cfa_411930_001r2.pdf 1 1/25/21 2:52 PM Jefferies Financial Group Inc. 520 Madison Avenue New York, New York 10022 2020 ANNUAL REPORT J e f f e r i e s A n n u a l R e p o r t 2 0 2 0 January 4, 2021 Dear Fellow Shareholders, History will record 2020 as one of the most challenging, threatening and complex times in the modern era. Our hearts go out to all of the people around the world whose lives have been forever impacted by serious illness, the passing of loved ones or financial hardship. At Jefferies, we sadly lost Peg Broadbent, our Jefferies Group CFO and partner, to this horrible virus. We miss him deeply and are thankful his legacy will support and inspire our organization well into our future. Hopefully, as we emerge from this period, we will be stronger, with a more pronounced spirit of humanity, cooperation, equality and caring for those most in need, as we all have a greater appreciation of the fragility of life and the understanding that we are truly “all in this together.” Turning to Jefferies, we are humbled by the resilience and strength of our team that rallied as never before and in the face of adversity further established themselves as true partners with each other, our clients and all of our other valued stakeholders. Our results for 2020 are not the consequence of an overnight miracle, but rather decades of investment, hard work, patience, perseverance and great execution. We believe 2020 was a seminal year for Jefferies and more is yet to come. Jefferies Group, which includes our core Investment Banking, Capital Markets and Alternative Asset Management businesses, delivered 2020 record annual net revenues of $5.2 billion, up 67% over the prior year, record net earnings of $875 million, up 258% over the prior year, and a return on tangible equity (ROTE) of 20.4%. The operating leverage inherent in our business is demonstrated by the fact that our 2020 net revenues were 110% higher than in 2015, while our operating costs increased only 70%. We had said for several years that our margins would improve once we fully absorbed the significant investments we have made over the years in talent, technology and capabilities. This is reflected in our 23% pre-tax margin for 2020. Three of our four quarters in 2020 were each, at the time, all-time records in terms of net revenues and earnings, and our record fourth quarter means we are entering fiscal 2021 with real momentum. We believe the success of Jefferies Group in 2020 is sustainable into the future, and are optimistic for 2021 and beyond. Jefferies Financial Group, our consolidated enterprise, recorded net income of $768 million, or $2.65 per fully diluted share, and adjusted ROTE was 11.7%. These results were held back by $101 million in non- cash charges at HomeFed and JETX in the first half of the year, as well as a $44 million non-cash charge to write-down our WeWork position to a de minimis amount. Jefferies Financial Group returned $974 million in capital to shareholders in 2020 through $161 million in cash dividends and $813 million in share repurchases (42 million shares at an average of $19.29 per share). Over the past three fiscal years, Jefferies has returned to shareholders nearly $3.4 billion, or 44% of tangible shareholders’ equity at the beginning of this effort. Yet, we closed fiscal year 2020 with tangible shareholders’ equity of $7.5 billion, roughly equal to the level at the beginning of the three-year period. Jefferies Financial Group Inc. Annual Report 2020 1 On a fully diluted per share basis, tangible book value increased from $20.48 three years ago to $27.38 at November 30, 2020. The combination of this 34% increase in tangible book value per share plus $3.05 per share for the three years in dividends and the Spectrum Brands distribution, delivered a 49% return to shareholders for this period. We finished 2020 with parent company liquidity of $1.9 billion and Jefferies Group ended the year with all-time record liquidity of $8.6 billion. Our strategy remains 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 Alternative Asset Management. With our continuing efforts to smartly manage down our legacy Merchant Banking portfolio, we intend to reinvest in our core business, while continuing to return excess capital to shareholders through buybacks and dividends. We expect Jefferies Financial Group’s consolidated ROTE to converge over time with that of Jefferies Group. It should go without saying (but we will still say it and live it) that long-term stability and success will continue to require prudence in risk, liquidity and capital management and will be consistent with our respect for our obligations to all constituencies, including creditors, rating agencies, regulatory bodies, and the communities in which we live and operate. Consistent with our stated plan, we are actively managing the legacy Merchant Banking portfolio for optimal value. We carry our remaining Merchant Banking investments on our balance sheet at their tangible book value of $1.9 billion. Since mid-2012 when Jefferies and Leucadia began the process toward merging, we have sold our interests in eleven businesses for $4.7 billion in proceeds and recognized pre- tax gains of $2.4 billion in aggregate, or 122% above tangible book value. We believe there is solid upside in the remaining portfolio. We continue to believe that the stock market has neither fully appreciated the uniqueness and momentum of the Jefferies core operating platform, nor the sum of the value of our businesses and assets. We have taken advantage over the past three years of what we consider a “once in a lifetime” opportunity to reduce our fully diluted number of shares outstanding dramatically from 373 million to 274 million at prices that represent a substantial discount to both tangible and intrinsic value. As significant and long- term minded shareholders, we are thrilled that this massive reduction in share count has increased our personal ownership percentage and we are happy to let this commitment speak for itself. Similarly, we easily could just stop here and allow the facts above to speak for themselves, but we believe that at this moment in the world, there are important topics that deserve to be addressed: COVID-19 and Culture With our combined 50+ years at Jefferies and 70+ years on Wall Street, we have endured many cycles and our share of crises. COVID-19 presented us with the most challenging set of threats we have ever faced. Not the least of these was at the onset, when our team successfully dealt with the historically unthinkable task of getting everyone safely working at home, while instantaneously transforming Jefferies Group from a firm with 41 regularly attended and densely populated global offices to a community operating from 3,822 individual home offices across four continents. This seamless evacuation and transformation (amid record market volumes, and broad corporate needs for advice and capital) strove to keep our precious employee-partners safe from the virus, while helping our clients navigate the staggering economic and market impact of the pandemic. Jefferies overcame this challenge not just because of the quality and commitment of our team, but also because of the strong bond of partnership, trust, camaraderie and transparency that defines our culture and permeates our firm. We also had a secret weapon that heroically enabled us to seamlessly protect our firm and serve our clients: our incredibly talented technology and support teams. We could not be any prouder of the entire Jefferies family. 2 Jefferies Financial Group Inc. Annual Report 2020 Living in a COVID-19 World We believe that 2021 will be a year of forward transition for society, thanks to the miraculous brilliance of our scientists and medical professionals who have developed vaccines that are beginning to rollout across the U.S. and world, hopefully on a fair-minded and transparent, prioritized basis. We caution everyone against premature celebration. This will be a frustrating and complex process of mass producing the vaccines, moving them properly through fill and finish technology, transporting them and ultimately administering the injections to all of us. We believe 2021 will be a dangerous year of making sure nobody gets careless or reckless as the COVID-19 war winds down and peacetime approaches. As such, we will continue to stress flexibility in allowing each member of the Jefferies team to decide personally whether and when to come to the office. We implore everyone to follow all the rules of social distancing, continual proper hygiene and wearing a mask whenever at possible risk. There will be a great deal to enjoy once this pandemic eases and we want to make sure the party will be as big as possible. Future of Work at Jefferies As we said above, COVID-19 will eventually be a crisis that ends. We learned that we all have much more flexibility than we ever realized in how, where and when we can work. The question therefore is: What does the future of work look like and how can we best design the operating environment of Jefferies to incorporate the needs and desires of our clients and our team? We started our process of developing perspective on this opportunity by sending out a fulsome survey to our people, asking many of the most relevant questions regarding how and where they want to work in the future. We are holding focus groups and leadership discussions around this topic. This will be an ongoing work in process and there is no doubt our thoughts will evolve as time passes and we learn more. That said, it is clear that there will be some version of a hybrid model going forward, creating a combination of a series of active central offices and meeting places, balanced with the opportunity to work from home. This will have implications for the size and layout of our offices, technology decisions, ability for people to live in a greater radius of their primary Jefferies location, and the elimination of the misguided notion that people raising families or caring for ailing loved ones can’t be completely effective when they spend time at home. We don’t know where this exercise will lead, but are optimistic that if we listen to our people and effectively balance their needs with our opportunities to serve our clients, the end result will be extremely positive for everyone. We wish it didn’t take a pandemic to show us this was possible, but we certainly aren’t going to let any of these newfound insights go to waste. Diversity, Equity and Inclusion Another regrettable, but very important realization in 2020, is the incontrovertible fact that there are serious systemic issues of racial inequality and exclusion permeating at least the U.S. and Europe, and it is up to all of us to accept and embrace this truth and do something about it. There was always a realization around this issue, but when we each watched video after video of this stark and painful reality, it became the last wake-up call we needed. Businesses must champion these causes and Jefferies is striving to do more than ever. We are extremely thankful that as a result of initiatives over the years, we now have six active Diversity, Equity and Inclusion Groups within our firm: J-NOBLE, jWIN, JEMS, jMosaic+, jVETS and NextGen. While they are empowered to help us be better, the fact is that it is up to every one of us to do our fair share and Jefferies will be relentless in our efforts. U.S. Government In March, we very actively and publicly expressed our opinion that governments needed to act smartly, swiftly and in huge scale to prevent an explosion of unemployment, an implosion in the financial markets and the destruction of far too many businesses that did absolutely nothing wrong. In the U.S., our political leaders on both sides of the aisle took actions that brought a desperately needed measure Jefferies Financial Group Inc. Annual Report 2020 3 of stability to the economy. The economy is somewhat better today and the financial markets are projecting a return to health in a post-pandemic world, but reality is that far too many people and businesses are still in too much trouble and this winter will be very hard. We are writing this as some incremental stimulus has been approved. This will help, but may not be sufficient. We implore both U.S. political parties to put aside their differences and come together again now in 2021 and provide a truly sufficient backstop for those most in need, particularly essential workers and their families. We cannot let these people down just as the end of this calamity is finally in sight. Privilege and Responsibility There are some businesses, including Jefferies, that have been remarkably resilient and fortunate throughout this pandemic. COVID-19 has been hard on everyone and nobody is immune from its consequences, but the truth is that some people have been much more fortunate than others. We count ourselves and Jefferies in this category. There are many others. We would like to remind everyone, including ourselves, that it is a privilege to be in this position and every one of us needs to accept the responsibility that there is much we can do to help others who have been adversely impacted much more dramatically only because their circumstances made them more vulnerable. Through our corporate philanthropy and support of volunteerism, Jefferies strives to make a positive difference in the communities in which we live and work. In this vein, in January, our firm, our employee-partners and our clients banded together to provide A$4 million of support for the wildfire relief efforts in Australia. In May, to honor Peg’s memory, we led the donation of $9.25 million to over 85 different charities on the front lines of helping those in need in the face of COVID-19. There is more that we must and will do. Culture defines every enterprise and we believe Jefferies benefits from our unique Wall Street culture of partnership, service, nimbleness, drive and humility. Inside Jefferies, we doubled down in 2020 on our people, their safety, their physical and mental well-being, their personal development and their commitments to each other, to justice and equity, and to society at large. As a people-driven business, our greatest contribution to the world flows through our team of outstanding and special individuals. We are committed to caring, service and accountability. Annual Meeting and Investor Meeting We look forward to answering your questions at our upcoming Annual Meeting on March 25, 2021. We also will hold our annual Jefferies Investor Meeting on October 12, 2021, at which time you will have the opportunity to hear from our senior leaders across the Jefferies platform. We thank all of you—our clients and customers, employee-partners, fellow shareholders, bondholders, vendors and all others associated with our businesses—for your continued partnership and support. Sincerely, Richard B. Handler Chief Executive Officer Brian P. Friedman President 4 Jefferies Financial Group Inc. Annual Report 2020 Appendix The following tables reconcile financial results reported in accordance with generally accepted accounting principles (“GAAP”) to non-GAAP financial results. The shareholders’ letter contains non- GAAP financial information to aid investors in viewing our businesses and investments through the eyes of management while facilitating a comparison across historical periods. However, these non- GAAP financial measures should be viewed in addition to, and not as a substitute for, reported results prepared in accordance with GAAP. JEFFERIES GROUP Calculation of 2020 Return on Tangible Equity (ROTE) (1) ($ millions) (Unaudited) Year Ended Nov. 30, 2020 Net earnings attributable to Jefferies Group LLC $ 879 Reconciliation of Member’s Equity to Tangible Member’s Equity Member’s equity (GAAP) Less: Intangible assets, net and goodwill Tangible member’s equity (non-GAAP) Return on tangible equity Nov. 30, 2019 $ $ 6,125 (1,814) 4,311 20.4% JEFFERIES FINANCIAL GROUP Calculation of 2020 Adjusted Return on Tangible Equity (ROTE) (2) ($ millions) Reconciliation of Net Income to Adjusted Net Income (Unaudited) Year Ended Nov. 30, 2020 Net income attributable to common shareholders (GAAP) Intangible amortization