Jefferies Group, Inc. : Jefferies Reports Second Quarter 2012 Financial Results
06/19/2012| 08:10am US/Eastern
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Jefferies Group, Inc. (NYSE: JEF) today announced financial results for
its fiscal second quarter and first half ended May 31, 2012.
Highlights for the three months ended May 31, 2012, versus the three
months ended May 31, 2011:
Net revenues of $711 million, versus $727 million
Net earnings to common shareholders of $63 million ($72 million on a
non-GAAP basis after excluding certain items[1]), versus
$81 million
Net earnings per common share of $0.28 ($0.31 on a non-GAAP basis
after excluding certain items1), versus $0.36
Investment Banking net revenues of $297 million, versus $328 million
Fixed Income net revenues of $293 million, versus $223 million
Highlights for the six months ended May 31, 2012 versus the six months
ended May 31, 2011:
Net revenues of $1,491 million, versus $1,486 million
Net earnings to common shareholders of $141 million ($148 million on a
non-GAAP basis after excluding certain items1), versus $168
million
Net earnings per common share of $0.61 ($0.64 on a non-GAAP basis
after excluding certain items1), versus $0.78
Investment Banking net revenues of $583 million, versus $567 million
Fixed Income net revenues of $632 million, versus $541 million
"Our results reflect our continued strength in investment banking and
the durability of our sales and trading platform despite the challenging
market environment that again evolved during the quarter," commented
Richard B. Handler, Chairman and Chief Executive Officer of Jefferies.
"We believe Jefferies is unique today in our intense focus on offering
an integrated, global capital markets platform to our clients and an
entrepreneurial culture to our employee-partners."
A conference call with management discussion of these financial results
will be held today, Tuesday, June 19, 2012, at 9:00 AM Eastern.
Investors and securities industry professionals may access the
management discussion by calling 877-710-9938 or 702-928-7183. A
one-week replay of the call will also be available at 855-859-2056 or
404-537-3406 (conference ID # 84086805). A live audio webcast and
delayed replay can also be accessed at Jefferies.com.
Jefferies Group, Inc. (NYSE: JEF), the global investment banking firm
focused on serving clients for 50 years, is a leader in providing
insight, expertise and execution to investors, companies and
governments. The firm provides a full range of investment banking,
sales, trading, research and strategy across the spectrum of equities,
fixed income, foreign exchange, futures and commodities, and also select
asset and wealth management strategies, in the Americas, Europe and Asia.
[1] Adjustments to net earnings to common shareholders and
net earnings per common share for certain non-GAAP items include
amortization of intangibles, and compensation awards and impairment
charges on intangibles related to our Bache and Hoare Govett
acquisitions and interest expense incurred as a result of debt
extinguishment accounting from prior quarters, all on an after-tax basis.
-- financial tables follow --
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended
Six Months Ended
May 31, 2012
May 31, 2011
May 31, 2012
May 31, 2011
Revenues:
Commissions
$
121,796
$
129,291
$
239,295
$
249,212
Principal transactions
215,962
175,316
496,797
465,468
Investment banking
296,963
328,421
582,758
567,480
Asset management fees and investment income from managed funds
1,898
10,547
7,532
34,415
Interest
271,602
304,425
546,310
577,641
Other
37,851
22,117
80,191
42,578
Total revenues
946,072
970,117
1,952,883
1,936,794
Interest expense
235,041
242,952
461,886
451,246
Net revenues
711,031
727,165
1,490,997
1,485,548
Interest on mandatorily redeemable referred interest of consolidated
subsidiaries
4,456
4,415
26,300
20,854
Net revenues, less mandatorily redeemable preferred interest
706,575
722,750
1,464,697
1,464,694
Non-interest expenses:
Compensation and benefits
423,541
431,936
870,003
874,828
Floor brokerage and clearing fees
32,921
31,384
60,759
59,517
Technology and communications
60,329
49,850
121,779
93,525
Occupancy and equipment rental
24,940
20,437
47,505
38,416
Business development
22,379
22,457
44,626
42,395
Professional services
17,296
16,099
30,989
29,375
Other
18,587
20,103
33,585
33,223
Total non-interest expenses
