recognized fees, which are included in Investment banking revenues in the Consolidated Statements of Operations. At November 30, 2020 and 2019, Jefferies Group held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.
(3) Jefferies Group has entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by CLOs and it has recognized gains (losses) relating to the derivative contracts.
(4) Jefferies Group acted as underwriter in connection with term loans issued by Jefferies Finance.
(5) Under a service agreement, Jefferies Group charges Jefferies Finance for services provided.
In connection with non-U.S. dollar loans originated by Jefferies Finance to borrowers who are investment banking clients of Jefferies Group, Jefferies Group has entered into an agreement to indemnify Jefferies Finance with respect to any foreign currency exposure.
At November 30, 2020 and 2019, we had receivables from Jefferies Finance, included within Other assets in the Consolidated Statements of Financial Condition of $24.2 million and $17.2 million, respectively. At November 30, 2020 and 2019, we had payables to Jefferies Finance, related to cash deposited with Jefferies Group, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition of $13.7 million and $13.7 million, respectively At November 30, 2019, we had a payable to Jefferies Finance, related to its lending transactions, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $17.6 million.
On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with Jefferies Group's investment banking loan syndication activities. Jefferies Group repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense of Jefferies Group within the Consolidated Statement of Operations during the twelve months ended November 30, 2019.
During the twelve months ended November 30, 2019, we purchased a third-party loan from Jefferies Finance in the amount of $65.3 million. Such amount is included in Financial instruments owned, at fair value in the Consolidated Statement of Financial Condition at November 30, 2019. The loan was sold during the twelve months ended November 30, 2020.
Berkadia
Berkadia is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% membership interest in Berkadia. We are entitled to receive 45% of the profits. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and other investors. Berkadia also is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.
Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. As of November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion.
National Beef
National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer-ready beef and pork, and wet blue leather for domestic and international markets. As discussed in Notes 1 and 26, on June 5, 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting.
As required as a result of the deconsolidation of National Beef, we adjusted the carrying value of our retained 31% interest in National Beef to fair value. The fair value of our retained 31% interest in National Beef of $592.3 million was based on the implied equity value of 100% of National Beef from the transaction with Marfrig. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation for 100% of National Beef.
On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders. We received a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. As of November 30, 2019, we no longer hold an equity interest in National Beef.
FXCM
As discussed more fully in Note 4, at November 30, 2020, we have a 50% voting interest in FXCM and a senior secured term loan to FXCM due February 15, 2022. On September 1, 2016, we gained the ability to significantly influence FXCM through our seats on the board of directors. As a result, we classify our equity investment in FXCM in the Consolidated Statements of Financial Condition as Loans to and investments in associated companies. Our term loan remains classified within Financial instruments owned, at fair value. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology and tradename over their respective useful lives (weighted average life of 11 years).
During the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm
to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million, which was recorded in Income (loss) related to associated companies.
FXCM is considered a VIE and our term loan and equity interest are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM.
Garcadia
Garcadia was a joint venture between us and Garff Enterprises, Inc. ("Garff") that owned and operated automobile dealerships comprised of domestic and foreign automobile makers. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue.
Linkem
We own approximately 42% of the common shares of Linkem, the largest fixed wireless broadband services provider in Italy. In addition, we own convertible preferred stock, which is automatically convertible to common shares in 2022, and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 56% of Linkem's common equity at November 30, 2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $102.4 million at November 30, 2020. We account for our equity interest in Linkem on a two month lag.
HomeFed
HomeFed develops and owns residential and mixed-use real estate properties. Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed's outstanding common shares; however, we had contractually agreed to limit our voting rights such that we would not be able to vote more than 45% of HomeFed's total voting securities voting on any matter, assuming all HomeFed shares not owned by us were voted. Since we did not control HomeFed, our investment in HomeFed was accounted for under the equity method as an investment in an associated company. We accounted for our equity interest in HomeFed on a two month lag.
On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. During the twelve months ended November 30, 2019, we recognized a $72.1 million non-cash pre-tax gain in Other revenues on the remeasurement of our prior 70% interest in HomeFed to fair value. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued.
Real Estate Associated Companies
Real estate equity method investments primarily consist of HomeFed's interests in Brooklyn Renaissance Plaza and Hotel and 54 Madison. These equity interests are accounted for on a two month lag.
Brooklyn Renaissance Plaza is comprised of a hotel operated by Marriott, an office building complex and a parking garage located in Brooklyn, New York. HomeFed owns a 25.8% equity interest in the hotel and a 61.25% equity interest in the office building and garage. Although HomeFed has a majority interest in the office building and garage, it does not have control, but only has the ability to exercise significant influence on this investment. As such, HomeFed accounts for the office building and garage under the equity method of accounting. We are amortizing our basis difference between the estimated fair value and the underlying book value of Brooklyn Renaissance office building and garage over the respective useful lives (weighted average life of 39 years). Due to the significant impact of COVID-19 during the second quarter of 2020, HomeFed recorded an impairment charge of $6.9 million within Income (loss) related to associated companies during the twelve months ended November 30, 2020, which represented all of its carrying value in the Brooklyn Renaissance Plaza hotel.
We own approximately 48.1% of 54 Madison, a fund that seeks long-term capital appreciation through investment in real estate development and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Based on total committed capital of the 54 Madison fund, all projects of this fund have already been identified and launched.
Golden Queen Mining Company
Since 2014, we invested $93.0 million, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project. Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully-permitted, open pit, heap leach gold and silver project located in Kern County, California, which commenced gold and silver production in March 2016. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family's net contributions totaling $127.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. Golden Queen Mining Co. Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest. We account for our interest in Golden Queen on a two month lag.
As a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC's net investment of $127.5 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family.
In the third quarter of 2018, Golden Queen completed an updated mine plan and financial projections reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in Golden Queen was lower than our prior carrying value by $47.9 million. We concluded based on lower projected cash flows and a decline in the market price of gold that the decline in fair value of our equity interest was other than temporary. As such, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the eleven months ended November 30, 2018.
Other
The following table provides summarized data for our equity method investments as of November 30, 2020 and 2019 and for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
|
|
|
|
|
|
|
Assets
|
$
|
15,314,204
|
|
|
$
|
14,699,672
|
|
|
|
Liabilities
|
11,929,100
|
|
|
10,146,142
|
|
|
|
Noncontrolling interests
|
254,392
|
|
|
209,518
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Revenues
|
$
|
2,930,308
|
|
|
$
|
10,589,489
|
|
|
$
|
7,694,612
|
|
Income from continuing operations before extraordinary items
|
73,715
|
|
|
732,575
|
|
|
852,649
|
|
Net income
|
68,846
|
|
|
749,649
|
|
|
798,615
|
|
The Company's income related to associated companies
|
(41,814)
|
|
|
248,693
|
|
|
130,685
|
|
Except for our investment in Berkadia and Jefferies Finance, we have not provided any guarantees, nor are we contingently liable for any of the liabilities reflected in the above table. All such liabilities are non-recourse to us. Our exposure to adverse events at the investee companies is limited to the book value of our investment. See Note 22 for further discussion of these guarantees.
Included in consolidated retained earnings at November 30, 2020 is approximately $161.0 million of undistributed earnings of the associated companies accounted for under the equity method of accounting.
Note 10. Intangible Assets, Net and Goodwill
A summary of intangible assets, net and goodwill is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
Indefinite lived intangibles:
|
|
|
|
Exchange and clearing organization membership interests and registrations
|
$
|
7,884
|
|
|
$
|
8,273
|
|
|
|
|
|
Amortizable intangibles:
|
|
|
|
Customer and other relationships, net of accumulated amortization of $119,694 and $111,060
|
51,285
|
|
|
59,575
|
|
Trademarks and tradename, net of accumulated amortization of $28,585 and $24,800
|
100,255
|
|
|
103,790
|
|
|
|
|
|
Other, net of accumulated amortization of $8,953 and $5,366
|
7,729
|
|
|
11,316
|
|
Total intangible assets, net
|
167,153
|
|
|
182,954
|
|
|
|
|
|
Goodwill:
|
|
|
|
Investment Banking and Capital Markets (1) (2)
|
1,563,144
|
|
|
1,556,810
|
|
Asset Management (1)
|
143,000
|
|
|
143,000
|
|
Real estate
|
36,711
|
|
|
36,711
|
|
Other operations
|
3,459
|
|
|
3,459
|
|
Total goodwill
|
1,746,314
|
|
|
1,739,980
|
|
|
|
|
|
Total intangible assets, net and goodwill
|
$
|
1,913,467
|
|
|
$
|
1,922,934
|
|
(1) As discussed further in Note 27, during the three months ended February 29, 2020, we changed our internal structure with regard to our operating segments. As a result, we created a separate operating segment that consists of the asset management activity previously included within our Investment Banking, Capital Markets and Asset Management segment. In order to reallocate goodwill that was previously contained in our Investment Banking, Capital Markets and Asset Management segment to the newly created Investment Banking and Capital Markets segment and the Asset Management segment, we performed a fair value analysis of the components.
Estimated fair values were determined based on valuation techniques that we believed market participants would use and included price-to-earnings, price-to-book multiples and discounted cash flow techniques. Based on the relative fair values of each of the components, $143.0 million of the total $1,699.8 million goodwill within the historical Investment Banking, Capital Markets and Asset Management segment at November 30, 2019 was allocated to the new Asset Management segment. We performed an impairment test immediately before and after the reallocation of goodwill between the new segments and the results of the impairment test did not indicate any goodwill impairment.
(2) The increase in Investment Banking and Capital Markets goodwill during the twelve months ended November 30, 2020, primarily relates to translation adjustments.
Amortization expense on intangible assets included in Income (loss) from continuing operations was $15.3 million, $14.6 million and $13.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively.
The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands):
|
|
|
|
|
|
2021
|
$
|
14,411
|
|
2022
|
11,134
|
|
2023
|
9,900
|
|
2024
|
9,143
|
|
2025
|
8,632
|
|
Goodwill Impairment Testing
We performed our annual impairment testing of goodwill within the Investment Banking and Capital Markets, and Asset Management segments as of August 1, 2020. The quantitative goodwill impairment test is performed at our reporting unit level and consists of two steps. In the first step, the fair value of the reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit's goodwill to the carrying value of the reporting unit's goodwill.
The estimated fair value of both the Investment Banking and Capital Markets segment and the Asset Management segment are based on 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 fair value include price-to-earnings and price-to-book multiples of comparable public companies and/or projected cash flows. In addition, as the fair values determined under the market valuation approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. An independent valuation specialist was engaged to assist with the valuation process at August 1, 2020. The results of our annual goodwill impairment test for both the Investment Banking and Capital Markets segment and the Asset Management segment did not indicate any goodwill impairment.
Intangible Asset Impairment Testing
We performed our annual impairment testing of intangible assets with an indefinite useful life, which consists of exchange and clearing organization membership interests and registrations within our Investment Banking and Capital Markets segment, at August 1, 2020. At August 1, 2020, we elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other membership interests and registrations that have declined in utilization. Qualitative assessments were performed on the remainder of our indefinite-life intangible assets. In applying our quantitative assessment at August 1, 2020, we recognized immaterial impairment losses on certain exchange membership interests and registrations. 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 concluded that it is not more likely than not that the intangible assets are impaired.
Note 11. Short-Term Borrowings
Our short-term borrowings, which mature in one year or less, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
|
|
|
Bank loans (1)
|
$
|
752,848
|
|
|
$
|
527,509
|
|
|
|
|
|
Floating rate puttable notes (1)
|
6,800
|
|
|
—
|
|
Equity-linked notes (2)
|
5,067
|
|
|
20,981
|
|
Total short-term borrowings
|
$
|
764,715
|
|
|
$
|
548,490
|
|
(1) These short-term borrowings are recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature.
(2) See Note 4 for further information on these notes.
At November 30, 2020 and 2019, the weighted average interest rate on short-term borrowings outstanding was 1.87% and 3.24% per annum, respectively.
Our bank loans include facilities that contain certain covenants that, among other things, require us to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of our subsidiaries that are borrowers. At November 30, 2020, we were in compliance with all covenants under these facilities. Our facilities included within bank loans at November 30, 2020 and 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
|
|
|
Bank of New York Mellon Master Loan Agreement (1)
|
$
|
300,000
|
|
|
$
|
351,000
|
|
JPMorgan Chase Bank, N.A. Credit Facility (2)
|
246,000
|
|
|
135,000
|
|
Royal Bank of Canada Credit Facility (3)
|
200,000
|
|
|
—
|
|
Bank of New York Mellon Credit Facility (4)
|
—
|
|
|
—
|
|
Total
|
$
|
746,000
|
|
|
$
|
486,000
|
|
(1) Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement.
(2) Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate ("LIBOR"), as defined in this credit facility agreement.
(3) Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%.
(4) During 2020, Jefferies LLC entered into a revolving credit facility with the Bank of New York Mellon for a committed amount of $100.0 million, maturing on September 13, 2021. Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%. At November 30, 2020, there were no borrowings outstanding under this agreement.
In addition, the Bank of New York Mellon has agreed to make revolving intraday credit advances to Jefferies Group ("Intraday Credit Facility") for an aggregate committed amount of $150.0 million. The Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group's U.S. broker-dealer, Jefferies LLC. At November 30, 2020, Jefferies Group was in compliance with all debt covenants under the Intraday Credit Facility.