and impairment expense, net of tax Adjusted net income (non-GAAP) $ $ 770 11 781 Reconciliation of Shareholders’ Equity to Adjusted Tangible Shareholders’ Equity Nov. 30, 2019 Shareholders’ equity (GAAP) $ Less: Intangible assets, net and goodwill Less: Deferred tax asset Less: Weighted average impact of 2020 cash dividends and share repurchases Adjusted tangible shareholders’ equity (non-GAAP) $ 9,580 (1,923) (462) (545) 6,649 JEFFERIES FINANCIAL GROUP Calculation of Tangible Book Value per Fully Diluted Share (3) Reconciliation of Shareholders’ Equity to Tangible Shareholders’ Equity ($ millions) Shareholders’ equity (GAAP) Less: Intangible assets, net and goodwill Tangible shareholders’ equity (non-GAAP) (Unaudited) Nov. 30, 2020 Dec. 31, 2017 $ $ 9,404 $ (1,913) 7,490 $ 10,106 (2,463) 7,643 Reconciliation of Shares Outstanding to Fully Diluted Shares Outstanding (millions) (Unaudited) Nov. 30, 2020 Dec. 31, 2017 Shares outstanding (GAAP) Restricted Stock Units (“RSUs”) Other dilutive shares Fully diluted shares outstanding (non-GAAP) (4) 250 23 1 274 356 16 1 373 Tangible book value per fully diluted share $ 27.38 $ 20.48 JEFFERIES FINANCIAL GROUP Reconciliation of Book Value to Tangible Book Value of Merchant Banking Portfolio ($ millions) (Unaudited) Nov. 30, 2020 Book value of Merchant Banking portfolio (GAAP) $ Less: Intangible assets, net and goodwill Tangible book value of Merchant Banking 1,940 (49) portfolio (non-GAAP) $ 1,892 JEFFERIES FINANCIAL GROUP Reconciliation of Book Value to Tangible Book Value of Merchant Banking Assets Sold ($ millions) Adjusted return on tangible equity 11.7% since mid-2012 (GAAP) Book value of Merchant Banking assets sold Less: Intangible assets, net and goodwill Tangible book value of Merchant Banking assets $ 2,593 (323) sold since mid-2012 (non-GAAP) $ 2,270 Notes: (1) (2) (3) Jefferies Group ROTE is equal to 2020 Net earnings attributable to Jefferies Group LLC divided by beginning of year Tangible member’s equity. Jefferies Financial Group Adjusted ROTE is equal to 2020 Adjusted net income divided by beginning of year Adjusted tangible shareholders’ equity. Jefferies Financial Group Tangible book value per fully diluted share is equal to Ta ngible shareholders’ equity divided by Fully diluted shares outstanding. (4) Fully diluted shares outstanding exclude preferred shares as they are antidilutive. Fully diluted shares outstanding include vested RSUs as well as the target number of RSUs issuable under senior executive compensation plans. Jefferies Financial Group Inc. Annual Report 2020 5 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). 6 Jefferies Financial Group Inc. Annual Report 2020 48446 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, 2020 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. New York 13-2615557 (I.R.S. Employer Identification Number) (State or other jurisdiction of incorporation or organization) (Exact Name of Registrant as Specified in its Charter) 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) Yes (cid:3) No (cid:3) No (cid:2) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. (cid:2) 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, 2020 (computed by reference to the last reported closing sale price of the Common Shares on the New York Stock Exchange on such date): $3,513,705,737. On January 21, 2021, the registrant had outstanding 251,070,970 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 2021 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 77. LOCATION OF EXHIBIT INDEX 68068 PART I Item 1. Business. Overview Jefferies Financial Group Inc. (‘‘Jefferies,’’ ‘‘we,’’ ‘‘our’’ or the ‘‘Company’’) is engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC (‘‘Jefferies Group’’), our largest subsidiary, was established in 1962 and is now the largest independent full-service global investment banking firm headquartered in the U.S. Our strategy focuses on strengthening and expanding our core businesses of Investment Banking and 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 our direct investing, or ‘‘Merchant Banking,’’ business, which, to date, has included divestitures, special distributions to shareholders 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 is completed. Some of these transactions have generated significant excess liquidity; some of these transactions have also reduced the future receipt of periodic distributions from subsidiaries to the parent company. 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 three fiscal years, we have returned to shareholders almost $3.4 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, 2020, we had 4,945 full-time employees, including 3,922 full-time employees at Jefferies Group. Jefferies Group retains a credit rating separate from Jefferies and remains a U.S. Securities and Exchange Commission (‘‘SEC’’) reporting company. 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 During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter, we appointed co-Presidents of Asset Management and created a separate fourth operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment. During 2020, we repurchased a total of 42,134,910 of our common shares for $812.7 million, or an average price per share of $19.29. 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. 1 64793 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 950 investment banking professionals operate in the Americas, Europe and Asia Pacific, and are organized into industry, product and geographic coverage groups. Our industry coverage groups include Consumer; Energy; Financial Services; Healthcare; Industrials; Technology; Media and Telecommunications; Real Estate; Gaming and Lodging; Financial Sponsors and Public Finance. Our product coverage groups include advisory (which comprises both mergers and acquisitions and restructuring and recapitalization expertise), equity underwriting and debt underwriting. 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 and Zurich. 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; including initial public offerings for special acquisition companies; follow-on offerings; block trades and equity-linked convertible securities transactions. initial public offerings, 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. Jefferies Finance conducts its operations primarily through two business lines, Leveraged Finance Arrangement and Portfolio and Asset Management. 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 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 Advisors: Jefferies Finance, Apex Credit Partners LLC and JFIN Asset Management LLC, which each separately focus on investments in cash flow and traditional asset-based revolving credit, collateralized loan obligations which invest in predominately broadly syndicated loans and proprietary and third-party investments in middle market loans held in private funds and separately managed accounts. 2 80426 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 including common stock, American depository across these markets in equity and equity-related products, 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 advisors, 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 2,500 companies around the world and a further more than 700 companies are covered by eight 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 advisors with execution, financing, clearing, outsourced trading, 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 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 advisors 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. 3 66994 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 make principal investments in private equity and hedge funds managed by third-parties as well as, from time to time, take on strategic investment positions. Berkadia Berkadia Commercial Mortgage Holding LLC (‘‘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 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. Asset Management Our Asset Management segment includes both the asset management operations within Jefferies Group as well as those that were previously part of our Merchant Banking segment. Under the combined Leucadia Asset Management (‘‘LAM’’) umbrella, we manage 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 globally. The investment products under LAM range from multi-manager products, such as Schonfeld Fundamental Equities, Dymon Asia Capital and Weiss Multi-Strategy, to niche equity long/short strategies, such as Riposte Capital and Kathmandu, to credit strategies, such as Point Bonita Capital and 3|5|2 Capital. We offer our affiliated asset managers access to capital, operational infrastructure and global marketing and distribution. We often invest seed or additional strategic capital for our own account in the strategies offered by us and associated third-party asset managers in which we have an interest. We continue to expand our asset management efforts. During 2020, we established a strategic relationship with Dymon Asia Capital (Asian multi-strategy) and FourSixThree Capital (distressed credit and special situations) and added Riposte Capital (contrarian long/short equity) and 3|5|2 Capital (consumer-focused asset-backed securities) to our LAM platform. 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 4 24115 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. 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 businesses. Continuing changes in the mix of our businesses and investments therefore should be expected. Our Merchant Banking portfolio currently includes primarily investments in Linkem, 56% (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, primarily HomeFed LLC (‘‘HomeFed’’), 100%; Idaho Timber, 100% (manufacturing); and 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 net book value of our entire Merchant Banking portfolio was $1.9 billion at November 30, 2020. Linkem We own 56% (48% voting) of Linkem S.p.A., the largest fixed wireless broadband service provider in Italy with approximately 710,000 subscribers. Its broadband service utilizes its proprietary fixed wireless network on its valuable nationwide 3.5GHz spectrum holdings. 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 launched its first 5G towers in late 2020 and plans to rapidly increase its network coverage and service offerings over the coming years as it upgrades to 5G, adds subscribers and leverages its assets. 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 stock, which is automatically convertible to common shares in 2022, and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 56% of Linkem’s common equity at November 30, 2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $102.4 million at November 30, 2020. The net book value of our investment in Linkem was $199.0 million at November 30, 2020. Vitesse Energy Finance Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires, invests and monetizes non- operated working interests and royalties predominantly in the Bakken Shale of the Williston Basin in North Dakota. These non-operated interests include working interests in flowing wells, leases that are held by production and undeveloped drilling locations within drilling spacing units (‘‘DSUs’’). The DSUs are expected to be developed via horizontal wells in the future by Vitesse Energy Finance’s dozen plus operating partners. As Vitesse Energy Finance’s operators convert the DSUs (undeveloped acreage) into flowing horizontal wells, our working interests and minerals are converted into cash flows produced by the flowing wells. Vitesse Energy Finance has acquired more than 47,200 net acres of leaseholds and has an interest in over 5,000 producing wells (106 net wells) with current production as of November 2020 of 10,000 barrels of oil equivalent per day. In addition, Vitesse Energy Finance has an interest in approximately 600 wells (14 net wells) that are shut-in due to offset development activity or low oil prices. Vitesse Energy Finance also has 876 gross wells (22.5 net wells) that are currently drilling, completing, or permitted for future 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 the volatility of cash flows by appropriately hedging oil and profitably sell selective assets when appropriate. The net book value of our investment in Vitesse Energy Finance was $516.3 million at November 30, 2020. 5 97534 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; and Renaissance Plaza, a mixed-use asset in Brooklyn, NY, comprised of an office building, garage and hotel. The net book value of our investment in real estate assets was $531.6 million at November 30, 2020. Financial Information about Segments Our operating and reportable segments consist of Investment Banking and Capital Markets; Asset Management; Merchant Banking; and Corporate. Our financial information regarding our reportable segments is contained in Note 27 in our consolidated financial statements. Human Capital We are focused on the durability, health and long-term growth and development of our business, as well as our long-term contribution to our shareholders, our clients, our employees, the communities in which we live and work, and society in general. Instrumental to all of this is our culture, which derives from our employees. As of November 30, 2020, we had 4,945 employees located throughout the world. Our largest subsidiary, Jefferies Group, had 3,922 employees globally with approximately 64%, 24% and 12% of its workforce distributed across the Americas, Europe and Asia Pacific, respectively. Jefferies Group employees are predominately in our Investment Banking and Capital Markets segment or the support thereof. During fiscal 2020, Jefferies Group overall employee levels increased by 3% as we have continued to expand our presence in Asia, particularly in our Equities business, and we have continued to grow certain of our businesses in Europe. During fiscal 2020, there was a slight decline in the overall percentage of our employees in our Asset Management segment due to the wind down of a wholly-owned asset management platform during the year. Our ability to develop and retain our clients depends on the reputation, marketing efforts, capabilities and knowledge of our employees and our firm. Jefferies Group workforce is predominately composed of employees in roles such as investment bankers, salespeople, trading professionals, research professionals and other revenue producing or specialized personnel. In order to compete effectively and continue to provide best in class service to our clients, we must attract, retain and motivate qualified professionals. During 2020, our voluntary turnover rate was 8%. Our overall retention rate is very high in our view. We believe our culture, our effort to maintain a meritocracy in terms of opportunity and our continued evolution and growth contribute to our success in attracting and retaining strong talent. We had 931 employees in our Merchant Banking segment as of November 30, 2020, which were predominantly located in the U.S. The majority of these individuals are employed by our wholly-owned subsidiary, Idaho Timber. As with most manufacturing operations, safety is a key component of the overall process and Idaho Timber has a multitude of safety programs in place designed to protect the health and well-being of its employees. These programs and other employee-focused initiatives help Idaho Timber retain experienced employees who create operating efficiencies critical to our overall success. The foundation of our culture is our approach to employee engagement, diversity, equity and inclusion, which is summed up in our Corporate Social Responsibility Principle: Respect People. We have implemented a number of policies and measures focused on non-discrimination, sexual harassment prevention, health and safety, training and education and Employee Resource Groups. We embrace diversity and inclusion, which we believe fosters creativity, innovation and thought leadership through the infusion of new ideas and perspectives. Our Board of Directors has underscored our commitment to diversity by appointing diverse candidates to fill the seats of one- third of our independent directors. We have also made a commitment to building a culture that provides opportunities for all employees regardless of our differences. As a result, we are able to pool our collective 6 77057 insights and intelligence to provide fresh and innovate thinking for our clients. Solid internal partnerships with Employee Resource Groups allow us to develop and retain our wealth of diverse talent and ensure continued growth and success. We encourage you to review our Environmental, Social and Governance Report (‘‘ESG Report’’) (located on our website) for more detailed information regarding our human capital programs and initiatives. Nothing on our website, including our ESG Report or sections thereof, is deemed incorporated by reference into this Report. In addition, for discussion of the risks relating to our ability to attract, develop and retain highly skilled and productive employees, see ‘‘Part 1. Item 1A. Risk Factors.’’ 