599,993
592,266
1,209,246
1,171,279
Earnings before income taxes
106,582
130,484
255,451
293,415
Income tax expense
38,203
45,784
90,355
106,670
Net earnings
68,379
84,700
165,096
186,745
Net earnings to noncontrolling interests
4,881
4,084
24,462
18,788
Net earnings to common shareholders
$
63,498
$
80,616
$
140,634
$
167,957
Earnings per common share:
Basic
$
0.28
$
0.36
$
0.61
$
0.78
Diluted
$
0.28
$
0.36
$
0.61
$
0.78
Weighted average common shares:
Basic
216,597
210,751
217,384
205,054
Diluted
220,711
214,870
221,497
209,172
Effective tax rate
35.8%
35.1%
35.4%
36.4%
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
Quarter Ended
May 31, 2012
February 29, 2012
May 31, 2011
Statement of Earnings
Net revenues, less mandatorily redeemable referred interest
$
706,575
$
758,122
$
722,750
Non-interest expenses:
Compensation and benefits
423,541
446,462
431,936
Non-compensation expenses
176,452
162,791
160,330
Earnings before income taxes
106,582
148,869
130,484
Income tax expense
38,203
52,152
45,784
Net earnings
68,379
96,717
84,700
Net earnings to noncontrolling interests
4,881
19,581
4,084
Net earnings to common shareholders
$
63,498
$
77,136
$
80,616
Diluted earnings per common share
$
0.28
$
0.33
$
0.36
Financial Ratios
Pretax operating margin
15%
20%
18%
Compensation and benefits / Net revenues
60%
57%
59%
Effective tax rate
35.8%
35.0%
35.1%
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SELECTED STATISTICAL INFORMATION
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
Quarter Ended
May 31, 2012
February 29, 2012
May 31, 2011
Revenues by Source
Equities
$
119,570
$
136,215
$
165,076
Fixed Income
292,600
339,147
223,121
Other
-
13,175
-
Total
412,170
488,537
388,197
Equity
55,623
46,187
52,039
Debt
132,429
89,695
131,806
Capital markets
188,052
135,882
183,845
Advisory
108,911
149,913
144,576
Investment banking
296,963
285,795
328,421
Asset management fees and investment income / (loss) from
managed funds:
Asset management fees
7,979
11,888
5,019
Investment (loss) / income from managed funds
(6,081)
(6,254)
5,528
Total
1,898
5,634
10,547
Net revenues
711,031
779,966
727,165
Interest on mandatorily redeemable preferred interest of consolidated
subsidiaries
4,456
21,844
4,415
Net revenues, less mandatorily redeemable preferred
interest
$
706,575
$
758,122
$
722,750
Other Data
Number of trading days
64
61
64
Full time employees (end of quarter)
3,809
3,851
3,222
Common shares outstanding
203,989
205,819
202,154
Weighted average common shares:
Basic
216,597
218,049
210,751
Diluted
220,711
222,162
214,870
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMMON SHARES OUTSTANDING AND COMMON SHARES FOR BASIC AND DILUTED
EPS CALCULATIONS
(Amounts in Thousands)
(Unaudited)
May 31, 2012
Common shares outstanding
203,989
Outstanding restricted stock units
22,470
Adjusted shares outstanding
226,459
Note - All share
information below for EPS purposes is based upon weighted-average
balances for the applicable period.
Shares outstanding represents shares issued less shares repurchased
in treasury stock. Shares issued includes public and private
offerings, earned and unearned restricted stock, distributions
related to restricted stock units, deferred compensation plans, and
employee stock purchase plan and stock option exercises. Shares
issued does not include undistributed earned and unearned restricted
stock units.
(2)
As certain restricted stock is contingent upon a future service
condition, unearned shares are removed from shares outstanding in
the calculation of basic EPS as Jefferies' obligation to issue these
shares remains contingent.
(3)
As earned restricted stock units are no longer contingent upon a
future service condition and are issuable upon a certain date in the
future, earned restricted stock units are added to shares
outstanding in the calculation of basic EPS.
(4)
Other shares issuable include shares issuable to settle previously
granted restricted stock awards and shares issuable under certain
deferred compensation plans.
(5)
Calculated under the treasury stock method. The treasury stock
method assumes the issuance of only a net incremental number of
shares as proceeds from issuance are assumed to be used to
repurchase shares at the average stock price for the period.
(6)
Calculated under the if-converted method. The if-converted method
assumes the conversion of convertible securities at the beginning of
the period.