Note 12. Long-Term Debt
The principal amount (net of unamortized discounts, premiums and debt issuance costs), stated interest rate and maturity date of outstanding debt are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
Parent Company Debt:
|
|
|
|
Senior Notes:
|
|
|
|
5.50% Senior Notes due October 18, 2023, $750,000 principal
|
$
|
745,883
|
|
|
$
|
744,606
|
|
6.625% Senior Notes due October 23, 2043, $250,000 principal
|
246,828
|
|
|
246,772
|
|
Total long-term debt – Parent Company
|
992,711
|
|
|
991,378
|
|
|
|
|
|
Subsidiary Debt (non-recourse to Parent Company):
|
|
|
|
Jefferies Group:
|
|
|
|
2.375% Euro Medium Term Notes, due May 20, 2020, $0 and $550,875 principal
|
—
|
|
|
550,622
|
|
6.875% Senior Notes, due April 15, 2021, $0 and $750,000 principal
|
—
|
|
|
774,738
|
|
2.25% Euro Medium Term Notes, due July 13, 2022, $4,779 and $4,407 principal
|
4,638
|
|
|
4,204
|
|
5.125% Senior Notes, due January 20, 2023, $750,000 and $600,000 principal
|
759,901
|
|
|
610,023
|
|
1.00% Euro Medium Term Notes, due July 19, 2024, $597,350 and $550,875 principal
|
595,700
|
|
|
548,880
|
|
4.85% Senior Notes, due January 15, 2027, $750,000 principal (1)
|
809,039
|
|
|
768,931
|
|
6.45% Senior Debentures, due June 8, 2027, $350,000 principal
|
369,057
|
|
|
371,426
|
|
4.15% Senior Notes, due January 23, 2030, $1,000,000 principal
|
989,574
|
|
|
988,662
|
|
2.75% Senior Notes, due October 15, 2032, $500,000 and $0 principal (1)
|
485,134
|
|
|
—
|
|
6.25% Senior Debentures, due January 15, 2036, $500,000 principal
|
510,834
|
|
|
511,260
|
|
6.50% Senior Notes, due January 20, 2043, $400,000 principal
|
419,826
|
|
|
420,239
|
|
Structured Notes (2) (3)
|
1,712,245
|
|
|
1,215,285
|
|
Jefferies Group Revolving Credit Facility
|
189,732
|
|
|
189,088
|
|
Jefferies Group Secured Bank Loan
|
50,000
|
|
|
50,000
|
|
HomeFed EB-5 Program debt
|
191,294
|
|
|
140,739
|
|
HomeFed construction loan
|
45,471
|
|
|
—
|
|
Foursight Capital Credit Facilities
|
129,000
|
|
|
98,260
|
|
Vitesse Energy Finance Revolving Credit Facility
|
97,883
|
|
|
103,050
|
|
Other
|
—
|
|
|
276
|
|
Total long-term debt – subsidiaries
|
7,359,328
|
|
|
7,345,683
|
|
|
|
|
|
Long-term debt
|
$
|
8,352,039
|
|
|
$
|
8,337,061
|
|
(1) Amounts include net losses of $36.7 million and $58.9 million during the twelve months ended November 30, 2020 and 2019, respectively, associated with interest rate swaps based on designation as fair value hedges. See Notes 2 and 5 for further information.
(2) These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. Gains and losses in the fair value of structured notes resulting from non-credit components are recognized within Other operating activities in the Consolidated Statements of Cash Flow.
(3) Of the $1,712.2 million of structured notes at November 30, 2020, $3.1 million matures in 2024, $25.4 million matures in 2025, and the remaining $1,683.7 million matures in 2026 or thereafter.
At November 30, 2020, $1,445.5 million of consolidated assets (primarily receivables and other assets) are pledged for indebtedness aggregating $703.4 million.
The aggregate annual mandatory redemptions of all long-term debt during the five year period ending November 30, 2025 are as follows (in millions):
|
|
|
|
|
|
2021
|
$
|
350.4
|
|
2022
|
69.8
|
|
2023
|
1,598.5
|
|
2024
|
742.4
|
|
2025
|
81.8
|
|
Parent Company Debt
Our senior note indentures contain covenants that restrict our ability to incur more Indebtedness or issue Preferred Stock of Subsidiaries unless, at the time of such incurrence or issuance, the Company meets a specified ratio of Consolidated Debt to Consolidated Tangible Net Worth, limit the ability of the Company and Material Subsidiaries to incur, in certain circumstances, Liens, limit the ability of Material Subsidiaries to incur Funded Debt in certain circumstances, and contain other terms and restrictions all as defined in the senior note indentures. We have the ability to incur substantial additional indebtedness or make distributions to our shareholders and still remain in compliance with these restrictions. If we are unable to meet the specified ratio, we would not be able to issue additional Indebtedness or Preferred Stock, but our inability to meet the applicable ratio would not result in a default under our senior note indentures. The senior note indentures do not restrict the payment of dividends.
Subsidiary Debt
During the twelve months ended November 30, 2020, Jefferies Group's 2.375% Euro Medium Term Notes matured and were repaid, and its 6.875% Senior Notes due 2021 were retired early. Additionally, during the twelve months ended November 30, 2020, Jefferies Group issued structured notes with a total principal amount of approximately $325.5 million, net of retirements, an additional $150.0 million principal amount of 5.125% Senior Notes due 2023 and $500.0 million principal amount of 2.75% Senior Notes due 2032.
Jefferies Group has a revolving credit facility ("Jefferies Group Revolving Credit Facility") with a group of commercial banks for an aggregate principal amount of $190.0 million. At November 30, 2020, borrowings under the Jefferies Group Revolving Credit Facility amounted to $189.7 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of Jefferies Group's subsidiaries. Throughout the year and at November 30, 2020, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and we expect to remain in compliance given Jefferies Group's current liquidity, and anticipated funding requirements given its business plan and profitability expectations.
One of Jefferies Group's subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million ("Jefferies Group Secured Bank Loan"). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2020, Jefferies Group was in compliance with all covenants under the Loan and Security Agreement.
HomeFed funds certain of its real estate projects in part by raising funds under the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services pursuant to the Immigration and Nationality Act ("EB-5 Program"). This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. This debt is secured by certain real estate of HomeFed. At November 30, 2020, HomeFed was in compliance with all debt covenants which include, among other requirements, limitations on incurrence of debt, collateral requirements and restricted use of proceeds. Primarily all of HomeFed's EB-5 Program debt matures in 2024 and 2025.
At November 30, 2020, HomeFed has a construction loan agreement with an aggregate committed amount of $58.9 million. The proceeds are being used for construction at certain of its real estate projects. The outstanding principal amount of the loan bears interest based on the 30-day LIBOR plus 3.15%, subject to adjustment on the first of each calendar month and matures on March 1, 2021, with one 12-month extension subject to certain conditions as set forth in the loan agreement. The loan is collateralized by the property underlying the related project with a guarantee by HomeFed. At November 30, 2020, $46.2 million was outstanding under the construction loan agreement.
At November 30, 2020, Foursight Capital's credit facilities consisted of two warehouse credit commitments aggregating $175.0 million. One of the credit facilities matures in May 2021 and bears interest based on the three-month LIBOR plus a credit spread fixed through its maturity and the other credit facility matures in October 2022 and bears interest based on a commercial paper rate plus a credit spread fixed through its maturity. As a condition of the credit facilities, Foursight Capital is obligated to maintain cash reserves to comply with the hedging requirements of the credit commitment. The credit facilities are secured by first priority liens on auto loan receivables owed to Foursight Capital of approximately $151.3 million at November 30, 2020. At November 30, 2020 and 2019, $129.3 million and $98.7 million, respectively, was outstanding under Foursight Capital's credit facilities.
Vitesse Energy Finance has a revolving credit facility with a syndicate of banks that matures in April 2023 and has a maximum borrowing base of $120.0 million at November 30, 2020. Amounts outstanding under the facility at November 30, 2020 and 2019 were $98.5 million and $104.0 million, respectively. Borrowings under the facility have been made as Eurodollar loans that bear interest at adjusted LIBOR plus a spread ranging from 2.5% to 3.5% based on the borrowing base utilization percentage. The credit facility is guaranteed by Vitesse Energy Finance's subsidiaries and is collateralized with a minimum of 85% of Vitesse Energy Finance's proved reserve value of its oil and gas properties. Vitesse Energy Finance's borrowing base is subject to regular re-determination on or about April 1 and October 1 of each year based on proved oil and natural gas reserves, hedge positions and estimated future cash flows from these reserves calculated using future commodity pricing provided by Vitesse Energy Finance's lenders.
Note 13. Leases
We enter into lease and sublease agreements primarily for office space across our geographic locations. Finance lease ROU assets and finance lease liabilities are not material. Information related to operating leases in the Consolidated Statement of Financial Condition at November 30, 2020 is as follows (in thousands, except lease term and discount rate):
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net - ROU assets
|
|
$
|
507,046
|
|
|
|
|
Weighted average:
|
|
|
Remaining lease term (in years)
|
|
10.6 years
|
Discount rate
|
|
3.0
|
%
|
The following table presents the maturities of our operating lease liabilities and a reconciliation to the Lease liabilities included in the Consolidated Statement of Financial Condition at November 30, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
Lease Liabilities
|
|
|
|
2021
|
|
$
|
72,491
|
|
2022
|
|
76,987
|
|
2023
|
|
67,164
|
|
2024
|
|
63,476
|
|
2025
|
|
64,563
|
|
2026 and thereafter
|
|
342,195
|
|
Total undiscounted cash flows
|
|
686,876
|
|
Less: Difference between undiscounted and discounted cash flows
|
|
(102,431)
|
|
Operating leases amount in the Consolidated Statement of Financial Condition
|
|
584,445
|
|
Finance leases amount in the Consolidated Statement of Financial Condition
|
|
362
|
|
Total amount in the Consolidated Statement of Financial Condition
|
|
$
|
584,807
|
|
The following table presents our lease costs (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
November 30, 2020
|
|
|
|
Operating lease costs (1)
|
|
$
|
77,452
|
|
Variable lease costs (2)
|
|
13,576
|
|
Less: Sublease income
|
|
(7,590)
|
|
Total lease cost, net
|
|
$
|
83,438
|
|
(1) Includes short-term leases, which are not material.
(2) Includes property taxes, insurance costs, common area maintenance, utilities, and other costs that are not fixed. The amount also includes rent increases resulting from inflation indices and periodic market rent reviews.
Consolidated Statement of Cash Flows supplemental information is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
November 30, 2020
|
|
|
|
Cash outflows - lease liabilities
|
|
$
|
73,300
|
|
Non-cash - ROU assets recorded for new and modified leases
|
|
22,460
|
|
Minimum Future Lease Commitments (under previous GAAP)
We and our subsidiaries rent office space and office equipment under noncancellable operating leases with terms varying through 2039. Future minimum annual rentals (exclusive of month-to-month leases, real estate taxes, maintenance and certain other charges) under these leases at November 30, 2019 were as follows (in thousands):
|
|
|
|
|
|
2020
|
$
|
70,886
|
|
2021
|
73,374
|
|
2022
|
71,464
|
|
2023
|
62,552
|
|
2024
|
59,714
|
|
Thereafter
|
393,995
|
|
|
731,985
|
|
Less: sublease income
|
(21,883)
|
|
|
$
|
710,102
|
|
Rental expense, net of sublease rental income, was $65.6 million and $55.7 million for the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively.
Note 14. Mezzanine Equity
Redeemable Noncontrolling Interests
At November 30, 2020 and 2019, redeemable noncontrolling interests include other redeemable noncontrolling interests of $24.7 million and $26.6 million, respectively, primarily related to our oil and gas exploration and development businesses.
Mandatorily Redeemable Convertible Preferred Shares
In connection with our acquisition of Jefferies Group in March 2013, we issued a new series of 3.25% Cumulative Convertible Preferred Shares ("Preferred Shares") ($125.0 million at mandatory redemption value) in exchange for Jefferies Group's outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,440,863 common shares, an effective conversion price of $28.15 per share. The holders of the Preferred Shares are also entitled to an additional quarterly payment in the event we declare and pay a
dividend on our common stock in an amount greater than $0.0625 per common share per quarter. The additional quarterly payment would be paid to the holders of Preferred Shares on an as converted basis and on a per share basis would equal the quarterly dividend declared and paid to a holder of a share of common stock in excess of $0.0625 per share.
In the third quarter of 2017, we increased our quarterly dividend from $0.0625 to $0.10 per common share. In the third quarter of 2018, we increased our quarterly dividend from $0.10 to $0.125 per common share. In the first quarter of 2020, we increased our quarterly dividend from $0.125 to $0.15 per common share. These increased the preferred stock dividend from $4.5 million for the eleven months ended November 30, 2018 to $5.1 million for the twelve months ended November 30, 2019 to $5.6 million for the twelve months ended November 30, 2020. Based on the quarterly dividend of $0.15 per common share, the effective rate on these Preferred Shares was approximately 4.5%. On January 4, 2021, our Board of Directors increased our quarterly dividend to $0.20 per share. Based on our current quarterly dividend of $0.20 per common share, the effective rate on these Preferred Shares is approximately 5.2%. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038.
Note 15. Compensation Plans
Incentive Plan
Upon completion of our combination with Jefferies Group, we assumed its 2003 Incentive Compensation Plan, as Amended and Restated (the "Incentive Plan"). The Incentive Plan allows 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 ("RSUs"), dividend equivalents or other share-based awards.
RSUs give a participant the right to receive fully vested 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.
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 market, performance and service conditions. Market conditions are incorporated into the grant-date fair value of senior executive awards using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved.
The Deferred Compensation Plan (the "DCP") has been implemented under the Incentive Plan. The DCP permits eligible executive officers and other employees to defer cash compensation, some or all of which may be deemed invested in stock units. A portion of the deferrals may also be directed to notional investments in a money market fund or certain of the employee investment opportunities. Stock units generally have been acquired at a discounted price, which encourages employee participation in the DCP and enhances long-term retention of equity interests by participants and aligns executive interests with those of shareholders. Amounts recognized as compensation cost under the DCP have not been significant. The shares to be delivered in connection with DCP stock units and options are drawn from the Incentive Plan.
The Incentive Plan's "evergreen" share reservation was terminated on March 21, 2014; the number of equity awards available under the Incentive Plan was set at 20,000,000. At November 30, 2020, 4,851,819 common shares remained available for new grants under the Incentive Plan. Shares issued pursuant to the DCP reduce the shares available under the Incentive Plan.
