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SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 95-4719745 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
520 Madison Avenue, 10th Floor, New York, New York | 10022 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filerþ | Accelerated filero | Non-accelerated filero | Smaller reporting companyo | |||
(Do not check if a smaller reporting company) |
INDEX TO QUARTERLY REPORT ON FORM 10-Q
AUGUST 31, 2010
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August 31, | December 31, | |||||||
2010 (1) | 2009 | |||||||
ASSETS | ||||||||
Cash and cash equivalents (including $249,772 from VIEs) | $ | 2,089,940 | $ | 1,853,167 | ||||
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | 1,337,949 | 1,089,803 | ||||||
Financial instruments owned, at fair value, including securities pledged of $10,650,264 and $5,623,345 in 2010 and 2009, respectively: | ||||||||
Corporate equity securities (including $118,042 from VIEs) | 1,670,545 | 1,500,042 | ||||||
Corporate debt securities (including $477,357 from VIEs) | 3,495,590 | 2,412,134 | ||||||
Government, federal agency and other sovereign obligations | 3,892,319 | 1,762,643 | ||||||
Mortgage- and asset-backed securities (including $44,777 from VIEs) | 4,676,293 | 3,089,435 | ||||||
Loans and other receivables (including $203,687 from VIEs) | 292,839 | 591,208 | ||||||
Derivatives (including $3,389 from VIEs) | 64,330 | 62,117 | ||||||
Investments, at fair value (including $15,725 from VIEs) | 79,356 | 70,156 | ||||||
Total financial instruments owned, at fair value (including $862,977 from VIEs) | 14,171,272 | 9,487,735 | ||||||
Investments in managed funds | 125,446 | 115,774 | ||||||
Other investments | 170,861 | 193,628 | ||||||
Securities borrowed | 6,767,967 | 8,237,998 | ||||||
Securities purchased under agreements to resell | 3,185,288 | 3,515,247 | ||||||
Securities received as collateral | 108,344 | 68,494 | ||||||
Receivables: | ||||||||
Brokers, dealers and clearing organizations (including $249,858 from VIEs) | 1,252,668 | 1,504,480 | ||||||
Customers (including $23 from VIEs) | 1,223,784 | 1,020,480 | ||||||
Fees, interest and other | 100,301 | 108,749 | ||||||
Premises and equipment | 141,236 | 140,132 | ||||||
Goodwill | 364,390 | 364,795 | ||||||
Other assets (including $1,714 from VIEs) | 596,384 | 488,789 | ||||||
Total assets (including $1,364,344 from VIEs) | $ | 31,635,830 | $ | 28,189,271 | ||||
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August 31, | December 31, | |||||||
2010 (1) | 2009 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Financial instruments sold, not yet purchased, at fair value: | ||||||||
Corporate equity securities (including $56,078 from VIEs) | $ | 1,513,716 | $ | 1,360,528 | ||||
Corporate debt securities (including $447,169 from VIEs) | 2,383,054 | 1,909,781 | ||||||
Government, federal agency and other sovereign obligations | 3,590,232 | 1,735,861 | ||||||
Mortgage- and asset-backed securities | 29,292 | 21,474 | ||||||
Loans (including $231,718 from VIEs) | 244,199 | 363,080 | ||||||
Derivatives | 57,414 | 18,427 | ||||||
Total financial instruments sold, not yet purchased, at fair value (including $734,965 from VIEs) | 7,817,907 | 5,409,151 | ||||||
Securities loaned (including $75,000 from VIEs) | 2,004,014 | 3,592,836 | ||||||
Securities sold under agreements to repurchase | 9,596,298 | 8,239,117 | ||||||
Obligation to return securities received as collateral | 108,344 | 68,494 | ||||||
Payables: | ||||||||
Brokers, dealers and clearing organizations (including $120,057 from VIEs) | 1,675,371 | 889,687 | ||||||
Customers | 3,172,435 | 3,246,485 | ||||||
Accrued expenses and other liabilities (including $1,596 from VIEs) | 903,253 | 941,210 | ||||||
Long-term debt | 3,278,102 | 2,729,117 | ||||||
Mandatorily redeemable convertible preferred stock | 125,000 | 125,000 | ||||||
Mandatorily redeemable preferred interest of consolidated subsidiaries (including $300,944 from VIEs) | 300,944 | 318,047 | ||||||
Total liabilities (including $1,232,562 from VIEs) | 28,981,668 | 25,559,144 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $.0001 par value. Authorized 500,000,000 shares; issued 198,413,425 shares in 2010 and 187,855,347 shares in 2009 | 20 | 19 | ||||||
Additional paid-in capital | 2,084,740 | 2,036,087 | ||||||
Retained earnings | 817,178 | 698,488 | ||||||
Less: | ||||||||
Treasury stock, at cost, 27,172,616 shares in 2010 and 22,217,793 shares in 2009 | (506,432 | ) | (384,379 | ) | ||||
Accumulated other comprehensive loss: | ||||||||
Currency translation adjustments | (47,971 | ) | (34,369 | ) | ||||
Additional minimum pension liability | (7,257 | ) | (7,257 | ) | ||||
Total accumulated other comprehensive loss | (55,228 | ) | (41,626 | ) | ||||
Total common stockholders’ equity | 2,340,278 | 2,308,589 | ||||||
Noncontrolling interests | 313,884 | 321,538 | ||||||
Total stockholders’ equity | 2,654,162 | 2,630,127 | ||||||
Total liabilities and stockholders’ equity | $ | 31,635,830 | $ | 28,189,271 | ||||
(1) | Upon adoption of accounting changes described in ASC 810 effective January 1, 2010, we are required to separately identify the amounts included in our assets and liabilities that are attributed to consolidated variable interest entities (“VIEs”). We have chosen to present these amounts parenthetically in the financial statement line item for assets and liabilities at August 31, 2010. No comparative separate identification has been provided for assets and liabilities of consolidated VIEs at December 31, 2009. |
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Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: | ||||||||||||||||
Commissions | $ | 118,571 | $ | 127,800 | $ | 347,527 | $ | 395,085 | ||||||||
Principal transactions | 74,282 | 338,552 | 324,037 | 711,165 | ||||||||||||
Investment banking | 246,193 | 122,529 | 598,450 | 280,446 | ||||||||||||
Asset management fees and investment income from managed funds | 786 | 20,966 | 11,804 | 21,485 | ||||||||||||
Interest | 152,546 | 161,091 | 430,902 | 413,777 | ||||||||||||
Other | 16,879 | 6,239 | 44,241 | 28,699 | ||||||||||||
Total revenues | 609,257 | 777,177 | 1,756,961 | 1,850,657 | ||||||||||||
Interest expense | 89,159 | 76,756 | 237,493 | 218,086 | ||||||||||||
Net revenues | 520,098 | 700,421 | 1,519,468 | 1,632,571 | ||||||||||||
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries | (2,537 | ) | 23,596 | (26 | ) | 30,620 | ||||||||||
Net revenues, less mandatorily redeemable preferred interest | 522,635 | 676,825 | 1,519,494 | 1,601,951 | ||||||||||||
Non-interest expenses: | ||||||||||||||||
Compensation and benefits | 308,797 | 395,031 | 877,204 | 956,619 | ||||||||||||
Floor brokerage and clearing fees | 30,244 | 20,677 | 84,702 | 54,007 | ||||||||||||
Technology and communications | 46,135 | 36,141 | 114,189 | 104,508 | ||||||||||||
Occupancy and equipment rental | 18,433 | 18,121 | 49,448 | 52,168 | ||||||||||||
Business development | 17,420 | 10,293 | 42,405 | 29,273 | ||||||||||||
Professional services | 13,008 | 8,874 | 34,702 | 29,883 | ||||||||||||
Other | 9,404 | 12,658 | 37,224 | 28,953 | ||||||||||||
Total non-interest expenses | 443,441 | 501,795 | 1,239,874 | 1,255,411 | ||||||||||||
Earnings before income taxes | 79,194 | 175,030 | 279,620 | 346,540 | ||||||||||||
Income tax expense | 35,067 | 65,210 | 112,960 | 130,299 | ||||||||||||
Net earnings | 44,127 | 109,820 | 166,660 | 216,241 | ||||||||||||
Net (loss) earnings to noncontrolling interests | (2,129 | ) | 23,534 | 1,865 | 29,718 | |||||||||||
Net earnings to common shareholders | $ | 46,256 | $ | 86,286 | $ | 164,795 | $ | 186,523 | ||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.23 | $ | 0.42 | $ | 0.81 | $ | 0.92 | ||||||||
Diluted | $ | 0.23 | $ | 0.42 | $ | 0.81 | $ | 0.92 | ||||||||
Weighted average common shares: | ||||||||||||||||
Basic | 195,601 | 200,609 | 196,943 | 201,860 | ||||||||||||
Diluted | 195,612 | 204,736 | 201,062 | 205,986 |
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Eight Months Ended | Year Ended | |||||||
August 31, 2010 | December 31, 2009 | |||||||
Common stock, par value $0.0001 per share | ||||||||
Balance, beginning of period | $ | 19 | $ | 17 | ||||
Issued | 1 | 2 | ||||||
Balance, end of period | 20 | 19 | ||||||
Additional paid-in capital | ||||||||
Balance, beginning of period | 2,036,087 | 1,870,120 | ||||||
Benefit plan share activity (1) | 10,425 | 16,499 | ||||||
Share-based expense, net of forfeitures and clawbacks | 27,555 | 125,127 | ||||||
Proceeds from exercise of stock options | 108 | 69 | ||||||
Contingent consideration | 419 | (2,710 | ) | |||||
Tax benefit (deficiency) for issuance of share-based awards | 2,750 | (14,606 | ) | |||||
Equity component of convertible debt issuance, net of tax | — | 41,588 | ||||||
Dividend equivalents on share-based plans | 7,396 | — | ||||||
Balance, end of period | 2,084,740 | 2,036,087 | ||||||
Retained earnings | ||||||||
Balance, beginning of period | 698,488 | 418,445 | ||||||
Net earnings to common shareholders | 164,795 | 280,043 | ||||||
Dividends | (46,105 | ) | — | |||||
Balance, end of period | 817,178 | 698,488 | ||||||
Treasury stock, at cost | ||||||||
Balance, beginning of period | (384,379 | ) | (115,190 | ) | ||||
Purchases | (114,893 | ) | (263,794 | ) | ||||
Returns / forfeitures | (7,160 | ) | (8,105 | ) | ||||
Issued | — | 2,710 | ||||||
Balance, end of period | (506,432 | ) | (384,379 | ) | ||||
Accumulated other comprehensive (loss) income | ||||||||
Balance, beginning of period | (41,626 | ) | (52,121 | ) | ||||
Currency adjustment | (13,602 | ) | 9,306 | |||||
Pension adjustment, net of tax | — | 1,189 | ||||||
Balance, end of period | (55,228 | ) | (41,626 | ) | ||||
Total common stockholders’ equity | 2,340,278 | 2,308,589 | ||||||
Noncontrolling interests | ||||||||
Balance, beginning of period | 321,538 | 287,805 | ||||||
Net earnings to noncontrolling interests | 1,865 | 36,537 | ||||||
Contributions | 2,087 | 2,860 | ||||||
Distributions | (14,664 | ) | (5,664 | ) | ||||
Adoption of accounting changes to ASC 810 | 3,058 | — | ||||||
Balance, end of period | 313,884 | 321,538 | ||||||
Total stockholders’ equity | $ | 2,654,162 | $ | 2,630,127 | ||||
(1) | Includes grants related to the Incentive Plan, Deferred Compensation Plan and Directors’ Plan. |
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Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net earnings to common shareholders | $ | 46,256 | $ | 86,286 | $ | 164,795 | $ | 186,523 | ||||||||
Other comprehensive income (loss): | ||||||||||||||||
Currency translation adjustments | 17,381 | (5,751 | ) | (13,602 | ) | 7,733 | ||||||||||
Total other comprehensive income (loss) (1) | 17,381 | (5,751 | ) | (13,602 | ) | 7,733 | ||||||||||
Comprehensive income | $ | 63,637 | $ | 80,535 | $ | 151,193 | $ | 194,256 | ||||||||
(1) | Total other comprehensive income (loss), net of tax, is attributable to Jefferies Group. No other comprehensive loss is attributable to noncontrolling interests. |
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Eight Months Ended | Nine Months Ended | |||||||
August 31, 2010 | September 30, 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 166,660 | $ | 216,241 | ||||
Adjustments to reconcile net earnings to net cash used in operating activities: | ||||||||
Depreciation and amortization | 27,490 | 23,390 | ||||||
Gain on repurchase of long-term debt | — | (7,673 | ) | |||||
Fees related to assigned management agreements | (2,589 | ) | — | |||||
Interest on mandatorily redeemable preferred interests of consolidated subsidiaries | (26 | ) | 30,620 | |||||
Accruals related to various benefit plans, stock issuances, net of forfeitures | 30,821 | 4,331 | ||||||
Increase in cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (248,032 | ) | (101,213 | ) | ||||
Decrease (increase) in receivables: | ||||||||
Brokers, dealers and clearing organizations | 226,379 | (948,060 | ) | |||||
Customers | (216,894 | ) | (861,053 | ) | ||||
Fees, interest and other | 7,625 | (15,648 | ) | |||||
Decrease in securities borrowed | 1,427,952 | 914,875 | ||||||
Increase in financial instruments owned | (4,687,754 | ) | (5,108,735 | ) | ||||
Decrease (increase) in other investments | 22,359 | (44,576 | ) | |||||
Increase in investments in managed funds | (9,672 | ) | (14,062 | ) | ||||
Decrease (increase) in securities purchased under agreements to resell | 324,488 | (1,658,835 | ) | |||||