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 boutique 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 is the federal agency responsible for Regulation in the United States. The financial services industry in which we operate 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’’) 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 (‘‘SROs’’) that are actively involved in the regulation of financial services businesses (securities businesses in the case of FINRA and commodities/futures businesses in the case of the NFA). In addition, broker-dealers that conduct securities activities involving municipal securities are subject to regulation by the Municipal Securities Rulemaking Board (‘‘MSRB’’). In addition to federal regulation, we are subject to state securities regulations in each state and U.S. territory in which we conduct securities or investment advisory activities. The SEC, FINRA, CFTC, NFA and state securities regulators conduct periodic examinations of broker-dealers, investment advisors, futures commission merchants (‘‘FCMs’’) and swap dealers. The designated examining authority under the U.S. Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’) for Jefferies LLC’s activities as a broker-dealer is FINRA, and the designated self-regulatory organization under the U.S. Commodity Exchange Act for Jefferies LLC’s non-clearing FCM activities is the NFA. Financial services businesses are also subject to regulation and examination by state securities regulators and attorneys general in those states in which they do business. In addition, broker-dealers, investment advisors, 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. including sales and trading methods, Broker-dealers are subject to SEC, FINRA, MSRB and state securities regulations that cover all aspects of the securities business, trade practices among broker-dealers, use and safekeeping of customers’ funds and securities, capital structure and requirements, anti-money laundering efforts, recordkeeping and the conduct of broker-dealer personnel including officers and employees (although state securities regulations are, in a number of cases, more limited). Registered investment advisors are subject to, among other requirements, SEC regulations concerning marketing, transactions with affiliates, custody of client assets, disclosures to clients, conflict of interest, insider trading and recordkeeping; and investment advisors that are also registered as commodity trading advisors 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, FINRA, CFTC, NFA, other SROs of which the broker-dealer is a member, and state securities regulators, or changes in the interpretation or enforcement of existing laws or rules may directly affect the operations and profitability of broker-dealers, investment advisors, FCMs, commodity trading advisors, commodity pool operators and swap dealers. The SEC, CFTC, FINRA, NFA, state securities regulators and state 7 63471 attorneys general may conduct administrative proceedings or initiate civil litigation that can result in adverse consequences for Jefferies LLC, its affiliates, including affiliated investment advisors, as well as its and their officers and employees (including, without limitation, injunctions, censures, fines, suspensions, directives that impact business operations (including proposed expansions), membership expulsions, or revocations of licenses and registrations). SEC Regulation Best Interest (‘‘Reg BI’’) requires that a broker-dealer and its associated persons to act in a retail customer’s best interest and not place their own financial or other interests ahead of a retail customer’s interests when recommending securities transactions or investment strategies, including recommendations of types of accounts. To meet this best interest standard, a broker-dealer must satisfy four component obligations including a disclosure obligation, a care obligation, a conflict of interest obligation, and a compliance obligation and both broker-dealers and investment advisors are required to provide disclosures about their standard of conduct and conflicts of interest. In addition, certain states, have proposed or adopted measures that would make broker-dealers, sales agents and investment advisors and their representatives subject to a fiduciary duty when providing products and services to customers. The SEC did not indicate an intent to pre-empt state regulation in this area and some of the state proposals would allow for a private right of action. Since our Wealth Management division makes recommendations to retail customers, it is required to comply with the obligations under the Reg BI and applicable state laws. Regulatory Capital Requirements. Several of our 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, and financing customers’ prime brokerage or other margin activities, in each case, that could require the use of significant amounts of capital, limit its ability to engage in certain financing transactions, such as repurchase agreements, and may restrict its ability to (i) to make payments of dividends, withdrawals or similar distributions or payments to a stockholder/parent or other affiliate, (ii) to make a redemption or repurchase of shares of stock, or (iii) to make an unsecured loan or advance to such shareholders or affiliates. As a carrying/clearing broker-dealer, under FINRA Rule 4110, FINRA could impose higher minimum net capital requirements than required by the SEC, and could restrict a broker-dealer from expanding business or require the broker-dealer to reduce its business activities. If the broker dealer also carries accounts for other broker dealers which are engaged in proprietary trading, 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. SEC registered broker-dealers that will also register with the SEC as security-based swap dealers engaging in principal transactions of security-based swaps (‘‘SBS’’) are subject to rules regarding capital, segregation and margin requirements. The SEC rules establish similar standards for an entity registering as a standalone SBS dealer. The CFTC has also approved swap dealer capital rules. Both the SEC rules governing a standalone SBS dealer and the CFTC rules governing swap dealers are expected to come into effect in late 2021. Under the rules there is a minimum net capital requirement for, among others, an entity that acts as a dealer in SBS or swaps, which is the greater of $20 million or 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 SEC SBS dealer or CFTC swap dealer at each clearing agency with respect to SBS or swap transactions cleared for SBS or swap customers and (ii) the total initial margin amount calculated by the SEC SBS dealer or CFTC swap dealer with respect to non-cleared SBS under new SEC rules and swaps under the CFTC rules. Jefferies Group has two entities provisionally registered with the CFTC as swap dealers - Jefferies Financial Services Inc. (‘‘JFSI’’) and Jefferies Financial Products LLC (‘‘JFP’’). Both JFSI and JFP are expected to comply with the SEC and CFTC capital rules for SBS and swap dealers, respectively, in the fourth quarter of 2021. 8 33197 Under the Exchange Act, state securities regulators are not permitted to impose capital, margin, custody, financial responsibility, making and keeping records, bonding, or financial or operational reporting requirements on registered broker-dealers that differ from, or are in addition to, the requirements in those areas established under the Exchange Act, including the rules and regulations promulgated thereunder. For additional information see Item 1A. Risk Factors. 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 23 to our consolidated financial statements for additional discussion of net capital calculations. 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 Pacific. As in the U.S., our international subsidiaries are subject to extensive regulations proposed, promulgated and enforced by, among the European Commission and European Supervisory Authorities (including the other regulatory bodies, 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. 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; • 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. 9 60907 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, pandemics, 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. Market and Liquidity Risks 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 our derivative transactions to the extent such transactions result in uncollateralized credit exposure to our 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. 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 and liquidity principles, expressed in the form of certain ratios and percentages. A failure to meet these ratios and percentages could trigger a ratings downgrade. We and Jefferies Group intend to access the capital markets and issue debt securities from time to time, and a decrease in our credit ratings or outlook could adversely affect our liquidity and competitive position, increase our borrowing costs, decrease demand for our debt securities and increase the expense and difficulty of financing our operations. In addition, in connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, Jefferies to counterparties, exchanges and clearing Group or us may be required to provide additional collateral organizations in the event of a credit rating downgrade. Such a downgrade could also negatively impact our and Jefferies Group’s outstanding debt prices and our stock price. There can be no assurance that our or Jefferies Group’s credit ratings will not be downgraded. 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, derivative contracts and commodities for our own account. In any period, we may experience losses on our inventory positions as a result of the level and volatility of equity, fixed income and commodity prices (including oil prices), 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 10 55838 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. 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 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 capital requirements, which could have an adverse effect on our business, results of operations, financial condition and liquidity. 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., European Union (‘‘EU’’), 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 maturities 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 for each currency we deal in. Each jurisdiction has proposed an alternative to LIBOR and other IBORs based on a risk free rate (the Secured Overnight Funding Rate for U.S. Dollars, Sterling Overnight Index Average for Sterling markets, Euro Short Term Rate for Euros and Tokyo Overnight Average Rate for Japanese Yens). the discontinuance of the IBORs will result in disruption in the financial markets, suppressed capital markets activities and liquidity, pricing volatility, loss of market share in certain products, adverse tax or accounting impacts, requirements and business continuity issues. legal and operational costs, increased compliance, increased capital is possible that It We continue to monitor and facilitate the transition from IBOR-referencing products to products referencing alternative reference rates. We have also been monitoring the development of the IBOR Fallbacks Protocol of the International Swaps and Derivatives Association, which was published on October 23, 2020, and will enable market participants to incorporate the revisions into their legacy non-cleared derivatives trades with other counterparties as part of IBOR transition. 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 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 11 09264 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. As a holding company, we depend on dividends, distributions and other payments from our subsidiaries to fund payments on our obligations, including debt obligations. Many of our subsidiaries, including our broker-dealer subsidiaries, are subject to regulation that restrict dividend payments or reduce the availability of the flow of funds from those subsidiaries to us. In addition, our broker-dealer subsidiaries are subject to restrictions on their ability to lend or transact with affiliates and to minimum regulatory capital requirements. 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. Economic Environment Risks The effects of the outbreak of the novel coronavirus (‘‘COVID-19’’) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ operations, which could have an adverse effect on our business, financial condition and results of operations. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals. Several states, including New York, where we are headquartered, have declared states of emergency. Similar impacts have been experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts may be possible, including the following: • Employees contracting COVID-19 • Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations • Unavailability of key personnel necessary to conduct our business activities • Unprecedented volatility in global financial markets • Reductions in revenue across our operating businesses • Closure of our offices or the offices of our clients • De-globalization • Potential regulatory scrutiny of our ability to adequately supervise our activities in accordance with applicable regulatory requirements We are taking necessary and recommended precautions to protect the safety and well-being of our employees and customers, including by means of conducting certain business activities and operations remotely. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employees’ ability to provide customer support and service. Although the onset of the COVID-19 pandemic resulted in meaningfully lower stock prices for many companies, as well as the trading prices for our own securities, the markets have not only stabilized but returned to near pre- COVID-19 levels. However, the further spread of the COVID-19 outbreak may materially negatively impact stock and other securities prices and materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which 12 99549 would negatively impact our liquidity position and our growth strategy. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results of operations. We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters. The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses. Abrupt changes in market and general economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations. Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because performance in the financial services industry is heavily influenced by the overall strength of general economic conditions and financial market activity. Our investment banking revenue, in the form of advisory services and underwriting, is directly related to general economic conditions and corresponding financial market activity. When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which reduces our investment banking revenues. Reduced expectations of U.S. economic growth or a decline in the global economic outlook could cause financial market activity to decrease and negatively affect our investment banking revenues. A sustained and continuing market downturn could lead to or exacerbate declines in the number of securities transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads. Correspondingly, a reduction of prices of the securities we hold in inventory or as investments would lead to reduced revenues. Revenues from our asset management businesses have been and may continue to be negatively impacted by declining securities prices, as well as widely fluctuating securities prices. Because our asset management businesses hold long and short positions in equity and debt securities, changes in the prices of these securities, as well as any decrease in the liquidity of these securities, may materially and adversely affect our revenues from asset management. Similarly, our merchant banking businesses may suffer from the above-mentioned impacts of COVID-19 including employee and customer illnesses and quarantines, cancellations of events and travel, reductions in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. As an example, an overall reduction in business activity has led to a decrease in global demand for oil and natural gas thereby causing lower prices for these commodities. Such dramatic price decreases may have a material adverse effect on our investments in Vitesse Energy Finance and JETX Energy. In addition, global economic conditions and global financial markets remain vulnerable to the potential risks posed by certain events, which could include, among other things, political and financial uncertainty in the United States and the European Union, renewed concern about China’s economy, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel, such as those that have occurred due to the COVID-19 pandemic. More generally, because our business is closely correlated to the general economic outlook, a significant deterioration in that outlook or realization of certain events would likely have an immediate and significant negative impact on our business and overall results of operations. Changing financial, economic and political conditions could result in decreased revenues, losses or other adverse consequences. These include economic conditions that may be specific to the industries in which our 13 96342 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 the volume of transactions executed for customers and, therefore, to a decline in revenues we receive from commissions and spreads • Adverse changes in the market could lead to decreases in the value of our holdings, both realized and unrealized • Unfavorable conditions or changes in general political, economic or market conditions could reduce the number and size of transactions in which we provide underwriting, financial advisory and other services. Our investment banking revenues, in the form of financial advisory and sales and trading or placement fees, are directly related to the number and size of the transactions in which we participate and could therefore be adversely affected by unfavorable financial, economic or political conditions. 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 • Adverse changes in the securities markets could lead to a reduction in revenues from asset management fees and losses on our capital invested in managed funds. Even in the absence of a market downturn, below-market 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 investment performance by our • Adverse changes in the financial markets could lead to regulatory restrictions that may limit or halt certain of our business activities • Limitations on the availability of credit 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. Our 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 • New or increased taxes on compensation payments such as bonuses may adversely affect our profits • 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 us and our lenders to cease loaning us money, 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 The United Kingdom’s (‘‘U.K.’’) exit from the EU could adversely affect our businesses and investments. The U.K. left the EU on January 31, 2020, with a transition period until December 31, 2020 during which time the U.K. followed EU rules and a U.K.-EU trade agreement was negotiated governing EU and U.K. relations from January 1, 2021 resulting in a Trade and Cooperation Agreement together with a Political Declaration covering a number of areas including financial services. The Trade and Cooperation Agreement does not include substantive provisions for financial services, in particular it does not allow U.K. investment firms to provide services into the EU under the Passporting regime. 14 28774 The potential impacts related to the delivery of Brexit or the terms of the new economic and security relationship between the U.K. and the EU on the movement of goods, services, people and capital between the U.K. and the EU, customer behavior, economic conditions, interest rates, currency exchange rates, availability of capital or other matters are unclear and could adversely affect our businesses, including our revenues from trading and investment banking activities, particularly in Europe, and our results of operations and financial condition. Jefferies Group operates substantial parts of its EU businesses from entities based in the U.K. and 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. 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 and client relationships have been migrated so that Jefferies GmbH can service EEA institutional clients across Investment Banking, Equities and Fixed Income sectors from its office in Frankfurt and branch offices in Amsterdam, Madrid, Milan, Paris and Stockholm. Due to considerations such as operating expenses, liquidity, leverage and capital, the modified European operating framework will be more complex, less efficient and more costly than would otherwise have been the case. Operational Risks 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 litigation and perceived failure to treat customers and clients fairly, can result in customer dissatisfaction, 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. These limits reflect our risk tolerances for business activity. 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, 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. 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, in addition to qualified, successful personnel in functional, non-revenue producing roles. 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, advisors, financial 15 47880 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. 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 and complexity 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. Any cyber attack, cybersecurity incident, or other information security breach of, or vulnerability in, our technology systems, or those of our clients, partners, counterparties, or other third-party service providers 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 financial, personal and other information in our computer systems and networks. In recent years, there have been several highly publicized incidents involving financial services companies reporting the unauthorized disclosure of client or other confidential information, as well as cyber attacks involving theft, dissemination and destruction of corporate information or other assets, which in some cases occurred as a result of failure to follow procedures by employees or contractors or as a result of actions by third-parties. 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. 16 60306 Like other financial services firms, we have been the target of attempted cyber attacks and we understand that 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. The techniques used in these cyber attacks and cybersecurity incidents are increasingly sophisticated, change frequently and are often not recognized until launched. Although we seek to maintain reasonable security measures, including a suite of authentication and layered information security controls, no security measures are infallible, and we cannot guarantee that our safeguards will always work or that they would detect, mitigate or remediate these risks in a timely manner. Despite our implementation of reasonable security 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, cybersecurity incident, or other information 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, cybersecurity incident, 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 reasonable security measures, to investigate and remediate vulnerabilities or other exposures or to communicate about cyber attacks, cybersecurity incidents, or other information security breaches to our customers, partners, third-party service providers, and counterparties. Though we have insurance against some cyber risks and attacks, we may be subject to litigation and financial losses that exceed our insurance 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 regulators. Successful cyber attacks, cybersecurity incidents, or other information security breaches 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 reasonable 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, cybersecurity incident, or other information security breach could occur and persist for an extended period of time without detection. We expect that any investigation of a cyber attack, cybersecurity incident, or other information security breach 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 caused by the cyber attack, cybersecurity incident, or other information security breach or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated. All of these factors could further increase the costs and consequences of such a cyber attack, or cybersecurity incident. 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 and international laws governing the protection of personally identifiable information. 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 through system failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us to lose clients and related revenue. Depending on the circumstances giving rise to the information security 17 05166 breach, this liability may not be subject to a contractual limit or an exclusion of consequential or indirect damages. Employee misconduct 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 advisors 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 employee misconduct, and the precautions we take to detect and prevent this activity may not be effective against certain misconduct, including conduct which is difficult to detect. The occurrence of significant employee misconduct could have a material adverse financial effect or cause us significant reputational harm and/or legal and regulatory liability, which in turn could seriously harm our business and our prospects. 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. 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. Our investment in Berkadia may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $301.2 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 reimbursement obligation to Berkshire Hathaway. As of November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion. Legal, Legislation and Regulation Risks New legislation and regulation may significantly affect our businesses and investments. Significant new legislation and regulation affecting the financial services industry is regularly proposed and sometimes adopted. These legislative and regulatory initiatives affect not only us, but also our competitors and certain of our clients. 18 95800 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. In the U.S., such initiatives frequently arise in the aftermath of elections that change the party of the president or the majority party in the House and/or Senate. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the ‘‘Dodd-Frank Act’’) and the rules and regulations adopted by the CFTC and the SEC have introduced a comprehensive regulatory regime for swaps and SBS and parties that deal in such derivatives (although some rules, including the SEC rules for SBS, have compliance dates that will occur in the future). Two of our subsidiaries are provisionally registered as swap dealers with the CFTC and are members of the NFA. We may also be required in the future to register one or more additional subsidiaries as SBS dealers with the SEC. Certain swaps have been made subject to mandatory clearing and exchange trading and additional swaps and SBS may become subject to such requirements in the future. Pursuant to regulations adopted by the CFTC and bank regulators, swap dealers are required to post and collect variation margin in connection with the trading of uncleared swaps. We have already incurred significant compliance and operational costs as a result of the Dodd-Frank Act swap business conduct and mandatory variation margin rules, and when the compliance dates for all the final rules contemplated by Title VII have been implemented, our swap dealer entities will also be subject to mandatory capital requirements that will likely have an effect on our business. Although there is uncertainty about the full impact of these changes, we expect we will continue to be subject to a complex regulatory framework that will require significant monitoring and compliance expenditures. Negative effects could result from an expansive extraterritorial application of the Dodd-Frank Act and/or insufficient international coordination with respect to adoption of rules for derivatives and other financial reforms in other jurisdictions. The European Market Infrastructure Regulation (‘‘EMIR’’) relating to derivatives entered into force during August 2012 and introduced certain requirements in respect of derivative contracts including: (i) the mandatory clearing of OTC derivative contracts declared subject to the clearing obligation; (ii) risk mitigation techniques in respect of uncleared OTC derivative contracts, including the mandatory margining of uncleared OTC derivative contracts; and (iii) reporting and record keeping requirements in respect of all derivative contracts. EMIR’s requirements apply to ‘‘financial counterparties’’ such as EU authorized investment firms, credit institutions, insurance companies, undertakings for collective investment in transferable securities and alternative investment funds, and ‘‘non-financial counterparties’’ (being an EU entity which is not a financial counterparty). Members of our group who are EU entities or subsidiaries and, when transacting with in-scope EU counterparties, members of our group who are non-EU regulated entities or subsidiaries may be subject to additional obligations and/or costs that may not otherwise have applied. Amendments to EMIR entered into force during 2019 to make the rules more streamlined and proportionate. From January 1, 2021, following the end of the transition period agreed between the EU and the U.K., EMIR will no longer apply under U.K. law; it will be replaced by ‘‘U.K. EMIR’’, being EMIR as it forms part of U.K. domestic law by virtue of Section 3 of the European Union (Withdrawal) Act 2018. U.K. EMIR is therefore expected, at least initially, to impose substantially similar requirements on in-scope U.K. counterparties as those imposed on in-scope EU counterparties under EMIR. reporting, investor protection-related and organizational The Markets in Financial Instruments Regulation and a revision of the Market in Financial Instruments Directive (collectively referred to as ‘‘MiFID II’’) imposes certain restrictions as to the trading of shares and derivatives requirements, including market structure-related, requirements on pre- and post-trade transparency, requirements to use certain venues when trading financial instruments (which includes shares and certain derivative instruments), requirements affecting the way investment managers can obtain research, powers of regulators to impose position limits and provisions on regulatory sanctions. The European Commission (‘‘EC’’) has been reviewing MiFID II throughout 2020 and is expected to publish a legislative proposal for changes to MiFID II. The extent of the changes that will be proposed under the MiFID II review is not known; however, subject to certain conditions and exceptions we may be unable to trade shares or derivatives with