The following table details the activity in restricted stock during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock
|
|
Weighted- Average
Grant Date
Fair Value
|
|
|
|
|
Balance at January 1, 2018
|
1,142
|
|
|
$
|
21.75
|
|
Grants
|
1,077
|
|
|
$
|
23.65
|
|
Forfeited
|
(30)
|
|
|
$
|
16.49
|
|
Fulfillment of vesting requirement
|
(394)
|
|
|
$
|
24.23
|
|
Balance at November 30, 2018
|
1,795
|
|
|
$
|
22.42
|
|
Grants
|
518
|
|
|
$
|
19.57
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Fulfillment of vesting requirement
|
(305)
|
|
|
$
|
20.09
|
|
Balance at November 30, 2019
|
2,008
|
|
|
$
|
22.04
|
|
Grants
|
115
|
|
|
$
|
13.20
|
|
Forfeited
|
(21)
|
|
|
$
|
23.38
|
|
Fulfillment of vesting requirement
|
(619)
|
|
|
$
|
19.99
|
|
Balance at November 30, 2020
|
1,483
|
|
|
$
|
22.19
|
|
The following table details the activity in RSUs during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Grant Date
Fair Value
|
|
Future
Service
Required
|
|
No Future
Service
Required
|
|
Future
Service
Required
|
|
No Future
Service
Required
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
32
|
|
|
10,313
|
|
|
$
|
26.90
|
|
|
$
|
26.57
|
|
Grants
|
—
|
|
|
161
|
|
|
$
|
—
|
|
|
$
|
20.24
|
|
Distributions of underlying shares
|
—
|
|
|
(192)
|
|
|
$
|
—
|
|
|
$
|
26.39
|
|
Forfeited
|
(2)
|
|
|
(1)
|
|
|
$
|
26.90
|
|
|
$
|
22.16
|
|
Fulfillment of service requirement
|
(28)
|
|
|
28
|
|
|
$
|
26.90
|
|
|
$
|
26.90
|
|
Balance at November 30, 2018
|
2
|
|
|
10,309
|
|
|
$
|
26.90
|
|
|
$
|
26.48
|
|
Grants
|
10
|
|
|
1,308
|
|
|
$
|
18.83
|
|
|
$
|
18.15
|
|
Distributions of underlying shares
|
—
|
|
|
(166)
|
|
|
$
|
—
|
|
|
$
|
25.91
|
|
Forfeited
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fulfillment of service requirement (1)
|
(2)
|
|
|
4,216
|
|
|
$
|
26.90
|
|
|
$
|
9.99
|
|
Balance at November 30, 2019
|
10
|
|
|
15,667
|
|
|
$
|
18.83
|
|
|
$
|
21.35
|
|
Grants
|
14
|
|
|
487
|
|
|
$
|
13.20
|
|
|
$
|
15.73
|
|
Distributions of underlying shares
|
—
|
|
|
(88)
|
|
|
$
|
—
|
|
|
$
|
25.48
|
|
Forfeited
|
—
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Fulfillment of vesting requirement (1)
|
(3)
|
|
|
2,477
|
|
|
$
|
18.83
|
|
|
$
|
19.80
|
|
Balance at November 30, 2020
|
21
|
|
|
18,543
|
|
|
$
|
14.99
|
|
|
$
|
20.97
|
|
(1) Fulfillment of vesting requirement during the twelve months ended November 30, 2020 and 2019, includes 2,474 RSUs and 4,214 RSUs, respectively, related to the senior executive compensation plans.
During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, grants include approximately 484,000, 1,298,000 and 142,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $15.73, $18.15 and $19.81, respectively.
Senior Executive Compensation Plan
The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2018 (the "2018 Plan"). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $25.0 million per year under the 2018 Plan with a target of $16.0 million in long-term equity in the form of RSUs and a target of $9.0 million in cash, subject to performance targets over the three-year measurement period for each compensation year. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies Total Shareholder Return ("TSR") and to receive targeted cash, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies Return on Tangible Deployable Equity ("ROTDE"). If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR and ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 50% additional incentive compensation on a pro rata basis up to 12% growth rates.
The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2019 (the "2019 Plan") and compensation year 2020 (the "2020 Plan"). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $22.5 million per year under the 2019 Plan and 2020 Plan with a target of $16.0 million in long-term equity in the form of RSUs and a target of $6.5 million in cash for both plan years. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on a multi-year compounded basis in Jefferies TSR and to receive targeted cash, our Senior Executives will have to achieve 9% growth in annual Jefferies ROTDE. If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR growth rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional incentive compensation relative to our peer companies. If ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional incentive compensation on a pro rata basis up to 12% growth rates.
The following table details the activity in RSUs related to the senior executive compensation plan during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Number of Shares
|
|
Weighted- Average
Grant Date
Fair Value
|
|
|
|
|
Balance at January 1, 2018
|
5,655
|
|
|
$
|
13.37
|
|
Grants
|
3,813
|
|
|
$
|
26.16
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Balance at November 30, 2018
|
9,468
|
|
|
$
|
18.52
|
|
Grants
|
1,237
|
|
|
$
|
13.63
|
|
Forfeited
|
—
|
|
|
$
|
—
|
|
Fulfillment of vesting requirement
|
(4,214)
|
|
|
$
|
9.98
|
|
Balance at November 30, 2019
|
6,491
|
|
|
$
|
23.13
|
|
Grants
|
187
|
|
|
$
|
15.19
|
|
Forfeited
|
(15)
|
|
|
$
|
19.01
|
|
Fulfillment of vesting requirement
|
(2,474)
|
|
|
$
|
19.80
|
|
Balance at November 30, 2020
|
4,189
|
|
|
$
|
24.75
|
|
During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, grants include approximately 139,000, 602,000 and 189,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $15.82, $18.08 and $19.80, respectively. During the twelve months ended November 30, 2020 and 2019, grants include approximately 48,000 and 635,000, respectively, of RSUs issued as a result of superior performance pursuant to the 2016 compensation year award.
Directors' Plan
Upon completion of our combination with Jefferies Group, we also assumed the 1999 Directors' Stock Compensation Plan, as Amended and Restated July 25, 2013 (the "Directors' Plan"). Under the Directors' Plan, we issued each nonemployee director of Jefferies $190,000 of restricted stock or RSUs during each of the twelve months ended November 30, 2020 and 2019 and $150,000 of restricted stock or RSUs during the eleven months ended November 30, 2018. These grants are made on the date directors are elected or reelected at our annual shareholders' meeting. These shares vest over three years from the date of grant and are expensed over the requisite service period. At November 30, 2020, 286,382 common shares were issuable upon settlement of outstanding RSUs and 24,657 shares are available for future grants.
Other Compensation Plans
Other Stock-Based Plans. Historically, Jefferies Group also sponsored an Employee Stock Purchase Plan and an Employee Stock Ownership Plan, both of which were assumed by us in connection with the Jefferies Group acquisition. Amounts related to these plans have not been significant.
In connection with the HomeFed merger, each HomeFed stock option, was converted into two Jefferies stock options to purchase that number of shares of Jefferies common stock. At November 30, 2020 and 2019, 313,000 and 325,000, respectively, of our common shares were reserved for stock options.
Restricted Cash Awards. Jefferies Group provides compensation to certain new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements. These awards are amortized to compensation expense over the relevant service period, which is generally considered to start at the beginning of the annual compensation year. During the fourth quarter of 2020, Jefferies Group amended certain provisions of a set of cash awards that had been granted as part of compensation at previous year-ends to remove any service requirements for vesting in the awards. Compensation expense of $179.6 million was recorded during the twelve months ended November 30, 2020 as a result of these amendments. At November 30, 2020, the remaining unamortized amount of the restricted cash awards was $363.5 million and is included within Other assets in the Consolidated Statement of Financial Condition; this cost is expected to be recognized over a weighted average period of three years.
Stock-Based Compensation Expense
Share-based compensation expense relating to grants made under our share-based compensation plans was $40.0 million, $49.8 million and $48.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $10.0 million, $12.9 million and $12.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. At November 30, 2020, total unrecognized compensation cost related to nonvested share-based compensation plans was $41.9 million; this cost is expected to be recognized over a weighted-average period of 1.9 years.
At November 30, 2020, there were 1,483,000 shares of restricted stock outstanding with future service required, 4,210,000 RSUs outstanding with future service required (including target RSUs issuable under the senior executive compensation plans), 18,543,000 RSUs outstanding with no future service required and 1,115,000 shares issuable under other plans. Excluding shares issuable pursuant to outstanding stock options, the maximum potential increase to common shares outstanding resulting from these outstanding awards is 23,868,000.
Note 16. Accumulated Other Comprehensive Income (Loss)
Activity in accumulated other comprehensive income (loss) is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income (loss), net of taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
December 31, 2018
|
|
|
|
|
|
|
Net unrealized gains on available for sale securities
|
$
|
513
|
|
|
$
|
141
|
|
|
$
|
542,832
|
|
Net unrealized foreign exchange losses
|
(156,718)
|
|
|
(192,709)
|
|
|
(193,402)
|
|
Net unrealized losses on instrument specific credit risk
|
(71,151)
|
|
|
(18,889)
|
|
|
(5,728)
|
|
Net unrealized gains on cash flow hedges
|
—
|
|
|
—
|
|
|
470
|
|
Net minimum pension liability
|
(61,561)
|
|
|
(61,582)
|
|
|
(55,886)
|
|
|
$
|
(288,917)
|
|
|
$
|
(273,039)
|
|
|
$
|
288,286
|
|
Significant amounts reclassified out of accumulated other comprehensive income (loss) to net income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Details about Accumulated Other Comprehensive Income (Loss)
Components
|
|
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
|
|
Affected Line Item in the
Consolidated Statement
of Operations
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on available for sale securities, net of income tax provision (benefit) of $0 and $(545,054)
|
|
$
|
—
|
|
|
$
|
543,178
|
|
|
Other revenues and Income tax provision (benefit)
|
Net unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $0 and $(52)
|
|
—
|
|
|
(149)
|
|
|
Other revenues and Selling, general and other expenses
|
Net unrealized gains (losses) on instrument specific credit risk, net of income tax provision (benefit) of $146 and $(144)
|
|
397
|
|
|
(427)
|
|
|
Principal transactions revenues
|
Net unrealized gains on cash flow hedges, net of income tax provision (benefit) of $0 and $161
|
|
—
|
|
|
470
|
|
|
Other revenues
|
Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(957) and $(490)
|
|
(2,872)
|
|
|
(1,407)
|
|
|
Selling, general and other expenses, which includes pension expense. See Note 17 for information on this component.
|
Total reclassifications for the period, net of tax
|
|
$
|
(2,475)
|
|
|
$
|
541,665
|
|
|
|
During the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the twelve months ended November 30, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other
comprehensive income (loss) decreased by corresponding amounts. The remaining net unrealized gains on available for sale securities at November 30, 2020 and 2019 represent Jefferies Group's share of Berkadia's net unrealized gains on available for sale securities recorded under the equity method of accounting.
Note 17. Pension Plans and Postretirement Benefits
U.S. Pension Plans
Pursuant to the agreement to sell one of our former subsidiaries, WilTel Communications Group, LLC, ("WilTel") the responsibility for WilTel's defined benefit pension plan was retained by us. All benefits under this plan were frozen as of October 30, 2005. Prior to the acquisition of Jefferies Group, Jefferies Group sponsored a defined benefit pension plan covering certain employees; benefits under that plan were frozen as of December 31, 2005.
A summary of activity with respect to both plans is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
Change in projected benefit obligation:
|
|
|
|
Projected benefit obligation, beginning of year
|
$
|
218,874
|
|
|
$
|
191,261
|
|
Interest cost
|
6,349
|
|
|
8,070
|
|
Actuarial (gains) losses
|
22,475
|
|
|
29,539
|
|
Settlement payments
|
(2,476)
|
|
|
—
|
|
Benefits paid
|
(8,650)
|
|
|
(9,996)
|
|
Projected benefit obligation, end of year
|
$
|
236,572
|
|
|
$
|
218,874
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
Fair value of plan assets, beginning of year
|
$
|
166,071
|
|
|
$
|
138,992
|
|
Actual return on plan assets
|
29,376
|
|
|
30,426
|
|
Employer contributions
|
8,688
|
|
|
9,655
|
|
Benefits paid
|
(8,650)
|
|
|
(9,996)
|
|
Settlement payments
|
(2,476)
|
|
|
—
|
|
Administrative expenses
|
(2,789)
|
|
|
(3,006)
|
|
Fair value of plan assets, end of year
|
$
|
190,220
|
|
|
$
|
166,071
|
|
|
|
|
|
Funded status at end of year
|
$
|
(46,352)
|
|
|
$
|
(52,803)
|
|
As of November 30, 2020 and 2019, $57.3 million and $57.4 million, respectively, of the net amount recognized in the Consolidated Statements of Financial Condition was reflected as a charge to Accumulated other comprehensive income (loss) (substantially all of which were cumulative losses) and $46.4 million and $52.8 million, respectively, was reflected as accrued pension cost.
The following table summarizes the components of net periodic pension cost and other amounts recognized in other comprehensive income (loss) excluding taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Components of net periodic pension cost:
|
|
|
|
|
|
Interest cost
|
$
|
6,349
|
|
|
$
|
8,070
|
|
|
$
|
6,783
|
|
Expected return on plan assets
|
(7,934)
|
|
|
(7,456)
|
|
|
(7,217)
|
|
Settlement charge
|
376
|
|
|
—
|
|
|
365
|
|
Actuarial losses
|
3,453
|
|
|
1,897
|
|
|
2,376
|
|
Net periodic pension cost
|
$
|
2,244
|
|
|
$
|
2,511
|
|
|
$
|
2,307
|
|
|
|
|
|
|
|
Amounts recognized in other comprehensive income (loss):
|
|
|
|
|
|
Net (gains) losses arising during the period
|
$
|
3,821
|
|
|
$
|
9,576
|
|
|
$
|
1,141
|
|
Settlement charge
|
(376)
|
|
|
—
|
|
|
(365)
|
|
Amortization of net loss
|
(3,453)
|
|
|
(1,897)
|
|
|
(2,376)
|
|
Total recognized in other comprehensive income (loss)
|
$
|
(8)
|
|
|
$
|
7,679
|
|
|
$
|
(1,600)
|
|
|
|
|
|
|
|
Net amount recognized in net periodic benefit cost and other
comprehensive income (loss)
|
$
|
2,236
|
|
|
$
|
10,190
|
|
|
$
|
707
|
|
The amounts in Accumulated other comprehensive income (loss) at November 30, 2020 and 2019 have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during the twelve months ended November 30, 2021 is $3.6 million.