(Increase) decrease in other assets | (118,548 | ) | 143,602 | |||||
Increase (decrease) in payables: | ||||||||
Brokers, dealers and clearing organizations | 810,761 | 708,141 | ||||||
Customers | (75,927 | ) | 1,687,146 | |||||
Decrease in securities loaned | (1,552,550 | ) | (802,546 | ) | ||||
Increase in financial instruments sold, not yet purchased | 2,429,942 | 2,727,098 | ||||||
Increase in securities sold under agreements to repurchase | 1,361,466 | 2,589,696 | ||||||
(Decrease) increase in accrued expenses and other liabilities | (16,634 | ) | 159,941 | |||||
Net cash used in operating activities | (92,683 | ) | (357,320 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of premises and equipment | (24,678 | ) | (18,324 | ) | ||||
Business acquisition | — | (38,760 | ) | |||||
Cash received from contingent consideration | 1,927 | — | ||||||
Cash paid for contingent consideration | (8,101 | ) | (28,653 | ) | ||||
Net cash used in investing activities | (30,852 | ) | (85,737 | ) | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS — CONTINUED (Unaudited)
(Dollars in thousands)
Eight Months Ended | Nine Months Ended | |||||||
August 31, 2010 | September 30, 2009 | |||||||
Cash flows from financing activities: | ||||||||
Excess tax benefits from the issuance of share-based awards | $ | 2,148 | $ | 8,155 | ||||
Net proceeds from (payments on): | ||||||||
Issuance of senior notes, net of issuance costs | 543,510 | 713,526 | ||||||
Repurchase of long-term debt | — | (12,796 | ) | |||||
Mandatorily redeemable preferred interest of consolidated subsidiaries | (17,077 | ) | (125 | ) | ||||
Noncontrolling interest | (12,577 | ) | (2,947 | ) | ||||
Repurchase of common stock | (114,893 | ) | (158,418 | ) | ||||
Dividends | (38,709 | ) | — | |||||
Exercise of stock options, not including tax benefits | 108 | 69 | ||||||
Net cash provided by financing activities | 362,510 | 547,464 | ||||||
Effect of foreign currency translation on cash and cash equivalents | (2,202 | ) | 6,665 | |||||
Net increase in cash and cash equivalents | 236,773 | 111,072 | ||||||
Cash and cash equivalents at beginning of period | 1,853,167 | 1,294,329 | ||||||
Cash and cash equivalents at end of period | $ | 2,089,940 | $ | 1,405,401 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid (received) during the period for: | ||||||||
Interest | $ | 234,065 | $ | 219,085 | ||||
Income taxes | 180,420 | (42,361 | ) | |||||
Acquisitions: | ||||||||
Fair value of assets acquired, including goodwill | 53,104 | |||||||
Liabilities assumed | 14,344 | |||||||
Cash paid for acquisition | 38,760 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Level 1: | Quoted prices are available in active markets for identical assets or liabilities as of the reported date. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Level 2: | Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these financial instruments include cash instruments for which quoted prices are available but traded less frequently, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. |
Level 3: | Instruments that have little to no pricing observability as of the reported date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Cash and cash equivalents | $ | 66,254 | ||
Financial instruments owned, at fair value: | ||||
Corporate debt securities | 30,393 | |||
Loans and other receivables | 1,523,566 | |||
Investments, at fair value | 2,990 | |||
Total financial instruments owned, at fair value | 1,556,949 | |||
Investments in managed funds | (7,273 | ) | ||
Receivable from customers | (13,317 | ) | ||
Receivable from fees, interest and other | 4,265 | |||
Total assets | $ | 1,606,878 | ||
Accrued expenses and other liabilities | $ | 2,886 | ||
Long-term debt | 1,600,934 | |||
Total liabilities | 1,603,820 | |||
Noncontrolling interests | 3,058 | |||
Total stockholders’ equity | 3,058 | |||
Total liabilities and stockholders’ equity | $ | 1,606,878 | ||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
August 31, 2010 | December 31, 2009 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 260,359 | $ | 196,189 | ||||
Money market investments | 1,829,581 | 1,656,978 | ||||||
Total cash and cash equivalents | 2,089,940 | 1,853,167 | ||||||
Cash and securities segregated (1) | 1,337,949 | 1,089,803 | ||||||
$ | 3,427,889 | $ | 2,942,970 | |||||
(1) | Consists of deposits at exchanges and clearing organizations, as well as deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies, as a broker dealer carrying client accounts, to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
As of August 31, 2010 | ||||||||||||||||||||
Counterparty | ||||||||||||||||||||
and Cash | ||||||||||||||||||||
Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting (2) | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Corporate equity securities | $ | 1,506,064 | $ | 138,902 | $ | 25,579 | $ | — | $ | 1,670,545 | ||||||||||
Corporate debt securities | 23 | 3,394,283 | 101,284 | — | 3,495,590 | |||||||||||||||
Collateralized debt obligations | — | — | 26,306 | — | 26,306 | |||||||||||||||
U.S. government and federal agency securities | 1,358,506 | 421,624 | — | — | 1,780,130 | |||||||||||||||
U.S. issued municipal securities | — | 220,233 | 429 | — | 220,662 | |||||||||||||||
Sovereign obligations | 1,215,675 | 675,852 | — | — | 1,891,527 | |||||||||||||||
Residential mortgage-backed securities | — | 3,983,504 | 167,839 | — | 4,151,343 | |||||||||||||||
Commercial mortgage-backed securities | — | 411,060 | 50 | — | 411,110 | |||||||||||||||
Other asset-backed securities | — | 87,534 | — | — | 87,534 | |||||||||||||||
Loans and other receivables | — | 207,498 | 85,341 | — | 292,839 | |||||||||||||||
Derivatives | 228,511 | 147,363 | — | (311,544 | ) | 64,330 | ||||||||||||||
Investments at fair value | — | — | 79,356 | — | 79,356 | |||||||||||||||
Total financial instruments owned | $ | 4,308,779 | $ | 9,687,853 | 486,184 | $ | (311,544 | ) | $ | 14,171,272 | ||||||||||
Level 3 assets for which the firm does not bear economic exposure (1) | (116,528 | ) | ||||||||||||||||||
Level 3 assets for which the firm bears economic exposure | $ | 369,656 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Corporate equity securities | $ | 1,440,660 | $ | 72,960 | $ | 96 | $ | — | $ | 1,513,716 | ||||||||||
Corporate debt securities | 1,208 | 2,381,846 | — | — | 2,383,054 | |||||||||||||||
U.S. government and federal agency securities | 1,156,496 | 49,232 | — | — | 1,205,728 | |||||||||||||||
U.S. issued municipal securities | — | 65,765 | — | — | 65,765 | |||||||||||||||
Sovereign obligations | 1,400,566 | 918,173 | — | — | 2,318,739 | |||||||||||||||
Residential mortgage-backed securities | — | 29,292 | — | — | 29,292 | |||||||||||||||
Loans | — | 218,087 | 26,112 | — | 244,199 | |||||||||||||||
Derivatives | 218,798 | 204,844 | 1,294 | (367,522 | ) | 57,414 | ||||||||||||||
Total financial instruments sold, not yet purchased | $ | 4,217,728 | $ | 3,940,199 | $ | 27,502 | $ | (367,522 | ) | $ | 7,817,907 | |||||||||
(1) | Consists of Level 3 assets which are attributable to third party and employee noncontrolling interests in certain consolidated entities. | |
(2) | Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
As of December 31, 2009 | ||||||||||||||||||||
Counterparty | ||||||||||||||||||||
and Cash | ||||||||||||||||||||
Collateral | ||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Netting (2) | Total | ||||||||||||||||
Assets: | ||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||
Corporate equity securities | $ | 1,419,019 | $ | 37,981 | $ | 43,042 | $ | — | $ | 1,500,042 | ||||||||||
Corporate debt securities | — | 2,295,486 | 116,648 | — | 2,412,134 | |||||||||||||||
Collateralized debt obligations | — | — | 9,570 | — | 9,570 | |||||||||||||||
U.S. government and federal agency securities | 821,323 | 367,642 | — | — | 1,188,965 | |||||||||||||||
U.S. issued municipal securities | — | 127,346 | 420 | — | 127,766 | |||||||||||||||
Sovereign obligations | 71,199 | 374,517 | 196 | — | 445,912 | |||||||||||||||
Residential mortgage-backed securities | — | 2,578,796 | 136,496 | — | 2,715,292 | |||||||||||||||
Commercial mortgage-backed securities | — | 307,068 | 3,215 | — | 310,283 | |||||||||||||||
Other asset-backed securities | — | 54,180 | 110 | — | 54,290 | |||||||||||||||
Loans and other receivables | — | 84,666 | 506,542 | — | 591,208 | |||||||||||||||
Derivatives | 219,067 | 102,357 | 1,909 | (261,216 | ) | 62,117 | ||||||||||||||
Investments at fair value | — | 4,592 | 65,564 | — | 70,156 | |||||||||||||||
Total financial instruments owned | $ | 2,530,608 | $ | 6,334,631 | 883,712 | $ | (261,216 | ) | $ | 9,487,735 | ||||||||||
Level 3 assets for which the firm does not bear economic exposure (1) | (379,153 | ) | ||||||||||||||||||
Level 3 assets for which the firm bears economic exposure | $ | 504,559 | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||
Corporate equity securities | $ | 1,350,125 | $ | 10,403 | $ | — | $ | — | $ | 1,360,528 | ||||||||||
Corporate debt securities | — | 1,909,781 | — | — | 1,909,781 | |||||||||||||||
U.S. government and federal agency securities | 1,350,155 | 1,911 | — | — | 1,352,066 | |||||||||||||||
U.S. issued municipal securities | — | 10 | — | — | 10 | |||||||||||||||
Sovereign obligations | 150,684 | 233,101 | — | — | 383,785 | |||||||||||||||
Residential mortgage-backed securities | — | 21,474 | — | — | 21,474 | |||||||||||||||
Loans | — | 10,660 | 352,420 | — | 363,080 | |||||||||||||||
Derivatives | 225,203 | 100,731 | 4,926 | (312,433 | ) | 18,427 | ||||||||||||||
Total financial instruments sold, not yet purchased | $ | 3,076,167 | $ | 2,288,071 | $ | 357,346 | $ | (312,433 | ) | $ | 5,409,151 | |||||||||
(1) | Consists of Level 3 assets which are attributable to third party and employee noncontrolling interests in certain consolidated entities. | |
(2) | Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. |
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(Unaudited)
• | Exchange Traded Equity Securities: Exchange-traded equity securities are measured based on quoted exchange prices, which are generally obtained from pricing services, and are categorized as Level 1 in the fair value hierarchy. |
• | Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing service data from external providers and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized as Level 3 financial instruments and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration). |
• | Equity warrants: Non-exchange traded equity warrants are generally classified within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. |
• | Corporate Bonds: Corporate bonds are measured primarily using broker quotations and pricing service data from external providers, where available, prices observed for recently executed market transactions of comparable size, and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are classified within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds. |
• | High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are classified within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing service data from external providers, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are classified in Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers. |
• | Auction Rate Securities: Auction rate securities (“ARS”) included within corporate debt securities include ARS backed by pools of student loans and auction rate preferred securities issued by closed end mutual funds. ARS are measured using market data provided by external service providers, as available. The fair value of ARS is also determined by benchmarking to independent market data and adjusting for projected cash flows, level of seniority in the capital structure, leverage, liquidity and credit rating, as appropriate. ARS are classified within |
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(Unaudited)
Level 3 of the fair value hierarchy based on our assessment of the transparency of the external market data received. |
• | U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized in Level 1 of the fair value hierarchy. |
• | U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services. Non-callable U.S. agency securities are generally classified within Level 1 of the fair value hierarchy and callable U.S. agency securities are classified within Level 2. |
