NEW YORK – March 20, 2018 – Jefferies Group LLC today announced financial results for its fiscal first quarter 2018.
Highlights for the three months ended February 28, 2018:
Total Net Revenues of $821 million
Investment Banking Net Revenues of $434 million
Total Equities and Fixed Income Net Revenues of $369 million
Earnings Before Income Taxes of $123 million
Provisional Tax Cuts and Jobs Act-related charge of $164 million, $108 million of which is non-cash
Net Loss of $61 million after provisional tax charge of $164 million; without this charge, we would have reported Adjusted Net Earnings of $103 million¹
Rich Handler, Chairman and Chief Executive Officer, and Brian Friedman, Chairman of the Executive Committee, commented: “Our first quarter results reflect continued strong performances in Investment Banking, with net revenues of $434 million, and solid performance in both Equities and Fixed Income, with total revenues of $369 million. Our Investment Banking results reflect a good new-issue equity and debt environment, and another strong quarter in mergers and acquisitions. Fixed Income revenues were a strong $213 million and relatively consistent across the quarter. Our Equities revenues were $156 million. Activity in December and January was strong. Volumes during the first half of February were more muted in a period of increased volatility following a sell-off in the global equity markets. Equity secondary activities have subsequently returned to levels experienced in the first two months of our fiscal year. Our pre-tax income for the first quarter was $123 million and, ignoring the provisional tax charge, we would have reported adjusted net earnings of $103 million¹.”
We incurred a provisional tax charge of $164 million during the quarter as a result of the enactment of the Tax Cuts and Jobs Act (“Tax Act”). Of this amount, $108 million relates to the non-cash write down of our deferred tax asset, reflecting the impact of a lower federal tax rate of 21% on our deferred tax items. The remaining part of the provisional charge relates to a toll charge on the deemed repatriation of unremitted foreign earnings. Excluding this charge plus an unrelated net tax benefit of $13 million during this quarter, which was derived from the resolution of various historic Federal, state and local items, our adjusted effective tax rate would have been approximately 27%¹. Notwithstanding the $164 million charge this quarter, we expect to benefit from a lower U.S. federal corporate tax going forward. Excluding the impact of discrete items and assuming the same mix of pre-tax profits by tax jurisdiction, we would expect our effective tax rate to be about 27% going forward, reflecting the benefit of the lower federal tax rate of 21%. The comparable adjusted effective tax rate for fiscal 2017 was 36%1 (which excludes the benefit of $32 million we realized from the repatriation of earnings and associated foreign tax credits from foreign subsidiaries, which occurred during last year’s first quarter).
On December 1, 2017, we adopted Accounting Standards Update No. 2014-9, Revenue from Contracts with Customers, (“ASU 2014-9” or the “new revenue standard”), which provides accounting guidance on the recognition of revenues from contracts with customers and impacts the presentation of certain revenues and expenses on our income statement. The new revenue standard is applied prospectively from December 1, 2017 and there is no impact on our previously presented results. For further information on the impact of ASU 2014-9, refer to Appendix A attached to this release.
With our adoption of ASU 2014-9, Investment Banking revenues are no longer presented net of the related out- of-pocket deal expenses. As a result, each of our Investment Banking net revenues and Total non-compensation expenses is higher in the first quarter by an identical $32 million, with no net change to our bottom line. We have also made changes and reclassifications to the presentation of our “Revenues by Source” statement on page 5 to better align the manner in which we describe and present the results of our performance. These changes are reflected in our results for the three months ended February 28, 2018 and historical results have been reclassified to conform to this presentation on a comparable basis. For further information on these changes, refer to Appendix B attached to this release.
The attached financial tables should be read in conjunction with our Annual Report on Form 10-K for the year ended November 30, 2017. Amounts herein pertaining to February 28, 2018 represent a preliminary estimate as of the date of this earnings release and may be revised in our Quarterly Report on Form 10-Q for the quarter ended February 28, 2018.
This release contains “forward-looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements include statements about our future results and performance, including our future market share and expected financial results. It is possible that the actual results may differ materially from the anticipated results indicated in these forward-looking statements. Please refer to our most recent Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from those projected in these forward-looking statements.
Jefferies, the world's only independent full-service global investment banking firm focused on serving clients for over 50 years, is a leader in providing insight, expertise and execution to investors, companies and governments. Our firm provides a full range of investment banking, sales, trading, research and strategy across the spectrum of equities, fixed income and foreign exchange, as well as wealth management, in the Americas, Europe and Asia. Jefferies Group LLC is a wholly-owned subsidiary of Leucadia National Corporation (NYSE: LUK), a diversified holding company.
¹ Adjusted financial measures are non-GAAP financial measures. Management believes such measures for the first quarter of 2018 provide meaningful information to investors as they enable investors to evaluate the Company’s results excluding the impact of the provisional tax charge resulting from the Tax Act. In addition, the effective tax rate for the first quarter of 2018 excludes an unrelated net benefit, which was derived from the resolution of various historic Federal, state and local items. Management believes such measure for fiscal 2017 provides meaningful information to investors as they enable investors to evaluate the Company’s results excluding the impact of the repatriation of earnings and associated foreign tax credits from foreign subsidiaries, which occurred during last year’s first quarter. Refer to the Supplemental Schedule on page 4 for a reconciliation of Adjusted measures to the respective direct U.S. GAAP financial measures. These measures should not be considered a substitute for, or superior to, measures of financial performance prepared in accordance with U.S. GAAP.
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