2019 ANNUAL REPORT January 8, 2020 Dear Fellow Shareholders, We have entered a new decade and our strategy for Jefferies Financial Group is straightforward and designed to complete the transformation of Jefferies into a pure financial services firm that is a global leader in Investment Banking, Capital Markets and Asset Management: 1. Most importantly, we will continue to develop and seek to realize the potential of our core businesses, with a goal to continue to build a top-tier, well-diversified, client-focused, entrepreneurially-minded, fully-integrated global financial services firm. The business of Jefferies is to deliver great insight and exceptional execution to our clients, and our brand is well -positioned to continue to gain new clients and market share. Central to our plan is to deliver a consistent double-digit return on tangible equity (“ROE”). We have work to do in this regard, know what needs to be done and are committed to achieving it. 2. We intend to continue to realize the value of each investment in our merchant banking portfolio patiently and at the right time, while maintaining a proper sense of urgency. We expect to optimize value realization through outright sales, possible distributions in kind to our shareholders, possible evolution of certain of our investments into asset management platforms within Leucadia Asset Management (“LAM”) or other creative alternatives. Future merchant banking initiatives will likely be pursued under LAM, with capital provided by Jefferies in partnership with third party long-term investors who join us to leverage our access to unique deal flow and our capability to drive value creation through our deep and diverse global platform. 3. We expect to continue to return a meaningful amount of excess capital directly to our shareholders through dividends and share repurchases. We are in the best position ever to execute this commitment, as we have fewer illiquid investments, our excess liquidity is strong and our credit ratings improving. We will continue to repurchase shares so long as we believe our stock price is highly attractive compared to opportunities to expand our franchise, and will always be mindful to maintain appropriate levels of liquidity. Review of 2019 In 2019, Equities, Fixed Income and Asset Management produced a strong combined 25% annual increase in net revenues at Jefferies Group. We made solid progress throughout these businesses, while our VaR, degree of Level 3 positions and overall risk exposure remained at very manageable levels. Unfortunately, our overall performance and the achievement of a double-digit ROE in our core businesses were held back in 2019 by a 20% decline in our net revenues in Investment Banking, our largest business. This followed two years of record Investment Banking net revenues in 2017 and 2018. Despite a remarkable “melt-up” in many market indices in calendar year 2019, much of our fiscal year (which began with the very difficult month of December 2018 and then the U.S. government shutdown) Jefferies Financial Group Inc. Annual Report 2019 1 was marked by the challenges of tariffs and trade wars, Brexit uncertainty and many other cross - currents that dampened corporate deal making. Substantially all of the decrease in our Investment Banking net revenues was a result of lower capital markets revenue, with the vast majority of shortfall related to our Leveraged Finance business. Most of this shortfall in Leveraged Finance was due to an overall slowdown in primary issuance, particularly in the single-B rated market, where most leveraged buyouts are financed, and Jefferies is a market leader. Looking beyond this short-term bump in performance, we are exceptionally proud of our entire Investment Banking team and believe we are well positioned to continue to grow our franchise. We are hopeful that our actions are speaking much louder than our words as we execute our plan and seek to optimize value for our shareholders. At the end of 2019, we sold the final 31% of National Beef and received $970 million in cash proceeds from the sale and final distributions. When combined with our prior sale and distributions, cumulative cash realized over the eight years since we invested $868 million in National Beef is $2.9 billion. In September 2019, we decided that Spectrum Brands was no longer a core holding and elected to distribute as a dividend to our shareholders our 15% ownership position valued at $451 million, and we are pleased Spectrum’s stock price is higher today. Altogether, Jefferies returned $1.1 billion in capital to shareholders in 2019 through our $451 million dividend of Spectrum Brands, $150 million in cash dividends and the repurchase of 26 million shares at $19.52, for an aggregate of $506 million. Since our fiscal year end on November 30, 2019, we have repurchased an additional 1.7 million shares at $20.93 per share, a total of $36 million. During the past two fiscal years, Jefferies has returned to shareholders in excess of $2.4 billion, or 31% of tangible shareholders’ equity at the beginning of the period. Even after this return of nearly one third of tangible equity to shareholders, Jefferies ended fiscal 2019 with tangible shareholders’ equity of $7.7 billion, slightly higher than the $7.6 billion at the beginning of the two fiscal years, and parent company liquidity of $2.2 billion. Our primary operating subsidiary, Jefferies Group LLC, also ended the year with record liquidity. Outlook for 2020 In the early days of fiscal 2020, sentiment and momentum are much better than at the same time last year. Our Investment Banking backlog for the first quarter of 2020 is at a record level and well - diversified by industry, product and geography. Our Equities and Fixed Income businesses recorded a strong December. We have seen a resurgence of merger and acquisition activity, flourishing capital markets, the anticipation of a negotiated Brexit, continued strong employment numbers, accommodative global monetary support and an abundance of liquidity. The secondary market for Leveraged Finance has shown renewed strength this fiscal year, which bodes well for broadening new issue activity. The fact that 2020 is also a U.S. presidential election year generally bodes well for the economy and ac tivity, although we will keep our eyes keenly on the burgeoning geopolitical risks. We have made significant hires over the past few years across our firm and expect to reap the benefits in 2020. The path to a double-digit ROE is primarily dependent on realizing the business opportunity inherent in this significant investment, and we believe 2019 simply delayed the process of achieving this goal. Reasonable success in Investment Banking, coupled with continued momentum in Equities, Fixed Income and Asset Management, all executed with solid discipline on costs and capital utilization, should allow Jefferies Group to deliver strong results. We have achieved top tier market positions in the U.S. in virtually all our business lines and have invested consistently in expanding our talent base. Our momentum across the firm is palpable. 2 Jefferies Financial Group Inc. Annual Report 2019 With our typical contrarian bent, in 2019, we continued to invest in both Europe and Asia, and we appear to be well-positioned in both regions for 2020 and beyond. Jefferies has 899 employees based across Europe, and 404 in Asia and Australia, an increase of 15% during the past year. In the face of an opening we saw in the competitive environment, we made a series of hires across Asia to strengthen our platforms in Hong Kong/China, Japan, India and Singapore. In less than two years, our entry into Australia has grown to 55 employees primarily across Investment Banking and Equities. We have noted for several years that a number of our major competitors are experiencing chall enges or changes in their business priorities that create further opportunity for us. This remains the case and we believe will continue to work to our advantage. Finally, our culture, capabilities and brand have never been stronger and, while market forces can prove challenging, we strongly believe Jefferies is in the best position possible as we start 2020 to deliver on our potential. Long-Term Perspective We have previously noted that Investment Banking is the fundamental driver of our core businesses. We decided several years ago, and still believe strongly, that our Investment Banking effort is readily scalable, the most differentiated of all our businesses and the most likely to deliver consistent long - term results and meaningful growth. Approximately 70% of our Investment Banking net revenues in 2019 came from repeat clients. We have refocused our Fixed Income business to reduce risk and capital utilization, and to prioritize partnership with Investment Banking. Our Equities business continues to develop well and in a capital-efficient manner, and is also closely aligned with our Investment Banking focus. Building a world class investment banking platform is not easy to do and requires relentless effort, patience and perseverance over a long period of time and through multiple economic and market cycles. Thirty years ago, just after one of us arrived at our firm, Jefferies was a pure boutique with one real business, cash equities, which drove net earnings of $4 million on total galactic -wide revenues of $131 million. Twenty years ago, as the other of us was heading toward our firm, Jefferies was still headquartered in Los Angeles and had grown mightily to 885 employees. We were no longer a boutique, but a serious niche player that was diversifying to better serve our clients. Our net revenues were $544 million, with Equities representing 56%, or $302 million. We had $397 million in shareholders’ equity and an equity market capitalization of what we thought then to be an incredible $528 million. Ten years ago, Jefferies emerged from the Financial Crisis without requiring or receiving taxpayer support and with net revenues surpassing $2 billion. In 2010, Investment Banking represented almost half of our revenues and the balance was split roughly evenly between Equities and Fixed Income. Jefferies today is an incredibly stronger global full-service investment banking firm, and hugely differentiated from boutiques which typically are dependent on one product and operate without direct knowledge of the broader Investment Banking and Capital Markets landscape, and from bank holding companies that generally lead with balance sheet, rather than insight, creativity or entrepreneurial agility. Decades show true evolution, while shorter periods of time provide only an erratic glimpse. Looking back at individual years that make up each of the past three decades, one would get a limited picture of our momentum and opportunity. Some years we click on all cylinders, sometimes most of them and occasionally just a couple, but we find a way to always persevere, advance our platform and ultimately thrive. Jefferies Financial Group Inc. Annual Report 2019 3 To illustrate this point, we present below the arc of our Investment Banking net revenues, which shows a consistent growth in our business, despite occasional cyclical forces such as in 1994, 1998, 2008-09, 2016 and 2019. It is not a straight arrow up over the short-term, but the intermediate and long-term periods tell a story of which all of us at Jefferies are proud: Investment Banking Net Revenues Since 1990 Predecessor Successor $2,000 $1,600 $1,200 $800 $400 9 - 72 91 890 495 1,914 1,522 1,439 ($ Millions) Investment Banking Our Investment Banking advisory business delivered solid performance in 2019, and while our revenues decreased by 6% from 2018, this was against the backdrop of an 11% decline in industry -wide M&A fees across the U.S. and Europe. We continued our trend of executing larger transactions and, in 2019, signed or completed 57 M&A transactions greater than $1 billion in size. At the same time, we maintained our leadership in middle market M&A, where we now rank among the top three firms across the U.S. and Europe in M&A market share for transactions less than $1 billion in size. Looking ahead, we expect our M&A revenues to continue to benefit from our significantly expanded sector and geographic footprint, our momentum in winning larger deals and the strength of our franchise in sell-side M&A. We continue to make great progress in building our technology investment banking business, which is one of the largest and most rapidly growing fee pools in investment banking, as technology has become an important part of strategic activity across every industry. Over the last three years, we have significantly increased the size of our technology team across the world, and our global team now consists of over 130 investment bankers specialized in technology. During this time frame, our technology investment banking revenues have increased by approximately 70%, primarily driven by revenue growth in technology M&A and equity capital markets. Given the scale and momentum of our technology business and the size and growth of the global technology fee pool, we see the sector as an area of continued revenue growth. 4 Jefferies Financial Group Inc. Annual Report 2019 As with our technology business, we have invested heavily over the last several years in expanding our European Investment Banking effort. In 2019, this investment began to bear fruit, as Jefferies achieved record Investment Banking results in Europe, with net revenues increasing over 25% in 2019 against a backdrop of a 15% decline in European investment banking fees. Our growth in Europe has been driven primarily by our M&A business, which grew by almost 60%. An important part of this growth was our success in advising on $1 billion+ transactions, which accounted for almost half of our 2019 European M&A revenue. Looking ahead, we expect our growth in Europe to benefit from recent significant Managing Director additions across Industrials, Real Estate, Gaming and Lodging, Consumer, Energy and in U.K. M&A, and also from our recent expansion in Germany. Berkadia, our commercial real estate finance and investment sales 50/50 joint venture with Berkshire Hathaway, delivered $198 million of pre-tax income and a record $191 million of cash earnings for the year ended November 30, 2019. Strong debt origination and additional third-party loan servicing arrangements increased our servicing portfolio to $277 billion. Our servicing portfolio is at its highest level since the acquisition of Berkadia. During the year, Berkadia placed a record $26.4 billion of debt for its clients, up over 3% compared to 2018. Similarly, investment sales volumes also set a record, up almost 8% from the prior year, totaling $8.9 billion, with 37% of investment sales volume resulting in a debt placement for Berkadia. Berkadia continues to develop their existing network of mortgage bankers and investment sales advisors, as well as recruiting new members to the team to target underserved markets. The growing servicing portfolio and sales network position Berkadia for continued success. Equities In Equities, we recorded 2019 net revenues of $774 million, a record year and an increase of 16% from the prior year, as growth in our core equities business reflected strong performance across most businesses. We continued to gain global market share through intense client focus, enhanced capabilities and the momentum across the overall Jefferies platform. We have considerably diversified the Equities business, with non-cash products and international markets representing a larger portion of our Equities net revenues. While continuing to absorb the effects of MiFID II and general market uncertainty, Jefferies has improved its market positioning and competitive ranking, with many of our businesses being ranked within the top 10 and several being market-leading. Our prime brokerage business continues to make strong progress, with a differentiated offering that is appealing to a range of hedge fund clients. Fixed Income Fixed Income net revenues totaled $681 million for 2019, an increase of $121 million, or 22%, compared with net revenues of $560 million in 2018, primarily due to improving market conditions across almost all of Jefferies’ credit businesses. The investments made across these businesses led to increased client engagement and more consistent results, while we minimized increases in risk and balance sheet usage. Jefferies is gaining market share across the board with clients who count on us every day to source original alpha generating ideas and to provide liquidity in a complicated and ever - changing environment. Asset Management In last year’s letter, we expressed a view that our LAM business had completed its “start-up” phase and was moving to becoming a more stable contributor. This came true in 2019 as we benefited from a more diverse set of uncorrelated investments and participation in more varied fee streams. Jefferies Financial Group Inc. Annual Report 2019 5 Our partnerships with George Weiss Associates and Schonfeld Strategic Advisors are performing well, with strong prospects for growth in assets under management (“AUM”). During 2019, we launched, with their respective management teams, Stonyrock Partners (investing in equity stakes of high-quality, middle-market alternative asset managers) and Point Bonita Capital (trade finance), both in their initial phases of capital raising, and also absorbed Solanas Capital (investing in energy equities through a long/short ESG alternative strategy, a long/short infrastructure strategy and a long only Midstream strategy) and acquired a stake in Monashee Investment Management (capital markets new issues strategy). Stonyrock recently announced its first investment, a stake in Oak Hill Capital Partners, a leading middle-market private equity manager. Last month, we closed on the first over $300 million of third party AUM to be managed by Sikra Capital (catalyst driven European long/short equity strategy focused on mid-cap companies) and expect continued near-term growth in that strategy. We are also very pleased with the investor interest in the direct lending offering from our Jefferies Finance joint venture. We expect all of these platforms to continue to grow and diversify our revenue. To support growth in AUM, we added seven new members and one returning member to our marketing team, more than doubling the size of this critical effort. Given the growing importance of LAM, we are pleased to announce the appointment of Nick Daraviras and Sol Kumin as co-Presidents of LAM. Nick has been with Jefferies since 2001, most recently as a partner in Merchant Banking and with oversight of LAM as it has grown, and Sol joined LAM in 2018 to drive strategy and business development, having previously been CEO of Folger Hill. Legacy Merchant Banking As discussed above, 2019 was another year of progress in building and realizing the value of our legacy Merchant Banking portfolio. As demonstrated with the substantial gains realized in respect of National Beef and our earlier sales of Garcadia and Conwed, we have continued to build value in much of our Merchant Banking portfolio pending ultimate outcomes. In the case of National Beef, we realized in 2019 an aggregate of $396 million, or 57%, in excess of the estimated fair market value at the beginning of the year. The year-end fair value estimates for our remaining investments are below: ($ Millions) Oil and Gas (Vitesse and JETX) Real Estate Assets (1) Linkem Idaho Timber FXCM The We Company Investments in Public Companies Other Total Portfolio (2) As of November 30, 2019 Estimated Fair Value (Unaudited) Book Value $ 585 Basis for Fair Value Estimate $ 732 651 605 155 134 54 179 379 Income approach, market comparable and market transaction method Various Income approach, market comparable and market transaction method Income approach, market comparable and market transaction method Income approach and market comparable method Market transaction method and option pricing theory Mark-to-market (same for GAAP book value) Various 645 195 78 129 54 179 279 $ 2,144 $ 2,889 (1) Primarily HomeFed (2) Does not include $228 million of investments held on behalf of Leucadia Asset Management 6 Jefferies Financial Group Inc. Annual Report 2019 Annual Meeting and Investor Meeting We look forward to answering your questions at our upcoming Annual Meeting on April 17, 2020. We also will hold our annual Jefferies Investor Meeting on October 15, 2020, at which time you will have the opportunity to hear from our senior leaders across the Jefferies platform. We thank all of you—our clients and customers, employee-partners, fellow shareholders, bondholders, vendors and all others associated with our businesses—for your continued partnership and support. Sincerely, Richard B. Handler Chief Executive Officer Brian P. Friedman President Jefferies Financial Group Inc. Annual Report 2019 7 Appendix The following tables reconcile financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. The shareholders’ letter contains non- GAAP financial information to aid investors in viewing our businesses and investments through the eyes of management while facilitating a comparison across historical periods. However, these non - GAAP financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in accordance with GAAP. Note: Berkadia is not consolidated by Jefferies Financial Group and is accounted for under the equity method. The Berkadia reconciliation below is provided for convenience only. JEFFERIES FINANCIAL GROUP JEFFERIES FINANCIAL GROUP Reconciliation of Shareholders' Equity to Tangible Shareholders' Equity Reconciliation of Book Value of National Beef to Estimated Fair Value ($ millions) ($ millions) (Unaudited) Nov. 30, 2019 Dec. 31, 2017 Shareholders' equity (GAAP) $ 9,580 $ 10,106 Less: Intangible assets, net and goodwill (1,923) (2,463) National Beef book value (GAAP) Fair value adjustments Tangible shareholders' equity (non-GAAP) $ 7,657 $ 7,643 National Beef estimated fair value (non-GAAP) Nov. 30, 2018 $ $ 654 41 695 BERKADIA JEFFERIES FINANCIAL GROUP Reconciliation of Book Value of Merchant Banking Investments to Estimated Fair Value Reconciliation of Pre-Tax Income to Cash Earnings ($ millions) ($ millions) Pre-tax income (GAAP) Adjustments: (Unaudited) Year Ended Nov. 30, 2019 $ 198 (Unaudited) Book Value Nov. 30, 2019 (GAAP) Fair Value Estimated Fair Value Adjustments Nov. 30, 2019 (Non-GAAP) Amortization, impairment and depreciation Gains attributable to origination of mortgage servicing rights Loan loss reserves and guarantee liabilities, net of cash losses Unrealized (gains) losses; and all other, net 188 (227) 17 15 Oil and Gas (Vitesse and JETX) $ Real Estate Assets Linkem Idaho Timber FXCM Cash earnings (non-GAAP) $ 191 The We Company Investments in Public Companies Other 585 $ 147 $ 645 195 78 129 54 179 279 6 410 77 5 – – 100 732 651 605 155 134 54 179 379 Total $ 2,144 $ 745 $ 2,889 Jefferies Group The Investment Banking Net Revenues since 1990 table comes from as reported numbers in Jefferies Group public filings and press releases. Excludes predecessor first quarter ending February 28, 2013. Investment Banking Revenues for the excluded quarter totaled $288 million. In the first quarter of 2018, we made changes to the presentation of our “Revenues by Source” to better align the manne r in which we describe and present the results of our performance with the manner in which we manage our business activities and serve our clients. For a further discussion of these changes, see Jefferies Group LLC’s Form 8-K filed on March 20, 2018. We have presented fiscal years 2016 and 2017 to reflect results on a comparable basis, as reported in Jefferies Group public filings. Periods prior to fiscal 2016 do not reflect these “Revenues by Source” changes to the presentation. 8 Jefferies Financial Group Inc. Annual Report 2019 Cautionary Note on Forward-Looking Statements This letter 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 Act of 1934. Forward- looking statements include statements about our future and statements that are not historical facts. These forward-looking statements are usually preceded by the words “should,” “expect,” “intend,” “may,” “will,” or similar expressions. Forward-looking statements may contain expectations regarding revenues, earnings, operations, and other results, and may include statements of future performance, plans, and objectives. Forward-looking statements also include statements pertaining to our strategies for future development of our businesses and products. Forward-looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors, including Risk Factors that could cause actual results to differ, perhaps materially, from those in our forward-looking statements is contained in reports we file with the SEC. You should read and interpret any forward-looking statement together with reports we file with the SEC. Past performance may not be indicative of future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable or equal the corresponding indicated performance level(s). Jefferies Financial Group Inc. Annual Report 2019 9 11808 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended November 30, 2019 or (cid:3) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-5721 JEFFERIES FINANCIAL GROUP INC. (Exact Name of Registrant as Specified in its Charter) New York (State or other jurisdiction of incorporation or organization) 13-2615557 (I.R.S. Employer Identification Number) 520 Madison Avenue New York, New York (Address of principal executive offices) 10022 (Zip Code) (212) 460-1900 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Trading Symbol(s) Name of each exchange on which registered Common Shares, par value $1 per share JEF New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None. (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:2) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3) Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:2) No (cid:3) Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act. Large accelerated filer (cid:2) Smaller reporting company (cid:3) Accelerated filer (cid:3) Non-accelerated filer (cid:3) Emerging growth company (cid:3) If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:3) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3) No (cid:2) Aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant at May 31, 2019 (computed by reference to the last reported closing sale price of the Common Shares on the New York Stock Exchange on such date): $4,668,438,072. On January 17, 2020, the registrant had outstanding 287,939,689 Common Shares. DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of the registrant’s Definitive Proxy Statement pursuant to Regulation 14A of the Securities Exchange Act of 1934 in connection with the 2020 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. The index of exhibits is contained in Part IV on page 69. LOCATION OF EXHIBIT INDEX 63579 PART I Item 1. Business. Overview Jefferies Financial Group Inc. (‘‘Jefferies,’’ ‘‘we,’’ ‘‘our’’ or the ‘‘Company’’) is a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC (‘‘Jefferies Group’’), our largest subsidiary, is the largest independent full-service global investment banking firm headquartered in the U.S. Jefferies Group retains a credit rating separate from Jefferies and remains a U.S. Securities and Exchange Commission (‘‘SEC’’) reporting company. Our strategy focuses on strengthening and expanding our core businesses of Investment Banking, Capital Markets and Asset Management, while continuing to simplify our structure and return capital to our shareholders. We are simplifying through a managed transformation of our direct investing, or ‘‘Merchant Banking,’’ business, which, during 2018 and 2019, has included the sale of our investments in National Beef Packing Company, LLC (‘‘National Beef’’) and Garcadia, the transfer of some of our financial assets to Jefferies Group (Berkadia Commercial Mortgage Holding LLC (‘‘Berkadia’’) and Leucadia Asset Management (‘‘LAM’’)) and the special dividend to our shareholders of our investment in Spectrum Brands Holdings, Inc. (‘‘Spectrum Brands’’). In keeping with our strategy, a meaningful portion of the proceeds of these transactions has been returned to shareholders through share repurchases. During the past two fiscal years, we have returned to shareholders in excess of $2.4 billion through share repurchases and dividends. Our executive offices are located at 520 Madison Avenue, New York, NY 10022, as is the global headquarters of Jefferies Group. Our primary telephone number is (212) 460-1900 and our website address is www.jefferies.com. At November 30, 2019, we had approximately 4,800 full-time employees. The discussion in this Annual Report on Form 10-K should be read in conjunction with the Risk Factors presented in Item 1A of Part for Forward-Looking Information and Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7 of Part II. I and the Cautionary Statement Recent Events On June 5, 2018, we completed the sale of 48% of National Beef to Marfrig Global Foods S.A. (‘‘Marfrig’’) for $907.7 million in cash, reducing our then ownership in National Beef from 79% to 31%. In 2018, we recognized a pre-tax gain related to the sale of $873.5 million. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders and received a total of $970.0 million in cash, including $790.6 million of proceeds from Marfrig and other shareholders and $179.4 million from final distributions from National Beef around the time of the sale. We recognized a pre-tax gain of $205.0 million on this sale. As of November 30, 2019, we no longer hold an equity interest in National Beef. In September 2019, our Board of Directors approved a distribution to stockholders of our Spectrum Brands shares. We distributed 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to stockholders of record as of the close of business on September 30, 2019. Through June 30, 2019, we owned an approximate 70% equity interest in HomeFed Corporation (‘‘HomeFed’’), which owns and develops residential and mixed use real estate properties. We accounted for our interest under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued, which were valued at $178.8 million at closing based on the market price of our common shares. As an offset to these issued shares, our Board of Directors authorized the repurchase of an additional 9.25 million shares. In 2019, we recognized a $72.1 million non-cash pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value. 1 93572 During 2019, we repurchased a total of 25,926,388 of our common shares for $506.2 million, or an average price per share of $19.52. Investment Banking, Capital Markets and Asset Management Our Investment Banking, Capital Markets and Asset Management segment is comprised of our investment in Jefferies Group, the largest independent U.S. headquartered global full-service, integrated investment banking and securities firm. Jefferies Group’s largest subsidiary, Jefferies LLC, was founded in the U.S. in 1962 and its first international operating subsidiary, Jefferies International Limited, was established in the U.K. in 1986. As of November 30, 2019, our Investment Banking, Capital Markets and Asset Management segment had 3,815 employees in the Americas, Europe and Asia. The net book value (assets less liabilities and noncontrolling interests) of our Investment Banking, Capital Markets and Asset Management segment was $6.2 billion at November 30, 2019. Investment Banking and Capital Markets Investment Banking and Capital Markets focuses on Investment Banking, Equities and Fixed Income. We primarily serve institutional investors, corporations and government entities. Investment Banking We provide our clients around the world with a full range of financial advisory, equity underwriting and debt underwriting services. Our services are enhanced by our deep industry expertise, our global distribution capabilities and our senior level commitment to our clients. Over 900 investment banking professionals operate in the Americas, Europe and Asia, and are organized into industry, product and geographic coverage groups. Our industry coverage groups include Consumer and Retail; Energy; Financial Institutions; Healthcare; Industrials; Media, Communications and Information Services; Real Estate; Gaming and Lodging; Technology; and Financial Sponsors and Public Finance. Our product coverage groups include advisory, equity underwriting and debt underwriting, which include both mergers and acquisitions and restructuring and recapitalization expertise. Our geographic coverage groups include teams based in major cities in the United States, London, Frankfurt, Paris, Milan, Amsterdam, Stockholm, Mumbai, Hong Kong, Singapore, Sydney, Tokyo, Zurich and Toronto. Advisory Services We provide mergers and acquisition and restructuring and recapitalization services to companies, financial sponsors and government entities. In the mergers and acquisition area, we advise business owners and corporations on corporate sales and divestitures, acquisitions, mergers, tender offers, spinoffs, joint ventures, strategic alliances and takeover and proxy fight defense. In the restructuring and recapitalization area, we provide companies, bondholders and lenders a full range of restructuring advisory capabilities as well as expertise in the structuring, valuation and placement of securities issued in recapitalizations. Equity Underwriting We provide a broad range of equity financing capabilities to companies and financial sponsors. These capabilities include private placements of equity, initial public offerings, follow-on offerings, block trades and equity-linked convertible securities transactions. 2 77695 Debt Underwriting We provide a wide range of debt and acquisition financing capabilities for companies, financial sponsors and government entities. We focus on structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal debt, mortgage-backed and other asset- backed securities, and liability management solutions. Corporate Lending Jefferies Finance LLC (‘‘Jefferies Finance’’), a 50/50 joint venture between Jefferies Group and Massachusetts Mutual Life Insurance Company, is a commercial finance company that structures, underwrites and syndicates primarily senior secured loans to corporate borrowers and manages proprietary and third-party investments in middle market and broadly syndicated loans. Since its inception in 2004, Jefferies Finance has served as lead arranger of over 1,000 transactions representing approximately $215 billion in arranged volume. Jefferies Finance conducts its operations primarily through two business lines, Leveraged Finance Arrangement and Portfolio and Asset Management. Its Leveraged Finance Arrangement business line participates in transactions typically ranging from $250 million to $1.5 billion for borrowers generating between $50 million and $300 million of annual Earnings before interest, taxes, depreciation and amortization. Jefferies Finance typically syndicates to third party investors substantially all of its arranged volume. Its Portfolio and Asset Management business line manages a broad portfolio of approximately $9.5 billion in assets under management comprised of portions of loans it has arranged, as well as loan positions that it has purchased in the primary and secondary markets. The Portfolio and Asset Management business is comprised of three registered Investment Advisers: Jefferies Finance, Apex Credit Partners LLC and JFIN Asset Management LLC. Jefferies Finance manages its investments in cash flow and traditional asset-based revolving credit. Apex Credit Partners LLC manages collateralized loan obligations which invest in predominately broadly syndicated loans. JFIN Asset Management LLC manages proprietary and third-party investments in middle market loans held in private funds and separately managed accounts. Jefferies Finance is pursuing opportunities to expand its direct lending business through a variety of forms, including regulated and non-regulated entities and separately managed accounts. Equities Equities Research, Capital Markets We provide our clients full-service equities research, sales and trading capabilities across global securities markets. We earn commissions or spread revenue by executing, settling and clearing transactions for clients across these markets in equity and equity-related products, including common stock, American depository receipts, global depository receipts, exchange-traded funds, exchange-traded and over-the-counter (‘‘OTC’’) equity derivatives, convertible and other equity-linked products and closed-end funds. Our equity research, sales and trading efforts are organized across three geographical regions: the Americas; Europe and the Middle East and Africa; and Asia Pacific. Our clients are primarily institutional market participants such as mutual funds, hedge funds, investment advisers, pension and profit sharing plans, and insurance companies. Through our global research team and sales force, we maintain relationships with our clients, distribute investment research and strategy, trading ideas, market information and analyses across a range of industries and receive and execute client orders. Our equity research covers over 2,000 companies around the world and a further more than 800 companies are covered by nine leading local firms in Asia Pacific with which we maintain alliances. Equity Finance Our Equity Finance business provides financing, securities lending and other prime brokerage services. We offer prime brokerage services in the U.S. that provide hedge funds, money managers and registered investment advisers with execution, financing, clearing, reporting and administrative services. We finance our clients’ securities positions through margin loans that are collateralized by securities, cash or other acceptable liquid collateral. We earn an interest spread equal to the difference between the amount we pay for funds and the 3 29044 amount we receive from our clients. We also operate a matched book in equity and corporate bond securities, whereby we borrow and lend securities versus cash or liquid collateral and earn a net interest spread. We offer selected prime brokerage clients the option of custodying their assets at an unaffiliated U.S. broker-dealer that is a subsidiary of a bank holding company. Under this arrangement, we directly provide our clients with all customary prime brokerage services. Wealth Management We provide tailored wealth management services designed to meet the needs of high net worth individuals, their families and their businesses, private equity and venture funds and small institutions. Our advisers provide access to all of our institutional execution capabilities and deliver other financial services. Our open architecture platform affords clients access to products and services from both our firm and from a variety of other major financial services institutions. Fixed Income Fixed Income Capital Markets We provide our clients with sales and trading of investment grade corporate bonds, U.S. and European government and agency securities, municipal bonds, mortgage-backed and asset-backed securities, leveraged loans, consumer loans, high yield and distressed securities, emerging markets debt, interest rate and credit derivative products, as well as foreign exchange trade execution and securitization capabilities. Jefferies LLC is designated as a Primary Dealer by the Federal Reserve Bank of New York and Jefferies International Limited is designated in similar capacities for several countries in Europe. Additionally, through the use of repurchase agreements, we act as an intermediary between borrowers and lenders of short-term funds and obtain funding for various of our inventory positions. We trade and make markets globally in cleared and uncleared swaps and forwards referencing, among other things, interest rates, investment grade and non-investment grade corporate credits, credit indexes and asset-backed security indexes. Our strategists and economists provide ongoing commentary and analysis of the global fixed income markets. In addition, our fixed income desk strategists provide ideas and analysis to clients across a variety of fixed income products. Other We also make principal investments in private equity and hedge funds managed by third parties as well as, from time to time, take on strategic positions. Berkadia On October 1, 2018, we transferred to Jefferies Group our investment in Berkadia. Berkadia is a 50/50 joint venture with Berkshire Hathaway, Inc. that provides capital solutions, investments sales advisory and mortgage servicing for multifamily and commercial real estate. Berkadia originates commercial real estate loans, primarily in respect of multifamily housing units, for Fannie Mae, Freddie Mac and the Federal Housing Authority using their underwriting guidelines and will typically sell the loans to such entities shortly after the loans are funded with Berkadia retaining the mortgage servicing rights. For loans sold to Fannie Mae, Berkadia assumes a shared loss position throughout the term of each loan, with a maximum loss percentage of approximately one-third of the original principal balance. Berkadia also originates and brokers commercial/multifamily mortgage loans which are not part of the government agency programs. In addition, Berkadia originates loans for its own balance sheet. These loans provide interim financing to borrowers who intend to refinance the loan with longer-term loans from an eligible government agency or other 4 46729 third party. Berkadia also provides services related to the acquisition and disposition of multifamily real estate projects, including brokerage services, asset review, market research, financial analysis and due diligence support and is a servicer of U.S. commercial real estate loans, performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. Berkadia is required under its servicing agreements to maintain certain minimum servicer ratings or qualifications from the ratings agencies. These ratings currently exceed the minimum ratings required by the related servicing agreements. Asset Management Under the LAM umbrella, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. LAM offers institutional clients an innovative range of investment strategies through its affiliated managers. Our products are currently offered to pension funds, insurance companies, sovereign wealth funds, and other institutional investors. The investment boutiques under LAM range from multi-manager products, such as Schonfeld Fundamental Equities and Weiss Multi-Strategy, to niche equity long/short strategies, such as Pendeen Asset Management and Sikra Capital. We offer our affiliated asset managers access to capital, operational infrastructure and global marketing and distribution. We continue to expand our asset management efforts. During 2019, we established a partnership with Schonfeld Strategic Advisors LLC, launched Stonyrock Partners (middle market general partner stakes) and Point Bonita Capital (trade finance), and added Solanas Capital (energy infrastructure with an environmental, social and governance focus) to our LAM platform. Competition All aspects of our business are intensely competitive. We compete primarily with large global bank holding companies that engage in capital markets activities, but also with other broker-dealers, asset managers and investment banking firms. The large global bank holding companies have substantially greater capital and resources than we do. We believe that the principal factors affecting our competitive standing include the quality, experience and skills of our professionals, the depth of our relationships, the breadth of our service offerings, our ability to deliver consistently our integrated capabilities, and our culture, tenacity and commitment to serve our clients. Regulation Regulation in the United States. The financial services industry in which our Investment Banking, Capital Markets and Asset Management segment operates is subject to extensive regulation. In the U.S., the SEC is the federal agency responsible for the administration of federal securities laws, and the Commodity Futures Trading Commission (‘‘CFTC’’) is the federal agency responsible for the administration of laws relating to commodity interests (including futures, commodity options and swaps). In addition, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) and the National Futures Association (‘‘NFA’’) are self-regulatory organizations that are actively involved in the regulation of financial services businesses. In addition to federal regulation, our Investment Banking, Capital Markets and Asset Management segment is subject to state securities regulations in each state in which we offer our securities. The SEC, CFTC, FINRA and the NFA conduct periodic examinations of broker-dealers, investment advisers, futures commission merchants (‘‘FCMs’’) and swap dealers. The designated examining authority for Jefferies LLC’s activities as a broker-dealer is FINRA, and the designated self-regulatory organization for Jefferies LLC’s non-clearing FCM activities is the NFA. Financial services businesses are also subject to regulation and examination by state securities commissions and attorneys general in those states in which they do business. Broker-dealers are subject to SEC and FINRA regulations that cover all aspects of the securities business, including sales and trading methods, trade practices among broker-dealers, use and safekeeping of customers’ 5 25418 funds and securities, capital structure and requirements, anti-money laundering efforts, recordkeeping and the conduct of broker-dealer personnel including officers and employees. Registered investment advisers are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, custody of client assets, disclosure to clients, conflict of interest, insider trading and recordkeeping; and investment advisers that are also registered as commodity trading advisers or commodity pool operators are also subject to regulation by the CFTC and the NFA. FCMs, introducing brokers and swap dealers that engage in commodity options, futures or swap transactions are subject to regulation by the CFTC and the NFA. Additional legislation, changes in rules promulgated by the SEC, CFTC, FINRA or NFA, or changes in the interpretation or enforcement of existing laws or rules may directly affect the operations and profitability of broker-dealers, investment advisers, FCMs, commodity trading advisers, commodity pool operators and swap dealers. The SEC, CFTC, FINRA, NFA, state securities commissions and state attorneys general may conduct administrative proceedings or initiate civil including affiliated investment advisers, as well as its and their officers and employees (including, without limitation, injunctions, censures, impact business operations (including proposed expansions), membership expulsions, or revocations of licenses and registrations). In addition, broker-dealers, investment advisers, FCMs and swap dealers must also comply with the rules and regulation of clearing houses, exchanges, swap execution facilities and trading platforms of which they are a member. in adverse consequences for Jefferies LLC, its affiliates, fines, suspensions, directives that litigation that can result On June 5, 2019, the SEC adopted Regulation Best Interest (‘‘Reg BI’’), which establishes a ‘‘best interest’’ standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts. While we do not generally make recommendations to retail customers except in our Wealth Management division, our Wealth Management division will be required to comply with the substantially greater obligations imposed under Reg BI. Regulatory Capital Requirements. Several of our Investment Banking, Capital Markets and Asset Management segment entities are subject to financial capital requirements that are set by regulation. Jefferies LLC is a dually- registered broker-dealer and FCM and is required to maintain net capital in excess of the greater of the SEC or CFTC minimum financial requirements. As a broker-dealer, Jefferies LLC is subject to the SEC’s Uniform Net Capital Rule (the ‘‘Net Capital Rule’’). Jefferies LLC has elected to compute its minimum net capital requirement in accordance with the ‘‘Alternative Net Capital Requirement’’ as permitted by the Net Capital Rule, which provides that a broker-dealer shall not permit its net capital, as defined, to be less than the greater of 2% of its aggregate debit balances (primarily customer-related receivables) or $250,000 ($1.5 million for prime brokers). Compliance with the Net Capital Rule could limit Jefferies LLC’s operations, such as underwriting and trading activities, that could require the use of significant amounts of capital, and may also restrict its ability to make loans, advances, dividends and other payments. Under FINRA Rule 4110, FINRA could impose higher minimum net capital requirements than required by the SEC. If the broker dealer also carries accounts for other broker dealers, it may need net capital of $7 million or tentative net capital of $25 million, depending on circumstances. As a non-clearing FCM, Jefferies LLC is required to maintain minimum adjusted net capital of $1.0 million. In June 2019, the SEC adopted rules regarding capital, segregation and margin requirements for SEC registered broker-dealers that engage in principal transactions of security-based swaps (‘‘SBS’’). The rules will come into effect in 2020 or 2021. Under the rules there is a minimum net capital requirement for, among others, a broker- dealer that acts as a dealer in SBS of the greater of $20 million or the sum of (i) a ratio requirement (2% of aggregate debit items (generally, customer receivables)) and (ii) 2% (that the SEC could, in the future, increase up to 4% or 8%) of a risk margin amount. The risk margin amount means the sum of (i) the total initial margin required to be maintained by the broker-dealer at each clearing agency with respect to SBS transactions cleared for SBS customers and (ii) the total initial margin amount calculated by the broker-dealer with respect to non- cleared SBS under new SEC rules. Jefferies Group LLC is not subject to any regulatory capital rules. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 24 to our consolidated financial statements for additional discussion of net capital calculations. 6 61771 Regulation outside the United States. We are an active participant in the international capital markets and provide investment banking services internationally, primarily in Europe and Asia. As is true in the U.S., our international subsidiaries are subject to extensive regulations proposed, promulgated and enforced by, among other regulatory bodies, the European Commission and European Supervisory Authorities (including the European Banking Authority and European Securities and Market Authority), U.K. Financial Conduct Authority, German Federal Financial Supervisory Authority (‘‘BaFin’’), Investment Industry Regulatory Organization of Canada, Hong Kong Securities and Futures Commission, the Japan Financial Services Agency, the Monetary Authority of Singapore and the Australian Securities and Investments Commission. Every country in which we do business imposes upon us laws, rules and regulations similar to those in the U.S., including with respect to some form of capital adequacy rules, customer protection rules, data protection regulations, anti-money laundering and anti-bribery rules, compliance with other applicable trading and investment banking regulations and similar regulatory reform. For additional information see Item 1A. Risk Factors. Merchant Banking We own a diverse portfolio of businesses and investments that have the potential for significant value appreciation. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings. We continue to evaluate new investments, primarily in financial services, that typically come to our attention through the activities of Jefferies Group. We are in the process of a managed transformation of Merchant Banking, with the intention of selling to third parties or restructuring under LAM all of our Merchant Banking business. Continuing changes in the mix of our businesses and investments therefore should be expected. Our Merchant Banking portfolio currently includes investments in Linkem, 54% (fixed wireless broadband services in Italy); Vitesse Energy, LLC (‘‘Vitesse Energy Finance’’), 97%, and JETX Energy, LLC (‘‘JETX Energy’’), 98%, (oil and gas); real estate; Idaho Timber, 100% (manufacturing); FXCM Group, LLC (‘‘FXCM’’), 50% voting interest in FXCM and a majority of all distributions in respect of the equity of FXCM (provider of online foreign exchange trading services); The We Company, formerly known as WeWork, less than 1% (global network of workspaces); and others. The net book value of our entire Merchant Banking portfolio was $2.4 billion at November 30, 2019, including $227.9 million held on behalf of LAM. Linkem We own 54% (48% voting) of Linkem S.p.A., the largest fixed wireless broadband service provider in Italy with 646,000 subscribers. Its broadband service, delivered via radio link, utilizes its proprietary, 5G-ready network and its valuable nationwide 3.5GHz spectrum holdings, and covers approximately 66% of Italian households. The 3.5GHz frequency band has been designated globally as one of the core bands for 5G services, placing Linkem in a strong position to continue its growth in a 5G environment. Linkem plans to increase its network coverage and service offerings over the coming years as it adds subscribers and leverages its assets. Expansion and customer acquisition costs are expected to result in operating losses over the next couple of years. Our initial investment in Linkem was made in July 2011. Since that time, we have funded much of Linkem’s growth and become its largest shareholder. We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, if converted, would increase our ownership to approximately 54% of Linkem’s common equity at November 30, 2019. Additionally, we have made shareholder loans to Linkem with principal outstanding of $58.1 million at November 30, 2019. We own approximately 48% of the total voting securities of Linkem. The net book value of our investment in Linkem was $194.8 million at November 30, 2019. 7 51953 Vitesse Energy Finance Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires and invests in non-operated oil and gas working interests and royalties predominately in the Bakken Shale oil field in North Dakota. These non- operated interests are mostly working interests and some mineral rights in flowing wells and interests in leases and drilling spacing units expected to be developed via horizontal wells in the future by Vitesse Energy Finance’s over one dozen operating partners. As Vitesse Energy Finance’s operators convert undeveloped acreage into flowing horizontal wells, our interests in the leasehold acreage and minerals are converted into cash flows produced by the new wells. Vitesse Energy Finance has acquired more than 45,000 net acres of Bakken leaseholds and has an interest in approximately 5,000 producing wells (105 net wells) with current production as of November 2019 in excess of 11,000 barrels of oil equivalent per day. Vitesse Energy Finance also has 940 gross wells (20 net wells) that are currently drilling, completing, or permitted for drilling. Our strategic priorities for Vitesse Energy Finance are to selectively add to our core acreage, participate in future profitable horizontal wells, increase aggregate cash flow, limit volatility of cash flow from flowing wells by appropriately hedging oil and profitably sell selective assets when appropriate. The net book value of our investment in Vitesse Energy Finance was $528.7 million at November 30, 2019. Real Estate Assets Our real estate assets primarily consist of our 100% ownership of HomeFed, a developer and owner of residential and mixed-use real estate properties in California, New York, Florida, Virginia and South Carolina. HomeFed’s key assets include Otay Ranch, a master planned community that is under development in Chula Vista, CA, made up of approximately 4,450 acres of land entitled for 13,050 total units; Renaissance Plaza, a mixed-use asset in Brooklyn, NY, comprised of an office building, hotel and garage; and Fulton Mall, a 49% joint venture partnership interest in a land assemblage with a prime location in Brooklyn’s highest density and highest rent retail district. The net book value of our investment in real estate assets was $645.3 million at November 30, 2019. Financial Information about Segments Our operating and reportable segments consist of Investment Banking, Capital Markets and Asset Management; Merchant Banking; and Corporate. Our financial information regarding our reportable segments is contained in Note 28 in our consolidated financial statements. Information about Jefferies on the Internet We file annual, quarterly and current reports and other information with the SEC. These SEC filings are also available to the public from commercial document retrieval services and the website maintained by the SEC at www.sec.gov. The following documents and reports are available on or through our website (www.jefferies.com) as soon as reasonably practicable after we electronically file such materials with, or furnish to, the SEC, as applicable: • Code of Business Practice; • Reportable waivers, if any, from our Code of Business Practice by our executive officers; • Board of Directors Corporate Governance Guidelines; • Charter of the Audit Committee of the Board of Directors; • Charter of the Nominating and Corporate Governance Committee of the Board of Directors; • Charter of the Compensation Committee of the Board of Directors; • Annual reports on Form 10-K; 8 20742 • Quarterly reports on Form 10-Q; • Current reports on Form 8-K; • Beneficial ownership reports on Forms 3, 4 and 5; and • Any amendments to the above-mentioned documents and reports. Shareholders may also obtain a printed copy of any of these documents or reports free of charge by sending a request to Jefferies Financial Group Inc., Investor Relations, 520 Madison Avenue, New York, NY 10022 or by calling (212) 460-1900. Item 1A. Risk Factors. Our business is subject to a number of risks. You should carefully consider the following risk factors, together with all of the other information included or incorporated by reference in this report, before you decide whether to purchase our securities. The risks set out below are not the only risks we face. In addition to the specific risks mentioned in this report, we may also be affected by other factors that affect businesses generally such as global or regional changes in economic, business or political conditions, acts of war, terrorism, climate change or natural disasters. If any of such risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the trading price of our securities could decline, and you may lose all or part of your investment. We have also set forth certain specific risks associated with certain of our investments. The inclusion or non- inclusion of these risks for specific investments should not be interpreted to mean that a mentioned or non- mentioned investment is more or less important or material than another. Additionally, some of our investments are in securities of issuers that file reports with the SEC. You should also carefully consider the additional risks disclosed by those issuers with the SEC as those risks may also impact your investment in our securities. Future acquisitions and dispositions of our businesses and investments are possible, changing the components of our assets and liabilities, and if unsuccessful or unfavorable, could reduce the value of our securities. Any future acquisitions or dispositions may result in significant changes in the composition of our assets and liabilities, as well as our business mix and prospects. Consequently, our financial condition, results of operations and the trading price of our securities may be affected by factors different from those affecting our financial condition, results of operations and trading price at the present time. We face numerous risks and uncertainties as we expand our business. We expect the growth and development of our business to come primarily from internal expansion and through acquisitions, investments, and strategic partnering. As we expand our business, there can be no assurance that financial controls, the level and knowledge of personnel, operational abilities, legal and compliance controls and other corporate support systems and technology will be adequate to manage our business and growth. The ineffectiveness of any of these controls or systems could adversely affect our business and prospects. In addition, if we acquire new businesses and introduce new products, we face numerous risks and uncertainties integrating their controls and systems, including financial controls, accounting and data processing systems, management controls and other operations. A failure to integrate these systems and controls, and even an inefficient or non-secure integration of these systems and controls, could adversely affect our business and prospects. Certain business initiatives, including expansions of existing businesses, may bring us into contact directly or indirectly, with individuals and entities that are not within our traditional client and counterparty base and may expose us to new asset classes and new markets. These business activities expose us to new and enhanced risks, increased credit-related, sovereign and operational risks, and greater regulatory scrutiny of these activities, reputational concerns regarding the manner in which these assets are being operated or held. Our business, financial condition and results of operations are dependent upon those of our individual businesses, and our aggregate investments in particular industries. We are a holding company with investments in businesses and assets in a number of industries. Jefferies Group is our largest investment and we have significant additional investments in the financial services industry. Our business, financial condition and 9 21557 results of operations are dependent upon our various businesses and investments. Any material adverse change in one of our businesses or investments, or in a particular industry in which we operate or invest, may cause material adverse changes to our business, financial condition and results of operations. The more capital we devote to a particular investment or industry may increase the risk that such investment could significantly impact our financial condition and results of operations, possibly in a material adverse way. Conditions in the financial markets and the economy may adversely impact our businesses and investments. These include economic conditions that may be specific to the industries in which our businesses and investments operate, as well as a general economic slowdown, prolonged recession or other market downturn or disruption. Adverse impacts may include the following: • A market downturn could lead to a decline in client and customer activity levels, and therefore a decline in services provided, causing reduced revenues from fees, commissions, spreads and other forms of revenue. • Adverse changes in the market could lead to decreases in the value of our holdings, both realized and unrealized. • Adverse changes in the market could also lead to a reduction in revenues from asset management fees and investment income from managed funds. The build out of our asset management business could also be impacted as adverse conditions could lead to a decrease in new capital raised and may cause investors to withdraw their investments and commitments. Even in the absence of a market downturn, below- market investment performance by funds and portfolio managers could reduce asset management revenues and assets under management and result in reputational damage that might make it more difficult to attract new investors. • Limitations on the availability of credit, such as occurred during 2008, can affect the ability of our businesses and investments to borrow on a secured or unsecured basis, which may adversely affect liquidity and results of operations. Global market and economic conditions have been particularly disrupted and volatile in the last several years and may be in the future. Cost and availability of funding could be affected by illiquid credit markets and wider credit spreads. • Certain of our current and future businesses and investments may require additional third-party funding to succeed, such as venture capital funding, joint venture funding or other third-party capital. Failure to obtain such third-party funding may cause such business, investment or prospective investment to fail or progress slower than expected which could adversely affect its and our funding, liquidity, operations and profitability. In addition, such failure could also adversely affect our reputation which could adversely affect our business and future business prospects. • Additional changes in tax law could impact our ability to utilize our deferred tax assets, decrease current and anticipated cash flows, or prompt revisions to compensation arrangements. • Should one or more of the competitors of our businesses or investments fail, business prospects and revenue could be negatively impacted due to negative market sentiment causing customers to cease doing business with, and lenders to cease extending credit to, our businesses and investments, which could adversely affect our operations, funding and liquidity. • Unfavorable economic conditions could have an adverse effect on the demand for new loans and the servicing of loans originated by third parties, which would have an adverse impact on the operations and profitability of some of our financial services businesses and investments. • Unfavorable conditions or changes in general political, economic or market conditions could adversely impact our business and prospects. In particular, the increasing trend toward sovereign protectionism and deglobalization resulting from the current populist political movement has resulted or could result in decreases in free trade, erosion of traditional international coalitions, the imposition of sanctions and tariffs, governmental closures and no-confidence votes, domestic and international strife, and general market upheaval in response to such results, all of which could negatively impact our business and prospects. We are exposed to market risk. We are, directly and indirectly, affected by changes in market conditions. Market risk generally represents the risk that values of assets and liabilities or revenues will be adversely affected 10 28672 by changes in market conditions. For example, changes in interest rates could adversely affect our net interest spread, the difference between the yield we earn on our assets and the interest rate we pay for sources of funding, which, in turn, impacts our net interest revenue and earnings. Changes in interest rates could affect the interest earned on assets differently than interest paid on liabilities. In our brokerage operations, a rising interest rate environment generally results in our earning a larger net interest spread. Conversely, in those operations, a falling interest rate environment generally results in our earning a smaller net interest spread. If we are unable to effectively manage our interest rate risk, changes in interest rates could have a material adverse effect on our profitability. Market risk is inherent in the financial instruments associated with our operations and activities, including trading account assets and liabilities, loans, securities, short-term borrowings, corporate debt, and derivatives. Market conditions that change from time to time, thereby exposing us to market risk, include fluctuations in interest rates, equity prices, relative exchange rates, and price deterioration or changes in value due to changes in market perception or actual credit quality of an issuer. In addition, disruptions in the liquidity or transparency of the financial markets may result in our inability to sell, syndicate, or realize the value of security positions, thereby leading to increased concentrations. The inability to reduce our positions in specific securities may not only increase the market and credit risks associated with such positions, but also increase the level of risk-weighted assets on our balance sheet, thereby increasing capital requirements, which could have an adverse effect on our business, results of operations, financial condition and liquidity. Our principal trading and investments expose us to risk of loss. A considerable portion of our revenues is derived from trading in which we act as principal. We may incur trading losses relating to the purchase, sale or short sale of fixed income, high-yield, international, convertible, and equity securities, loans and futures and commodities for our own account. In any period, we may experience losses on our positions as a result of price fluctuations, lack of trading volume, and illiquidity. From time to time, we may engage in a large block trade in a single security or maintain large position concentrations in a single security, securities of a single issuer, securities of issuers engaged in a specific industry, or securities from issuers located in a particular country or region. In general, because certain of our investments are marked to market on a daily basis, any adverse price movement in these investments could result in a reduction of our revenues and profits. In addition, we may engage in hedging transactions that if not successful, could result in losses. Damage to our reputation could damage our business. Maintaining our reputation is critical to our attracting and maintaining customers, investors and employees. If we fail to deal with, or appear to fail to deal with, various issues that may give rise to reputational risk, we could significantly harm our business prospects. These issues include, but are not limited to, any of the risks discussed in this Item 1A, appropriately dealing with potential conflicts of interest, legal and regulatory requirements, ethical issues, money-laundering, cybersecurity and privacy, record keeping, sales and trading practices, failure to sell securities we have underwritten at the anticipated price levels, and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products. A failure to deliver appropriate standards of service and quality, or a failure or perceived failure to treat customers and clients fairly, can result in customer dissatisfaction, litigation and heightened regulatory scrutiny, all of which can lead to lost revenue, higher operating costs and harm to our reputation. Further, negative publicity regarding us, whether or not true, may also result in harm to our prospects. Our operations in the past have been impacted as some clients either ceased doing business or temporarily slowed down the level of business they do, thereby decreasing our revenue. There is no assurance that we will be able to successfully reverse the negative impact of allegations and rumors in the future and our potential failure to do so could have a material adverse effect on our business, financial condition and liquidity. We may incur losses if our risk management is not effective. We seek to monitor and control our risk exposure. Our risk management processes and procedures are designed to limit our and certain of our subsidiaries’ exposure to acceptable levels as we conduct our businesses. We and certain of our subsidiaries apply comprehensive frameworks of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limits reflects risk tolerance for certain activities. The frameworks may include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, value- at-risk, sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, 11 31390 leverage, cash capital, and performance analysis. While we and certain of our subsidiaries employ various risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application, including risk tolerance determinations, cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. As a result, we may incur losses notwithstanding our risk management processes and procedures. Operational risks may disrupt our business, result in regulatory action against us or limit our growth. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies, and the transactions we process have become increasingly complex. If any of our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage. These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses. Certain of our financial and other data processing systems rely on access to and the functionality of operating systems maintained by third parties. If the accounting, trading or other data processing systems on which we are dependent are unable to meet increasingly demanding standards for processing and security or, if they fail or have other significant shortcomings, we could be adversely affected. Such consequences may include our inability to effect transactions and manage our exposure to risk. In addition, despite the contingency plans we and certain of our subsidiaries have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business. We rely on the security of our information technology systems and those of our third party providers to protect our proprietary information and information of our customers. Some of our businesses involve the storage and transmission of customers’ personal and/or identifying information, consumer preferences and credit card information. While we believe that we have implemented protective measures to effectively secure information and prevent security breaches, and we continue to assess and improve these measures, our information technology systems have been and may continue to be vulnerable to unauthorized access, computer hacking, computer viruses or other unauthorized attempts by third parties to access the proprietary information of our customers. Information technology breaches and failures could disrupt our ability to function in the normal the disclosure or modification of sensitive or confidential course of business resulting in lost revenue, information and the incurrence of remediation and notification costs, resulting in legal and financial exposure. Moreover, loss of confidential customer identification information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues. Our information and technology systems are critical components of our business and operations, and a failure of those systems or other aspects of our operations infrastructure may disrupt our business, cause financial loss, increase our legal liability and constrain our growth. Our operations rely extensively on the secure processing, storage and transmission of confidential financial, personal and other information in our computer systems and networks. Although we take protective measures and devote significant resources to maintaining and upgrading our systems and networks with measures such as intrusion and detection prevention systems, monitoring firewalls to safeguard critical business applications and supervising third party providers that have access to our systems, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. Additionally, if a client’s computer system, network or other technology is compromised by unauthorized access, we may face losses or other adverse consequences by unknowingly entering into unauthorized transactions. If this potentially could jeopardize our or our clients’ or counterparties’ one or more of such events occur, confidential and other information processed and stored in and transmitted through our computer systems and networks. Furthermore, such events may cause interruptions or malfunctions in our, our clients’, our including the transmission and execution of unauthorized counterparties’ or third parties’ operations, 12 25827 transactions. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not covered or not fully covered through our insurance. The increased use of smartphones, tablets and other mobile devices as well as cloud computing may also heighten these and other operational risks. Similar to other firms, we and our third party providers continue to be the subject of attempted unauthorized access, computer viruses and malware, and cyber attacks designed to disrupt or degrade service or cause other damage and denial of service. Additional challenges are posed by external parties, including foreign state actors. There can be no assurance that such unauthorized access or cyber incidents will not occur in the future, and they could occur more frequently and on a larger scale. We are also subject to laws and regulations relating to the privacy of the information of our clients, employees or others, and any failure to comply with these regulations could expose us to liability and/or reputational damage. In addition, our businesses are increasingly subject to laws and regulations relating to surveillance, encryption and data on-shoring in the jurisdictions in which we operate. Compliance with these laws and regulations may require us to change our policies, procedures and technology for information security, which could, among other things, make us more vulnerable to cyber attacks and misappropriation, corruption or loss of information or technology. Any cyber attack or other security breach of or vulnerability in our technology systems, or those of our clients or other third-party vendors we rely on, could have operational impacts, subject us to significant liability and harm our reputation. Our operations rely heavily on the secure processing, storage and transmission of sensitive and confidential financial, personal and other information in our computer systems and networks. There have been several highly publicized cases involving financial services companies reporting the unauthorized disclosure of client or other confidential information in recent years, as well as cyber attacks involving theft, dissemination and destruction of corporate information or other assets, in some cases as a result of failure to follow procedures by employees or contractors or as a result of actions by third parties. Like other financial services firms, we have been the target of attempted cyber attacks. Cyber attacks can originate from a variety of sources, including third parties affiliated with foreign governments, organized crime or terrorist organizations. Third parties may also attempt to place individuals within our firm or induce employees, clients or other users of our systems to disclose sensitive information or provide access to our data, and these types of risks may be difficult to detect or prevent. Although cybersecurity incidents among financial services firms are on the rise, we are not aware of any material losses relating to cyber attacks or other information security breaches. However, the techniques used in these attacks are increasingly sophisticated, change frequently and are often not recognized until launched. Although we seek to maintain a robust suite of authentication and layered information security controls, these controls could fail to detect, mitigate or remediate these risks in a timely manner. Despite our implementation of protective measures and endeavoring to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to human error, natural disasters, power loss, spam attacks, unauthorized access, distributed denial of service attacks, computer viruses and other malicious code, and other events that could result in significant liability and damage to our reputation, and have an ongoing impact on the security and stability of our operations. We also rely on numerous third-party service providers to conduct other aspects of our business operations, and we face similar risks relating to them. While we regularly conduct security assessments on these third-party vendors, we cannot be certain that their information security protocols are sufficient to withstand a cyber attack or other security breach. In addition, in order to access our products and services, our customers may use computers and other devices that are beyond our security control systems and processes. Notwithstanding the precautions we take, if a cyber attack or other information security breach were to occur, this could jeopardize the information we confidentially maintain, or otherwise cause interruptions in our operations or those of our clients and counterparties, exposing us to liability. As attempted attacks continue to evolve in scope and sophistication, we may be required to expend substantial additional resources to modify or enhance our protective measures, to communicate about cyber attacks to our customers. Though we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our policy limits or are not covered under any of our current insurance policies. A technological breakdown could also interfere with our ability to comply with financial reporting and other regulatory requirements, exposing us to potential disciplinary action by to investigate and remediate vulnerabilities or other exposures or 13 32056 regulators. Additionally, the SEC issued guidance in February 2018 stating that, as a public company, we are expected to have controls and procedures that relate to cybersecurity disclosure, and are required to disclose information relating to certain cyber attacks or other information security breaches in disclosures required to be made under the federal securities laws. Further, successful cyber attacks at other large financial institutions or other market participants, whether or not we are affected, could lead to a general loss of customer confidence in financial institutions that could negatively affect us, including harming the market perception of the effectiveness of our security measures or the financial system in general, which could result in a loss of business. Further, in light of the high volume of transactions we process, the large number of our clients, partners and counterparties, and the increasing sophistication of malicious actors, a cyber attack could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber attack would take substantial amounts of time and resources, and that there may be extensive delays before we obtain full and reliable information. During such time we would not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered. All of which would further increase the costs and consequences of such an attack. We may also be subject to liability under various data protection laws. In providing services to clients, we manage, utilize and store sensitive or confidential client or employee data, including personal data. As a result, we are subject to numerous laws and regulations designed to protect this information, such as U.S. federal, state laws governing the protection of personally identifiable information. These laws and and international regulations are increasing in complexity and number. If any person, including any of our associates, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates such data, we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal prosecution. In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Potential liability in the event of a security breach of client data could be significant. Depending on the circumstances giving rise to the breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages. through system failure, employee negligence, there has been significant legislation and new and pending regulation may significantly affect our businesses and Recent legislation and increased regulation affecting the investments. In recent years, there has also been recent discussions of proposed legislative and financial services industry. In addition, regulatory changes that would also affect the financial services industry. These legislative and regulatory initiatives affect not only us (particularly Jefferies Group, Berkadia and FXCM) but also our competitors and certain of our clients and customers. These changes could have an effect on our revenue and profitability, limit our ability to pursue certain business opportunities, impact the value of assets that we hold, require us to change certain business practices, impose additional costs on us and otherwise adversely affect our business. Accordingly, we cannot provide assurance that legislation and regulation will not eventually have an adverse effect on our business, results of operations, cash flows and financial condition. Extensive regulation of our businesses limits our activities, and, if we violate these regulations, we may be subject to significant penalties. The financial services industry is subject to extensive laws, rules and regulations in every country in which they operate. Firms that engage in providing financial services must comply with the laws, rules and regulations imposed by national and state governments and regulatory and self- regulatory bodies with jurisdiction over such activities. Such laws, rules and regulations cover many aspects of providing financial services. Regulators supervise certain of Jefferies Group’s business activities to monitor compliance with applicable laws, rules and regulations. In addition, if there are instances in which our regulators question our compliance with laws, rules, or regulations, they may investigate the facts and circumstances to determine whether we have complied. At any moment in time, we may be subject to one or more such investigation or similar review. At this time, all such investigations and similar reviews are insignificant in scope and immaterial to us. However, there can be no assurance that, in the future, we will not violate such laws, rules, or regulations, or that such investigations and similar reviews will not result in significant or material adverse regulatory requirements, regulatory enforcement actions, fines or other adverse impact to the operation of our business. 14 11787 Additionally, violations of laws, rules and regulations could subject us to one or more of the following events: civil and criminal liability; sanctions, which could include the revocation of registrations as registered financial service firms (including registered investment advisers or broker-dealers); the revocation of the licenses of our financial advisers; censures; fines; or a temporary suspension or permanent bar from conducting business. The occurrence of any of these events could have a material adverse effect on our business, financial condition and prospects. Certain of our subsidiaries are subject to regulatory financial capital holding requirements, such as the Net Capital Rule, that could impact various capital allocation decisions or limit the operations of its broker-dealers. In particular, compliance with the Net Capital Rule may restrict a broker-dealers’ ability to engage in capital- intensive activities such as underwriting and trading, and may also limit their ability to make loans, advances, dividends and other payments. Additional legislation, changes in rules, changes in the interpretation or enforcement of existing laws and rules, conflicts and inconsistencies among rules and regulations, or the entering into businesses that subject us to new rules and regulations may directly affect our business, results of operations and financial condition. We continue to monitor the impact of new U.S. and international regulation on our businesses. The United Kingdom’s exit from the European Union (‘‘EU’’) could adversely affect our businesses and investments. In March 2017, the then Prime Minister of the U.K. notified the European Council, in accordance with Article 50(2) of the Treaty on EU, of the U.K.’s intention to withdraw from the EU (such withdrawal commonly being referred to as ‘‘Brexit’’). The completion of Brexit has been postponed; and it is possible that Brexit will not occur. There is uncertainty as to the scope, nature and terms of the relationship between the U.K. and the EU after Brexit (if it occurs). The uncertainty surrounding the timing, terms and consequences of Brexit could adversely impact customer and investor confidence, result in additional market volatility and adversely affect Jefferies Group, FXCM and our other businesses with operations or customers in Europe. Jefferies Group operates substantial parts of its EU businesses from entities based in the U.K. Following Brexit (if it occurs), the regulatory and legal environment that would then exist, and to which its U.K. operations would then be subject, will depend on, in certain respects, the nature of the arrangements (if any) that the U.K. may agree with the EU and other trading partners. While there is ongoing uncertainty, Jefferies Group has taken steps to ensure that it is able to continue to provide services to clients located in the European Economic Area (‘‘EEA’’) jurisdiction without interruption, even in the event of a ‘‘hard’’ Brexit occurring. As such, a Jefferies Group wholly-owned subsidiary, Jefferies GmbH, has been established in Germany which is authorized as a MiFID investment firm by BaFin. Jefferies GmbH will service EEA institutional clients across Investment Banking, Equities and Fixed Income sectors after Brexit from its office in Frankfurt and branch offices in Amsterdam, Madrid, Milan, Paris and Stockholm. This structure, if needed, might result in a less efficient operating model across Jefferies Group’s European legal entities. We may be adversely affected by changes in or the discontinuance of Interbank Offered Rates (‘‘IBORs’’), in particular, London Interbank Offered Rate (‘‘LIBOR’’). Central banks and regulators in a number of major jurisdictions (for example, the U.S., U.K., E.U., Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021 and possibly prior to then. We currently hold IBOR positions with a maturation past 2020. In addition, we rely on vendor applications and data providers that support downstream IBOR data. We are reviewing our positions for a strategic conversion to alternative rates. It is not possible at this time to know what rate or rates may become accepted alternatives to LIBOR and other IBORs, or what the effect will be on the financial markets for financial instruments linked to IBORs. It is possible that pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, increased compliance, legal and operational costs increased capital requirements and business continuity issues will occur. A credit rating agency downgrade could significantly impact our businesses. We and Jefferies Group have credit ratings issued by various credit rating agencies. Maintaining our credit ratings is important to our and Jefferies Group’s business and financial condition. We advised certain credit rating agencies that we would target specific concentration, leverage and liquidity principles, expressed in the form of certain ratios and percentages. 15 72087 A failure to meet these ratios and percentages could trigger a ratings downgrade. We and Jefferies Group intend to access capital markets and issue debt securities from time to time, and a ratings downgrade may decrease demand for such offered security. A decrease in demand would not only make a successful financing more difficult, but also increase our respective capital costs. Similarly, our and Jefferies Group’s access to other forms of credit may be limited and our respective borrowing costs may increase if our or Jefferies Group’s credit ratings are downgraded. A downgrade could also negatively impact our and Jefferies Group’s outstanding debt in connection with certain over-the-counter derivative contract prices and our stock price. arrangements and certain other trading arrangements, a ratings downgrade could cause us or Jefferies Group to provide additional collateral to counterparties, exchanges and clearing organizations which would negatively impact our and Jefferies Group’s liquidity and financial condition. There can be no assurance that our or Jefferies Group’s credit ratings will not be downgraded. In addition, In addition, if Berkadia does not maintain specified servicer ratings from the credit rating agencies, customers would have the right to terminate their mortgage servicing agreements. If mortgage servicing agreements were terminated as a result of a servicer ratings downgrade, we could lose a significant portion of the value of our equity investment. Increased competition may adversely affect our revenues and profitability. Many aspects of our business are intensely competitive. We compete directly with a number of bank holding companies and commercial banks, broker-dealers, investment banking firms and other financial institutions. In addition to competition from firms currently in the securities business, there has been increasing competition from others offering financial services, including automated trading and other services based on technological innovations. We believe that the principal factors affecting competition involve market focus, reputation, the abilities of professional personnel, the ability to execute the transaction, relative price of the service and products being offered, bundling of products and services and the quality of products and service. Increased competition or an adverse change in our competitive position could lead to a reduction of business and therefore a reduction of revenues and profits. The ability to attract, develop and retain highly skilled and productive employees is critical to the success of our business. Our ability to develop and retain our clients depends on the reputation, judgment, business generation capabilities and skills of our professionals. To compete effectively, we must attract, retain and motivate qualified professionals, trading professionals, portfolio managers and other revenue producing or specialized personnel. Competitive pressures we experience with respect to employees could have an adverse effect on our business, results of operations, financial condition and liquidity. including successful investment bankers, advisers, financial Turnover in the financial services industry is high. The cost of retaining skilled professionals in the financial services industry has escalated considerably. Financial industry employers are increasingly offering guaranteed contracts, upfront payments, and increased compensation. These can be important factors in a current employee’s decision to leave us as well as in a prospective employee’s decision to join us. As competition for skilled professionals in the industry remains intense, we may have to devote significant resources to attracting and retaining qualified personnel. If we were to lose the services of certain of our professionals, we may not be able to retain valuable relationships and some of our clients could choose to use the services of a competitor instead of our services. If we are unable to retain our professionals or recruit additional professionals, our reputation, business, results of operations and financial condition will be adversely affected. Further, new business initiatives and efforts to expand existing businesses frequently require that we incur compensation and benefits expense before generating additional revenues. Moreover, companies in our industries whose employees accept positions with competitors often claim that those competitors have engaged in unfair hiring practices. We may be subject to such claims in the future as we seek to hire qualified personnel who have worked for our competitors. Some of these claims may result in material litigation. We could incur substantial costs in defending against these claims, regardless of their merits. Such claims could also discourage potential employees who work for our competitors from joining us. 16 54456 We could experience significant increases in operating costs and reduced profitability due to competition for skilled management and staff employees in our operating businesses. We compete with many other entities for skilled management and staff employees, including entities that operate in different market sectors than us. Costs to recruit and retain adequate personnel could adversely affect results of operations. Legal liability may harm our business. Many aspects of our businesses involve substantial risks of liability, and in the normal course of business, we have been named as a defendant or codefendant in lawsuits involving primarily claims for damages. The risks associated with potential legal liabilities often may be difficult to assess or quantify and their existence and magnitude often remain unknown for substantial periods of time. The expansion of our businesses, including expansions into new products or markets, impose greater risks of liability. In addition, unauthorized or illegal acts of our employees could result in substantial liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our businesses and our prospects. Although our current assessment is that, other than as disclosed in this report, there is no pending litigation that could have a significant adverse impact, if our assessment proves to be in error, then the outcome of litigation could have a significant impact on our financial statements. Employee misconduct, which is difficult to detect and deter, could harm us by impairing our ability to attract and retain clients and subject us to significant legal liability and reputational harm. There is a risk that our employees could engage in misconduct that adversely affects our business. For example, our business often requires that we deal with confidential matters of great significance to our clients. If our employees were to improperly use or disclose confidential information provided by our clients, we could be subject to regulatory sanctions and suffer serious harm to our reputation, financial position, current client relationships and ability to attract future clients. We are also subject to a number of obligations and standards arising from our asset management business and our authority over the assets managed by our asset management business. In addition, our financial advisers may act in a fiduciary capacity, providing financial planning, investment advice, and discretionary asset management. The violation of these obligations and standards by any of our employees would adversely affect our clients and us. It is not always possible to deter associate misconduct, and the precautions we take to detect and prevent this activity may not be effective. If our employees engage in misconduct, our business would be adversely affected. We may not be able to insure certain risks economically. We cannot be certain that we will be able to insure all risks that we desire to insure economically or that all of our insurers or reinsurers will be financially viable if we make a claim. If an uninsured loss or a loss in excess of insured limits should occur, or if we are required to pay a deductible for an insured loss, results of operations could be adversely affected. A change in tax laws in key jurisdictions could materially increase our tax expense. We are subject to tax in the U.S. and numerous international jurisdictions. Changes to income tax laws and regulations in any of the jurisdictions in which we operate, or in the interpretation of such laws, or in the introduction of new taxes, could significantly increase our effective tax rate and ultimately reduce our cash flow from operating activities and otherwise have an adverse effect on our financial condition. If our tax filing positions were to be challenged by federal, state and local, or foreign tax jurisdictions, we may not be wholly successful in defending our tax filing positions. We record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our net deferred tax asset, either of which result could be significant to our financial condition or results of operations. From time to time we may invest in securities that are illiquid or subject to restrictions. From time to time we may invest in securities that are subject to restrictions which prohibit us from selling the subject securities for a period of time. Such agreements may limit our ability to generate liquidity quickly through the disposition of the underlying investment while the agreement is effective. 17 79188 Our common shares are subject to transfer restrictions. We and some of our subsidiaries have tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties. In order to reduce the possibility that certain changes in ownership could result in limitations on the use of the tax attributes, our certificate of incorporation contains provisions that generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of our common shares and the ability of persons or entities now owning 5% or more of our common shares from acquiring additional common shares. The restriction will remain until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) and (c) the beginning of a taxable year to which these tax benefits may no longer be carried forward. The restriction may be waived by our Board of Directors on a case by case basis. Shareholders are advised to carefully monitor their ownership of our common shares and consult their own legal advisers and/or us to determine whether their ownership of our common shares approaches the proscribed level. Our business is subject to significant credit risk. In the normal course of our businesses, we are involved in the execution, settlement and financing of various customer and principal securities and derivative transactions. These activities are transacted on a cash, margin or delivery-versus-payment basis and are subject to the risk of counterparty or customer nonperformance. Even when transactions are collateralized by the underlying security or other securities, we still face the risks associated with changes in the market value of the collateral through settlement date or during the time when margin is extended and collateral has not been secured or the counterparty defaults before collateral or margin can be adjusted. We may also incur credit risk in its derivative transactions to the extent such transactions result in uncollateralized credit exposure to counterparties. We seek to control the risk associated with these transactions by establishing and monitoring credit limits and by monitoring collateral and transaction levels daily. We may require counterparties to deposit additional collateral or return collateral pledged. In certain circumstances, we may, under industry regulations, purchase the underlying securities in the market and seek reimbursement for any losses from the counterparty. However, there can be no assurances that our risk controls will be successful. Our investment in Berkadia may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $268.9 million investment in Berkadia. Many factors, most of which are outside of our control, can affect Berkadia’s business, including loan losses in excess of reserves, a change in the relationships with U.S. Government-Sponsored Enterprises or federal agencies, a significant loss of customers, and other factors that directly and indirectly effect the results of operations, including the sales and profitability of Berkadia, and consequently may adversely affect our results of operations or financial condition. If Berkadia suffered significant losses and was unable to repay its commercial paper borrowings, we would be exposed to loss pursuant to a reimbursement obligation to Berkshire Hathaway. Berkadia obtains funds generated by commercial paper sales of an affiliate of Berkadia. All of the proceeds from the commercial paper sales are used by Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and a Berkshire Hathaway corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. If Berkadia suffers significant losses and is unable to repay its commercial paper borrowings, we would suffer losses to the extent of our the aggregate amount of reimbursement obligation to Berkshire Hathaway. As of November 30, 2019, commercial paper outstanding was $1.47 billion. Our semi-annual estimates of the fair values of holdings of certain of our merchant banking investments may differ from what can be realized and how these investments are reflected in our financial statements prepared in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’). In our January 2020 letter to shareholders and July 2019 earnings release, we have disclosed certain estimated fair values of our merchant banking investments and disclosed our intention to provide semi-annual disclosures relating to the estimated fair value of our holdings of certain merchant banking investments, some of which are consolidated. These semi-annual estimates may differ from how these investments are reflected in our 18 38851 financial statements prepared in accordance with GAAP. Factors to consider in connection with reviewing these semi-annual estimates of fair value include, but are not limited to, the following: • These estimates are forward-looking statements and should be read in connection with our Cautionary Statement for Forward-Looking Information. • Although we believe these estimates to be fair and reasonable, these semi-annual estimates may differ materially from realized values or future estimates. • Our semi-annual fair values are, indeed, estimates only and are subject to change. • We may determine to change the timing of providing these semi-annual estimates or stop providing such estimates at any time and for any reason. • Management does not necessarily use these estimates in making business decisions regarding the operation of our business or any decision relating to these investments. • These estimates may constitute non-GAAP financial measures and should be read in connection with disclosures relating to our use of non-GAAP financial measures. The performance of our oil and gas production and development investments, Vitesse Energy Finance and JETX Energy, is impacted by uncertainties specific to the oil and gas industry which we cannot control and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $585.5 million investment in Vitesse Energy Finance and JETX Energy. The oil and gas industry, by its nature, involves a high degree of risk. The value of these investments may be impacted by changes in the prices of oil, gas and natural gas liquids, which are affected by local, regional and global events or conditions that affect supply and demand and which have a history of significant price volatility. These investments are also exposed to changes in regulations affecting the industry, which could increase our cost of compliance, there are numerous uncertainties inherent in the estimation of future oil and gas production and future income streams associated with production. As a result, actual results could materially differ from those we currently anticipate and our ability to profitably grow these investments could be adversely affected. reduce or delay business opportunities. increase taxes or In addition, Our investment in real estate may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $645.3 million investment in real estate businesses, including HomeFed. Many factors, most of which are outside of our control, can affect HomeFed’s business, including the state of the housing market in general and other factors that directly or indirectly effect the results of operations, including the sales and profitability of HomeFed, and consequently may adversely affect our results of operations or financial condition. Our investment in Linkem may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $194.8 million investment in Linkem. Many factors, most of which are outside of our control, can affect Linkem’s business, the Italian economy and capital markets in general, competition in the Italian including the state of telecommunications markets and other factors that directly and indirectly effect the results of operations, including the sales and profitability of Linkem, and consequently may adversely affect our results of operations or financial condition. Our investment in FXCM may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $129.3 million investment in FXCM. Many factors, most of which are outside of our control, can affect FXCM’s business, including the state of international market and economic conditions which impact trading volume and currency volatility, changes in regulatory requirements and other factors that directly or indirectly effect the results of operations, including the sales and profitability of FXCM, and consequently may adversely affect our results of operations or financial condition. Our investment in Idaho Timber may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $77.9 million investment in Idaho Timber. Many factors, most of which are outside of our control, can affect Idaho Timber’s 19 57846 business, including demand for its products, prices and availability of raw materials and other factors that directly and indirectly effect the results of operations, including the sales and profitability of Idaho Timber, and consequently may adversely affect our results of operations or financial condition. Our investment in The We Company may not prove to be successful and may adversely affect our results of operations or financial condition. As of November 30, 2019, we had an approximately $53.8 million investment in The We Company. During 2019, we incurred a mark down of approximately $182.3 million relating to this investment due to a decrease in The We Company’s valuation. Many factors, most of which are outside of our control, can affect The We Company’s business, including the expansion of its business, number of customers and other factors that directly and indirectly effect the results of operations, including the sales and profitability of The We Company, and consequently may adversely affect our results of operations or financial condition. Item 1B. Unresolved Staff Comments. Not applicable. Item 2. Properties. Our global executive offices and principal administrative offices are located at 520 Madison Avenue, New York, New York under an operating lease arrangement. Jefferies Group maintains offices in over 30 cities throughout the world including its global headquarters in New York City, its European headquarters in London and its Asian headquarters in Hong Kong. In addition, Jefferies Group maintains backup data center facilities with redundant technologies for each of its three main data center hubs in Jersey City, London and Hong Kong. Jefferies Group leases all of its office space, or contract via service arrangement, which management believes is adequate for its business. HomeFed is the developer of various real estate properties and has an aggregate book value of approximately $539.1 million at November 30, 2019. Our businesses lease other manufacturing, warehousing, office and headquarters facilities. The facilities vary in size and have leases expiring at various times, subject, in certain instances, to renewal options. See Note 23 to our consolidated financial statements. Item 3. Legal Proceedings. The information required by this Item 3 is incorporated by reference from the ‘‘Contingencies’’ section in Note 23 in the Notes to consolidated financial statements in Item 8 of Part II of this report, which is incorporated herein by reference. Item 4. Mine Safety Disclosures. Not applicable. 20 65459 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common shares are traded on the NYSE under the symbol JEF. As of January 17, 2020, there were approximately 1,668 record holders of the common shares. We paid quarterly cash dividends of $0.125 per share for each quarter of 2019, as well as $1.50 in a special dividend. We distributed 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to stockholders of record as of the close of business on September 30, 2019. We paid quarterly cash dividends of $0.125 per share for each of the last two quarters of 2018 and $0.10 per share for each of the first two quarters of 2018. We paid quarterly cash dividends of $0.10 per share for the each of the last two quarters of 2017 and $0.0625 per share for each of the first two quarters of 2017. On January 9, 2020, our Board of Directors increased our quarterly dividend by 20% to $0.15 per share. The payment of dividends in the future is subject to the discretion of our Board of Directors and will depend upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that our Board of Directors may deem to be relevant. We and some of our subsidiaries have tax attributes, the amount and availability of which are subject to certain qualifications, limitations and uncertainties. In order to reduce the possibility that certain changes in ownership could result in limitations on the use of our tax attributes, our certificate of incorporation contains provisions which generally restrict the ability of a person or entity from acquiring ownership (including through attribution under the tax law) of 5% or more of the common shares and the ability of persons or entities now owning 5% or more of the common shares from acquiring additional common shares. The restrictions will remain in effect until the earliest of (a) December 31, 2024, (b) the repeal of Section 382 of the Internal Revenue Code (or any comparable successor provision) or (c) the beginning of a taxable year to which these tax benefits may no longer be carried forward. In January 2019, our Board of Directors approved a $500.0 million share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares. During the twelve months ended November 30, 2019, we purchased a total of 25,926,388 of our common shares for $506.2 million, or an average price of $19.52 per share. This includes 780,315 shares purchased, at a price of $21.03 per share, in connection with the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts. In total, based on the closing price of Jefferies common shares at November 30, 2019, we have approximately $203.6 million available for future repurchases. Separately, during the twelve months ended November 30, 2019, we repurchased an aggregate of 199,198 shares in connection with our share compensation plans which allow participants to surrender shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans. There were no unregistered sales of equity securities during the period covered by this report. The following table presents information on our purchases of our common shares during the three months ended November 30, 2019 (dollars in thousands, except per share amounts): (a) Total Number of Shares Purchased (1) September 1, 2019 to September 30, 2019 . . . . . . . . October 1, 2019 to October 31, 2019. . . . . . . . . . . . . November 1, 2019 to November 30, 2019 (3) (4) . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 366,138 5,267,579 2,600,027 8,233,744 (b) Average Price Paid per Share $18.35 $17.83 $20.79 (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) 366,138 5,234,862 1,819,712 7,420,712 $311,345 $220,536 $203,570 21 94177 (1) Includes an aggregate 32,717 shares repurchased other than as part of our publicly announced Board authorized repurchase program. We repurchased these securities in connection with our share compensation plans which allow participants to use shares to satisfy certain tax liabilities arising from the vesting of restricted shares and the distribution of restricted share units. The total number of shares purchased does not include unvested shares forfeited back to us pursuant to the terms of our share compensation plans. (2) In January 2019, our Board of Directors approved a $500.0 million share repurchase authorization. At November 30, 2019, $11.5 million remains available for future purchases. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares. At November 30, 2019, 9.2 million shares remain available for future purchases. The approximate dollar value of shares that may be purchased under the plans or programs in the table above related to these shares is based on the month end closing price of Jefferies common shares. (3) Includes 780,315 shares received on the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts. (4) Includes 57,754 shares that settled in December 2019. Stockholder Return Performance Graph Set forth below is a graph comparing the cumulative total stockholder return on our common shares against the cumulative total return of the Standard & Poor’s 500 Stock Index and the Standard & Poor’s 500 Financials Index for the period commencing December 31, 2014 to November 30, 2019. Index data was furnished by S&P Global Market Intelligence. The graph assumes that $100 was invested on December 31, 2014 in each of our common stock, the S&P 500 Index and the S&P 500 Financials Index and that all dividends were reinvested. Comparison of Cumulative Five Year Total Return $200 $150 $100 $50 $0 12/31/14 12/31/15 12/31/16 12/31/17 11/30/18 11/30/19 Jefferies Financial Group S&P 500 Index S&P 500 Financials Index 22 38615 Item 6. Selected Financial Data. The following selected financial data have been summarized from our consolidated financial statements. They should be read in conjunction with our consolidated financial statements and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of this report. Selected Statements of Operations Data (a) Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) related to associated companies . . . . . Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . Income (loss) from discontinued operations, including gain (loss) on disposal, net of taxes . . . Net (income) loss attributable to the redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group common shareholders . . . . . . . . . . . . . . Per share: Basic earnings (loss) per common share attributable to Jefferies Financial Group common shareholders: Income (loss) from continuing operations . . . . . . . Income (loss) from discontinued operations, including gain (loss) on disposal . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per common share attributable to Jefferies Financial Group common shareholders: Income (loss) from continuing operations . . . . . . . Income (loss) from discontinued operations, including gain (loss) on disposal . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2016 2015 2017 (In thousands, except per share amounts) $3,892,976 3,617,363 202,995 $3,764,034 3,524,957 57,023 $4,077,445 $3,035,374 $3,484,039 3,113,869 3,202,564 3,396,042 110,281 154,598 (74,901) 478,608 (483,955) 962,563 296,100 19,008 277,092 606,502 642,286 (35,784) (12,592) 25,773 (38,365) 480,451 142,744 337,707 – 773,984 288,631 232,686 (85,596) 286 (37,263) (84,576) (65,746) 26,543 959,593 1,022,318 167,351 125,938 279,587 $3.07 – $3.07 $3.03 – $3.03 $0.82 2.11 $2.93 $0.81 2.09 $2.90 $(0.10) $(0.10) $ 0.90 0.55 $ 0.45 0.44 $ 0.34 (0.16) $ 0.74 $(0.10) $(0.10) $ 0.90 0.55 $ 0.45 0.44 $ 0.34 (0.16) $ 0.74 (a) Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results. At November 30, 2019 At December 31, 2018 2016 2017 (In thousands, except per share amounts) 2015 Selected Statements of Financial Condition Data Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . Mezzanine equity. . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . Book value per common share . . . . . . . . . . . . Cash dividends per common share. . . . . . . . . Total dividends per common share . . . . . . . . $49,460,234 8,337,061 151,605 9,579,705 $32.85 $0.50 $2.00 $47,131,095 7,617,563 144,779 10,060,866 $32.72 $0.45 $0.45 $47,169,108 7,885,783 551,593 10,105,957 $28.37 $0.325 $0.325 $45,071,307 7,380,443 461,809 10,128,100 $28.18 $0.25 $0.25 $46,331,184 7,400,582 316,633 10,401,211 $28.68 $0.25 $0.25 23 63080 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations for the twelve months ended November 30, 2019 and eleven months ended November 30, 2018. For a discussion of our results of operations and liquidity and capital resources for the twelve months ended December 31, 2017, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ in Part II, Item 7 of our Transition Report on Form 10-K for the fiscal year ended November 30, 2018, which was filed with the SEC on January 29, 2019. This analysis should be read in conjunction with the consolidated financial statements and related footnote disclosures contained in this report and the following ‘‘Cautionary Statement for Forward-Looking Information.’’ Cautionary Statement for Forward-Looking Information Statements included in this report may contain forward-looking statements. Such statements may relate, but are not limited, to projections of revenues, income or loss, development expenditures, plans for growth and future operations, competition and regulation, as well as assumptions relating to the foregoing. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this report, the words ‘‘will,’’ ‘‘could,’’ ‘‘estimates,’’ ‘‘expects,’’ ‘‘anticipates,’’ ‘‘believes,’’ ‘‘plans,’’ ‘‘intends’’ and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Factors that could cause actual results to differ materially from any results projected, forecasted, estimated or budgeted or may materially and adversely affect our actual results include, but are not limited to, those set forth in Item 1A. Risk Factors and elsewhere in this report and in our other public filings with the SEC. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. Except as may be required by law, we undertake no obligation to revise or update these forward- looking statements to reflect events or circumstances that arise after the date of this report or to reflect the occurrence of unanticipated events. Results of Operations We are a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group, our largest subsidiary, is the largest independent full-service global investment banking firm headquartered in the U.S. In the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Financial statements for 2017 continue to be presented on the basis of our previous calendar year end. Jefferies Group has a November 30 year end. Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results. The following tables present a summary of our financial results. 24 17311 A summary of results of operations for the twelve months ended November 30, 2019 is as follows (in thousands): Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,112,530 $746,369 $ 32,833 $ – $ 1,244 $3,892,976 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . Cost of sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . 1,684,054 227,471 – 79,204 797,132 82,832 319,641 34,129 70,192 175,650 58,005 – – 3,475 39,820 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,787,861 682,444 101,300 – – 53,048 – – 53,048 – (4,331) – – (2,959) (7,290) 1,824,891 542,781 87,177 152,871 1,009,643 3,617,363 Income (loss) from continuing operations before income taxes and income related to associated companies . . . . . . . . . . . . . . . . Income related to associated companies . . . . . . . . Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . Income tax benefit from continuing operations . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,669 – 63,925 202,927 (68,467) – (53,048) – 8,534 68 275,613 202,995 $ 324,669 $266,852 $ (68,467) $(53,048) $ 8,602 478,608 (483,955) $ 962,563 (1) Includes Floor brokerage and clearing fees. A summary of results of operations for the eleven months ended November 30, 2018 is as follows (in thousands): Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,183,376 $571,831 $ 22,300 $ – $(13,473) $3,764,034 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . Cost of sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . 1,736,264 189,068 – 68,296 780,081 77,169 307,071 35,159 48,852 150,115 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,773,709 618,366 50,222 – – 3,169 35,049 88,440 – – 54,090 – – 54,090 (873) (4,858) – – (3,917) (9,648) 1,862,782 491,281 89,249 120,317 961,328 3,524,957 Income (loss) from continuing operations before income taxes and income related to associated companies . . . . . . . . . . . . . . . . . Income related to associated companies . . . . . . . . . Income (loss) from continuing operations 409,667 – (46,535) 57,023 (66,140) – (54,090) – (3,825) – 239,077 57,023 before income taxes . . . . . . . . . . . . . . . . . . . . . $ 409,667 $ 10,488 $(66,140) $(54,090) $ (3,825) 296,100 Income tax provision from continuing operations Income from discontinued operations, net of income tax provision . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations, net of income tax provision. . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) Includes Floor brokerage and clearing fees. 25 19,008 130,063 643,921 $1,051,076 36193 A summary of results of operations for the twelve months ended December 31, 2017 is as follows (in thousands): Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,198,109 $876,180 $ 6,306 $ – $ (3,150) $4,077,445 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . Cost of sales (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . 1,829,096 179,478 – 62,668 621,943 73,811 280,952 42,259 44,257 131,627 Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,693,185 572,906 46,655 – – 3,470 34,983 85,108 – – 58,943 – – 58,943 1,373 (4,972) – – (10,501) 1,950,935 455,458 101,202 110,395 778,052 (14,100) 3,396,042 Income (loss) from continuing operations before income taxes and loss related to associated companies . . . . . . . . . . . . . . . . . . Loss related to associated companies . . . . . . . . . . Income (loss) from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . Income tax provision from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of income tax provision . . . . . . . . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504,924 – 303,274 (74,901) (78,802) – (58,943) – 10,950 – 681,403 (74,901) $ 504,924 $228,373 $(78,802) $(58,943) $ 10,950 606,502 642,286 288,631 $ 252,847 (1) Includes Floor brokerage and clearing fees. The composition of our financial results has varied over time and we expect will continue to evolve over time. Our strategy is designed to transform Jefferies into a pure financial services firm and, as such, we are focused on the development of our Investment Banking, Capital Markets and Asset Management segment, while we continue to realize the value of or otherwise transform our investments in Merchant Banking. The following factors and events should be considered in evaluating our financial results as they impact comparisons: Our 2019 financial results from continuing operations were impacted by: • A nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years; • The special dividend of our interest in Spectrum Brands of $451.1 million, removing the investment from our Merchant Banking portfolio going forward; • A $205.0 million pre-tax gain on the sale of our remaining 31% interest in National Beef; • A $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed; and • A reduction during 2019 to the estimated fair value of The We Company of $182.3 million. Our 2018 financial results from continuing operations were impacted by: • A $418.8 million mark-to-market decrease in the value of our investment in Spectrum Brands/HRG Group, Inc. (‘‘HRG’’); • A $221.7 million pre-tax gain on the sale of our Garcadia interests; • A $70.9 million increase in the estimated fair value of The We Company; • A $62.1 million impairment loss related to our investment in FXCM; and 26 50973 • A $47.9 million impairment loss related to our investment in Golden Queen Mining Company, LLC (‘‘Golden Queen’’). Our 2017 financial results from continuing operations were impacted by: • A non-cash $450.5 million charge related to the impact of tax reform; • A $178.2 million pre-tax gain on the sale of Conwed Plastics; • A $130.2 million impairment loss related to our investment in FXCM; and • A mark-to-market increase in the value of our investment in HRG of $64.8 million. Investment Banking, Capital Markets and Asset Management Our Investment Banking, Capital Markets and Asset Management segment consists of our investment in Jefferies Group. Jefferies Group was acquired on March 1, 2013 and is reflected in our 2017 consolidated financial statements utilizing a one month lag; Jefferies Group’s fiscal year ends on November 30th. Jefferies Group financial data is presented in each year based on the twelve months ended November 30. A summary of results of operations for our Investment Banking, Capital Markets and Asset Management segment is as follows (in thousands): Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,112,530 $3,183,376 $3,198,109 2019 2018 2017 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floor brokerage and clearing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,684,054 227,471 79,204 797,132 1,736,264 189,068 68,296 780,081 1,829,096 179,478 62,668 621,943 Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,787,861 2,773,709 2,693,185 Income from continuing operations before income taxes . . . . . . . . $ 324,669 $ 409,667 $ 504,924 Our Investment Banking, Capital Markets and Asset Management segment comprises many business units, with many interactions and much integration among them. Business activities include the sales, trading, origination and advisory effort for various equity, fixed income, commodities, foreign exchange and advisory services. Our Investment Banking, Capital Markets and Asset Management segment business, by its nature, does not produce predictable or necessarily recurring revenues or earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally, and our own activities and positions. Revenues by Source Net revenues presented for our Investment Banking, Capital Markets and Asset Management segment include allocations of interest income and interest expense as we assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, including the net interest cost of allocated long-term debt, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs. 27 98409 The following provides a summary of net revenues by source (in thousands): 2019 2018 2017 Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 773,979 681,362 1,455,341 $ 665,557 559,712 1,225,269 $ 674,424 618,388 1,292,812 Advisory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Investment Banking and Capital Markets (1) (2). . . . . . . . . . . . Asset management fees and revenues (3) . . . . . . . . . . . . . . . . . . . . . . . . . . Investment return (4) (5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated net interest (4) (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 767,421 361,972 407,336 769,308 (14,617) 1,522,112 58,535 3,035,988 20,285 96,805 (40,548) 76,542 820,042 454,555 635,606 1,090,161 3,638 1,913,841 45,316 3,184,426 21,214 16,971 (39,235) (1,050) 770,092 344,973 649,220 994,193 19,776 1,784,061 92,987 3,169,860 19,224 20,581 (11,556) 28,249 Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,112,530 $3,183,376 $3,198,109 (1) Includes net interest revenues (expenses) of $74.0 million, $8.5 million and $(58.6) million for 2019, 2018 and 2017, respectively. (2) Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets results within Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement. (3) The amount for 2019 includes revenues of $3.1 million from our share of fees received by third party asset management companies with which we have revenue and profit share arrangements. (4) Beginning with the first quarter of 2019, Net revenues attributed to the Investment return in our Asset Management results have been disaggregated to separately present Investment return and Allocated net interest (see footnotes 5 and 6 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We offer third-party investors the opportunity to co-invest in our asset management funds and separately managed accounts alongside us. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio. (5) Includes net interest expense of $8.9 million, $8.4 million and $4.8 million for 2019, 2018 and 2017, respectively. (6) Allocated net interest represents the allocation of long-term debt interest expense to Asset Management, net of interest income on Cash and cash equivalents and other sources of liquidity. For discussion of sources of liquidity, refer to the ‘‘Liquidity and Capital Resources’’ section herein. Equities Net Revenues Equities are comprised of net revenues from: • services provided to our clients from which we earn commissions or spread revenue by executing, settling and clearing transactions for clients; • advisory services offered to clients; • financing, securities lending and other prime brokerage services offered to clients; and 28 75692 • wealth management services, which includes providing clients access to all of our institutional execution capabilities. In 2019, certain of our equities businesses achieved high rankings by Greenwich Associates. This includes ranking #1 in U.S. electronic trading, U.S. small and mid-cap trading, U.S. high touch sales trading and U.S., Europe, and Asia (excluding Japan) convertibles sales and trading. In addition, we ranked #1 in U.S. healthcare desk strategy from Institutional Investor. We also ranked in the top five from Greenwich Associates in U.S. research sales and ranked in the top ten from third-party market surveys in global cash equities, U.S. cash equities, U.S. options and U.K. cash equities. Total equities net revenues were $774.0 million for 2019, an increase of $108.4 million, compared with $665.6 million for 2018. Equities posted record results for 2019 for overall global business across the U.S., Europe and Asia Pacific regions. Our results include records for our Europe and Asia cash equities, global electronic trading, global prime brokerage and global securities finance businesses. Equities net revenues for 2019 increased compared with 2018 on strong performance across many of our businesses, which continue to be well-positioned with continued market share growth. The increase in our core global equities business was primarily driven by higher revenues across cash equities, electronic trading, convertibles, securities finance and prime brokerage. Results in our global cash equities businesses were primarily driven by record results in Europe and Asia. Our global electronic trading business was driven by continued growth in market share and increased trading volumes, particularly in Europe and Asia. Our global convertibles business benefited from significant growth due to the expansion of the business in London with a market-leading team and improved trading conditions. Stronger results in our prime services business, which reflects prime brokerage and securities finance, were driven by increased customer trading activity and the addition of a trading desk that provides outsourced services to clients. The increase in our core global equities capital markets net revenues was partially offset by a decrease in our equity derivatives business, driven by a lower volatility trading environment and a decline in client activity. The increase in our global equities business also included lower losses on certain block positions in 2019 as compared with 2018. Fixed Income Net Revenues Fixed income is comprised of net revenues from: • executing transactions for clients and making markets in securitized products, investment grade, high- yield, emerging markets, municipal and sovereign securities and bank loans, as well as foreign exchange execution on behalf of clients; and • interest rate derivatives and credit derivatives. Fixed income net revenues totaled $681.4 million for 2019, an increase of $121.7 million from net revenues of $559.7 million for 2018, primarily due to more active markets throughout most of the current year and improved market conditions in the U.S., as well as the expansion of certain trading teams in 2019. The increase was partially offset by lower volatility in European rates and credit markets and certain risk assets. Revenues improved in our U.S. investment grade corporates business due to increased trading activity and increased investor demand as credit spreads tightened during 2019 compared to muted client activity and demand in 2018, while revenues in our U.S. rates business improved, as opportunities in the U.S. treasuries trading market were more present in 2019. Revenues in our leveraged credit business were strong due to improved results from secondary trading of par loans and bonds, as well as benefiting from various trading hires. Similarly, our Asia credit business was also well positioned to benefit from new hires, extended client reach and activity throughout most of the current year. 29 77466 Our global emerging markets business delivered higher net revenues in 2019 as compared with the prior year, primarily due to strong investor demand and increased volatility in certain countries. The current year also included higher revenues from our structured notes business due to higher trading and issuance volumes that benefited from a more established trading desk, as compared with the prior year. International rates revenues for 2019 declined as economic challenges and an ultra-low rate environment persisted in European countries, including continued concerns over Brexit, which resulted in limited trading opportunities. This compares with 2018 markets with higher levels of trading activity due to comparatively higher volatility. Revenues in our international securitized markets groups underperformed, as a more favorable trading environment in certain securitization businesses, primarily in Europe, was present in 2018. U.S. securitized markets businesses performance was flat year-over-year with mixed results in individual business lines. Investment Banking Revenues Investment banking is comprised of revenues from: • advisory services with respect to mergers and acquisitions and restructurings and recapitalizations; • underwriting services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage-backed and asset-backed securities and equity and equity-linked securities and loan syndication; • our share of net earnings from Jefferies Group’s corporate lending joint venture, Jefferies Finance; and • securities and loans received or acquired in connection with our investment banking activities. Total investment banking revenues were $1,522.1 million for 2019, 20.5% lower than 2018. Substantially all of this decrease was due to lower underwriting revenue, with the largest portion of the underwriting shortfall related to our leveraged finance business. Most of our revenue shortfall in leveraged finance was due to the overall slowdown in leveraged finance issuance across the U.S. and Europe, particularly in the single-B rated market, which is our primary market. Our advisory revenues were $767.4 million for 2019, down $52.6 million, or 6.4%, from 2018. This performance was against a backdrop of an 11% decline in industry-wide merger and acquisition fees across the U.S. and Europe during this period, according to Dealogic. Our underwriting revenues for 2019 were $769.3 million, down $320.9 million, or 29.4%, from 2018. During 2019, advisory transactions revenues totaled $767.4 million, including revenues from 179 merger and acquisition transactions and 16 restructuring and recapitalization transactions with an aggregate transaction value of $241.6 billion. From equity and debt underwriting activities, we generated $362.0 million and $407.3 million in revenues, respectively, for 2019. During 2019, we completed 779 public and private debt financings that raised $190.7 billion in aggregate and we completed 166 public and private equity and convertible offerings that raised $45.3 billion (139 of which we acted as sole or joint bookrunner). During 2018, advisory transaction revenues totaled $820.0 million, including revenues from 180 merger and acquisition transactions and 15 restructuring and recapitalization transactions with an aggregate transaction value of $193.9 billion. From equity and debt underwriting activities, we generated $454.6 million and $635.6 million in revenues, respectively, for 2018. During 2018, we completed 969 public and private debt financings that raised $270.1 billion in aggregate and we completed 193 public and private equity and convertible offerings that raised $43.3 billion (179 of which we acted as sole or joint bookrunner). Other investment banking revenues were a loss of $14.6 million for 2019, compared with revenues of $3.6 million for 2018. The results for 2019 include net revenues of $22.3 million from our share of the profits of the Jefferies Finance joint venture, compared to net revenues of $98.6 million for 2018. The decline in 2019 reflects volatility experienced in the leveraged loan markets throughout most of the year, which resulted in lower transaction volume as compared to 2018. The results for Jefferies Finance for 2019 also include $12.5 million in costs from refinancing its debt. Results in both years also include the amortization of costs and allocated interest expense related to the investment in the Jefferies Finance business. 30 14414 Other Other is comprised of revenues from: • Berkadia and other strategic investments (other than Jefferies Finance); • principal investments in private equity and hedge funds managed by third parties or related parties and that are not part of our LAM platform; and • investments held as part of employee benefit plans, including deferred compensation plans (for which we incur an equal and offsetting amount of compensation expenses). Net revenues from our Investment Banking, Capital Markets and Asset Management segment’s other business category totaled $58.5 million for 2019, an increase of $13.2 million compared with $45.3 million for 2018. The results in 2019 include net revenues of $88.2 million due to Jefferies Group’s share of income from Berkadia, compared with net revenues of $20.0 million for 2018, reflecting two months of revenues, as Jefferies transferred its 50% interest in Berkadia to Jefferies Group on October 1, 2018. The results in both periods also include interest expenses in receipt of allocated long-term debt and mark-to-market decreases related to other strategic investments. Results in 2018 also included foreign currency gains. Asset Management Asset management revenues include the following: • Management and performance fees from funds and accounts managed by us; • Arrangements with strategic partners, which entitle us to portions of our partners’ revenues and/or profits; and • Investment income from capital invested in and managed by our asset management business and other asset managers. The key components of asset management revenues are the level of assets under management and the performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets. Performance fees during 2019 and 2018 are generally recognized once a year, typically in December, at the end of the performance period to the extent that the benchmark return has been met. Performance fees during 2017 were accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark return hurdles stated in the investment management agreement. The following summarizes the results of our Asset Management businesses by asset class (dollars in thousands): 2019 2018 2017 Asset management fees: Equities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total asset management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue from arrangements with strategic partners (1) . . . . . . . . . . . . . . . . . . Total asset management fees and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated net interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Asset Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,623 13,596 17,219 3,066 20,285 96,805 (40,548) $ 76,542 $ 1,900 19,314 21,214 – $ 2,718 16,506 19,224 – 19,224 21,214 20,581 16,971 (11,556) (39,235) $ (1,050) $ 28,249 31 69628 (1) The amount for 2019 includes our share of fees received by third party asset management companies with which we have revenue and profit share arrangements. Asset management net revenues for 2019 were $76.5 million, compared with a net loss of $1.1 million in 2018. The increase was primarily due to higher investment returns, as a result of an improved performance in certain of our investments in separately managed accounts and funds and an increase in our investments in certain of these investments. Compensation and Benefits Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation awards and the amortization of share-based and cash compensation awards to employees. Cash and historical share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded in the year of the award. Included in Compensation and benefits expense are share-based amortization and cash-based expense for senior executive awards, non-annual share-based and cash-based awards to other employees and certain year end awards that contain future service requirements for vesting, all of which are being amortized over their respective future service periods. In addition, the senior executive awards contain market and performance conditions. Compensation expense related to the amortization of share-based and cash-based awards amounted to $341.4 million and $302.0 million for 2019 and 2018, respectively. Compensation and benefits as a percentage of Net revenues was 54.1% and 54.5% for 2019 and 2018, respectively. Non-Compensation Expenses Non-compensation expenses include floor brokerage and clearing fees, underwriting costs, technology and communications expense, occupancy and equipment rental expense, business development, professional services, bad debt provision, impairment charges, depreciation and amortization expense and other costs. All of these expenses, other than floor brokerage and clearing fees and depreciation and amortization expense, are included in Selling, general and other expenses in the Consolidated Statements of Operations. Non-compensation expenses were $1,103.8 million for 2019, an increase of $66.4 million, or 6.4%, compared with $1,037.4 million in 2018. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearings fees due to an increase in trading volumes across the equities and fixed income businesses, as well as the growth in certain asset management funds and resultant trading activity. The higher expenses also included an increase in technology and communication expenses related to costs associated with the development of various trading systems and our efforts to provide our professionals with leading digital tools to manage workflow and help better serve our clients, as well as increased market data usage costs. Occupancy and equipment expenses increased primarily due to duplicative occupancy expenses related to relocating our office space in London. Professional services expenses increased due to an increase in consulting and legal fees. The increases were partially offset by lower business development expenses and underwriting costs due to a decline in investment banking engagements and activity related to Jefferies Group’s Jefferies Finance joint venture during the current year. 32 81033 Merchant Banking The composition of our Merchant Banking portfolio has been impacted by a number of transactions during recent years. The following chart reflects the significant components of our portfolio each year: Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Consolidated Businesses Oil and Gas HomeFed beginning July 1 Idaho Timber – – Oil and Gas – Idaho Timber National Beef prior to June 5 – Associated Companies Other Investments Linkem FXCM Equity Investment Golden Queen National Beef sold November 29 HomeFed prior to July 1 – – Spectrum Brands prior to October 11 distribution The We Company FXCM Term Loan – Linkem FXCM Equity Investment Golden Queen National Beef beginning June 5 HomeFed Garcadia sold August 17 Berkadia prior to transfer to Jefferies Group October 1 Oil and Gas – Idaho Timber National Beef Conwed sold January 20 Linkem FXCM Equity Investment Golden Queen – HomeFed Garcadia Berkadia Spectrum Brands/HRG HRG The We Company FXCM Term Loan LAM Seed Investments prior to transfer to Jefferies Group October 1 The We Company FXCM Term Loan LAM Seed Investments A summary of results for Merchant Banking is as follows (in thousands): Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income taxes and income (loss) related to associated companies . . . . . . . . . . Income (loss) related to associated companies. . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $746,369 $571,831 $876,180 82,832 319,641 34,129 70,192 175,650 682,444 63,925 202,927 77,169 307,071 35,159 48,852 150,115 618,366 73,811 280,952 42,259 44,257 131,627 572,906 (46,535) 57,023 303,274 (74,901) Income from continuing operations before income taxes . . . . . . $266,852 $ 10,488 $228,373 In the fourth quarter of 2018, we transferred our 50% membership interest in Berkadia and our LAM seed investments into Jefferies Group. Revenues related to the net assets transferred were $6.7 million for the eleven months ended November 30, 2018. Income from continuing operations before income taxes related to the net assets transferred were $47.7 million for the eleven months ended November 30, 2018. 33 75955 The following provides a summary of net revenues by source (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Oil and gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands/HRG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,224 324,786 37,405 – (8,139) 89,497 152,596 $746,369 $ 169,667 357,513 350 (5,447) 18,616 (412,493) 443,625 $ 571,831 $ 45,225 504,508 45,611 74,990 23,160 64,774 117,912 $876,180 Oil and gas net revenues primarily consist of three components: unrealized gains and losses related to oil hedges, mark-to-market increases and decreases related to a trading asset held at fair value, and production revenues, which also include the impact of realized gains and losses related to oil hedges. Oil and gas net revenues include net unrealized gains (losses) related to oil hedge derivatives of $(6.5) million and $29.1 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. As discussed further in Note 5 to our consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Mark-to-market gains (losses) related to a trading asset held at fair value were $(20.2) million and $12.1 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. Production revenues were $176.9 million and $128.4 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. Production revenues for 2019 increased as compared to 2018 due to Vitesse Energy Finance’s acquisition of additional non-operated Bakken assets in the second quarter of 2018. Net revenues for Idaho Timber decreased in 2019 as compared to 2018, due primarily to a decrease in average selling price. The increase in real estate revenues relates to the acquisition of HomeFed. As discussed more fully above, our LAM seed investments were transferred to Jefferies Group in the fourth quarter of 2018. Net revenues from our FXCM term loan include gains (losses) of $(8.1) million and $18.6 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. This includes the component related to interest income, which is recorded within Principal transactions revenues. Spectrum Brands/HRG net revenues reflect changes in the value of our investment. We classified Spectrum Brands/HRG as a trading asset for which the fair value option was elected and we reflected mark-to-market adjustments in Principal In September 2019, our Board of Directors approved a distribution to stockholders of our Spectrum Brands shares. We distributed 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019. We recorded a $451.1 million dividend payable as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time. transactions revenues. Other revenues for the twelve months ended November 30, 2019 include a $205.0 million pre-tax gain on the sale of our remaining 31% interest in National Beef and a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. Other revenues for the eleven months ended November 30, 2018 reflect the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million. Other revenues for the twelve months ended November 30, 2019 and eleven months ended November 30, 2018 reflect unrealized gains (losses) on trading assets which are held at fair value of $(269.2) million and $125.1 million, respectively. The unrealized gains (losses) on trading assets include $(182.3) million and $70.9 million for the twelve months ended 34 53941 November 30, 2019 and eleven months ended November 30, 2018, respectively, relating to increases (decreases) in the estimated fair value of our investment in The We Company. The following provides a summary of total expenses by source (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Oil and gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $170,680 306,832 39,940 – 164,992 Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $682,444 $116,017 321,851 977 74,029 105,492 $618,366 $ 71,258 296,491 33,398 44,844 126,915 $572,906 Total expenses for Oil and gas increased in 2019 as compared to 2018, primarily due to Vitesse Energy Finance’s acquisition of additional non-operated Bakken assets in the second quarter of 2018 as well as lease abandonment expense incurred at JETX in 2019. The decrease in total expenses for manufacturing in 2019 as compared to 2018 primarily relates to a decrease in Idaho Timber’s cost of sales associated with a decrease in average cost of wood due to lower lumber prices in 2019. The increase in real estate expenses relates to the acquisition of HomeFed. As discussed more fully above, our LAM seed investments were transferred to Jefferies Group in the fourth quarter of 2018. The following provides a summary of Income (loss) related to associated companies (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 National Beef. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkadia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Garcadia Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linkem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Golden Queen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total income (loss) related to associated companies . . . . . . . . . . . . . $232,042 – (8,212) – (28,024) 6,740 381 $202,927 $110,049 80,092 (83,174) 21,646 (20,534) (51,990) 934 $ 57,023 $ – 93,801 (177,644) 48,198 (32,561) (7,733) 1,038 $ (74,901) Income (loss) related to associated companies primarily includes our investments in National Beef, subsequent to June 5, 2018 through its sale on November 29, 2019, Berkadia, prior to its transfer to Jefferies Group on October 1, 2018, and the Garcadia Companies, prior to their sale in August 2018. Income (loss) related to associated companies during the eleven months ended November 30, 2018 includes a $62.1 million impairment loss related to our equity investment in FXCM. As discussed further in Note 11, in the fourth quarter of 2018, we updated expectations for FXCM based on recent revised regulations of the European Securities Market Authority and dampened operating results. Based on the decline in projections and the adverse effects of the European regulations, we evaluated in the fourth quarter whether our equity method investment was fully recoverable. Our estimate of fair value was based on a discounted cash flow analysis. The estimated 35 22472 fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million and an impairment of $62.1 million was recorded in the fourth quarter of 2018. Income (loss) related to associated companies during the eleven months ended November 30, 2018 includes a $47.9 million impairment loss related to our equity investment in Golden Queen in the third quarter of 2018. As discussed further in Note 11, Golden Queen completed an updated mine plan and financial projections in the third quarter of 2018 reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, the estimated fair value of our equity interest in Golden Queen was lower than our carrying value by $47.9 million and an impairment of $47.9 million was recorded in the third quarter of 2018. A summary of results for Merchant Banking by source is as follows (in thousands): Oil and gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . LAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands/HRG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) before income taxes and income (loss) related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) related to associated companies. . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ (20,456) 17,954 (2,535) – (8,139) 89,497 (12,396) $ 53,650 35,662 (627) (79,476) 18,616 (412,493) 338,133 $ (26,033) 208,017 12,213 30,146 23,160 64,774 (9,003) 63,925 202,927 (46,535) 57,023 303,274 (74,901) Income from continuing operations before income taxes . . . . . . $266,852 $ 10,488 $228,373 Other results for the twelve months ended November 30, 2019 include a $205.0 million pre-tax gain on the sale of our remaining 31% interest in National Beef and a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. Results for the eleven months ended November 30, 2018 reflect the gain on sale of our equity interests in Garcadia and our associated real estate of $221.7 million. Other results for the twelve months ended November 30, 2019 and eleven months ended November 30, 2018 also reflect unrealized gains (losses) on trading assets which are held at fair value of $(269.2) million and $125.1 million, respectively, including $(182.3) million and $70.9 million, respectively, relating to increases (decreases) in the estimated fair value of our investment in The We Company. Corporate A summary of results of operations for Corporate is as follows (in thousands): Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 32,833 $ 22,300 $ 6,306 58,005 3,475 39,820 101,300 50,222 3,169 35,049 88,440 46,655 3,470 34,983 85,108 Loss from continuing operations before income taxes . . . . . . . . . $ (68,467) $(66,140) $(78,802) 36 81983 Net revenues primarily include realized and unrealized securities gains and interest income for investments held at the holding company. For the twelve months ended November 30, 2019, Compensation and benefits expense reflected twelve months of activity, as compared to eleven months for 2018. Compensation and benefits expense for the eleven months ended November 30, 2018, was reduced by the requirement to include a portion of the compensation in discontinued operations. Parent Company Interest Parent company interest totaled $53.0 million and $54.1 million for the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. In connection with the acquisition of HomeFed in 2019, we began capitalizing interest. Capitalized interest was allocated among all of HomeFed’s projects that are currently under development. Parent company interest capitalized during the twelve months ended November 30, 2019 was $6.0 million. Income Taxes For the twelve months ended November 30, 2019, our benefit for income taxes from continuing operations was $484.0 million. As discussed in the Notes to Consolidated Financial Statements, during the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a ‘‘lodged tax effect.’’ Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. For the eleven months ended November 30, 2018, our provision for income taxes from continuing operations was $19.0 million, representing an effective tax rate of 6.4%. Our 2018 provision was reduced by a $48.1 million benefit resulting from a reversal of our valuation allowance with respect to certain federal and state net operating loss carryovers (‘‘NOLs’’), which we believe are more likely than not to be utilized before they expire. This benefit reduced our effective tax rate by approximately 16.2%. Discontinued Operations On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our then ownership in National Beef to 31%. We accounted for our remaining interest under the equity method of accounting. The 2018 sale of National Beef met the GAAP criteria to be classified as a discontinued operation as the sale represented a strategic shift in our operations and financial results. As such, we classified the results of National Beef prior to June 5, 2018 as a discontinued operation and it is reported in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations. In addition, we recognized a pre-tax gain as a result of the 2018 transaction of $873.5 million ($643.9 million after-tax) for the eleven months ended November 30, 2018, which has been recognized as Gain on disposal of discontinued operations, net of income tax provision in the Consolidated Statements of Operations. 37 43783 A summary of results of discontinued operations for National Beef is as follows (in thousands): Period Ended June 4, 2018 (1) Twelve Months Ended December 31, 2017 Revenues: Beef processing services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,137,611 131 4,329 $7,353,663 339 4,946 Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142,071 7,358,948 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,414 2,884,983 4,316 43,959 14,291 39,884 6,764,055 6,657 98,515 42,525 Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,964,963 6,951,636 Income from discontinued operations before income taxes . . . . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of income tax provision. . . . . . . . . 177,108 47,045 $ 130,063 407,312 118,681 $ 288,631 (1) The operations of National Beef from January 1, 2018 through June 4, 2018, are included in discontinued operations for the eleven months ended November 30, 2018. National Beef’s profitability is dependent, in large part, on the spread between its cost for live cattle, the primary raw material for its business, and the value received from selling boxed beef and other products, coupled with its overall volume. National Beef operates in a large and liquid commodity market and it does not have much influence over the price it pays for cattle or the selling price it receives for the products it produces. National Beef’s profitability typically fluctuates seasonally, with relatively higher margins in the spring and summer months and during times of ample cattle availability. Throughout 2018, demand for beef and cattle supply remained strong, supporting favorable margin conditions. For further information, see Note 27 to our consolidated financial statements. 38 12496 Selected Statement of Financial Condition Data The tables below reconcile the balance sheet for each of our segments to our consolidated balance sheet (in thousands): November 30, 2019 Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Consolidation Adjustments Total $ 5,567,903 $ 130,185 $1,980,733 $ – $ 7,678,821 796,797 16,363,374 – – 416,538 115,829 944,509 7,624,642 4,299,598 9,500 4,821,892 1,870,352 197,658 1,075,172 708,448 – – – 921,953 52,582 – 1,321,507 – – – – – 261 264,810 70,486 – – – – – – – – – (94,495) 796,797 16,895,741 1,652,957 7,624,642 4,299,598 9,500 5,744,106 1,922,934 462,468 2,372,670 Assets Cash and cash equivalents . . . . . . . . . . . Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . . . . . . . . . . Financial instruments owned . . . . . . . . . Loans to and investments in associated companies . . . . . . . . . . . . . . Securities borrowed. . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . Securities received as collateral . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net and goodwill. . . . Deferred tax asset, net . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . 43,571,397 3,551,213 2,432,119 (94,495) 49,460,234 Liabilities Long-term debt (1) . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . Redeemable noncontrolling interests . . Mandatorily redeemable convertible preferred shares . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . 7,003,358 30,382,081 37,385,439 342,325 792,194 1,134,519 991,378 290,104 1,281,482 – (94,495) (94,495) – – 4,275 26,605 – – 17,704 125,000 – $ 6,181,683 $2,372,385 $1,025,637 $ – – – – 8,337,061 31,369,884 39,706,945 26,605 125,000 21,979 $ 9,579,705 (1) Long-term debt within Merchant Banking of $342.3 million at November 30, 2019, primarily includes $140.7 million for real estate businesses, $103.1 million for Vitesse Energy Finance and $98.3 million for Foursight Capital. 39 92207 November 30, 2018 Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Consolidation Adjustments Total $ 5,145,886 $ 56,810 $ 56,113 $ – $ 5,258,809 707,960 16,399,526 – 1,063,730 – 1,409,886 997,524 6,538,212 1,419,808 – – – 2,785,758 5,563,157 1,880,849 243,240 962,872 41,224,984 6,546,283 28,440,086 34,986,369 – – 1,911 – 721,405 9,282 – 919,449 4,190,484 81,164 747,990 829,154 19,779 – 16,480 – 2,839 – 269,549 99,650 1,838,037 990,116 223,830 1,213,946 – 125,000 – $ 6,236,704 $3,325,071 $ 499,091 $ – – – – – – – – (122,410) (122,410) – (122,410) (122,410) – – – – 707,960 18,873,142 2,417,332 6,538,212 2,785,758 6,287,401 1,890,131 512,789 1,859,561 47,131,095 7,617,563 29,289,496 36,907,059 19,779 125,000 18,391 $10,060,866 Assets Cash and cash equivalents . . . . . . . . . . . . Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . . . . . . . . . . . Financial instruments owned . . . . . . . . . . Loans to and investments in associated companies. . . . . . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net and goodwill . . . . Deferred tax asset, net. . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets. . . . . . . . . . . . . . . . . . . . . . . Liabilities Long-term debt (1) . . . . . . . . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . Redeemable noncontrolling interests . . . Mandatorily redeemable convertible preferred shares. . . . . . . . . . . . . . . . . . . . Noncontrolling interests. . . . . . . . . . . . . . . Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . (1) Long-term debt within Merchant Banking of $81.2 million at November 30, 2018, primarily includes $77.8 million for Vitesse Energy Finance. 40 48686 The table below presents our capital by significant business and investment (in thousands): Investment Banking, Capital Markets and Asset Management . . . . . . . . . . . . . . Merchant Banking: National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The We Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linkem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in other public companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 $6,181,683 $ 6,236,704 – 585,493 645,328 – 53,798 194,847 129,343 77,914 178,593 279,161 653,630 640,773 442,856 374,221 254,400 165,157 148,181 78,190 262,472 286,755 Total Merchant Banking Portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets held on behalf of LAM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Merchant Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,144,477 227,908 2,372,385 3,306,635 18,436 3,325,071 Corporate liquidity and other assets, net of Corporate liabilities including long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,025,637 $9,579,705 499,091 $10,060,866 Liquidity and Capital Resources Parent Company Liquidity Our strategy focuses on strengthening and expanding our core business of Investment Banking, Capital Markets and Asset Management, while continuing to simplify our structure and return capital to our shareholders. We are simplifying our structure through a managed transformation of Merchant Banking, which to date has included divestitures, special distributions of assets, as well as transfers of financial assets out of our Merchant Banking portfolio and into Jefferies Group. We anticipate additional transactions as our transformation progresses. Some of these transactions generate significant excess liquidity; some of these transactions also reduce the future receipt of periodic distributions from subsidiaries to the parent company. Parent company liquidity, which includes cash and investments that are easily convertible into cash within a relatively short period of time total $2,221.2 million at November 30, 2019, and are primarily comprised of cash, prime and government money market funds and other publicly traded securities. These are classified in our Consolidated Statement of Financial Condition as cash and cash equivalents and trading assets. At November 30, 2019, $1,641.2 million of this amount is invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities and repurchase agreements that are fully collateralized by cash or government securities. During the twelve months ended November 30, 2019, our parent company received cash distributions of $674.0 million from our existing subsidiary businesses, including $382.5 million from Jefferies Group, $170.3 million from National Beef, $60.0 million from HomeFed and $25.0 million from Vitesse Energy Finance. We also received $1,134.7 million from divestitures and repayments of advances, primarily from the sale of our 31% interest in National Beef. As a result of this sale, our future parent company cash receipts will no longer include distributions from National Beef. Our recurring cash requirements, including the payment of interest on our parent company debt, dividends and corporate cash overhead expenses, aggregate approximately $310.3 million on an annual basis. Dividends paid during the twelve months ended November 30, 2019 of $149.6 million include quarterly dividends of $0.125 per share. On January 9, 2020, our Board of Directors increased our quarterly dividend by 20% to $0.15 per share. 41 70471 The payment of dividends is subject to the discretion of our Board of Directors and depends upon general business conditions, legal and contractual restrictions on the payment of dividends and other factors that our Board of Directors may deem to be relevant. In September 2019, our Board of Directors also approved a special dividend of our interest in Spectrum Brands common stock. Accordingly, 7,514,477 Spectrum Brands shares were distributed to stockholders of record as of the close of business on September 30, 2019. For many years, we have benefitted from federal NOLs which have substantially offset our federal cash tax requirements. During the twelve months ended November 30, 2019, we used about $1.0 billion of our NOLs to offset taxable income, with about $111 million remaining NOLs as of November 30, 2019. Based on this, we anticipate incurring federal cash tax liabilities during the upcoming year. Our primary long-term parent company cash requirement is our $1.0 billion principal outstanding under our long-term debt, of which $750.0 million is due in 2023 and $250.0 million in 2043. As we generate excess liquidity, we evaluate the best use of the proceeds, which may include reductions to existing debt, share repurchases, special dividends, investments in our businesses, or any of a number of other options available to us. Shares Outstanding In January 2019, our Board of Directors approved a $500.0 million share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares. During the twelve months ended November 30, 2019, we purchased a total of 25,926,388 of our common shares for $506.2 million, or an average price per share of $19.52. In total, based on the closing price of Jefferies common shares at November 30, 2019, we have approximately $203.6 million available for future repurchases. At November 30, 2019, we had outstanding 291,644,153 common shares and 23,122,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 314,766,153 outstanding common shares if all awards become outstanding common shares). The 23,122,000 share-based awards include the target number of shares under the senior executive award plan, which is more fully discussed in Note 16. Concentration, Liquidity and Leverage Targets From time to time in the past, we have accessed public and private credit markets and raised capital in underwritten bond financings. The funds raised have been used by us for general corporate purposes, including for our existing businesses and new investment opportunities. In addition, the ratings of Jefferies are a factor considered by rating agencies that rate the debt of our subsidiary companies, including Jefferies Group, whose access to external financing is important to its day to day operations. Ratings issued by bond rating agencies, subject to change at any time, are as follows: Moody’s Investors Service . . . . . . . . . . . . . . . . . . . . . Standard and Poor’s (1) . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating Baa3 BBB BBB Outlook Stable Stable Stable (1) On November 25, 2019, Standard and Poor’s upgraded our long-term debt rating from BBB- to BBB and revised our rating outlook from positive to stable. We target specific concentration, leverage and liquidity principles, expressed in the form of certain ratios and percentages, although there is no legal requirement to do so. Concentration Target: As a diversification measure, we limit cash investments such that our single largest investment does not exceed 20% of equity excluding Jefferies Group, and that our next largest investment does not exceed 10% of equity excluding Jefferies Group, in each case measured at the time the investment was made. 42 48574 On this basis, Vitesse Energy Finance is our largest investment excluding Jefferies Group and Linkem is our next largest investment excluding Jefferies Group. Liquidity Target: We hold a liquidity reserve calculated as a minimum of twenty-four months of holding company expenses (excluding non-cash components), parent company interest, and dividends. Maturities of parent company debt within the upcoming year are also included in the target; however, our next maturity is during 2023 so there is no current inclusion. Liquidity reserve (in thousands): Minimum reserve under liquidity target. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 620,600 $2,221,165 Leverage Target: We target a maximum parent debt to stressed equity ratio of .50, with stressed equity defined as equity (excluding Jefferies Group) assuming the loss of our two largest investments. When our liquidity exceeds the minimum required under our liquidity target, the excess is applied to debt for our leverage target calculation. November 30, 2019 November 30, 2019 Leverage target (dollars in thousands): Total Jefferies Financial Group Inc. shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less, investment in Jefferies Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity excluding Jefferies Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,579,705 (6,181,683) 3,398,022 Less, our two largest investments: HomeFed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vitesse Energy Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in a stressed scenario. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less, net deferred tax asset excluding Jefferies Group amount . . . . . . . . . . . . . . . . . . . . . . . (539,128) (528,696) 2,330,198 (264,810) Equity in a stressed scenario less net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,065,388 Parent company debt, net of cash in excess of liquidity reserve . . . . . . . . . . . . . . . . . . . . . . . . $ (609,187) Parent company debt (see Note 14 to our consolidated financial statements) . . . . . . . . . . . . $ 991,378 Ratio of parent company debt to stressed equity: Maximum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual debt, net of excess liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual debt, net of excess liquidity and excluding net deferred tax asset . . . . . . . . . . . . . Actual debt (gross) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual debt, gross and excluding net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.50 x (0.26)x (0.29)x 0.43 x 0.48 x Consolidated Statements of Cash Flows As discussed above, we have historically relied on our available liquidity to meet short-term and long-term needs, and to make acquisitions of new businesses and investments. Except as otherwise disclosed herein, our operating businesses do not generally require significant funds to support their operating activities. The mix of our operating businesses and investments can change frequently as a result of acquisitions or divestitures, the timing of which is impossible to predict but which often have a significant impact on the Consolidated Statements of Cash Flows in any one period. Further, the timing and amounts of distributions from investments in associated companies may be outside our control. As a result, reported cash flows from operating, investing and financing activities do not generally follow any particular pattern or trend, and reported results in the most recent period should not be expected to recur in any subsequent period. 43 03145 The following table provides a summary of our cash flows (in thousands): Cash, cash equivalents and restricted cash at beginning of period . . Net cash provided by (used for) operating activities . . . . . . . . . . . . . . . Net cash provided by (used for) investing activities . . . . . . . . . . . . . . . Net cash provided by (used for) financing activities . . . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in cash classified as assets held for sale . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 $6,012,662 (827,837) 1,707,095 1,589,578 Eleven Months Ended November 30, 2018 $5,774,505 691,103 142,443 (575,843) Twelve Months Ended December 31, 2017 $4,597,113 788,294 (54,634) 434,801 (1,063) – (19,546) – 12,067 (3,136) Cash, cash equivalents and restricted cash at end of period . . . . . . . . $8,480,435 $6,012,662 $5,774,505 During the twelve months ended November 30, 2019, net cash used for operating activities primarily relates to funds used by our Investment Banking, Capital Markets and Asset Management segment of $1,187.1 million. We also received distributions of $318.2 million from National Beef in 2019. Net gains related to real estate, property and equipment, and other assets for 2019 include the non-cash pre-tax gain of $72.1 million recognized in connection with the acquisition of the remaining interest of HomeFed. During the eleven months ended November 30, 2018, net cash provided by operating activities primarily relates to funds generated by our Investment Banking, Capital Markets and Asset Management segment of $429.7 million. Net cash provided by operating activities for 2018 also includes $96.9 million from distributions from associated companies related to our Merchant Banking segment. During the twelve months ended November 30, 2019, net cash provided by investing activities includes proceeds from sale of associated companies, primarily related to our sale of our investment in National Beef. Additionally, cash provided by investing activities for 2019 includes proceeds from maturities of investments of $531.1 million and proceeds from sales of investments of $913.2 million. Our Investment Banking, Capital Markets and Asset Management segment used funds of $124.4 million for investing activities in 2019. During the eleven months ended November 30, 2018, net cash provided by investing activities includes proceeds from sale of discontinued operations relating to the sale of National Beef of $898.9 million and proceeds from sale of subsidiaries and proceeds from sale of associated companies of $479.1 million, primarily related to the sale of our investment in Garcadia. Additionally, cash provided by investing activities for 2018 includes proceeds from maturities of investments of $1,084.3 million, proceeds from sales of investments of $1,571.5 million and cash used to purchase investments (other than short-term) of $3,423.2 million. Our Investment Banking, Capital Markets and Asset Management segment used funds of $115.4 million for investing activities in 2018. During the twelve months ended November 30, 2019, net cash provided by financing activities primarily relates to funds provided by our Investment Banking, Capital Markets and Asset Management segment of $2,167.4 million. This includes funds provided by the issuance of debt of $2,972.1 million and proceeds from other secured financings of $1,586.3 million, partially offset by funds used for the repayments of debt of $2,421.6 million. Net cash provided by financing activities for 2019 also includes funds used to repurchase common shares for treasury of $509.9 million and funds used to pay dividends of $149.6 million. During the eleven months ended November 30, 2018, net cash used for financing activities primarily reflects funds used to repurchase common shares for treasury of $1,130.9 million and funds used to pay dividends of $151.8 million. This was partially offset by proceeds from secured financings in our Merchant Banking segment of $343.7 million. Our Investment Banking, Capital Markets and Asset Management segment generated funds from financing activities of $439.6 million. This includes funds provided by the issuance of debt of $2,450.7 million and proceeds from other secured financings of $159.4 million, partially offset by repayments of debt of $2,173.3 million. 44 As shown below, at November 30, 2019, our contractual obligations totaled $13,111.9 million. Contractual Obligations Total 2020 Expected Maturity Date 2022 and 2023 2024 and 2025 2021 35707 After 2025 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,331.3 $ 551.2 $1,088.7 $1,486.4 $ 709.4 $4,495.6 1,824.6 Estimated interest payments on debt. . . . . . . . . 333.4 Operating leases, net of sublease income . . . . 39.7 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Contractual Obligations . . . . . . . . . . . . . $13,111.9 $1,192.8 $1,612.8 $2,294.7 $1,318.3 $6,693.3 3,594.6 710.1 475.9 581.6 128.2 98.5 446.9 119.6 42.4 394.5 63.3 183.8 347.0 65.6 111.5 (In millions) Amounts related to our U.S. pension obligations ($52.8 million) are not included in the above table as the timing of payments is uncertain; however, we do expect to make $8.2 million of contributions to these plans in 2020. For further information, see Note 18 in our consolidated financial statements. In addition, the above amounts do not include liabilities for unrecognized tax benefits as the timing of payments, if any, is uncertain. Such amounts aggregated $327.3 million at November 30, 2019; for more information, see Note 20 in our consolidated financial statements. Our U.S. pension obligations relate to frozen defined benefit pension plans, principally the defined benefit plan of WilTel Communications Group, LLC (‘‘WilTel’’), our former telecommunications subsidiary. When we sold WilTel in 2005, its defined benefit pension plan was not transferred in connection with the sale. At November 30, 2019, we had recorded a liability of $46.6 million in our Consolidated Statement of Financial Condition for WilTel’s unfunded defined benefit pension plan obligation. This amount represents the difference between the present value of amounts owed to former employees of WilTel (referred to as the projected benefit obligation) and the market value of plan assets set aside in segregated trust accounts. Since the benefits in this plan have been frozen, future changes to the unfunded benefit obligation are expected to principally result from benefit payments, changes in the market value of plan assets, differences between actuarial assumptions and actual experience and interest rates. Calculations of pension expense and projected benefit obligations are prepared by actuaries based on including assumptions provided by management. These assumptions are reviewed on an annual basis, assumptions about discount rates, interest credit rates and expected long-term rates of return on plan assets. The timing of expected future benefit payments was used in conjunction with the Citigroup Pension Discount Curve to develop a discount rate for the WilTel plan that is representative of the high quality corporate bond market. Holding all other assumptions constant, a 0.25% change in the discount rate would affect pension expense in 2020 by $0.2 million and the benefit obligation by $6.0 million, of which $4.4 million relates to the WilTel plan. The deferred losses in accumulated other comprehensive income (loss) have not yet been recognized as in the Consolidated Statements of Operations ($57.4 million at components of net periodic pension cost November 30, 2019). These deferred amounts primarily result from differences between the actual and assumed return on plan assets and changes in actuarial assumptions, including changes in discount rates and changes in interest credit rates. They are amortized to expense if they exceed 10% of the greater of the projected benefit obligation or the market value of plan assets as of the beginning of the year. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into pension expense in 2020 is $3.2 million. The assumed long-term rates of return on plan assets are based on the investment objectives of the plans, which are more fully discussed in Note 18 in our consolidated financial statements. 45 92189 Investment Banking, Capital Markets and Asset Management Liquidity General The Chief Financial Officer and Global Treasurer of Jefferies Group are responsible for developing and implementing liquidity, funding and capital management strategies for the Investment Banking, Capital Markets and Asset Management businesses. These policies are determined by the nature and needs of day to day business operations, business opportunities, regulatory obligations and liquidity requirements. The actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long-term and short-term funding. We have historically maintained a balance sheet consisting of a large portion of total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides flexibility in financing and managing our business. Jefferies Group maintains modest leverage to support its investment grade ratings. The growth of its balance sheet is supported by its equity and we have quantitative metrics in place to monitor leverage and double leverage. Jefferies Group capital plan is robust, through stressed conditions. We maintain adequate financial resources to support business activities in both normal and stressed market conditions, including a buffer in excess of regulatory, or other internal or external, requirements. Jefferies Group’s access to funding and liquidity is stable and efficient to ensure that there is sufficient liquidity to meet its financial obligations in normal and stressed market conditions. in order to sustain its operating model A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross balance sheet limits are adjusted, as necessary. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect our platform, enable the businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage. We actively monitor and evaluate our financial condition and the composition of assets and liabilities. The overall securities inventory is continually monitored, including the inventory turnover rate, which confirms the liquidity of overall assets. Substantially all of Jefferies Group’s financial instruments are valued on a daily basis and we monitor and employ balance sheet limits for its various businesses. At November 30, 2019, our Consolidated Statement of Financial Condition includes Jefferies Group’s Level 3 trading assets that are approximately 2% of total trading assets. Securities financing assets and liabilities include financing for financial instruments trading activity, matched book transactions and mortgage finance transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The following table presents period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (in millions): Securities purchased under agreements to resell: Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Month end average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month end. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase: Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Month end average. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month end. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 2018 $ 4,300 7,762 11,589 $ 7,505 14,686 19,654 $ 2,786 5,232 7,593 $ 8,643 12,704 15,579 46 63823 Fluctuations in the balance of repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of securities purchased under agreements to resell are influenced in any given period by our clients’ balances and our clients’ desires to execute collateralized financing arrangements via the repurchase market or via other financing products. Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider the fluctuations intraperiod to be typical for the repurchase market. Liquidity Management The key objectives of Jefferies Group’s liquidity management framework are to support the successful execution of its business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. The liquidity management policies are designed to mitigate the potential risk that adequate financing may not be accessible to service financial obligations without material franchise or business impact. The principal elements of Jefferies Group’s liquidity management framework are the Contingency Funding Plan, the Cash Capital Policy and the assessment of Maximum Liquidity Outflow. Contingency Funding Plan. Jefferies Group’s Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following: • Repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance; • Maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral; • Higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements; • Liquidity outflows related to possible credit downgrade; • Lower availability of secured funding; • Client cash withdrawals; • The anticipated funding of outstanding investment and loan commitments; and • Certain accrued expenses and other liabilities and fixed costs. Cash Capital Policy. A cash capital model is maintained that measures long-term funding sources against requirements. Sources of cash capital include equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following: • Illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments; • 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 • Drawdowns of unfunded commitments. To ensure that inventory does not need to be liquidated in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios Jefferies Group maintains. Jefferies Group’s total long-term capital of $12.3 billion at November 30, 2019 exceeded its cash capital requirements. Maximum Liquidity Outflow. Jefferies Group’s businesses are diverse, and liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of Jefferies Group’s policy to ensure it has sufficient funds to cover estimates of what may be needed in a liquidity crisis, Jefferies Group holds more cash and unencumbered securities and has greater long- 47 05707 term debt balances than the businesses would otherwise require. As part of this estimation process, we calculate a Maximum Liquidity Outflow that could be experienced in a liquidity crisis. Maximum Liquidity Outflow is based on a scenario that includes both a market-wide stress and firm-specific stress. Based on the sources and uses of liquidity calculated under the Maximum Liquidity Outflow scenarios, we determine, based on calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and considers any adjustments that may be necessary to Jefferies Group’s inventory balances and cash holdings. At November 30, 2019, Jefferies Group had sufficient excess liquidity to meet all contingent cash outflows detailed in the Maximum Liquidity Outflow. We regularly refine our model to reflect changes in market or economic conditions and the firm’s business mix. Sources of Liquidity Within the Investment Banking, Capital Markets and Asset Management segment, the following are financial instruments that are cash and cash equivalents or are deemed by management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time, as reflected in the Consolidated Statements of Financial Condition (in thousands): November 30, 2019 Average Balance Fourth Quarter 2019 (1) November 30, 2018 Cash and cash equivalents: Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market investments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 983,816 4,584,087 5,567,903 $2,124,015 2,230,982 4,354,997 $2,333,476 2,812,410 5,145,886 Other sources of liquidity: Debt securities owned and securities purchased under agreements to resell (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 972,624 377,296 997,036 496,075 958,539 499,576 Total other sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,349,920 1,493,111 1,458,115 Total cash and cash equivalents and other liquidity sources. $6,917,823 $5,848,108 $6,604,001 (1) Average balances are calculated based on weekly balances. (2) At November 30, 2019 and 2018, $4,496.7 million and $2,250.0 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities, and repurchase agreements that are fully collateralized by cash or government securities. The remaining $87.4 million and $562.4 million at November 30, 2019 and 2018, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the quarter ended November 30, 2019 was $1,886.0 million. (3) Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities. (4) Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from financial instruments owned that are currently not pledged after considering reasonable financing haircuts. In addition to the cash balances and liquidity pool presented above, the majority of trading assets and liabilities are actively traded and readily marketable. At November 30, 2019, repurchase financing can be readily obtained for approximately 74.8% of Jefferies Group’s inventory at haircuts of 10% or less, which reflects the liquidity of the inventory. In addition, as a matter of our policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, certain of Jefferies Group’s trading assets primarily consisting of bank loans, consumer loans and investments are predominantly 48 22495 funded by Jefferies Group’s long-term capital. Under Jefferies Group’s cash capital policy, capital allocation levels are modeled that are more stringent than the haircuts used in the market for secured funding; and surplus capital is maintained at these more stringent levels. We continually assess the liquidity of Jefferies Group’s inventory based on the level at which Jefferies Group could obtain financing in the market place for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less. The following summarizes Jefferies Group’s trading assets by asset class that are considered to be of a liquid nature and the amount of such assets that have not been pledged as collateral as reflected in the Consolidated Statements of Financial Condition (in thousands): Corporate equity securities . . . . . . . . . . . . . . . . . . . . Corporate debt securities. . . . . . . . . . . . . . . . . . . . . . U.S. Government, agency and municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sovereign obligations . . . . . . . . . . . . . . . . . . . Agency mortgage-backed securities (1) . . . . . . . . Loans and other receivables. . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 Liquid Financial Instruments Unencumbered Liquid Financial Instruments (2) Liquid Financial Instruments Unencumbered Liquid Financial Instruments (2) $ 2,403,589 1,893,605 $ 256,624 29,412 $ 1,907,064 1,775,721 $ 317,189 104,685 2,894,264 2,633,636 1,757,077 655,120 151,414 969,800 – – 2,648,843 2,626,212 2,972,638 272,201 294,030 840,578 – – $12,237,291 $1,407,250 $12,202,679 $1,556,482 (1) Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities. include pass-through securities, (2) Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been. In addition to being able to be readily financed at modest haircut levels, it is estimated that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral. Sources of Funding Secured Financing Readily available secured funding is used to finance Jefferies Group’s inventory of financial instruments. Jefferies Group’s ability to support increases in total assets is largely a function of the ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. Repurchase or reverse repurchase agreements (collectively ‘‘repos’’), respectively, are used to finance a portion of long inventory and cover some of short inventory by pledging and borrowing securities. Approximately 67.6% of Jefferies Group’s cash and noncash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of Jefferies Group’s total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory Jefferies Group carries in its trading books. For those asset classes not eligible for central clearing house financing, Jefferies Group seeks to execute its bi-lateral financings on an extended term basis and the tenor of Jefferies Group’s repurchase and reverse repurchase 49 57257 agreements generally exceeds the expected holding period of the assets Jefferies Group is financing. The weighted average maturity of cash and noncash repurchase agreements for non-clearing corporation eligible funded inventory is approximately five months at November 30, 2019. Jefferies Group’s ability to finance its inventory via central clearinghouses and bi-lateral arrangements is augmented by Jefferies Group’s ability to draw bank loans on an uncommitted basis under its various banking arrangements. At November 30, 2019, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities and equity-linked notes totaled $548.5 million. Interest under the bank lines is generally at a spread over the federal funds rate. Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings outstanding for Jefferies Group were $555.4 million and $472.6 million for 2019 and 2018, respectively. Our short-term borrowings include the following facilities: • Credit Facility. On December 27, 2018, one of Jefferies Group’s subsidiaries entered into a credit facility agreement (‘‘Jefferies Group Credit Facility’’) with JPMorgan Chase Bank, N.A. for a committed amount of $135.0 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Credit Facility. The Jefferies Group Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower’s future indebtedness. At November 30, 2019, we were in compliance with all debt covenants under the Jefferies Group Credit Facility. • Intraday Credit Facility. The Bank of New York Mellon has agreed to make revolving intraday credit advances (‘‘Jefferies Group Intraday Credit Facility’’) for an aggregate committed amount of $150.0 million. The Jefferies Group Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Jefferies Group Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group’s U.S. broker-dealer, Jefferies LLC. At November 30, 2019, we were in compliance with all debt covenants under the Jefferies Group Intraday Credit Facility. On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance, which was repaid on May 15, 2019. In addition to the above financing arrangements, Jefferies Group issues notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for its inventory (‘‘repurchase agreement financing program’’). The notes issued under the program are presented within Other secured financings in the Consolidated Statement of Financial Condition. At November 30, 2019, the outstanding notes were $2.5 billion, bear interest at a spread over LIBOR and mature from February 2020 to July 2021. Long-Term Debt Jefferies Group’s long-term debt reflected in the Consolidated Statement of Financial Condition at November 30, 2019 is $7.0 billion. Jefferies Group’s long-term debt, excluding its revolving credit facility, has a weighted average maturity of approximately 9.1 years. During 2019, Jefferies Group issued structured notes with a total principal amount of approximately $498.9 million, net of retirements. In addition, on July 19, 2019, under its $2.5 billion Euro Medium Term Note Program, Jefferies Group issued 1.000% senior unsecured notes with a principal amount of $553.6 million, due 2024. Proceeds amounted to $551.4 million. Additionally, during the twelve months ended November 30, 2019, Jefferies Group repaid $680.8 million of its 8.50% Senior Notes. At November 30, 2019, all of Jefferies Group’s 50 32809 structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenue. The fair value of all of Jefferies Group’s structured notes at November 30, 2019 was $1,215.3 million Jefferies Group has a Revolving Credit Facility (‘‘Jefferies Group Revolving Credit Facility’’) with a group of commercial banks for an aggregate principal amount of $190.0 million. At November 30, 2019, borrowings under the Jefferies Group Revolving Credit Facility amounted to $189.1 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility agreement. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of its subsidiaries. Throughout the year and at November 30, 2019, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and we expect to remain in compliance given its current liquidity, and anticipated funding requirements given its business plan and profitability expectations. On September 27, 2019, one of Jefferies Group’s subsidiaries entered into a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (‘‘Jefferies Group Secured Bank Loan’’). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2019, we were in compliance with all covenants under the Jefferies Group Loan and Security Agreement. Jefferies Group’s long-term debt ratings are as follows: Moody’s Investors Service . . . . . . . . . . . . . . . . . . . . . Standard and Poor’s (1) . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating Baa3 BBB BBB Outlook Stable Stable Stable (1) On November 25, 2019, Standard and Poor’s upgraded the Jefferies Group’s long-term debt rating from BBB- to BBB and revised its rating outlook from positive to stable. Jefferies Group’s access to external financing to finance its day to day operations, as well as the cost of that financing, is dependent upon various factors, including its debt ratings. Jefferies Group’s current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, capital structure, overall risk management, business diversification and market share and competitive position in the markets in which it operates. Deteriorations in any of these factors could impact Jefferies Group’s credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by us. In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At November 30, 2019, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of Jefferies Group’s long-term credit rating below investment grade was $72.1 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management’s best estimate for additional collateral to be called in the event of credit rating downgrade. The impact of additional collateral requirements is considered in Jefferies Group’s Contingency Funding Plan and calculation of Maximum Liquidity Outflow, as described above. 51 27918 Ratings issued by credit rating agencies are subject to change at any time. Net Capital Jefferies Group operates a broker-dealer registered with the SEC and member firms of FINRA. Jefferies LLC is subject to the SEC Uniform Net Capital Rule (‘‘Rule 15c3-1’’), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and FCM, is also subject to Rule 1.17 of the CFTC, which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17. Jefferies LLC’s net capital and excess net capital at November 30, 2019 were $1,645.0 million and $1,528.0 million, respectively. FINRA is the designated examining authority for Jefferies Group’s U.S. broker-dealer and the NFA is the designated self-regulatory organization for Jefferies LLC as an FCM. Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the United Kingdom. The Dodd-Frank Act was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized. We expect that these provisions will result in modifications to the regulatory capital requirements of some of our entities, and will result in some of our other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014. The regulatory capital requirements referred to above may restrict Jefferies Group’s ability to withdraw capital from its regulated subsidiaries. On March 29, 2017, the United Kingdom notified the European Council and triggered a period to negotiate its withdrawal from the EU (‘‘Brexit’’). While, there is ongoing uncertainty as to the terms and any potential transition periods related to Brexit, we have taken steps to ensure our ability to provide services to our European clients without interruption. As such, we have established a wholly-owned subsidiary of our U.K. broker-dealer in Germany, which has been approved as an authorized MiFID investment firm by the German regulator, and which will enable us to conduct business across all of our European investment banking, fixed income and equity platforms. Our plans contemplate providing sufficient capital pursuant to the regulatory requirements for the planned operations as well pursuant to requirements of relevant clearing organizations. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company. 52 19399 Off-Balance Sheet Arrangements As shown below, at November 30, 2019, our commitments and guarantees, substantially all of which related to Investment Banking, Capital Markets and Asset Management, totaled $27,124.4 million. Commitments and Guarantees Total 2020 Equity commitments . . . . . . . . . . . . . . . . . . . . . Loan commitments . . . . . . . . . . . . . . . . . . . . . . Underwriting commitments . . . . . . . . . . . . . . . Forward starting reverse repos . . . . . . . . . . . . Forward starting repos . . . . . . . . . . . . . . . . . . . Other unfunded commitments . . . . . . . . . . . . Derivative contracts (1): Non-credit related . . . . . . . . . . . . . . . . . . . . . Credit related . . . . . . . . . . . . . . . . . . . . . . . . . Standby letters of credit. . . . . . . . . . . . . . . . . . $ 319.3 314.3 13.5 5,475.3 2,168.8 209.4 18,551.4 33.9 38.5 $ 174.8 250.0 13.5 5,475.3 2,168.8 72.3 9,854.0 1.5 36.9 Expected Maturity Date $ 2021 (In millions) 55.2 $ 45.0 – – – 132.2 2022 and 2023 2024 and 2025 75.0 10.0 – – – – $ – – – – 9.3 4.9 3,150.8 – – 4,453.6 2.7 0.6 1,044.8 29.7 0.5 After 2025 $14.3 – – – – – 48.2 – 0.5 Total Commitments and Guarantees . . . . $27,124.4 $18,047.1 $3,383.2 $4,541.9 $1,089.2 $63.0 (1) Certain of our derivative contracts meet the definition of a guarantee and are therefore included in the above table. For additional information on commitments, see Note 23 in our consolidated financial statements. We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. As of November 30, is not the aggregate amount of commercial paper outstanding was $1.47 billion. This commitment 2019, included in the table above as the timing of payments, if any, is uncertain. In the normal course of business, we engage in other off-balance sheet arrangements, including derivative contracts. Neither derivatives’ notional amounts nor underlying instrument values are reflected as assets or liabilities in the Consolidated Statements of Financial Condition. Rather, the fair values of derivative contracts are reported in the Consolidated Statements of Financial Condition as Trading assets, at fair value or Trading liabilities, at fair value as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement. For additional information about our accounting policies and our derivative activities see Notes 2, 5 and 6 in our consolidated financial statements. We are routinely involved with variable interest entities (‘‘VIEs’’) in the normal course of business. At November 30, 2019, we did not have any commitments to purchase assets from our VIEs. For additional information regarding VIEs, see Notes 8 and 10 in our consolidated financial statements. Critical Accounting Estimates The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could significantly differ from those estimates. We believe that the following discussion addresses our to the presentation of our financial most critical accounting estimates, which are those that are important condition and results of operations and require our most difficult, subjective and complex judgments. Fair Value of Financial Instruments – Trading assets and Trading liabilities are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. Gains and losses on trading assets and trading liabilities are recognized in the Consolidated Statements of Operations in Principal transactions. Available for sale securities are reflected at fair value, with unrealized gains and losses reflected as 53 20522 a separate component of equity, net of taxes. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows: Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Valuation adjustments and block discounts are not applied to Level 1 instruments. 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 includes cash instruments for which quoted prices are available but traded less frequently, derivative instruments for which fair values have been derived using model inputs that are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. 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. Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. The valuation of financial instruments classified in Level 3 of the fair value hierarchy involves the greatest amount of management judgment. Jefferies Group’s Independent Price Verification Group, independent of its trading function, plays an important role in determining that financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model’s theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model. For further information on the fair value definition, Level 1, Level 2, Level 3 and related valuation techniques, see Notes 2 and 5 in our consolidated financial statements. Income Taxes – We record a valuation allowance to reduce our net deferred tax asset to the amount that is more likely than not to be realized. We are required to consider all available evidence, both positive and negative, and to weigh the evidence when determining whether a valuation allowance is required and the amount of such valuation allowance. Generally, greater weight is required to be placed on objectively verifiable evidence when making this assessment, in particular on recent historical operating results. We also record reserves for unrecognized tax benefits based on our assessment of the probability of successfully sustaining tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining tax filing positions, and in determining whether a contingent tax liability should be recorded and if so, estimating the amount. If our tax filing positions are successfully challenged, payments could be required that are in excess of reserved amounts or we may be required to reduce the carrying amount of our 54 68951 net deferred tax asset, either of which could be significant to our Consolidated Statements of Financial Condition or results of operations. Impairment of Long-Lived Assets – We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. Impairment of Equity Method Investments – We evaluate equity method investments for impairment when operating losses or other factors may indicate a decrease in value which is other than temporary. We consider a variety of factors including economic conditions nationally and in their geographic areas of operation, adverse changes in the industry in which they operate, declines in business prospects, deterioration in earnings, increasing costs of operations and other relevant factors specific to the investee. Whenever we believe conditions or events indicate that one of these investments might be significantly impaired, we obtain from such investee updated cash flow projections. We use this information and, together with discussions with the investee’s management and comparable public company analysis, evaluate if the book value of its investment exceeds its fair value, and if so and the situation is deemed other than temporary, record an impairment charge. As described further in Note 11, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our prior carrying value at the end of the second quarter 2018. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the third quarter of 2018. During 2017, we recorded an impairment charge of $130.2 million related to the write-down to fair value of our equity investment in FXCM. We engaged an independent valuation firm to assist management in estimating the fair value of our equity interest in FXCM in the first quarter of 2017. Our estimate of fair value was based on a discounted cash flow and comparable public company analysis. We concluded based on the regulatory actions, FXCM’s restructuring plan, investor perception and declines in the trading price of Global Brokerage’s common shares and convertible debt, that the decline in fair value of our equity interest was other than temporary. As such, we impaired our equity investment in FXCM. During 2018, we recorded an additional impairment charge of $62.1 million related to the equity component of our investment in FXCM, which is based on updated expectations that have been impacted by the recently revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million. Goodwill – We allocate the acquisition cost of consolidated businesses to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess acquisition cost over the fair values of the net assets acquired is recorded as 55 55539 goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies Group acquisition. At least annually, and more frequently if warranted, we assess whether goodwill has been impaired at the reporting unit level. In testing for goodwill impairment, we have the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not necessary. If we conclude otherwise, we are required to perform the two-step quantitative impairment test. In the first step, the fair value of each reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit’s goodwill to the carrying value. The fair values are based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include price-to-earnings and price-to-book multiples of comparable public companies and/or projected cash flows. In addition, as the fair values determined under a market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods. An independent valuation specialist was engaged to assist with the valuation process relating to Jefferies Group for our annual goodwill impairment test as of August 1, 2019. The results of this test indicated the fair value of Jefferies Group was in excess of the carrying value. However, the valuation methodology is sensitive to comparable company multiples and management’s forecasts of future profitability, which comes with a level of uncertainty regarding U.S. and global economic conditions, trading volumes and equity and debt capital market transaction levels. The fair value of our reporting units, including Jefferies Group, is also impacted by our overall market capitalization. If the future were to differ adversely from these assumptions or there was a sustained decline in our market capitalization, the estimated fair value of Jefferies Group may decline and result in an impairment. Intangible Assets – Intangible assets deemed to have finite lives are generally amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances exist indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. Fair value is determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the 2013 Jefferies Group acquisition, which consists of exchange and clearing organization membership interests and registrations. Our annual impairment testing date was August 1, 2019. Contingencies – In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and reviews (both formal and informal) by governmental and self-regulatory agencies regarding our similar businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. 56 94800 We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 23 in our consolidated financial statements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The following includes ‘‘forward-looking statements’’ that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The discussion of risk is presented separately for Investment Banking, Capital Markets and Asset Management and the balance of our company. Exclusive of Investment Banking, Capital Markets and Asset Management, our market risk arises principally from equity price risk. Excluding Investment Banking, Capital Markets and Asset Management, Trading assets, at fair value include corporate equity securities with an aggregate fair value of $311.8 million at November 30, 2019. Assuming a decline of 10% in market prices, the value of these investments could decrease by approximately $31.2 million. Investment Banking, Capital Markets and Asset Management Overview Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risks involved in our activities is critical to our financial soundness, viability and profitability. Accordingly, we have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in its business activities include market, credit, liquidity and capital, operational, legal and compliance, new business and reputational risk. Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Our risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including Jefferies Group’s Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification. In achieving our strategic business objectives, our risk appetite incorporates keeping our clients’ interests at the top of our priority list and ensuring we are in compliance with applicable laws, rules and regulations, as well as adhering to the highest ethical standards. We undertake prudent and conservative risk-taking that protects the capital base and franchise, utilizing risk limits and tolerances that avoid outsized risk-taking. We maintain a diversified business mix and avoid significant concentrations to any sector, product, geography, or activity and sets quantitative concentration limits to manage this risk. We consider contagion, second order effects and correlation in our risk assessment process and actively seeks out value opportunities of all sizes. We manage the risk of opportunities larger than our approved risk levels through risk sharing and risk distribution, sell-down and hedging as appropriate. We have a limited appetite for illiquid assets and complex derivative financial instruments. We maintain the asset quality of our balance sheet through conducting trading activity in liquid markets and generally ensure high turnover of our inventory. We subject less liquid positions and derivative financial instruments to oversight and use a wide variety of specific metrics, limits, and constraints to manage these risks. We protect our reputation and franchise, as well as our standing within the market. We operate a 57 34746 federated approach to risk management with risk oversight responsibilities assigned to those areas of the business that have the appropriate knowledge. For discussion of liquidity and capital risk management, refer to the ‘‘Liquidity and Capital Resources’’ section herein. Risk Considerations We apply comprehensive framework of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limits reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our risk management framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk (‘‘VaR’’), sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage and cash capital. Market Risk Market risk is defined as the risk of loss due to fluctuations in the market value of financial assets and liabilities attributable to changes in market variables. Our market risk principally arises from interest rate risk, from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads, and from equity price risks from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. In addition, commodity price risk results from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices, and foreign exchange risk results from changes in foreign currency rates. Market risk is present in our market-making, proprietary trading, underwriting, specialist and investing activities and is principally managed by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are economically hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and the results of its trading businesses. Trader Mandates Trading is principally managed through front office trader mandates, where each trader is provided a specific mandate in line with our product registry. Mandates set out the activities, currencies, countries and products that the desk is permitted to trade in and set the limits applicable to the desk. Traders are responsible for knowing their trading limits and trading in a manner consistent with their mandate. Trader mandates are reviewed annually and as part of the new business proposal process. Value-at-Risk VaR is a statistical estimate of the potential loss from adverse market movements over a specified time horizon within a specified probability (confidence level). It provides a common risk measure across financial instruments, markets and asset classes. We estimate VaR using a model that simulates revenue and loss distributions on its trading portfolios by applying historical market changes to the current portfolio. We calculate a one day VaR using a one year look-back period measured at a 95% confidence level. As with all measures of VaR, the estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one day horizon and might not capture the market risk over a longer time horizon where moves may be more extreme. Previous changes in market risk factors may not generate accurate predictions of 58 02148 future market movements. While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities. Average daily VaR increased to $8.79 million for 2019 from $7.56 million for 2018. The increase was primarily due to higher equity price risk, partially offset by lower interest rate volatility and an increase in the diversification benefit. The increase in the average equity price risk was primarily due to the transfer to Investment Banking, Capital Markets and Asset Management by Jefferies, in the fourth quarter of 2018, of investments in certain separately managed accounts and funds. The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for our overall trading positions using the past 365 days of historical data. (In millions) Risk Categories VaR at November 30, 2019 Interest Rates. . . . . . . . . . . . . . . . . Equity Prices . . . . . . . . . . . . . . . . . Currency Rates . . . . . . . . . . . . . . . Commodity Prices . . . . . . . . . . . . Diversification Effect (2) . . . . . . Firmwide. . . . . . . . . . . . . . . . . . . . . $ 4.81 5.07 0.32 0.64 (6.14) $ 4.70 Daily VaR (1) Value-at-Risk in Trading Portfolios Daily VaR for 2019 Average High Low $ 4.47 $ 6.22 $2.58 13.17 4.75 7.94 1.41 0.06 0.25 0.89 2.43 0.40 (4.76) N/A N/A $ 8.79 $14.83 $4.70 VaR at November 30, 2018 $ 5.33 8.47 0.09 0.48 (3.12) $11.25 Daily VaR (1) Value-at-Risk in Trading Portfolios Daily VaR for 2018 Average High Low $ 4.88 $ 6.82 $2.18 13.56 3.08 5.51 0.24 0.02 0.12 1.51 0.24 0.53 (3.48) N/A N/A $ 7.56 $14.73 $4.76 (1) For the VaR numbers reported above, a one day time horizon, with a one year look-back period, and a 95% confidence level were used. (2) The diversification effect is not applicable for the maximum and minimum VaR values as the Jefferies Group’s firmwide VaR and VaR values for the four risk categories might have occurred on different days during the year. The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated. We perform daily back-testing of our VaR model comparing realized revenue and loss with the previous day’s VaR. Back-testing results are included in the quarterly business review pack for Jefferies Group’s Board of Directors. The primary method used to test the efficacy of the VaR model is to compare actual daily net revenue for those positions included in the VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the overall level down to specific business lines. For the VaR model, trading related revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization activities and net interest income. For a 95% confidence one day VaR model (i.e., no intraday trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days). During 2019, results of the evaluation at the aggregate level demonstrated one day when the net trading loss exceeded the 95% one day VaR. There were 33 days with trading losses out of a total of 250 trading days in 2019. Other Risk Measures Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Risk Management has additional procedures in place to assure that the 59 89732 level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at November 30, 2019 (in thousands): Investment in funds (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate debt securities in default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% Sensitivity $57,031 24,036 8,493 1,345 (1) Includes investments in hedge funds, fund of funds and private equity funds. For additional information on these investments, see Note 5 in our consolidated financial statements. VaR also excludes the impact of changes in our own credit spreads on our structured notes for which the fair value option was elected. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.5 million at November 30, 2019, which is included in Accumulated other comprehensive income (loss). Stress Tests and Scenario Analysis Stress tests are used to analyze the potential impact of specific events or extreme market moves on the current portfolio both firm-wide and within business segments. Stress testing is an important part of our risk management approach because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, set risk controls and overall assess and mitigate its risk. We employ a range of stress scenarios, which comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in our scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates and changes in the shape of the yield curve. Unlike VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation. Stress testing complements VaR to cover for potential limitations of VaR such as the breakdown in correlations, non-linear risks, tail risk and extreme events and capturing market moves beyond the confidence levels assumed in the VaR calculations. Stress testing is performed and reported at least weekly as part of our risk management process and on an ad hoc basis in response to market events or concerns. Current stress tests provide estimated revenue and loss of the current portfolio through a range of both historical and hypothetical events. The stress scenarios are reviewed and assessed at least annually so that they remain relevant and up to date with market developments. Additional hypothetical scenarios are also conducted on a sub-portfolio basis to assess the impact of any relevant idiosyncratic stress events as needed. Counterparty Credit Risk and Issuer Country Exposure Counterparty Credit Risk Credit risk is the risk of loss due to adverse changes in a counterparty’s credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract. We are exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender 60 72145 and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations. Credit exposure exists across a wide-range of products, including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts. The main sources of our credit risk are: • Loans and lending arising in connection with our investment banking and capital markets activities, which reflects our exposure at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that are outstanding. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with our portion of a Secured Revolving Credit Facility that is with us and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. See Note 11 for additional information on this facility. In addition, Jefferies Group has loans outstanding to certain of its officers and employees (none of whom are executive officers or directors). See Note 26 for additional information on these employee loans. • Securities and margin financing transactions, which reflect our credit exposure arising from reverse repurchase agreements, repurchase agreements and securities lending agreements to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers. • Over-the-counter derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. Over-the-counter derivative exposure is based on a contract at fair value, net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within our derivative credit exposures. • Cash and cash equivalents, which includes both interest-bearing and non-interest-bearing deposits at banks. Credit is extended to counterparties in a controlled manner and in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed as a whole to limit exposure to loss related to credit risk. Credit risk is managed according to the Credit Risk Policy, which sets out the process for identifying counterparty credit risk, establishing counterparty limits, and managing and monitoring credit limits. The policy includes our approach for: • Client on-boarding and approving counterparty credit limits; • Negotiating, approving and monitoring credit terms in legal and master documentation; • Determining the analytical standards and risk parameters for ongoing management and monitoring credit risk books; • Actively managing daily exposure, exceptions and breaches; and • Monitoring daily margin call activity and counterparty performance. Counterparty credit exposure limits are granted within our credit ratings framework, as detailed in the Credit Risk Policy. Jefferies Group’s Credit Risk Department assesses counterparty credit risk and sets credit limits at the counterparty master agreement level. Limits must be approved by appropriate credit officers and initiated in our credit and trading systems before trading commences. All credit exposures are reviewed against approved limits on a daily basis. Jefferies Group’s Secured Revolving Credit Facility, which supports loan underwritings by Jefferies Finance, is governed under separate policies other than the Credit Risk Policy and is approved by Jefferies Group’s Board of Directors. The loans outstanding to certain of Jefferies Group’s officers and employees are extended pursuant to a review by its most senior management. Current counterparty credit exposures are summarized in the tables below and provided by credit quality, region and industry. Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure 61 94731 equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in our country risk exposure tables below. The amounts in the tables below are for amounts included in the Consolidated Statements of Financial Condition at November 30, 2019 and 2018 (in millions). Counterparty Credit Exposure by Credit Rating November 30, 2019 AAA Range . . . . . . . . . . . . . . . . AA Range . . . . . . . . . . . . . . . . . . A Range. . . . . . . . . . . . . . . . . . . . BBB Range . . . . . . . . . . . . . . . . . BB or Lower . . . . . . . . . . . . . . . Unrated. . . . . . . . . . . . . . . . . . . . . Loans and Lending $ – 45.2 1.1 250.2 15.0 94.2 Total . . . . . . . . . . . . . . . . . . . . . . . $405.7 November 30, 2018 AAA Range . . . . . . . . . . . . . . . . AA Range . . . . . . . . . . . . . . . . . . A Range. . . . . . . . . . . . . . . . . . . . BBB Range . . . . . . . . . . . . . . . . . BB or Lower . . . . . . . . . . . . . . . Unrated. . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . $ – 45.1 0.3 250.1 – 119.3 $414.8 Counterparty Credit Exposure by Region $ 1.5 43.0 531.9 140.9 6.6 – $723.9 $ 3.2 45.3 573.3 206.6 5.5 – $833.9 Securities and Margin Finance OTC Derivatives Cash and Cash Equivalents Total with Cash and Cash Equivalents $ – $ 3.7 152.4 48.3 154.1 6.8 Total 1.5 91.9 685.4 439.4 175.7 101.0 $4,584.1 5.3 976.3 1.6 – 0.6 $365.3 $1,494.9 $5,567.9 $ – 4.2 97.9 15.5 15.7 – $133.3 $ 3.2 94.6 671.5 472.2 21.2 119.3 $1,382.0 $2,981.2 111.6 1,865.9 2.3 107.5 77.4 $5,145.9 $4,585.6 97.2 1,661.7 441.0 175.7 101.6 $7,062.8 $2,984.4 206.2 2,537.4 474.5 128.7 196.7 $6,527.9 November 30, 2019 Loans and Lending Securities and Margin Finance OTC Derivatives Asia/Latin America/Other . . . . Europe . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . $ 15.0 – 390.7 $405.7 November 30, 2018 Asia/Latin America/Other . . . . Europe . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . $ – 0.3 414.5 Total . . . . . . . . . . . . . . . . . . . . . . . $414.8 $ 50.5 324.1 349.3 $723.9 $ 30.2 427.0 376.7 $833.9 $ 0.3 101.1 263.9 $365.3 $ 0.1 27.3 105.9 $133.3 Total $ 65.8 425.2 1,003.9 $1,494.9 $ 30.3 454.6 897.1 $1,382.0 Cash and Cash Equivalents Total with Cash and Cash Equivalents $ 100.4 74.1 5,393.4 $5,567.9 $ 304.0 170.8 4,671.1 $5,145.9 $ 166.2 499.3 6,397.3 $7,062.8 $ 334.3 625.4 5,568.2 $6,527.9 62 Counterparty Credit Exposure by Industry November 30, 2019 Loans and Lending Securities and Margin Finance OTC Derivatives Asset Managers . . . . . . . . . . . . . Banks, Broker-dealers. . . . . . . . Corporates . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . $ – 250.7 81.3 73.7 $405.7 November 30, 2018 Asset Managers . . . . . . . . . . . . . Banks, Broker-dealers. . . . . . . . Corporates . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . $ – 250.4 92.9 71.5 Total . . . . . . . . . . . . . . . . . . . . . . . $414.8 $ 1.7 526.7 – 195.5 $723.9 $ 0.6 619.6 – 213.7 $833.9 $ – 206.8 154.4 4.1 $365.3 Total $ 1.7 984.2 235.7 273.3 $1,494.9 $ – 118.9 7.2 7.2 $ 0.6 988.9 100.1 292.4 $133.3 $1,382.0 06054 Cash and Cash Equivalents Total with Cash and Cash Equivalents $4,584.1 983.8 – – $5,567.9 $2,812.4 2,333.5 – – $5,145.9 $4,585.8 1,968.0 235.7 273.3 $7,062.8 $2,813.0 3,322.4 100.1 292.4 $6,527.9 For additional information regarding credit exposure to over-the-counter derivative contracts, see Note 6 in the consolidated financial statements. Country Risk Exposure Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic, political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the country of risk as the country of jurisdiction or domicile of the obligor, and monitors country risk resulting from both trading positions and counterparty exposure. The following tables reflect our top exposures to the sovereign governments, corporations and financial institutions in those non-U.S. countries in which we have a net long issuer and counterparty exposure, as reflected in the Consolidated Statements of Financial Condition at November 30, 2019 and 2018 (in millions): November 30, 2019 Issuer Risk Counterparty Risk Fair Value of Long Debt Securities Fair Value of Short Debt Securities Net Derivative Notional Exposure Loans and Lending Securities and Margin Finance OTC Derivatives Cash and Cash Equivalents Netherlands . . . . . . . United Kingdom. . . Italy . . . . . . . . . . . . . . France . . . . . . . . . . . . Canada . . . . . . . . . . . Spain . . . . . . . . . . . . . Japan . . . . . . . . . . . . . China . . . . . . . . . . . . . Mexico . . . . . . . . . . . Germany . . . . . . . . . . $ 946.0 416.1 1,262.3 423.4 380.4 249.2 76.0 283.3 112.0 238.2 $ (329.7) (199.9) (1,192.4) (296.2) (362.2) (137.3) (171.6) (236.9) (68.3) (321.3) $(100.1) (124.4) 105.4 (93.1) 7.4 (25.7) 133.8 25.6 13.0 19.3 Total. . . . . . . . . . . . . . $4,386.9 $(3,315.8) $ (38.8) $ 42.6 60.7 – 94.2 0.3 3.3 24.7 – – 88.3 $314.1 $ 0.5 37.6 0.4 40.9 81.2 – – – – 14.4 $175.0 $ – 54.1 – – 1.9 – 13.2 – – 13.6 $82.8 $ – – – – – – – – – – $ – 63 Issuer and Counterparty Risk Excluding Cash and Cash Equivalents Including Cash and Cash Equivalents $ 559.3 190.1 175.7 169.2 107.1 89.5 62.9 72.0 56.7 38.9 $ 559.3 244.2 175.7 169.2 109.0 89.5 76.1 72.0 56.7 52.5 $1,521.4 $1,604.2 01553 November 30, 2018 Issuer Risk Counterparty Risk Fair Value of Long Debt Securities Fair Value of Short Debt Securities Net Derivative Notional Exposure Loans and Lending Securities and Margin Finance OTC Derivatives Cash and Cash Equivalents Finland . . . . . . . . . . . . Japan . . . . . . . . . . . . . . Italy . . . . . . . . . . . . . . . United Kingdom . . . Belgium . . . . . . . . . . . Netherlands . . . . . . . . Germany. . . . . . . . . . . Switzerland . . . . . . . . Hong Kong . . . . . . . . Singapore . . . . . . . . . . $ 279.8 97.7 1,778.1 311.6 65.4 317.4 175.4 100.5 13.8 21.1 $ (6.7) (92.8) (1,267.5) (168.2) (39.8) (316.1) (384.8) (50.1) (39.7) (1.4) $ – 8.0 (354.5) (30.3) 2.8 70.4 129.4 5.7 3.5 1.0 Total . . . . . . . . . . . . . . $3,160.8 $(2,367.1) $(164.0) $– – – 0.3 – – – – – – $0.3 $ – 11.3 0.2 63.1 – 39.5 89.7 37.7 0.5 0.1 $242.1 $ – – 0.1 18.5 – – 1.3 2.7 – – $22.6 $ 1.0 136.9 – (56.4) 107.3 – 93.3 3.8 84.9 31.2 $402.0 Issuer and Counterparty Risk Excluding Cash and Cash Equivalents Including Cash and Cash Equivalents $273.1 24.2 156.4 195.0 28.4 111.2 11.0 96.5 (21.9) 20.8 $ 274.1 161.1 156.4 138.6 135.7 111.2 104.3 100.3 63.0 52.0 $894.7 $1,296.7 We have no material exposure to countries where either sovereign or non-sovereign sectors pose potential default risk as the result of liquidity concerns. Operational Risk Operational risk refers to the risk of loss resulting from operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in operating systems, business disruptions and inadequacies or breaches in internal control processes. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In addition, the transactions we process have become increasingly complex. If our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in its internal processes, people or systems, we could suffer an impairment to its liquidity, financial loss, a disruption of its businesses, liability to clients, regulatory intervention or reputational damage. These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or the inability to occupy one or more of its buildings. The inability of its systems to accommodate an increasing volume of transactions could also constrain its ability to expand its businesses. We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage exposure to risk. In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business. Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and 64 85300 remediate vulnerabilities or other exposures, and may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us. Our Operational Risk framework includes governance, collection of operational risk incidents, proactive operational risk management, and periodic review and analysis of business metrics to identify and recommend controls and process-related enhancements. Each revenue producing and support department is responsible for the management and reporting of operational risks and the implementation of the Operational Risk policy and processes within the department. Operational Risk policy, framework, infrastructure, methodology, processes, guidance and oversight of the operational risk processes are centralized and consistent firm wide and also subject to regional operational risk governance. Model Risk Model risk refers to the risk of losses resulting from decisions that are based on the output of models, due to errors or weaknesses in the design and development, implementation, or improper use of models. We use quantitative models primarily to value certain financial assets and liabilities and to monitor and manage our risk. Model risk is a function of the model materiality, frequency of use, complexity and uncertainty around inputs and assumptions used in a given model. Robust model risk management is a core part of our risk management approach and is overseen through our risk governance structure and risk management controls. Legal and Compliance Risk Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements. We are subject to extensive regulation in the different jurisdictions in which we conduct our business. We have various procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, credit granting, collection activities, anti-money laundering and record keeping. These risks also reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we continuously review new and pending regulations and legislation and participate in various industry interest groups. We also maintain an anonymous hotline for employees or others to report suspected inappropriate actions by us or by our employees or agents. New Business Risk New business risk refers to the risks of entering into a new line of business or offering a new product. By entering a new line of business or offering a new product, we may face risks that we are unaccustomed to dealing with and may increase the magnitude of the risks we currently face. The New Business Committee reviews proposals for new businesses and new products to determine if we are prepared to handle the additional or increased risks associated with entering into such activities. Reputational Risk We recognize that maintaining our reputation among clients, investors, regulators and the general public is an important aspect of minimizing legal and operational risks. Maintaining our reputation depends on a large number of factors, including the selection of our clients and the conduct of our business activities. We seek to maintain our reputation by screening potential clients and by conducting our business activities in accordance with high ethical standards. Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. We actively monitor public comment concerning us and are vigilant in seeking to assure accurate information and perception prevails. 65 95718 Other Risk We are also subject to interest rate risk on our long-term fixed interest rate debt. Generally, the fair market value of debt securities with a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise. The following table represents principal cash flows by expected maturity dates and the related weighted-average interest rate on those maturities for our consolidated long-term debt obligations. For the variable rate borrowings, the weighted-average interest rates are based on the rates in effect at the reporting date. Our market risk with respect to foreign currency exposure on our long-term debt is also shown below. For additional information, see Note 14 to our consolidated financial statements. 2020 2021 2022 Expected Maturity Date 2023 2024 (Dollars in thousands) Thereafter Total Fair Value 276 $750,000 $28,000 $1,350,000 $127,000 $4,093,103 $6,348,379 $6,839,180 Rate Sensitive Liabilities: Fixed Interest Rate Borrowings . . . . . . . . . . $ Weighted-Average Interest Rate . . . . . . . . . 7.40% 6.88% 3.05% 5.49% 0.32% 5.19% Variable Interest Rate Borrowings . . . . . . . . . . $ Weighted-Average Interest Rate . . . . . . . . . – $338,671 $ – $ 104,000 $ – $ – $ 442,671 $ 441,759 –% 3.32% –% 4.45% –% –% Borrowings with Foreign Currency Exposure . . . . . . . . . . . . $550,875 $ – $ 4,407 $ – $550,875 $ 434,090 $1,540,247 $1,504,183 Weighted-Average Interest Rate . . . . . . . . . 2.38% –% 2.25% –% 1.00% 2.91% Item 8. Financial Statements and Supplementary Data. Financial Statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None. Item 9A. Controls and Procedures. Evaluation of disclosure controls and procedures The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’)), as of November 30, 2019. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures were effective as of November 30, 2019. Changes in internal control over financial reporting There has been no change in the Company’s internal control over reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended November 30, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. financial 66 27359 Management’s Report on Internal Control Over Financial Reporting Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of the assets of the Company; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. its inherent reporting may not prevent or detect Because of misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. internal control over limitations, financial The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of November 30, 2019. In making this assessment, the Company’s management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on our assessment and those criteria, management concluded that, as of November 30, 2019, Company’s internal control over financial reporting was effective. the The effectiveness of the Company’s internal control over financial reporting as of November 30, 2019 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein in Item 8. Item 9B. Other Information. None. PART III Item 10. Directors, Executive Officers and Corporate Governance. Information with respect to this item will be contained in the Proxy Statement for the 2020 Annual Meeting of Shareholders, which is incorporated herein by reference. We have a Code of Business Practices, which is applicable to all directors, officers and employees, and is available on our website. We intend to post amendments to or waivers from our Code of Business Practices on our website as required by applicable law. 67 90825 Item 11. Executive Compensation. Information with respect to this item will be contained in the Proxy Statement for the 2020 Annual Meeting of Shareholders, which is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters. Information with respect to this item will be contained in the Proxy Statement for the 2020 Annual Meeting of Shareholders, which is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence. Information with respect to this item will be contained in the Proxy Statement for the 2020 Annual Meeting of Shareholders, which is incorporated herein by reference. Item 14. Principal Accountant Fees and Services. Information with respect to this item will be contained in the Proxy Statement for the 2020 Annual Meeting of Shareholders, which is incorporated herein by reference. 68 83773 PART IV Item 15. Exhibits and Financial Statement Schedules. (a) (1) Financial Statements. Reports of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 Financial Statements: Consolidated Statements of Financial Condition at November 30, 2019 and 2018 . . . . . . . . . . F-4 Consolidated Statements of Operations for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Statements of Cash Flows for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 F-7 F-8 Consolidated Statements of Changes in Equity for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-11 Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13 (2) Financial Statement Schedules. Schedule I - Condensed Financial Information of Jefferies Financial Group Inc. (Parent Company Only) at November 30, 2019 and 2018 and for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. (3) See Exhibit Index below for a complete list of Exhibits to this report. (b) Exhibits. All documents referenced below were filed pursuant to the Securities Exchange Act of 1934 by the Company, file number 1-5721, unless otherwise indicated. (c) Financial Statement Schedules. Jefferies Finance LLC financial statements as of November 30, 2019 and 2018, and for the years ended November 30, 2019, 2018 and 2017. Item 16. Form 10-K Summary. None. Exhibit Index 3.1 3.2 4.1 Restated Certificate of Incorporation of Jefferies Financial Group Inc. (filed as Exhibit 3.1 to the Company’s Form 10-Q filed on August 1, 2018).* Amended and Restated By-Laws of Jefferies Financial Group Inc. (effective May 23, 2018) (filed as Exhibit 3.2 to the Company’s Form 10-Q filed on August 1, 2018).* The Company undertakes to furnish the Securities and Exchange Commission, upon written request, a copy of all instruments with respect to long-term debt not filed herewith. 69 26638 4.2 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 21 23.1 23.2 31.1 31.2 32.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. HomeFed Corporation Amended and Restated 1999 Stock Incentive Plan (as amended, the ‘‘Jefferies Financial Group Inc. Amended and Restated 1999 Stock Incentive Plan (HomeFed)’’) (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 (No. 333-232532) filed on July 3, 2019).* + Amendment to HomeFed Corporation Amended and Restated 1999 Stock Incentive Plan (filed as Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (No. 333-232532) filed on July 3, 2019).* + HomeFed Corporation 2017 RSU Opportunity Plan (as amended, the ‘‘Jefferies Financial Group Inc. 2017 RSU Opportunity Plan (HomeFed)’’) (filed as Exhibit 99.4 to the Company’s Registration Statement on Form S-8 (No. 333-232532) filed on July 3, 2019).* + Amendment to HomeFed Corporation 2017 RSU Opportunity Plan (filed as Exhibit 99.5 to the Company’s Registration Statement on Form S-8 (No. 333-232532) filed on July 3, 2019).* + Leucadia National Corporation 2003 Incentive Compensation Plan (filed as Appendix I to the Company’s Proxy Statement dated June 27, 2013 (the ‘‘2013 Proxy Statement’’)).* + Form of Restricted Stock Units Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 31, 2013).* + Form of Restricted Stock Agreement (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 31, 2013).* + Leucadia National Corporation 1999 Directors’ Stock Compensation Plan (filed as Appendix II to the 2013 Proxy Statement).* + Compensation Information Concerning Non-Employee Directors (incorporated by reference to page 35 and 36 of the Company’s Proxy Statement filed February 15, 2019).* + Summary of executive bonus compensation for Mr. Sharp and Ms. Gendron for fiscal year 2019 (filed in the Company’s Current Report on Form 8-K filed February 12, 2019).*+ Summary of executive compensation for Richard B. Handler and Brian P. Friedman for fiscal years 2018, 2019 and 2020 (filed in the Company’s Proxy Statement on February 15, 2019). * + Summary of executive compensation for Richard B. Handler and Brian P. Friedman for fiscal year 2017 (filed in the Company’s Current Report on Form 8-K on December 29, 2016).* + Agreement of Terms dated as of December 31, 2011 between Leucadia National Corporation and Berkshire Hathaway Inc. (filed as Exhibit 10.1 to the February 24, 2012 8-K).* Subsidiaries of the registrant. Consent of Deloitte & Touche LLP, with respect to the incorporation by reference into the Company’s Registration Statements on Form S-8 (No. 333-185318 and No. 333-232532) and Form S-3ASR (No. 333-214759). Consent of Deloitte & Touche LLP, with respect to the incorporation by reference into the Company’s Registration Statements on Form S-8 (No. 333-185318 and No. 333-232532) and Form S-3ASR (No. 333-214759). Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 70 65593 32.2 101 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** Financial statements from the Annual Report on Form 10-K of Jefferies Financial Group Inc. for the twelve months ended November 30, 2019, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, (vi) the Notes to Consolidated Financial Statements and (vii) the Financial Statement Schedule. 104 Cover Page Interactive Data File, formatted in iXBRL (included in Exhibit 101) + Management/Employment Contract or Compensatory Plan or Arrangement. * Incorporated by reference. ** Furnished herewith pursuant to item 601(b) (32) of Regulation S-K. 71 83648 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES JEFFERIES FINANCIAL GROUP INC. Date: January 29, 2020 By: /s/ John M. Dalton Name: John M. Dalton Title: Vice President and Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated, on the date set forth below. Date January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 January 29, 2020 By: By: By: By: By: By: By: By: By: By: By: By: By: By: Signature /s/ Joseph S. Steinberg Joseph S. Steinberg Title Chairman of the Board /s/ Richard B. Handler Richard B. Handler Chief Executive Officer and Director (Principal Executive Officer) /s/ Brian P. Friedman Brian P. Friedman President and Director /s/ Teresa S. Gendron Teresa S. Gendron Vice President and Chief Financial Officer (Principal Financial Officer) /s/ John M. Dalton John M. Dalton Vice President and Controller (Principal Accounting Officer) Director Director Director Director Director Director Director Director Director /s/ Linda L. Adamany Linda L. Adamany /s/ Barry J. Alperin Barry J. Alperin /s/ Robert D. Beyer Robert D. Beyer /s/ Francisco L. Borges Francisco L. Borges /s/ MaryAnne Gilmartin MaryAnne Gilmartin /s/ Robert E. Joyal Robert E. Joyal /s/ Jacob M. Katz Jacob M. Katz /s/ Michael T. O’Kane Michael T. O’Kane /s/ Stuart H. Reese Stuart H. Reese 72 98357 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Jefferies Financial Group Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Jefferies Financial Group Inc. and subsidiaries (the ‘‘Company’’) as of November 30, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), cash flows and changes in equity, for the year ended November 30, 2019, eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, and the related notes and the schedules listed in the Index at Item 15(a)(2) (collectively referred to as the ‘‘financial statements’’). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2019 and 2018, and the results of its operations and its cash flows for the year ended November 30, 2019, eleven months ended November 30, 2018 and the twelve months ended in conformity with accounting principles generally accepted in the United States of December 31, 2017, America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of November 30, 2019 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January 29, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting. Emphasis of Matter As discussed in Note 1 and Note 3 to the financial statements, the Company changed its fiscal year end from December 31 to November 30 in 2018. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter F-1 42428 below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Certain Level 2 and Level 3 Financial Assets and Liabilities – Refer to Note 5 to the financial statements Critical Audit Matter Description The Company estimates fair value for certain financial assets and liabilities utilizing models and unobservable inputs. Unlike the fair value of other assets and liabilities which are readily observable and therefore more easily independently corroborated, these financial assets and liabilities are not actively traded, and fair value is determined based on significant judgments regarding models, unobservable inputs and valuation methodologies. Such assets and liabilities can be classified as Level 2 or Level 3. We identified the valuation of certain Level 2 and Level 3 financial assets and liabilities as a critical audit matter because of the unobservable inputs, complexity of models and methodologies used by management and third- party specialists to estimate fair value. The valuations involve a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialist who possess significant quantitative and modeling experience, to audit and evaluate the appropriateness of the models and inputs. How the Critical Audit Matter was Addressed in the Audit Our audit procedures for certain Level 2 and Level 3 financial assets and liabilities included the following procedures, among others: • We tested the operating effectiveness of the Company’s valuation controls, including the: (cid:4) Independent price verification controls. (cid:4) Third-party specialist valuation model review control, which includes examination of assumptions utilized as well as completeness and accuracy of underlying data. (cid:4) Pricing model controls which are designed to review a model’s theoretical soundness and its appropriateness. • With the assistance of our fair value specialist, we evaluated the reasonableness of management’s valuation methodology and estimates and: (cid:4) We developed valuation estimates, using externally sourced inputs and models, and compared to management’s recorded value and investigated differences. (cid:4) We compared management’s assumptions utilized within management’s models to external sources. • We evaluated management’s ability to estimate fair value by comparing management’s valuation estimates to subsequent transactions, when available. /s/ Deloitte & Touche LLP New York, New York January 29, 2020 We have served as the Company’s auditor since 2017. F-2 37483 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Jefferies Financial Group Inc.: Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Jefferies Financial Group Inc. and subsidiaries (the ‘‘Company’’) as of November 30, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, in all material respects, effective internal control over financial reporting as of November 30, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. the Company maintained, We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended November 30, 2019, of the Company and our report dated January 29, 2020, expressed an unqualified opinion on those financial statements and included an emphasis-of-matter paragraph regarding the Company changing its fiscal year end from December 31 to November 30 in 2018. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. its inherent Because of reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. internal control over limitations, financial /s/ Deloitte & Touche LLP New York, New York January 29, 2020 F-3 21148 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Financial Condition November 30, 2019 and 2018 (Dollars in thousands, except par value) Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments owned, at fair value (includes securities pledged of $12,058,522 and $13,059,802): Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Available for sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total financial instruments owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to and investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities received as collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trading liabilities, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation to return securities received as collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . Payables, expense accruals and other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commitments and contingencies Mezzanine Equity Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mandatorily redeemable convertible preferred shares. . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Common shares, par value $1 per share, authorized 600,000,000 shares; 291,644,153 and 307,515,472 shares issued and outstanding, after deducting 24,818,459 and 109,460,774 shares held in treasury. . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 2018 $ 7,678,821 $ 5,258,809 796,797 707,960 16,895,741 – 16,895,741 1,652,957 7,624,642 4,299,598 9,500 5,744,106 1,922,934 462,468 2,372,670 $49,460,234 $ 548,490 10,532,460 1,525,140 7,504,670 3,070,611 9,500 8,179,013 8,337,061 39,706,945 17,463,256 1,409,886 18,873,142 2,417,332 6,538,212 2,785,758 – 6,287,401 1,890,131 512,789 1,859,561 $47,131,095 $ 387,492 9,478,946 1,838,688 8,643,069 1,534,271 – 7,407,030 7,617,563 36,907,059 26,605 125,000 19,779 125,000 291,644 3,627,711 (273,039) 5,933,389 9,579,705 21,979 9,601,684 $49,460,234 307,515 3,854,847 288,286 5,610,218 10,060,866 18,391 10,079,257 $47,131,095 (1) Total assets include assets related to variable interest entities of $645.8 million and $704.4 million at November 30, 2019 and 2018, respectively, and Total liabilities include liabilities related to variable interest entities of $3,071.1 million and $1,535.8 million at November 30, 2019 and 2018, respectively. See Note 10 for additional information related to variable interest entities. The accompanying notes are an integral part of these financial statements. F-4 74637 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Operations For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands, except per share amounts) Revenues: Commissions and other fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense of Jefferies Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floor brokerage and clearing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes and income (loss) related to associated companies . . . . . . . . . . . . . . Income (loss) related to associated companies. . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes . . . . . . Income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of income tax provision of $0, $47,045 and $118,681 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations, net of income tax provision of $0, $229,553 and $0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to the noncontrolling interests . . . . . . . . . . . . . . . . Net (income) loss attributable to the redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group Inc. Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 675,772 559,300 1,526,992 1,603,940 324,659 667,993 5,358,656 1,465,680 3,892,976 1,824,891 319,641 223,140 87,177 152,871 1,009,643 $ 662,546 232,224 1,904,870 1,294,325 357,427 558,336 5,009,728 1,245,694 3,764,034 $ 617,020 923,418 1,764,285 993,198 326,197 424,788 5,048,906 971,461 4,077,445 1,862,782 307,071 184,210 89,249 120,317 961,328 1,950,935 280,952 174,506 101,202 110,395 778,052 3,617,363 3,524,957 3,396,042 275,613 202,995 478,608 (483,955) 962,563 – – 962,563 1,847 239,077 57,023 296,100 19,008 277,092 681,403 (74,901) 606,502 642,286 (35,784) 130,063 288,631 643,921 1,051,076 12,975 – 252,847 3,455 286 (5,103) (37,263) (4,470) (84,576) (4,375) common shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 959,593 $1,022,318 $ 167,351 (continued) The accompanying notes are an integral part of these financial statements. F-5 01819 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Operations, continued For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands, except per share amounts) Basic earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations. . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations, net of taxes . . . . . . . . . . Income from discontinued operations, net of taxes . . . . . . . . . . . . . . Gain on disposal of discontinued operations, net of taxes . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $3.07 – – $3.07 $3.03 – – $3.03 $0.82 0.27 1.84 $2.93 $0.81 0.26 1.83 $2.90 $(0.10) 0.55 – $ 0.45 $(0.10) 0.55 – $ 0.45 $959,593 – – $ 285,475 92,922 643,921 $ (36,003) 203,354 – Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $959,593 $1,022,318 $167,351 The accompanying notes are an integral part of these financial statements. F-6 55159 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss): Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $165, $(551) and $3,450 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $(545,054), $37 and $124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $545,219, $(588) and $3,326 . . . . . . . Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $1,146, $(11,089) and $14,616. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $(52), $(16) and $1,086. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $1,198, $(11,073) and $13,530. . . . . . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $(4,653), $9,289 and $(13,215) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $(144), $311 and $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $(4,509), $8,978 and $(13,215) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $552 and $(593) . Less: reclassification adjustment for cash flow hedges (gains) losses included in net income, net of income tax provision (benefit) of $161, $0 and $0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $(161), $552 and $(593). . . . . . . . . . . . . . . . . . . Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $(2,473), $(297) and $2,018 . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(490), $(697) and $(2,042) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in pension liability benefits, net of income tax provision (benefit) of $(1,983), $400 and $4,060. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of income taxes. . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive loss attributable to the noncontrolling interests . . . . . . . . . . . . Comprehensive (income) loss attributable to the redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 962,563 $1,051,076 $252,847 487 (1,560) 5,923 (543,178) (109) (212) (542,691) (1,669) 5,711 544 149 693 (71,543) 78,493 (20,459) 5,310 (92,002) 83,803 (13,588) 29,620 (21,394) 427 (916) – (13,161) 28,704 (21,394) – 1,608 (936) (470) (470) – – 1,608 (936) (7,103) (844) 3,526 1,407 7,349 517 (5,696) (561,325) 401,238 1,847 286 (5,103) 6,505 (56,854) 994,222 12,975 (37,263) (4,470) 4,043 71,227 324,074 3,455 (84,576) (4,375) $ 398,268 $ 965,464 $238,578 The accompanying notes are an integral part of these financial statements. F-7 41545 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) Net cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used for) operations: Pre-tax income from discontinued operations, including gain on disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recognition of accumulated other comprehensive income lodged taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization of real estate, property, equipment and leasehold improvements. . . . . . . . . . . . . . . . . . . . . Other amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income related to associated companies . . . . . . . . . . . . . . . . . . . . . . . Distributions from associated companies . . . . . . . . . . . . . . . . . . . . . . Net (gains) losses related to property and equipment, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of subsidiaries and associated companies . . . . . . . . . Net change in: Securities deposited with clearing and depository organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . Receivables from brokers, dealers and clearing organizations. Receivables from customers of securities operations . . . . . . . . . Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase. . . . . . . . . . . . . . Payables to brokers, dealers and clearing organizations . . . . . . Payables to customers of securities operations. . . . . . . . . . . . . . . Trade payables, expense accruals and other liabilities . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) operating activities – continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) operating activities. . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 962,563 $ 1,051,076 $ 252,847 – 6,391 (1,050,582) 236,406 (407,312) 712,055 (544,583) – – 139,708 (9,942) 49,848 29,800 (288,164) 467,157 (42,214) (210,278) (169) 218,419 (1,103,708) (1,523,222) 211,198 524,656 (2,283) 15,705 1,051,598 (301,727) (1,122,982) 111,757 631,854 (160,784) 61,565 105,156 (37,749) 48,249 35,223 (130,685) 162,988 92,918 (28,159) 48,384 36,452 (34,494) 143,286 32,461 (221,712) 32,814 (179,605) 64,911 (1,451,472) 1,137,134 807,619 (602,950) (465,960) 30,864 33,484 1,142,878 (964,137) 36,956 250,603 512,760 (112,488) (124,580) 163 (648,703) 50,660 234,740 (555,109) (732,344) (216,189) (8,102) (25,765) 381 1,838,793 (1,079,516) 366,721 365,385 (25,838) (827,837) 526,453 234,463 – $ (827,837) $ 164,650 691,103 553,831 788,294 $ (continued) The accompanying notes are an integral part of these financial statements. F-8 78951 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows, continued For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Net cash flows from investing activities: Acquisitions of property, equipment and leasehold improvements, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (232,229) $ (325,666) $ (123,027) 28,042 Proceeds from disposals of property and equipment, and other assets . Proceeds from sale of subsidiaries, net of expenses and cash of 14,052 11,302 operations sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of associated companies . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances on notes, loans and other receivables. . . . . . . . . . . . . . . . . . . . . . Collections on notes, loans and other receivables . . . . . . . . . . . . . . . . . . . . Loans to and investments in associated companies . . . . . . . . . . . . . . . . . . . Capital distributions and loan repayment from associated companies . . Deconsolidation of subsidiary entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchases of investments (other than short-term) . . . . . . . . . . . . . . . . . . . . . Proceeds from maturities of investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sales of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) investing activities – continuing (546) 790,612 100,723 (570,659) 323,215 (267,263) 110,656 – (2,995) 531,104 913,175 – 100,000 379,074 – (351,831) 216,426 (1,956,983) 1,973,739 – (3,423,191) 1,084,277 1,571,507 130 289,767 173,105 – (49,325) 272,439 (3,305,791) 3,106,423 (21,129) (1,146,595) 344,223 443,300 1,339 operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,707,095 (718,466) 12,771 Net cash provided by (used for) investing activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) investing activities . . . . . . . . . . . . . – 1,707,095 860,909 142,443 (67,405) (54,634) Net cash flows from financing activities: Issuance of debt, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other changes in short-term borrowings, net. . . . . . . . . . . . . . . . . . . . . . . . . Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in other secured financings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net contributions from (distributions to) redeemable noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) financing activities – continuing 3,275,800 – (2,588,791) 1,533,696 26,568 1,112 (782) (5,293) 6,829 (509,914) (149,647) – 2,754,665 – (2,678,323) 503,043 10,290 3,611 455 (7,408) 113 (1,130,854) (151,758) 1 1,620,691 23,324 (848,350) 1,248 (5,650) 1,501 (185) (12,031) 40,072 (100,477) (117,407) (1) 1,589,578 operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) financing activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) financing activities . . . . . . . . . . . . . Effect of foreign exchange rate changes on cash, cash equivalents and 12,067 restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,136) Change in cash classified as assets held for sale . . . . . . . . . . . . . . . . . . . . . 1,177,392 Net increase in cash, cash equivalents and restricted cash . . . . . . . . . . Cash, cash equivalents and restricted cash at beginning of period . . . . . 4,597,113 Cash, cash equivalents and restricted cash at end of period . . . . . . . . . . . $ 8,480,435 $ 6,012,662 $ 5,774,505 (1,063) – 2,467,773 6,012,662 – 1,589,578 (167,934) 434,801 120,322 (575,843) 238,157 5,774,505 (19,546) – (696,165) 602,735 The accompanying notes are an integral part of these financial statements. F-9 (continued) 54239 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows, continued For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) The following presents our cash, cash equivalents and restricted cash by category within the Consolidated Statements of Financial Condition to the total of the same amounts in the Consolidated Statements of Cash Flows above (in thousands): Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 December 31, 2017 $7,678,821 $5,258,809 $5,275,480 761,809 39,805 $8,480,435 673,141 80,712 $6,012,662 478,284 20,741 $5,774,505 The accompanying notes are an integral part of these financial statements. F-10 10018 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Changes in Equity For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands, except par value and per share amounts) Jefferies Financial Group Inc. Common Shareholders Common Shares $1 Par Value Additional Paid-In Capital Balance, January 1, 2017 . . . . . . . . . . . $359,425 $ 4,812,587 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income, net of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassification of tax effects from accumulated other comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . Contributions from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Deconsolidation of real estate entity. . . Share-based compensation expense . . . . Change in fair value of redeemable noncontrolling interests. . . . . . . . . . . . . Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends ($0.325 per common share) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 826 Balance, December 31, 2017 . . . . . . . . 356,227 Cumulative effect of the adoption of (4,024) accounting standards . . . . . . . . . . . . . . . 48,384 (94,937) (96,453) 6,457 4,676,038 372,724 Balance, January 1, 2018, as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . 356,227 4,676,038 345,140 Accumulated Other Comprehensive Income (Loss) $310,697 Retained Earnings Subtotal Non- controlling Interests Total $4,645,391 $10,128,100 $ 175,549 $10,303,649 163,896 167,351 167,351 (3,455) 71,227 71,227 71,227 (9,200) 9,200 – – – – 48,384 (94,937) – 40,072 40,072 (12,031) (167,163) (12,031) (167,163) 48,384 (94,937) (120,974) (100,477) (120,974) 7,283 4,700,968 10,105,957 (100,477) (120,974) 7,333 33,022 10,138,979 50 (27,584) 45,396 17,812 17,812 4,746,364 10,123,769 1,022,318 1,022,318 (56,854) 33,022 10,156,791 1,009,343 (12,975) (56,854) (56,854) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss, net of taxes Reversal of cumulative National Beef redeemable noncontrolling interests fair value adjustments prior to deconsolidation . . . . . . . . . . . . . . . . . . . . Contributions from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidation of asset management entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in interest in consolidated subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense . . . . Change in fair value of redeemable noncontrolling interests. . . . . . . . . . . . . Exercise of options to purchase common shares . . . . . . . . . . . . . . . . . . . . 109 2,376 Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends ($0.45 per common share). . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,588 Balance, November 30, 2018 . . . . . . . . $307,515 $ 3,854,847 (50,223) (1,098,199) 1,402 237,669 237,669 237,669 2,677 48,249 (26,551) – – – 2,677 48,249 (26,551) 2,485 113 113 (7,408) (7,408) 8,316 8,316 (2,677) – 48,249 (26,551) 2,485 (158,464) (1,148,422) (158,464) 13,990 $5,610,218 $10,060,866 $ 18,391 $10,079,257 (1,148,422) (158,464) 13,990 – $288,286 The accompanying notes are an integral part of these financial statements. F-11 (continued) 26094 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Changes in Equity, continued For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands, except par value and per share amounts) Jefferies Financial Group Inc. Common Shareholders Common Shares $1 Par Value Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Subtotal Non- controlling Interests Total Balance, November 30, 2018 . . . . . . . . . . $307,515 $3,854,847 $ 288,286 $5,610,218 $10,060,866 $18,391 $10,079,257 957,746 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss, net of taxes . . (561,325) Contributions from noncontrolling 959,593 (561,325) (561,325) 959,593 (1,847) interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests . Issuance of shares for HomeFed acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense . . . . . . Change in fair value of redeemable noncontrolling interests . . . . . . . . . . . . . . Purchase of common shares for treasury. Dividends ($0.50 per common share) . . . Dividend of Spectrum Brands common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,295 (26,125) 168,585 49,848 (1,213) (483,845) 27,026 12,463 959 – – 177,880 49,848 (1,213) (509,970) (158,302) (451,094) 13,422 6,829 (5,293) 3,900 (1) 6,829 (5,293) 181,780 49,848 (1,213) (509,970) (158,302) (451,094) 13,421 (158,302) (478,120) Balance, November 30, 2019 . . . . . . . . . . $291,644 $3,627,711 $(273,039) $5,933,389 $ 9,579,705 $21,979 $ 9,601,684 The accompanying notes are an integral part of these financial statements. F-12 41558 Jefferies Financial Group Inc. and Subsidiaries Notes to Consolidated Financial Statements Note 1. Nature of Operations Jefferies Financial Group Inc. (‘‘Jefferies,’’ ‘‘we,’’ ‘‘our’’ or the ‘‘Company’’) is a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC (‘‘Jefferies Group’’), our largest subsidiary, is the largest independent full-service global investment banking firm headquartered in the U.S. In the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30, consistent with the fiscal year of Jefferies Group. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Financial statements for 2017 continue to be presented on the basis of our previous calendar year end. In March 2013, Jefferies Group became an indirect wholly-owned subsidiary of Jefferies, yet retains a separate credit rating and continues to be a separate U.S. Securities and Exchange Commission (‘‘SEC’’) reporting company. Jefferies Group has a November 30 year end. Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results. Jefferies Group operates in two business segments: Investment Banking and Capital Markets and Asset Management. Investment Banking and Capital Markets includes investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance. Asset Management provides investment management services to investors in the U.S. and overseas and invests capital in hedge funds, separately managed accounts and third-party asset managers. Through Jefferies Group, we own 50% of Jefferies Finance LLC (‘‘Jefferies Finance’’), Jefferies Group’s joint venture with Massachusetts Mutual Life Insurance Company. Jefferies Finance is a commercial finance company whose primary focus is the origination and syndication of senior secured debt of middle market and growth companies in the form of term and revolving loans. Through Jefferies Group, we also have an interest in Berkadia Commercial Mortgage Holding LLC (‘‘Berkadia’’), Jefferies Group’s 50-50 equity method joint venture with Berkshire Hathaway Inc. Berkadia is a U.S. commercial real estate finance company providing capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial properties. Merchant Banking is where we own a diverse portfolio of businesses and investments that have the potential for significant value appreciation. Our current Merchant Banking businesses and investments include Linkem (fixed wireless broadband services in Italy); Vitesse Energy, LLC (‘‘Vitesse Energy Finance’’) and JETX Energy, LLC (‘‘JETX Energy’’) (oil and gas production and development); real estate, primarily including HomeFed LLC (‘‘HomeFed’’), formerly HomeFed Corporation; Idaho Timber (manufacturing); FXCM Group, LLC (‘‘FXCM’’) (provider of online foreign exchange trading services); and The We Company, formerly known as WeWork, (global network of workspaces). Our Merchant Banking businesses and investments also included National Beef Packing Company, LLC (‘‘National Beef’’) (beef processing), prior to its sale in November 2019; Spectrum Brands Holdings, Inc. (‘‘Spectrum Brands’’) (consumer products), prior to its distribution to shareholders in October 2019; Leucadia Asset Management (‘‘LAM’’) (asset management) and Berkadia (commercial mortgage banking, investment sales and servicing), prior to their transfer to Jefferies Group in the fourth quarter of 2018; and Garcadia (automobile dealerships), prior to its sale in August 2018. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings. F-13 01509 Notes to Consolidated Financial Statements, continued Note 1. Nature of Operations, continued On June 5, 2018, we completed the sale of 48% of National Beef to Marfrig Global Foods S.A. (‘‘Marfrig’’), reducing our then ownership in National Beef from 79% to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining 31% interest in National Beef under the equity method of accounting. We classified the results of National Beef prior to June 5, 2018 as discontinued operations in the Consolidated Statements of Operations. See Note 27 for more information. On in National Beef to Marfrig and other November 29, 2019, we sold our remaining 31% equity interest shareholders and received a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. As of November 30, 2019, we no longer hold an equity interest in National Beef. Prior to October 11, 2019, we owned approximately 15% of Spectrum Brands, a publicly traded global consumer products company on the NYSE (NYSE: SPB), and we reflected this investment at fair value based on quoted market prices. In September 2019, our Board of Directors approved a distribution to stockholders of these Spectrum Brands shares. We distributed 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to stockholders of record as of the close of business on September 30, 2019. We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares which, if converted, would increase our ownership to approximately 54% of Linkem’s common equity at November 30, 2019. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem is accounted for under the equity method. Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires and invests in non-operated working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas. We invested $9.0 million in 2013 in The We Company, which creates collaborative office communities, and have received $31.0 million in cash to date. We own less than 1% of The We Company. Our interest in The We Company is reflected in Trading assets in our financial statements at fair value. Through June 30, 2019, we owned approximately 70% equity interest in HomeFed, which owns and develops residential and mixed use real estate properties. We accounted for our interest under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued, which were valued at $178.8 million at closing based on the market price of our common shares. As an offset to these issued shares, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market. The HomeFed acquisition was accounted for as a business combination. The fair value of the shares issued to acquire the remaining common shares of HomeFed implied an aggregate fair value of $596.4 million for 100% of HomeFed’s equity balance. In accordance with purchase accounting, we allocated the $596.4 million fair value for 100% of HomeFed to its assets, liabilities and noncontrolling interests. We recorded $101.7 million of cash, $413.2 million of real estate, $198.3 million of investments in associated companies, $37.4 million of deferred tax assets, $15.3 million of goodwill and intangibles, $6.6 million of other assets, $125.5 million of long-term debt, $46.7 million of payables, expense accruals and other liabilities and $3.9 million of noncontrolling interests. In addition, associated with the acquisition, we also recorded $32.4 million of goodwill generated by the establishment of $32.4 million of deferred tax liabilities related to allocated value exceeding the tax basis of some of the HomeFed net assets. The estimated weighted average useful lives for the amortizable intangibles were 4 years at time of acquisition. Our allocation of the acquisition price is based on our estimate of fair value for each of the acquired assets and liabilities, which were developed primarily utilizing discounted F-14 53919 Notes to Consolidated Financial Statements, continued Note 1. Nature of Operations, continued cash flow models. In connection with the acquisition of the remaining interest of HomeFed, we recognized a $72.1 million non-cash pre-tax gain in Other revenues on the revaluation of our 70% interest in HomeFed to fair value. The fair value of our 70% interest in HomeFed was based on the implied $596.4 million equity value for 100% of HomeFed. Idaho Timber is our consolidated subsidiary engaged in the manufacture and distribution of various wood products. Our investment in FXCM and associated companies consist of a senior secured term loan due February 15, 2021, ($71.6 million principal outstanding at November 30, 2019); a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Garcadia was an equity method joint venture that owned and operated automobile dealerships. During the third quarter of 2018, we sold our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million during the third quarter of 2018, is classified as Other revenue. Note 2. Significant Accounting Policies The preparation of these financial statements in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’) requires us to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. On an on-going basis, we evaluate all of these estimates and assumptions. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, asset impairment, the ability to realize deferred tax assets, the recognition and measurement of uncertain tax positions and contingencies. Although these and other estimates and assumptions are based on the best available information, actual results could be different from these estimates. Consolidation Our policy is to consolidate all entities in which we can vote a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. We consider special allocations of cash flows and preferences, if any, to determine amounts allocable to noncontrolling interests. All intercompany transactions and balances are eliminated in consolidation. In situations where we have significant influence, but not control, of an entity that does not qualify as a variable interest entity, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under GAAP. We have also formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies. Our subsidiaries may act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or ‘‘kick-out’’ rights. F-15 75315 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Reclassification to the Consolidated Statements of Operations We have reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in the Consolidated Statements of Operations and are now presented within Commissions and other fees. Previously reported results are presented on a comparable basis. This change had the impact of increasing Commissions and other fees and reducing Other revenues by $28.3 million and $23.8 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. There is no impact on Total revenues as a result of this change in presentation. Revenue Recognition Policies We adopted the Financial Accounting Standards Board (‘‘FASB’’) revenue recognition standard on January 1, 2018. Revenue recognition policies under the standard are applied prospectively in our financial statements from January 1, 2018 forward. Reported financial information for the historical comparable periods was not revised and continues to be reported under the accounting standards in effect during the historical periods. For investment banking revenues and asset management fees, we separately state the accounting policies applicable in the presented eleven and twelve month periods. There were no material changes in our other revenue recognition policies as a result of the standard. Investment Banking Activities Commissions and Other Fees. All customer securities transactions are reported in the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade-date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are acting as an agent in these arrangements, netted against commission revenues in the Consolidated Statements of Operations. In addition, we earn asset-based fees associated with the management and supervision of assets, account services and administration related to customer accounts. Principal Transactions. Trading assets and trading liabilities (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations, except for derivatives accounted for as hedges (see Hedge Accounting section, herein and Note 6). Fees received on loans carried at fair value are also recorded in Principal transactions revenues. Investment Banking – Twelve Months Ended November 30, 2019 and Eleven Months Ended November 30, 2018. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in including expenses incurred related to time. All other restructuring advisory engagements, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by clients are recognized as Investment banking revenues. investment banking advisory related expenses, Underwriting and placement agent revenues are recognized at a point in time on trade-date. Costs associated with underwriting activities are deferred until the related revenue is recognized or the engagement is otherwise F-16 31831 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued concluded and are recorded on a gross basis in Selling, general and other expenses in the Consolidated Statements of Operations. Investment Banking – Twelve Months Ended December 31, 2017. Fees from mergers and acquisitions, restructuring and other investment banking advisory assignments or engagements and underwriting revenues are recorded when the services related to the underlying transactions are completed under the terms of the assignment or engagement. Expenses associated with such assignments are deferred until reimbursed by the client, the related revenue is recognized or the engagement is otherwise concluded. Expenses are recorded net of client reimbursements and netted against revenues. Unreimbursed expenses with no related revenues are included in Selling, general and other expenses in the Consolidated Statements of Operations. Asset Management Fees and Revenues. Asset management fees and revenues consist of asset management fees, as well as revenues from arrangements with strategic partners, which entitles us to portions of our partners’ management company revenues and/or partners’ profits and perpetual rights to certain defined revenues for a given revenue share period. Revenue from arrangements with strategic partners is recognized at the end of the defined revenue or profit share period when the revenues have been realized and all contingencies have been resolved. Asset Management Fees – Twelve Months Ended November 30, 2019 and Eleven Months Ended November 30, 2018. Management and administrative fees are generally recognized over the period that the related service is provided. Performance fee revenue is generally recognized only at the end of the performance period to the extent that the benchmark return has been met. Asset Management Fees – Twelve Months Ended December 31, 2017. Management and administrative fees are generally recognized over the period that the related service is provided. Performance fees are accrued (or reversed) on a monthly basis based on measuring performance to date versus any relevant benchmark to return hurdles stated in the investment management agreement. Performance fees are not subject adjustment once the measurement period ends (generally annual periods) and the performance fees have been realized. Interest Revenue and Expense. Interest expense that is deducted from Revenues to arrive at Net revenues is related to Jefferies Group’s operations. Contractual interest on Trading assets and Trading liabilities is recognized on an accrual basis as a component of Interest income and Interest expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transactions revenues in the Consolidated Statements of Operations rather than as a component of interest income or expense. Interest on short- and long-term borrowings is accounted for on an accrual basis, except for those for which we have elected the fair value option, with related interest recorded as Interest expense. Discounts/premiums arising on long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. Interest revenue related to Securities borrowed and Securities purchased under agreements to resell activities and interest expense related to Securities loaned and Securities sold under agreements to repurchase activities are recognized on an accrual basis. Manufacturing Revenues. Manufacturing revenues are from Idaho Timber, which manufactures and distributes an extensive range of quality wood products to markets across North America. Idaho Timber’s primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product. F-17 49659 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Hedge Accounting We apply hedge accounting using interest rate swaps designated as fair value hedges of changes in the benchmark interest rate of fixed rate senior long-term debt. The interest rate swaps are included as derivative contracts in Trading assets and Trading liabilities in the Consolidated Statements of Financial Condition. We use regression analysis to perform ongoing prospective and retrospective assessments of the effectiveness of these hedging relationships. A hedging relationship is deemed effective if the change in fair value of the interest rate swap and the change in the fair value of the long-term debt due to changes in the benchmark interest rate offset within a range of 80% to 125%. The impact of valuation adjustments related to Jefferies Group’s own credit spreads and counterparty credit spreads are included in the assessment of effectiveness. For qualifying fair value hedges of benchmark interest rates, the change in the fair value of the derivative and the change in fair value of the long-term debt provide offset of one another and, together with any resulting ineffectiveness, are recorded in Interest expense. See Note 6 for further information. Cash Equivalents Cash equivalents include highly liquid investments, including money market funds and certificates of deposit, not held for resale with original maturities of three months or less. Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies LLC, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets. In addition, certain exchange and/or clearing organizations require cash and/or securities to be deposited by us to conduct day to day activities. Financial Instruments and Fair Value Trading assets and Trading liabilities are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. These instruments primarily represent our trading activities and include both cash and derivative products. Gains and losses on trading assets and trading liabilities are recognized in the Consolidated Statements of Operations in Principal transactions revenues. Fair value is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Fair Value Hierarchy In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability F-18 56244 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows: Level 1: Quoted prices are available in active markets for identical assets or liabilities at the reported date. Valuation adjustments and block discounts are not applied to Level 1 instruments. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable at the reported date. The nature of these financial instruments includes cash instruments for which quoted prices are available but traded less frequently, derivative instruments for which fair values have been derived using model inputs that are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 3: Instruments that have little to no pricing observability at the reported date. These financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. Financial instruments are valued at quoted market prices, if available. Certain financial instruments have bid and ask prices that can be observed in the marketplace. For financial instruments whose inputs are based on bid-ask prices, the financial instrument is valued at the point within the bid-ask range that meets our best estimate of fair value. We use prices and inputs that are current at the measurement date. For financial instruments that do not have readily determinable fair values using quoted market prices, the determination of fair value is based on the best available information, taking into account the types of financial instruments, current financial information, restrictions (if any) on dispositions, fair values of underlying financial instruments and quotations for similar instruments. instruments may include the use of valuation models and other techniques. The valuation of financial Adjustments to valuations derived from valuation models are permitted based on management’s judgment, which takes into consideration the features of the financial instrument such as its complexity, the market in which the financial instrument is traded and underlying risk uncertainties about market conditions. Adjustments from the price derived from a valuation model reflect management’s judgment that other participants in the market for the financial instrument being measured at fair value would also consider in valuing that same financial instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of financial instrument and market conditions. As the observability of prices and inputs may change for a financial instrument from period to period, this condition may cause a transfer of an instrument among the fair value hierarchy levels. The degree of judgment exercised in determining fair value is greatest for instruments categorized within Level 3. Loans to and Investments in Associated Companies Loans to and investments in associated companies include investments in private equity and other operating entities in which we exercise significant influence over operating and capital decisions and loans issued in connection with such investments. Loans to and investments in associated companies are accounted for using the equity method. See Note 11 for additional information regarding certain of these investments. Under the equity method of accounting, our share of the investee’s underlying net income or loss is recorded as Income (loss) related to associated companies, or as part of Other revenues if such investees are considered to be F-19 79786 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued an extension of our business. Income (loss) for investees for which the fair value option was elected is reported as Principal transactions revenues. Receivables At November 30, 2019 and 2018, Receivables include receivables from brokers, dealers and clearing organizations of $3,011.0 million and $3,223.7 million, respectively, and receivables from customers of securities operations of $1,490.9 million and $2,017.1 million, respectively. Our subsidiary, Foursight Capital, had auto loan receivables of $741.2 million and $648.7 million at November 30, 2019 and 2018, respectively. Based primarily on Beacon credit scores, Foursight Capital classifies its auto loan receivables as prime, near-prime and sub-prime based on the perceived credit risk at origination and generally considers prime receivables as those with a Beacon score of 680 and above, near-prime with scores between 620 and 679 and sub-prime with scores below 620. The credit quality classification at November 30, 2019 and 2018 was approximately 15% and 13% prime, 53% and 57% near-prime and 32% and 30% sub-prime, respectively. Securities Borrowed and Securities Loaned Securities borrowed and Securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, we borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another party, that party provides cash to us as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities loaned. We pay interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase Securities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively ‘‘repos’’) are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. We earn and incur interest over the term of the repo, which is reflected in Interest revenue and Interest expense in the Consolidated Statements of Operations on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis-by counterparty, where permitted by GAAP. The fair value of the underlying securities is monitored daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate. Offsetting of Derivative Financial Instruments and Securities Financing Agreements To manage exposure to credit risk associated with derivative activities and securities financing transactions, we may enter into International Swaps and Derivative Association, Inc. (‘‘ISDA’’) master netting agreements, master F-20 44291 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued securities lending agreements, master repurchase agreements or similar agreements and collateral arrangements with counterparties. A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. Under our ISDA master netting agreements, we typically also execute credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted by or paid to a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of the counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non- defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court. The conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. In cases where we have not determined an agreement to be enforceable, the related amounts are not offset. Master netting agreements are a critical component of our risk management processes as part of reducing counterparty credit risk and managing liquidity risk. We are also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open contracts or transactions. See Notes 6 and 7 for further information. Capitalization of Interest In connection with the acquisition of HomeFed in 2019, we began capitalizing interest on qualifying real estate assets. During the twelve months ended November 30, 2019, capitalized interest of $6.2 million was allocated among all of HomeFed’s projects that are currently under development. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements of $385.0 million and $351.0 million at November 30, 2019 and 2018, respectively, are stated at cost, net of accumulated depreciation and amortization, and are included in Other assets in the Consolidated Statements of Financial Condition. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets or, if less, the term of the underlying lease. F-21 24970 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Impairment of Long-Lived Assets We evaluate our long-lived assets for impairment whenever events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When testing for impairment, we group our long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (or asset group). The determination of whether an asset group is recoverable is based on management’s estimate of undiscounted future cash flows directly attributable to the asset group as compared to its carrying value. If the carrying amount of the asset group is greater than the undiscounted cash flows, an impairment loss would be recognized for the amount by which the carrying amount of the asset group exceeds its estimated fair value. Substantially all of our operating businesses sell products or services that are impacted by general economic conditions in the U.S. and to a lesser extent internationally. A worsening of current economic conditions could cause a decline in estimated future cash flows expected to be generated by our operations and investments. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in intangible assets, property and equipment and other long-lived assets (for example, Investment Banking, Capital Markets and Asset Management, manufacturing and oil and gas production and development), impairment charges would have to be recorded. Intangible Assets, Net and Goodwill Intangible Assets. Intangible assets deemed to have finite lives are generally amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances occur indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If we conclude otherwise, we are required to perform a quantitative impairment test. Fair value will be determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies Group acquisition, and our annual impairment testing date for Jefferies Group is as of August 1. Goodwill. At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies Group acquisition. At least annually, and more frequently if warranted, we will assess whether goodwill has been impaired. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the F-22 15291 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill. The fair values will be based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of merger and acquisitions of similar businesses and/or projected cash flows. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods. Our annual goodwill impairment testing date related to Jefferies Group is as of August 1. Inventories and Cost of Sales Manufacturing inventories are stated at the lower of cost or net realizable value, with cost principally determined under the first-in-first-out method. Manufacturing cost of sales principally includes product and manufacturing costs, inbound and outbound shipping costs and handling costs. Inventories are classified as Other assets in the Consolidated Statements of Financial Condition. Payables, expense accruals and other liabilities At November 30, 2019 and 2018, Payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $2,621.7 million and $2,465.6 million, respectively, and payables to customers of securities operations of $3,808.6 million and $3,176.7 million, respectively. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realization of deferred tax assets is assessed, and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of its projected separate return results. We record uncertain tax positions using a two-step process: (i) we determine whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company uses the portfolio approach relating to the release of stranded tax effects recorded in accumulated other comprehensive income (loss). Under the portfolio approach, the net unrealized gains or losses recorded in accumulated other comprehensive income (loss) would be eliminated only on the date the entire portfolio of available for sale securities is sold or otherwise disposed of. F-23 56717 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Share-based Compensation Share-based awards are measured based on the fair value of the award as determined in accordance with GAAP and recognized over the required service or vesting period. Certain executive share-based awards contain market, performance and service conditions. Market conditions are incorporated into the grant-date fair value using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved. The fair value of options are estimated at the date of grant using the Black-Scholes option pricing model. We account for forfeitures as they occur, which results in dividends and dividend equivalents originally charged against retained earnings for forfeited shares to be reclassified to compensation expense in the period in which the forfeiture occurs. Foreign Currency Translation Assets and liabilities of foreign subsidiaries having non-U.S. dollar functional currencies are translated to U.S. dollars using the currency exchange rates at the end of the relevant period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Accumulated other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) and classified as Accumulated other comprehensive income (loss) in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. Gains or losses resulting from Jefferies Group’s foreign currency transactions are included in Principal transactions revenues in the Consolidated Statements of Operations. Earnings per Common Share Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units (‘‘RSUs’’) for which no future service is required. Diluted earnings per share is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred shares and interest on convertible notes by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earnings per share. Restricted stock and RSUs granted as part of share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, we calculate basic and diluted earnings per share under the two-class method. RSUs granted under the senior executive compensation plan are not considered participating securities as the rights to dividend equivalents are forfeitable. See Note 16 for more information regarding the senior executive compensation plan. F-24 68940 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Securitization Activities We engage in securitization activities related to corporate loans, consumer loans, commercial mortgage loans and mortgage-backed and other asset-backed securities. Transfers of financial assets to secured funding vehicles are accounted for as sales when we have relinquished control over the transferred assets. The gain or loss on sale of such financial assets depends, in part, on the previous carrying amount of the assets involved in the transfer allocated between the assets sold and the retained interests, if any, based upon their respective fair values at the date of sale. We may retain interests in the securitized financial assets as one or more tranches of the securitization. These retained interests are included in Trading assets in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized in Principal transactions revenues in the Consolidated Statements of Operations. When a transfer of assets does not meet the criteria of a sale, the transfer is accounted for as a secured borrowing in Trading assets and we continue to recognize the assets of a secured borrowing, and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition. Another of our subsidiaries utilizes special purpose entities to securitize automobile loans receivables. These special purpose entities are variable interest entities (‘‘VIEs’’) and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary’s general credit. Contingencies In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 23. Supplemental Cash Flow Information Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 (In thousands) Twelve Months Ended December 31, 2017 Cash paid during the year for: Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax payments (refunds), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,563,152 24,587 $ $1,377,781 37,559 $ $1,120,191 15,361 $ F-25 76354 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued In June 2019, we entered into a Membership Interest Purchase Agreement, which provided for each of the then owners of National Beef to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC (‘‘Iowa Premium’’). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in the Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity. During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed. During the twelve months ended November 30, 2019, we had $16.4 million non-cash investing activities related to the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts in exchange for 780,315 shares of the Company’s common stock, at a price of $21.03 per share. During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of the Spectrum Brands shares through a special pro rata dividend to our stockholders. During the twelve months ended November 30, 2019, we had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months ended November 30, 2018, we had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018. During the twelve months ended December 31, 2017, non-cash investing activities related to the deconsolidation of 54 Madison Capital, LLC (‘‘54 Madison’’) include an increase in Loans to and investments in associated companies of $123.0 million, and corresponding decreases in Total assets of $612.9 million, Total liabilities of $330.5 million and Noncontrolling interests of $167.2 million. For additional information regarding the deconsolidation of 54 Madison, see Note 11. Note 3. Change in Year End On October 2, 2018, our Board of Directors approved a change to our fiscal year end from a calendar year basis to a fiscal year ending on November 30. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Financial statements for 2017 continue to be presented on the basis of our previous calendar year end. The following is selected financial data for the eleven month transition period ending November 30, 2018, and the comparable prior year period. Jefferies Group financial data is presented in each year based on the twelve months ended November 30. All other results are based on the eleven months ended November 30 for both years (in thousands, except per share amounts). F-26 77032 Notes to Consolidated Financial Statements, continued Note 3. Change in Year End, continued Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes . . . . . . . . . . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, including gain on disposal, net of taxes. . Net income attributable to the redeemable noncontrolling interests . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group Inc. common shareholders. Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, including gain on disposal . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, including gain on disposal . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note 4. Accounting Developments Eleven Months Ended November 30, 2018 2017 (Unaudited) $3,764,034 3,524,957 57,023 296,100 19,008 277,092 773,984 (37,263) 1,022,318 $4,031,333 3,336,359 (76,864) 618,110 195,550 422,560 267,321 (78,506) 610,277 $0.82 2.11 $2.93 $0.81 2.09 $2.90 $1.14 0.51 $1.65 $1.13 0.50 $1.63 Accounting Developments – Accounting Standards to be Adopted in Future Periods Leases. In February 2016, the FASB issued new guidance that affects the accounting and disclosure requirements for leases. The FASB provides for a lessee model that brings substantially all leases that are longer than one year onto the statement of financial condition, which will result in the recognition of a right-of-use (‘‘ROU’’) asset and a corresponding lease liability. The ROU asset and lease liability will be measured initially using the present value of the remaining rental payments. In July 2018, the FASB issued additional guidance on leases which allows an entity to apply a modified retrospective approach. We adopted the lease standards in the first quarter of fiscal 2020 under a modified retrospective approach. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of ROU assets of $545.8 million and operating lease liabilities of $614.9 million reflected in Other assets and Operating lease liabilities, respectively. Reported financial information for historical comparable periods will not be revised and will continue to be reported under the accounting standards in effect during those historical periods. The guidance requires enhanced disclosures, which we will include in the footnotes to our consolidated financial statements beginning with the three months ended February 29, 2020. Financial Instruments – Credit Losses. In June 2016, the FASB issued new guidance for estimating credit losses on certain types of financial instruments by introducing an approach based on expected losses. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Goodwill. In January 2017, the FASB issued new guidance for simplifying goodwill impairment testing. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements. F-27 44052 Notes to Consolidated Financial Statements, continued Note 4. Accounting Developments, continued Derivatives and Hedging. In August 2017, the FASB issued new guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The guidance is effective in the first quarter of fiscal 2020. We do not believe the new guidance will have a material impact on our consolidated financial statements. Defined Benefit Plans. In August 2018, the FASB issued new guidance to improve the effectiveness of disclosure requirements on defined benefit pension plans and other post-retirement plans. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements. Internal-Use Software. In August 2018, the FASB issued new guidance which amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Consolidation. In October 2018, the FASB issued new guidance which requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Income Taxes. In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The guidance is effective in the first quarter of fiscal 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Note 5. Fair Value Disclosures The following is a summary of our financial instruments, securities purchased under agreements to resell, securities received as collateral, trading liabilities, long-term debt and obligation to return securities received as collateral that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value (‘‘NAV’’) (within trading assets) of $586.9 million and $394.4 million at November 30, 2019 and 2018, respectively, by level within the fair value hierarchy (in thousands): F-28 62466 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Assets: Trading assets, at fair value: Corporate equity securities. . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . Collateralized debt obligations and collateralized loan obligations . . . . . U.S. government and federal agency securities. . . . . . . . . . . . . . . . . . . . . . . . . Municipal securities . . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . Residential mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Other asset-backed securities. . . . . . . . . Loans and other receivables . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . Investments at fair value . . . . . . . . . . . . FXCM term loan . . . . . . . . . . . . . . . . . . . Total trading assets, excluding investments at fair value based on NAV . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 Level 1 Level 2 Level 3 Counterparty and Cash Collateral Netting (1) $2,507,164 – $ 218,403 2,472,245 $ 58,426 7,490 $ – 124,225 28,788 2,101,624 – 1,330,026 158,618 742,326 1,405,827 – – – – 1,069,066 17,740 – – – – – – – – – – 2,809 – – 424,060 303,847 2,460,551 1,833,907 32,688 – 6,110 42,563 114,080 14,889 205,412 59,120 – – – (1,433,197) – – Total $ 2,783,993 2,479,735 153,013 2,260,242 742,326 2,735,853 1,086,806 430,170 346,410 2,574,631 418,408 238,100 59,120 $5,941,623 $11,245,763 $554,618 $(1,433,197) $16,308,807 Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities received as collateral . . . . . . . . $ $ – 9,500 Liabilities: Trading liabilities: Corporate equity securities. . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . U.S. government and federal agency securities. . . . . . . . . . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . Commercial mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ – – $ 25,000 $ – 7,438 1,471,142 $ 4,487 340 $2,755,601 – 1,851,981 1,363,475 – 941,065 – – $ $ $ – – – – – – – – 871 – 1,600,228 2,066,455 35 9,463 92,057 – – (1,632,178) $ $ 25,000 9,500 $ 2,767,526 1,471,482 1,851,981 2,304,540 35 1,609,691 527,205 Total trading liabilities . . . . . . . . . . . . $5,971,928 $ 6,086,328 $106,382 $(1,632,178) $10,532,460 Short-term borrowings . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . Obligation to return securities received as collateral . . . . . . . . . . . . . . . . . . . . . . . . $ $ $ – – 9,500 $ $ $ 20,981 735,216 $ – $480,069 – $ – $ $ $ – – – 20,981 $ $ 1,215,285 $ 9,500 F-29 96118 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Assets: Trading assets, at fair value: Corporate equity securities . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . Collateralized debt obligations and collateralized loan obligations . . . . . U.S. government and federal agency securities. . . . . . . . . . . . . . . . . . . . . . . . . Municipal securities. . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . Residential mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Other asset-backed securities . . . . . . . . Loans and other receivables . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . Investments at fair value . . . . . . . . . . . . FXCM term loan . . . . . . . . . . . . . . . . . . . Total trading assets, excluding investments at fair value based on NAV . . . . . . . . . . . . . . . . . . . . . . . Available for sale securities: U.S. government securities . . . . . . . . . . Residential mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . Other asset-backed securities . . . . . . . . Total available for sale securities . . Liabilities: Trading liabilities: November 30, 2018 Level 1 Level 2 Level 3 Counterparty and Cash Collateral Netting (1) $2,497,045 – $ 118,681 2,683,180 $ 52,192 9,484 $ – 72,949 36,105 1,789,614 – 1,769,556 56,592 894,253 1,043,409 – – – – 2,163,629 19,603 – – – – – – – – – – 34,841 – – 819,406 239,381 2,056,593 2,539,943 – – 10,886 53,175 46,985 5,922 396,254 73,150 – – – (2,413,931) – – Total $ 2,667,918 2,692,664 109,054 1,846,206 894,253 2,812,965 2,183,232 830,292 292,556 2,103,578 166,775 396,254 73,150 $6,091,056 $12,688,016 $703,756 $(2,413,931) $17,068,897 $1,072,856 $ – – – – $1,072,856 $ $ – – – – – $ – 522 – – 6,376 27,536 $ $ $ – – – – – – – $ 1,072,856 210,518 15,642 110,870 $ 1,409,886 $ 1,686,515 1,506,140 – – – (2,513,050) 1,384,295 2,396,337 1,378,006 1,127,653 $ $ 210,518 15,642 110,870 337,030 1,444 1,505,618 – 661,095 1,371,630 3,586,694 Corporate equity securities . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . U.S. government and federal agency securities. . . . . . . . . . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . $1,685,071 – 1,384,295 1,735,242 – 26,473 Total trading liabilities . . . . . . . . . . . . $4,831,081 $ 7,126,481 $ 34,434 $(2,513,050) $ 9,478,946 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . $ – $ 485,425 $200,745 $ – $ 686,170 (1) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. F-30 48841 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued The following is a description of the valuation basis, measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis: including valuation techniques and inputs, used in Corporate Equity Securities • Exchange-Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied. • Non-Exchange-Traded Equity Securities: Non-exchange-traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization (‘‘EBITDA’’), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by Jefferies Group. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration). • Equity Warrants: Non-exchange-traded equity warrants are measured primarily using pricing data from external pricing services, prices observed from recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non- exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and 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 Debt Securities • Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap Investment grade corporate bonds curves for comparable issuers and recovery rate assumptions. measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds. • High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers. F-31 28127 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Collateralized Debt Obligations and Collateralized Loan Obligations Collateralized debt obligations (‘‘CDOs’’) and collateralized loan obligations (‘‘CLOs’’) are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third-party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria, including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates and loss severity. U.S. Government and Federal Agency Securities • U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices obtained from external pricing services and categorized within Level 1 of the fair value hierarchy. • U.S. Agency Debt Securities: Callable and non-callable U.S. agency debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy. Municipal Securities Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy. Sovereign Obligations Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or transactions of comparable size. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy. recently executed independent Residential Mortgage-Backed Securities • Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only (including inverse interest-only) securities. Agency residential mortgage- backed securities are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age. • Non-Agency Residential Mortgage-Backed Securities: The fair value of non-agency residential mortgage- backed securities is determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit F-32 61615 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities. Commercial Mortgage-Backed Securities • Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (‘‘GNMA’’) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures, as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (‘‘FNMA’’) Delegated Underwriting and Servicing (‘‘DUS’’) mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy. • Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs. Other Asset-Backed Securities limited to, securities backed by auto loans, credit card Other asset-backed securities include, but are not receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal. Loans and Other Receivables • Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure. • Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar F-33 29506 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing. • Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions. • Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy. • Escrow and Claim Receivables: Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable. Derivatives • Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy. • Over-the-Counter (‘‘OTC’’) Derivative Contracts: OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation inputs to the valuation are unobservable, derivative instruments are models. Where significant categorized within Level 3 of the fair value hierarchy. the valuation models do not OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding F-34 90543 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services. • Oil Futures Derivatives: Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value, which are classified as either Level 1 or Level 2 within the fair value hierarchy. Fair values classified as Level 1 are measured based on quoted closing exchange prices obtained from external pricing services and Level 2 are determined under the income valuation technique using an option- pricing model that is based on directly or indirectly observable inputs. Investments at Fair Value Investments at fair value include investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses, contingent claims analysis and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands). Fair Value (1) Unfunded Commitments November 30, 2019 Equity Long/Short Hedge Funds (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Funds (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Fund (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset Funds (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Funds (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2018 Equity Long/Short Hedge Funds (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Funds (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Fund (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset Funds (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Funds (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $291,593 44,576 16,025 234,583 157 $586,934 $ 86,788 40,070 10,129 256,972 400 $394,359 $ – 14,621 – – – $14,621 $ – 20,996 – – – $20,996 (1) Where fair value is calculated based on NAV, fair value has been derived from each of the funds’ capital statements. (2) This category includes investments in hedge funds that invest, long and short, primarily in equity securities in domestic and international markets in both the public and private sectors. At November 30, 2019 and F-35 40814 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued 2018, approximately 94% and 0%, respectively, of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption in the first 36 months after acquisition. At November 30, 2019 and 2018, 6% and 17%, respectively, of these investments are redeemable with 60 days prior written notice. Approximately 82% of the November 30, 2018 balance was redeemed during the twelve months ended November 30, 2019. (3) The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds, which are expected to liquidate in one to nine years. (4) This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice. (5) This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At November 30, 2019 and 2018, investments representing approximately 5% and 15%, respectively, of the fair value of investments in this category are redeemable with 30 days prior written notice. (6) This category includes investments in a fund that invests in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt and private equity investments and there are no redemption provisions. This category also includes investments in a fund of funds that invests in various private equity funds that are managed by Jefferies Group and have no redemption provisions. Investments in the fund of funds are gradually being liquidated, however, the timing of when the proceeds will be received is uncertain. Investments at fair value also include our investment in The We Company. We invested $9.0 million in The We Company in 2013 and currently own less than 1% of The We Company. Our interest in The We Company is reflected in Trading assets, at fair value of $53.8 million and $254.4 million at November 30, 2019 and 2018, respectively. Investment in FXCM FXCM is a provider of online foreign exchange trading services. Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2021 ($71.6 million principal outstanding at November 30, 2019), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Our investment in the FXCM term loan is reported within Trading assets, at fair value in in FXCM in the the Consolidated Statements of Financial Condition. We classify our equity investment Consolidated Statements of Financial Condition as Loans to and investments in associated companies, as we have the ability to significantly influence FXCM through our seats on the board of directors. We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy. Securities Purchased Under Agreements to Resell Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the embedded derivative and unobservable credit spreads. F-36 09330 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Securities Received as Collateral / Obligations to Return Securities Received as Collateral In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy. Short-term Borrowings and Long-term Debt Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate Jefferies Group’s own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy, where market trades have been observed during the quarter, otherwise they are categorized within Level 3. Nonrecurring Fair Value Measurements As described further in Note 11, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen Mining Company, LLC (‘‘Golden Queen’’). Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our carrying value. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the third quarter of 2018. As discussed further in Note 11, during the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which is based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. We engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our fourth quarter estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future FXCM cash flows and a discount rate of 18.5%. The estimated fair value of our equity investment in FXCM was $75.0 million, which was $62.1 million lower than our carrying value. As a result, an impairment charge of $62.1 million was recorded in Income (loss) related to associated companies in the fourth quarter of 2018. In the first quarter of 2017 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our first quarter estimate of fair value was based on a discounted cash flow and comparable public company analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future FXCM cash flows and a discount rate of approximately 15%. The comparable public company model used market data for comparable companies including a price to EBITDA multiple of 5.4 and a price to revenue multiple of 1.5. The estimated fair value of our equity investment in FXCM was $186.7 million, which was $130.2 million lower than the carrying value at the end of the first quarter 2017. As a result, an impairment charge of $130.2 million was recorded in Income (loss) related to associated companies in the first quarter of 2017. F-37 05312 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Level 3 Rollforwards The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended November 30, 2019 (in thousands): Twelve Months Ended November 30, 2019 Balance, November 30, 2018 Total gains (losses) (realized and unrealized) (1) Purchases Sales Settlements Issuances Net transfers into (out of) Level 3 Balance, November 30, 2019 Changes in unrealized gains (losses) included in earnings relating to instruments still held at November 30, 2019 (1) Assets: Trading assets: Corporate equity securities . Corporate debt securities . . . CDOs and CLOs . . . . . . . . . . Residential mortgage- backed securities . . . . . . . . Commercial mortgage- $ 52,192 9,484 36,105 $ (11,407) $ 69,065 $(28,159) $(18,208) $ (4,860) (514) 8,900 (13,854) 49,658 (38,147) (379) (12,494) 19,603 (1,669) 1,954 (2,472) (152) backed securities . . . . . . . . 10,886 (2,888) 206 (2,346) (5,317) Other asset-backed securities . . . . . . . . . . . . . . . Loans and other receivables Investments at fair value . . . Investment in FXCM . . . . . . Securities purchased under 53,175 46,985 396,254 73,150 433 (4,507) (183,480) (8,139) 104,097 (73,335) 106,965 (48,350) 11,236 (28,749) 1,500 – (51,374) (5,788) – (7,391) – – – – – – – – – $ (5,057) 8,199 (5,820) $ 58,426 7,490 28,788 $ (13,848) (6,176) (2,330) 476 17,740 (530) 5,569 6,110 (2,366) 9,567 18,775 10,151 – 42,563 114,080 205,412 59,120 (98) (2,321) (180,629) (8,139) agreements to resell . . . . . . . . . . – – – – – 25,000 – 25,000 – Liabilities: Trading liabilities: Corporate equity securities . Corporate debt securities . . . Commercial mortgage- backed securities . . . . . . . . Loans. . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . Long-term debt (1). . . . . . . . . . . $ – $ (2,649) $ (4,322)$ 11,458 $ 522 (381) (457) – – 6,376 21,614 200,745 35 (1,382) (21,452) (18,662) – – (2,573) 6,494 (4,323) 36,144 – – $ – (524) – – 2,227 – – – – – (11,250) 348,275 $ – 1,180 $ 4,487 340 $ 1,928 383 – 548 42,958 (39,039) 35 9,463 77,168 480,069 35 1,382 12,098 29,656 (1) Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument-specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at November 30, 2019 were losses of $11.0 million. (2) Net derivatives represent Trading assets – Derivatives and Trading liabilities – Derivatives. F-38 90863 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Analysis of Level 3 Assets and Liabilities for the twelve months ended November 30, 2019 During the twelve months ended November 30, 2019, transfers of assets of $68.6 million from Level 2 to Level 3 of the fair value hierarchy are attributed to: • Loans and other receivables of $27.4 million, other asset-backed securities of $12.1 million, investments at fair value of $10.2 million, corporate debt securities of $8.9 million, commercial mortgage-backed securities of $5.6 million and CDOs and CLOs of $3.0 million due to reduced pricing transparency. During the twelve months ended November 30, 2019, transfers of assets of $26.7 million from Level 3 to Level 2 are primarily attributed to: • CDOs and CLOs of $8.8 million, loans and other receivables of $8.6 million, corporate equity securities of $6.0 million and other asset-backed securities of $2.6 million due to greater pricing transparency supporting classification into Level 2. During the twelve months ended November 30, 2019, there were transfers of net derivatives of $57.2 million from Level 2 to Level 3 due to reduced observability of inputs and market data. Transfers of net derivatives from Level 3 to Level 2 were $14.3 million for the twelve months ended November 30, 2019 due to greater observability of inputs and market data. During the twelve months ended November 30, 2019, there were transfers of structured notes of $22.6 million from Level 2 to Level 3 due to reduced market transparency. Transfers of structured notes from Level 3 to Level 2 were $61.7 million for the twelve months ended November 30, 2019 due to greater market transparency. Net losses on Level 3 assets were $217.0 million and net gains on Level 3 liabilities were $44.5 million for the twelve months ended November 30, 2019. Net losses on Level 3 assets were primarily due to a decreased valuation of investments at fair value, corporate equity securities, loans and other receivables, corporate debt securities, commercial mortgage-backed securities, CDOs and CLOs and our FXCM term loan. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives and valuations of certain structured notes. F-39 23735 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the eleven months ended November 30, 2018 (in thousands): Eleven Months Ended November 30, 2018 Balance, December 31, 2017 Total gains (losses) (realized and unrealized) (1) Purchases Sales Settlements Issuances Net transfers into (out of) Level 3 Balance, November 30, 2018 Changes in unrealized gains (losses) included in earnings relating to instruments still held at November 30, 2018 (1) Assets: Trading assets: Corporate equity securities . $ 22,270 26,036 Corporate debt securities . . . CDOs and CLOS . . . . . . . . . . 42,184 Residential mortgage- backed securities . . . . . . . . 26,077 $ 24,914 (439) (16,258) $ 31,669 $ (22,759) $ (3,977) $ – – – (23,364) 356,650 (353,330) (1,679) (10,247) 10,352 (6,970) 3,118 (12,816) (513) $ 75 (1,422) 17,106 $ 52,192 9,484 36,105 $23,665 (2,606) (9,495) 10,707 19,603 521 16,312 10,886 (4,000) (5) 1,733 (2,554) – 53,175 46,985 396,254 73,150 (5,283) (8,457) 76,042 7,723 – – – – – – Commercial mortgage- backed securities . . . . . . . . Other asset-backed securities. . . . . . . . . . . . . . . . Loans and other receivables Investments at fair value . . . Investment in FXCM . . . . . . Liabilities: Trading liabilities: Corporate equity securities . $ Corporate debt securities . . . Commercial mortgage- backed securities . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . Long-term debt (1) . . . . . . . . . . . 12,419 (2,186) 1,436 (471) (16,624) 61,129 47,304 329,944 72,800 (9,934) (5,137) 76,636 18,616 706,846 (677,220) 149,228 (130,832) (17,570) 9,798 – – – – (27,641) (15,311) – (18,266) $ – – – – (1,335) – 48 522 $ – – $ – – $ 105 3,486 6,746 – (105) 84 (3,237) (30,347) – (4,626) (17) – – 7,432 14,920 – $ – – $ (48) $ – – 522 $ – – – – – 84,860 – – 4,537 146,232 – 6,376 21,614 200,745 – (28) (646) 10,951 (1) Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument-specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at November 30, 2018 were gains of $19.4 million. (2) Net derivatives represent Trading assets – Derivatives and Trading liabilities – Derivatives. Analysis of Level 3 Assets and Liabilities for the eleven months ended November 30, 2018 During the eleven months ended November 30, 2018, transfers of assets of $57.8 million from Level 2 to Level 3 of the fair value hierarchy are attributed to: • Commercial mortgage-backed securities of $16.3 million, residential mortgage-backed securities of $15.3 million and CDOs and CLOs of $17.3 million due to reduced pricing transparency. F-40 21559 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued During the eleven months ended November 30, 2018, transfers of assets of $12.3 million from Level 3 to Level 2 are attributed to: • Residential mortgage-backed securities of $4.6 million, corporate debt securities of $3.6 million and corporate equity securities of $2.9 million due to greater pricing transparency supporting classification into Level 2. During the eleven months ended November 30, 2018, there were transfers of structured notes of $146.2 million from Level 2 to Level 3 due to reduced market transparency. Net gains on Level 3 assets were $79.2 million and net gains on Level 3 liabilities were $33.6 million for the eleven months ended November 30, 2018. Net gains on Level 3 assets were primarily due to increased valuations of investments at fair value and our FXCM term loan, and increased market values in corporate equity securities, partially offset by decreased valuations of CDOs and CLOs, other asset-backed securities, residential mortgage-backed securities and certain loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes. The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended December 31, 2017 (in thousands): Twelve Months Ended December 31, 2017 Balance, December 31, 2016 Total gains (losses) (realized and unrealized) (1) Purchases Sales Settlements Issuances Net transfers into (out of) Level 3 Balance, December 31, 2017 Changes in unrealized gains (losses) relating to instruments still held at December 31, 2017 (1) Assets: Trading assets: Corporate equity securities . $ 21,739 25,005 Corporate debt securities . . . 54,354 CDOs and CLOs . . . . . . . . . . Municipal securities . . . . . . . . 27,257 Residential mortgage- backed securities . . . . . . . . 38,772 896 $ $ $ 3,353 (3,723) (27,238) (1,547) 36,850 112,239 – (1,623)$ (34,077) (101,226) (25,710) 52 (1,968) (367) – $ – – – – $ (2,147) 3,949 4,422 – $ 22,270 26,036 42,184 – $ 2,606 (3,768) (20,262) – Commercial mortgage- backed securities . . . . . . . . Other asset-backed securities. . . . . . . . . . . . . . . . Loans and other receivables Investments at fair value . . . Investment in FXCM . . . . . . (10,817) 6,805 (26,193) (115) 20,580 (5,346) 3,275 (5,263) (1,018) 40,911 81,872 314,359 164,500 (17,705) 24,794 20,975 23,161 77,508 63,768 18,528 – (8,613) (53,095) (22,818) (25,799) (34,622) (1,100) (114,861) – – – – – – 17,625 26,077 (7,201) 191 12,419 (6,976) (5,173) (35,413) – – 61,129 47,304 329,944 72,800 (12,562) 17,451 22,999 1,070 Liabilities: Trading liabilities: Corporate equity securities . $ Corporate debt securities . . . Commercial mortgage- backed securities . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . Other secured financings . . . . . 313 523 – 378 3,441 418 – – $ $ 60 (1) (373) $ – 48 $ – – $ $ – – 105 196 (1,638) (418) – (385) – – – 2,485 – – – – 5,558 – – – 456 – F-41 – – – 812 (1,071) – $ 48 522 105 3,486 6,746 – $ – 1 (105) (2,639) (17,740) – 45422 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued (1) Realized and unrealized gains (losses) are reported in Principal transactions revenues in the Consolidated Statements of Operations. (2) Net derivatives represent Trading assets – Derivatives and Trading liabilities – Derivatives. Analysis of Level 3 Assets and Liabilities for the twelve months ended December 31, 2017 During the twelve months ended December 31, 2017, transfers of assets of $38.2 million from Level 2 to Level 3 of the fair value hierarchy are attributed to: • Residential mortgage-backed securities of $19.6 million and corporate debt securities of $8.3 million due to a lack of observable market transactions. During the twelve months ended December 31, 2017, transfers of assets of $54.9 million from Level 3 to Level 2 are attributed to: • Loans and other receivables of $40.9 million due to greater pricing transparency supporting classification into Level 2. Net gains on Level 3 assets were $5.9 million and net gains on Level 3 liabilities were $1.7 million for the twelve months ended December 31, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our investment in FXCM, investments at fair value and certain loans and other receivables, partially offset by decreased valuations of CDOs and CLOs, other asset-backed securities and residential mortgage-backed securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives. Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather, the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category. For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period. F-42 47181 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Financial Instruments Owned Fair Value (in thousands) Valuation Technique Significant Unobservable Input(s) Input/Range Weighted Average November 30, 2019 Corporate equity securities Non-exchange traded securities $ 29,017 Market approach Corporate debt securities $ 7,490 Scenario analysis Price Underlying stock price Estimated recovery percentage Volatility Credit spread Underlying stock price CDOs and CLOs $ 28,788 Discounted cash flows Constant prepayment rate Constant default rate Loss severity Discount rate/yield Estimated recovery percentage Scenario analysis $ 17,740 Discounted cash flows Cumulative loss rate Duration (years) Discount rate/yield $ 6,110 Discounted cash flows Cumulative loss rate Scenario analysis Duration (years) Discount rate/yield Estimated recovery percentage $ 42,563 Discounted cash flows Cumulative loss rate Duration (years) Discount rate/yield $1 to $140 $3 to $5 23% to 85% 44% 750 £0.4 20% 1% to 2% 25% to 37% 12% to 21% 3.25% to 36.5% 2% 6.3 years 3% 7.3% 0.2 years 85% 44% $55 $4 46% – – – – 2% 29% 15% 25% – – – – – – – 7% to 31% 16% 0.5 years to 3 years 1.5 years 7% to 15% 11% $112,574 Market approach Scenario analysis Discounted cash flows Term based on the pay off (years) 0 months to 0.1 years 0.1 years Price Estimated recovery percentage $36 to $100 87% to 104% $90 99% Derivatives Interest rate swaps Unfunded commitments Equity options Investments at fair value Private equity securities $ 13,826 $157,504 Investment in FXCM $ 59,120 Market approach Basis points upfront Price Volatility benchmarking Volatility Market approach Scenario analysis Price Discount rate/yield Revenue growth 0 to 16 $88 45% $8 to $250 19% to 21% 0% 6 – – $80 20% – Discounted cash flows Term based on the pay off (years) 0 months to 1.2 years 1.2 years $ 25,000 Market approach Spread to 6 month LIBOR Duration (years) 500 1.5 years Residential mortgage- backed securities Commercial mortgage- backed securities Other asset-backed securities Loans and other receivables Term loan Securities purchased under agreements to resell Trading Liabilities Corporate equity securities Loans Derivatives Equity options Interest rate swaps Cross currency swaps Unfunded commitments $ $ 4,487 Market approach 9,463 Market approach Scenario analysis Transaction level Price Estimated recovery percentage $ 92,057 Volatility benchmarking Volatility Market approach Basis points upfront Basis points upfront Price – – – $88 – 43% 13 – – $96 €91 $1 $50 to $100 1% 21% to 61% 0 to 22 2 $88 $84 to $108 €74 to €103 Long-term debt Structured notes $480,069 Market approach Price Price F-43 84035 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Financial Instruments Owned Fair Value (in thousands) Valuation Technique Significant Unobservable Input(s) Input/Range Weighted Average November 30, 2018 Corporate equity securities Non-exchange traded securities $ 43,644 Market approach Corporate debt securities $ 9,484 Market approach CDOs and CLOs $ 36,105 Discounted cash flows Residential mortgage- backed securities $ 19,603 Discounted cash flows Scenario analysis Commercial mortgage- backed securities $ 9,444 Discounted cash flows Market approach Scenario analysis Other asset-backed securities $ 53,175 Discounted cash flows Market approach Price Transaction level Estimated recovery percentage Transaction level Constant prepayment rate Constant default rate Loss severity Discount rate/yield Estimated recovery percentage Cumulative loss rate Duration (years) Discount rate/yield Loss severity Price Cumulative loss rate Duration (years) Discount rate/yield Loss severity Estimated recovery percentage Price Cumulative loss rate Duration (years) Discount rate/yield Price $1 to $75 $47 46% $80 10% to 20% 1% to 2% 25% to 30% 11% to 16% 2% to 41% 4% 13 years 3% 0% $100 8% to 85% 1 year to 3 years 2% to 15% 64% 26% $49 12% to 30% 1 year to 2 years 6% to 12% $100 Loans and other receivables $ 46,078 Market approach Scenario analysis Price Estimated recovery percentage $50 to $100 13% to 117% Derivatives Total return swaps Investments at fair value Private equity securities $ 4,602 $368,231 Investment in FXCM $ 73,150 Market approach Price Market approach Scenario analysis Price Transaction level Discount rate/yield Revenue growth Contingent claims analysis Volatility Duration (years) $97 $3 to $250 $169 20% 0% 25% to 35% 4 years $12 – – – 18% 2% 26% 14% 23% – – – – – 45% 1 year 6% – – – 22% 1 year 8% – $96 105% – $108 – – – 30% – Term loan Trading Liabilities Loans Derivatives Equity options Interest rate swaps Total return swaps Long-term debt Structured notes Discounted cash flows Term based on the pay off (years) 0 months to 0.3 years 0.3 years $ 6,376 Market approach $ 27,536 Price Option model/default rate Default probability Volatility benchmarking Market approach Market approach Volatility Price Price $200,745 Market approach Price Price F-44 $50 to $101 0% 39% to 62% $20 $97 $78 to $94 €68 to €110 $74 – 50% – – $86 €96 38729 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported NAV or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2019 and 2018, asset exclusions consisted of $79.9 million and $40.3 million, respectively, primarily comprised of investments at fair value, corporate equity securities, loans and other receivables and certain derivatives. At November 30, 2019 and 2018, liability exclusions consisted of $0.4 million and $0.5 million, respectively, primarily comprised of corporate debt securities and commercial mortgage-backed securities. Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below: in a significantly higher • Corporate equity securities, corporate debt securities, loans and other receivables, certain derivatives, residential mortgage-backed securities, other asset-backed securities, private equity securities, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of a corporate equity securities, corporate debt securities and private equity securities would result fair value measurement. A significant increase (decrease) in the price of the private equity securities, non- exchange-traded securities, total return swaps, interest rate swaps, unfunded commitments, residential mortgage-backed securities, other asset-backed securities, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery rates of the cash flow outcomes underlying the corporate debt securities would result in a significantly higher (lower) fair value in isolation, of securities measurement. A significant increase (decrease) in the yield or duration, purchased under agreements to resell would result fair value measurement. Depending on whether we are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of cross currency and interest rate swaps. in a significantly lower (higher) (lower) • Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities, corporate debt and private equity securities using scenario analysis. A significant increase (decrease) in the possible in a recovery rates of the cash flow outcomes underlying the financial significantly higher (lower) fair value measurement for the financial instrument. A significant increase (decrease) in the price of the underlying assets of the financial instruments would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the in a significantly higher (lower) fair value measurement. A underlying stock price would result significant in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate/yield underlying the investment would result fair value measurement. A significant increase (decrease) in the revenue growth underlying the investment would result in a significantly higher (lower) fair value measurement. increase (decrease) in the credit spread of the financial in a significantly lower instrument would result instrument would result (higher) • CDOs and CLOs, residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities and loans and other receivables using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure F-45 39148 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement. • Derivative equity options using an option/default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement. • Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement. • Investments at fair value using contingent claims analysis. A significant increase (decrease) in volatility would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in duration would result in a significantly lower (higher) fair value measurement. • FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in term based on the time to pay off the loan would result in a lower (higher) fair value measurement. Fair Value Option Election We have elected the fair value option for all loans and loan commitments made by our investment banking and capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of our bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assets and loan commitments are included in Trading liabilities in the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in associated companies in the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes and securities purchased under agreements to resell, which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings, and Securities purchased under agreements to resell in the Consolidated Statements of Financial Condition, respectively. We have elected the fair value option for certain financial instruments held by our subsidiaries as the investments are risk managed on a fair value basis. The fair value option may be elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature. The following is a summary of our gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on long-term debt and short-term borrowings measured at fair value under the fair value option (in thousands): F-46 86002 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Trading Assets: Loans and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2,072) $ (3,856) $ 22,088 Trading Liabilities: Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656 (1,089) (46) (739) – 230 Long-term debt: Changes in instrument specific credit risk (1) . . . . . . . . . . . . . . . . . . . Other changes in fair value (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,332) (25,144) 38,064 48,748 (34,609) 47,291 Short-term borrowings: Changes in instrument specific credit risk (1) . . . . . . . . . . . . . . . . . . . Other changes in fair value (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 (863) – – – (681) (1) Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of taxes. (2) Other changes in fair value are included within Principal Statements of Operations. transactions revenues in the Consolidated The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables, long-term debt and short-term borrowings measured at fair value under the fair value option (in thousands): November 30, 2019 November 30, 2018 Trading Assets: Loans and other receivables (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,546,516 $961,554 197,215 74,408 158,392 114,669 (1) Interest income is recognized separately from other changes in fair value and is included in Interest income in the Consolidated Statements of Operations. (2) Amounts include loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $22.2 million and $20.5 million at November 30, 2019 and 2018, respectively. The aggregate fair value of our loans and other receivables on nonaccrual status and/or 90 days or greater past due, was $127.0 million and $105.3 million at November 30, 2019 and 2018, respectively, which includes loans and other receivables 90 days or greater past due of $24.8 million and $19.4 million at November 30, 2019 and 2018, respectively. We had elected the fair value option for our investment in KCG Holdings, Inc. (‘‘KCG’’). The change in the fair value of this investment was $93.4 million for the twelve months ended December 31, 2017. Our investment in KCG was sold in July 2017. As of December 31, 2017, we owned approximately 46.6 million common shares of HRG, representing approximately 23% of HRG’s outstanding common shares, which were accounted for under the fair value option. On July 13, 2018, HRG merged into its 62% owned subsidiary, Spectrum Brands. Our approximately 23% owned interest in HRG thereby converted into approximately 14% of the outstanding shares of the re-named F-47 79585 Notes to Consolidated Financial Statements, continued Note 5. Fair Value Disclosures, continued company, Spectrum Brands, which we account for under the fair value option. As of August 31, 2019, we owned 7,514,477 common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares. The shares were included in the Consolidated Statements of Financial Condition at fair value of $371.1 million at November 30, 2018. The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in Spectrum Brands/HRG aggregated $80.0 million, $(418.8) million and $64.8 million during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. In September 2019, our Board of Directors approved a distribution to stockholders of these Spectrum Brands shares. We distributed 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to stockholders of record as of the close of business on September 30, 2019. We recorded a $451.1 million dividend as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time. We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provide an objectively determined fair value at each balance sheet date. Our investment in HomeFed, which was a publicly traded company, was accounted for under the equity method of accounting rather than the fair value option method. HomeFed’s common stock was not listed on any stock exchange, and price information for the common stock was not regularly quoted on any automated quotation system. It was traded in the over-the-counter market with high and low bid prices published by the Over-the-Counter Bulletin Board Service; however, trading volume was minimal. For these reasons, we did not elect the fair value option for HomeFed. Financial Instruments Not Measured at Fair Value Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented in Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $35.0 million and $34.8 million at November 30, 2019 and 2018, respectively. See Note 25 for additional information related to financial instruments not measured at fair value. Note 6. Derivative Financial Instruments Derivative Financial Instruments Derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Trading assets and Trading liabilities, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Predominantly, we enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. In addition, we apply hedge accounting to an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt. See Notes 5 and 23 for additional disclosures about derivative financial instruments. Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives F-48 76416 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies. In connection with our derivative activities, we may enter into ISDA master netting agreements or similar agreements with counterparties. See Note 2 for additional information regarding the offsetting of derivative contracts. The following tables present the fair value and related number of derivative contracts at November 30, 2019 and 2018 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts): F-49 40540 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued Assets Liabilities Fair Value Number of Contracts (2) Fair Value Number of Contracts (2) November 30, 2019 (1) Derivatives designated as accounting hedges: Interest rate contracts: Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives designated as accounting hedges . . $ 28,663 28,663 1 $ – – – Derivatives not designated as accounting hedges: Interest rate contracts: Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange contracts: Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,191 213,224 421,700 – 191,218 65,226 3,329 1,325 256 9,257 103 284,433 258,857 – 187,836 38,464 3,443 738 199 9,187 Equity contracts: Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 717,494 248,720 1,714,538 4,731 962,535 445,241 1,481,388 4,271 Commodity contracts: Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit contracts: Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 20,600 2,514 6,281 5,524 4,084 13 25 Total derivatives not designated as accounting hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,822,942 Total gross derivative assets/liabilities: Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718,685 244,401 888,519 Amounts offset in Consolidated Statement of Financial Condition (3): Exchange-traded. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (688,871) (222,869) (521,457) 4,646 359 12 28 – 391 5,768 14,219 2,159,383 962,638 290,201 906,544 (688,871) (266,900) (676,407) Net amounts per Consolidated Statement of Financial Condition (4) . . . . . . . . . . . . . . . . . . . . . . $ 418,408 $ 527,205 F-50 15955 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued Assets Liabilities Fair Value Number of Contracts (2) Fair Value Number of Contracts (2) November 30, 2018 (1) Derivatives designated as accounting hedges: Interest rate contracts: Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives designated as accounting hedges . . $ – – – $ 29,647 29,647 1 Derivatives not designated as accounting hedges: Interest rate contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity contracts: 924 422,670 372,899 42 – 311,228 32,159 2,095 1,398 538 – 9,548 513 411,833 491,697 2 36 314,951 66,095 2,394 816 690 3 9,909 Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,202,927 207,221 2,104,684 5,126 2,061,137 315,996 1,779,836 2,764 4,185 1,498 14 79 Commodity contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit contracts: Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives not designated as accounting hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,632 10,191 11,204 13,768 2,580,706 Total gross derivative assets/liabilities: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,231,525 433,874 915,307 Amounts offset in Consolidated Statement of Financial Condition (3): Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,190,951) (407,351) (815,629) 7,272 1,274 7 123 272 1,445 1,556 11,618 3,611,056 2,061,924 443,072 1,135,707 (1,190,951) (418,779) (903,320) Net amounts per Consolidated Statement of Financial Condition (4) . . . . . . . . . . . . . . . . . . . . . . $ 166,775 $ 1,127,653 (1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty. (2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables and Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. (3) Amounts netted include both netting by counterparty and for cash collateral paid or received. F-51 36929 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued (4) We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition. The following table provides information related to gains (losses) recognized in Interest expense of Jefferies Group in the Consolidated Statements of Operations on a fair value hedge (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 56,385 (58,931) $ (2,546) $(25,539) 27,363 $ 1,824 $(2,091) 8,124 $ 6,033 The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands): Interest rate contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 $(188,605) (822) (108,961) (5,630) 9,147 Eleven Months Ended November 30, 2018 $ 67,291 226 (267,187) 21,785 449 Twelve Months Ended December 31, 2017 $ 3,171 4,376 (319,775) (9,049) 1,959 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(294,871) $(177,436) $(319,318) The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework. OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as reflected in the Consolidated Statement of Financial Condition at November 30, 2019 (in thousands): F-52 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued Commodity swaps, options and forwards . . . . . . . . . Equity forwards, swaps and options . . . . . . . . . . . . . . Credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total return swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency forwards, swaps and options . . . . Fixed income forwards . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps, options and forwards . . . . . . . . . 0-12 Months $ 16,634 44,065 49 58,845 46,651 986 33,147 69787 OTC Derivative Assets (1) (2) (3) Greater Cross- Maturity Than Netting (4) 5 Years 1-5 Years Total $ $ 3,966 2,302 1,059 34,546 11,123 – 163,818 $ – 7,442 15 – 62 – 142,277 (6,612) (62) (554) (4,855) (391) $ 20,209 47,197 1,061 92,837 52,981 986 324,210 – (15,032) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,377 $216,814 $149,796 $(27,506) 539,481 Cross product counterparty netting . . . . . . . . . . . . . . . Total OTC derivative assets included in Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,208) $507,273 (1) At November 30, 2019, we held exchange traded derivative assets, other derivatives assets and other credit agreements with a fair value of $37.2 million, which are not included in this table. (2) OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in the Consolidated Statements of Financial Condition. At November 30, 2019, cash collateral received was $126.1 million. (3) Derivative fair values include counterparty netting within product category. (4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. Commodity swaps, options and forwards . . . . . . . . . Equity forwards, swaps and options . . . . . . . . . . . . . . Credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total return swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency forwards, swaps and options . . . . Fixed income forwards . . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps, options and forwards . . . . . . . . . $ 0-12 Months 391 25,342 1,245 28,096 48,388 581 20,881 OTC Derivative Liabilities (1) (2) (3) Greater Than 5 Years Cross- Maturity Netting (4) 1-5 Years $ – 173,359 3,688 41,160 9,786 – 93,730 $ – 77,052 8,160 – 45 – 104,318 $ (391) $ (6,612) (62) (554) (4,855) – (15,032) Total – 269,141 13,031 68,702 53,364 581 203,897 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $124,924 $321,723 $189,575 $(27,506) 608,716 Cross product counterparty netting . . . . . . . . . . . . . . . Total OTC derivative liabilities included in Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . (32,208) $576,508 (1) At November 30, 2019, we held exchange traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $275.7 million, which are not included in this table. (2) OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At November 30, 2019, cash collateral pledged was $325.0 million. (3) Derivative fair values include counterparty netting within product category. F-53 44285 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued (4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. At November 30, 2019, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands): Counterparty credit quality (1): A- or higher. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BBB- to BBB+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BB+ or lower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127,355 31,536 193,338 155,044 $507,273 (1) We utilize internal credit ratings determined by the Jefferies Group Risk Management department. Credit ratings determined by Jefferies Group Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies. Credit Related Derivative Contracts The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions): External Credit Rating Investment Grade Non-investment Grade Unrated Total Notional November 30, 2019 Credit protection sold: Index credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Single name credit default swaps . . . . . . . . . . . . . . . . . . . . . $ 3.0 3.4 $ 32.0 29.0 $ – 1.5 $ 35.0 33.9 November 30, 2018 Credit protection sold: Index credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Single name credit default swaps . . . . . . . . . . . . . . . . . . . . . $25.7 57.7 $167.4 84.5 $ – 3.0 $193.1 145.2 Contingent Features to maintain an Certain of Jefferies Group’s derivative instruments contain provisions that require its debt investment grade credit rating from each of the major credit rating agencies. If Jefferies Group’s debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on the derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to its counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions): F-54 32502 Notes to Consolidated Financial Statements, continued Note 6. Derivative Financial Instruments, continued Derivative instrument liabilities with credit-risk-related contingent features . . . . . . . Collateral posted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collateral received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 $ 42.9 (3.1) 114.1 $ 93.5 (61.5) 91.5 154.0 123.3 (1) These potential outflows include initial margin received from counterparties at the execution of the derivative to terminate the contract after a contract. The initial margin will be returned if counterparties elect downgrade. Other Derivatives Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value. The gains and losses associated with the change in fair value of the derivatives are recorded in Other revenues. Note 7. Collateralized Transactions Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of dealer operations. We monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and request additional collateral or returns excess collateral, as appropriate. We pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned, at fair value and noted parenthetically as Securities pledged in the Consolidated Statements of Financial Condition. In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, the fair value of the collateral received and the related obligation to return the collateral is reported in the Consolidated Statements of Financial Condition. The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral by class of collateral pledged and remaining contractual maturity (in thousands): F-55 Notes to Consolidated Financial Statements, continued Note 7. Collateralized Transactions, continued Collateral Pledged November 30, 2019 Corporate equity securities. . . . . . . . . . . . . . . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed and asset-backed securities. . . . . . . U.S. government and federal agency securities . . . . . Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sovereign securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and other receivables . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2018 Corporate equity securities. . . . . . . . . . . . . . . . . . . . . . . . Corporate debt securities . . . . . . . . . . . . . . . . . . . . . . . . . Mortgage-backed and asset-backed securities. . . . . . . U.S. government and federal agency securities . . . . . Municipal securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sovereign securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and other receivables . . . . . . . . . . . . . . . . . . . . . . Securities Lending Arrangements Repurchase Agreements $1,314,395 191,311 – 19,434 – – – $1,525,140 $ 129,558 1,730,526 1,745,145 10,863,997 498,202 3,016,563 772,926 $18,756,917 $ $1,505,218 333,221 249 – – – – 487,124 1,853,309 2,820,543 8,181,947 604,274 2,945,521 300,768 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,838,688 $17,193,486 $ Obligation to Return Securities Received as Collateral $ $ $ – – – 9,500 – – – 9,500 – – – – – – – – 47110 Total $ 1,443,953 1,921,837 1,745,145 10,892,931 498,202 3,016,563 772,926 $20,291,557 $ 1,992,342 2,186,530 2,820,792 8,181,947 604,274 2,945,521 300,768 $19,032,174 Overnight and Continuous Up to 30 Days 31 to 90 Days Greater than 90 Days Total Contractual Maturity November 30, 2019 Securities lending arrangements. . . . . Repurchase agreements. . . . . . . . . . . . . Obligation to return securities received as collateral . . . . . . . . . . . . $ 694,821 6,614,026 $ – 1,556,260 $ 672,969 8,988,528 $ 157,350 1,598,103 $ 1,525,140 18,756,917 – – 9,500 – 9,500 Total . . . . . . . . . . . . . . . . . . . . . . . . . $7,308,847 $1,556,260 $9,670,997 $1,755,453 $20,291,557 November 30, 2018 Securities lending arrangements. . . . . Repurchase agreements. . . . . . . . . . . . . $ 807,347 7,849,052 $ – 1,915,325 $ 560,417 6,042,951 $ 470,924 1,386,158 $ 1,838,688 17,193,486 Total . . . . . . . . . . . . . . . . . . . . . . . . . $8,656,399 $1,915,325 $6,603,368 $1,857,082 $19,032,174 We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. We also receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities. In many instances, we are permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At November 30, 2019 and 2018, the approximate fair value of securities received as collateral by us that may be sold or repledged was $28.7 billion and $23.1 billion, respectively. At November 30, 2019 and 2018, a substantial portion of the securities received have been sold or repledged. F-56 00670 Notes to Consolidated Financial Statements, continued Note 7. Collateralized Transactions, continued Offsetting of Securities Financing Agreements To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). The following table provides information regarding repurchase agreements, securities borrowing and lending arrangements and securities received as collateral and obligation to return securities received as collateral that are recognized in the Consolidated Statements of Financial Condition and (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our consolidated financial position. Netting in Consolidated Statements of Financial Condition Net Amounts in Consolidated Statements of Financial Condition Additional Amounts Available for Setoff (1) Gross Amounts (In thousands) Available Collateral (2) Net Amount (3) Assets at November 30, 2019 Securities borrowing arrangements . . . . . . $ 7,624,642 $ Reverse repurchase agreements. . . . . . . . . . 15,551,845 (11,252,247) Securities received as collateral . . . . . . . . . 9,500 – – Liabilities at November 30, 2019 Securities lending arrangements . . . . . . . . . $ 1,525,140 $ Repurchase agreements . . . . . . . . . . . . . . . . . 18,756,917 (11,252,247) Obligation to return securities received – as collateral . . . . . . . . . . . . . . . . . . . . . . . . . 9,500 Assets at November 30, 2018 Securities borrowing arrangements . . . . . . $ 6,538,212 $ Reverse repurchase agreements. . . . . . . . . . 11,336,175 Liabilities at November 30, 2018 Securities lending arrangements . . . . . . . . . $ 1,838,688 $ Repurchase agreements . . . . . . . . . . . . . . . . . 17,193,486 – – (8,550,417) $7,624,642 4,299,598 9,500 $(361,394) $(1,479,433) $5,783,815 78,305 (3,929,977) (291,316) 9,500 – – $1,525,140 7,504,670 $(361,394) $ (970,799) $ 192,947 549,547 (6,663,807) (291,316) 9,500 – – 9,500 $6,538,212 2,785,758 $(468,778) $(1,193,986) $4,875,448 49,803 (2,126,730) (609,225) – (8,550,417) $1,838,688 8,643,069 $(468,778) $(1,343,704) $ (609,225) (7,070,967) 26,206 962,877 (1) Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s default, but which are not netted in the Consolidated Statements of Financial Condition because other netting provisions of GAAP are not met. (2) Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (3) At November 30, 2019, amounts include $5,683.4 million of securities borrowing arrangements, for which we have received securities collateral of $5,523.6 million, and $439.7 million of repurchase agreements, for to master netting which we have pledged securities collateral of $447.5 million, which are subject agreements, but we have not determined the agreements to be legally enforceable. At November 30, 2018, amounts include $4,825.7 million of securities borrowing arrangements, for which we have received F-57 91344 Notes to Consolidated Financial Statements, continued Note 7. Collateralized Transactions, continued securities collateral of $4,711.7 million, and $931.7 million of repurchase agreements, for which we have pledged securities collateral of $963.6 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable. Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations Cash and securities deposited with clearing and depository organizations and segregated in accordance with regulatory regulations totaled $796.8 million and $708.0 million at November 30, 2019 and 2018, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers. Note 8. Securitization Activities We engage in securitization activities related to corporate loans, mortgage loans, consumer loans and mortgage- backed and other asset-backed securities. In securitization transactions, we transfer these assets to special purpose entities (‘‘SPEs’’) and act as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of the securitization transactions are the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of variable interest entities (‘‘VIEs’’); however, the SPEs are generally not consolidated as we are not considered the primary beneficiary for these SPEs. We account for our securitization transactions as sales, provided we have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage-backed and other asset-backed securities or CLOs). These securities are included in Trading assets in the Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy. The following table presents activity related to our securitizations that were accounted for as sales in which we have continuing involvement (in millions): Transferred assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds on new securitizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows received on retained interests . . . . . . . . . . . . . . . . . . . . . . . . . $4,780.9 4,852.8 48.3 $7,159.3 7,165.3 48.5 $4,552.9 4,594.5 28.7 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 F-58 10987 Notes to Consolidated Financial Statements, continued Note 8. Securitization Activities, continued We have no explicit or implicit arrangements to provide additional financial support to these SPEs, have no liabilities related to these SPEs and have no outstanding derivative contracts executed in connection with these securitizations at November 30, 2019 and 2018. The following table summarizes our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions): Securitization Type November 30, 2019 Total Assets Retained Interests U.S. government agency residential mortgage-backed securities . . U.S. government agency commercial mortgage-backed securities . CLOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer and other loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,671.7 1,374.8 3,006.7 1,149.3 $103.3 45.8 58.4 71.8 November 30, 2018 Total Assets $13,633.5 2,027.6 3,512.0 604.1 Retained Interests $365.3 185.6 20.9 48.9 Total assets represent the unpaid principal amount of assets in the SPEs in which we have continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting our retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Our risk of loss is limited to this fair value amount which is included in total Trading assets in the Consolidated Statements of Financial Condition. Although not obligated, in connection with secondary market-making activities we may make a market in the securities issued by these SPEs. In these market-making transactions, we buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs. To the extent we purchased securities through these market-making activities and we are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 10. Foursight Capital also utilizes SPEs to securitize automobile loans receivable. These SPEs are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary’s general credit. See Note 10 for further information on securitization activities and VIEs. F-59 86573 Notes to Consolidated Financial Statements, continued Note 9. Available for Sale Securities and Other Investments The amortized cost, gross unrealized gains and losses and estimated fair value of investments classified as available for sale are as follows (in thousands): Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value November 30, 2018 Bonds and notes: U.S. government securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Residential mortgage-backed securities . . . . . . . . . . . . . . . . . . Commercial mortgage-backed securities . . . . . . . . . . . . . . . . . Other asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,073,038 211,209 16,068 111,447 Total Available for sale securities . . . . . . . . . . . . . . . . . . . . . $1,411,762 $ 1 376 – 1 $378 $ 183 1,067 426 578 $2,254 $1,072,856 210,518 15,642 110,870 $1,409,886 Proceeds from the maturities and sales of available for sale securities during the twelve months ended November 30, 2019, were primarily invested in prime and government money market funds, which are classified as Cash and cash equivalents in the Consolidated Statement of Financial Condition at November 30, 2019. At November 30, 2019 and 2018, the Company had other investments (classified as Other assets and Loans to and investments in associated companies) in which fair values are not readily determinable, aggregating $172.8 million and $230.0 million, respectively. Impairments of $5.5 million and $0.2 million were recognized on these investments during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. Realized gains of $13.8 million and $0.2 million were recognized on these investments during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively. There were no unrealized gains or losses recognized on these investments during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018. Note 10. Variable Interest Entities VIEs are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. Our variable interests in VIEs include debt and equity interests, equity interests in associated companies, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from the following activities, but also includes other activities discussed below: • Purchases of securities in connection with our trading and secondary market-making activities; • Retained interests held as a result of securitization activities, including the resecuritization of mortgage- backed and other asset-backed securities and the securitization of mortgage, corporate and consumer loans; • Acting as placement agent and/or underwriter in connection with client-sponsored securitizations; • Financing of agency and non-agency mortgage-backed and other asset-backed securities; • Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation agreements, forward sale agreements and revolving loan and note commitments; and F-60 86525 Notes to Consolidated Financial Statements, continued Note 10. Variable Interest Entities, continued • Loans to, investments in and fees from various investment vehicles. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires judgment. Our considerations in determining the VIE’s most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE’s purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE’s initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE’s significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the ‘‘power’’ criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the ‘‘power’’ criteria of the primary beneficiary. We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests. Consolidated VIEs The following table presents information about the assets and liabilities of our consolidated securitization vehicles VIEs, which are presented in the Consolidated Statements of Financial Condition in the respective asset and liability categories (in millions). The assets and liabilities in the table below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation. Securities purchased under agreements to resell (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured financings (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 $2,467.3 605.6 38.7 $ 3,111.6 $3,068.6 20.1 $3,088.7 $ 883.1 626.0 78.4 $1,587.5 $1,535.3 45.9 $1,581.2 (1) Securities purchased under agreements to resell represent an amount due under a collateralized transaction on related consolidated entities, which are eliminated in consolidation. (2) Approximately $1.0 million of the secured financing represent amounts held by us in inventory and are eliminated in consolidation at November 30, 2018. (3) Includes $17.7 million and $44.1 million at November 30, 2019 and 2018, respectively, of intercompany payables that are eliminated in consolidation. Securitization Vehicles. We are the primary beneficiary of asset-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage loans and asset-backed securities pursuant to the F-61 05354 Notes to Consolidated Financial Statements, continued Note 10. Variable Interest Entities, continued terms of a master repurchase agreement. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement, which we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders. At November 30, 2019 and 2018, Foursight Capital is the primary beneficiary of SPEs it utilized to securitize automobile loans receivable. Foursight Capital acts as the servicer for which it receives a fee, and owns an equity interest in the SPEs. The notes issued by the SPEs are secured solely by the assets of the SPEs and do not have recourse to Foursight Capital’s general credit and the assets of the VIEs are not available to satisfy any other debt. During the twelve months ended November 30, 2019, automobile loan receivables aggregating $227.4 million were securitized by Foursight Capital in connection with secured borrowing offerings. The majority of the proceeds from issuance of the secured borrowings were used to pay down Foursight Capital’s two credit facilities. Nonconsolidated VIEs The following tables present information about our variable interests in nonconsolidated VIEs (in millions): Financial Statement Carrying Amount Assets Liabilities Maximum Exposure to Loss VIE Assets November 30, 2019 CLOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer loan and other asset-backed vehicles . . . . . . . . . . . . . . Related party private equity vehicles . . . . . . . . . . . . . . . . . . . . . . . . Other investment vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 152.6 358.3 23.0 574.0 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,107.9 November 30, 2018 CLOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer loan and other asset-backed vehicles . . . . . . . . . . . . . . Related party private equity vehicles . . . . . . . . . . . . . . . . . . . . . . . . Other investment vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45.2 462.1 35.5 203.6 $ 746.4 $0.6 – – – $0.6 $ – – – – $ – $ 505.3 490.6 34.3 766.1 $ 7,845.0 2,354.8 71.4 9,255.0 $1,796.3 $19,526.2 $ 571.4 807.1 53.5 214.7 $1,646.7 $ 3,281.9 3,273.1 108.3 5,719.1 $12,382.4 Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of the variable interests in the VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with its variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE. Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. We underwrite securities issued in CLO transactions on behalf of sponsors and provide advisory services to the sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with CLOs where we have been involved in providing underwriting and/or advisory services consist of the following: • Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs; F-62 95803 Notes to Consolidated Financial Statements, continued Note 10. Variable Interest Entities, continued • Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests; • Trading positions in securities issued in a CLO transaction; and • Investments in variable funding notes issued by CLOs. Asset-Backed Vehicles. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities, forward purchase agreements and reverse purchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer loans, mortgage loans and trade claims. In addition, we may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. We do not control the activities of these entities. Related Party Private Equity Vehicles. We committed to invest in private equity funds (the ‘‘JCP Funds’’, including Jefferies Group’s interests in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, ‘‘JCP Fund V’’)) managed by Jefferies Capital Partners, LLC (the ‘‘JCP Manager’’). Additionally, we committed to invest in the general partners of the JCP Funds (the ‘‘JCP General Partners’’) and the JCP Manager. Our variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the ‘‘JCP Entities’’) consist of equity interests that, in total, provide us with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At November 30, 2019 and 2018, our total equity commitment in the JCP Entities was $133.0 million and $139.3 million, respectively, of which $121.7 million and $121.3 million, respectively, had been funded. The carrying value of our equity investments in the JCP Entities was $23.0 million and $35.5 million at November 30, 2019 and 2018, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments. Other Investment Vehicles. The carrying amount of our equity investment was $574.0 million and $203.6 million at November 30, 2019 and 2018, respectively. Our unfunded equity commitment related to these investments totaled $192.1 million and $11.1 million at November 30, 2019 and 2018, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets. Mortgage-Backed and Other Asset-Backed Secured Funding Vehicles. In connection with our secondary trading and market-making activities, we buy and sell agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Trading assets in the Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities. We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA (‘‘Fannie Mae’’), Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’) or GNMA (‘‘Ginnie Mae’’)) or non-agency-sponsored SPEs and may purchase loans or mortgage-backed securities from third parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. We do not consolidate agency- sponsored securitizations as we do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, we are not the servicer of non-agency-sponsored securitizations and therefore do not have power to direct the most significant activities of the SPEs and accordingly, do not F-63 07588 Notes to Consolidated Financial Statements, continued Note 10. Variable Interest Entities, continued consolidate these entities. We may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs. At November 30, 2019 and 2018, we held $1,453.5 million and $2,913.0 million of agency mortgage-backed securities, respectively, and $134.8 million and $170.5 million of non-agency mortgage-backed and other asset- respectively, as a result of our secondary trading and market-making activities, and backed securities, underwriting, placement and structuring activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. These mortgage-backed and other asset-backed secured funding vehicles discussed are not included in the above table containing information about our variable interests in nonconsolidated VIEs. FXCM is considered a VIE and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, we do not consolidate FXCM and we account for our equity interest under the equity method as an investment in an associated company. Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($59.1 million) and the investment in associated company ($70.2 million), which totaled $129.3 million at November 30, 2019. Note 11. Loans to and Investments in Associated Companies A summary of Loans to and investments in associated companies for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 accounted for under the equity method of accounting is as follows (in thousands): Loans to and investments in associated companies as of November 30, 2018 $ 728,560 245,228 653,630 75,031 165,157 337,542 87,074 63,956 61,154 $2,417,332 Income (losses) related to associated companies $ – – 232,042 (8,212) (27,956) 7,902 (353) 6,740 (7,168) $202,995 Income (losses) related to Jefferies Group associated companies (1) $ (1,286) 88,174 – – – – – – (1,719) $85,169 Contributions to (distributions from) associated companies, net $ (53,407) (65,045) (300,248) 3,500 66,996 – (29,685) 7,500 58,432 $(311,957) Other, including foreign exchange and unrealized gains (losses) $ – 592 (585,424) (96) (9,350) (345,444) Loans to and investments in associated companies as of November 30, 2019 $ 673,867 268,949 – 70,223 194,847 – 198,273 – 867 $(740,582) 255,309 78,196 111,566 $1,652,957 Jefferies Finance . . . . . . . Berkadia (2) . . . . . . . . . . . National Beef (3). . . . . . . FXCM (4) . . . . . . . . . . . . . Linkem (5) . . . . . . . . . . . . HomeFed (6). . . . . . . . . . . Real estate associated companies (6). . . . . . . . Golden Queen (5) (7) . . Other . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . F-64 50845 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued Loans to and investments in associated companies as of December 31, 2017 $ 655,467 210,594 – 158,856 179,143 192,136 341,874 123,010 105,005 100,744 Income (losses) related to associated companies $ – 80,092 110,049 (83,174) 21,646 (20,534) (4,332) 11,288 (51,990) (6,022) Income (losses) related to Jefferies Group associated companies (1) $59,138 20,001 – – – – – – – (5,477) Contributions to (distributions from) associated companies, net $ 13,955 (65,197) (48,656) – (26,962) 542 – (47,224) 10,941 (18,275) Other, including foreign exchange and unrealized gains (losses) $ – (262) 592,237 (651) (173,827) (6,987) – Loans to and investments in associated companies as of November 30, 2018 $ 728,560 245,228 653,630 75,031 – 165,157 337,542 – – (9,816) 87,074 63,956 61,154 Jefferies Finance. . . . . . . . . . . Berkadia (2). . . . . . . . . . . . . . . National Beef (3) . . . . . . . . . . FXCM (4) . . . . . . . . . . . . . . . . Garcadia Companies (8). . . . Linkem . . . . . . . . . . . . . . . . . . . HomeFed . . . . . . . . . . . . . . . . . Real estate associated companies . . . . . . . . . . . . . . Golden Queen (7) . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . $2,066,829 $ 57,023 $73,662 $(180,876) $ 400,694 $2,417,332 Loans to and investments in associated companies as of December 31, 2016 $ 490,464 154,731 184,443 336,258 185,815 154,000 302,231 161,400 111,302 44,454 $2,125,098 Income (losses) related to associated companies Income (losses) related to Jefferies Group associated companies (1) $ – – 93,801 (177,644) 48,198 (32,561) 7,725 (6,224) (7,733) (463) $ (74,901) $ 90,204 22,368 – – – – – – – (3,177) $109,395 Contributions to (distributions from) associated companies, net $ 74,799 (3,994) (67,384) – (54,870) 31,996 31,918 Other, including foreign exchange and unrealized gains (losses) $ – (173,105) (266) 242 – 38,701 – Loans to and investments in associated companies as of December 31, 2017 $ 655,467 – 210,594 158,856 179,143 192,136 341,874 35,204 1,436 31,837 $ 80,942 (67,370) – 28,093 $(173,705) 123,010 105,005 100,744 $2,066,829 Jefferies Finance . . . . . . . . . . Jefferies LoanCore (9). . . . . Berkadia . . . . . . . . . . . . . . . . . FXCM (4). . . . . . . . . . . . . . . . Garcadia Companies . . . . . . Linkem. . . . . . . . . . . . . . . . . . . HomeFed. . . . . . . . . . . . . . . . . Real estate associated companies (10) (11) . . . . Golden Queen (7). . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . (1) Primarily classified in Other revenues. (2) In the fourth quarter of 2018, we transferred our interest in Berkadia to Jefferies Group. (3) As discussed more fully in Notes 1 and 27, in June 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. The carrying value of our retained 31% interest was adjusted to a fair value of $592.3 million on the date of sale. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders. (4) As further described in Note 5, our investment in FXCM includes both our equity method investment in FXCM and our term loan with FXCM. Our equity method investment is included as Loans to and investments in associated companies and our term loan is included as Trading assets, at fair value in the Consolidated Statements of Financial Condition. F-65 99955 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued (5) Loans to and investments in associated companies at November 30, 2019 include loans and debt securities aggregating $70.2 million related to Linkem and Golden Queen. (6) As further described in Note 1, during the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. From July 1, 2019, HomeFed’s equity method investments are included in Real estate associated companies. (7) At November 30, 2019 and 2018, and December 31, 2017, the balance reflects $15.7 million, $15.1 million and $30.5 million, respectively, related to a noncontrolling interest. (8) As more fully discussed in Note 1, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family. (9) On October 31, 2017, Jefferies Group sold all of its membership interests in Jefferies LoanCore for approximately $173.1 million. (10) On November 30, 2017, we sold our interest in the general partner of the 54 Madison fund and as a result no longer control the 54 Madison investment committee. We retained two of the four seats on the investment committee and continue to have significant influence over the fund. We therefore deconsolidated the 54 Madison fund and account for our interest under the equity method of accounting. (11) At December 31, 2016, the balance reflects $95.3 million related to noncontrolling interests. Jefferies Finance Through Jefferies Group, we own 50% of Jefferies Finance, our joint venture with Massachusetts Mutual Life Insurance Company (‘‘MassMutual’’). Jefferies Finance is a commercial finance company that structures, underwrites and syndicates primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies Group. Jefferies Finance may also originate other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Jefferies Finance also purchases syndicated loans in the secondary market and acts as an investment adviser for various loan funds. At November 30, 2019, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At November 30, 2019, approximately $643.7 million of Jefferies Group’s commitment was funded. The investment commitment is scheduled to expire on March 1, 2020 with automatic one year extensions absent a 60-day termination notice by either party. Jefferies Finance has executed a Secured Revolving Credit Facility with Jefferies Group and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at November 30, 2019 and 2018. Advances are shared equally between Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 2020 with automatic one year extensions absent a 60-day termination notice by either party. At November 30, 2019 and 2018, none of Jefferies Group’s $250.0 million commitment was funded. Jefferies Group recognized interest income and unfunded commitment fees related to the facility of $1.3 million, $2.4 million and $3.9 million during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Jefferies Group engages in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, we earned fees of $176.3 million, $377.7 million and $327.9 million during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, we paid fees to F-66 66238 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued Jefferies Finance in respect of certain loans originated by Jefferies Finance of $27.6 million, $56.6 million and $2.4 million during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively, which are recognized within Selling, general and other expenses in the Consolidated Statements of Operations. Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which we recognized fees of $6.0 million, $3.7 million and $6.1 million during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively, which are included in Investment banking revenues in the Consolidated Statements of Operations. At November 30, 2019 and 2018, we held securities issued by CLOs managed by Jefferies Finance, which are included in Trading assets. Additionally, we have entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by CLOs. Gains (losses) related to the derivative contracts were not material. Jefferies Group acted as underwriter in connection with terms loans issued by Jefferies Finance. Underwriting fees charged to Jefferies Finance were not material during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. Under a service agreement, we charged Jefferies Finance $60.8 million, $61.7 million and $50.7 million for services provided during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. At November 30, 2019, we had a receivable from Jefferies Finance, included within Other assets in the Consolidated Statement of Financial Condition of $17.2 million and a payable to Jefferies Finance, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $31.3 million. At November 30, 2018, we had a receivable from Jefferies Finance, included within Other assets in the Consolidated Statement of Financial Condition of $35.2 million and a payable to Jefferies Finance, related to cash deposited with us, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $14.1 million. Jefferies Group enters into OTC foreign exchange contracts with Jefferies Finance. In connection with these contracts we had $4.7 million recorded in Payables, expense accruals and other liabilities and $0.2 million recorded in Trading liabilities in the Consolidated Statement of Financial Condition at November 30, 2019 and $0.2 million recorded in Payables, expense accruals and other liabilities and $0.4 million recorded in Trading liabilities in the Consolidated Statement of Financial Condition at November 30, 2018. On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with our investment banking loan syndication activities. Jefferies Group repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense of Jefferies Group within the Consolidated Statements of Operations. During the twelve months ended November 30, 2019, we purchased a third-party loan from Jefferies Finance in the amount of $65.3 million. Such amount is included in Trading assets in the Consolidated Statement of Financial Condition at November 30, 2019. Jefferies LoanCore Jefferies LoanCore, LLC (‘‘Jefferies LoanCore’’), a commercial real estate finance company and a joint venture with the Government of Singapore Investment Corporation, the Canada Pension Plan Investment Board and LoanCore, LLC, originates and purchases commercial real estate loans throughout the U.S. and Europe. On F-67 75031 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued October 31, 2017, we sold all of our membership interests (which constituted a 48.5% voting interest) in Jefferies LoanCore for approximately $173.1 million, the estimated book value as of October 31, 2017. In addition, we may be entitled to additional cash consideration over the next three years in the event Jefferies LoanCore’s yearly return on equity exceeds certain thresholds. Berkadia Berkadia is a commercial mortgage banking and servicing joint venture that was formed in 2009 with Berkshire Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% membership interest in Berkadia. We are entitled to receive 45% of the profits. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and originates and brokers commercial/multifamily mortgage loans which are not part of government agency programs. Berkadia is an investment sales adviser focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any losses incurred thereunder. As of November 30, 2019, the aggregate amount of commercial paper outstanding was $1.47 billion. National Beef National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer- ready beef and pork, and wet blue leather for domestic and international markets. As discussed in Notes 1 and 27, on June 5, 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. As required as a result of the deconsolidation of National Beef, we adjusted the carrying value of our retained 31% interest in National Beef to fair value. The fair value of our retained 31% interest in National Beef of $592.3 million was based on the implied equity value of 100% of National Beef from the transaction with Marfrig. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation for 100% of National Beef. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders. We received a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. As of November 30, 2019, we no longer hold an equity interest in National Beef. FXCM As discussed more fully in Note 5, at November 30, 2019, Jefferies has a 50% voting interest in FXCM and a senior secured term loan to FXCM due February 15, 2021. On September 1, 2016, we gained the ability to F-68 81019 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued significantly influence FXCM through our seats on the board of directors. As a result, we classify our equity investment in FXCM in the Consolidated Statements of Financial Condition as Loans to and investments in associated companies. Our term loan remains classified within Trading assets, at fair value. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology, trade name, leases and long- term debt over their respective useful lives (weighted average life of 11 years). During February 2017, Global Brokerage Holdings and FXCM’s U.S. subsidiary, Forex Capital Markets LLC (‘‘FXCM U.S.’’) settled complaints filed by the National Futures Association and the Commodity Futures Trading Commission (‘‘CFTC’’) against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. As part of the settlements, FXCM U.S. withdrew from business and sold FXCM U.S.’s customer accounts. Based on the above actions, we evaluated in the first quarter of 2017 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow and comparable public company analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $130.2 million. We concluded based on the regulatory actions, FXCM’s restructuring plan, investor perception and declines in the trading price of Global Brokerage’s common shares and convertible debt, that the decline in fair value of our equity interest was other than temporary. As such, we impaired our equity investment in FXCM in the first quarter of 2017 by $130.2 million, which was recorded in Income (loss) related to associated companies. During the fourth quarter of 2018, we recorded an additional impairment charge of $62.1 million related to the equity component of our investment in FXCM, which is based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million, which was recorded in Income (loss) related to associated companies. FXCM is considered a VIE and our term loan and equity interest are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, we do not consolidate FXCM. Garcadia Garcadia was a joint venture between us and Garff Enterprises, Inc. (‘‘Garff’’) that owned and operated automobile dealerships comprised of domestic and foreign automobile makers. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue. Linkem We own approximately 42% of the common shares of Linkem, the largest fixed wireless broadband services provider in Italy. In addition, we own convertible preferred stock, which is automatically convertible to common F-69 71193 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued shares in 2022. If all of our convertible preferred stock was converted, it would increase our ownership to approximately 54% of Linkem’s common equity at November 30, 2019. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $58.1 million at November 30, 2019. These shareholder loans bear interest at 5% per annum and are due June 30, 2024. We account for our equity interest in Linkem on a two month lag. HomeFed Through June 30, 2019, we owned an approximate 70% equity interest in HomeFed’s outstanding common shares; however, we had contractually agreed to limit our voting rights such that we would not be able to vote more than 45% of HomeFed’s total voting securities voting on any matter, assuming all HomeFed shares not owned by us are voted. HomeFed develops and owns residential and mixed-use real estate properties. HomeFed was a public company traded on the Over-the-Counter Bulletin Board (Symbol: HOFD). As a result of a 1998 distribution to all of our shareholders, approximately 5% of HomeFed was beneficially owned by our Chairman at June 30, 2019. Three of our executives served on the board of directors of HomeFed, including our Chairman who served as HomeFed’s Chairman, and our President. Since we did not control HomeFed, our investment in HomeFed was accounted for under the equity method as an investment in an associated company. We accounted for our equity interest in HomeFed on a two month lag. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued. Real Estate Associated Companies Real estate equity method investments primarily consist of HomeFed’s interests in Brooklyn Renaissance Plaza and Hotel and RedSky JZ Fulton Investors, and 54 Madison. These equity interests are accounted for on a two month lag. Brooklyn Renaissance Plaza is comprised of a hotel operated by Marriott, an office building complex and a parking garage located in Brooklyn, New York. HomeFed owns a 25.8% equity interest in the hotel and a 61.25% equity interest in the office building and garage. Although HomeFed has a majority interest in the office building and garage, it does not have control, but only has the ability to exercise significant influence on this investment. As such, HomeFed accounts for the office building and garage under the equity method of accounting. We are amortizing our basis difference between the estimated fair value and the underlying book value of Brooklyn Renaissance Plaza over the respective useful lives (weighted average life of 38 years). HomeFed has a 49% membership interest in a joint venture partnership with RedSky JZ Fulton Holdings, LLC, formed for the acquisition and possible redevelopment of a development site located on the Fulton Mall corridor in Downtown Brooklyn, New York. The property consists of 15 separate tax lots, divided into two premier development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. We own approximately 48.1% of 54 Madison, a fund that seeks long-term capital appreciation through investment in real estate development and similar projects. Prior to November 30, 2017, we consolidated 54 Madison as a result of our control of the 54 Madison investment committee. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Based on total committed capital of the 54 Madison fund, all projects of this fund have already been F-70 99793 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued identified and launched. On November 30, 2017, we sold our interest in the general partner of the 54 Madison fund and as a result no longer control the 54 Madison investment committee. We retained two of the four seats on the 54 Madison investment committee and continue to have significant influence over the fund, including a number of protective rights such as the right to block material investments, divestitures and changes outside of agreed upon parameters. We therefore deconsolidated the 54 Madison fund on November 30, 2017 and account for our interest under the equity method of accounting. Golden Queen Mining Company Since 2014, we invested $93.0 million, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project. Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully- permitted, open pit, heap leach gold and silver project located in Kern County, California, which commenced gold and silver production in March 2016. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family’s net contributions totaling $127.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. Golden Queen Mining Co. Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest. We account for our interest in Golden Queen on a two month lag. As a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC’s net investment of $127.5 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family. In the third quarter of 2018, Golden Queen completed an updated mine plan and financial projections reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in Golden Queen was lower than our prior carrying value by $47.9 million. We concluded based on lower projected cash flows and a decline in the market price of gold that the decline in fair value of our equity interest was other than temporary. As such, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the eleven months ended November 30, 2018. Other The following table provides summarized data for our equity method investments as of November 30, 2019 and 2018 and for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (in thousands): Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,699,672 10,146,142 209,518 $17,050,564 11,752,273 154,963 November 30, 2019 November 30, 2018 F-71 27930 Notes to Consolidated Financial Statements, continued Note 11. Loans to and Investments in Associated Companies, continued Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before extraordinary items . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company’s income related to associated companies. . . . . . . . . . . Twelve Months Ended November 30, 2019 $10,589,489 732,575 749,649 248,693 Eleven Months Ended November 30, 2018 $7,694,612 852,649 798,615 130,685 Twelve Months Ended December 31, 2017 $4,883,063 503,489 438,881 34,494 Except for our investment in Berkadia and Jefferies Finance, we have not provided any guarantees, nor are we contingently liable for any of the liabilities reflected in the above table. All such liabilities are non-recourse to us. Our exposure to adverse events at the investee companies is limited to the book value of our investment. See Note 23 for further discussion of these guarantees. Included in consolidated retained earnings at November 30, 2019 is approximately $180.8 million of undistributed earnings of the associated companies accounted for under the equity method of accounting. Note 12. Intangible Assets, Net and Goodwill A summary of intangible assets, net and goodwill is as follows (in thousands): November 30, 2019 November 30, 2018 Indefinite lived intangibles: Exchange and clearing organization membership interests and registrations. . . . . $ 8,273 $ 8,524 Amortizable intangibles: Customer and other relationships, net of accumulated amortization of $111,060 and $102,579 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trademarks and tradename, net of accumulated amortization of $24,800 and $21,086 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net of accumulated amortization of $5,366 and $4,339 (1) . . . . . . . . . . . . . Total intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59,575 67,894 103,790 11,316 182,954 107,262 4,611 188,291 Goodwill: Jefferies Group (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,699,810 36,711 3,459 1,698,381 – 3,459 Total goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total intangible assets, net and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,739,980 $1,922,934 1,701,840 $1,890,131 (1) In connection with the acquisition of the remaining interest in HomeFed, $11.0 million was allocated to intangible assets, primarily relating to lease contracts, and $4.3 million was allocated to goodwill. In addition, associated with the acquisition, we also recorded $32.4 million of goodwill generated by the establishment of $32.4 million of deferred tax liabilities related to allocated value exceeding the tax basis of some of the HomeFed net assets. (2) The increase in Jefferies Group goodwill during the twelve months ended November 30, 2019, primarily relates to translation adjustments. F-72 30499 Notes to Consolidated Financial Statements, continued Note 12. Intangible Assets, Net and Goodwill, continued Amortization expense on intangible assets included in Income (loss) from continuing operations was $14.6 million, $13.2 million and $12.9 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands): 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,982 14,509 11,215 9,959 8,703 Goodwill Impairment Testing The quantitative goodwill impairment test is performed at our reporting unit level and consists of two steps. In the first step, the fair value of the reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill. The estimated fair values are based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include price-to-earnings and price-to- book multiples of comparable public companies. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. An independent valuation specialist was engaged to assist with the valuation process for Jefferies Group at August 1, 2019. The results of our annual impairment test for Jefferies Group did not indicate any goodwill impairment. Note 13. Short-Term Borrowings Our short-term borrowings, which mature in one year or less, are as follows (in thousands): Bank loans (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floating rate puttable notes (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity-linked notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $527,509 – 20,981 $548,490 $330,942 56,550 – $387,492 November 30, 2019 November 30, 2018 (1) These short-term borrowings are recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature. At November 30, 2019 and 2018, the weighted average interest rate on short-term borrowings outstanding was 3.24% and 3.08% per annum, respectively. F-73 04733 Notes to Consolidated Financial Statements, continued Note 13. Short-Term Borrowings, continued During 2019, Jefferies Group issued equity-linked notes with principal amounts of $5.2 million and $15.1 million, which will mature on March 13, 2020 and October 7, 2020, respectively. See Note 5, for further information on these notes. On July 29, 2019, Jefferies Group’s floating rate puttable notes with principal amounts of €50.0 million matured. On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance, which was repaid on May 15, 2019. See Note 11 for further information. On December 27, 2018, one of Jefferies Group’s subsidiaries entered into a credit facility agreement (‘‘Jefferies Group Credit Facility’’) with JPMorgan Chase Bank, N.A. for a committed amount of $135.0 million, which is included in bank loans. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (‘‘LIBOR’’), as defined in the Jefferies Group Credit Facility. The Jefferies Group Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower’s future indebtedness. At November 30, 2019, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Credit Facility. The Bank of New York Mellon has agreed to make revolving intraday credit advances (‘‘Intraday Credit Facility’’) to Jefferies Group for an aggregate committed amount of $150.0 million. The Intraday Credit facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group. At November 30, 2019, Jefferies Group was in compliance with debt covenants under the Intraday Credit Facility. F-74 05575 Notes to Consolidated Financial Statements, continued Note 14. Long-Term Debt The principal amount (net of unamortized discounts, premiums and debt issuance costs), stated interest rate and maturity date of outstanding debt are as follows (dollars in thousands): November 30, 2019 November 30, 2018 Parent Company Debt: Senior Notes: 5.50% Senior Notes due October 18, 2023, $750,000 principal . . . . . . . . . . . . . 6.625% Senior Notes due October 23, 2043, $250,000 principal . . . . . . . . . . . . $ 744,606 246,772 $ 743,397 246,719 Total long-term debt – Parent Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 991,378 990,116 Subsidiary Debt (non-recourse to Parent Company): Jefferies Group: 8.50% Senior Notes, due July 15, 2019, $0 and $680,800 principal. . . . . . . . . 2.375% Euro Medium Term Notes, due May 20, 2020, $550,875 and $565,500 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.875% Senior Notes, due April 15, 2021, $750,000 principal . . . . . . . . . . . . . . 2.25% Euro Medium Term Notes, due July 13, 2022, $4,407 and $4,524 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.125% Senior Notes, due January 20, 2023, $600,000 principal. . . . . . . . . . . . 1.00% Euro Medium Term Notes, due July 19, 2024, $550,875 and $0 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.85% Senior Notes, due January 15, 2027, $750,000 principal (1) . . . . . . . . . 6.45% Senior Debentures, due June 8, 2027, $350,000 principal. . . . . . . . . . . . 4.15% Senior Notes, due January 23, 2030, $1,000,000 principal . . . . . . . . . . . 6.25% Senior Debentures, due January 15, 2036, $500,000 principal. . . . . . . . 6.50% Senior Notes, due January 20, 2043, $400,000 principal. . . . . . . . . . . . . Structured Notes (2) (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jefferies Group Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jefferies Group Secured Bank Loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HomeFed EB-5 Program debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foursight Capital Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 550,622 774,738 4,204 610,023 548,880 768,931 371,426 988,662 511,260 420,239 1,215,285 189,088 50,000 140,739 98,260 103,326 699,659 564,702 791,814 4,243 612,928 – 709,484 373,669 987,788 511,662 420,625 686,170 183,539 – – – 81,164 Total long-term debt – subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,345,683 $8,337,061 6,627,447 $7,617,563 (1) Amounts include a loss of $58.9 million and a gain of $27.4 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively, associated with an interest rate swap based on its designation as a fair value hedge. See Notes 2 and 6 for further information. (2) These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. (3) Of the $1,215.3 million of structured notes at November 30, 2019, $28.0 million matures in 2022, $3.1 million matures in 2024 and the remaining $1,184.2 million matures in 2025 or thereafter. At November 30, 2019, $1,226.5 million of consolidated assets (primarily receivables and other assets) are pledged for indebtedness aggregating $581.1 million. F-75 57541 Notes to Consolidated Financial Statements, continued Note 14. Long-Term Debt, continued The aggregate annual mandatory redemptions of all November 30, 2024 are as follows (in millions): long-term debt during the five year period ending 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 551.2 1,088.7 32.4 1,454.0 696.4 Parent Company Debt Our senior note indentures contain covenants that restrict our ability to incur more Indebtedness or issue Preferred Stock of Subsidiaries unless, at the time of such incurrence or issuance, the Company meets a specified ratio of Consolidated Debt to Consolidated Tangible Net Worth, limit the ability of the Company and Material Subsidiaries to incur, in certain circumstances, Liens, limit the ability of Material Subsidiaries to incur Funded in certain circumstances, and contain other terms and restrictions all as defined in the senior note Debt indebtedness or make distributions to our indentures. We have the ability to incur substantial additional shareholders and still remain in compliance with these restrictions. If we are unable to meet the specified ratio, we would not be able to issue additional Indebtedness or Preferred Stock, but our inability to meet the applicable ratio would not result in a default under our senior note indentures. The senior note indentures do not restrict the payment of dividends. Subsidiary Debt Structured notes with a total principal amount of approximately $498.9 million, net of retirements were issued by Jefferies Group during the twelve months ended November 30, 2019. In addition, on July 19, 2019, under its $2.5 billion Euro Medium Term Note Program, Jefferies Group issued 1.000% senior unsecured notes with a principal amount of $553.6 million, due 2024. Proceeds amounted to $551.4 million. Additionally, during the twelve months ended November 30, 2019, Jefferies Group repaid $680.8 million of its 8.50% Senior Notes. Jefferies Group has a senior secured revolving credit facility (‘‘Jefferies Group Revolving Credit Facility’’) with a group of commercial banks for an aggregate principal amount of $190.0 million. The Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of Jefferies Group’s subsidiaries. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility agreement. The obligations of certain of Jefferies Group’s subsidiaries under the Jefferies Group Revolving Credit Facility are secured by substantially all its assets. At November 30, 2019, Jefferies Group was in compliance with the debt covenants under the Jefferies Group Revolving Credit Facility. On September 27, 2019, one of Jefferies Group’s subsidiaries entered into a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (‘‘Jefferies Group Secured Bank Loan’’). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2019, Jefferies Group was in compliance with all covenants under the Loan and Security Agreement. F-76 67725 Notes to Consolidated Financial Statements, continued Note 14. Long-Term Debt, continued At November 30, 2019, Foursight Capital’s credit facilities consisted of two warehouse credit commitments aggregating $175.0 million, which mature in May 2021. One of the credit facilities bears interest based on the three-month LIBOR plus a credit spread fixed through its maturity and the other credit facility bears interest based on the one-month LIBOR plus a credit spread fixed through its maturity. As a condition of the credit facilities, Foursight Capital is obligated to maintain cash reserves to comply with the hedging requirements of the credit commitment. The credit facilities are secured by first priority liens on auto loan receivables owed to Foursight Capital of approximately $111.8 million at November 30, 2019. At November 30, 2019 and 2018, $98.3 million and $0.0 million, respectively, was outstanding under Foursight Capital’s credit facilities. HomeFed funds certain of its real estate projects in part by raising funds under the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services pursuant to the Immigration and Nationality Act (‘‘EB-5 Program’’). This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. This debt is secured by certain real estate of HomeFed. At November 30, 2019, HomeFed was in compliance with all debt covenants which include, among other requirements, limitations on incurrence of debt, collateral requirements and restricted use of proceeds. Primarily all of HomeFed’s debt matures in 2024. Note 15. Mezzanine Equity Redeemable Noncontrolling Interests At December 31, 2017, the redeemable noncontrolling interests primarily relate to National Beef and were held by its minority owners, USPB, NBPCo Holdings and the chief executive officer of National Beef. The holders of these interests shared in the profits and losses of National Beef on a pro rata basis with us. As discussed in Notes 1 and 27, we deconsolidated National Beef as a result of the 48% sale to Marfrig on June 5, 2018. Immediately prior to the deconsolidation, the cumulative increase in fair value of $237.7 million recorded to the redeemable noncontrolling interest since the initial acquisition of National Beef was reversed through Additional paid-in capital in the Consolidated Statement of Financial Condition. The following table shows the activity of National Beef’s redeemable noncontrolling interests (prior to its deconsolidation in June 2018) during the eleven months ended November 30, 2018 (in thousands): Balance, January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income allocated to redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in fair value of redeemable noncontrolling interests charged to additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reversal of cumulative National Beef redeemable noncontrolling interests fair value adjustment prior to deconsolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deconsolidation of National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 412,128 37,141 (70,681) 21,404 (237,669) (162,323) Balance, November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – At November 30, 2019 and 2018, redeemable noncontrolling interests include other redeemable noncontrolling interests of $26.6 million and $19.8 million, respectively, primarily related to our oil and gas exploration and development businesses. F-77 66921 Notes to Consolidated Financial Statements, continued Note 15. Mezzanine Equity, continued Mandatorily Redeemable Convertible Preferred Shares In connection with our acquisition of Jefferies Group in March 2013, we issued a new series of 3.25% Cumulative Convertible Preferred Shares (‘‘Preferred Shares’’) ($125.0 million at mandatory redemption value) in exchange for Jefferies Group’s outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,440,863 common shares, an effective conversion price of $28.15 per share. The holders of the Preferred Shares are also entitled to an additional quarterly payment in the event we declare and pay a dividend on our common stock in an amount greater than $0.0625 per common share per quarter. The additional quarterly payment would be paid to the holders of Preferred Shares on an as converted basis and on a per share basis would equal the quarterly dividend declared and paid to a holder of a share of common stock in excess of $0.0625 per share. In the third quarter of 2017, we increased our quarterly dividend from $0.0625 to $0.10 per common share. In the third quarter of 2018, we increased our quarterly dividend from $0.10 to $0.125 per common share. These increased the preferred stock dividend from $4.4 million for the twelve months ended December 31, 2017 to $4.5 million for the eleven months ended November 30, 2018 to $5.1 million for the twelve months ended November 30, 2019. On January 9, 2020, our Board of Directors increased our quarterly dividend by 20% to $0.15 per share. Based on our current quarterly dividend of $0.15 per common share, the effective rate on these Preferred Shares is approximately 4.5%. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038. Note 16. Compensation Plans Incentive Plan Upon completion of our combination with Jefferies Group, we assumed its 2003 Incentive Compensation Plan, as Amended and Restated July 25, 2013 (the ‘‘Incentive Plan’’). The Incentive Plan allows awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, performance awards, restricted stock units (‘‘RSUs’’), dividend equivalents or other share-based awards. RSUs give a participant the right to receive fully vested shares at the end of a specified deferral period allowing a participant to hold an interest tied to common stock on a tax deferred basis. Prior to settlement, RSUs carry no voting or dividend rights associated with the stock ownership, but dividend equivalents are accrued to the extent there are dividends declared on the underlying common shares as cash amounts or as deemed reinvestments in additional RSUs. Restricted stock and RSUs may be granted to new employees as ‘‘sign-on’’ awards, to existing employees as ‘‘retention’’ awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting over a four-year service period and are amortized as compensation expense on a straight-line basis over the related four years. Restricted stock and RSUs are granted to certain senior executives with market, performance and service conditions. Market conditions are incorporated into the grant-date fair value of senior executive awards using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved. The Deferred Compensation Plan (the ‘‘DCP’’) has been implemented under the Incentive Plan. The DCP permits eligible executive officers and other employees to defer cash compensation, some or all of which may be deemed invested in stock units. A portion of the deferrals may also be directed to notional investments in a F-78 30971 Notes to Consolidated Financial Statements, continued Note 16. Compensation Plans, continued money market fund or certain of the employee investment opportunities. Stock units generally have been acquired at a discounted price, which encourages employee participation in the DCP and enhances long-term retention of equity interests by participants and aligns executive interests with those of shareholders. Amounts recognized as compensation cost under the DCP have not been significant. The shares to be delivered in connection with DCP stock units and options are drawn from the Incentive Plan. The Incentive Plan’s ‘‘evergreen’’ share reservation was terminated on March 21, 2014; the number of equity awards available under the Incentive Plan was set at 20,000,000. At November 30, 2019, 4,070,557 common shares remained available for new grants under the Incentive Plan. Shares issued pursuant to the DCP reduce the shares available under the Incentive Plan. The following table details the activity in restricted stock during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (in thousands, except per share amounts): Weighted- Average Grant Date Fair Value Restricted Stock Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362 391 – (611) 1,142 1,077 (30) (394) 1,795 518 – (305) 2,008 $22.09 $23.65 $ – $23.73 $21.75 $23.63 $16.49 $24.23 $22.42 $19.57 $ – $20.09 $22.04 The following table details the activity in RSUs during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (in thousands, except per share amounts): F-79 38889 Notes to Consolidated Financial Statements, continued Note 16. Compensation Plans, continued Weighted-Average Grant Date Fair Value Future Service Required No Future Service Required Future Service Required No Future Service Required Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of service requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of service requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement (1) . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 – – – (36) 32 – – (2) (28) 2 10 – – (2) 10 10,348 104 (175) – 36 10,313 161 (192) (1) 28 10,309 1,308 (166) – 4,216 15,667 $26.90 $ – $ – $ – $26.90 $26.90 $ – $ – $26.90 $26.90 $26.90 $18.83 $ – $ – $26.90 $18.83 $26.61 $21.55 $26.46 $ – $26.90 $26.57 $20.24 $26.39 $22.16 $26.90 $26.48 $18.15 $25.91 $ – $ 9.99 $21.35 (1) Fulfillment of vesting requirement during the twelve months ended November 30, 2019, includes 4,214 RSUs related to the senior executive compensation plans. During the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, grants include approximately 1,298,000 and 142,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $18.15 and $19.81, respectively. Senior Executive Compensation Plan The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives in respect of 2017 (the ‘‘2017 Plan’’) that is based on performance metrics achieved over a three-year period from 2017 through 2019. 100% of each of our CEO and President’s compensation beyond their base salaries is composed entirely of performance based RSUs that will vest if certain performance criteria are met. Any vested RSUs are subject to a post-vesting, three-year holding period such that no vested RSUs can be sold or transferred until the first quarter of 2023. Performance-vesting of the award is based equally on the compound annual growth rates of Jefferies Total Shareholder Return (‘‘TSR’’), which is measured from the December 30, 2016 stock price of $23.25, and Jefferies Return on Tangible Deployable Equity (‘‘ROTDE’’), the annual, two- and three-year results of which are used to determine vesting. TSR is based on annualized rate of return reflecting price appreciation plus reinvestment of dividends and distributions to shareholders. ROTDE is net income adjusted for amortization of intangible assets divided by book value at the beginning of year adjusted for intangible assets and deferred tax assets. If Jefferies TSR and ROTDE annual compound growth rates are less than 4%, our Senior Executives will not receive any incentive compensation. If Jefferies TSR and ROTDE grow between 4% and 8% on a compounded basis over the three-year measurement period, each of our Senior Executives will be eligible to receive between F-80 10672 Notes to Consolidated Financial Statements, continued Note 16. Compensation Plans, continued 537,634 and 1,075,268 RSUs related to the 2017 Plan. If TSR and ROTDE growth rates are greater than 8%, our Senior Executives are eligible to receive up to 50% additional incentive compensation on a pro rata basis up to 12% growth rates. When determining whether RSUs will vest, the calculation will be weighted equally between TSR and ROTDE. If TSR growth was below minimum thresholds, but ROTDE growth was above minimum thresholds, our Senior Executives would still be eligible to receive some number of vested RSUs based on ROTDE growth. The TSR award contains a market condition and compensation expense is recognized over the service period and will not be reversed if the market condition is not met. The ROTDE award contains a performance condition and compensation expense is recognized over the service period if it is determined that it is probable that the performance condition will be achieved. The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2018 (the ‘‘2018 Plan’’). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $25.0 million per year under the 2018 Plan with a target of to $16.0 million in long-term equity in the form of RSUs and a target of $9.0 million in cash, subject performance targets over the three-year measurement period for each compensation year. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies TSR and to receive targeted cash, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies ROTDE. If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR and ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 50% additional incentive compensation on a pro rata basis up to 12% growth rates. The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2019 (the ‘‘2019 Plan’’) and compensation year 2020 (the ‘‘2020 Plan’’). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $22.5 million per year under the 2019 Plan and 2020 Plan with a target of $16.0 million in long-term equity in the form of RSUs and a target of $6.5 million in cash for both plan years. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on a multi-year compounded basis in Jefferies TSR and to receive targeted cash, our Senior Executives will have to achieve 9% growth in annual Jefferies ROTDE. If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR growth incentive rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional compensation relative to our peer companies. If ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional incentive compensation on a pro rata basis up to 12% growth rates. F-81 97963 Notes to Consolidated Financial Statements, continued Note 16. Compensation Plans, continued The following table details the activity in RSUs related to the senior executive compensation plan during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (in thousands, except per share amounts): Target Number of Shares Weighted-Average Grant Date Fair Value Balance at January 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,434 2,221 – 5,655 3,813 – 9,468 1,237 – (4,214) 6,491 $ 9.68 $19.06 $ – $13.37 $26.16 $ – $18.52 $13.63 $ – $ 9.98 $23.13 During the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, grants include approximately 602,000 and 189,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $18.08 and $19.80, respectively. During the twelve months ended November 30, 2019, grants include approximately 635,000 RSUs issued as a result of superior performance pursuant to the 2016 compensation year award. Directors’ Plan Upon completion of our combination with Jefferies Group, we also assumed the 1999 Directors’ Stock Compensation Plan, as Amended and Restated July 25, 2013 (the ‘‘Directors’ Plan’’). Under the Directors’ Plan, we issued each nonemployee director of Jefferies $150,000 of restricted stock or RSUs during each of the twelve months ended November 30, 2019 and eleven months ended November 30, 2018 and $120,000 of restricted stock or RSUs during the twelve months ended December 31, 2017. These grants are made on the date directors are elected or reelected at our annual shareholders’ meeting. These shares vest over three years from the date of grant and are expensed over the requisite service period. At November 30, 2019, 181,652 common shares were issuable upon settlement of outstanding RSUs and 118,306 shares are available for future grants. Other Compensation Plans Other Stock-Based Plans. Historically, Jefferies Group also sponsored an Employee Stock Purchase Plan and an Employee Stock Ownership Plan, both of which were assumed by us in connection with the Jefferies Group acquisition. Amounts related to these plans have not been significant. Prior to the acquisition of Jefferies Group, we had a fixed stock option plan, which provided for the issuance of stock options and stock appreciation rights to non-employee directors and certain employees at not less than the fair market value of the underlying stock at the date of grant. In March 2014, we ceased issuing options and rights under our option plan. No shares remain outstanding or available for future grants under this plan. In connection with the HomeFed merger, each HomeFed stock option, was converted into two Jefferies stock option to purchase that number of shares of Jefferies common stock. F-82 48109 Notes to Consolidated Financial Statements, continued Note 16. Compensation Plans, continued At November 30, 2019 and 2018, 325,000 and 195,417, respectively, of our common shares were reserved for stock options. Restricted Cash Awards. Jefferies Group provides compensation to certain new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements. These awards are amortized to compensation expense over the relevant service period, which is generally considered to start at the beginning of the annual compensation year. At November 30, 2019, the remaining unamortized amount of the restricted cash awards was $444.3 million and is included within Other assets in the Consolidated Statement of Financial Condition; this cost is expected to be recognized over a weighted average period of three years. Stock-Based Compensation Expense Compensation and benefits expense included $49.8 million, $48.2 million and $48.4 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively, for share-based compensation expense relating to grants made under our share- based compensation plans. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $12.9 million, $12.2 million and $17.3 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. At November 30, 2019, total unrecognized compensation cost related to nonvested share-based compensation plans was $80.4 million; this cost is expected to be recognized over a weighted-average period of three years. At November 30, 2019, there were 2,008,000 shares of restricted stock outstanding with future service required, 6,463,000 RSUs outstanding with future service required (including target RSUs issuable under the senior executive compensation plans), 15,667,000 RSUs outstanding with no future service required and 992,000 shares issuable under other plans. Excluding shares issuable pursuant to outstanding stock options, the maximum potential increase to common shares outstanding resulting from these outstanding awards is 23,122,000. Note 17. Accumulated Other Comprehensive Income (Loss) Activity in accumulated other comprehensive income (loss) is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income (loss), net of taxes is as follows (in thousands): Net unrealized gains on available for sale securities . . . . . . . . . . . . . . . Net unrealized foreign exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized losses on instrument specific credit risk . . . . . . . . . . . . Net unrealized gains (losses) on cash flow hedges . . . . . . . . . . . . . . . . Net minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 December 31, 2017 $ 141 (192,709) (18,889) – (61,582) $(273,039) $ 542,832 (193,402) (5,728) 470 (55,886) $ 288,286 $ 572,085 (101,400) (34,432) (1,138) (62,391) $ 372,724 F-83 20058 Notes to Consolidated Financial Statements, continued Note 17. Accumulated Other Comprehensive Income (Loss), continued Significant amounts reclassified out of accumulated other comprehensive income (loss) to net income are as follows (in thousands): Details about Accumulated Other Comprehensive Income (Loss) Components Net unrealized gains (losses) on available for sale securities, net of income tax provision (benefit) of $(545,054) and $37 . . . . . . . . . . . . . . . . Net unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $(52) and $(16) . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk, net of income tax provision (benefit) of $(144) and $311 . . . . . . . . . . . . . . . . . . . Net unrealized gains on cash flow hedges, net of income tax provision (benefit) of $161 and $0 . . . . . . . . . . . Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(490) and $(697). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other pension, net of income tax benefit of $0 and $0 . . . . . . . . . . . . . . . Total reclassifications for the period, net of tax . . . . . . . . . . . . . . . . . . . . . . . Amount Reclassified from Accumulated Other Comprehensive Income (Loss) Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Affected Line Item in the Consolidated Statement of Operations $543,178 $ 109 provision (benefit) Other revenues and Income tax (149) 20,459 Other revenues and Selling, general and other expenses (427) 916 Principal transactions revenues 470 – (1,407) (2,044) Other revenues Selling, general and other expenses, which includes pension expense. See Note 18 for information on this component. – (5,305) Compensation and benefits expense $541,665 $14,135 During the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the twelve months ended November 30, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a ‘‘lodged tax effect.’’ Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. The remaining net unrealized gains on available for sale securities at November 30, 2019 represents our share of Berkadia’s net unrealized gains on available for sale securities recorded under the equity method of accounting. F-84 58636 Notes to Consolidated Financial Statements, continued Note 17. Accumulated Other Comprehensive Income (Loss), continued In connection with the acquisition of Jefferies Bache from Prudential on July 1, 2011, Jefferies Group acquired a defined benefit pension plan located in Germany (the ‘‘German Pension Plan’’) for the benefit of eligible employees of Jefferies Bache in that territory. On December 28, 2017, a Liquidation Insurance Contract was entered into between Jefferies Bache Limited and Generali Lebensversicherung AG (‘‘Generali’’) to transfer the defined benefit pension obligations and insurance contracts to Generali, for approximately €6.5 million, which was paid in January 2018 and released Jefferies Group from any and all obligations under the German Pension Plan. This transaction was completed in the first quarter of 2018. In connection with the transfer of the German Pension Plan, $5.3 million was reclassified to Compensation and benefits expense in the Consolidated Statements of Operations from Accumulated other comprehensive income (loss) during the eleven months ended November 30, 2018. Note 18. Pension Plans and Postretirement Benefits U.S. Pension Plans to the agreement Pursuant to sell one of our former subsidiaries, WilTel Communications Group, LLC, (‘‘WilTel’’) the responsibility for WilTel’s defined benefit pension plan was retained by us. All benefits under this plan were frozen as of October 30, 2005. Prior to the acquisition of Jefferies Group, Jefferies Group sponsored a defined benefit pension plan covering certain employees; benefits under that plan were frozen as of December 31, 2005. A summary of activity with respect to both plans is as follows (in thousands): Change in projected benefit obligation: Projected benefit obligation, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gains) losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Projected benefit obligation, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in plan assets: Fair value of plan assets, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $191,261 8,070 29,539 – (9,996) $218,874 $138,992 30,426 9,655 (9,996) – (3,006) $211,257 6,783 (16,646) (3,133) (7,000) $191,261 $150,806 (7,676) 8,890 (7,000) (3,133) (2,895) Fair value of plan assets, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $166,071 $138,992 Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (52,803) $ (52,269) As of November 30, 2019 and 2018, $57.4 million and $49.7 million, respectively, of the net amount recognized in the Consolidated Statements of Financial Condition was reflected as a charge to Accumulated other comprehensive income (loss) (substantially all of which were cumulative losses) and $52.8 million and $52.3 million, respectively, was reflected as accrued pension cost. F-85 61741 Notes to Consolidated Financial Statements, continued Note 18. Pension Plans and Postretirement Benefits, continued The following table summarizes the components of net periodic pension cost and other amounts recognized in other comprehensive income (loss) excluding taxes (in thousands): Components of net periodic pension cost: Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net periodic pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts recognized in other comprehensive income (loss): Net (gains) losses arising during the period. . . . . . . . . . . . . . . . . . . . . Settlement charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total recognized in other comprehensive income (loss). . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 8,070 (7,456) – 1,897 $ 2,511 $ 9,576 – (1,897) $ 7,679 $ 6,783 (7,217) 365 2,376 $ 2,307 $ 1,141 (365) (2,376) $(1,600) $ 8,119 (7,689) – 2,207 $ 2,637 $(5,453) – (2,207) $(7,660) Net amount recognized in net periodic benefit cost and other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . $10,190 $ 707 $(5,023) The amounts in Accumulated other comprehensive income (loss) at November 30, 2019 and 2018 have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during the twelve months ended November 30, 2020 is $3.2 million. We expect to pay $8.2 million of employer contributions during the twelve months ended November 30, 2020. The assumptions used are as follows: WilTel Plan Discount rate used to determine benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average assumptions used to determine net pension cost: November 30, 2019 November 30, 2018 3.00% 4.35% Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.35% 7.00% 3.51% 7.00% Jefferies Group Plan Discount rate used to determine benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average assumptions used to determine net pension cost: 2.90% 4.30% Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.30% 6.25% 3.60% 6.25% F-86 02618 Notes to Consolidated Financial Statements, continued Note 18. Pension Plans and Postretirement Benefits, continued The following pension benefit payments are expected to be paid (in thousands): 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 – 2029. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,749 9,225 10,001 12,682 13,044 67,655 U.S. Plan Assets The information below on the plan assets for the WilTel plan and the Jefferies Group plan is presented separately for the plans as the investments are managed independently. WilTel Plan Assets The current investment objectives are designed to close the funding gap while mitigating funded status volatility through a combination of liability hedging and investment returns. As plan funded status improves, the asset allocation will move along a predetermined, de-risking glide path that reallocates capital from growth assets to liability-hedging assets in order to reduce funded status volatility and lock in funded status gains. Plan assets are split into two separate portfolios, each with different asset mixes and objectives. The portfolios are valued at their NAV as a practical expedient for fair value. • The Growth Portfolio consists of global equities and high yield investments. • The Liability-Driven Investing (‘‘LDI’’) Portfolio consists of long duration credit bonds and a suite of long duration, Treasury-based instruments designed to provide capital-efficient interest rate exposure as well as target specific maturities. The objective of the LDI Portfolio is to seek to achieve performance similar to the WilTel plan’s liability by seeking to match the interest rate sensitivity and credit sensitivity. The LDI Portfolio is managed to mitigate volatility in funded status deriving from changes in the discounted value of benefit obligations from market movements in the interest rate and credit components of the underlying discount curve. To develop the assumption for the expected long-term rate of return on plan assets, we considered the following underlying assumptions: 2.25% current expected inflation, 1.0% to 1.5% real rate of return for long duration risk free investments and an additional 1.0% to 1.5% return premium for corporate credit risk. For U.S. and international equity, we assume an equity risk premium over risk-free assets equal to 4.0%. We then weighted these assumptions based on invested assets and assumed that investment expenses were offset by expected returns in excess of benchmarks, which resulted in the selection of the 7.0% expected long-term rate of return assumption for 2019. Jefferies Group Plan Assets In May 2017, Jefferies Group entered into an agreement with an external investment manager to invest and manage the plan’s assets under a strategy using a combination of two portfolios. The investment manager allocates the plan’s assets between a growth portfolio and a liability-driven portfolio according to certain target allocations and tolerance bands that are agreed to by Jefferies Group’s Administrative Committee of the U.S. Pension Plan. Such target allocations will take into consideration the plan’s funded ratio. The manager will also monitor the strategy and, as the plan’s funded ratio change over time, will rebalance the strategy, if necessary, to F-87 32561 Notes to Consolidated Financial Statements, continued Note 18. Pension Plans and Postretirement Benefits, continued be within the agreed tolerance bands and target allocations. The portfolios are comprised of certain common collective investment trusts that are established and maintained by the investment manager. The common collective trusts are valued at their NAV as a practical expedient for fair value. German Pension Plan Jefferies Group maintained the German Pension Plan in connection with its Futures business. On December 28, 2017, a Liquidation Insurance Contract was entered into with Generali to transfer the defined benefit pension obligations and insurance contracts to Generali, for approximately €6.5 million, which was paid in January 2018, and released Jefferies Group from any and all obligations under the German Pension Plan. In addition, on December 28, 2017, Jefferies Group received $3.25 million as consideration relating to the German Pension Plan in connection with releasing the prior plan sponsor from any indemnities. Accumulated other comprehensive income (loss) for the eleven months ended November 30, 2018 included $5.3 million related to the transfer of the German Pension Plan. Other We have defined contribution pension plans covering certain employees. Contributions and costs are a percent of each covered employee’s salary. Amounts charged to expense related to such plans were $8.8 million, $8.0 million and $7.6 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Note 19. Revenues from Contracts with Customers The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Revenues from contracts with customers: Commissions and other fees (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 675,772 1,526,992 324,659 262,705 2,790,128 $ 662,546 1,904,870 357,427 194,799 3,119,642 Other sources of revenue: Principal transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 559,300 1,603,940 405,288 232,224 1,294,325 363,537 Total revenues from other sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,568,528 $5,358,656 1,890,086 $5,009,728 F-88 63716 Notes to Consolidated Financial Statements, continued Note 19. Revenues from Contracts with Customers, continued (1) As discussed in Note 2, during 2019, we have reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to our clients. These fees were previously presented as Other revenues in the Consolidated Statements of Operations and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation. Previously reported results are presented on a comparable basis. Revenues from contracts with customers are recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (the ‘‘transaction price’’). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties. The following provides detailed information on the recognition of our revenues from contracts with customers: Commissions and Other Fees. We earn commission and other fee revenues by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and we record a receivable between trade- date and payment on settlement date. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. We act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs our payments to third-party service providers on our behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in the Consolidated Statements of Operations. We earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as we determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved. Investment Banking. We provide our clients with a full range of financial advisory and underwriting services. Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. F-89 56024 Notes to Consolidated Financial Statements, continued Note 19. Revenues from Contracts with Customers, continued Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by our clients are recognized as Investment banking revenues. Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade- date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within underwriting costs in the Consolidated Statements of Operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues. Asset Management Fees. We earn management and performance fees, recorded in Other revenues, in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, ‘‘high-water marks’’ or other performance targets. The performance period related to performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met. Manufacturing Revenues. Idaho Timber’s primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product. Disaggregation of Revenue The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands): F-90 21604 Notes to Consolidated Financial Statements, continued Note 19. Revenues from Contracts with Customers, continued Reportable Segments Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Consolidation Adjustments Total Twelve Months Ended November 30, 2019 Major Business Activity: Jefferies Group: Equities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,804 $ Fixed Income (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Banking – Advisory . . . . . . . . . . . . . . . . . Investment Banking – Underwriting . . . . . . . . . . . . . Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – 324,659 173,626 71,860 Total revenues from contracts with customers . . $2,222,257 $570,145 13,505 767,421 761,308 17,219 – – – Primary Geographic Region: Americas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,762,040 $568,699 1,042 Europe, Middle East and Africa . . . . . . . . . . . . . . . . . . . 