• | G-7 Government and non-G-7 Government Bonds: G-7 government and non-G-7 government bonds are measured based on quoted market prices obtained from external pricing services. G-7 government bonds are categorized within Level 1 of the fair value hierarchy and non-G-7 government bonds are categorized within Level 2. |
• | Emerging Market Sovereign Debt Securities: Valuations are primarily based on market price quotations from external data providers, where available, or recently executed independent transactions of comparable size. To the extent market price quotations are not available or recent transactions have not been observed, valuation techniques incorporating foreign currency curves, interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value. Emerging market sovereign debt securities are generally classified within Level 2 of the fair value hierarchy. |
• | Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations, interest-only and principal-only securities and to-be-announced securities and are generally measured using market price quotations from external data providers and categorized within Level 2 of the fair value hierarchy. |
• | Agency Residential Inverse Interest-Only Securities (“Agency Inverse IOs”): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 of the fair value hierarchy. We also use vendor data in developing assumptions, as appropriate. |
• | Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based |
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(Unaudited)
• | Agency Commercial Mortgage-Backed Securities: GNMA project loan bonds and FNMA DUS mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy. |
• | Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from third party services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy. |
• | Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations from external data providers where sufficient observability exists as to the extent of market transaction data supporting the pricing data. Corporate loans categorized within Level 3 are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure. |
• | Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on observed market prices of recently executed purchases of similar loans which are then used to derive a market implied spread. The market implied spread is used as the primary input in estimating the fair value of loans at the measurement date. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions. |
• | Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy with fair value estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. |
• | Listed Derivative Contracts: Listed derivative contracts are measured based on quoted exchange prices, which are generally obtained from pricing services, and are categorized as Level 1 in the fair value hierarchy. |
• | 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 period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model |
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(Unaudited)
inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized in Level 2 of the fair value hierarchy given the observability of the inputs to the valuation models. |
OTC options include OTC equity and commodity options measured using Black-Scholes models with key inputs impacting the valuation including the underlying security or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, and valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves. Credit defaults swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps. For single-name credit default swaps, fair value is determined based on valuation statements provided by the counterparty. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from third parties. |
Financial | |||||||||
Financial | Instruments Sold, | ||||||||
Valuation Basis at | Instruments | Not Yet | |||||||
August 31, 2010 | Owned | Purchased | |||||||
Exchange closing prices | 11 | % | 19 | % | |||||
Recently observed transaction prices | 3 | % | 1 | % | |||||
Data providers/pricing services | 68 | % | 65 | % | |||||
Broker quotes | 12 | % | 14 | % | |||||
Valuation techniques | 6 | % | 1 | % | |||||
100 | % | 100 | % | ||||||
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(Unaudited)
Financial | |||||||||
Valuation Basis at | Financial | Instruments Sold, | |||||||
December 31, 2009 | Instruments Owned | Not Yet Purchased | |||||||
Exchange closing prices | 15 | % | 25 | % | |||||
Recently observed transaction prices | 2 | % | 2 | % | |||||
Data providers/pricing services | 55 | % | 48 | % | |||||
Broker quotes | 12 | % | 23 | % | |||||
Valuation techniques | 16 | % | 2 | % | |||||
100 | % | 100 | % | ||||||
Three Months Ended August 31, 2010 | ||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||
Total gains/ | unrealized gains/ | |||||||||||||||||||||||||||
losses | Purchases, | (losses) relating to | ||||||||||||||||||||||||||
Balance, | (realized and | sales, | Transfers | Transfers | Balance, | instruments still held | ||||||||||||||||||||||
May 31, | unrealized) | settlements, | into | out of | August 31, | at August 31, 2010 | ||||||||||||||||||||||
2010 | (1) | and issuances | Level 3 | Level 3 | 2010 | (1) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | 21,918 | $ | 1,327 | $ | 2,751 | $ | — | $ | (417 | ) | $ | 25,579 | $ | (789 | ) | ||||||||||||
Corporate debt securities | 100,275 | (714 | ) | 3,149 | 54 | (1,480 | ) | 101,284 | (813 | ) | ||||||||||||||||||
Collateralized debt obligations | 21,957 | (495 | ) | 352 | 4,492 | — | 26,306 | (615 | ) | |||||||||||||||||||
U.S. issued municipal securities | 436 | (7 | ) | — | — | — | 429 | (7 | ) | |||||||||||||||||||
Residential mortgage-backed securities | 148,833 | 5,914 | (8,770 | ) | 23,143 | (1,281 | ) | 167,839 | 404 | |||||||||||||||||||
Commercial mortgage-backed securities | 1,000 | — | 50 | — | (1,000 | ) | 50 | — | ||||||||||||||||||||
Other asset-backed securities | 369 | — | (369 | ) | — | — | — | — | ||||||||||||||||||||
Loans and other receivables | 145,181 | (4,735 | ) | (55,105 | ) | — | — | 85,341 | (4,139 | ) | ||||||||||||||||||
Investments at fair value | 72,297 | 8,060 | (3,724 | ) | 2,723 | — | 79,356 | 9,145 | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | 38 | $ | — | $ | — | $ | 58 | $ | — | $ | 96 | $ | — | ||||||||||||||
Corporate debt securities | 14,365 | (1,275 | ) | (13,090 | ) | — | — | — | — | |||||||||||||||||||
Net derivatives (2) | 1,271 | 523 | — | — | (500 | ) | 1,294 | 523 | ||||||||||||||||||||
Loans | 68,242 | — | (42,130 | ) | — | — | 26,112 | — |
(1) | Realized and unrealized gains/ losses are reported in Principal transactions in the Consolidated Statements of Earnings. | |
(2) | Net derivatives represent Financial instruments owned – derivatives and Financial instruments sold, not yet purchased – derivatives. |
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Three Months Ended September 30, 2009 | ||||||||||||||||||||||||||||
Change in unrealized | ||||||||||||||||||||||||||||
gains/ (losses) | ||||||||||||||||||||||||||||
Total gains/ | Purchases, | relating to | ||||||||||||||||||||||||||
Balance, | losses (realized | sales, | Transfers | Transfers | Balance, | instruments still held | ||||||||||||||||||||||
June 30, | and unrealized) | settlements, | into | out of | September 30, | at September 30, | ||||||||||||||||||||||
2009 | (1) | and issuances | Level 3 | Level 3 | 2009 | 2009 (1) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | 20,297 | $ | (752 | ) | $ | (44 | ) | $ | 1,581 | $ | (679 | ) | $ | 20,403 | $ | (582 | ) | ||||||||||
Corporate debt securities | 164,466 | (4,855 | ) | (4,676 | ) | 2,038 | (9,585 | ) | 147,388 | (7,054 | ) | |||||||||||||||||
Collateralized debt obligations | 2,119 | 4,623 | — | — | — | 6,742 | 4,623 | |||||||||||||||||||||
U.S. issued municipal securities | 509 | (193 | ) | (76 | ) | — | — | 240 | (193 | ) | ||||||||||||||||||
Sovereign obligations | 78 | 68 | — | — | (8 | ) | 138 | 68 | ||||||||||||||||||||
Residential mortgage-backed securities | 117,760 | 65,948 | (79,304 | ) | 702 | (37 | ) | 105,069 | 12,836 | |||||||||||||||||||
Commercial mortgage-backed securities | — | — | — | — | — | — | — | |||||||||||||||||||||
Other asset-backed securities | 1,422 | — | (1,312 | ) | — | — | 110 | — | ||||||||||||||||||||
Derivatives | 5,499 | (3,100 | ) | — | — | — | 2,399 | (3,100 | ) | |||||||||||||||||||
Loans and other receivables | 275,694 | 12,558 | 198,000 | — | — | 486,252 | 8,725 | |||||||||||||||||||||
Investments at fair value | 73,441 | 1,121 | (479 | ) | — | (581 | ) | 73,502 | 1,121 | |||||||||||||||||||
$ | 661,285 | $ | 75,418 | $ | 112,109 | $ | 4,321 | $ | (10,890 | ) | $ | 842,243 | $ | 16,444 | ||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||
Corporate debt securities | $ | — | $ | — | $ | — | $ | 38 | — | $ | 38 | $ | — | |||||||||||||||
Derivatives | 4,802 | 536 | (3,751 | ) | — | (1,587 | ) | — | — | |||||||||||||||||||
Loans | 7,538 | 499 | (20 | ) | — | — | 8,017 | (499 | ) | |||||||||||||||||||
Other | 229,438 | — | 266,494 | — | — | 495,932 | — | |||||||||||||||||||||
$ | 241,778 | $ | 1,035 | $ | 262,723 | $ | 38 | (1,587 | ) | $ | 503,987 | $ | (499 | ) | ||||||||||||||
(1) | Realized and unrealized gains/ losses are reported in Principal transactions in the Consolidated Statements of Earnings. |
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(Unaudited)
Eight Months Ended August 31, 2010 | ||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||
Purchases, | unrealized gains/ | |||||||||||||||||||||||||||
Total gains/ | sales, | (losses) relating to | ||||||||||||||||||||||||||
Balance, | losses | settlements, | Transfers | Transfers | Balance, | instruments still | ||||||||||||||||||||||
December | (realized and | and | into | out of | August 31, | held at August 31, | ||||||||||||||||||||||
31, 2009 | unrealized) (1) | issuances | Level 3 | Level 3 | 2010 | 2010 (1) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | 43,042 | $ | (20,125 | ) | $ | 5,467 | $ | 143 | $ | (2,948 | ) | $ | 25,579 | $ | (22,524 | ) | |||||||||||
Corporate debt securities | 116,648 | (1,056 | ) | (1,084 | ) | 75 | (13,299 | ) | 101,284 | 1,060 | ||||||||||||||||||
Collateralized debt obligations | 9,570 | 5,397 | 4,067 | 7,272 | — | 26,306 | 4,840 | |||||||||||||||||||||
U.S. issued municipal securities | 420 | 9 | — | — | — | 429 | 9 | |||||||||||||||||||||
Sovereign obligations | 196 | — | — | — | (196 | ) | — | — | ||||||||||||||||||||
Residential mortgage-backed securities | 136,496 | 21,857 | (5,893 | ) | 23,435 | (8,056 | ) | 167,839 | 6,888 | |||||||||||||||||||
Commercial mortgage-backed securities | 3,215 | 11 | (1,241 | ) | — | (1,935 | ) | 50 | — | |||||||||||||||||||
Other asset-backed securities | 110 | — | (110 | ) | — | — | — | — | ||||||||||||||||||||
Loans and other receivables | 506,542 | 38,029 | (302,151 | ) | — | (157,079 | ) | 85,341 | 14,960 | |||||||||||||||||||
Investments at fair value | 65,564 | 13,744 | (3,991 | ) | 4,039 | — | 79,356 | 11,029 | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | — | $ | — | $ | — | $ | 96 | $ | — | $ | 96 | $ | — | ||||||||||||||
Corporate debt securities | — | (2,210 | ) | 2,210 | — | — | — | — | ||||||||||||||||||||
Net derivatives (2) | 6,835 | (3,585 | ) | — | — | (1,956 | ) | 1,294 | (3,585 | ) | ||||||||||||||||||
Loans | 352,420 | (344 | ) | (214,670 | ) | — | (111,294 | ) | 26,112 | — |
(1) | Realized and unrealized gains/ losses are reported in Principal transactions in the Consolidated Statements of Earnings. | |
(2) | Net derivatives represent Financial instruments owned – derivatives and Financial instruments sold, not yet purchased – derivatives. |
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(Unaudited)
Nine Months Ended September 30, 2009 | ||||||||||||||||||||||||||||
Change in | ||||||||||||||||||||||||||||
Purchases, | unrealized gains/ | |||||||||||||||||||||||||||
sales, | (losses) relating to | |||||||||||||||||||||||||||
Balance, | Total gains/ losses | settlements, | Transfers | Transfers out | Balance, | instruments still | ||||||||||||||||||||||
December | (realized and | and | into | of | September | held at September | ||||||||||||||||||||||
31, 2008 | unrealized) (1) | issuances | Level 3 | Level 3 | 30, 2009 | 30, 2009 (1) | ||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||
Financial instruments owned: | ||||||||||||||||||||||||||||
Corporate equity securities | $ | 41,351 | $ | (14,134 | ) | $ | (9,323 | ) | $ | 6,391 | $ | (3,882 | ) | $ | 20,403 | $ | (12,430 | ) | ||||||||||