We expect to pay $8.0 million of employer contributions during the twelve months ended November 30, 2021.
The assumptions used are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
WilTel Plan
|
|
|
|
Discount rate used to determine benefit obligation
|
2.20
|
%
|
|
3.00
|
%
|
Weighted-average assumptions used to determine net pension cost:
|
|
|
|
Discount rate
|
3.00
|
%
|
|
4.35
|
%
|
Expected long-term return on plan assets
|
7.00
|
%
|
|
7.00
|
%
|
|
|
|
|
Jefferies Group Plan
|
|
|
|
Discount rate used to determine benefit obligation
|
2.00
|
%
|
|
2.90
|
%
|
Weighted-average assumptions used to determine net pension cost:
|
|
|
|
Discount rate
|
2.90
|
%
|
|
4.30
|
%
|
Expected long-term return on plan assets
|
6.25
|
%
|
|
6.25
|
%
|
The following pension benefit payments are expected to be paid (in thousands):
|
|
|
|
|
|
2021
|
$
|
10,027
|
|
2022
|
10,232
|
|
2023
|
12,362
|
|
2024
|
13,301
|
|
2025
|
12,861
|
|
2026 – 2030
|
69,783
|
|
U.S. Plan Assets
The information below on the plan assets for the WilTel plan and the Jefferies Group plan is presented separately for the plans as the investments are managed independently.
WilTel Plan Assets.
The current investment objectives are designed to close the funding gap while mitigating funded status volatility through a combination of liability hedging and investment returns. As plan funded status improves, the asset allocation will move along a predetermined, de-risking glide path that reallocates capital from growth assets to liability-hedging assets in order to reduce funded status volatility and lock in funded status gains. Plan assets are split into two separate portfolios, each with different asset mixes and objectives. The portfolios are valued at their NAV as a practical expedient for fair value.
•The Growth Portfolio consists of global equities and high yield investments.
•The Liability-Driven Investing ("LDI") Portfolio consists of long duration credit bonds and a suite of long duration, Treasury-based instruments designed to provide capital-efficient interest rate exposure as well as target specific maturities. The objective of the LDI Portfolio is to seek to achieve performance similar to the WilTel plan's liability by seeking to match the interest rate sensitivity and credit sensitivity. The LDI Portfolio is managed to mitigate volatility in funded status deriving from changes in the discounted value of benefit obligations from market movements in the interest rate and credit components of the underlying discount curve.
To develop the assumption for the expected long-term rate of return on plan assets, we considered the following underlying assumptions: 2.3% current expected inflation, (0.3)% to (1.3)% real rate of return for long duration risk free investments and an additional 1.5% to 2.5% return premium for corporate credit risk. For U.S. and international equity, we assume an equity risk premium over risk-free assets equal to 5.0%. We then weighted these assumptions based on invested assets and assumed that investment expenses were offset by expected returns in excess of benchmarks, which resulted in the selection of the 7.0% expected long-term rate of return assumption for 2020.
Jefferies Group Plan Assets.
Jefferies Group has an agreement with an external investment manager to invest and manage the plan's assets under a strategy using a combination of two portfolios. The investment manager allocates the plan's assets between a growth portfolio and a liability-driven portfolio according to certain target allocations and tolerance bands that are agreed to by Jefferies Group's Administrative Committee of the U.S. Pension Plan. Such target allocations will take into consideration the plan's funded ratio. The manager will also monitor the strategy and, as the plan's funded ratio change over time, will rebalance the strategy, if necessary, to be within the agreed tolerance bands and target allocations. The portfolios are comprised of certain common collective investment trusts that are established and maintained by the investment manager. The common collective trusts are valued at their NAV as a practical expedient for fair value.
Other
We have defined contribution pension plans, including 401(k) plans, that cover certain employees. Amounts charged to expense related to such plans were $9.5 million, $8.8 million and $8.0 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively.
Note 18. Revenues from Contracts with Customers
The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Revenues from contracts with customers:
|
|
|
|
|
|
Commissions and other fees
|
$
|
822,248
|
|
|
$
|
675,772
|
|
|
$
|
662,546
|
|
Investment banking
|
2,501,494
|
|
|
1,526,992
|
|
|
1,904,870
|
|
Manufacturing revenues
|
421,434
|
|
|
324,659
|
|
|
357,427
|
|
Other
|
178,051
|
|
|
262,705
|
|
|
194,799
|
|
Total revenues from contracts with customers
|
3,923,227
|
|
|
2,790,128
|
|
|
3,119,642
|
|
|
|
|
|
|
|
Other sources of revenue:
|
|
|
|
|
|
Principal transactions
|
1,916,508
|
|
|
559,300
|
|
|
232,224
|
|
Interest income
|
997,555
|
|
|
1,603,940
|
|
|
1,294,325
|
|
Other
|
118,640
|
|
|
405,288
|
|
|
363,537
|
|
Total revenues from other sources
|
3,032,703
|
|
|
2,568,528
|
|
|
1,890,086
|
|
|
|
|
|
|
|
Total revenues
|
$
|
6,955,930
|
|
|
$
|
5,358,656
|
|
|
$
|
5,009,728
|
|
Revenues from contracts with customers are recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (the "transaction price"). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third-parties.
The following provides detailed information on the recognition of our revenues from contracts with customers:
Commissions and Other Fees. We earn commission and other fee revenues by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and we record a receivable between trade-date and payment on settlement date. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third-parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. We act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs our payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in the Consolidated Statements of Operations. We also earn investment research fees for the sales of our proprietary investment research when a contract with a client has been identified. The delivery of investment research services represents a distinct performance obligation that is satisfied over time when the performance obligation is to provide ongoing access to a research platform or research analysts, with fees recognized on a straight-line basis over the period in which the performance obligation is satisfied. The performance obligation is satisfied at a point in time when the performance obligation is to provide individual interactions with research analysts or research events, with fees recognized on the interaction date.
We earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as we determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved.
Investment Banking. We provide our clients with a full range of financial advisory and underwriting services. Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by our clients are recognized as Investment banking revenues.
Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within underwriting costs in the Consolidated Statements of Operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues.
Asset Management Fees. We earn management and performance fees, recorded in Other revenues, in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, "high-water marks" or other performance targets. The performance period related to our performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.
Manufacturing Revenues. Idaho Timber's primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product.
Disaggregation of Revenue
The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Investment Banking and Capital Markets
|
|
Asset Management(1)
|
|
Merchant Banking
|
|
Corporate
|
|
Consolidation Adjustments
|
|
Total
|
Twelve Months Ended November 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Major Business Activity:
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking - Advisory
|
$
|
1,053,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,053,500
|
|
Investment Banking - Underwriting
|
1,447,994
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,447,994
|
|
Equities (2)
|
807,350
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,010)
|
|
|
806,340
|
|
Fixed Income (2)
|
15,908
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15,908
|
|
Asset Management
|
—
|
|
|
14,702
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,702
|
|
Manufacturing revenues
|
—
|
|
|
—
|
|
|
421,434
|
|
|
—
|
|
|
—
|
|
|
421,434
|
|
Oil and gas revenues
|
—
|
|
|
—
|
|
|
102,210
|
|
|
—
|
|
|
—
|
|
|
102,210
|
|
Other revenues
|
—
|
|
|
—
|
|
|
61,139
|
|
|
—
|
|
|
—
|
|
|
61,139
|
|
Total revenues from contracts with customers
|
$
|
3,324,752
|
|
|
$
|
14,702
|
|
|
$
|
584,783
|
|
|
$
|
—
|
|
|
$
|
(1,010)
|
|
|
$
|
3,923,227
|
|
Primary Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
2,742,298
|
|
|
$
|
9,754
|
|
|
$
|
582,719
|
|
|
$
|
—
|
|
|
$
|
(1,010)
|
|
|
$
|
3,333,761
|
|
Europe
|
401,853
|
|
|
4,948
|
|
|
1,698
|
|
|
—
|
|
|
—
|
|
|
408,499
|
|
Asia Pacific
|
180,601
|
|
|
—
|
|
|
366
|
|
|
—
|
|
|
—
|
|
|
180,967
|
|
Total revenues from contracts with customers
|
$
|
3,324,752
|
|
|
$
|
14,702
|
|
|
$
|
584,783
|
|
|
$
|
—
|
|
|
$
|
(1,010)
|
|
|
$
|
3,923,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Investment Banking and Capital Markets
|
|
Asset Management (1)
|
|
Merchant Banking
|
|
Corporate
|
|
Consolidation Adjustments
|
|
Total
|
Twelve Months Ended November 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Major Business Activity:
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking - Advisory
|
$
|
767,421
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
767,421
|
|
Investment Banking - Underwriting
|
761,308
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,737)
|
|
|
759,571
|
|
Equities (2)
|
662,804
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(537)
|
|
|
662,267
|
|
Fixed Income (2)
|
13,505
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,505
|
|
Asset Management
|
—
|
|
|
23,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23,188
|
|
Manufacturing revenues
|
—
|
|
|
—
|
|
|
324,659
|
|
|
—
|
|
|
—
|
|
|
324,659
|
|
Oil and gas revenues
|
—
|
|
|
—
|
|
|
173,626
|
|
|
—
|
|
|
—
|
|
|
173,626
|
|
Other revenues
|
—
|
|
|
—
|
|
|
65,891
|
|
|
—
|
|
|
—
|
|
|
65,891
|
|
Total revenues from contracts with customers
|
$
|
2,205,038
|
|
|
$
|
23,188
|
|
|
$
|
564,176
|
|
|
$
|
—
|
|
|
$
|
(2,274)
|
|
|
$
|
2,790,128
|
|
Primary Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
1,751,568
|
|
|
$
|
16,334
|
|
|
$
|
562,837
|
|
|
$
|
—
|
|
|
$
|
(581)
|
|
|
$
|
2,330,158
|
|
Europe
|
374,411
|
|
|
6,854
|
|
|
935
|
|
|
—
|
|
|
(1,693)
|
|
|
380,507
|
|
Asia Pacific
|
79,059
|
|
|
—
|
|
|
404
|
|
|
—
|
|
|
—
|
|
|
79,463
|
|
Total revenues from contracts with customers
|
$
|
2,205,038
|
|
|
$
|
23,188
|
|
|
$
|
564,176
|
|
|
$
|
—
|
|
|
$
|
(2,274)
|
|
|
$
|
2,790,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Investment Banking and Capital Markets
|
|
Asset Management (1)
|
|
Merchant Banking
|
|
Corporate
|
|
Consolidation Adjustments
|
|
Total
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Major Business Activity:
|
|
|
|
|
|
|
|
|
|
|
|
Investment Banking - Advisory
|
$
|
820,042
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5,283)
|
|
|
$
|
814,759
|
|
Investment Banking - Underwriting
|
1,090,161
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50)
|
|
|
1,090,111
|
|
Equities (2)
|
649,631
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(919)
|
|
|
648,712
|
|
Fixed Income (2)
|
13,839
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,839
|
|
Asset Management
|
—
|
|
|
28,144
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,144
|
|
Manufacturing revenues
|
—
|
|
|
—
|
|
|
357,427
|
|
|
—
|
|
|
—
|
|
|
357,427
|
|
Oil and gas revenues
|
—
|
|
|
—
|
|
|
136,109
|
|
|
—
|
|
|
—
|
|
|
136,109
|
|
Other revenues
|
—
|
|
|
—
|
|
|
30,541
|
|
|
—
|
|
|
—
|
|
|
30,541
|
|
Total revenues from contracts with customers
|
$
|
2,573,673
|
|
|
$
|
28,144
|
|
|
$
|
524,077
|
|
|
$
|
—
|
|
|
$
|
(6,252)
|
|
|
$
|
3,119,642
|
|
Primary Geographic Region:
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
2,186,955
|
|
|
$
|
27,801
|
|
|
$
|
522,541
|
|
|
$
|
—
|
|
|
$
|
(6,252)
|
|
|
$
|
2,731,045
|
|
Europe
|
304,027
|
|
|
343
|
|
|
1,264
|
|
|
—
|
|
|
—
|
|
|
305,634
|
|
Asia Pacific
|
82,691
|
|
|
—
|
|
|
272
|
|
|
—
|
|
|
—
|
|
|
82,963
|
|
Total revenues from contracts with customers
|
$
|
2,573,673
|
|
|
$
|
28,144
|
|
|
$
|
524,077
|
|
|
$
|
—
|
|
|
$
|
(6,252)
|
|
|
$
|
3,119,642
|
|
(1) We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure. See Note 27 for further information.
(2) Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue.
Information on Remaining Performance Obligations and Revenue Recognized from Past Performance
We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at November 30, 2020. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at November 30, 2020.
During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, we recognized $11.1 million, $27.6 million and $27.0 million, respectively, of revenues related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, we recognized $17.6 million, $21.7 million and $18.1 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively, of revenues primarily associated with distribution services, a portion of which relates to prior periods.
Contract Balances
The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.
We had receivables related to revenues from contracts with customers of $332.5 million and $263.7 million at November 30, 2020 and 2019, respectively. We had no significant impairments related to these receivables during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018.
Our deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenues were $14.8 million and $12.8 million at November 30, 2020 and 2019, respectively, which are recorded as Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, we recognized $10.9 million, $13.0 million and $10.6 million, respectively, of deferred revenue from the balance at November 30, 2019, November 30, 2018 and December 31, 2017, respectively.
Contract Costs
We capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized.