in-scope counterparties other than as provided by MiFID II and we in-scope counterparties under the U.K.’s may also be unable to trade shares or derivatives with, or as, ‘‘onshored’’ version of MiFID II. 19 39427 The EU capital and liquidity legislation for banks and investment firms implemented many of the finalized Basel III capital and liquidity standards, including in relation to the leverage ratio, market risk capital, and a net stable funding ratio. These changes will begin to take effect from June 2021. Increasing regulatory focus on privacy and security issues and expanding laws could impact our businesses and investments and expose us to increased liability. The General Data Protection Regulation (‘‘GDPR’’), which went into effect in the EU in May 2018, imposes obligations including, among other things: • accountability and transparency requirements, which require companies to demonstrate and record compliance with the GDPR and to provide more detailed information to data subjects regarding the processing of their personal data obligations to consider data protection when any new products or services are developed and to limit the amount of personal data processed • compliance with the data protection rights of data subjects including a right of access to or correction of personal data and a right of erasure of personal data • the prompt reporting of personal data breaches to the relevant data supervisory authority without undue delay unless the personal data breach is unlikely to result in a risk to the data subject’s rights and freedoms The GDPR also includes restrictions on the transfers of personal data from the European Union to jurisdictions that have not been deemed to provide essentially equivalent data protection safeguards through national laws outside of certain legal transfer mechanisms. The GDPR imposes significant fines for serious non-compliance of up to the higher of 4% of an organization’s annual worldwide turnover or €20 million. Data subjects also have a right to compensation as a result of infringement of the GDPR for financial or non-financial losses. Obligations under the GDPR and implementing member state legislation continue to evolve through legislation and regulatory guidance. In addition to other privacy legislation that is in effect in other regions, numerous proposals regarding privacy and data protection are pending before U.S. and non-U.S. legislative and regulatory bodies. The adopted form of such developing legislation and regulation will determine the level of any resources which we will need to invest to ensure compliance. Extensive regulation of our businesses limits our activities, and, if we violate these regulations, we may be subject to significant penalties. We are subject to extensive laws, rules and regulations in the countries in which we 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 investigations or similar reviews. 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, the operations of our businesses 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. 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 our subsidiaries’ registrations as investment advisors or broker-dealers; the revocation of the licenses of our financial advisors; 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 our broker-dealers. In particular, compliance with the Net Capital Rule may restrict our broker-dealers’ ability to engage in capital- 20 80414 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. 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 increases in the number and size of investment banking transactions and our expansion into new areas impose greater risks of liability. Substantial legal liability could have a material adverse financial effect or cause us significant reputational harm, which in turn could seriously harm our business and our prospects. 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 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. Merchant Banking Risks Our estimates of the fair values of holdings of certain merchant banking investments, which we will cease to provide, 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 2021 and June 2020 earnings releases, we disclosed certain estimated fair values of our merchant banking investments, some of which are consolidated. These estimates may differ from how these investments are reflected in our financial statements prepared in accordance with GAAP. Factors to consider in connection with reviewing these 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 estimates may differ materially from realized values or future estimates • Our fair values are, indeed, estimates only and are subject to change • 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 • We have decided to stop providing these estimates. In our January 4, 2021 earnings release, we stated that, going forward, we would be discontinuing this disclosure as we believe the wind-down of the 21 23207 portfolio diminishes the value of this information, which requires meaningful management time and expenditure to produce 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. At November 30, 2020, we had an approximately $526.6 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, increase taxes or reduce or delay business opportunities. In addition, 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. Our investment in real estate may not prove to be successful and may adversely affect our results of operations or financial condition. At November 30, 2020, we had an approximately $531.6 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 affect 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. At November 30, 2020, we had an approximately $199.0 million investment in Linkem. Many factors, most of which are outside of our control, can affect Linkem’s business, including the state of the Italian economy and capital markets in general, competition in the Italian telecommunications markets and other factors that directly and indirectly affect 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. At November 30, 2020, we had an approximately $133.4 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 affect 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. At November 30, 2020, we had an approximately $85.6 million investment in Idaho Timber. Many factors, most of which are outside of our control, can affect Idaho Timber’s business, including demand for its products, prices and availability of raw materials and other factors that directly and indirectly affect the results of operations, including the sales and profitability of Idaho Timber, 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. 22 91154 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 Asia Pacific 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 $446.8 million at November 30, 2020. 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 13 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 22 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. 23 19989 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 21, 2021, there were approximately 1,513 record holders of the common shares. We paid quarterly cash dividends of $0.15 per share for each quarter of 2020. We paid quarterly cash dividends of $0.125 per share for each quarter of 2019, as well as $1.50 in a special distribution (we distributed all of our 7,514,477 Spectrum Brands Holdings, Inc. (‘‘Spectrum Brands’’) shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of record as of the close of business on September 30, 2019). We 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. On January 4, 2021, our Board of Directors increased our quarterly dividend by 33% to $0.20 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. At November 30, 2019, we had approximately $203.6 million available for future share repurchases, based on the closing price of Jefferies common shares on November 30, 2019. In January 2020, the Board of Directors approved an additional $250.0 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million to $250.0 million. In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for $812.7 million, or an average price of $19.29 per share. At November 30, 2020, we had approximately $57.2 million available for future repurchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million. Separately, during the twelve months ended November 30, 2020, we repurchased an aggregate of 127,941 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, 2020 (dollars in thousands, except per share amounts): (a) Total Number of Shares Purchased (1) September 1, 2020 to September 30, 2020 . . . . . . . . October 1, 2020 to October 31, 2020. . . . . . . . . . . . . November 1, 2020 to November 30, 2020 . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 6,075,000 3,432,707 9,507,707 (b) Average Price Paid per Share $ – $19.52 $21.79 (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) – 6,075,000 3,400,000 9,475,000 $121,987 $131,392 $ 57,242 (1) Includes an aggregate 32,707 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. 24 90501 (2) In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. At November 30, 2020, $57.2 million remains available for future purchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million. 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, 2015 to November 30, 2020. Index data was furnished by S&P Global Market Intelligence. The graph assumes that $100 was invested on December 31, 2015 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 $250 $200 $150 $100 $50 $0 12/31/15 12/31/16 12/31/17 11/30/18 11/30/19 11/30/20 Jefferies Financial Group Inc. S&P 500 Index S&P 500 Financials Index 25 49762 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 from discontinued operations, including gain on disposal, net of taxes . . . . Net (income) loss attributable to the redeemable noncontrolling interests . . . . . . . . . Net income attributable to Jefferies Financial Group common shareholders . Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Twelve Eleven Months Months Ended Ended December 31, November 30, 2017 2018 (In thousands, except per share amounts) Twelve Months Ended December 31, 2016 $6,010,874 4,868,308 (75,483) $3,892,976 3,617,363 202,995 $3,764,034 3,524,957 57,023 $4,077,445 3,396,042 (74,901) $3,035,374 3,202,564 154,598 1,067,083 298,673 768,410 478,608 (483,955) 962,563 296,100 19,008 277,092 606,502 642,286 (35,784) (12,592) 25,773 (38,365) – 1,558 – 773,984 288,631 232,686 286 (37,263) (84,576) (65,746) 769,605 959,593 1,022,318 167,351 125,938 Per share: Basic earnings (loss) per common share attributable to Jefferies Financial Group common shareholders: Income (loss) from continuing operations . . . Income from discontinued operations, including gain on disposal. . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted earnings (loss) per common share attributable to Jefferies Financial Group common shareholders: Income (loss) from continuing operations . . . Income from discontinued operations, including gain on disposal. . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $2.68 – $2.68 $2.65 – $2.65 $3.07 – $3.07 $3.03 – $3.03 $0.82 2.11 $2.93 $0.81 2.09 $2.90 $(0.10) $(0.10) 0.55 $ 0.45 0.44 $ 0.34 $(0.10) $(0.10) 0.55 $ 0.45 0.44 $ 0.34 (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. 2020 At November 30, 2019 2017 2018 (In thousands, except per share amounts) At December 31, 2016 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. . . . . . . . . $53,118,352 8,352,039 149,676 9,403,893 $37.65 $0.60 $0.60 $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 26 16217 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, 2020 and 2019. For a discussion of our results of operations and liquidity and capital resources for the eleven months ended November 30, 2018, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019, which was filed with the SEC on January 29, 2020, and Exhibit 99.1, Part II, Item 7 of our Form 8-K, which was filed with the SEC on June 3, 2020. 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 is now the largest independent full-service global We are engaged in investment banking and capital markets, asset management and direct investing. Jefferies investment banking firm Group, our largest subsidiary, headquartered in the U.S. During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter of 2020, we appointed co-Presidents of Asset Management and created a separate fourth operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment. Our segments consist of: (1) Investment Banking and Capital Markets; (2) Asset Management; (3) Merchant Banking; and (4) Corporate. 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. 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. 27 91018 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. A summary of results of operations for the twelve months ended November 30, 2020 is as follows (in thousands): Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues . . . . . . . . . . . . . . . . . . . . $4,989,138 $235,255 $764,460 $ 13,258 $ – $ 8,763 $6,010,874 Expenses: Compensation and benefits . . . . . Cost of sales . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . Selling, general and other expenses. . . . . . . . . . . . . . . . . . . . 2,735,080 241,083(1) 89,527 77,072 25,509(1) 338,588 – 82,334 – 5,247 31,425(2) 67,362 39,184 – – 3,496 26,197 68,877 – – 53,445 – – 53,445 – – – – (3,167) (3,167) 2,940,863 605,180 84,870 158,439 1,078,956 4,868,308 Total expenses . . . . . . . . . . . . . . 3,869,250 166,328 810,753 46,045 199,128 713,575 Income (loss) from continuing operations before income taxes and loss related to associated companies. . . . . . Loss related to associated 1,119,888 68,927 50,885 (55,619) (53,445) 11,930 1,142,566 companies . . . . . . . . . . . . . . . . . . . . – – (75,483) – – – (75,483) Income (loss) from continuing operations before income taxes. . . . . . . Income tax provision from continuing operations . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . $1,119,888 $ 68,927 $ (24,598) $(55,619) $(53,445) $11,930 1,067,083 298,673 $ 768,410 (1) Includes Floor brokerage and clearing fees. (2) Interest expense within Merchant Banking of $31.4 million for the twelve months ended November 30, 2020 primarily includes $26.7 million for Foursight Capital and $4.7 million for Vitesse Energy Finance. 28 76238 A summary of results of operations for the twelve months ended November 30, 2019 is as follows (in thousands): Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues . . . . . . . . . . . . . . . . . . . $3,035,988 $ 84,894 $735,213 $ 32,833 $ – $4,048 $3,892,976 Expenses: Compensation and benefits . . . . Cost of sales . . . . . . . . . . . . . . . . . Interest. . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . 1,641,814 202,425(1) 63,305 61,767 20,715(1) 319,641 – 77,549 – 2,042 34,129(2) 69,805 58,005 – – 3,475 – – 53,048 – 767,150 40,432 162,832 39,820 – Total expenses . . . . . . . . . . . . . 2,688,938 126,494 648,174 101,300 53,048 – – – – (591) (591) 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 . . . . . . . . . . . . . . . . 347,050 (41,600) 87,039 (68,467) (53,048) 4,639 275,613 – 474 202,453 – – 68 202,995 $ 347,050 $ (41,126) $289,492 $ (68,467) $(53,048) $4,707 478,608 (483,955) $ 962,563 (1) Includes Floor brokerage and clearing fees. (2) Interest expense within Merchant Banking of $34.1 million for the twelve months ended November 30, 2019 primarily includes $29.0 million for Foursight Capital and $4.8 million for Vitesse Energy Finance. 29 29030 A summary of results of operations for the eleven months ended November 30, 2018 is as follows (in thousands): Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Parent Company Interest Consolidation Adjustments Total Net revenues . . . . . . . . . . . . . . . . . . . . $3,184,426 $ (14,280) $577,278 $ 22,300 $ – $(5,690) $3,764,034 – – 54,090 – – (873) – – – (992) 1,862,782 491,281 89,249 120,317 961,328 54,090 (1,865) 3,524,957 Expenses: Compensation and benefits. . . . . Cost of sales. . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . 1,715,915 178,841(1) – 67,467 47,363 50,155 5,369(1) 307,071 8,992 1,324 26,167(2) 48,357 50,222 – – 3,169 Total expenses . . . . . . . . . . . . . . 2,719,513 120,442 544,337 757,290 57,394 112,587 35,049 88,440 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 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. . . . . . . . . . . . . . . . . 464,913 (134,722) 32,941 (66,140) (54,090) (3,825) 239,077 – 993 56,030 – – – 57,023 $ 464,913 $(133,729) $ 88,971 $(66,140) $(54,090) $(3,825) 296,100 19,008 130,063 643,921 $1,051,076 (1) Includes Floor brokerage and clearing fees. (2) Interest expense within Merchant Banking of $26.2 million for the eleven months ended November 30, 2018 primarily includes $20.6 million for Foursight Capital and $3.3 million for Vitesse Energy Finance. The composition of our financial results has varied over time and we expect will continue to evolve. 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 and Capital Markets, and Asset Management segments, 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: During March 2020, the global COVID-19 pandemic and initial actions taken in response wreaked havoc on the global economy and all financial markets, and adversely affected our businesses. Subsequently, with various government actions and more clarity from the U.S. Federal Reserve Bank on future interest rate policy, the equity markets have experienced a strong rebound and a supportive trading environment for investors has emerged along with renewed activity in the equity and debt new issue capital markets. Jefferies Group has experienced strong market volumes and increased client activity across its capital markets business with considerably improved performance, and mergers and acquisition activity was significant in the latter part of the year. We continue to monitor the impact of the pandemic on the operations and value of our investments. Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. 30 84981 Our 2020 financial results from continuing operations were impacted by: • Record pre-tax income of $1,177.5 million from Jefferies Group reflecting record total net revenues of $5,197.5 million, including: (cid:4) Record Investment Banking net revenues of $2,398.2 million, including record advisory net revenues of $1,053.5 million, record equity underwriting net revenues of $902.0 million and debt underwriting net revenues of $546.0 million; (cid:4) Record combined Capital Markets net revenues of $2,469.7 million, including record equities net revenues of $1,128.9 million and record fixed income net revenues of $1,340.8 million; and (cid:4) Record Asset Management revenues (before allocated net interest) of $256.8 million. • Pre-tax loss of $24.6 million related to our Merchant Banking businesses reflecting: (cid:4) Record performance from Idaho Timber and a positive contribution from Vitesse Energy Finance; (cid:4) A gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within Merchant Banking; (cid:4) A $44.2 million non-cash charge to write down the value of our investment in WeWork in the first half of 2020; (cid:4) Non-cash charges of $73.9 million related to write-downs of real estate investments at HomeFed; and (cid:4) Non-cash charge of $13.2 million to write down Vitesse Energy Finance’s oil and gas assets in the Denver-Julesburg Basin (‘‘DJ Basin’’) and $34.6 million to write down the value of our investment in JETX Energy to reflect the decline in oil prices. 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 WeWork 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 WeWork; • A $62.1 million impairment loss related to our investment in FXCM; and • A $47.9 million impairment loss related to our investment in Golden Queen Mining Company, LLC (‘‘Golden Queen’’). Investment Banking and Capital Markets, and Asset Management Our Investment Banking and Capital Markets segment and Asset Management segment primarily consist of our investment in Jefferies Group. Jefferies Group was acquired on March 1, 2013. Jefferies Group financial data is presented in each year based on the twelve months ended November 30. 31 19431 Investment Banking and Capital Markets A summary of results of operations for our Investment Banking and Capital Markets segment is as follows (in thousands): Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,989,138 $3,035,988 $3,184,426 2020 2019 2018 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floor brokerage and clearing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,735,080 241,083 82,334 810,753 3,869,250 1,641,814 202,425 77,549 767,150 2,688,938 1,715,915 178,841 67,467 757,290 2,719,513 Income from continuing operations before income taxes . . . . . . . . $1,119,888 $ 347,050 $ 464,913 Our Investment Banking and Capital Markets 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 and Capital Markets 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 and Capital Markets 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. The following provides a summary of net revenues by source (in thousands): 2020 2019 2018 Advisory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,053,500 902,016 545,978 $ 767,421 361,972 407,336 $ 820,042 454,555 635,606 Total underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,994 (103,330) 769,308 (14,617) 1,090,161 3,638 Total investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,398,164 1,522,112 1,913,841 Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total capital markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,128,910 1,340,792 2,469,702 773,979 681,362 1,455,341 665,557 559,712 1,225,269 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Investment Banking and Capital Markets (1) (2). . . . . . . . . . . . 121,272 $4,989,138 58,535 $3,035,988 45,316 $3,184,426 (1) Includes net interest revenues of $12.3 million, $74.0 million and $8.5 million for 2020, 2019 and 2018, respectively. (2) Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement. 32 79565 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 50% 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. The following table sets forth our investment banking activities (dollars in billions): Deals Completed 2019 2020 2018 Aggregate Value 2019 2018 2020 Advisory transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Public and private debt financings. . . . . . . . . . . . . . . . . . . . . . . . . . Public and private equity and convertible offerings . . . . . . . . . . 228 639 286 195 779 166 195 969 193 $217.5 $255.8 $103.5 $241.6 $190.7 $ 45.3 $193.9 $270.1 $ 43.3 Investment banking revenues were a record $2,398.2 million for 2020, 57.6% higher than 2019. This reflects record performance in mergers and acquisitions, record results in equity underwriting and solid performance in debt underwriting, while the results for 2019 were impacted by the significant industry-wide decline in equity and leverage finance activity across the U.S. and Europe during the year. Our 2020 advisory revenues were a record $1,053.5 million, up $286.1 million, or 37.3% higher than 2019, reflecting a meaningful acceleration of activity in the second half of 2020. Our underwriting revenues for 2020 were $1,448.0 million, an increase of $678.7 million, or 88.2%, from 2019, due to record results in equity underwriting and solid performance in debt underwriting, as clients took advantage of both a strong rebound in equity valuations, and in loan and bond prices to raise capital after the initial market disruption from COVID-19 subsided. From equity and debt underwriting activities, we generated $902.0 million and $546.0 million in revenues, respectively, for 2020, compared with $362.0 million and $407.3 million in revenues, respectively, for 2019. Other investment banking revenues were a loss of $103.3 million for 2020, compared with a loss of $14.6 million for 2019. The results for 2020 include a net loss of $37.5 million from our share of the net earnings of the Jefferies Finance joint venture, reflecting unrealized losses related to the write down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year period, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $22.3 million during 2019, inclusive of $12.5 million in costs from refinancing its debt. The results in both years also include the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business. In addition, Other investment banking results for 2020 include unrealized write-downs of private equity investments received or acquired in connection with our investment banking activities. 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 • wealth management services. 33 79750 In May 2020, Greenwich Associates named Jefferies Group as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had conducted of more than 75 buy-side institutions evaluating brokers’ performances in providing clients with liquidity, hedging solutions, market color and insights. Total equities net revenues were a record $1,128.9 million for 2020, an increase of 45.9%, over the $774.0 million for 2019. Our strong performance was a result of the continued expansion of our business both from a product and geographic perspective, increased market volumes and the continued momentum of our client franchise. We increased our market share globally, as we were well-positioned to respond to our clients’ dynamic needs during the year. Our overall results included record net revenues across each region, including the Americas, Europe, and Asia Pacific. Each of our regional businesses is continuing to benefit from our overall global expansion and network. We believe we provided consistent and exceptional advisory and execution capabilities to our clients globally throughout this unprecedented period. On a product basis, our overall results included record net revenues in our global cash equities businesses and across most of our global electronic trading businesses, as well as our domestic and international convertibles businesses. Our electronic trading and convertibles franchises continued to maintain several market-leading positions, while our cash equities franchise continued to improve its market share and competitive positioning. In November 2020, Greenwich Associates ranked our international convertibles business as #1 in Europe and Asia, excluding Japan, with significant market share and continued momentum. The record results in our global cash equities businesses were driven by increased client activity, market volumes and improved trading. While global market trading volumes and higher volatility drove an increase in commissions, our results in Asia Pacific were also driven by our expansion and investment in the region in 2019 and 2020 across advisory and execution capabilities. The record results in our global convertibles business was driven by strong primary and secondary trading activity and higher volatility, and also the expansion of the business in London we undertook in late 2018. Our global electronic trading business achieved record results, which were driven by increased global market volumes, volatility, and the continued strength of the global platform. Our exchange traded funds business had higher results driven by increased trading revenues and the better market environment. 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; • interest rate derivatives and credit derivatives; and • financing services offered to clients. Fixed income net revenues totaled a record $1,340.8 million for 2020, an increase of 96.8% compared with net revenues of $681.4 million for 2019, a result of strong client activity both in primary and secondary markets across products and regions, as well as periods of elevated market volatility. Our overall results included record net revenues regionally in each of the Americas, Europe and Asia, as the business successfully managed through the markets’ high volumes and levels of uncertainty during the year. Our global rates businesses generated record net revenues for 2020, driven by higher volatility and wider bid- offer spreads, particularly during the second quarter. Our results for 2020 also benefited from low interest rates and a favorable market environment, compared to 2019 when economic challenges and uncertainties, such as Brexit, limited client activity and trading opportunities. 34 83237 Record results in our leveraged credit, European and Asian credit and investment grade corporates businesses resulted from robust revenues across regions and products due to increased client activity and higher levels of volatility during 2020. Similarly, record revenues from our global emerging markets business benefited from more favorable market conditions driving strong investor demand, as well as an increase in new issuance. Revenues in our U.S. securitized markets group were higher due to an increase in demand for new issuance in the securitization markets and as the relative higher yields on securitized products drove investor demand in the second half of 2020. The record results were partially offset by lower revenues in our municipal securities business, which was impacted by a significant sell-off in the second quarter of 2020 before stabilizing and recovering over the second half of 2020. Other Other is comprised of revenues from: • Berkadia and other investments (other than Jefferies Finance, which is included in Other investment banking); • principal investments in private equity and hedge funds managed by third-parties or related parties and that are not part of our asset management 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 other business category totaled $121.3 million for 2020, an increase of $62.8 million compared with $58.5 million for 2019. Results for 2020 include net revenues of $68.9 million due to our share of the net income of Berkadia compared with net revenues $88.2 million in 2019. The lower net revenues for 2020 are due to the impairment of mortgage servicing rights as a result of lower interest rates and a decline in loan originations due to the impact of COVID- 19 in the second quarter of 2020, with increased volumes and improved valuations returning in the latter part of the year. The results for 2020 also include gains of $61.5 million from hedges that were bought and sold in the first quarter as we took a negative view of the market due to the onset of the COVID-19 pandemic. Compensation and Benefits Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation awards and share-based awards to employees. Cash awards are recorded during the year of the award unless there are future service period requirements. Those with future service requirements are amortized into compensation expense over the required service period. Share-based awards to employees and senior executive awards are also amortized over their respective vesting periods. 35 78010 Compensation and benefits expense increased to $2,735.1 million in 2020 from $1,641.8 million in 2019. The following table provides a summary of compensation and benefits expense (dollars in thousands): Compensation expense without future service requirements . . . . . . . . . . . . . . . . . Amortization of share-based and cash-based awards . . . . . . . . . . . . . . . . . . . . . . . . Amendment of certain service provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Compensation and benefits expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation and benefits expense as a percentage of Net revenues . . . . . . . . Compensation and benefits expense as a percentage of Net revenues, excluding the impact of the amendment of certain service provisions . . . . . 2020 2019 $2,242,701 312,761 179,618 $2,735,080 54.8% 51.2% $1,302,350 339,464 – $1,641,814 54.1% 54.1% A significant portion of compensation expense remains variable. Compensation and benefits expense increased in line with the significant increase in net revenues. During the fourth quarter of 2020, Jefferies Group amended the service requirement provisions of certain cash-based awards that had been granted during previous years. Compensation expense of $179.6 million was recorded to reflect the acceleration of amortization that resulted from these amendments. 