Corporate debt securities | 177,603 | (47,757) | (2) | 54,251 | 35,928 | (72,637 | ) | 147,388 | (42,204 | ) | ||||||||||||||||||
Collateralized debt obligations | 2,179 | 4,563 | — | — | — | 6,742 | 4,563 | |||||||||||||||||||||
U.S. issued municipal securities | — | (243) | (2) | 483 | — | — | 240 | (193 | ) | |||||||||||||||||||
Sovereign obligations | — | 79 | — | 67 | (8 | ) | 138 | 79 | ||||||||||||||||||||
Residential mortgage backed securities | 63,065 | 78,077 | (91,681 | ) | 76,945 | (21,337 | ) | 105,069 | 15,135 | |||||||||||||||||||
Commercial mortgage backed securities | — | — | 322 | — | (322 | ) | — | — | ||||||||||||||||||||
Other asset backed securities | 2,089 | (583 | ) | 485 | — | (1,881 | ) | 110 | — | |||||||||||||||||||
Derivatives | — | 2,446 | (47 | ) | — | — | 2,399 | 4,832 | ||||||||||||||||||||
Loans and other receivables | 108,029 | 10,304 | 367,919 | — | — | 486,252 | (2,095 | ) | ||||||||||||||||||||
Investments at fair value | 75,059 | (2,665 | ) | 1,727 | 6 | (625 | ) | 73,502 | (3,445 | ) | ||||||||||||||||||
$ | 469,375 | $ | 30,087 | $ | 324,136 | $ | 119,337 | $ | (100,692 | ) | $ | 842,243 | $ | (35,758 | ) | |||||||||||||
Liabilities: | ||||||||||||||||||||||||||||
Financial instruments sold, not yet purchased: | ||||||||||||||||||||||||||||
Corporate debt securities | $ | — | $ | — | $ | — | $ | 38 | $ | — | $ | 38 | $ | — | ||||||||||||||
Corporate debt securities | 3,515 | 739 | (2,104 | ) | 2,952 | (5,102 | ) | — | — | |||||||||||||||||||
Derivatives | 8,197 | (180 | ) | — | — | — | 8,017 | (2,252 | ) | |||||||||||||||||||
Loans | — | — | 495,932 | — | — | 495,932 | — | |||||||||||||||||||||
Other | — | 225 | (225 | ) | — | — | — | — | ||||||||||||||||||||
$ | 11,712 | $ | 784 | $ | 493,603 | $ | 2,990 | $ | (5,102 | ) | $ | 503,987 | $ | (2,252 | ) | |||||||||||||
(1) | Realized and unrealized gains/ losses are reported in principal transactions in the Consolidated Statements of Earnings. | |
(2) | During the quarter ended June 30, 2009, we changed our valuation methodology for auction rate securities, which are included within corporate debt securities and U.S. issued municipal securities. Previously, auction rate securities were valued based on an internal model based on projected cash flows for the securities discounted for lack of liquidity. As of June 30, 2009, auction rate securities are valued using a valuation technique that benchmarks the securities to transactions and market prices of comparable securities, adjusting for projected cash flows and security structure, where appropriate. |
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(Unaudited)
August 31, 2010 | ||||||||||
Unfunded | Redemption Frequency | |||||||||
Fair Value | Commitments | (if currently eligible) | ||||||||
Equity Long/Short Hedge Funds(a) (i) | $ | 19,487 | $ | — | Quarterly, Semiannually | |||||
Equity Long/Short Hedge Funds — International(b) (i) | 31 | — | ||||||||
High Yield Hedge Funds(c) (i) | 1,078 | — | ||||||||
High Yield Hedge Funds — International(d) (i) | 662 | — | ||||||||
Fund of Funds(e) (i) | 2,561 | 134 | Annually, GP Consent Required | |||||||
Private Equity Funds(f) (i) | 11,836 | 2,731 | ||||||||
Private Equity Funds — International(g) (i) | 10,598 | 4,109 | ||||||||
Other Investments(h)(i) | 6,345 | — | At Will | |||||||
Total(j) | $ | 52,599 | $ | 6,974 | ||||||
December 31, 2009 | ||||||||||
Unfunded | Redemption Frequency | |||||||||
Fair Value | Commitments | (if currently eligible) | ||||||||
Equity Long/Short Hedge Funds(a) (i) | $ | 16,210 | $ | — | Quarterly, Semiannually | |||||
Equity Long/Short Hedge Funds — International(b) (i) | 71 | — | ||||||||
High Yield Hedge Funds(c) (i) | 1,022 | — | ||||||||
High Yield Hedge Funds — International(d) (i) | 1,114 | — | ||||||||
Fund of Funds(e) (i) | 6,497 | 166 | Annually, GP Consent Required | |||||||
Private Equity Funds(f) (i) | 10,407 | 3,150 | ||||||||
Private Equity Funds — International(g) | 6,979 | 5,081 | ||||||||
Other Investments(h) | 5,113 | — | At Will | |||||||
Total(j) | $ | 47,413 | $ | 8,397 | ||||||
(a) | This category includes investments in hedge funds that invest in both long and short equity securities in both domestic and international markets. These hedge funds may invest in securities in both public and private sectors. At August 31, 2010 and December 31, 2009, investments representing approximately 3% and 2%, respectively, of fair value cannot be redeemed as they are in liquidation and distributions will be received through the liquidation of the underlying assets of the funds. We are unable to estimate when the underlying assets will be liquidated. At August 31, 2010 and December 31, 2009, investments representing approximately 28% and 31%, respectively, of fair value cannot be redeemed until the lock-up period expires on December 31, 2009. At August 31, 2010 and December 31, 2009, investments representing approximately 69% and 67%, respectively, of the fair value in this category are redeemable with 60 — 90 days prior written notice. | |
(b) | This category includes an investment in a hedge fund that invests in foreign technology equity securities, which has no redemption provisions. Distributions are received through the liquidation of the underlying assets of the fund, which is estimated to be within one to two years. | |
(c) | This category includes investments in funds that invest in U.S. public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, private equity investments and emerging markets debt. There are no redemption provisions and distributions are received through the liquidation of the underlying assets of the funds. These funds are currently in liquidation; however, we are unable to estimate when the underlying assets will be fully liquidated. | |
(d) | This category includes an investment in a hedge fund that invests in Russian fixed income instruments. | |
(e) | This category includes investments in funds of funds that invest in various private equity funds. At August 31, 2010 and December 31, 2009, approximately 98% and 40%, respectively, of the fair value of the investments is managed by us and has no redemption provisions. Distributions are received through the liquidation of the underlying assets of the fund of funds, |
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which are estimated to be liquidated in one to three years. At December 31, 2009, investments representing approximately 60% of the fair value of the investments in this category were approved for redemption and the funds’ net asset values were received in the first quarter of 2010. Investments representing approximately 2% at August 31, 2010 of the fair value of the investments in this category have been redeemed and the remaining funds are expected to be received within the year. | ||
(f) | This category includes investments in private equity funds that invest in the equity of various U.S. private companies in the energy, technology, internet service and telecommunication service industries including acquired or restructured companies. These investments can never be redeemed; distributions are received through the liquidation of the underlying assets of the funds. At August 31, 2010 and December 31, 2009, investments representing approximately 88% and 94% respectively, of fair value are expected to liquidate in one to eleven years. At August 31, 2010 and December 31, 2009, an investment representing approximately 12% and 6% respectively, of the total fair value in this category is currently in liquidation; however, we are unable to estimate when the underlying assets will be fully liquidated. | |
(g) | This category includes investments in private equity funds that invest in the equity of foreign private companies. At August 31, 2010 and December 31, 2009, investments representing approximately 60% and 74%, respectively, of fair value are Israeli private equity funds that invest in service companies. These investments can never be redeemed; distributions are received through the liquidation of the underlying assets of the fund, which are estimated to be liquidated in two to five years. At August 31, 2010 and December 31, 2009 the fair value of investments representing approximately 40% and 26%, respectively, of the fair value are private equity funds that invest in Croatian and Vietnamese companies. | |
(h) | At August 31, 2010 and December 31, 2009 investments representing approximately 90% and 67%, respectively, of the fair value of investments are held on behalf of a Jefferies’ deferred compensation plan. At August 31, 2010 and December 31, 2009 investments representing approximately 10% and 33%, respectively, of fair value are closed-ended funds that invest in Vietnamese equity and debt instruments. | |
(i) | Fair value has been estimated using the net asset value derived from each of the funds’ partner capital statements. | |
(j) | Investments at fair value, in the Consolidated Statements of Financial Condition at August 31, 2010 and December 31, 2009 include $26.8 million and $22.7 million, respectively, of direct investments which are not investment companies and therefore are not part of this disclosure table. |
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August 31, 2010 | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Number of | Number of | |||||||||||||||
Fair Value | Contracts | Fair Value | Contracts | |||||||||||||
Interest rate contracts | $ | 99,779 | 56,888 | $ | 160,936 | 60,335 | ||||||||||
Foreign exchange contracts | 14,075 | 1,042 | 17,864 | 133 | ||||||||||||
Equity contracts | 203,153 | 1,504,380 | 206,974 | 2,487,291 | ||||||||||||
Commodity contracts | 27,418 | 75,975 | 27,629 | 39,411 | ||||||||||||
Credit contracts | 31,449 | 18 | 11,533 | 10 | ||||||||||||
Total | 375,874 | 1,638,303 | 424,936 | 2,587,180 | ||||||||||||
Counterparty/cash-collateral netting | (311,544 | ) | (367,522 | ) | ||||||||||||
Total per Consolidated Statement of Financial Condition | $ | 64,330 | $ | 57,414 | ||||||||||||
December 31, 2009 | ||||||||||||||||
Assets | Liabilities | |||||||||||||||
Number of | Number of | |||||||||||||||
Fair Value | Contracts | Fair Value | Contracts | |||||||||||||
Interest rate contracts | $ | 27,415 | 42,898 | $ | 24,068 | 40,864 | ||||||||||
Foreign exchange contracts | 2,637 | 67 | 7,470 | 98 | ||||||||||||
Equity contracts | 222,311 | 898,472 | 228,403 | 1,954,260 | ||||||||||||
Commodity contracts | 54,257 | 58,434 | 57,237 | 32,245 | ||||||||||||
Credit contracts | 16,713 | 10 | 13,682 | 8 | ||||||||||||
Total | 323,333 | 999,881 | 330,860 | 2,027,475 | ||||||||||||
Counterparty/cash-collateral netting | (261,216 | ) | (312,433 | ) | ||||||||||||
Total per Consolidated Statement of Financial Condition | $ | 62,117 | $ | 18,427 | ||||||||||||
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Three Months Ended | Eight Months | Nine Months Ended | ||||||||||||||
August 31, | September 30, | Ended | September 30, | |||||||||||||
2010 | 2009 | August 31, 2010 | 2009 | |||||||||||||
Interest rate contracts | $ | (90,599 | ) | $ | (6,834 | ) | $ | (127,358 | ) | $ | (14,181 | ) | ||||
Foreign exchange contracts | (1,185 | ) | (102 | ) | (369 | ) | (1,050 | ) | ||||||||
Equity contracts | (14,345 | ) | 4,670 | (61,613 | ) | (203,869 | ) | |||||||||
Commodity contracts | 2,231 | (830 | ) | 5,963 | (5,697 | ) | ||||||||||
Credit contracts | 449 | 5,825 | (50,313 | ) | 23,305 | |||||||||||
Total | $ | (103,449 | ) | $ | 2,729 | $ | (233,690 | ) | $ | (201,492 | ) | |||||
OTC derivative assets (1) (2) (4) | ||||||||||||||||||||
Greater Than | Cross-Maturity | |||||||||||||||||||
0 – 12 Months | 1 – 5 Years | 5 Years | Netting (3) | Total | ||||||||||||||||
Commodity swaps | $ | 6,912 | $ | — | $ | — | $ | — | $ | 6,912 | ||||||||||
Commodity options | 10,949 | — | — | — | 10,949 | |||||||||||||||
Credit default swaps | — | 1,799 | 17,693 | — | 19,492 | |||||||||||||||
Total return swaps | 1,600 | 430 | — | (787 | ) | 1,243 | ||||||||||||||
Foreign currency forwards and swaps | 3,130 | — | — | — | 3,130 | |||||||||||||||
Interest rate swaps | — | — | 15,166 | (4,857 | ) | 10,309 | ||||||||||||||
Total | $ | 22,591 | $ | 2,229 | $ | 32,859 | $ | (5,644 | ) | $ | 52,035 | |||||||||
(1) | At August 31, 2010, we held exchange traded derivative assets of $14.3 million. | |