(7)
Represents the potential common shares issuable under the conversion
spread (the excess conversion value over the accreted debt value)
based on the average stock price for the period.
JEFFERIES GROUP, INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
Quarter Ended
May 31, 2012
February 29, 2012
May 31, 2011
Results:
Net earnings to common shareholders
$
63,498
$
77,136
$
80,616
Basic EPS (1)
$
0.28
$
0.33
$
0.36
Diluted EPS (1)
$
0.28
$
0.33
$
0.36
Effective tax rate
35.8%
35.0%
35.1%
Common share data:
Common shares outstanding
203,989
205,819
202,154
Adjusted shares outstanding (2)
226,459
228,382
227,720
Share issued during quarter
619
11,864
25,376
Shares purchased during the quarter
2,201
3,160
158
Financial position:
Total assets (in millions) (3)
$
35,717
$
34,564
$
40,967
Average total assets for quarter (in millions) (3)
$
43,849
$
42,158
$
47,207
Cash and cash equivalents (in millions)
$
2,358
$
2,589
$
2,499
Financial instruments owned (in millions) (3)
$
15,018
$
14,101
$
17,768
Total common stockholders' equity (in millions)
$
3,310
$
3,288
$
3,165
Adjusted common stockholders' equity (in millions) (4)
$
3,475
$
3,473
$
3,347
Common book value per share (5)
$
16.23
$
15.97
$
15.66
Adjusted book value per share (6)
$
15.35
$
15.21
$
14.70
Tangible common book value per share (7)
$
14.36
$
14.10
$
13.83
Adjusted tangible book value per share (6)
$
13.66
$
13.52
$
13.07
Level 3 financial instruments:
Level 3 financial instruments owned (in millions) (3) (8)
$
487
$
490
$
725
Level 3 financial instruments owned with economic exposure (in
millions) (3)(9)
$
446
$
435
$
533
Level 3 financial instruments owned - % total assets (3)
Level 3 financial instruments owned with economic exposure - % total
financial instruments owned (3)
3.0%
3.1%
3.0%
Level 3 financial instruments owned with economic exposure - %
common stockholders' equity (3)
13.5%
13.2%
16.8%
Other data and financial ratios:
Total capital (in millions) (10)
$
8,541
$
8,320
$
8,223
Leverage ratio (3) (11)
9.8
9.5
11.7
Adjusted leverage ratio (3) (12)
9.1
8.9
12.5
Average firmwide VaR (in millions) (13)
$
8.83
$
9.90
$
12.96
Number of employees, at quarter end
3,809
3,851
3,222
Footnotes
(1)
The following details the calculation of basic and diluted earnings
per share as included in our quarterly and annual reports.
Quarter Ended
May 31, 2012
February 29, 2012
May 31, 2011
Earnings for basic earnings per common share:
Net earnings
$ 68,379
$ 96,717
$ 84,700
Net earnings to noncontrolling interests
4,881
19,581
4,084
Net earnings to common shareholders
63,498
77,136
80,616
Less: Allocation of earnings to participating securities (A)
3,740
4,643
3,756
Net earnings available to common shareholders
$ 59,758
$ 72,493
$ 76,860
Earnings for diluted earnings per common share:
Net earnings
$ 68,379
$ 96,717
$ 84,700
Net earnings to noncontrolling interests
4,881
19,581
4,084
Net earnings to common shareholders
63,498
77,136
80,616
Add: Convertible preferred stock dividends
1,016
1,016
1,016
Less: Allocation of earnings to participating securities (A)
3,751
4,639
3,748
Net earnings available to common shareholders
$ 60,763
$ 73,513
$ 77,884
Weighted Average Common Shares:
Basic
216,597
218,049
210,751
Diluted
220,711
222,162
214,870
Earnings per common share:
Basic
$ 0.28
$ 0.33
$ 0.36
Diluted
$ 0.28
$ 0.33
$ 0.36
(A) Represents dividends declared during the period on participating
securities plus an allocation of undistributed earnings to
participating securities. Losses are not allocated to participating
securities. Participating securities represent restricted stock and
restricted stock units for which requisite service has not yet been
rendered and amounted to weighted average shares of 13,208,000,
14,198,000, and 10,260,000 for the three months ended May 31, 2012,
February 29, 2012 and May 31, 2011, respectively. Dividends declared
on participating securities during the three months ended May 31,
2012, February 29, 2012 and May 31, 2011 amounted to approximately
$1,106,000, $959,000 and $794,000, respectively. Undistributed
earnings are allocated to participating securities based upon their
right to share in earnings if all earnings for the period had been
distributed.