At November 30, 2020 and 2019, capitalized costs to fulfill a contract were $1.8 million and $4.8 million, respectively, which are recorded in Receivables in the Consolidated Statements of Financial Condition. We recognized expenses of $5.1 million, $4.1 million and $2.3 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively, related to costs to fulfill a contract that were capitalized as of the beginning of the year. There were no significant impairment charges recognized in relation to these capitalized costs during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018.
Note 19. Income Taxes
The provision for income taxes for continuing operations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Current taxes:
|
|
|
|
|
|
U.S. Federal
|
$
|
90,350
|
|
|
$
|
(10,000)
|
|
|
$
|
10,000
|
|
U.S. state and local
|
68,261
|
|
|
53,211
|
|
|
37,439
|
|
Foreign
|
75,395
|
|
|
11,026
|
|
|
11,077
|
|
Total current
|
234,006
|
|
|
54,237
|
|
|
58,516
|
|
|
|
|
|
|
|
Deferred taxes:
|
|
|
|
|
|
U.S. Federal
|
52,765
|
|
83,197
|
|
39,448
|
U.S. state and local
|
(1,288)
|
|
|
(73,482)
|
|
|
(73,013)
|
|
Foreign
|
13,190
|
|
|
(3,324)
|
|
|
(5,943)
|
|
Total deferred
|
64,667
|
|
|
6,391
|
|
|
(39,508)
|
|
|
|
|
|
|
|
Recognition of accumulated other comprehensive income lodged taxes
|
—
|
|
|
(544,583)
|
|
|
—
|
|
|
|
|
|
|
|
Total income tax provision (benefit)
|
$
|
298,673
|
|
|
$
|
(483,955)
|
|
|
$
|
19,008
|
|
The following table presents the U.S. and non-U.S. components of income from continuing operations before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
U.S.
|
$
|
813,305
|
|
|
$
|
495,566
|
|
|
$
|
284,177
|
|
Non-U.S. (1)
|
253,778
|
|
|
(16,958)
|
|
|
11,923
|
|
Income from continuing operations before income taxes
|
$
|
1,067,083
|
|
|
$
|
478,608
|
|
|
$
|
296,100
|
|
(1) For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S.
Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rates of 21% for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 to income from continuing operations before income taxes as a result of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
Computed expected federal income tax
|
$
|
224,087
|
|
|
21.0
|
%
|
|
$
|
100,508
|
|
|
21.0
|
%
|
|
$
|
62,181
|
|
|
21.0
|
%
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
State and local income taxes, net of federal income tax benefit
|
45,457
|
|
|
4.3
|
|
|
25,648
|
|
|
5.4
|
|
|
12,391
|
|
|
4.2
|
|
Recognition of accumulated other comprehensive income lodged taxes
|
—
|
|
|
—
|
|
|
(544,583)
|
|
|
(113.8)
|
|
|
—
|
|
|
—
|
|
International operations (including foreign rate differential)
|
13,155
|
|
|
1.2
|
|
|
4,518
|
|
|
0.9
|
|
|
1,823
|
|
|
0.6
|
|
Decrease in valuation allowance
|
(2,561)
|
|
|
(0.2)
|
|
|
(19,993)
|
|
|
(4.2)
|
|
|
(48,058)
|
|
|
(16.2)
|
|
Non-deductible executive compensation
|
12,814
|
|
|
1.2
|
|
|
7,444
|
|
|
1.6
|
|
|
5,810
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign tax credits
|
(8,654)
|
|
|
(0.8)
|
|
|
(5,012)
|
|
|
(1.0)
|
|
|
(9,046)
|
|
|
(3.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset remeasurement related to the Tax Act
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,673
|
|
|
1.9
|
|
Transition tax on foreign earnings related to the Tax Act
|
—
|
|
|
—
|
|
|
(6,708)
|
|
|
(1.4)
|
|
|
2,590
|
|
|
0.9
|
|
Base erosion and anti-abuse tax (BEAT)
|
—
|
|
|
—
|
|
|
(10,000)
|
|
|
(2.1)
|
|
|
10,000
|
|
|
3.4
|
|
Change in unrecognized tax benefits related to prior years
|
(4,522)
|
|
|
(0.5)
|
|
|
(20,512)
|
|
|
(4.3)
|
|
|
(19,783)
|
|
|
(6.7)
|
|
Interest on unrecognized tax benefits
|
15,600
|
|
|
1.5
|
|
|
3,568
|
|
|
0.7
|
|
|
(1,197)
|
|
|
(0.4)
|
|
Spectrum Brands distribution
|
—
|
|
|
—
|
|
|
11,996
|
|
|
2.5
|
|
|
—
|
|
|
—
|
|
Acquisition of HomeFed
|
—
|
|
|
—
|
|
|
(36,779)
|
|
|
(7.7)
|
|
|
—
|
|
|
—
|
|
Other, net
|
3,297
|
|
|
0.3
|
|
|
5,950
|
|
|
1.3
|
|
|
(3,376)
|
|
|
(1.1)
|
|
Actual income tax provision
|
$
|
298,673
|
|
|
28.0
|
%
|
|
$
|
(483,955)
|
|
|
(101.1)
|
%
|
|
$
|
19,008
|
|
|
6.4
|
%
|
As discussed above, during the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the twelve months ended November 30, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a "lodged tax effect." Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those
periods, generated a lodged tax benefit of $544.6 million. As a result of steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts.
The following table presents a reconciliation of gross unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
260,138
|
|
|
$
|
197,320
|
|
|
$
|
169,020
|
|
Increases based on tax positions related to the current period
|
41,114
|
|
|
42,306
|
|
|
48,083
|
|
Increases based on tax positions related to prior periods
|
22,328
|
|
|
33,007
|
|
|
17,521
|
|
Decreases based on tax positions related to prior periods
|
(8,966)
|
|
|
(11,006)
|
|
|
(36,324)
|
|
Decreases related to settlements with taxing authorities
|
(267)
|
|
|
(1,489)
|
|
|
(980)
|
|
Balance at end of period
|
$
|
314,347
|
|
|
$
|
260,138
|
|
|
$
|
197,320
|
|
Interest and penalties related to unrecognized tax benefits are recorded as components of the provision for income taxes. Net interest expense (benefit) related to unrecognized tax benefits was $19.9 million, $13.1 million and $(3.1) million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. At November 30, 2020 and 2019, we had interest accrued of approximately $87.1 million and $67.2 million, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018.
The statute of limitations with respect to our federal income tax returns has expired for all years through 2016. We are currently under examination by various tax jurisdictions. Prior to becoming a wholly-owned subsidiary, Jefferies Group filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions and Jefferies Group is also currently under examination by various tax jurisdictions. We do not expect that resolution of these examinations will have a significant effect on the Consolidated Statements of Financial Condition, but could have a significant impact on the Consolidated Statements 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 could have the effect of reducing the balance of unrecognized tax benefits by $13.8 million.
The principal components of deferred taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
Deferred tax asset:
|
|
|
|
Net operating loss carryover
|
$
|
15,123
|
|
|
$
|
48,695
|
|
Operating lease liabilities
|
145,617
|
|
|
—
|
|
Compensation and benefits
|
274,342
|
|
|
260,590
|
|
|
|
|
|
Tax credits
|
—
|
|
|
91,390
|
|
Investments in associated companies (1)
|
36,345
|
|
|
16,099
|
|
Long-term debt
|
42,423
|
|
|
28,824
|
|
Other
|
164,010
|
|
|
184,514
|
|
|
677,860
|
|
|
630,112
|
|
Valuation allowance
|
(15,958)
|
|
|
(18,519)
|
|
|
661,902
|
|
|
611,593
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
(65,683)
|
|
|
(68,933)
|
|
|
|
|
|
Operating lease right-of-use asset
|
(138,708)
|
|
|
—
|
|
Other
|
(63,824)
|
|
|
(80,192)
|
|
|
(268,215)
|
|
|
(149,125)
|
|
Net deferred tax asset
|
$
|
393,687
|
|
|
$
|
462,468
|
|
(1) Certain reclassifications have been made to the prior year to conform with the current make up and reporting of deferred tax positions in the current period. Within the principal components of deferred taxes, we have included Securities valuation reserves in Investments in Associated Companies.
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 $393.7 million at November 30, 2020 is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate.
We have various state NOLs that expire at different times, which are reflected in the above table to the extent our estimate of future taxable income will be apportioned to those states. A deferred tax asset of $1.8 million related to net operating losses in Europe has been partially offset by a valuation allowance of $1.4 million, while $0.6 million of deferred tax assets related to net operating losses in Asia has been partially offset by a valuation allowance of $0.3 million. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods.
As a result of planning related to the 2017 tax act, during fiscal 2018, several of our foreign subsidiaries had made tax elections to be treated as branches of the U.S. for federal income tax purposes (commonly referred to as "check-the-box" elections) effective during various times during 2018. We believe that, as a result of these foreign subsidiaries being treated as branches of the U.S. for federal income tax purposes, rather than as controlled foreign corporations, we will reduce the future tax impact of the base erosion and anti-abuse tax ("BEAT") and the tax on global intangible low-taxed income ("GILTI") provisions, which became effective starting in fiscal 2018 and fiscal 2019, respectively. We recorded a provision of $10.0 million for BEAT in the eleven months ended November 30, 2018 and reversed the full amount during the twelve months ended November 30, 2019, based on new information. The new tax on GILTI became applicable in fiscal 2019. As a result, we made an accounting policy election in the first quarter of 2019 to treat GILTI as a period cost if and when incurred.
Note 20. Other Results of Operations Information
Other revenue consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from associated companies classified as other revenues
|
$
|
23,934
|
|
|
$
|
85,169
|
|
|
$
|
73,975
|
|
Revenues of oil and gas production and development businesses
|
154,909
|
|
|
175,169
|
|
|
127,090
|
|
|
|
|
|
|
|
Gain on sale of National Beef
|
—
|
|
|
205,017
|
|
|
—
|
|
Gain on revaluation of our interest in HomeFed
|
—
|
|
|
72,142
|
|
|
—
|
|
Gain on sale of Garcadia
|
—
|
|
|
—
|
|
|
221,712
|
|
Other
|
117,848
|
|
|
130,496
|
|
|
135,559
|
|
|
$
|
296,691
|
|
|
$
|
667,993
|
|
|
$
|
558,336
|
|
In the fourth quarter of 2019, we sold our 31% equity interest in National Beef for a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue.
Other revenues for the twelve months ended November 30, 2019 include a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed.
In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue.
Taxes, other than income or payroll included in Income (loss) from continuing operations, amounted to $49.3 million, $41.3 million and $39.9 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively.
Proceeds from sales of investments primarily classified as available for sale were $0.9 billion and $1.6 billion during the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively, and were not material during the twelve months ended November 30, 2020. Gross gains and gross losses were not material during each of the periods.
Note 21. Common Shares and Earnings Per Common Share
Basic and diluted earnings per share amounts were calculated by dividing net income by the weighted-average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings per share are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Numerator for earnings per share:
|
|
|
|
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders
|
$
|
769,605
|
|
|
$
|
959,593
|
|
|
$
|
1,022,318
|
|
Allocation of earnings to participating securities (1)
|
(4,795)
|
|
|
(5,576)
|
|
|
(5,107)
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders for basic earnings per share
|
764,810
|
|
|
954,017
|
|
|
1,017,211
|
|
Adjustment to allocation of earnings to participating securities related to diluted shares (1)
|
23
|
|
|
(5)
|
|
|
28
|
|
Mandatorily redeemable convertible preferred share dividends
|
5,634
|
|
|
5,103
|
|
|
—
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share
|
$
|
770,467
|
|
|
$
|
959,115
|
|
|
$
|
1,017,239
|
|
|
|
|
|
|
|
Denominator for earnings per share:
|
|
|
|
|
|
Weighted average common shares outstanding
|
268,518
|
|
|
297,796
|
|
|
337,817
|
|
Weighted average shares of restricted stock outstanding with future service required
|
(1,785)
|
|
|
(1,939)
|
|
|
(1,707)
|
|
Weighted average RSUs outstanding with no future service required
|
18,960
|
|
|
14,837
|
|
|
11,151
|
|
Denominator for basic earnings per share – weighted average shares
|
285,693
|
|
|
310,694
|
|
|
347,261
|
|
Stock options
|
—
|
|
|
—
|
|
|
7
|
|
Senior executive compensation plan awards
|
356
|
|
|
2,140
|
|
|
4,007
|
|
Mandatorily redeemable convertible preferred shares
|
4,441
|
|
|
4,198
|
|
|
—
|
|
Denominator for diluted earnings per share
|
290,490
|
|
|
317,032
|
|
|
351,275
|
|
(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 1,801,700, 1,947,600 and 1,724,800 for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Dividends declared on participating securities were $1.0 million and $3.6 million during the twelve months ended November 30, 2020 and 2019 and were not material during the eleven months ended November 30, 2018. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed.
For the eleven months ended November 30, 2018, shares related to the 3.875% Convertible Senior Debentures were not included in the computation of diluted per share amounts as the conversion price exceeded the average market price. All of these convertible debentures were redeemed in January 2018. 4,162,200 shares related to the mandatorily redeemable convertible preferred shares for the eleven months ended November 30, 2018, were not included in the computation of diluted per share amounts as the effect was antidilutive.
Our Board of Directors from time to time has authorized the repurchase of our common shares. In January 2019, the Board of Directors approved a $500.0 million share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market. In January 2020, the Board of Directors approved an increase of $250.0 million to the share repurchase authorization and in March 2020, the Board of Directors approved an additional share repurchase authorization of $100.0 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million and in September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for an aggregate purchase price of $812.7 million, or an average price of
$19.29 per share. At November 30, 2020, we had approximately $57.2 million available for future purchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million.