(2) | Option and swap contracts in the table above are gross of collateral received. Option and swap contracts are recorded net of collateral received on the Consolidated Statement of Financial Condition. At August 31, 2010, cash collateral received was $2.0 million. | |
(3) | Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. | |
(4) | Derivative fair values include counterparty netting. |
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OTC derivative liabilities (1) (2) (4) | ||||||||||||||||||||
Greater Than | Cross-Maturity | |||||||||||||||||||
0 – 12 Months | 1 – 5 Years | 5 Years | Netting (3) | Total | ||||||||||||||||
Commodity swaps | $ | 6,392 | $ | — | $ | — | $ | — | $ | 6,392 | ||||||||||
Commodity options | 14,393 | 83 | — | — | 14,476 | |||||||||||||||
Equity options | 149 | 1,324 | — | — | 1,473 | |||||||||||||||
Credit default swaps | 1 | 6 | — | — | 7 | |||||||||||||||
Total return swaps | 1,060 | 787 | — | (787 | ) | 1,060 | ||||||||||||||
Foreign currency forwards and swaps | 6,824 | 96 | — | — | 6,920 | |||||||||||||||
Interest rate swaps | — | 39,197 | 46,175 | (4,857 | ) | 80,515 | ||||||||||||||
Total | $ | 28,819 | $ | 41,493 | $ | 46,175 | $ | (5,644 | ) | $ | 110,843 | |||||||||
(1) | At August 31, 2010, we held exchange traded derivative liabilities of $6.2 million. | |
(2) | Option and swap contracts in the table above are gross of collateral pledged. Option and swap contracts are recorded net of collateral pledged on the Consolidated Statement of Financial Condition. At August 31, 2010, cash collateral pledged was $59.6 million. | |
(3) | Amounts represent the netting of receivable balances with payable balances for the same counterparty across maturity categories. | |
(4) | Derivative fair values include counterparty netting. |
Counterparty credit quality: | ||||
A or higher | $ | 51,049 | ||
Unrated | 986 | |||
Total | $ | 52,035 | ||
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August 31, 2010 | December 31, 2009 | |||||||
Equity securities | $ | 879,815 | $ | 658,959 | ||||
Fixed income securities | 9,770,449 | 4,964,386 | ||||||
$ | 10,650,264 | $ | 5,623,345 | |||||
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Assets obtained | As of August 31, 2010 | |||||||||||
Securitization Type | as proceeds | Total Assets (6) | Assets Retained | |||||||||
Residential mortgage-backed securities | $ | 1,543.4 | (3) | $ | 4,698.3 | $ | 364.6 | (1)(2) | ||||
Commercial mortgage-backed securities | 36.6 | (3) | 1,318.0 | 28.2 | (1)(2) | |||||||
Project loans | 0.1 | (4) | 107.8 | 0.1 | (5) |
(1) | At August 31, 2010, 100% of the securities issued in these securitizations are AAA-rated and are comprised of government agency securities. | |
(2) | A significant portion of these securities have been subsequently sold in secondary-market transactions to third parties. As of October 5, 2010, we continue to hold approximately $269.0 million and $18.1 million of these Residential mortgage-backed securities and Commercial mortgage-backed securities, respectively, in inventory. |
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(3) | Initial fair value of securities received on date of asset transfer that were issued by securitization vehicles. | |
(4) | Initial fair value of servicing rights received on transferred project loans. | |
(5) | Represents unamortized servicing rights on transferred project loans. | |
(6) | Represents unpaid principal amount of assets in the securitization vehicles. |
As of December 31, 2009 | ||||||||
Securitization Type | Total Assets | Securities (1)(2) | ||||||
Residential mortgage-backed securities | $ | 1,483.5 | $ | 104.8 | ||||
Commercial mortgage-backed securities | 641.7 | 9.2 |
(1) | At December 31, 2009, 100% of these securities issued in these securitizations are AAA-rated. | |
(2) | These securities have been subsequently sold in secondary market transactions to third parties. |
Eight Months | Nine Months | |||||||||||||||
Three months ended (1) | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 (1) | 2009 (1) | |||||||||||||
Residential mortgage-backed securities | $ | 11.5 | $ | 1.6 | $ | 26.3 | $ | 2.1 | ||||||||
Commercial mortgage-backed securities | 0.7 | — | 0.9 | — |
(1) | Cash flows received on beneficial interests in securitization vehicles of project loans were de minimus for the three and eight months ended August 31, 2010 and no cash flows were received for the three and nine months ended September 30, 2009. |
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Consolidated VIE Assets | ||||||||||||||||
August 31, 2010 | December 31, 2009 | |||||||||||||||
High Yield | Other | High Yield | Other | |||||||||||||
Cash | $ | 248.9 | $ | — | $ | 190.9 | $ | — | ||||||||
Financial instruments owned | 842.3 | 21.1 | 1,100.1 | — | ||||||||||||
Securities borrowed | 528.5 | — | 559.9 | — | ||||||||||||
Receivable from brokers and dealers | 249.9 | — | 340.5 | — | ||||||||||||
Other | 326.7 | — | 47.0 | — | ||||||||||||
$ | 2,196.3 | $ | 21.1 | $ | 2,238.4 | $ | — | |||||||||
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Consolidated VIE Liabilities | ||||||||||||||||
August 31, 2010 | December 31, 2009 | |||||||||||||||
High Yield | Other | High Yield | Other | |||||||||||||
Financial instruments sold, not yet purchased | $ | 735.0 | $ | — | $ | 893.2 | $ | — | ||||||||
Securities loaned | 75.0 | — | — | — | ||||||||||||
Payable to brokers and dealers | 120.1 | — | 326.5 | — | ||||||||||||
Mandatorily redeemable interests (1) | 1,047.9 | — | 964.2 | — | ||||||||||||
Promissory note (2) | — | 4.4 | — | — | ||||||||||||
Other | 39.5 | — | 9.8 | — | ||||||||||||
$ | 2,017.5 | $ | 4.4 | $ | 2,193.7 | $ | — | |||||||||
(1) | After consolidation, which eliminates our interests and the interests of our consolidated subsidiaries, JSOP and JESOP, the carrying amount of the mandatorily redeemable financial interests pertaining to the above VIEs included within Mandatorily redeemable preferred interests of consolidated subsidiaries in the Consolidated Statements of Financial Condition was approximately $300.9 million and $318.0 million at August 31, 2010 and December 31, 2009, respectively. | |
(2) | The promissory note represents an amount due to us and is eliminated in consolidation. |
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August 31, 2010 | ||||||||||||
Maximum exposure to | ||||||||||||
loss in non- | ||||||||||||
VIE Assets | consolidated VIEs | Carrying Amount | ||||||||||
Collateralized loan obligations | $ | 1,886.7 | $ | 28.9 | (2) | $ | 28.9 | |||||
Mortgage- and asset-backed vehicles — Non-agency (1) | 64,156.9 | 520.7 | (2) | 520.7 | ||||||||
Mortgage- and asset-backed vehicles — Agency (1) | 15,866.8 | 1,612.1 | (2) | 1,612.1 | ||||||||
Asset management vehicle | 709.4 | 17.1 | (2) | 17.1 | ||||||||
Private equity vehicles | 64.3 | 113.0 | 10.7 | |||||||||
Total | $ | 82,684.1 | $ | 2,291.8 | $ | 2,189.5 | ||||||
(1) | VIE assets represent the unpaid principal balance of the assets in these vehicles at August 31, 2010. | |
(2) | Our maximum exposure to loss in these non-consolidated VIEs is limited to our investment. |
December 31, 2009 | ||||||||||||
Maximum exposure to | ||||||||||||
loss in non- | ||||||||||||
VIE Assets | consolidated VIEs | Carrying Amount | ||||||||||
Collateralized loan obligations | $ | 1,862.6 | $ | 21.7 | (2) | $ | 21.7 | |||||
Mortgage- and asset-backed vehicles — Non-agency (1) | 123,560.0 | 488.7 | (2) | 488.7 | ||||||||
Private equity vehicles | 52.3 | 50.0 | (3) | 45.7 | ||||||||
Total | $ | 125,474.9 | $ | 560.4 | $ | 556.1 | ||||||
(1) | VIE assets represent the unpaid principal balance of the assets in these vehicles at December 31, 2009. | |
(2) | Our maximum exposure to loss in these non-consolidated VIEs is limited to our investment. | |
(3) | Our maximum exposure to loss in this non-consolidated VIE is limited to our loan commitment. |
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Cash consideration | $ | 38,760 | ||
Recognized assets and assumed liabilities: | ||||
Cash | $ | 300 | ||
Financial instruments owned | 31,458 | |||
Receivable from broker | 16,691 | |||
Premises and equipment | 155 | |||
Intangible assets | 1,151 | |||
Other assets | 2,781 | |||
Financial instruments sold, not yet purchased | (1,084 | ) | ||
Other liabilities | (13,260 | ) | ||
Total identifiable net assets | $ | 38,192 | ||
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Eight Months Ended | ||||
August 31, 2010 | ||||
Balance, at beginning of period | $ | 364,795 | ||
Add: Contingent consideration | 782 | |||
Less: Translation adjustments | (1,187 | ) | ||
Balance, at end of period | $ | 364,390 | ||
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Eight Months | ||||
Ended | ||||
August 31, 2010 | ||||
Balance, beginning of period | $ | 8,500 | ||
Add: Acquisition | 87 | |||
Less: Amortization | (237 | ) | ||
Balance, end of period | $ | 8,350 | ||
August 31, 2010 | December 31, 2009 | |||||||
7.75% Senior Notes, due 2012 (effective interest rate of 8.08%) | $ | 306,205 | $ | 306,811 | ||||
5.875% Senior Notes, due 2014 (effective interest rate of 6.00%) | 248,988 | 248,831 | ||||||
5.5% Senior Notes, due 2016 (effective interest rate of 5.57%) | 348,808 | 348,865 | ||||||
8.5% Senior Notes, due 2019 (effective interest rate of 8.31%) | 708,705 | 709,193 | ||||||
6.875% Senior Note, due 2021 (effective interest rate of 6.99%) | 545,409 | — | ||||||
6.45% Senior Debentures, due 2027 (effective interest rate of 6.55%) | 346,515 | 346,439 | ||||||
3.875% Convertible Senior Debentures, due, 2029 (effective interest rate of 7.20%) | 280,851 | 276,433 | ||||||
6.25% Senior Debentures, due 2036 (effective interest rate of 6.37%) | 492,621 | 492,545 | ||||||
$ | 3,278,102 | $ | 2,729,117 | |||||
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August 31, 2010 | December 31, 2009 | |||||||
JSOP | $ | 269.7 | $ | 282.7 | ||||
JESOP | 31.2 | 33.2 | ||||||
Other (1) | 13.0 | 5.6 | ||||||
Noncontrolling interests | $ | 313.9 | $ | 321.5 | ||||
(1) | Other includes consolidated asset management entities and investment vehicles set up for the benefit of our employees or clients. |
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Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net pension cost included the following components: | ||||||||||||||||
Service cost (1) | $ | 50 | $ | 50 | $ | 134 | $ | 150 | ||||||||
Interest cost on projected benefit obligation | 603 | 635 | 1,630 | 1,951 | ||||||||||||
Expected return on plan assets | (644 | ) | (595 | ) | (1,738 | ) | (1,823 | ) | ||||||||
Net amortization | 171 | 224 | 464 | 682 | ||||||||||||
Net periodic pension cost | $ | 180 | $ | 314 | $ | 490 | $ | 960 | ||||||||
(1) | Service cost relates to administrative expenses incurred during the periods. |
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Weighted | ||||||||
Eight Months Ended | Average Grant | |||||||
August 31, 2010 | Date Fair Value | |||||||
(Shares in 000s) | ||||||||
Restricted stock | ||||||||
Balance, beginning of period | 2,216 | $ | 20.01 | |||||
Grants | 1,912 | (1) | $ | 24.38 | ||||
Forfeited | (89 | ) | $ | 24.36 | ||||
Fulfillment of service requirement | (342) | (1) | $ | 18.29 | ||||
Balance, end of period | 3,697 | (2) | $ | 22.32 | ||||
(1) | Includes approximately 133,000 shares of restricted stock granted with no future service requirement during the eight months ended August 31, 2010. These shares are shown as granted and vested during the period. | |
(2) | Represents restricted stock with a future service requirement. |
Weighted | ||||||||||||||||
Eight Months Ended | Average Grant | |||||||||||||||
August 31, 2010 | Date Fair Value | |||||||||||||||
(Shares in 000s) | ||||||||||||||||
Future | No Future | Future | No Future | |||||||||||||
Service | Service | Service | Service | |||||||||||||
Required | Required | Required | Required | |||||||||||||
Restricted stock units | ||||||||||||||||
Balance, beginning of period | 936 | 26,468 | $ | 17.07 | $ | 14.84 | ||||||||||
Grants | 3,245 | 303 | (1) | $ | 25.48 | $ | 23.32 | |||||||||
Distribution of underlying shares | — | (1,976 | ) | $ | — | $ | 17.78 | |||||||||
Forfeited | (9 | ) | (341 | ) | $ | 12.60 | $ | 19.46 | ||||||||
Fulfillment of service requirement | (137 | ) | 137 | $ | 13.92 | $ | 13.92 | |||||||||
Balance, end of period | 4,035 | 24,591 | $ | 23.95 | $ | 14.65 | ||||||||||
(1) | Includes approximately 276,000 dividend equivalents declared on restricted stock units during the eight months ended August, 31, 2010. |