(2)
Adjusted shares outstanding equals common shares outstanding plus
outstanding restricted stock units.
(3)
This amount represents a preliminary estimate as of the date of this
earnings release and may be revised in our Quarterly Report on Form
10-Q for the period ended May 31, 2012.
(4)
Adjusted common stockholders' equity (non-GAAP financial measure)
represents total common stockholders' equity plus the unrecognized
compensation cost related to nonvested share based awards, i.e.
granted restricted stock and restricted stock units which contain
future service requirements. As of May 31, 2012, unrecognized
compensation cost related to nonvested share based awards was $165.0
million. We believe that adjusted common stockholders' equity is a
meaningful measure as it reflects the current capital outstanding to
stockholders, including employee common shareholders, that would be
required to be paid out in liquidation.
(5)
Common book value per share equals total common stockholders' equity
divided by common shares outstanding.
(6)
Adjusted book value per share (non-GAAP financial measure) equals
adjusted common stockholders' equity divided by adjusted shares
outstanding. Adjusted tangible book value per share (non-GAAP
financial measure) equals adjusted common stockholders' equity less
goodwill and identifiable intangible assets divided by adjusted
common shares outstanding. As of May 31, 2012, goodwill and
identifiable intangible assets equals $381.1 million. We believe
these are meaningful measures as investors often incorporate the
dilutive effects of outstanding capital in their valuations.
(7)
Tangible common book value per share (non-GAAP financial measure)
equals tangible common stockholders' equity divided by common shares
outstanding. As of May 31, 2012, tangible common stockholders'
equity equals total common stockholders' equity of $3,310.2 million
less goodwill and identifiable intangible assets of $381.1 million.
We believe that tangible common book value per share and
tangible common stockholders' equity is meaningful as a valuation of
financial companies are often measured as a multiple of tangible
common stockholders' equity making these ratios meaningful for
investors.
(8)
Level 3 financial instruments represent those financial instruments
classified as such under ASC 820, accounted for at fair value and
included within Financial instruments owned. Level 3 financial
instruments for which we bear no economic exposure were$40.5
million at May 31, 2012, which is reflective of the portion of our
Level 3 financial instruments that are financed by nonrecourse
secured financing or attributable to third party or employee
noncontrolling interests in certain consolidated entities.
(9)
Level 3 financial instruments owned with economic exposure
represents Level 3 financial instruments owned adjusted for Level 3
assets that are financed by nonrecourse secured financing or
attributable to third party or employee noncontrolling interests in
certain consolidated entities.
(10)
Total capital includes our long-term debt, mandatorily redeemable
convertible preferred stock, mandatorily redeemable preferred
interest of consolidated subsidiaries and total stockholders'
equity. Long-term debt included in total capitalization at May 31,
2012 is reduced by the amount of debt maturing in less than one year
and revolving credit facility.
(11)
Leverage ratio equals total assets divided by total stockholders'
equity.
(12)
Adjusted leverage ratio (non-GAAP financial measure) equals adjusted
assets divided by tangible stockholders' equity. Adjusted assets
(non-GAAP financial measure) equals total assets less securities
borrowed, securities purchased under agreements to resell, cash and
securities segregated, goodwill and identifiable intangibles plus
financial instruments sold, not yet purchased (net of derivative
liabilities). As of May 31, 2012, adjusted assets were $29,722.3
million. We believe that adjusted assets is a meaningful
measure as it excludes certain assets that are considered of lower
risk as they are generally self-financed by customer liabilities
through our securities lending activities.
(13)
VaR is the potential loss in value of our trading positions due to
adverse market movements over a one-day time horizon with a 95%
confidence level. For a further discussion of the calculation of
VaR, see "Value at Risk" in Part II, Item 7 "Management's Discussion
and Analysis" in our Annual Report on Form 10-K for the year ended
November 30, 2011.