Note 22. Commitments, Contingencies and Guarantees
Commitments
The following table summarizes commitments associated with certain business activities (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
|
2021
|
|
2022
|
|
2023
and
2024
|
|
2025
and
2026
|
|
2027
and
Later
|
|
Maximum
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity commitments (1)
|
$
|
365.5
|
|
|
$
|
53.4
|
|
|
$
|
25.3
|
|
|
$
|
14.5
|
|
|
$
|
6.8
|
|
|
$
|
465.5
|
|
Loan commitments (1)
|
249.5
|
|
|
10.0
|
|
|
25.0
|
|
|
2.3
|
|
|
—
|
|
|
286.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting commitments
|
243.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
243.3
|
|
Forward starting reverse repos (2)
|
6,048.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,048.0
|
|
Forward starting repos (2)
|
3,488.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,488.7
|
|
Other unfunded commitments (1)
|
156.6
|
|
|
25.0
|
|
|
5.2
|
|
|
—
|
|
|
—
|
|
|
186.8
|
|
|
$
|
10,551.6
|
|
|
$
|
88.4
|
|
|
$
|
55.5
|
|
|
$
|
16.8
|
|
|
$
|
6.8
|
|
|
$
|
10,719.1
|
|
(1)Equity commitments, loan commitments and other unfunded commitments are generally presented by contractual maturity date. The amounts are however mostly available on demand.
(2)At November 30, 2020, $5,919.9 million within forward starting securities purchased under agreements to resell and $3,480.4 million within forward starting securities sold under agreements to repurchase settled within three business days.
Equity Commitments. Equity commitments include a commitment to invest in Jefferies Group's joint venture, Jefferies Finance, 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 our President and a Director. At November 30, 2020, Jefferies Group's outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $11.0 million.
See Note 9 for additional information regarding Jefferies Group's investment in Jefferies Finance.
Additionally, at November 30, 2020, we had other outstanding equity commitments to invest up to $200.0 million to third- parties with strategic relationships and up to $156.8 million to various other investments.
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, SPE sponsors in connection with the funding of CLO and other asset-backed transactions, and third-parties with strategic relationships. 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, 2020, we had $80.0 million of outstanding loan commitments to clients and $5.9 million to third-parties with strategic relationships.
Loan commitments outstanding at November 30, 2020 also include Jefferies Group's portion of the outstanding secured revolving credit facility provided to Jefferies Finance to support loan underwritings by Jefferies Finance. At November 30, 2020, $50.0 million of Jefferies $250.0 million commitment was funded.
Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting commitments to our clients in connection with capital raising transactions.
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, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.
Contingencies
We and our subsidiaries are parties to legal and regulatory proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to our consolidated financial position. We and our subsidiaries 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 do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period.
Guarantees
Derivative Contracts. Our dealer activities cause us to 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 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.
The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under GAAP as of November 30, 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity Date
|
|
|
Guarantee Type
|
2021
|
|
2022
|
|
2023
and
2024
|
|
2025
and
2026
|
|
2027
and
Later
|
|
Notional/
Maximum
Payout
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts – non-credit related
|
$
|
12,607.6
|
|
|
$
|
2,475.8
|
|
|
$
|
5,760.8
|
|
|
$
|
390.4
|
|
|
$
|
11.9
|
|
|
$
|
21,246.5
|
|
Written derivative contracts – credit related
|
—
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
—
|
|
|
6.4
|
|
Total derivative contracts
|
$
|
12,607.6
|
|
|
$
|
2,475.8
|
|
|
$
|
5,767.2
|
|
|
$
|
390.4
|
|
|
$
|
11.9
|
|
|
$
|
21,252.9
|
|
The derivative contracts deemed to meet the definition of a guarantee under 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. The fair value of derivative contracts meeting the definition of a guarantee is approximately $181.3 million at November 30, 2020.
Berkadia. We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. At November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion.
HomeFed. For real estate development projects, HomeFed is generally required to obtain infrastructure improvement bonds at the beginning of construction work and warranty bonds upon completion of such improvements. These bonds are issued by surety companies to guarantee satisfactory completion of a project and provide funds primarily to a municipality in the event HomeFed is unable or unwilling to complete certain infrastructure improvements. As HomeFed develops the planned area and the municipality accepts the improvements, the bonds are released. Should the respective municipality or others draw on the bonds for any reason, certain of HomeFed's subsidiaries would be obligated to pay. At November 30, 2020, the aggregate amount of infrastructure improvement bonds outstanding was $82.0 million.
Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business, we provide guarantees to securities clearing houses 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 clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses 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. Additionally, we provide certain indemnifications in connection with third-party clearing and execution arrangements whereby a third-party may clear and settle transactions on behalf of our clients. These indemnifications generally have standard contractual terms and are entered into in the ordinary course of business. Our obligations in respect of such transactions are secured by the assets in our client's account, as well as any proceeds received from the transactions cleared and settled on behalf of our client. However, we believe that it is unlikely we would have to make any material payments under these arrangements and no material liabilities related to these indemnifications have been recognized.
Standby Letters of Credit. At November 30, 2020, we provided guarantees to certain counterparties in the form of standby letters of credit totaling of $22.0 million. Standby 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. Primarily all letters of credit expire within one year.
Note 23. Net Capital Requirements
Jefferies LLC operates as a broker-dealer registered with the U.S. Securities and Exchange Commission ("SEC") and a member firm of the Financial Industry Regulatory Authority ("FINRA"). Jefferies LLC is subject to the SEC Uniform Net Capital Rule ("Rule 15c3-1"), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant ("FCM"), is also subject to Rule 1.17 of the Commodity Futures Trading Commission ("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.
Jefferies LLC's net capital and excess net capital as of November 30, 2020 were $2,161.3 million and $2,060.5 million, respectively.
FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.
Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority in the United Kingdom.
The regulatory capital requirements referred to above may restrict our ability to withdraw capital from Jefferies Group's regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company.
Note 24. Other Fair Value Information
The carrying amounts and estimated fair values of our principal financial instruments that are not recognized at fair value on a recurring basis are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
Other Assets:
|
|
|
|
|
|
|
|
Notes and loans receivable (1)
|
$
|
727,492
|
|
|
$
|
744,424
|
|
|
$
|
775,501
|
|
|
$
|
784,053
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
Short-term borrowings (2)
|
759,648
|
|
|
759,648
|
|
|
548,490
|
|
|
548,490
|
|
Long-term debt (3)
|
6,639,794
|
|
|
7,495,642
|
|
|
7,121,776
|
|
|
7,569,837
|
|
(1)Notes and loans receivable: The fair values are estimated principally based on a discounted future cash flows model using market interest rates for similar instruments. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
(2)Short-term borrowings: The fair values of short-term borrowings carried at cost are estimated to be the carrying amount due to their short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
(3)Long-term debt: The fair values are estimated using quoted prices, pricing information obtained from external data providers and, for certain variable rate debt, is estimated to be the carrying amount. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 and Level 3 in the fair value hierarchy.
Note 25. Related Party Transactions
Jefferies Capital Partners Related Funds. Jefferies Group has equity investments in the JCP Manager and in private equity funds (including JCP Fund V), which are managed by a team led by our President and a Director ("Private Equity Related Funds"). Reflected in the Consolidated Statements of Financial Condition at November 30, 2020 and 2019 are Jefferies Group's equity investments in Private Equity Related Funds of $19.0 million and $23.0 million, respectively. Net gains (losses) from Jefferies Group's investment in JCP Fund V aggregating $(3.0) million, $(5.7) million and $12.1 million were recorded in Principal transactions revenues for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Gains (losses) for other funds were not material. For further information regarding our commitments and funded amounts to the Private Equity Related Funds, see Notes 8 and 22.
Berkadia Commercial Mortgage, LLC. At November 30, 2020 and 2019, Jefferies Group has commitments to purchase $401.0 million and $360.4 million, respectively, in agency commercial mortgage-backed securities from Berkadia.
HRG Group, Inc. ("HRG"). Jefferies Group recognized investment banking revenues of $3.0 million for the eleven months ended November 30, 2018 in connection with the merger of HRG into Spectrum Brands.
FXCM. Jefferies Group entered into a foreign exchange prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $2.7 million and $9.9 million at November 30, 2020 and 2019, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.
Officers, Directors and Employees. We had $38.9 million and $44.8 million of loans outstanding to certain officers and employees (none of whom are an executive officer or director of the Company) at November 30, 2020 and 2019, respectively. Receivables from and payables to customers include 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.
Jefferies Finance. During the twelve months ended November 30, 2019, we purchased $65.3 million of loan receivables from Jefferies Finance which settled during the twelve months ended November 30, 2020. See Note 9 for additional information on transactions with Jefferies Finance.
Sale of Property. On November 29, 2019, we sold a hotel and restaurant in Telluride, Colorado that we owned, to the Company's Chairman and certain of his family trusts in exchange for 780,315 shares of the Company's common stock, at a price of $21.03 per share.
Sale of Subsidiary. On November 3, 2020, we sold a wholly-owned subsidiary primarily invested in short-dated receivables that related to an asset management strategy to an investment fund managed by us for approximately $180.7 million. The gain on sale was not material.
Note 26. Discontinued Operations
On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. Immediately prior to the deconsolidation, the cumulative increase in fair value of $237.7 million recorded to the redeemable noncontrolling interest since the initial acquisition of National Beef was reversed through Additional paid-in capital in the Consolidated Statement of Financial Condition.
The sale of National Beef met the GAAP criteria to be classified as a discontinued operation as the sale represented a strategic shift that had a major effect in our operations and financial results. As such, we have classified the results of National Beef prior to June 5, 2018 as a discontinued operation and reported those results in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations.
A summary of the results of discontinued operations for National Beef for the period from January 1, 2018 through June 4, 2018 as included in discontinued operations for the eleven months ended November 30, 2018 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Beef processing services
|
|
|
|
$
|
3,137,611
|
|
Interest income
|
|
|
|
131
|
|
Other
|
|
|
|
4,329
|
|
Total revenues
|
|
|
|
3,142,071
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Compensation and benefits
|
|
|
|
17,414
|
|
Cost of sales
|
|
|
|
2,884,983
|
|
Interest expense
|
|
|
|
4,316
|
|
Depreciation and amortization
|
|
|
|
43,959
|
|
Selling, general and other expenses
|
|
|
|
14,291
|
|
Total expenses
|
|
|
|
2,964,963
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
|
177,108
|
|
Income tax provision
|
|
|
|
47,045
|
|
Income from discontinued operations, net of income tax provision
|
|
|
|
$
|
130,063
|
|
Net income attributable to the redeemable noncontrolling interests in the Consolidated Statements of Operations includes $37.1 million for the eleven months ended November 30, 2018 related to National Beef's noncontrolling interests. Pre-tax income from discontinued operations attributable to Jefferies Financial Group Inc. common shareholders was $140.0 million for the eleven months ended November 30, 2018.
As discussed above, we accounted for our retained 31% ownership of National Beef subsequent to the sale to Marfrig under the equity method. For the twelve months ended November 30, 2019 and the period from June 5, 2018 through November 30, 2018, we recorded $232.0 million and $110.0 million, respectively, in Income (loss) related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $349.2 million and $48.7 million, respectively. The pre-tax income of 100% National Beef for the period from December 1, 2018 through November 29, 2019 and the period from June 5, 2018 through November 30, 2018 was $773.7 million and $367.2 million, respectively. On November 29, 2019, we sold our remaining 31% interest in National Beef to Marfrig and other shareholders.
During the eleven months ended November 30, 2018, we have also recorded a pre-tax gain on the 2018 National Beef sale of $873.5 million ($643.9 million after-tax) which is reported in Gain on disposal of discontinued operations, net of income tax
provision in the Consolidated Statements of Operations. Included in the $873.5 million pre-tax gain on the sale of National Beef was approximately $352.4 million related to the revaluation of our retained 31% interest in National Beef to fair value. The $592.3 million fair value of our retained 31% interest in National Beef was based on the implied equity value of 100% of National Beef from the transaction with Marfrig and is considered a Level 3 input. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation.
Note 27. Segment Information
We are engaged in investment banking and capital markets, asset management and direct investing. During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter of 2020, we appointed co-Presidents of Asset Management and created a separate operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment. In order to compare results with prior periods, we have recast our segment results for the prior periods to conform to our current presentation.
The Investment Banking and Capital Markets segment includes investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance.
Our Asset Management segment includes both the operations of LAM as well as the asset management operations within Jefferies Group. Within Asset Management, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. Asset Management offers institutional clients an innovative range of investment strategies through its affiliated managers.
Merchant Banking consists of our various merchant banking businesses and investments, primarily including Linkem, Vitesse Energy Finance and JETX Energy, real estate, Idaho Timber, FXCM and WeWork. Merchant Banking businesses and investments also included National Beef, prior to its sale in November 2019, Spectrum Brands, prior to its distribution to shareholders in October 2019, Berkadia, prior to its transfer to Jefferies Group in the fourth quarter of 2018, and Garcadia, prior to its sale in August 2018.
As discussed further in Notes 1 and 26, on June 5, 2018, we sold 48% of National Beef to Marfrig and deconsolidated our investment in National Beef. Results prior to June 5, 2018 are classified in discontinued operations and are not included in the table below. On November 29, 2019 we sold our remaining 31% interest in National Beef to Marfrig and other shareholders. Our retained 31% interest in National Beef was accounted for under the equity method, and results subsequent to the June 5, 2018 closing through November 29, 2019 are included in Merchant Banking in the table below.
Corporate assets primarily consist of cash and cash equivalents. Corporate revenues primarily include interest income.