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Eight Months Ended August 31, 2010 | ||||||||
Weighted Average | ||||||||
Options | Exercise Price | |||||||
Outstanding at beginning of period | 48 | $ | 7.65 | |||||
Exercised | (22 | ) | $ | 4.99 | ||||
Outstanding at end of period | 26 | $ | 9.89 | |||||
Options exercisable at end of period | 26 | $ | 9.89 |
Outstanding, | ||||||||
Dollars and shares in thousands, except per share data | Net of Expected | Options | ||||||
August 31, 2010 | Forfeitures | Exercisable | ||||||
Number of options | 26 | 26 | ||||||
Weighted-average exercise price | 9.89 | 9.89 | ||||||
Aggregate intrinsic value | 326 | 326 | ||||||
Weighted-average remaining contractual term, in years | 1.50 | 1.50 |
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Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Earnings for basic earnings per common share: | ||||||||||||||||
Net earnings | $ | 44,127 | $ | 109,820 | $ | 166,660 | $ | 216,241 | ||||||||
Net (loss) earnings to noncontrolling interests | (2,129 | ) | 23,534 | 1,865 | 29,718 | |||||||||||
Net earnings to common shareholders | 46,256 | 86,286 | 164,795 | 186,523 | ||||||||||||
Less: Allocation of earnings to participating securities (1) | 1,731 | 1,108 | 5,580 | 1,096 | ||||||||||||
Net earnings available to common shareholders | $ | 44,525 | $ | 85,178 | $ | 159,215 | $ | 185,427 | ||||||||
Earnings for diluted earnings per common share: | ||||||||||||||||
Net earnings | $ | 44,127 | $ | 109,820 | $ | 166,660 | $ | 216,241 | ||||||||
Net (loss) earnings to noncontrolling interests | (2,129 | ) | 23,534 | 1,865 | 29,718 | |||||||||||
Net earnings to common shareholders | 46,256 | 86,286 | 164,795 | 186,523 | ||||||||||||
Add: Convertible preferred stock dividends | — | 1,016 | 2,708 | 3,047 | ||||||||||||
Less: Allocation of earnings to participating securities (1) | 1,730 | 1,098 | 5,590 | 1,092 | ||||||||||||
Net earnings available to common shareholders | $ | 44,526 | $ | 86,204 | $ | 161,913 | $ | 188,478 | ||||||||
Shares: | ||||||||||||||||
Average common shares used in basic computation | 195,601 | 200,609 | 196,943 | 201,860 | ||||||||||||
Stock options | 11 | 22 | 14 | 21 | ||||||||||||
Mandatorily redeemable convertible preferred stock | — | 4,105 | 4,105 | 4,105 | ||||||||||||
Convertible debt | — | — | — | — | ||||||||||||
Average common shares used in diluted computation | 195,612 | 204,736 | 201,062 | 205,986 | ||||||||||||
Earnings per common share: | ||||||||||||||||
Basic | $ | 0.23 | $ | 0.42 | $ | 0.81 | $ | 0.92 | ||||||||
Diluted | $ | 0.23 | $ | 0.42 | $ | 0.81 | $ | 0.92 |
(1) | Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Losses are not allocated to participating securities. Participating securities represent restricted stock and restricted stock units for which requisite service has not yet been rendered and amounted to weighted average shares of 7,661,000 and 2,609,000 for the three months ended August 31, 2010 and September 30, 2009, respectively, and 6,797,000 and 1,194,000 for the eight months ended August 31, 2010 and nine months ended September 30, 2009, respectively. Dividends declared on participating securities during the three and eight months ended August 31, 2010 amounted to approximately $559,000 and $1,621,000, respectively. No dividends were declared during 2009. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Number of securities outstanding at | ||||||||
August 31, 2010 (1) | September 30, 2009 | |||||||
Mandatorily redeemable convertible preferred stock | 4,105,138 | — |
(1) | Mandatorily redeemable convertible preferred stock was considered anti-dilutive for the three-months ended August 31, 2010. There were no antidilutive securities for the eight-months ended August 31, 2010. |
1st Quarter | 2nd Quarter | 3rd Quarter | ||||||||||
2010 | $ | 0.075 | $ | 0.075 | $ | 0.075 | ||||||
2009 | — | — | — |
Jurisdiction | Tax Year | |||
United States | 2006 | |||
United Kingdom | 2007 | |||
New Jersey | 2005 | |||
New York State | 2001 | |||
New York City | 2003 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Expected Maturity Date | ||||||||||||||||||||||||
2012 | 2014 | 2016 | Notional/ | |||||||||||||||||||||
and | and | and | Maximun | |||||||||||||||||||||
(in millions) | 2010 | 2011 | 2013 | 2015 | Later | Payout | ||||||||||||||||||
Bank credit | $ | 23.0 | $ | 7.7 | $ | 5.3 | $ | — | $ | — | $ | 36.0 | ||||||||||||
Equity commitments | — | 0.5 | 2.2 | 9.1 | 221.1 | 232.9 | ||||||||||||||||||
Loan commitments | — | 301.1 | 44.9 | 38.8 | — | 384.8 | ||||||||||||||||||
Mortgage-related commitments | 504.1 | 87.4 | 434.8 | — | — | 1,026.3 | ||||||||||||||||||
Derivative contracts: | ||||||||||||||||||||||||
Derivative contracts — non credit related | 25,565.7 | 5,906.7 | 23.3 | — | — | 31,495.7 | ||||||||||||||||||
Derivative contracts — credit related | — | — | — | 50.0 | 30.0 | 80.0 | ||||||||||||||||||
Total derivative contracts | 25,565.7 | 5,906.7 | 23.3 | 50.0 | 30.0 | 31,575.7 | ||||||||||||||||||
$ | 26,092.8 | $ | 6,303.4 | $ | 510.5 | $ | 97.9 | $ | 251.1 | $ | 33,255.7 | |||||||||||||
External Credit Rating | ||||||||||||||||||||||||
Below | Notional/ | |||||||||||||||||||||||
AAA/ | Investment | Maximun | ||||||||||||||||||||||
(in millions) | Aaa | AA/Aa | BBB/Baa | Grade | Unrated | Payout | ||||||||||||||||||
Bank credit | $ | — | $ | — | $ | — | $ | — | $ | 36.0 | $ | 36.0 | ||||||||||||
Loan commitments | — | — | 9.6 | 53.8 | 321.4 | 384.8 | ||||||||||||||||||
Derivative contracts- credit related: | ||||||||||||||||||||||||
Single name credit default swaps | — | — | — | 10.0 | — | 10.0 | ||||||||||||||||||
Index credit default swaps | 20.0 | 10.0 | — | 40.0 | — | 70.0 | ||||||||||||||||||
Total derivative contracts — credit related | 20.0 | 10.0 | — | 50.0 | — | 80.0 | ||||||||||||||||||
Total credit related commitments | $ | 20.0 | $ | 10.0 | $ | 9.6 | $ | 103.8 | $ | 357.4 | $ | 500.8 | ||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Excess Net | ||||||||
Net Capital | Capital | |||||||
Jefferies | $ | 839,870 | $ | 777,984 | ||||
Jefferies Execution | $ | 12,133 | $ | 11,883 | ||||
Jefferies High Yield Trading | $ | 362,167 | $ | 361,917 |
• | Net revenues and expenses directly associated with each reportable business segment are included in determining earnings before taxes. |
• | Net revenues and expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors. |
• | Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
Capital | Asset | |||||||||||
Markets | Management | Total | ||||||||||
Three months ended August 31, 2010 | ||||||||||||
Net revenues | $ | 519.3 | $ | 0.8 | $ | 520.1 | ||||||
Expenses | $ | 435.1 | $ | 8.3 | $ | 443.4 | ||||||
Eight months ended August 31, 2010 | ||||||||||||
Net revenues | $ | 1,507.7 | $ | 11.8 | $ | 1,519.5 | ||||||
Expenses | $ | 1,219.3 | $ | 20.6 | $ | 1,239.9 | ||||||
Segment assets | $ | 31,503.2 | $ | 132.6 | $ | 31,635.8 | ||||||
Three months ended September 30, 2009 | ||||||||||||
Net revenues | $ | 679.4 | $ | 21.0 | $ | 700.4 | ||||||
Expenses | $ | 495.6 | $ | 6.2 | $ | 501.8 | ||||||
Nine months ended September 30, 2009 | ||||||||||||
Net revenues | $ | 1,611.1 | $ | 21.5 | $ | 1,632.6 | ||||||
Expenses | $ | 1,238.9 | $ | 16.5 | $ | 1,255.4 | ||||||
Segment assets | $ | 27,702.9 | $ | 160.4 | $ | 27,863.3 | ||||||
Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Americas (1) | $ | 446,981 | $ | 624,128 | $ | 1,301,530 | $ | 1,456,036 | ||||||||
Europe (2) | 69,370 | 75,087 | 214,655 | 175,656 | ||||||||||||
Asia (including Middle East) | 3,747 | 1,206 | 3,285 | 879 | ||||||||||||
Net Revenues | $ | 520,098 | $ | 700,421 | $ | 1,519,470 | $ | 1,632,571 | ||||||||
(1) | Substantially all relates to U.S. results. | |
(2) | Substantially all relates to U.K. results. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — CONTINUED
(Unaudited)
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Condition and Results of Operations
• | the description of our business and risk factors contained in our annual report on Form 10-K for the fiscal year ended December 31, 2009 and filed with the SEC on February 26, 2010 and in our quarterly report on Form 10-Q for the period ended May 31, 2010 and filed with the SEC on July 9, 2010; | ||
• | the discussion of our analysis of financial condition and results of operations contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; | ||
• | the notes to the consolidated financial statements contained in this report; and | ||
• | cautionary statements we make in our public documents, reports and announcements. |
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Eight Months | Nine Months | |||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
August 31, | September | August 31, | September 30, | |||||||||||||
(Dollars in Thousands, except for per shareamounts) | 2010 | 30, 2009 | 2010 | 2009 | ||||||||||||
Net revenues, less mandatorily redeemable preferred interest | $ | 522,635 | $ | 676,825 | $ | 1,519,494 | $ | 1,601,951 | ||||||||
Non-interest expenses | 443,441 | 501,795 | 1,239,874 | 1,255,411 | ||||||||||||
Earnings before income taxes | 79,194 | 175,030 | 279,620 | 346,540 | ||||||||||||
Income tax expense | 35,067 | 65,210 | 112,960 | 130,299 | ||||||||||||
Net earnings | 44,127 | 109,820 | 166,660 | 216,241 | ||||||||||||
Net (loss) / earnings to noncontrolling interests | (2,129 | ) | 23,534 | 1,865 | 29,718 | |||||||||||
Net earnings to common shareholders | 46,256 | 86,286 | 164,795 | 186,523 | ||||||||||||
Earnings per diluted common share | $ | 0.23 | $ | 0.42 | $ | 0.81 | $ | 0.92 | ||||||||
Effective tax rate | 44 | % | 37 | % | 40 | % | 38 | % |
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Three Months Ended | ||||||||||||||||
August 31, 2010 | September 30, 2009 | |||||||||||||||
% of Net | % of Net | |||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | ||||||||||||
Equities | $ | 101,935 | 20 | % | $ | 138,916 | 20 | % | ||||||||
Fixed income | 171,184 | 33 | 418,010 | 60 | ||||||||||||
Total sales and trading | 273,119 | 53 | 556,926 | 80 | ||||||||||||
Equity | 15,911 | 3 | 24,201 | 3 | ||||||||||||
Debt | 80,804 | 15 | 54,772 | 8 | ||||||||||||
Capital markets | 96,715 | 18 | 78,973 | 11 | ||||||||||||
Advisory | 149,478 | 29 | 43,556 | 6 | ||||||||||||
Investment banking | 246,193 | 47 | 122,529 | 17 | ||||||||||||
Asset management fees and investment income / (loss) from managed funds: | ||||||||||||||||
Asset management fees | 3,996 | 1 | 12,564 | 2 | ||||||||||||
Investment income / (loss) from managed funds | (3,210 | ) | (1 | ) | 8,402 | 1 | ||||||||||
Total | 786 | — | 20,966 | 3 | ||||||||||||
Net revenues | 520,098 | 100 | % | 700,421 | 100 | % | ||||||||||
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries | (2,537 | ) | 23,596 | |||||||||||||
Net revenues, less mandatorily redeemable preferred interest | $ | 522,635 | $ | 676,825 | ||||||||||||
Eight Months Ended | Nine Months Ended | |||||||||||||||
August 31, 2010 | September 30, 2009 | |||||||||||||||
% of Net | % of Net | |||||||||||||||
(in thousands) | Amount | Revenues | Amount | Revenues | ||||||||||||
Equities | $ | 377,044 | 25 | % | $ | 361,226 | 22 | % | ||||||||
Fixed income | 532,170 | 35 | 961,742 | 58 | ||||||||||||
Other | — | — | 7,672 | 1 | ||||||||||||
Total sales and trading | 909,214 | 60 | 1,330,640 | 81 | ||||||||||||
Equity | 80,317 | 5 | 64,630 | 5 | ||||||||||||
Debt | 258,334 | 17 | 113,132 | 7 | ||||||||||||
Capital markets | 338,651 | 22 | 177,762 | 12 | ||||||||||||
Advisory | 259,799 | 17 | 102,685 | 6 | ||||||||||||
Investment banking | 598,450 | 39 | 280,446 | 18 | ||||||||||||
Asset management fees and investment income from managed funds: | ||||||||||||||||
Asset management fees | 10,436 | 1 | 20,040 | 1 | ||||||||||||
Investment income from managed funds | 1,368 | — | 1,445 | — | ||||||||||||
Total | 11,804 | 1 | 21,485 | 1 | ||||||||||||
Net revenues | 1,519,468 | 100 | % | 1,632,571 | 100 | % | ||||||||||
Interest on mandatorily redeemable preferred interest of consolidated subsidiaries | (26 | ) | 30,620 | |||||||||||||
Net revenues, less mandatorily redeemable preferred interest | $ | 1,519,494 | $ | 1,601,951 | ||||||||||||
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Three Months Ended | Three Months Ended | Eight Months Ended | Nine Months Ended | |||
August 31, 2010 | September 30, 2009 | August 31, 2010 | September 30, 2009 | |||
65 days | 64 days | 167 days | 188 days |