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 $1,134.2 million for 2020, an increase of $87.1 million, or 8.3%, compared with $1,047.1 million for 2019. Non-compensation expenses as a percentage of Net revenues were 22.7% and 34.5% for 2020 and 2019, respectively, demonstrating the operating leverage inherent in our business. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to record net revenues in equities and fixed income resulting from an increase in trading volumes. The increase was also due to higher underwriting costs, primarily due to record investment banking net revenues resulting from an increase in the number of transactions and higher technology and communication expenses, primarily related to costs associated with the development of various trading systems, increased market data and higher connectivity usage due to the expansion of certain businesses in Asia. Non-compensation expense also increased due to higher other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, Jefferies Group’s longstanding, esteemed CFO who tragically died from complications of COVID-19 in March. Additionally, other expenses also included $34.0 million attributed to our donation made to various charities in support of the Australian wildfire relief effort, costs associated with the early retirement of Jefferies Group’s 6.875% senior notes in November 2020 and costs related to provisions for receivable losses. The increase in non-compensation expenses was partially offset by significantly lower business development expenses as business travel and hosted events were curtailed due to COVID-19. Asset Management Our asset management business is a diversified alternative asset management platform offering institutional clients an innovative range of investment strategies through us and our affiliated asset managers. We provide certain of our affiliated asset managers access to fully integrated global operational infrastructure and support. This may include strategy and product development, daily operations and finance-related activities, compliance, legal and human resources support, as well as all aspects of business development. Collectively, we and our affiliated asset managers have net asset values or net asset value equivalent assets under management of approximately $26.8 billion as of November 30, 2020 and $20.7 billion as of November 30, 36 66474 2019. Net asset values or net asset value equivalent assets under management are comprised of the fair value of the net assets of a fund, the net capital invested in a separately managed account, par value of collateralized loan obligations or notional account value. These include the following: • $12.6 billion (2020) and $7.2 billion (2019) – This includes the assets under management raised by affiliated asset managers with whom we have an ongoing profit or revenue sharing arrangement. In some instances, due to the timing of payments and crystallization of profits or revenue, the majority of revenue related to these relationships will be realized at their calendar year-end (during our first fiscal quarter). • $10.8 billion (2020) and $9.5 billion (2019) – Asset management activities within Jefferies Finance, our 50/50 joint venture with Massachusetts Mutual Life Insurance Company, which represent the aggregate par value of collateralized loan obligations managed by Jefferies Finance, including those consolidated by Jefferies Finance. Because management evaluates segment performance based on the inclusion of our share of the net earnings of our Jefferies Finance joint venture in our Investment Banking and Capital Markets segment, those activities are excluded from our Asset Management segment results. • $2.6 billion (2020) and $2.8 billion (2019) – Net asset values of investments made by us in funds or separately managed accounts. At times, we will incubate strategies using our own capital during the institutional build-out phase before opening investments to outside capital. This net asset value includes our seed capital of $1.5 billion (2020) and $1.3 billion (2019) in addition to amounts financed of $1.1 billion (2020) and $1.5 billion (2019), invested in funds and separately managed accounts that are managed by us and our affiliated asset managers. • $0.8 billion (2020) and $1.2 billion (2019) – This includes third-party investments actively managed by wholly-owned divisions. A summary of results of operations for our Asset Management segment is as follows (in thousands): Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses: 2020 2019 2018 $235,255 $ 84,894 $ (14,280) Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floor brokerage and clearing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89,527 25,509 – 5,247 46,045 166,328 63,305 20,715 – 2,042 40,432 126,494 47,363 5,369 8,992 1,324 57,394 120,442 Income (loss) from continuing operations before income taxes and income related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . . Income related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,927 – (41,600) 474 (134,722) 993 Income (loss) from continuing operations before income taxes . . . . . . $ 68,927 $ (41,126) $(133,729) Revenues Asset management net revenues include the following: • Total asset management fees: management and performance fees from funds and accounts managed by us; • Revenue from arrangements with strategic affiliates: revenues from affiliated asset managers in which we hold interests that entitle us to portions of their revenues and/or profits, as well as earnings on our ownership interests in our affiliated asset managers; and • Investment return: this includes investment income from capital invested in and managed by us and our affiliated asset managers. 37 21544 The key components of asset management revenues are the level of assets under management and the performance return, for the most part on an absolute basis and, in certain cases, relative to a benchmark or hurdle, of us and our affiliated asset managers. 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 are generally recognized once a year, typically in December, when they become fixed and determinable and are not probable of being significantly reversed. As a result, the benefit of performance fees attributable to performance during the latter eleven months of each of our fiscal years is actually realized and recorded only in the first quarter of our next fiscal year. The following summarizes the results of our Asset Management businesses revenues by asset class (in thousands): 2020 2019 2018 Asset management fees: Equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Total asset management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenue from arrangements with strategic affiliates (1) . . . . . . . . . . . . . . . . 6,158 8,544 14,702 11,837 $ 4,390 18,798 23,188 1,807 Total asset management fees and revenues . . . . . . . . . . . . . . . . . . . . . . . . . . Investment return (2) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allocated net interest (2) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Asset Management revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,539 257,200 (48,484) $235,255 24,995 100,447 (40,548) $ 84,894 $ 3,446 24,698 28,144 6,099 34,243 (9,288) (39,235) $(14,280) (1) The amounts include our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, as well as earnings on our ownership interest in affiliated asset managers. (2) Net revenues attributed to the Investment return in our Asset Management segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 4 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. 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. (3) Includes net interest expense of $24.5 million, $8.9 million and $8.4 million for 2020, 2019 and 2018, respectively. (4) Allocated net interest represents the allocation of long-term debt interest expense to our Asset Management reportable segment, 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. Asset management net revenues for 2020 were a record $235.3 million, compared with $84.9 million for 2019, primarily as a result of higher investment returns. Since 2019, we made capital investments in several new separately managed accounts and funds. Total asset management revenues for 2020 are also reflective of a 6.2% increase in total asset management fees and revenues, primarily attributed to higher revenues from our share of fees received by affiliated asset management companies with which we have revenue and profit share arrangements, partially offset by a decline in asset management fees. Expenses The increase in expenses in 2020 as compared with 2019 primarily reflects the expansion of the Asset Management business, additional costs from the wind down of one of our asset management businesses and the dedication of resources previously included in Corporate. 38 64972 Assets under Management The tables below include only third-party assets under management by us, excluding those of our affiliated asset managers. Assets under management by predominant asset class were as follows (in millions): Assets under management (1) Equities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $481 293 $774 $ 228 988 $1,216 November 30, 2020 November 30, 2019 (1) Assets under management include third-party net assets actively managed by us, including hedge funds and certain managed accounts. We may consolidate certain funds and for such consolidated funds, assets under management include the pro-rata portion of third- party net assets in consolidated funds based on the percentage ownership of third-party investors in the consolidated fund. The above amounts do not include assets under management at non-consolidated strategic affiliates or investments. (2) During 2020, certain of the assets under management in this asset class were liquidated and the funds were returned to the third-party investors due to the wind down of our quantPORT asset management platform. Changes in assets under management during the year were as follows (in millions): Balance, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flow out . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net market appreciation (depreciation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended November 30, 2020 $1,216 (319) (123) $ 774 2019 $ 2,527 (1,383) 72 $ 1,216 The change in assets under management in our wholly-owned managers during 2020 is primarily due to the liquidation and redemptions from certain funds related to the wind down of our quantPORT asset management platform and market depreciation, partially offset by increased investments by third-parties in certain funds and managed accounts. The change in assets under management during 2019 is primarily due to redemptions from certain funds and separately managed accounts and dissolution of a fund, partially offset by new subscriptions and investments from third-parties and market appreciation. Our definition of assets under management is not based on any definition contained in any of our investment management agreements and differs from the manner in which ‘‘Regulatory Assets Under Management’’ is reported to the SEC on Form ADV. Asset Management Investments Our asset management business makes seed and additional strategic investments directly in alternative asset management separately managed accounts and co-mingled funds where we act as the asset manager or in affiliated asset managers where we have strategic relationships and participate in the earnings or profits of the affiliated manager. Our asset management investments generated an investment return of $257.2 million and 39 02189 $100.4 million for 2020 and 2019, respectively. The following table reflects amounts invested by asset manager (in thousands): November 30, 2020 November 30, 2019 Jefferies Financial Group Inc., as manager: Fund investments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separately managed accounts (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Strategic affiliates, as manager: Fund investments (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Separately managed accounts (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in asset managers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 258,893 352,084 610,977 650,585 323,943 162,268 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total asset management investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,136,796 $1,747,773 $ 240,804 489,617 730,421 306,554 266,484 114,161 687,199 $1,417,620 (1) Due to the level or nature of an investment in a fund, we may consolidate that fund, and accordingly, the assets and liabilities of the fund are included in the representative line items in the consolidated financial statements. At November 30, 2020 and 2019, $0.1 million and $22.6 million, respectively, represents net investments in funds that have been consolidated in our financial statements. (2) Where we have investments in a separately managed account, the assets and liabilities of such account are presented in the Consolidated Statements of Financial Condition within each respective line item. (3) The increase in 2020 was primarily due to an investment in a new fund. 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: Consolidated Businesses Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Oil and Gas HomeFed Idaho Timber – Oil and Gas HomeFed beginning July 1 Idaho Timber – Oil and Gas – Idaho Timber National Beef prior to June 5 Associated Companies Linkem FXCM Equity Investment Golden Queen – – – – Other Investments FXCM Term Loan WeWork – Linkem FXCM Equity Investment Golden Queen National Beef sold November 29 HomeFed prior to July 1 – – FXCM Term Loan WeWork Spectrum Brands prior to October 11 distribution 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 FXCM Term Loan WeWork Spectrum Brands/HRG 40 02154 A summary of results for Merchant Banking is as follows (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $764,460 $735,213 $577,278 Expenses: Compensation and benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes and 77,072 338,588 31,425 67,362 199,128 713,575 61,767 319,641 34,129 69,805 162,832 648,174 50,155 307,071 26,167 48,357 112,587 544,337 income (loss) related to associated companies . . . . . . . . . . . . . . . . Income (loss) related to associated companies . . . . . . . . . . . . . . . . . . . . . . . 50,885 (75,483) 87,039 202,453 32,941 56,030 Income (loss) from continuing operations before income taxes . . . $ (24,598) $289,492 $ 88,971 In the fourth quarter of 2018, we transferred our 50% membership interest in Berkadia into Jefferies Group. Income from continuing operations before income taxes related to the net assets transferred was $78.7 million for the eleven months ended November 30, 2018. The increase in Net revenues in 2020 as compared to 2019 is primarily due to an increase in revenues at Idaho Timber and an increase in realized and unrealized gains on financial instruments, partially offset by the 2019 pre- tax gains on the sale of our remaining 31% interest in National Beef and on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. The increase in Compensation and benefits expense in 2020 as compared to 2019 is primarily due to an increase at Idaho Timber and the full year acquisition impact of HomeFed. The increase in Cost of sales in 2020 as compared to 2019 primarily reflects the increased sales at Idaho Timber. The increase in Selling, general and other expenses in 2020 as compared to 2019 primarily reflects increased non-cash charges in 2020 to JETX Energy’s and Vitesse Energy Finance’s oil and gas assets and write-downs to some of our real estate investments at HomeFed, partially offset by lease abandonment charges at JETX Energy in 2019. 