Certain information concerning our segments is presented in the following table. Consolidated subsidiaries are reflected as of the date a majority controlling interest was acquired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
(In thousands)
|
|
|
Net revenues:
|
|
|
|
|
|
Reportable Segments:
|
|
|
|
|
|
Investment Banking and Capital Markets
|
$
|
4,989,138
|
|
|
$
|
3,035,988
|
|
|
$
|
3,184,426
|
|
Asset Management
|
235,255
|
|
|
84,894
|
|
|
(14,280)
|
|
Merchant Banking
|
764,460
|
|
|
735,213
|
|
|
577,278
|
|
Corporate
|
13,258
|
|
|
32,833
|
|
|
22,300
|
|
Total net revenues related to reportable segments
|
6,002,111
|
|
|
3,888,928
|
|
|
3,769,724
|
|
|
|
|
|
|
|
Consolidation adjustments
|
8,763
|
|
|
4,048
|
|
|
(5,690)
|
|
Total consolidated net revenues
|
$
|
6,010,874
|
|
|
$
|
3,892,976
|
|
|
$
|
3,764,034
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes:
|
|
|
|
|
|
Reportable Segments:
|
|
|
|
|
|
Investment Banking and Capital Markets (1)
|
$
|
1,119,888
|
|
|
$
|
347,050
|
|
|
$
|
464,913
|
|
Asset Management
|
68,927
|
|
|
(41,126)
|
|
|
(133,729)
|
|
Merchant Banking (1)
|
(24,598)
|
|
|
289,492
|
|
|
88,971
|
|
Corporate
|
(55,619)
|
|
|
(68,467)
|
|
|
(66,140)
|
|
Income from continuing operations before income taxes related to reportable segments
|
1,108,598
|
|
|
526,949
|
|
|
354,015
|
|
|
|
|
|
|
|
Parent Company interest
|
(53,445)
|
|
|
(53,048)
|
|
|
(54,090)
|
|
Consolidation adjustments
|
11,930
|
|
|
4,707
|
|
|
(3,825)
|
|
Total consolidated income from continuing operations before income taxes
|
$
|
1,067,083
|
|
|
$
|
478,608
|
|
|
$
|
296,100
|
|
|
|
|
|
|
|
Depreciation and amortization expenses:
|
|
|
|
|
|
Reportable Segments:
|
|
|
|
|
|
Investment Banking and Capital Markets
|
$
|
82,334
|
|
|
$
|
77,549
|
|
|
$
|
67,467
|
|
Asset Management
|
5,247
|
|
|
2,042
|
|
|
1,324
|
|
Merchant Banking
|
67,362
|
|
|
69,805
|
|
|
48,357
|
|
Corporate
|
3,496
|
|
|
3,475
|
|
|
3,169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization expenses
|
$
|
158,439
|
|
|
$
|
152,871
|
|
|
$
|
120,317
|
|
|
|
|
|
|
|
|
November 30, 2020
|
|
November 30, 2019
|
|
November 30, 2018
|
Identifiable assets employed:
|
|
|
|
|
|
Reportable Segments:
|
|
|
|
|
|
Investment Banking and Capital Markets (2)
|
$
|
44,835,126
|
|
|
$
|
40,523,223
|
|
|
$
|
38,617,201
|
|
Asset Management
|
3,231,059
|
|
|
3,313,716
|
|
|
2,633,585
|
|
Merchant Banking
|
3,173,064
|
|
|
3,285,671
|
|
|
4,164,605
|
|
|
|
|
|
|
|
Corporate
|
2,178,699
|
|
|
2,432,119
|
|
|
1,838,037
|
|
Identifiable assets employed related to reportable segments
|
53,417,948
|
|
|
49,554,729
|
|
|
47,253,428
|
|
|
|
|
|
|
|
Consolidation adjustments
|
(299,596)
|
|
|
(94,495)
|
|
|
(122,333)
|
|
Total consolidated assets
|
$
|
53,118,352
|
|
|
$
|
49,460,234
|
|
|
$
|
47,131,095
|
|
(1)Amounts related to Berkadia are included in Merchant Banking prior to their transfer to the Investment Banking and Capital Markets segment in the fourth quarter of 2018. Income from continuing operations before income taxes related to the net assets transferred were $78.7 million for the eleven months ended November 30, 2018.
(2)Includes $235.7 million, $197.7 million and $243.2 million at November 30, 2020, 2019 and 2018, respectively, of the deferred tax asset, net.
Net revenues for the Investment Banking and Capital Markets segment and Asset Management segment are recorded in the geographic region in which the position was risk-managed, in the case of Investment Banking and Capital Markets in which the senior coverage banker is located, or for Asset Management, according to the location of the investment advisor. Net revenues by geographic region were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Americas (1)
|
$
|
4,871,313
|
|
|
$
|
3,188,353
|
|
|
$
|
3,231,522
|
|
Europe (2)
|
853,674
|
|
|
592,087
|
|
|
436,861
|
|
Asia Pacific
|
285,887
|
|
|
112,536
|
|
|
95,651
|
|
|
$
|
6,010,874
|
|
|
$
|
3,892,976
|
|
|
$
|
3,764,034
|
|
(1)Substantially all relates to U.S. results.
(2)Substantially all relates to United Kingdom results.
Interest expense classified as a component of Net revenues relates to Jefferies Group. For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, interest expense classified as a component of Expenses was primarily comprised of parent company interest ($53.4 million, $53.0 million and $54.1 million, respectively) and Merchant Banking ($31.4 million, $34.1 million and $26.2 million, respectively). Interest expense for the eleven months ended November 30, 2018 also includes $9.0 million related to the Asset Management segment.
As discussed above, during the fourth quarter of 2019, we sold our 31% equity interest in National Beef and recognized a pre-tax gain of $205.0 million for the twelve months ended November 30, 2019 in Other revenues. The gain on the sale is included within Merchant Banking above.
As discussed above, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family and recognized a pre-tax gain of $221.7 million for the eleven months ended November 30, 2018 in Other revenues. The gain on the sale is included within Merchant Banking above.
Note 28. Selected Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter (1)
|
|
Second
Quarter (2)
|
|
Third
Quarter (3)
|
|
Fourth
Quarter (4)
|
|
(In thousands, except per share amounts)
|
2020
|
|
|
|
|
|
|
|
Net revenues
|
$
|
1,386,328
|
|
|
$
|
1,147,589
|
|
|
$
|
1,616,170
|
|
|
$
|
1,860,787
|
|
Income from continuing operations
|
112,021
|
|
|
43,545
|
|
|
304,839
|
|
|
308,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to the noncontrolling interest
|
2,129
|
|
|
2,580
|
|
|
324
|
|
|
238
|
|
Net loss attributable to the redeemable noncontrolling interests
|
282
|
|
|
198
|
|
|
650
|
|
|
428
|
|
Preferred stock dividends
|
(1,422)
|
|
|
(1,404)
|
|
|
(1,404)
|
|
|
(1,404)
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders
|
113,010
|
|
|
44,919
|
|
|
304,409
|
|
|
307,267
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
0.37
|
|
|
$
|
0.16
|
|
|
$
|
1.08
|
|
|
$
|
1.12
|
|
Number of shares used in calculation
|
302,406
|
|
|
286,764
|
|
|
280,695
|
|
|
272,901
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
0.37
|
|
|
$
|
0.16
|
|
|
$
|
1.07
|
|
|
$
|
1.11
|
|
Number of shares used in calculation
|
308,280
|
|
|
286,764
|
|
|
285,136
|
|
|
277,342
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
Net revenues
|
$
|
828,443
|
|
|
$
|
1,101,657
|
|
|
$
|
856,778
|
|
|
$
|
1,106,098
|
|
Income from continuing operations
|
47,015
|
|
|
672,276
|
|
|
49,394
|
|
|
193,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to the noncontrolling interest
|
(1,066)
|
|
|
191
|
|
|
116
|
|
|
2,606
|
|
Net (income) loss attributable to the redeemable noncontrolling interests
|
138
|
|
|
(427)
|
|
|
242
|
|
|
333
|
|
Preferred stock dividends
|
(1,276)
|
|
|
(1,276)
|
|
|
(1,275)
|
|
|
(1,276)
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders
|
44,811
|
|
|
670,764
|
|
|
48,477
|
|
|
195,541
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
0.14
|
|
|
$
|
2.17
|
|
|
$
|
0.16
|
|
|
$
|
0.63
|
|
Number of shares used in calculation
|
315,175
|
|
|
307,010
|
|
|
310,288
|
|
|
310,266
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
0.14
|
|
|
$
|
2.14
|
|
|
$
|
0.15
|
|
|
$
|
0.62
|
|
Number of shares used in calculation
|
318,752
|
|
|
312,527
|
|
|
311,897
|
|
|
316,566
|
|
(1) The first quarter of 2020 includes a non-cash charge of $55.6 million to write off the value of HomeFed's RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market and a non-cash charge of $33.0 million to write down the value of our investment in JETX Energy to reflect the impact of oil price declines during the quarter. These decreases were partially offset by a gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within Merchant Banking.
The first quarter of 2019 includes $27.1 million of equity income related to National Beef and a mark-to-market increase of $36.0 million in the value of our investment in Spectrum Brands.
(2) The second quarter of 2020 includes a $44.2 million non-cash charge to write down the value of our investment in WeWork, a non-cash charge of $13.2 million to write down Vitesse Energy Finance's oil and gas assets in the DJ Basin, reflecting a significant decrease in oil and gas prices, $12.2 million in non-cash write-downs of HomeFed's interests in a hotel and a retail center significantly impacted by the external events of the second quarter and $19.3 million in mark-to-market unrealized decreases in the values of some of our investments in public companies.
The second quarter of 2019 includes a nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years and $34.9 million of equity income related to National Beef. These increases were partially offset by a $11.3 million mark-to-market decrease in the value of our investment in Spectrum Brands.
(3) The third quarter of 2020 includes record pre-tax income of $363.4 million from Jefferies Group, reflecting record quarterly total net revenues of $1,383.4 million, and $54.5 million in mark-to-market unrealized increases in the values of some of our investments in public companies.
The third quarter of 2019 includes a $72.1 million pre-tax gain related to the purchase of the remaining interest in HomeFed and $75.9 million of equity income related to National Beef. This increase was partially offset by a $146.0 million decrease in the estimated fair value of our investment in WeWork.
(4) The fourth quarter of 2020 includes record pre-tax income of $405.8 million from Jefferies Group, reflecting record quarterly total net revenues of $1,609.0 million, and $14.9 million in mark-to-market unrealized increases in the values of some of our investments in public companies.
The fourth quarter of 2019 includes a $205.0 million pre-tax gain on the sale of our 31% equity interest in National Beef and $94.1 million of equity income related to National Beef, prior to its sale. These increases were partially offset by a decrease in the estimated fair value of our investment in WeWork of $69.4 million.
In 2020 and 2019, the totals of quarterly per share amounts may not equal annual per share amounts because of changes in outstanding shares during the year.
Schedule I - Condensed Financial Information of Registrant
Jefferies Financial Group Inc.
(Parent Company Only)
Condensed Statements of Financial Condition
November 30, 2020 and 2019
(Dollars in thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
2020
|
|
2019
|
ASSETS
|
|
|
|
Cash and cash equivalents
|
$
|
723
|
|
|
$
|
3,553
|
|
Financial instruments owned, at fair value
|
132,959
|
|
|
207,162
|
|
Investments in subsidiaries
|
10,265,085
|
|
|
10,520,986
|
|
Advances to subsidiaries
|
151,202
|
|
|
137,549
|
|
Investments in associated companies
|
20,483
|
|
|
26,615
|
|
|
|
|
|
Other assets
|
86,381
|
|
|
77,546
|
|
Total assets
|
$
|
10,656,833
|
|
|
$
|
10,973,411
|
|
|
|
|
|
LIABILITIES
|
|
|
|
Accrued interest payable
|
$
|
6,629
|
|
|
$
|
6,629
|
|
Pension liabilities
|
37,972
|
|
|
46,561
|
|
Other payables, expense accruals and other liabilities
|
90,624
|
|
|
224,134
|
|
Advances from subsidiaries
|
4
|
|
|
4
|
|
Long-term debt
|
992,711
|
|
|
991,378
|
|
Total liabilities
|
1,127,940
|
|
|
1,268,706
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
Mandatorily redeemable convertible preferred shares
|
125,000
|
|
|
125,000
|
|
|
|
|
|
EQUITY
|
|
|
|
Common shares, par value $1 per share, authorized 600,000,000 shares; 249,750,542 and 291,644,153 shares issued and outstanding, after deducting 66,712,070 and 24,818,459 shares held in treasury
|
249,751
|
|
|
291,644
|
|
Additional paid-in capital
|
2,911,223
|
|
|
3,627,711
|
|
Accumulated other comprehensive income (loss)
|
(288,917)
|
|
|
(273,039)
|
|
Retained earnings
|
6,531,836
|
|
|
5,933,389
|
|
Total Jefferies Financial Group Inc. shareholders' equity
|
9,403,893
|
|
|
9,579,705
|
|
|
|
|
|
Total
|
$
|
10,656,833
|
|
|
$
|
10,973,411
|
|
See accompanying notes to condensed financial statements.
Schedule I - Condensed Financial Information of Registrant, continued
Jefferies Financial Group Inc.