404 Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with customers . . $2,222,257 $570,145 381,158 79,059 $ – – – – – – – – $ – $ – – – $ – $ (537) – – (1,737) – – – – $(2,274) $ 662,267 13,505 767,421 759,571 17,219 324,659 173,626 71,860 $2,790,128 $ (581) (1,693) – $(2,274) $2,330,158 380,507 79,463 $2,790,128 Eleven Months Ended November 30, 2018 Major Business Activity: Jefferies Group: Reportable Segments Investment Banking, Capital Markets and Asset Management Merchant Banking Corporate Consolidation Adjustments Total Equities (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 649,631 $ Fixed Income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Banking – Advisory . . . . . . . . . . . . . . . . . . Investment Banking – Underwriting. . . . . . . . . . . . . . . Asset Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – – – – – – – – Total revenues from contracts with customers . . . $2,594,887 $531,007 $ – 13,839 820,042 1,090,161 21,214 – – – – – – – – 357,427 136,109 37,471 Primary Geographic Region: Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,207,826 $529,471 $ – – Europe, Middle East and Africa. . . . . . . . . . . . . . . . . . . . . – Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with customers . . . $2,594,887 $531,007 $ – 304,370 82,691 1,264 272 – (5,283) (50) – – – – $ (919) $ 648,712 13,839 814,759 1,090,111 21,214 357,427 136,109 37,471 $(6,252) $3,119,642 $(6,252) $2,731,045 305,634 82,963 $(6,252) $3,119,642 – – (1) Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue. F-91 80006 Notes to Consolidated Financial Statements, continued Note 19. Revenues from Contracts with Customers, continued Information on Remaining Performance Obligations and Revenue Recognized from Past Performance We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at November 30, 2019. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at November 30, 2019. During the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, we recognized $27.6 million and $27.0 million, respectively, of revenues related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, we recognized $21.7 million and $18.1 million, respectively, of revenues primarily associated with distribution services during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, a portion of which relates to prior periods. Contract Balances The timing of revenue recognition may differ from the timing of payment by customers. We record a receivable when revenue is recognized prior to payment and it has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $263.7 million and $250.6 million at November 30, 2019 and 2018, respectively. We had no significant impairments related to these receivables during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018. Our deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Our deferred revenue was $12.8 million and $14.2 million at November 30, 2019 and 2018, respectively, which are recorded as Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. During the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, we recognized $13.0 million and $10.6 million, respectively, of deferred revenue from the balance at November 30, 2018 and December 31, 2017, respectively. Contract Costs We capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized. At November 30, 2019 and 2018, our capitalized costs to fulfill a contract were $4.8 million and $4.7 million, respectively, which are recorded in Receivables in the Consolidated Statements of Financial Condition. We recognized expenses of $4.1 million and $2.3 million during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018, respectively, related to costs to fulfill a contract that were capitalized as of the beginning of the year. There were no significant impairment charges recognized in relation to these capitalized costs during the twelve months ended November 30, 2019 and eleven months ended November 30, 2018. F-92 82559 Notes to Consolidated Financial Statements, continued Note 20. Income Taxes The provision for income taxes for continuing operations are as follows (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Current taxes: U.S. Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (10,000) 53,211 11,026 Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,237 $ 10,000 37,439 11,077 58,516 $ (1,060) 33,132 14,597 46,669 Deferred taxes: U.S. Federal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,197 (73,482) (3,324) 6,391 39,448 (73,013) (5,943) (39,508) 586,014 1,452 8,151 595,617 Recognition of accumulated other comprehensive income lodged taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . (544,583) $(483,955) – $ 19,008 – $642,286 The following table presents the U.S. and non-U.S. components of income from continuing operations before income taxes (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-U.S. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes . . . . . . . . . $495,566 (16,958) $478,608 $284,177 11,923 $296,100 $535,955 70,547 $606,502 (1) For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act which reduced the U.S. federal corporate tax rate from 35% to 21%, as well as other changes. Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rates of 21% for the twelve months ended November 30, 2019 and eleven months ended November 30, 2018 and 35% for the twelve months ended December 31, 2017 to income from continuing operations before income taxes as a result of the following (dollars in thousands): F-93 33209 Notes to Consolidated Financial Statements, continued Note 20. Income Taxes, continued Computed expected federal income tax . . . . . . . Increase (decrease) in income taxes resulting from: State and local income taxes, net of federal income tax benefit . . . . . . . . . . . . . . . . . . . . . . Recognition of accumulated other Twelve Months Ended November 30, 2019 Amount Percent Eleven Months Ended November 30, 2018 Percent Amount Twelve Months Ended December 31, 2017 Amount Percent $ 100,508 21.0 % $ 62,181 21.0% $212,276 35.0% 25,648 5.4 12,391 4.2 14,115 2.3 comprehensive income lodged taxes. . . . . . (544,583) (113.8) – – – International operations (including foreign rate differential) . . . . . . . . . . . . . . . . . . . . . . . . Decrease in valuation allowance . . . . . . . . . . . Permanent differences . . . . . . . . . . . . . . . . . . . . . Foreign tax credits . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset remeasurement related to the Tax Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transition tax on foreign earnings related to the Tax Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . Base erosion and anti-abuse tax (BEAT). . . . Change in unrecognized tax benefits related to prior years. . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands distribution . . . . . . . . . . . . . . Acquisition of HomeFed. . . . . . . . . . . . . . . . . . . Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actual income tax provision . . . . . . . . . . . . . – (1.9) – 0.8 (5.4) 4,518 (19,993) 10,545 (5,012) – (6,708) (10,000) 0.9 (4.2) 2.2 (1.0) – (1.4) (2.1) 1,823 (48,058) 12,331 (9,046) 0.6 (16.2) 4.2 (3.1) (11,577) – 4,933 (32,974) 5,673 2,590 10,000 1.9 0.9 3.4 415,000 68.4 35,500 – 5.9 – (20,512) 11,996 (36,779) 6,417 $(483,955) (4.3) 2.5 (7.7) 1.4 (19,783) – – (11,094) (101.1)% $ 19,008 1,553 (6.7) – – – – (3.8) 3,460 6.4% $642,286 0.3 – – 0.5 105.9% As discussed above, during the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the twelve months ended November 30, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a ‘‘lodged tax effect.’’ Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of recent steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. The following table presents a reconciliation of gross unrecognized tax benefits (in thousands): F-94 51254 Notes to Consolidated Financial Statements, continued Note 20. Income Taxes, continued Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increases based on tax positions related to the current period . . . . Increases based on tax positions related to prior periods. . . . . . . . . Decreases based on tax positions related to prior periods . . . . . . . . Decreases related to settlements with taxing authorities . . . . . . . . . . $197,320 42,306 33,007 (11,006) (1,489) $169,020 48,083 17,521 (36,324) (980) $148,848 18,619 10,358 (8,805) – Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $260,138 $197,320 $169,020 Interest and penalties related to unrecognized tax benefits are recorded as components of the provision for income taxes. Net interest expense (benefit) related to unrecognized tax benefits was $13.1 million, $(3.1) million and $9.7 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. At November 30, 2019 and 2018, we had interest accrued of approximately $67.2 million and $54.1 million, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. The statute of limitations with respect to our federal income tax returns has expired for all years through 2015. We are currently under examination by various major tax jurisdictions. Prior to becoming a wholly-owned subsidiary, Jefferies Group filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions and Jefferies Group is also currently under examination by various major tax jurisdictions. We do not expect that resolution of these examinations will have a significant effect on the Consolidated Statements of Financial Condition, but could have a significant impact on the Consolidated Statements of Operations for the period in which resolution occurs. It is reasonably possible that, within the next twelve months, statutes of limitation will expire which could have the effect of reducing the balance of unrecognized tax benefits by $13.0 million. The principal components of deferred taxes are as follows (in thousands): Deferred tax asset: Net operating loss carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities valuation reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability: Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 November 30, 2018 $ 48,695 260,590 91,390 92,407 213,338 706,420 (18,519) 687,901 (68,933) (76,308) (80,192) (225,433) $ 282,650 269,788 66,272 76,931 156,751 852,392 (38,512) 813,880 (69,970) (171,006) (60,115) (301,091) Net deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 462,468 $ 512,789 F-95 26858 Notes to Consolidated Financial Statements, continued Note 20. Income Taxes, continued The valuation allowance represents the portion of our deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. We believe that the realization of the net deferred tax asset of $462.5 million at November 30, 2019 is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate. As of November 30, 2019, we have consolidated U.S. federal net operating loss carryovers (‘‘NOLs’’) of $111.4 million that may be used to offset future taxable income, and these NOLs expire in 2035. We have various state NOLs that expire at different times, which are reflected in the above table to the extent our estimate of future taxable income will be apportioned to those states. A deferred tax asset of $5.2 million related to net operating losses in Europe has been partially offset by a valuation allowance of $1.8 million, while $0.3 million of deferred tax assets related to net operating losses in Asia has been fully offset by a valuation allowance. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods. Under certain circumstances, the ability to use the NOLs and future deductions could be substantially reduced if certain changes in ownership were to occur. In order to reduce this possibility, our certificate of incorporation includes a charter restriction that prohibits transfers of our common stock under certain circumstances. As a result of planning related to the Tax Act, during fiscal 2018, several of our foreign subsidiaries have made tax elections to be treated as branches of the U.S. for federal income tax purposes (commonly referred to as ‘‘check-the-box’’ elections) effective during various times during 2018. We believe that, as a result of these foreign subsidiaries being treated as branches of the U.S. for federal income tax purposes, rather than as controlled foreign corporations, we will reduce the future tax impact of the base erosion and anti-abuse tax (‘‘BEAT’’) and the tax on global intangible low-taxed income (‘‘GILTI’’) provisions, which became effective starting in fiscal 2018 and fiscal 2019, respectively. We recorded a provision of $10.0 million for BEAT in the eleven months ended November 30, 2018 and reversed the full amount during the twelve months ended November 30, 2019, based on new information. The new tax on GILTI became applicable in fiscal 2019. As a result, we made an accounting policy election in the first quarter of 2019 to treat GILTI as a period cost if and when incurred. We have recorded a cumulative net tax expense of $452.1 million from the impact of the Tax Act during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. This amount consisted of a $420.7 million expense related to the revaluation of our deferred tax asset and a $31.4 million expense related to the deemed repatriation of foreign earnings. The measurement period as permitted by Staff Accounting Bulletin No. 118, which was issued by SEC staff on December 22, 2017, was closed during the quarter ended February 28, 2019 and we have completed our accounting as it relates to the Tax Act. F-96 78978 Notes to Consolidated Financial Statements, continued Note 21. Other Results of Operations Information Other revenue consists of the following (in thousands): Asset management fees and revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividend income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from associated companies classified as other revenues . . . . Revenues of oil and gas production and development businesses . . . Net realized securities gains (losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on revaluation of our interest in HomeFed . . . . . . . . . . . . . . . . . . Gain on sale of Garcadia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of Conwed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 26,254 10,740 85,169 175,169 3,255 205,017 72,142 – – 90,247 $667,993 $ 28,144 5,416 73,975 127,090 (939) – – 221,712 – 102,938 $ 28,831 (452) 75,889 61,541 23,028 – – – 178,236 57,715 $558,336 $424,788 (1) We have reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in the Consolidated Statements of Operations and are now presented within Commissions and other fees. Previously reported results are presented on a comparable basis. This change had the impact of increasing Commissions and other fees and reducing Other revenues by $28.3 million and $23.8 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. There is no impact on Total revenues as a result of this change in presentation. In the fourth quarter of 2019, we sold our 31% equity interest in National Beef for a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. Other revenues for the twelve months ended November 30, 2019 include a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue. In January 2017, we sold 100% of Conwed Plastics (‘‘Conwed’’) to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments through 2021 totaling up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds. A pre-tax gain of $178.2 million (net of working capital adjustments) was recognized during the twelve months ended December 31, 2017. Taxes, other than income or payroll included in Income (loss) from continuing operations, amounted to $41.3 million, $39.9 million and $32.7 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. F-97 18235 Notes to Consolidated Financial Statements, continued Note 21. Other Results of Operations Information, continued Proceeds from sales of investments classified as available for sale were $0.9 billion, $1.6 billion and $0.4 billion during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Gross gains and gross losses were not material during the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. Note 22. Common Shares and Earnings Per Common Share Basic and diluted earnings per share amounts were calculated by dividing net income by the weighted-average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings per share are as follows (in thousands): Numerator for earnings per share: Net income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocation of earnings to participating securities (1) . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group Inc. Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $959,593 (5,576) $1,022,318 (5,107) $167,351 (610) common shareholders for basic earnings per share. . . . . . . . . . 954,017 1,017,211 166,741 Adjustment to allocation of earnings to participating securities related to diluted shares (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mandatorily redeemable convertible preferred share dividends . . . Net income attributable to Jefferies Financial Group Inc. common shareholders for diluted earnings per share . . . . . . . . (5) 5,103 28 – (14) – $959,115 $1,017,239 $166,727 Denominator for earnings per share: Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . Weighted average shares of restricted stock outstanding with future service required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average RSUs outstanding with no future service required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Denominator for basic earnings per share – weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior executive compensation plan awards . . . . . . . . . . . . . . . . . . . . Mandatorily redeemable convertible preferred shares . . . . . . . . . . . . Denominator for diluted earnings per share. . . . . . . . . . . . . . . . . . . 297,796 337,817 358,482 (1,939) (1,707) (1,349) 14,837 11,151 11,064 310,694 – 2,140 4,198 317,032 347,261 7 4,007 – 351,275 368,197 24 2,480 – 370,701 (1) Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Net losses are not allocated to participating securities. Participating securities represent restricted stock and RSUs for which requisite service has not yet been rendered and amounted to weighted average shares of 1,947,600, 1,724,800 and 1,401,000 for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Dividends declared on participating securities were $3.6 million during the twelve months ended November 30, 2019 and were not material during the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. F-98 05175 Notes to Consolidated Financial Statements, continued Note 22. Common Shares and Earnings Per Common Share, continued For the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, shares related to the 3.875% Convertible Senior Debentures were not included in the computation of diluted per share amounts as the conversion price exceeded the average market price. All of these convertible debentures were redeemed in January 2018. 4,162,200 shares related to the mandatorily redeemable convertible preferred shares for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, were not included in the computation of diluted per share amounts as the effect was antidilutive. Our Board of Directors from time to time has authorized the repurchase of our common shares. In January 2019, our Board of Directors approved a $500.0 million share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares. During the twelve months ended November 30, 2019, we purchased a total of 25,926,388 of our common shares for an aggregate purchase price of $506.2 million, or an average price of $19.52 per share. This includes 780,315 shares of the Company’s common stock purchased, at a price of $21.03 per share, in connection with the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts. In total, based on the closing price of Jefferies common shares at November 30, 2019, we have approximately $203.6 million available for future purchases. Note 23. Commitments, Contingencies and Guarantees Commitments We and our subsidiaries rent office space and office equipment under noncancellable operating leases with terms varying principally from one to twenty years. Rental expense (net of sublease rental income) included in Income (loss) from continuing operations was $65.6 million, $55.7 million and $60.2 million for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Future minimum annual rentals (exclusive of month-to-month leases, real estate taxes, maintenance and certain other charges) under these leases at November 30, 2019 are as follows (in thousands): 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,886 73,374 71,464 62,552 59,714 393,995 731,985 (21,883) $710,102 F-99 16819 Notes to Consolidated Financial Statements, continued Note 23. Commitments, Contingencies and Guarantees, continued The following table summarizes commitments associated with certain business activities (in millions): Equity commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting commitments . . . . . . . . . . . . . . . . . . . . . . . . Forward starting reverse repos (2) . . . . . . . . . . . . . . . . . . Forward starting repos (2) . . . . . . . . . . . . . . . . . . . . . . . . . Other unfunded commitments (1). . . . . . . . . . . . . . . . . . . Expected Maturity Date 2020 2021 $ 174.8 250.0 13.5 5,475.3 2,168.8 72.3 $8,154.7 $ 55.2 45.0 – – – 132.2 $232.4 2022 and 2023 $75.0 10.0 – – – – $85.0 2024 and 2025 $ – 9.3 – – – 4.9 $14.2 2026 and Later $14.3 – – – – – $14.3 Maximum Payout $ 319.3 314.3 13.5 5,475.3 2,168.8 209.4 $8,500.6 (1) Equity commitments, loan commitments and other unfunded commitments are presented by contractual maturity date. The amounts are however mostly available on demand. (2) At November 30, 2019, all of the forward starting securities purchased under agreements to resell and $2,157.7 million within forward starting securities sold under agreements to repurchase settled within three business days. Equity Commitments. Equity commitments include a commitment to invest in Jefferies Group’s joint venture, Jefferies Finance, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by our President and a Director. At November 30, 2019, Jefferies Group’s outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $11.5 million. See Note 11 for additional information regarding Jefferies Group’s investment in Jefferies Finance. Additionally, as of November 30, 2019, we have other equity commitments to invest up to $201.5 million in various other investments. Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At November 30, 2019, we had $64.3 million of outstanding loan commitments to clients. Loan commitments outstanding at November 30, 2019, also include Jefferies Group’s portion of the outstanding secured revolving credit facility provided to Jefferies Finance, to support loan underwritings by Jefferies Finance. At November 30, 2019, none of Jefferies $250.0 million commitment was funded. Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting commitments to our clients in connection with capital raising transactions. Forward Starting Reverse Repos and Repos. We enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities. F-100 96551 Notes to Consolidated Financial Statements, continued Note 23. Commitments, Contingencies and Guarantees, continued Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity. Contingencies We and our subsidiaries are parties to legal and regulatory proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to our consolidated financial position. We and our subsidiaries are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period. Guarantees Derivative Contracts. Our dealer activities cause us to make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts. The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under GAAP as of November 30, 2019 (in millions): Guarantee Type 2020 2021 2022 and 2023 2024 and 2025 Derivative contracts – non-credit related. . . . Written derivative contracts – credit related. $9,854.0 1.5 $3,150.8 – $4,453.6 2.7 $1,044.8 29.7 Total derivative contracts . . . . . . . . . . . . . $9,855.5 $3,150.8 $4,456.3 $1,074.5 2026 and Later $48.2 – $48.2 Notional/ Maximum Payout $18,551.4 33.9 $18,585.3 Expected Maturity Date The derivative contracts deemed to meet the definition of a guarantee under GAAP are before consideration of hedging transactions and only reflect a partial or ‘‘one-sided’’ component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. The fair value of derivative contracts meeting the definition of a guarantee is approximately $170.9 million at November 30, 2019. Berkadia. We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. At November 30, 2019, the aggregate amount of commercial paper outstanding was $1.47 billion. F-101 14318 Notes to Consolidated Financial Statements, continued Note 23. Commitments, Contingencies and Guarantees, continued real estate development projects, HomeFed is generally required to obtain infrastructure HomeFed. For improvement bonds at the beginning of construction work and warranty bonds upon completion of such improvements. These bonds are issued by surety companies to guarantee satisfactory completion of a project and provide funds primarily to a municipality in the event HomeFed is unable or unwilling to complete certain infrastructure improvements. As HomeFed develops the planned area and the municipality accepts the improvements, the bonds are released. Should the respective municipality or others draw on the bonds for any reason, certain of HomeFed’s subsidiaries would be obligated to pay. At November 30, 2019, the aggregate amount of infrastructure improvement bonds outstanding was $67.7 million. Other Guarantees. We are a member of various exchanges and clearing houses. In the normal course of business, we provide guarantees to securities clearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements. Standby Letters of Credit. At November 30, 2019, we provided guarantees to certain counterparties in the form of standby letters of credit totaling of $38.5 million. Standby letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement. Primarily all letters of credit expire within one year. Note 24. Net Capital Requirements Jefferies LLC operates as a broker-dealer registered with the SEC and member firms of the Financial Industry Regulatory Authority (‘‘FINRA’’). Jefferies LLC is subject to the Securities and Exchange Commission Uniform Net Capital Rule (‘‘Rule 15c3-1’’), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant (‘‘FCM’’), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (‘‘CFTC’’), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually- registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17. Jefferies LLC’s net capital and excess net capital as of November 30, 2019 were $1,645.0 million and $1,528.0 million, respectively. FINRA is the designated examining authority for Jefferies Group’s U.S. broker-dealer and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM. Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority in the United Kingdom. F-102 79340 Notes to Consolidated Financial Statements, continued Note 24. Net Capital Requirements, continued The regulatory capital requirements referred to above may restrict our ability to withdraw capital from Jefferies Group’s regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company. Note 25. Other Fair Value Information The carrying amounts and estimated fair values of our principal financial instruments that are not recognized at fair value on a recurring basis are as follows (in thousands): November 30, 2019 Fair Value Carrying Amount November 30, 2018 Fair Value Carrying Amount Other Assets: Notes and loans receivable (1) . . . . . . . . . . . . . . . . . . . . . $ 775,501 $ 784,053 $ 680,015 $ 676,152 Financial Liabilities: Short-term borrowings (2) . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548,490 7,121,776 548,490 7,569,837 387,492 6,931,393 387,492 6,826,503 (1) Notes and loans receivable: The fair values are estimated principally based on a discounted future cash flows interest rates for similar instruments. If measured at fair value in the financial model using market statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. (2) Short-term borrowings: The fair values of short-term borrowings carried at cost are estimated to be the carrying amount due to their short maturities. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy. Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. (3) Long-term debt: The fair values are estimated using quoted prices, pricing information obtained from external data providers and, for certain variable rate debt, is estimated to be the carrying amount. If measured at fair value in the financial statements, these financial instruments would be classified as Level 2 and Level 3 in the fair value hierarchy. Note 26. Related Party Transactions Jefferies Capital Partners Related Funds. Jefferies Group has equity investments in the JCP Manager and in private equity funds (including JCP Fund V), which are managed by a team led by our President and a Director (‘‘Private Equity Related Funds’’). Reflected in the Consolidated Statements of Financial Condition at November 30, 2019 and 2018 are Jefferies Group’s equity investments in Private Equity Related Funds of $23.0 million and $35.5 million, respectively. Net gains (losses) from Jefferies Group’s investment in JCP Fund V aggregating $(5.7) million, $12.1 million and $(10.7) million were recorded in Principal transactions revenues for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Gains (losses) for other funds were not material. For further information regarding our commitments and funded amounts to the Private Equity Related Funds, see Notes 10 and 23. Berkadia Commercial Mortgage, LLC. At November 30, 2019 and 2018, Jefferies Group has commitments to purchase $360.4 million and $723.8 million, respectively, in agency commercial mortgage-backed securities from Berkadia. F-103 17781 Notes to Consolidated Financial Statements, continued Note 26. Related Party Transactions, continued HRG. Jefferies Group recognized investment banking revenues of $3.0 million for the eleven months ended November 30, 2018 in connection with the merger of HRG into Spectrum Brands. FXCM. Jefferies Group entered into a foreign exchange prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $9.9 million and $9.9 million at November 30, 2019 and 2018, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Officers, Directors and Employees. We have $44.8 million and $49.3 million of loans outstanding to certain officers and employees (none of whom are an executive officer or director of the Company) at November 30, 2019 and 2018, respectively. Receivables from and payables to customers include balances arising from officers’, directors’ and employees’ individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms. Jefferies Finance. During the twelve months ended November 30, 2019, we purchased $65.3 million of loan receivables from Jefferies Finance which settled subsequent to November 30, 2019. See Note 11 for additional information on transactions with Jefferies Finance. Sale of Property. On November 29, 2019, we sold a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts in exchange for 780,315 shares of the Company’s common stock, at a price of $21.03 per share. Note 27. Discontinued Operations On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. The sale of National Beef met the GAAP criteria to be classified as a discontinued operation as the sale represented a strategic shift that had a major effect in our operations and financial results. As such, we have classified the results of National Beef prior to June 5, 2018 as a discontinued operation and reported those results in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations. F-104 72866 Notes to Consolidated Financial Statements, continued Note 27. Discontinued Operations, continued A summary of the results of discontinued operations for National Beef is as follows (in thousands): Period Ended June 4, 2018 (1) Twelve Months Ended December 31, 2017 Revenues: Beef processing services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,137,611 131 4,329 $7,353,663 339 4,946 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142,071 7,358,948 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations before income taxes . . . . . . . . . . . . . Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,414 2,884,983 4,316 43,959 14,291 2,964,963 177,108 47,045 39,884 6,764,055 6,657 98,515 42,525 6,951,636 407,312 118,681 Income from discontinued operations, net of income tax provision . . . . . $ 130,063 $ 288,631 (1) The operations of National Beef from January 1, 2018 through June 4, 2018, are included in discontinued operations for our eleven months ended November 30, 2018. Net income attributable to the redeemable noncontrolling interests in the Consolidated Statements of Operations includes $37.1 million and $85.3 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively, related to National Beef’s noncontrolling interests. Pre-tax income from discontinued operations attributable to Jefferies Financial Group Inc. common shareholders was $140.0 million and $322.0 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. As discussed above, we accounted for our retained 31% ownership of National Beef subsequent to the sale to Marfrig under the equity method. For the twelve months ended November 30, 2019 and the period from June 5, 2018 through November 30, 2018, we recorded $232.0 million and $110.0 million, respectively, in Income (loss) related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $349.2 million and $48.7 million, respectively. The pre-tax income of 100% National Beef for the period from December 1, 2018 through November 29, 2019 and the period from June 5, 2018 through November 30, 2018 was $773.7 million and $367.2 million, respectively. On November 29, 2019, we sold our remaining 31% interest in National Beef to Marfrig and other shareholders. During the eleven months ended November 30, 2018, we have also recorded a pre-tax gain on the 2018 National Beef sale of $873.5 million ($643.9 million after-tax) which is reported in Gain on disposal of discontinued operations, net of income tax provision in the Consolidated Statements of Operations. Included in the $873.5 million pre-tax gain on the sale of National Beef was approximately $352.4 million related to the revaluation of our retained 31% interest in National Beef to fair value. The $592.3 million fair value of our retained 31% interest in National Beef was based on the implied equity value of 100% of National Beef from the transaction with Marfrig and is considered a Level 3 input. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation. F-105 44437 Notes to Consolidated Financial Statements, continued Note 28. Segment Information We are a diversified financial services company engaged in investment banking and capital markets, asset management and direct investing. In 2018, we made a number of strategic changes including the sale of 48% of National Beef and 100% of our interest in Garcadia. During the fourth quarter of 2018, we transferred to Jefferies Group our 50% interest in Berkadia and our LAM seed investments. Culminating with the fourth quarter 2018 reorganization, we began managing our business across three reportable operating segments consisting of Investment Banking, Capital Markets and Asset Management, Merchant Banking and Corporate. In connection with this change, we have reclassified the prior periods to conform to our current presentation. Our Investment Banking, Capital Markets and Asset Management segment consists of our investment in Jefferies Group, which is the largest independent U.S. headquartered global full-service integrated investment banking and securities firm. Merchant Banking consists of our various merchant banking businesses and investments, primarily including Linkem, Vitesse Energy Finance and JETX Energy, real estate, Idaho Timber, FXCM and The We Company. Our Merchant Banking businesses and investments also include National Beef, prior to its sale in November 2019, Spectrum Brands, prior to its distribution to shareholders in October 2019, Berkadia and our LAM seed investments, prior to their transfer to Jefferies Group in the fourth quarter of 2018, and Garcadia, prior to its sale in August 2018. As discussed further in Notes 1 and 27, on June 5, 2018, we sold 48% of National Beef to Marfrig and deconsolidated our investment in National Beef. Results prior to June 5, 2018 are classified in discontinued operations and are not included in the table below. On November 29, 2019 we sold our remaining 31% interest in National Beef to Marfrig and other shareholders. Our retained 31% interest in National Beef was accounted for under the equity method, and results subsequent to the June 5, 2018 closing through November 29, 2019 are included in Merchant Banking in the table below. Corporate assets primarily consist of cash and cash equivalents, financial instruments owned and the deferred tax asset (exclusive of Jefferies Group’s deferred tax asset). Corporate revenues primarily include interest income. We do not allocate Corporate revenues or overhead expenses to the operating units. Certain information concerning our segments is presented in the following table. Consolidated subsidiaries are reflected as of the date a majority controlling interest was acquired. As discussed above, Jefferies Group is reflected in our consolidated financial statements utilizing a one month lag for the twelve months ended December 31, 2017. F-106 18356 Notes to Consolidated Financial Statements, continued Note 28. Segment Information, continued Net revenues: Reportable Segments: Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 (In thousands) Twelve Months Ended December 31, 2017 Investment Banking, Capital Markets and Asset Management (1). . . . . . . . . . $ 3,112,530 $ 3,183,376 $ 3,198,109 876,180 Merchant Banking (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,306 4,080,595 Total net revenues related to reportable segments . . . . . . . . . . . . . . . . . . . . . . (3,150) Consolidation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,892,976 $ 3,764,034 $ 4,077,445 571,831 22,300 3,777,507 (13,473) 746,369 32,833 3,891,732 1,244 Income (loss) from continuing operations before income taxes: Reportable Segments: Investment Banking, Capital Markets and Asset Management (1). . . . . . . . . . $ Merchant Banking (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,669 $ 266,852 (68,467) 409,667 $ 10,488 (66,140) 504,924 228,373 (78,802) Income from continuing operations before income taxes related to reportable segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parent Company interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated income from continuing operations before income 523,054 (53,048) 8,602 354,015 (54,090) (3,825) 654,495 (58,943) 10,950 taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 478,608 $ 296,100 $ 606,502 Depreciation and amortization expenses: Reportable Segments: Investment Banking, Capital Markets and Asset Management (1). . . . . . . . . . $ Merchant Banking (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated depreciation and amortization expenses . . . . . . . . . . . . . . $ 79,204 $ 70,192 3,475 152,871 $ 68,296 $ 48,852 3,169 120,317 $ 62,668 44,257 3,470 110,395 November 30, 2019 November 30, 2018 December 31, 2017 Identifiable assets employed: Reportable Segments: Investment Banking, Capital Markets and Asset Management (1) (2) . . . . . . $43,571,397 $41,224,984 $39,575,732 4,903,530 Merchant Banking (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,460,539 National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,299,628 Corporate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,239,429 Identifiable assets employed related to reportable segments . . . . . . . . . . . . . (70,321) Consolidation adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $49,460,234 $47,131,095 $47,169,108 4,190,484 – 1,838,037 47,253,505 (122,410) 2,432,119 49,554,729 (94,495) 3,551,213 – (1) Amounts related to LAM seed investments and Berkadia are included in Merchant Banking prior to their transfer to the Investment Banking, Capital Markets and Asset Management segment in the fourth quarter of 2018. Revenues related to the net assets transferred were $6.7 million and $49.6 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Income from continuing operations before income taxes related to the net assets transferred were $47.7 million and $118.4 million for the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, respectively. Identifiable assets employed related to the net assets transferred were $662.2 million at December 31, 2017. F-107 41348 Notes to Consolidated Financial Statements, continued Note 28. Segment Information, continued (2) Includes $197.7 million, $243.2 million and $213.0 million at November 30, 2019 and 2018, and December 31, 2017, respectively, of the deferred tax asset, net. Net revenues for the Investment Banking, Capital Markets and Asset Management segment are recorded in the geographic region in which the position was risk-managed, in the case of investment banking, in which the senior coverage banker is located, or for asset management, according to the location of the investment adviser. Net revenues by geographic region for the Investment Banking, Capital Markets and Asset Management segment were as follows (in thousands): Americas (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2019 $2,407,553 592,845 112,132 Eleven Months Ended November 30, 2018 $2,652,917 434,895 95,564 Twelve Months Ended December 31, 2017 $2,602,741 489,583 105,785 $3,112,530 $3,183,376 $3,198,109 (1) Substantially all relates to U.S. results. (2) Substantially all relates to U.K. results. Consolidated Net revenues exclusive of the Investment Banking, Capital Markets and Asset Management segment principally relate to the U.S. for the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017. Interest expense classified as a component of Net revenues relates to Jefferies Group. For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017, interest expense classified as a component of Expenses was primarily comprised of parent company interest ($53.0 million, $54.1 million and $58.9 million, respectively) and Merchant Banking ($34.1 million, $35.2 million and $42.3 million, respectively). As discussed above, during the fourth quarter of 2019, we sold our 31% equity interest in National Beef and recognized a pre-tax gain of $205.0 million for the twelve months ended November 30, 2019 in Other revenues. The gain on the sale is included within Merchant Banking above. As discussed above, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family and recognized a pre-tax gain of $221.7 million for the eleven months ended November 30, 2018 in Other revenues. The gain on the sale is included within Merchant Banking above. Conwed was our consolidated subsidiary that manufactured and marketed lightweight plastic netting. In January 2017, we sold 100% of Conwed to Schweitzer-Mauduit International, Inc., (NYSE: SWM) for $295 million in cash plus potential earn-out payments through 2021 totaling up to $40 million in cash to the extent the results of Conwed’s subsidiary, Filtrexx International, exceed certain performance thresholds. We recognized a $178.2 million pre-tax gain on the sale of Conwed in Other revenues primarily during the twelve months ended December 31, 2017. The gain on the sale of Conwed is included within Merchant Banking above. F-108 88008 Notes to Consolidated Financial Statements, continued Note 29. Selected Quarterly Financial Data (Unaudited) First Quarter (1) Second Quarter (2) Third Quarter (3) Fourth Quarter (4) (In thousands, except per share amounts) 2019 Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $828,443 $1,101,657 $ 856,778 $1,106,098 193,878 Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . Net (income) loss attributable to the noncontrolling interest . 2,606 Net (income) loss attributable to the redeemable 672,276 191 47,015 (1,066) 49,394 116 noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group Inc. 138 (1,276) (427) (1,276) 242 (1,275) 333 (1,276) common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,811 670,764 48,477 195,541 Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . . . Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: $0.14 315,175 $2.17 307,010 $0.16 310,288 $0.63 310,266 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . . . $0.14 318,752 $2.14 312,527 $0.15 311,897 $0.62 316,566 2018 Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $895,435 $ 911,159 $1,150,846 $ 806,594 (19,318) Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of taxes . . . . . . . . . Gain on disposal of discontinued operations, net of taxes . . . Net (income) loss attributable to the noncontrolling interest . Net (income) loss attributable to the redeemable 27,917 77,106 643,921 (136) 86,192 52,957 – 1,344 – – 12,000 182,301 (233) – – noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,796) (1,172) (22,108) (1,171) (390) (1,276) 31 (851) Net income (loss) attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . 124,525 725,529 192,635 (20,371) Basic earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations. . . . . . . . . . . . . . . . Income from discontinued operations. . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.23 0.11 – $0.34 $0.08 0.15 1.82 $2.05 $0.56 – – $0.56 $(0.06) – – $(0.06) Number of shares used in calculation . . . . . . . . . . . . . . . . . . . 366,427 352,049 341,434 329,101 Diluted earnings (loss) per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations. . . . . . . . . . . . . . . . Income from discontinued operations. . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations . . . . . . . . . . . . . Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $0.23 0.11 – $0.34 $0.08 0.15 1.80 $2.03 $0.55 – – $0.55 $(0.06) – – $(0.06) Number of shares used in calculation . . . . . . . . . . . . . . . . . . . 373,461 356,075 350,307 329,101 F-109 76713 Notes to Consolidated Financial Statements, continued Note 29. Selected Quarterly Financial Data (Unaudited), continued (1) The first quarter of 2019 includes $27.1 million of equity income related to National Beef and a mark-to- market increase of $36.0 million in the value of our investment in Spectrum Brands. The first quarter of 2018 includes a mark-to-market decrease of $21.4 million in the value of our investment in HRG. (2) The second quarter of 2019 includes a nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years and $34.9 million of equity income related to National Beef. These increases were partially offset by a $11.3 million mark-to-market decrease in the value of our investment in Spectrum Brands. The second quarter of 2018 includes the after-tax gain on disposal of discontinued operations of $643.9 million from the National Beef transaction and a mark-to-market decrease of $158.4 million in the value of our investment in HRG. (3) The third quarter of 2019 includes a $72.1 million pre-tax gain related to the purchase of the remaining interest in HomeFed and $75.9 million of equity income related to National Beef. This increase was partially offset by a $146.0 million decrease in the estimated fair value of our investment in The We Company. The third quarter of 2018 includes a $221.7 million pre-tax gain on the sale of our Garcadia interests and $58.9 million of equity income related to National Beef. These increases were partially offset by a $47.9 million impairment loss related to Golden Queen and losses of $48.5 million from a decrease in the fair value of our investment in Spectrum Brands. (4) The fourth quarter of 2019 is comprised of the three months ended November 30, 2019 and the fourth quarter of 2018 is comprised of the two months ended November 30, 2018. The fourth quarter of 2019 includes a $205.0 million pre-tax gain on the sale of our 31% equity interest in National Beef and $94.1 million of equity income related to National Beef, prior to its sale. These increases were partially offset by a decrease in the estimated fair value of our investment in The We Company of $69.4 million. The fourth quarter of 2018 includes a $62.1 million impairment loss related to FXCM and losses of $190.4 million from a decrease in the fair value of our investment in Spectrum Brands. These decreases were partially offset by revenues of $70.9 million related to the increase in the fair value of our investment in The We Company and $26.8 million of equity income related to National Beef. In 2019 and 2018, the totals of quarterly per share amounts may not equal annual per share amounts because of changes in outstanding shares during the year. F-110 76571 Schedule I – Condensed Financial Information of Registrant Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Financial Condition November 30, 2019 and 2018 (Dollars in thousands, except par value) Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trading assets, at fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax asset, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 2018 $ 3,553 207,162 10,520,986 137,549 26,615 67,736 9,810 $10,973,411 $ 48,540 338,067 9,774,541 224,653 929,477 63,211 10,186 $11,388,675 Liabilities Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables, expense accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Advances from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,629 46,561 224,134 4 991,378 1,268,706 $ 6,629 45,721 160,339 4 990,116 1,202,809 Commitments and contingencies Mezzanine Equity Mandatorily redeemable convertible preferred shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 125,000 Equity Common shares, par value $1 per share, authorized 600,000,000 shares; 291,644,153 and 307,515,472 shares issued and outstanding, after deducting 24,818,459 and 109,460,774 shares held in treasury. . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291,644 3,627,711 (273,039) 5,933,389 307,515 3,854,847 288,286 5,610,218 Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,579,705 $10,973,411 10,060,866 $11,388,675 See accompanying notes to condensed financial statements. S-1 37633 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Operations For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands, except per share amounts) Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Revenues: Principal transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of equity interest in National Beef . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(246,101) 205,017 50,186 9,102 $ 120,886 – 663 121,549 $ (9,754) – 277 (9,477) Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WilTel pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,920 2,594 53,048 – 23,062 140,624 49,955 2,659 54,090 3,642 21,664 132,010 47,462 2,957 58,943 361,446 20,821 491,629 Loss from continuing operations before income taxes, income related to associated companies and equity in earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income related to associated companies. . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income (131,522) 229,320 (10,461) 96,808 (501,106) 3,183 taxes and equity in earnings of subsidiaries. . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,798 (523,310) 86,347 (5,281) (497,923) (47,329) Income (loss) from continuing operations before equity in earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings from continuing operations of subsidiaries, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . Equity in earnings from discontinued operations of subsidiaries, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations, net of taxes . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations. . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations. . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621,108 91,628 (450,594) 343,588 964,696 – – 964,696 (5,103) 198,317 289,945 92,922 643,921 1,026,788 (4,470) 418,966 (31,628) 203,354 – 171,726 (4,375) $ 959,593 $1,022,318 $ 167,351 $3.07 – – $3.07 $3.03 – – $3.03 $0.82 0.27 1.84 $2.93 $0.81 0.26 1.83 $2.90 $(0.10) 0.55 – $ 0.45 $(0.10) 0.55 – $ 0.45 See accompanying notes to condensed financial statements. S-2 68221 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Comprehensive Income (Loss) For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 964,696 $1,026,788 $171,726 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Other comprehensive income (loss): Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $165, $(551) and $3,450 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $(545,054), $37 and $124. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $545,219, $(588) and $3,326 . . . . . . . Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $1,146, $(11,089) and $14,616. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $(52), $(16) and $1,086. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $1,198, $(11,073) and $13,530. . . . . . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $(4,653), $9,289 and $(13,215) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $(144), $311 and $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $(4,509), $8,978 and $(13,215) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $552 and $(593) . Less: reclassification adjustment for cash flow hedges (gains) losses included in net income, net of income tax provision (benefit) of $161, $0 and $0. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $(161), $552 and $(593). . . . . . . . . . . . . . . . . . . Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $(2,473), $(297) and $2,018 . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(490), $(697) and $(2,042) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in pension liability benefits, net of income tax provision (benefit) of $(1,983), $400 and $4,060. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss), net of income taxes. . . . . . . . . . . . . . . . . . Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income (loss) attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to condensed financial statements. S-3 487 (1,560) 5,923 (543,178) (109) (212) (542,691) (1,669) 5,711 544 149 693 (71,543) 78,493 (20,459) 5,310 (92,002) 83,803 (13,588) 29,620 (21,394) 427 (916) – (13,161) 28,704 (21,394) – 1,608 (936) (470) (470) – – 1,608 (936) (7,103) (844) 3,526 1,407 7,349 517 (5,696) (561,325) 403,371 (5,103) 6,505 (56,854) 969,934 (4,470) 4,043 71,227 242,953 (4,375) $ 398,268 $ 965,464 $238,578 77411 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Cash Flows For the twelve months ended November 30, 2019, the eleven months ended November 30, 2018 and the twelve months ended December 31, 2017 (In thousands) Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 $ 964,696 $ 1,026,788 $ 171,726 (12,953) 142,085 116,942 (544,583) 1,088 49,848 (343,588) – (229,320) 319,142 (254,875) 196,245 376 – (5,062) (5,260) 94,510 3,770 234,034 (388,739) 790,612 (51,622) 32,612 – (948) 381,915 – 381,915 (2,487) 1,112 (509,914) (149,647) (660,936) – 944 48,249 (291,239) (873,474) (96,808) 24,711 – (120,886) 129 (4,818) (5,231) (1,712) 242,637 6,315 97,690 38,304 – (1,228) 24,442 (1,500) – – 975 48,384 (622,320) – (3,183) 5,641 – 22,415 1,250 – (8,461) (7,763) (164,684) 2,316 (436,762) 50,122 – (45,457) 2,796 (1,316) 1,886 60,018 8,031 1,158,655 1,218,673 337,690 345,721 (1,139) 3,611 (1,130,854) (151,758) (1,280,140) 214,519 1,501 (100,477) (117,407) (1,864) (44,987) 48,540 3,553 $ $ 36,223 12,317 48,540 (92,905) 105,222 $ 12,317 Net cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used for) operations: Deferred income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . . Recognition of accumulated other comprehensive income lodged taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accretion of interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings of subsidiaries, including equity in earnings of discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operation . . . . . . . . . . . . . . . . . . . . Income related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . Distributions from associated companies . . . . . . . . . . . . . . . . . . . . . . . Gains on sale/revaluation of associated companies . . . . . . . . . . . . . . Net change in: Trading assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables, expense accruals and other liabilities . . . . . . . . . Income taxes receivable/payable, net . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) operating activities . . . . . . . . . . Net cash flows from investing activities: Distributions (to) from subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of associated companies . . . . . . . . . . . . . . . . . . . . . . Investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital distributions from associated companies. . . . . . . . . . . . . . . . . . . Purchases of investments (other than short-term) . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by investing activities – continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by investing activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by investing activities . . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities: Advances (to) from subsidiaries, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issuance of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash used for financing activities. . . . . . . . . . . . . . . . . . . . . . . . Net increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash, cash equivalents and restricted cash at beginning of period . . Cash, cash equivalents and restricted cash at end of period . . . . . . . . See accompanying notes to condensed financial statements. S-4 32066 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Notes to Condensed Financial Statements 1. Introduction and Basis of Presentation The notes to the consolidated financial statements of Jefferies Financial Group Inc. and Subsidiaries (‘‘we,’’ ‘‘our’’ or the ‘‘Company’’) are incorporated by reference into this schedule. For purposes of these condensed non-consolidated financial statements, the Company’s wholly-owned and majority owned subsidiaries are accounted for using the equity method of accounting (‘‘equity method subsidiaries’’). The Parent Company Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’). The significant accounting policies of the Parent Company Financial Statements are those used by the Company on a consolidated basis, to the extent applicable. For further information regarding the significant accounting policies refer to Note 2, Significant Accounting Policies, in the Company’s consolidated financial statements included in the 2019 10-K. The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with GAAP. The most important of these estimates and assumptions relate to fair value measurements, goodwill and intangible assets, the ability to realize deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. 2. Cash Flows Supplemental cash flow information related to the Parent Company is as follows (in thousands): Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Twelve Months Ended December 31, 2017 Cash paid for: Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax payments (refunds), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,786 10,796 $ 57,813 32,576 $57,813 1,440 Non-cash investing activities: Investments contributed to subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends received from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – 18,117 $ – 8,450,147 $25,328 32,792 In June 2019, we entered into a Membership Interest Purchase Agreement (‘‘MIPA’’) which provided for each of the then owners of National Beef Packing Company, LLC (‘‘National Beef’’) to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC (‘‘Iowa Premium’’). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in our Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity. During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed LLC. During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of 7,514,477 shares of Spectrum Brands Holdings, Inc. (‘‘Spectrum Brands’’) through a special pro rata dividend to our stockholders. S-5 31639 Notes to Condensed Financial Statements, continued 2. Cash Flows, continued During the twelve months ended November 30, 2019, we had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months ended November 30, 2018, the Parent Company had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018. Cash, cash equivalents and restricted cash is included in Cash and cash equivalents in the Condensed Statements of Financial Condition. 3. Transactions with Subsidiaries The Parent Company has transactions with its equity method subsidiaries, many of which were structured as interest bearing advances to/from its subsidiaries. Intercompany interest expense primarily reflected the interest on funding advances incurred by the Parent to its wholly-owned subsidiary which holds assets related to its treasury function. Interest was incurred on funding advances based on the prime rate plus .125%. Although there is frequent cash movement between these subsidiaries and the Parent, they do not generally represent cash dividends. The Parent Company received cash distributions from Jefferies Group of $311.1 million during the twelve months ended November 30, 2019 and $248.7 million during the eleven months ended November 30, 2018. No cash distributions were received from Jefferies Group during the twelve months ended December 31, 2017. Historically, excess cash was provided to the Parent Company by its subsidiaries in the form of loans rather than as distributions. Through a series of steps, the Parent Company has reduced these intercompany loans. During the eleven months ended November 30, 2018, the Parent Company received non-cash dividends totaling $8.5 billion from its subsidiaries. Of this amount, $8.5 billion was reflected as a decrease in our Investment in subsidiaries, $0.2 billion was reflected as a decrease to Advances to subsidiaries and $8.6 billion was reflected as a decrease to Advances from subsidiaries. 4. Commitments, Contingencies and Guarantees the Parent Company has various commitments, contingencies and In the normal course of its business, guarantees as described in Note 23, Commitments, Contingencies and Guarantees, and Note 15, Mezzanine Equity, in the Company’s consolidated financial statements. In connection with the 2018 transfers of the Company’s Leucadia Asset Management seed investments, as well as its interest in Berkadia Commercial Mortgage Holding LLC, to Jefferies Group, related deferred tax liabilities of approximately $50.9 million were transferred to Jefferies Group, for which the Parent Company indemnified Jefferies Group. These transferred deferred tax liabilities were adjusted by an additional $19.1 million during the fourth quarter of 2019. At November 30, 2019 and 2018, $51.7 million and $50.9 million, respectively, related to such indemnification is reflected in Other payables, expense accruals and other liabilities in the Condensed Statements of Financial Condition. 5. Restricted Net Assets For a discussion of the Company’s regulatory requirements, see Note 24, Net Capital Requirements, in the Company’s consolidated financial statements. Some of the Company’s consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the Parent Company. S-6 50378 Notes to Condensed Financial Statements, continued 5. Restricted Net Assets, continued At November 30, 2019 and 2018, $5.7 billion and $5.3 billion, respectively, of net assets of the Parent Company’s consolidated subsidiaries are restricted as to the payment of cash dividends, or the ability to make loans or advances to the Parent Company. At November 30, 2019 and 2018, $4.9 billion and $4.7 billion, respectively, of these net assets are restricted as they reflect regulatory capital requirements or require regulatory approval prior to the payment of cash dividends and advances to the Parent Company. Included in retained earnings of the Parent Company at November 30, 2019 are $180.8 million of undistributed earnings of unconsolidated associated companies. For further information, see Note 11, Loans to and Investments in Associated Companies, in the Company’s consolidated financial statements. S-7 Jefferies Financial Group Directors Joseph S. Steinberg Chairman Richard B. Handler Chief Executive Officer Brian P. Friedman President Linda L. Adamany 1, 3, 4, 5 Retired Group Vice President of BP plc Barry J. Alperin 1, 2, 3, 5 Retired Vice Chairman of Hasbro, Inc. Robert D. Beyer 2, 4 Chairman of Chaparal Investments LLC Francisco L. Borges 1, 3 Chairman of Landmark Partners, LLC MaryAnne Gilmartin 3, 4 Co-Founder and Chief Executive Officer of L&L MAG Robert E. Joyal 2, 3 Retired President of Babson Capital Management LLC Jacob M. Katz 1, 4, 5 Retired Chairman and Global Leader of Financial Services of Grant Thornton LLP Michael T. O’Kane 2, 3, 5 Retired Senior Managing Director of TIAA Stuart H. Reese 1, 4 Retired CEO, Chairman and President of MassMutual Registrar and Transfer Agent American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, New York 11219-9821 (800) 937-5449 www.astfinancial.com Officers Richard B. Handler Chief Executive Officer Brian P. Friedman President Joseph S. Steinberg Chairman Michael J. Sharp Executive Vice President and General Counsel Teresa S. Gendron Vice President and Chief Financial Officer John M. Dalton Vice President, Controller and Chief Accounting Officer Rocco J. Nittoli Vice President and Chief Compliance Officer Independent Registered Public Accounting Firm Deloitte & Touche LLP 30 Rockefeller Plaza New York, New York 10112 Our common stock is listed on the New York Stock Exchange (NYSE: JEF) 1 Audit Committee 2 Compensation Committee 3 Nominating and Corporate Governance Committee 4 Risk and Liquidity Oversight Committee 5 Valuation Oversight Committee Jefferies Financial Group Inc. 520 Madison Avenue New York, New York 10022