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Eight Months | Nine Months | |||||||||||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||||||||||
August 31, | September 30, | August 31, | September 30, | |||||||||||||||||||||
(in thousands) | 2010 | 2009 | % Change | 2010 | 2009 | % Change | ||||||||||||||||||
Equity | $ | 15,911 | $ | 24,201 | -34 | % | $ | 80,317 | $ | 64,630 | 24 | % | ||||||||||||
Debt | 80,804 | 54,772 | 48 | % | 258,334 | 113,132 | 128 | % | ||||||||||||||||
Capital markets | 96,715 | 78,973 | 22 | % | 338,651 | 177,762 | 91 | % | ||||||||||||||||
Advisory | 149,478 | 43,556 | 243 | % | 259,799 | 102,684 | 153 | % | ||||||||||||||||
Total | $ | 246,193 | $ | 122,529 | 101 | % | $ | 598,450 | $ | 280,446 | 113 | % | ||||||||||||
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Three Months Ended | Eight Months Ended | Nine Months Ended | ||||||||||||||
August 31, 2010 | September 30, 2009 | August 31, 2010 | September 30, 2009 | |||||||||||||
Asset management fees: | ||||||||||||||||
Fixed Income | $ | 1,002 | $ | 1,659 | $ | 2,589 | $ | 4,603 | ||||||||
Equities | 94 | 1,046 | 2,022 | 2,508 | ||||||||||||
Convertibles | 2,611 | 9,604 | 3,086 | 12,431 | ||||||||||||
Commodities | 289 | 255 | 2,739 | 498 | ||||||||||||
3,996 | 12,564 | 10,436 | 20,040 | |||||||||||||
Investment (loss) income from managed funds (1) | (3,210 | ) | 8,402 | 1,368 | 1,445 | |||||||||||
Total | $ | 786 | $ | 20,966 | $ | 11,804 | $ | 21,485 | ||||||||
(1) | Of the total investment (loss) income from managed funds, approximately $0.1 and $0.1 million is attributed to noncontrolling interest holders for the three months ended August 31, 2010 and September 30, 2009, respectively, and approximately $(0.1) million and $(0.2) million is attributed to noncontrolling interest holders for the eight months ended August 31, 2010 and the nine months ended September 30, 2009, respectively. |
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August 31, 2010 | September 30, 2009 | |||||||
Assets under management (1)(3): | ||||||||
Fixed Income | $ | — | $ | 1,563 | ||||
Equities | 78 | 76 | ||||||
Convertibles | 1,759 | 1,607 | ||||||
1,837 | 3,246 | |||||||
Assets under management by third parties (2): | ||||||||
Private Equity (4) | 592 | 600 | ||||||
592 | 600 | |||||||
Total | $ | 2,429 | $ | 3,846 | ||||
(1) | Assets under management include assets actively managed by us including hedge funds and managed accounts. Assets under management do not include the assets of funds that are consolidated due to the level or nature of our investment in such funds. | |
(2) | Third party managed funds in which we have a 50% or less interest in the entities that manage these assets or otherwise receive a portion of the management fees. | |
(3) | Assets under management are based on the fair value of the assets. | |
(4) | Assets under management represent either the capital commitment to a fund or carrying value of a fund depending on how management fees are calculated as governed by the partnership or management agreement. |
Eight Months | Nine Months | |||||||||||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||||||||||
August 31, | September | % | August 31, | September | % | |||||||||||||||||||
(in millions) | 2010 | 30, 2009 | Change | 2010 | 30, 2009 | Change | ||||||||||||||||||
Balance, beginning of period | $ | 2,325 | 3,632 | -36 | % | $ | 4,024 | $ | 3,491 | 15 | % | |||||||||||||
Net cash flow in (out) | 261 | (108 | ) | (1,313 | ) | (508 | ) | |||||||||||||||||
Net market (depreciation) appreciation | (157 | ) | 322 | (282 | ) | 863 | ||||||||||||||||||
104 | 214 | (1,595 | ) | 355 | ||||||||||||||||||||
Balance, end of period | $ | 2,429 | $ | 3,846 | -37 | % | $ | 2,429 | $ | 3,846 | -37 | % | ||||||||||||
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(notional account value) | August 31, 2010 | September 30, 2009 | ||||||
Managed Accounts: | ||||||||
Equities | $ | 147 | $ | 51 | ||||
Commodities | 496 | 115 | ||||||
$ | 643 | $ | 166 | |||||
�� | Eight Months | Nine Months | ||||||||||||||
Three Months Ended | Ended | Ended | ||||||||||||||
(notional account value) | August 31, | September 31, | August 31, | September 31, | ||||||||||||
(in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Balance, beginning of period | $ | 618 | $ | 150 | $ | 560 | $ | — | ||||||||
Net account additions | 36 | 9 | 136 | 166 | ||||||||||||
Net account depreciation | (11 | ) | 7 | (53 | ) | — | ||||||||||
Balance, end of period | $ | 643 | $ | 166 | $ | 643 | $ | 166 | ||||||||
August 31, 2010 | December 31, 2009 | |||||||
Unconsolidated funds (1) | $ | 124,890 | $ | 115,009 | ||||
Consolidated funds (2) | 58,201 | 44,441 | ||||||
Total | $ | 183,091 | $ | 159,450 | ||||
(1) | Our invested capital in unconsolidated funds is reported within Investments in managed funds on the Consolidated Statement of Financial Condition. | |
(2) | Due to the level or nature of our investment in such funds, certain funds are consolidated and the assets and liabilities of these funds are reflected in our consolidated financial statements primarily within financial instruments owned or financial instruments sold, not yet purchased. With respect to consolidated funds, we do not recognize asset management fees or include such fund in our assets under management. |
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August 31, 2010 | December 31, 2009 | |||||||||||||||
Financial | Financial | |||||||||||||||
Instruments | Instruments | |||||||||||||||
Financial | Sold, | Financial | Sold, | |||||||||||||
Instruments | Not Yet | Instruments | Not Yet | |||||||||||||
Owned | Purchased | Owned | Purchased | |||||||||||||
Corporate equity securities | $ | 1,670,545 | $ | 1,513,716 | $ | 1,500,042 | $ | 1,360,528 | ||||||||
Corporate debt securities | 3,495,590 | 2,383,054 | 2,421,704 | 1,909,781 | ||||||||||||
Government, federal agency and other sovereign obligations | 3,892,319 | 3,590,232 | 1,762,643 | 1,735,861 | ||||||||||||
Mortgage- and asset-backed securities | 4,676,293 | 29,292 | 3,079,865 | 21,474 | ||||||||||||
Loans and other receivables | 292,839 | 244,199 | 591,208 | 363,080 | ||||||||||||
Derivatives | 64,330 | 57,414 | 62,117 | 18,427 | ||||||||||||
Investments | 79,356 | — | 70,156 | — | ||||||||||||
$ | 14,171,272 | $ | 7,817,907 | $ | 9,487,735 | $ | 5,409,151 | |||||||||
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Financial Instruments Sold, | ||||||||||||||||
Financial Instruments Owned | Not Yet Purchased | |||||||||||||||
August 31, | December 31, | August 31, | December 31, | |||||||||||||
(in thousands) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Residential mortgage-backed securities | $ | 167,839 | $ | 136,496 | $ | — | $ | — | ||||||||
Corporate debt securities | 101,284 | 116,648 | — | — | ||||||||||||
Loans and other receivables | 85,341 | 506,542 | 26,112 | 352,420 | ||||||||||||
Investments | 79,356 | 65,564 | — | — | ||||||||||||
Corporate equity securities | 25,579 | 43,042 | 96 | — | ||||||||||||
Collateralized debt obligations | 26,306 | 9,570 | — | — | ||||||||||||
U.S. issued municipal securities | 429 | 420 | — | — | ||||||||||||
Commercial mortgage-backed securities | 50 | 3,215 | — | — | ||||||||||||
Other asset-backed securities | — | 110 | — | — | ||||||||||||
Derivatives | — | 1,909 | 1,294 | 4,926 | ||||||||||||
Sovereign obligations | — | 196 | — | — | ||||||||||||
Total Level 3 assets | 486,184 | 883,712 | 27,502 | 357,346 | ||||||||||||
Level 3 assets for which the firm bears no economic exposure (1) | (116,528 | ) | (379,153 | ) | — | — | ||||||||||
Level 3 assets for which the firm bears economic exposure | $ | 369,656 | $ | 504,559 | $ | 27,502 | $ | 357,346 | ||||||||
Total Level 3 as a percentage of total financial instruments | 3 | % | 9 | % | 0.3 | % | 7 | % |
(3) | Consists of Level 3 assets which are attributable to third party and employee noncontrolling interests in certain consolidated entities. |
Three Months Ended | Eight Months | Nine Months | ||||||||||||||
August 31, | September 30, | Ended August | Ended September | |||||||||||||
(in millions) | 2010 | 2009 | 31, 2010 | 30, 2009 | ||||||||||||
Assets: | ||||||||||||||||
Transfers from Level 3 to Level 2 | $ | 4.2 | $ | 10.9 | $ | 183.5 | $ | 100.7 | ||||||||
Transfers from Level 2 to Level 3 | 30.4 | 4.3 | 35.0 | 119.3 | ||||||||||||
Net gains (losses) | 9.4 | 75.4 | 57.9 | 30.1 | ||||||||||||
Liabilities: | ||||||||||||||||
Transfers from Level 3 to Level 2 | $ | 0.5 | $ | 1.6 | $ | 113.3 | $ | 5.1 | ||||||||
Transfers from Level 2 to Level 3 | 0.1 | — | 0.1 | 3.0 | ||||||||||||
Net gains (losses) | 0.8 | (1.0 | ) | 6.1 | (0.8 | ) |
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August 31, 2010 | December 31, 2009 | |||||||
Cash and cash equivalents: | ||||||||
Cash in banks | $ | 260,359 | $ | 196,189 | ||||
Money market investments | 1,829,581 | 1,656,978 | ||||||
Total cash and cash equivalents | 2,089,940 | 1,853,167 | ||||||
Cash and securities segregated (1) | 1,337,949 | 1,089,803 | ||||||
$ | 3,427,889 | $ | 2,942,970 | |||||
(1) | Consists of deposits at exchanges and clearing organizations, as well as deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies, as a broker dealer carrying client accounts, to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. |
• | Funding Action Plan. The Funding Action Plan models a potential liquidity contraction over a one-year time period. Our funding action plan model scenarios incorporate potential cash outflows during a liquidity stress event, including, but not limited to, the following: (a) repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance; (b) maturity roll-off of outstanding letters of credit with no further issuance and replacement with cash collateral; (c) higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements, (d) lower availability of secured funding; (e) client cash withdrawals; (f) the anticipated funding of outstanding investment commitments and (g) certain accrued expenses and other liabilities and fixed costs. |
• | Cash Capital Policy. We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity, preferred stock and the non-current portion of long-term borrowings. Uses of cash capital include the following: (a) illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments; (b) a portion of securities inventory that is not expected to be financed on a secured basis in a credit-stressed environment (i.e., margin requirements) and (c) drawdowns of unfunded commitments. To ensure that we do not need to liquidate inventory in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios we maintain. Our total capital of $6,358.2 million as of August 31, 2010 exceeded our cash capital requirements. |
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August 31, | December | % | ||||||||||
2010 | 31, 2009 | Change | ||||||||||
Total assets | $ | 31,635.8 | $ | 28,189.3 | 12 | % | ||||||
Financial instruments owned | 14,171.3 | 9,487.7 | 49 | % | ||||||||
Financial instruments sold, not yet purchased | 7,817.9 | 5,409.2 | 45 | % | ||||||||
Total Level 3 assets | 486.2 | 883.7 | -45 | % | ||||||||
Level 3 assets for which we have economic exposure | 369.7 | 504.6 | -27 | % | ||||||||
Securities borrowed | $ | 6,768.0 | $ | 8,238.0 | -18 | % | ||||||
Securities purchased under agreements to resell | 3,185.3 | 3,515.2 | -9 | % | ||||||||
Total securities borrowed and securities purchased under agreements to resell | $ | 9,953.3 | $ | 11,753.2 | -15 | % | ||||||
Securities loaned | $ | 2,004.0 | $ | 3,592.8 | -44 | % | ||||||
Securities sold under agreements to repurchase | 9,596.3 | 8,239.1 | 16 | % | ||||||||
Total securities loaned and securities sold under agreements to repurchase | $ | 11,600.3 | $ | 11,831.9 | -2 | % | ||||||
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August 31, 2010 | December 31, 2009 | |||||||
Total assets | $ | 31,635,830 | $ | 28,189,271 | ||||
Deduct: Securities borrowed | (6,767,967 | ) | (8,237,998 | ) | ||||
Securities purchased under agreements to resell | (3,185,288 | ) | (3,515,247 | ) | ||||
Add: Financial instruments sold, not yet purchased | 7,817,907 | 5,409,151 | ||||||
Less derivative liabilities | (57,414 | ) | (18,427 | ) | ||||
Subtotal | 7,760,493 | 5,390,724 | ||||||
Deduct: Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations | (1,337,949 | ) | (1,089,803 | ) | ||||
Goodwill and intangible assets | (367,705 | ) | (368,670 | ) | ||||