(Parent Company Only)
Condensed Statements of Operations
For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Revenues:
|
|
|
|
|
|
Principal transactions
|
$
|
53,243
|
|
|
$
|
(246,101)
|
|
|
$
|
120,886
|
|
Gain on sale of equity interest in National Beef
|
—
|
|
|
205,017
|
|
|
—
|
|
Other
|
2,430
|
|
|
50,186
|
|
|
663
|
|
Total revenues
|
55,673
|
|
|
9,102
|
|
|
121,549
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Compensation and benefits
|
47,384
|
|
|
61,920
|
|
|
49,955
|
|
WilTel pension expense
|
2,822
|
|
|
2,594
|
|
|
2,659
|
|
Interest expense
|
53,445
|
|
|
53,048
|
|
|
54,090
|
|
Intercompany interest expense
|
—
|
|
|
—
|
|
|
3,642
|
|
Selling, general and other expenses
|
20,279
|
|
|
23,062
|
|
|
21,664
|
|
Total expenses
|
123,930
|
|
|
140,624
|
|
|
132,010
|
|
Loss from continuing operations before income taxes, income (loss) related to associated companies and equity in earnings of subsidiaries
|
(68,257)
|
|
|
(131,522)
|
|
|
(10,461)
|
|
Income (loss) related to associated companies
|
(4,325)
|
|
|
229,320
|
|
|
96,808
|
|
Income (loss) from continuing operations before income taxes and equity in earnings of subsidiaries
|
(72,582)
|
|
|
97,798
|
|
|
86,347
|
|
Income tax benefit
|
(16,290)
|
|
|
(523,310)
|
|
|
(5,281)
|
|
Income (loss) from continuing operations before equity in earnings of subsidiaries
|
(56,292)
|
|
|
621,108
|
|
|
91,628
|
|
Equity in earnings from continuing operations of subsidiaries, net of taxes
|
831,531
|
|
|
343,588
|
|
198,317
|
Income from continuing operations
|
775,239
|
|
|
964,696
|
|
|
289,945
|
|
Equity in earnings from discontinued operations of subsidiaries, net of taxes
|
—
|
|
|
—
|
|
|
92,922
|
|
Gain on disposal of discontinued operations, net of taxes
|
—
|
|
|
—
|
|
|
643,921
|
|
Net income
|
775,239
|
|
|
964,696
|
|
|
1,026,788
|
|
Preferred stock dividends
|
(5,634)
|
|
|
(5,103)
|
|
|
(4,470)
|
|
Net income attributable to Jefferies Financial Group Inc. common shareholders
|
$
|
769,605
|
|
|
$
|
959,593
|
|
|
$
|
1,022,318
|
|
|
|
|
|
|
|
Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
Income from continuing operations
|
$
|
2.68
|
|
|
$
|
3.07
|
|
|
$
|
0.82
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
0.27
|
|
Gain on disposal of discontinued operations
|
—
|
|
|
—
|
|
|
1.84
|
|
Net income
|
$
|
2.68
|
|
|
$
|
3.07
|
|
|
$
|
2.93
|
|
|
|
|
|
|
|
Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders:
|
|
|
|
|
|
Income from continuing operations
|
$
|
2.65
|
|
|
$
|
3.03
|
|
|
$
|
0.81
|
|
Income from discontinued operations
|
—
|
|
|
—
|
|
|
0.26
|
|
Gain on disposal of discontinued operations
|
—
|
|
|
—
|
|
|
1.83
|
|
Net income
|
$
|
2.65
|
|
|
$
|
3.03
|
|
|
$
|
2.90
|
|
See accompanying notes to condensed financial statements.
Schedule I - Condensed Financial Information of Registrant, continued
Jefferies Financial Group Inc.
(Parent Company Only)
Condensed Statements of Comprehensive Income (Loss)
For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
|
|
|
|
|
|
Net income
|
$
|
775,239
|
|
|
$
|
964,696
|
|
|
$
|
1,026,788
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $117, $165 and $(551)
|
372
|
|
|
487
|
|
|
(1,560)
|
|
Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $(545,054) and $37
|
—
|
|
|
(543,178)
|
|
|
(109)
|
|
Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $117, $545,219 and $(588)
|
372
|
|
|
(542,691)
|
|
|
(1,669)
|
|
|
|
|
|
|
|
Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $11,392, $1,146 and $(11,089)
|
35,991
|
|
|
544
|
|
|
(71,543)
|
|
Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0, $(52) and $(16)
|
—
|
|
|
149
|
|
|
(20,459)
|
|
Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $11,392, $1,198 and $(11,073)
|
35,991
|
|
|
693
|
|
|
(92,002)
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $(16,228), $(4,653) and $9,289
|
(51,865)
|
|
|
(13,588)
|
|
|
29,620
|
|
Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $146, $(144) and $311
|
(397)
|
|
|
427
|
|
|
(916)
|
|
Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $(16,374), $(4,509) and $8,978
|
(52,262)
|
|
|
(13,161)
|
|
|
28,704
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $0 and $552
|
—
|
|
|
—
|
|
|
1,608
|
|
Less: reclassification adjustment for cash flow hedges (gains) losses included in net income, net of income tax provision (benefit) of $0, $161 and $0
|
—
|
|
|
(470)
|
|
|
—
|
|
Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $(161) and $552
|
—
|
|
|
(470)
|
|
|
1,608
|
|
|
|
|
|
|
|
Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $(970), $(2,473) and $(297)
|
(2,851)
|
|
|
(7,103)
|
|
|
(844)
|
|
Less: reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(957), $(490) and $(697)
|
2,872
|
|
|
1,407
|
|
|
7,349
|
|
Net change in pension liability benefits, net of income tax provision (benefit) of $(13), $(1,983) and $400
|
21
|
|
|
(5,696)
|
|
|
6,505
|
|
|
|
|
|
|
|
Other comprehensive loss, net of income taxes
|
(15,878)
|
|
|
(561,325)
|
|
|
(56,854)
|
|
|
|
|
|
|
|
Comprehensive income
|
759,361
|
|
|
403,371
|
|
|
969,934
|
|
Preferred stock dividends
|
(5,634)
|
|
|
(5,103)
|
|
|
(4,470)
|
|
Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders
|
$
|
753,727
|
|
|
$
|
398,268
|
|
|
$
|
965,464
|
|
See accompanying notes to condensed financial statements.
Schedule I - Condensed Financial Information of Registrant, continued
Jefferies Financial Group Inc.
(Parent Company Only)
Condensed Statements of Cash Flows
For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Net cash flows from operating activities:
|
|
|
|
|
|
Net income
|
$
|
775,239
|
|
|
$
|
964,696
|
|
|
$
|
1,026,788
|
|
Adjustments to reconcile net income to net cash provided by operations:
|
|
|
|
|
|
Deferred income tax provision (benefit)
|
(1,787)
|
|
|
(12,953)
|
|
|
142,085
|
|
Recognition of accumulated other comprehensive income lodged taxes
|
—
|
|
|
(544,583)
|
|
|
—
|
|
Accretion of interest
|
1,151
|
|
|
1,088
|
|
|
944
|
|
Share-based compensation
|
40,038
|
|
|
49,848
|
|
|
48,249
|
|
Equity in earnings of subsidiaries, including equity in earnings of discontinued operations
|
(831,531)
|
|
|
(343,588)
|
|
|
(291,239)
|
|
Gain on disposal of discontinued operation
|
—
|
|
|
—
|
|
|
(873,474)
|
|
(Income) loss related to associated companies
|
4,325
|
|
|
(229,320)
|
|
|
(96,808)
|
|
Distributions from associated companies
|
1,359
|
|
|
319,142
|
|
|
24,711
|
|
Gains on sale/revaluation of associated companies
|
—
|
|
|
(254,875)
|
|
|
—
|
|
|
|
|
|
|
|
Net change in:
|
|
|
|
|
|
Financial instruments owned, at fair value
|
74,203
|
|
|
196,245
|
|
|
(120,886)
|
|
Other assets
|
(328)
|
|
|
376
|
|
|
129
|
|
Accrued interest payable
|
—
|
|
|
—
|
|
|
(4,818)
|
|
Pension liabilities
|
(5,865)
|
|
|
(5,062)
|
|
|
(5,231)
|
|
Other payables, expense accruals and other liabilities
|
(74,274)
|
|
|
(5,260)
|
|
|
(1,712)
|
|
Income taxes receivable/payable, net
|
65,057
|
|
|
94,510
|
|
|
242,637
|
|
Other
|
3,094
|
|
|
3,770
|
|
|
6,315
|
|
Net cash provided by operating activities
|
50,681
|
|
|
234,034
|
|
|
97,690
|
|
|
|
|
|
|
|
Net cash flows from investing activities:
|
|
|
|
|
|
Distributions (to) from subsidiaries, net
|
738,908
|
|
|
(388,739)
|
|
|
38,304
|
|
|
|
|
|
|
|
Proceeds from sale of subsidiary
|
180,664
|
|
|
—
|
|
|
—
|
|
Proceeds from sale of associated companies
|
—
|
|
|
790,612
|
|
|
—
|
|
Advances on loans receivables
|
(23,000)
|
|
|
—
|
|
|
—
|
|
Collections on loans receivables
|
23,000
|
|
|
—
|
|
|
—
|
|
Investments in associated companies
|
(1,237)
|
|
|
(51,622)
|
|
|
(1,228)
|
|
Capital distributions from associated companies
|
1,638
|
|
|
32,612
|
|
|
24,442
|
|
Purchases of investments (other than short-term)
|
—
|
|
|
—
|
|
|
(1,500)
|
|
Other
|
—
|
|
|
(948)
|
|
|
—
|
|
Net cash provided by investing activities - continuing operations
|
919,973
|
|
|
381,915
|
|
|
60,018
|
|
Net cash provided by investing activities - discontinued operations
|
—
|
|
|
—
|
|
|
1,158,655
|
|
Net cash provided by investing activities
|
919,973
|
|
|
381,915
|
|
|
1,218,673
|
|
|
|
|
|
|
|
Net cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Advances (to) from subsidiaries, net
|
3,293
|
|
|
(2,487)
|
|
|
(1,139)
|
|
Issuance of common shares
|
1,034
|
|
|
1,112
|
|
|
3,611
|
|
Purchase of common shares for treasury
|
(816,871)
|
|
|
(509,914)
|
|
|
(1,130,854)
|
|
Dividends paid
|
(160,940)
|
|
|
(149,647)
|
|
|
(151,758)
|
|
Net cash used for financing activities
|
(973,484)
|
|
|
(660,936)
|
|
|
(1,280,140)
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
(2,830)
|
|
|
(44,987)
|
|
|
36,223
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
3,553
|
|
|
48,540
|
|
|
12,317
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
723
|
|
|
$
|
3,553
|
|
|
$
|
48,540
|
|
See accompanying notes to condensed financial statements.
Schedule I - Condensed Financial Information of Registrant, continued
Jefferies Financial Group Inc.
(Parent Company Only)
Notes to Condensed Financial Statements
1. Introduction and Basis of Presentation
The notes to the consolidated financial statements of Jefferies Financial Group Inc. and Subsidiaries ("we," "our" or the "Company") are incorporated by reference into this schedule. For purposes of these condensed non-consolidated financial statements, the Company's wholly-owned and majority owned subsidiaries are accounted for using the equity method of accounting ("equity method subsidiaries").
The Parent Company Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The significant accounting policies of the Parent Company Financial Statements are those used by the Company on a consolidated basis, to the extent applicable. For further information regarding the significant accounting policies refer to Note 2, Significant Accounting Policies, in the Company's consolidated financial statements included in the 2020 10-K.
The Company has 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 GAAP. The most important of these estimates and assumptions relate to fair value measurements, 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.
2. Cash Flows
Supplemental cash flow information related to the Parent Company is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended November 30, 2020
|
|
Twelve Months Ended November 30, 2019
|
|
Eleven Months Ended November 30, 2018
|
Cash paid for:
|
|
|
|
|
|
Interest, net of amounts capitalized
|
$
|
52,112
|
|
|
$
|
51,786
|
|
|
$
|
57,813
|
|
Income tax payments (refunds), net
|
1,811
|
|
|
10,796
|
|
|
32,576
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
Investments contributed to subsidiary
|
$
|
51,190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Dividends received from subsidiaries
|
194,362
|
|
|
18,117
|
|
|
8,450,147
|
|
|
|
|
|
|
|
|
|
|
|
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In June 2019, we entered into a Membership Interest Purchase Agreement ("MIPA") which provided for each of the then owners of National Beef Packing Company, LLC ("National Beef") to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC ("Iowa Premium"). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in our Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity.
During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed LLC.
During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of all of our 7,514,477 shares of Spectrum Brands Holdings, Inc. through a special pro rata dividend to our stockholders.
During the twelve months ended November 30, 2019, the Parent Company had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months
ended November 30, 2018, the Parent Company had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018.
Cash, cash equivalents and restricted cash is included in Cash and cash equivalents in the Condensed Statements of Financial Condition.
3. Transactions with Subsidiaries
The Parent Company has transactions with its equity method subsidiaries, many of which were structured as interest bearing advances to/from its subsidiaries. Intercompany interest expense primarily reflected the interest on funding advances incurred by the Parent to its wholly-owned subsidiary which holds assets related to its treasury function. Interest was incurred on funding advances based on the prime rate plus .125%. Although there is frequent cash movement between these subsidiaries and the Parent, they do not generally represent cash dividends. The Parent Company received cash distributions from Jefferies Group of $498.7 million during the twelve months ended November 30, 2020, $311.1 million during the twelve months ended November 30, 2019 and $248.7 million during the eleven months ended November 30, 2018.
Historically, excess cash was provided to the Parent Company by its subsidiaries in the form of loans rather than as distributions. Through a series of steps, the Parent Company has reduced these intercompany loans. During the eleven months ended November 30, 2018, the Parent Company received non-cash dividends totaling $8.5 billion from its subsidiaries.
4. Commitments, Contingencies and Guarantees
In the normal course of its business, the Parent Company has various commitments, contingencies and guarantees as described in Note 22, Commitments, Contingencies and Guarantees, and Note 14, Mezzanine Equity, in the Company's consolidated financial statements.
In connection with the 2018 transfers of the Company's Leucadia Asset Management seed investments, as well as its interest in Berkadia Commercial Mortgage Holding LLC, to Jefferies Group, related deferred tax liabilities of approximately $50.9 million were transferred to Jefferies Group, for which the Parent Company indemnified Jefferies Group. These transferred deferred tax liabilities were adjusted by an additional $19.1 million during the fourth quarter of 2019. At November 30, 2020 and 2019, $31.8 million and $51.7 million, respectively, related to such indemnification is reflected in Other payables, expense accruals and other liabilities in the Condensed Statements of Financial Condition.
5. Restricted Net Assets
For a discussion of the Company's regulatory requirements, see Note 23, Net Capital Requirements, in the Company's consolidated financial statements. Some of the Company's consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the Parent Company.
At November 30, 2020 and 2019, $6.5 billion and $5.7 billion, respectively, of net assets of the Parent Company's consolidated subsidiaries are restricted as to the payment of cash dividends, or the ability to make loans or advances to the Parent Company. At November 30, 2020 and 2019, $5.7 billion and $4.9 billion, respectively, of these net assets are restricted as they reflect regulatory capital requirements or require regulatory approval prior to the payment of cash dividends and advances to the Parent Company.
Included in retained earnings of the Parent Company at November 30, 2020 are $161.0 million of undistributed earnings of unconsolidated associated companies. For further information, see Note 9, Loans to and Investments in Associated Companies, in the Company's consolidated financial statements.