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION
(Amounts in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended May 31, 2012
Amortization of Debt Discount, Impairment
Charge and Certain Acquisition Items
Three Months Ended May 31, 2012 (Excluding Amortization
of Debt Discount, Impairment Charge and
Certain Acquisition Items)
Six Months Ended May 31, 2012
Debt Accounting Gain and Amortization of Debt
Discount, Impairment Charge and Certain Acquisition
Items
Six Months Ended May 31, 2012 (Excluding Debt Accounting
Gain and Amortization of Debt Discount,
Impairment Charge and Certain Acquisition
Items)
Net revenues
$ 711,031
$ (1,201)
(A)
$ 712,232
$ 1,490,997
$ 10,884
(F)
$ 1,480,113
Compensation and benefits
423,541
9,214
(B)
$ 414,327
870,003
19,564
(G)
850,439
Noncompensation expenses
176,452
3,581
(C)
$ 172,871
339,243
4,282
(C)
334,961
Total non-interest expenses
599,993
12,795
587,198
1,209,246
23,846
1,185,400
Earnings before income taxes
106,582
(13,996)
120,578
255,451
(12,962)
268,413
Income tax expense (benefit)
38,203
(5,650)
(D)
43,853
90,355
(5,483)
95,838
Net earnings
68,379
(8,346)
76,725
165,096
(7,479)
172,575
Net earnings to common shareholders
$ 63,498
$ (8,346)
$ 71,844
$ 140,634
$ (7,479)
$ 148,113
Earnings per common share:
Basic
$ 0.28
$ (0.04)
$ 0.31
$ 0.61
$ (0.04)
$ 0.64
Diluted
$ 0.28
$ (0.04)
(E)
$ 0.31
$ 0.61
$ (0.04)
(E)
$ 0.64
Weighted average common shares:
Basic
216,597
216,597
216,597
217,384
217,384
217,384
Diluted
220,711
216,601
220,711
221,497
217,387
221,497
Compensation and benefits/Net revenues
59.6%
58.2%
58.4%
57.5%
Effective tax rate
35.8%
36.4%
35.4%
35.7%
The selected financial information for the three and six months ended
May 31, 2012 excluding the effects of purchases and sales of our debt in
November and December 2011, certain items identified and recognized in
connection with the acquisition of Hoare Govett from The Royal Bank of
Scotland Group plc on February 1, 2012 and the acquisition of the Global
Commodities Group (the "Bache entities") from Prudential Financial, Inc.
("Prudential") on July 1, 2011 and the impairment of certain intangible
assets are non-GAAP financial measures. We believe this presentation
provides meaningful information to shareholders as it provides
comparability of our results of operations for the three and six months
ended May 31, 2012 with the results for periods ended May 31, 2011.
FOOTNOTES TO SELECTED FINANCIAL INFORMATION
(A)
Net revenues in the second quarter of 2012 include additional
interest expense of $1.2 million from the amortization of discounts
on long-term debt reissued in November and December 2011 in
connection with trading activities in our debt.
(B)
Compensation expense for the three months ended May 31, 2012
includes expense related to the amortization of retention and stock
replacement awards granted in connection with the acquisition of the
Bache entities and Hoare Govett.
(C)
Reflects an impairment charge of $2.9 million on indefinite-lived
intangible assets and amortization of intangible assets recognized
in connection with the acquisitions of Hoare Govett and the Bache
entities.
(D)
Reflects the tax benefit on the additional interest expense, Hoare
Govett and Bache related expense items and the impairment charge at
a domestic and foreign marginal tax rate of 41.5% and 25.3%,
respectively.
(E)
The conversion of our mandatorily redeemable convertible preferred
stock was considered anti-dilutive for purposes of these
calculations.
(F)
Includes a gain on debt extinguishment of $9.9 million relating to
trading activities in our own debt and a bargain purchase gain of
$3.4 million resulting from the acquisition of Hoare Govett recorded
in Other revenues, partially offset by additional interest expense
of $2.4 million from subsequent amortization of debt discounts upon
reissuance of our long-term debt.
(G)
Includes compensation expense related to the amortization of
retention and stock replacement awards granted in connection with
the acquisition of the Bache entities and Hoare Govett and bonus
costs for employees as a result of the completion of the Hoare
Govett acquisition.
Jefferies Group, Inc. Peregrine C. Broadbent, (212)-284-2338 Chief
Financial Officer
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