Adjusted assets | $ | 27,737,414 | $ | 20,368,277 | ||||
Total stockholders’ equity | $ | 2,654,162 | $ | 2,630,127 | ||||
Deduct: Goodwill and intangible assets | (367,705 | ) | (368,670 | ) | ||||
Tangible stockholders’ equity | $ | 2,286,457 | $ | 2,261,457 | ||||
Leverage ratio (1) | 11.9 | 10.7 | ||||||
Adjusted leverage ratio (2) | 12.1 | 9.0 | ||||||
(1) | Leverage ratio equals total assets divided by total stockholders’ equity. | |
(2) | Adjusted leverage ratio equals adjusted assets divided by tangible stockholders’ equity. |
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August 31, 2010 | December 31, 2009 | |||||||
Long-term debt | $ | 3,278,102 | $ | 2,729,117 | ||||
Mandatorily redeemable convertible preferred stock | 125,000 | 125,000 | ||||||
Mandatorily redeemable preferred interest of consolidated subsidiaries | 300,944 | 318,047 | ||||||
Total stockholders’ equity | 2,654,162 | 2,630,127 | ||||||
Total capital | $ | 6,358,208 | $ | 5,802,291 | ||||
Rating | Outlook | |||||||
Moody’s Investors Service | Baa2 | Stable | ||||||
Standard and Poor’s | BBB | Stable | ||||||
Fitch Ratings | BBB | Stable |
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Expected Maturity Date | ||||||||||||||||||||||||
�� | 2012 | 2014 | 2016 | |||||||||||||||||||||
and | and | and | ||||||||||||||||||||||
2010 | 2011 | 2013 | 2015 | Later | Total | |||||||||||||||||||
Debt obligations: | ||||||||||||||||||||||||
Senior notes (contractual principal payments net of unamortized discounts and premiums) | $ | — | $ | — | $ | 306.2 | $ | 249.0 | $ | 2,722.9 | $ | 3,278.1 | ||||||||||||
Interest payment obligations on senior notes | 184.2 | 222.1 | 401.8 | 374.0 | 1,323.9 | 2,506.0 | ||||||||||||||||||
Mandatorily redeemable convertible preferred stock | — | — | — | — | 125.0 | 125.0 | ||||||||||||||||||
184.2 | 222.1 | 708.0 | 623.0 | 4,171.8 | 5,909.1 | |||||||||||||||||||
Commitments and gaurantees: | ||||||||||||||||||||||||
Bank credit | 23.0 | 7.7 | 5.3 | — | — | 36.0 | ||||||||||||||||||
Equity commitments | — | 0.5 | 2.2 | 9.1 | 221.1 | 232.9 | ||||||||||||||||||
Loan commitments | — | 301.1 | 44.9 | 38.8 | — | 384.8 | ||||||||||||||||||
Mortgage-related commitments | 504.1 | 87.4 | 434.8 | — | — | 1,026.3 | ||||||||||||||||||
Derivative contracts: | ||||||||||||||||||||||||
Derivative contracts — non credit related | 25,565.7 | 5,906.7 | 23.3 | — | — | 31,495.7 | ||||||||||||||||||
Derivative contracts — credit related | — | — | — | 50.0 | 30.0 | 80.0 | ||||||||||||||||||
Total derivative contracts | 25,565.7 | 5,906.7 | 23.3 | 50.0 | 30.0 | 31,575.7 | ||||||||||||||||||
$ | 26,092.8 | $ | 6,303.4 | $ | 510.5 | $ | 97.9 | $ | 251.1 | $ | 33,255.7 | |||||||||||||
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August 31, 2010 | December 31, 2009 | |||||||
Common stockholders’ equity | $ | 2,340,278 | $ | 2,308,589 | ||||
Less: Goodwill and intangible assets | (367,705 | ) | (368,670 | ) | ||||
Tangible common stockholders’ equity | $ | 1,972,573 | $ | 1,939,919 | ||||
Common stockholders’ equity | $ | 2,340,278 | $ | 2,308,589 | ||||
Add: Unrecognized compensation (6) | 143,390 | 53,512 | ||||||
Adjusted common stockholders’ equity | $ | 2,483,668 | $ | 2,362,101 | ||||
Tangible common stockholders’ equity | $ | 1,972,573 | $ | 1,939,919 | ||||
Add: Unrecognized compensation (6) | 143,390 | 53,512 | ||||||
Adjusted tangible common stockholders’ equity | $ | 2,115,963 | $ | 1,993,431 | ||||
Shares outstanding | 171,240,809 | 165,637,554 | ||||||
Outstanding restricted stock units (5) | 28,626,663 | 27,404,347 | ||||||
Adjusted shares outstanding | 199,867,472 | 193,041,901 | ||||||
Common book value per share (1) | $ | 13.67 | $ | 13.94 | ||||
Adjusted common book value per share (2) | $ | 12.43 | $ | 12.24 | ||||
Tangible common book value per share (3) | $ | 11.52 | $ | 11.71 | ||||
Adjusted tangible common book value per share (4) | $ | 10.59 | $ | 10.33 | ||||
(1) | Common book value per share equals common stockholders’ equity divided by common shares outstanding. | |
(2) | Adjusted common book value per share equals adjusted common stockholders’ equity divided by adjusted shares outstanding. | |
(3) | Tangible common book value per share equals tangible common stockholders’ equity divided by common shares outstanding. | |
(4) | Adjusted tangible common book value per share equals adjusted tangible common stockholders’ equity divided by adjusted shares outstanding. | |
(5) | Outstanding restricted stock units, which give the recipient the right to receive common shares at the end of a specified deferral period, are granted in connection with our share-based employee incentive plans and include both awards that contain future service requirements and awards for which the future service requirements have been met. |
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(6) | Unrecognized compensation relates to granted restricted stock and restricted stock units which contain future service requirements. |
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Excess Net | ||||||||
Net Capital | Capital | |||||||
Jefferies | $ | 839,870 | $ | 777,984 | ||||
Jefferies Execution | $ | 12,133 | $ | 11,883 | ||||
Jefferies High Yield Trading | $ | 362,167 | $ | 361,917 |
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• | inventory position and exposure limits, on a gross and net basis; | ||
• | scenario analyses, stress tests and other analytical tools that measure the potential effects on our trading net revenues of various market events, including, but not limited to, a large widening of credit spreads, a substantial decline in equities markets and significant moves in selected emerging markets; and | ||
• | risk limits based on a summary measure of risk exposure referred to as Value-at-Risk. |
(In Millions) | ||||||||||||||||||||||||
Value-at-Risk in trading portfolios | ||||||||||||||||||||||||
VaR at | Average VaR 3 Months Ended | |||||||||||||||||||||||
Risk Categories | 8/31/10 | 5/31/10 | 3/31/10 | 8/31/10 | 5/31/10 | 3/31/10 | ||||||||||||||||||
Interest Rates | $ | 7.85 | $ | 7.10 | $ | 5.75 | $ | 6.03 | $ | 6.53 | $ | 7.19 | ||||||||||||
Equity Prices | $ | 4.92 | $ | 3.25 | $ | 5.16 | $ | 4.26 | $ | 4.54 | $ | 7.10 | ||||||||||||
Currency Rates | $ | 0.47 | $ | 0.43 | $ | 0.43 | $ | 0.36 | $ | 0.51 | $ | 0.80 | ||||||||||||
Commodity Prices | $ | 1.91 | $ | 1.36 | $ | 1.34 | $ | 1.56 | $ | 1.16 | $ | 1.77 | ||||||||||||
Diversification Effect2 | -$ | 7.46 | -$ | 5.32 | -$ | 2.89 | -$ | 3.57 | -$ | 4.49 | -$ | 5.65 | ||||||||||||
Firmwide | $ | 7.69 | $ | 6.82 | $ | 9.79 | $ | 8.64 | $ | 8.25 | $ | 11.21 | ||||||||||||
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Daily VaR(1) | ||||||||||||||||||||||||
(In Millions) | ||||||||||||||||||||||||
Value-at-Risk Highs and Lows for Three Months Ended | ||||||||||||||||||||||||
8/31/10 | 5/31/10 | 3/31/10 | ||||||||||||||||||||||
Risk Categories | High | Low | High | Low | High | Low | ||||||||||||||||||
Interest Rates | $ | 8.39 | $ | 4.46 | $ | 9.37 | $ | 4.70 | $ | 11.75 | $ | 2.88 | ||||||||||||
Equity Prices | $ | 7.76 | $ | 2.90 | $ | 9.43 | $ | 2.52 | $ | 13.40 | $ | 2.52 | ||||||||||||
Currency Rates | $ | 0.79 | $ | 0.09 | $ | 0.95 | $ | 0.14 | $ | 1.52 | $ | 0.43 | ||||||||||||
Commodity Prices | $ | 2.48 | $ | 0.82 | $ | 1.85 | $ | 0.60 | $ | 3.27 | $ | 0.96 | ||||||||||||
Firmwide | $ | 13.42 | $ | 5.90 | $ | 11.54 | $ | 6.22 | $ | 17.41 | $ | 6.44 | ||||||||||||
(1) | VaR is the potential loss in value of our trading positions due to adverse market movements over a defined time horizon with a specific confidence level. For the VaR numbers reported above, a one-day time horizon and 95% confidence level were used. | |
(2) | Equals the difference between firmwide VaR and the sum of the VaRs by risk categories. This effect is due to the market categories not being perfectly correlated. |
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($ in millions)
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(c) Total Number of | (d) Maximum Number | |||||||||||||||
(a) Total | Shares Purchased as | of Shares that May | ||||||||||||||
Number of | (b) Average | Part of Publicly | Yet Be Purchased | |||||||||||||
Shares | Price Paid | Announced Plans or | Under the Plans or | |||||||||||||
Period | Purchased (1) | per Share | Programs (2) | Programs | ||||||||||||
June 1 – June 30, 2010 | 28,934 | $ | 23.18 | — | 11,425,010 | |||||||||||
July 1 – July 31, 2010 | 475,454 | 21.84 | 450,000 | 10,975,010 | ||||||||||||
August 1 – August 31, 2010 | 20,481 | 24.50 | — | 10,975,010 | ||||||||||||
Total | 524,869 | 450,000 | ||||||||||||||
(1) | We repurchased an aggregate of 74,869 shares other than as part of a publicly announced plan or program. We repurchased these securities in connection with our stock compensation plans which allow participants to use shares to pay the exercise price of certain options exercised and to use shares to satisfy certain tax liabilities arising from the exercise of options or the vesting of restricted stock. The number above does not include unvested shares forfeited back to us pursuant to the terms of our stock compensation plans. | |
(2) | On December 14, 2009 we announced the authorization by our Board of Directors of the repurchase, from time to time, of up to an aggregate of 15,000,000 shares of our common stock, inclusive of prior authorizations. |
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Exhibits | ||||
3.1 | Amended and Restated Certificate of Incorporation of Jefferies Group, Inc. is incorporated herein by reference to Exhibit 3 of the Registrant’s Form 8-K filed on May 26, 2004. | |||
3.2 | Certificate of Designations of 3.25% Series A Cumulative Convertible Preferred Stock is incorporated herein by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on February 21, 2006. | |||
3.3 | By-Laws of Jefferies Group, Inc are incorporated herein by reference to Exhibit 3 of Registrant’s Form 8-K filed on December 4, 2007. | |||
10.1 | Subscription Agreement for Jefferies SBI USA Fund L.P. dated as of July 26, 2010 is incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on August 12, 2010. | |||
10.2 | Subscription Agreement for Jefferies Capital Partners V L.P. dated as of August 12, 2010 is incorporated by reference to Exhibit 10.2 of Registrant’s Form 8-K filed on August 12, 2010. | |||
10.3 | Purchase Agreement dated July 14, 2010 between Jefferies Group, Inc. and Jefferies & Company, Inc. is incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on July 19, 2010. | |||
10.4 | Purchase Agreement dated June 23, 2010 among Jefferies Group, Inc., Jefferies & Company, Inc., Citigroup Global Markets Inc., J.P. Morgan Securities Inc., BNY Mellon Capital Markets, Inc., BNP Paribas Securities Corp., Deutsche Bank Securities Inc., Keefe, Bruyette & Woods, Inc. and U.S. Bancorp Investments, Inc. is incorporated by reference to Exhibit 10.1 of Registrant’s Form 8-K filed on June 28, 2010. | |||
18 | * | Letter from Deloitte & Touche LLP dated October 11, 2010. | ||
31.1 | * | Rule 13a-14(a)/15d-14(a) Certification by the Chief Financial Officer. | ||
31.2 | * | Rule 13a-14(a)/15d-14(a) Certification by the Chief Executive Officer. | ||
32 | * | Rule 13a-14(b)/15d-14(b) and Section 1350 of Title 18 U.S.C. Certification by the Chief Executive Officer and Chief Financial Officer. | ||
101 | ** | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition at August 31, 2010 and December 31, 2009, (ii) the Consolidated Statements of Earnings for the Three and Eight Months Ended August 31, 2010 and the Three and Nine Months Ended September 30, 2009, (iii) the Consolidated Statements of Changes in Stockholders’ Equity for the Eight Months Ended August 31, 2010 and the Year Ended December 31, 2009, (iv) the Consolidated Statements of Comprehensive Income for the Three and Eight Months Ended August 31, 2010 and the Three and Nine Months Ended September 30, 2009, (v) the Consolidated Statements of Cash Flows for the Eight Months Ended August 31, 2010 and the Nine Months Ended September 30, 2009, and (vi) Notes to Consolidated Financial Statements. |
* | Filed herewith. | |
** | Furnished herewith |
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JEFFERIES GROUP, INC. (Registrant) | ||||
Date: October 11, 2010 | By: | /s/ Peregrine C. Broadbent | ||
Peregrine C. Broadbent | ||||
Chief Financial Officer (duly authorized officer) |
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