41 77560 A summary of results for Merchant Banking by significant business and investment is as follows (in thousands): For the twelve months ended November 30, 2020 Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho Timber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . For the twelve months ended November 30, 2019 Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho Timber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Revenues Expenses $ 141,973 421,497 47,160 335 153,495 $ 764,460 $ 150,224 324,786 37,405 (8,139) – 89,497 141,440 $178,679 341,796 66,043 – 127,057 $713,575 $170,680 306,832 39,940 – – – 130,722 Income (Loss) from Associated Companies Total Pre-Tax Income (Loss) $ – – (46,050) 3,604 (33,037) $ (75,483) $ – – 7,549 (8,212) 232,042 – (28,926) $ (36,706) 79,701 (64,933) 3,939 (6,599) $ (24,598) $ (20,456) 17,954 5,014 (16,351) 232,042 89,497 (18,208) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 735,213 $648,174 $202,453 $ 289,492 For the eleven months ended November 30, 2018 Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho Timber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spectrum Brands/HRG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Berkadia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169,667 357,513 350 18,616 – (412,493) – 443,625 $116,017 321,851 977 – – – – 105,492 $ – – 6,956 (83,174) 110,049 – 80,092 (57,893) $ 53,650 35,662 6,329 (64,558) 110,049 (412,493) 80,092 280,240 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 577,278 $544,337 $ 56,030 $ 88,971 Oil and Gas Oil and gas results for 2020 were lower than 2019 primarily due to curtailed production, lower oil prices and impairment charges recorded during the first half of the year. Oil and gas net revenues totaled $142.0 million during 2020 and $150.2 million during 2019, and primarily consist of three components: • Production revenues (include the impact of realized gains and losses related to oil hedges) were $156.8 million in 2020 and $176.9 million in 2019. The decrease in production revenues related both to lower oil prices on current volume and decisions made to pause production on a portion of operating wells due to expectation of higher future prices. Production revenues included realized gains on oil hedges of $52.7 million in 2020 and $1.5 million in 2019. • Net unrealized losses related to oil hedge derivatives were $7.0 million in 2020 and $6.5 million in 2019. As discussed further in Note 4 to the consolidated financial statements, Vitesse Energy Finance uses swaps and call and put options to reduce exposure to future oil price fluctuations. For 2020, approximately 108% of oil production was hedged at a weighted average price of approximately $60/ barrel. For 2021, approximately 50% of expected oil production is hedged at a weighted average price of approximately $54/barrel. • Mark-to-market losses related to a financial instrument owned held at fair value were $7.8 million during 2020 and $20.2 million during 2019. 42 24349 Total expenses for Oil and gas were $178.7 million during 2020 as compared to $170.7 million in 2019. Although some of Vitesse Energy Finance’s operating expenses were lower due to reduced production, this was offset by non-cash charges in 2020 to JETX Energy’s oil and gas assets of $34.6 million and to Vitesse Energy Finance’s oil and gas assets in the DJ Basin of $13.2 million. 2019 also included lease abandonment charges of $15.1 million and non-cash charges to JETX Energy’s oil and gas assets of $10.9 million at JETX Energy. Idaho Timber High demand for wood for home improvement and construction led to favorable pricing and record results for Idaho Timber in 2020. Net revenues increased during 2020 as compared to 2019, primarily due to an increase in average selling price of 29%. The increase in total expenses for Idaho Timber during 2020 as compared to 2019 primarily reflects increased cost of sales and increased compensation expense. Real Estate The increase in real estate revenues and real estate expenses during 2020 as compared to 2019, primarily relates to the July 1, 2019 acquisition of the remaining 30% of HomeFed we did not previously own. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. Income (loss) related to real estate associated companies for 2020, includes a non-cash charge of $55.6 million to fully write off the value of HomeFed’s RedSky JZ Fulton Investors (‘‘RedSky JZ Fulton Mall’’) joint venture investment due to the softening of the Brooklyn real estate market and a non-cash charge of $6.9 million to fully write off HomeFed’s interest in the Brooklyn Renaissance Plaza hotel related to the significant impact of COVID-19. FXCM Net revenues from our FXCM term loan include gains (losses) of $0.3 million and $(8.1) million during 2020 and 2019, respectively. National Beef and Spectrum Brands Income from associated companies in 2019, reflects our share of National Beef’s results prior to our sale in November 2019. Spectrum Brands net revenues reflect changes in the value of our investment. We classified Spectrum Brands as a financial instrument owned, at fair value for which the fair value option was elected and we reflected mark-to- market adjustments in Principal transactions revenues. We distributed all of our 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. Other Other revenues for 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 also reflect realized and unrealized gains (losses) on financial instruments owned, which are held at fair value, of $54.7 million and $(279.3) million during 2020 and 2019, respectively. The gains (losses) on 43 88924 financial instruments owned include unrealized losses on WeWork of $43.0 million and $182.3 million during 2020 and 2019, respectively. The gains (losses) on financial instruments owned for 2020, also include a gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in our portfolio investments. Corporate A summary of results of operations for Corporate is as follows (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,258 $ 32,833 $ 22,300 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,184 3,496 26,197 58,005 3,475 39,820 50,222 3,169 35,049 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from continuing operations before income taxes . . . . . . . . . 68,877 $(55,619) 101,300 $ (68,467) 88,440 $(66,140) Net revenues primarily include realized and unrealized securities gains and interest income for investments held at the holding company. Total expenses include share-based compensation expense of $13.7 million and $22.9 million for 2020 and 2019, respectively. Parent Company Interest Parent company interest totaled $53.4 million and $53.0 million for 2020 and 2019, 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 2020 and 2019 was $5.7 million and $6.0 million, respectively. Income Taxes Our provision for income taxes was $298.7 million for 2020, representing an effective tax rate of 28.0%. For 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 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 44 21267 $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. For further information on income taxes, see Note 19 to our consolidated financial statements. 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 Statement of Operations. A summary of the results of discontinued operations for National Beef for the period from January 1, 2018 through June 4, 2018 as included in discontinued operations for the eleven months ended November 30, 2018 is as follows (in thousands): Revenues: Beef processing services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,137,611 131 4,329 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142,071 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,414 2,884,983 4,316 43,959 14,291 2,964,963 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 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 26 to our consolidated financial statements. 45 87648 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, 2020 Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Consolidation Adjustments Total $ 10,109 $ 212,668 $1,730,367 $ – $ 9,055,148 Assets Cash and cash equivalents . . . . . . . $ 7,102,004 Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . . . . . . . . . . . . . . . . . Financial instruments owned, at fair value . . . . . . . . . . . . . . . . . . . . . 15,249,686 2,534,860 340,031 604,321 – – Loans to and investments in associated companies . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . Securities received as collateral, at fair value. . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . Property, equipment and leasehold improvements, net . . . . . . . . . . . . . Intangible assets, net and 995,730 6,934,762 5,096,769 7,517 5,470,104 148,005 542,828 – – – – – – 378,037 762,382 52 – – – – – – – – – – – – (1,808) 604,321 18,124,577 1,686,563 6,934,762 5,096,769 7,517 6,608,767 847,108 8,121 30,670 11,305 – 897,204 goodwill . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . 1,721,277 805,848 143,310 8,617 48,880 1,235,605 – 436,975 – (297,788) 1,913,467 2,189,257 Total assets. . . . . . . . . . . . . . . . . . . 44,835,126 3,231,059 3,173,064 2,178,699 (299,596) 53,118,352 Liabilities Long-term debt (1) (2) . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . 6,218,797 32,752,740 676,883 1,758,373 463,648 727,088 992,711 239,507 – (299,596) 8,352,039 35,178,112 Total liabilities . . . . . . . . . . . . . . . 38,971,537 2,435,256 1,190,736 1,232,218 (299,596) 43,530,151 Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . Mandatorily redeemable convertible preferred shares . . . . Noncontrolling interests . . . . . . . . . . – – 712 Total Jefferies Financial Group Inc. shareholders’ equity. . . . . . . . . . . . . . . . . . . . . . $ 5,862,877 – 24,676 – – 16,677 – 17,243 125,000 – – – – 24,676 125,000 34,632 $ 779,126 $1,940,409 $ 821,481 $ – $ 9,403,893 (1) Jefferies Group long-term debt of $6.9 billion at November 30, 2020 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis. (2) Long-term debt within Merchant Banking of $463.6 million at November 30, 2020, primarily includes $236.8 million for real estate businesses, $97.9 million for Vitesse Energy Finance and $129.0 million for Foursight Capital. At November 30, 2020, Vitesse Energy Finance had $98.5 million drawn out of the maximum $120.0 million borrowing base on its credit facility and Foursight Capital had $129.3 million drawn out of the maximum $175.0 million credit commitment on its credit facilities. See Note 12 in our consolidated financial statements for additional information. 46 22152 November 30, 2019 Investment Banking and Capital Markets Asset Management Merchant Banking Corporate Consolidation Adjustments Total $ 5,561,281 $ 25,255 $ 111,552 $1,980,733 $ – $ 7,678,821 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 796,797 – – – fair value . . . . . . . . . . . . . . . . . . . . . . 13,735,641 2,681,034 363,237 115,829 Loans to and investments in associated companies. . . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . . Securities purchased under agreements to resell. . . . . . . . . . . . . Securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . Receivables. . . . . . . . . . . . . . . . . . . . . . . Property, equipment and leasehold improvements, net . . . . . . . . . . . . . . Intangible assets, net and goodwill . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . 944,509 7,624,642 4,299,598 9,500 4,560,760 83,258 – – – 625,190 – – – – – – – 369,410 813,675 261 350,071 796 20,632 13,530 1,726,736 913,688 143,616 10,347 52,582 1,298,803 – 321,766 Total assets . . . . . . . . . . . . . . . . . . . . 40,523,223 3,313,716 3,285,671 2,432,119 Liabilities Long-term debt (1) (2) . . . . . . . . . . . . Other liabilities . . . . . . . . . . . . . . . . . . . 6,289,015 28,658,041 714,343 1,761,674 342,325 754,560 991,378 290,104 Total liabilities . . . . . . . . . . . . . . . . . 34,947,056 2,476,017 1,096,885 1,281,482 – – – – – – – – – (94,495) (94,495) – (94,495) (94,495) Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . – Mandatorily redeemable convertible preferred shares. . . . . . Noncontrolling interests . . . . . . . . . . . Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . – – – 26,605 – – 17,704 125,000 – – – – – 4,275 796,797 16,895,741 1,652,957 7,624,642 4,299,598 9,500 5,744,106 385,029 1,922,934 2,450,109 49,460,234 8,337,061 31,369,884 39,706,945 26,605 125,000 21,979 $ 5,571,892 $ 837,699 $2,144,477 $1,025,637 $ – $ 9,579,705 (1) Jefferies Group long-term debt of $7.0 billion at November 30, 2019 is allocated to Investment Banking and Capital Markets, and Asset Management segments based on an internal management view only and may not be reflective of what long-term debt would be on a stand-alone segment basis. (2) 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. At November 30, 2019, Vitesse Energy Finance had $104.0 million drawn out of the maximum $170.0 million borrowing base on its credit facility and Foursight Capital had $98.7 million drawn out of the maximum $175.0 million credit commitment on its credit facilities. See Note 12 in our consolidated financial statements for additional information. 47 21295 The table below presents our capital by significant business and investment (in thousands): Jefferies Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Assets held on behalf of Asset Management (excluding Jefferies Group) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchant Banking: November 30, 2020 $6,407,954 November 30, 2019 $6,181,683 234,049 227,908 Oil and gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Linkem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FXCM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Idaho Timber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WeWork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in public companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526,642 531,553 198,991 133,375 85,595 10,833 192,363 261,057 585,493 645,328 194,847 129,343 77,914 53,798 178,593 279,161 Total Merchant Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,940,409 2,144,477 Corporate liquidity and other assets, net of Corporate liabilities including long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821,481 1,025,637 Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,403,893 $9,579,705 Liquidity and Capital Resources Parent Company Liquidity Our strategy focuses on strengthening and expanding our core businesses of Investment Banking and 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 to shareholders 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 is completed. Some of these transactions have generated significant excess liquidity; some of these transactions have also reduced 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 $1,884.7 million at November 30, 2020, 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 financial instruments owned, at fair value. At November 30, 2020, $1,551.7 million of this amount is invested in U.S. government money funds that 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. invest at During the twelve months ended November 30, 2020, our parent company received cash distributions of $733.5 million from our subsidiary businesses, including $581.7 million from Jefferies Group. We also received $303.4 million from divestitures and repayments of advances. Our recurring cash requirements, including the payment of interest on our parent company debt, dividends and corporate cash overhead expenses, aggregate approximately $309.7 million on an annual basis. Dividends paid during the twelve months ended November 30, 2020 of $160.9 million include quarterly dividends of $0.15 per share. On January 4, 2021, our Board of Directors increased our quarterly dividend by 33% to $0.20 per share. 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. 48 12634 For many years, we benefited from federal net operating loss carryovers (‘‘NOLs’’) which substantially offset our federal cash tax requirements. As a result of full utilization of our federal NOLs and other tax attributes, we expect to incur federal cash tax liabilities in 2021. Our primary long-term parent company cash requirement is our $1.0 billion principal outstanding as of November 30, 2020 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 At November 30, 2019, we had approximately $203.6 million available for future share repurchases, based on the closing price of Jefferies common shares on November 30, 2019. In January 2020, the Board of Directors approved an additional $250.0 million share repurchase authorization. In March 2020, having completed the repurchase of shares under the previous authorization, the Board of Directors approved an additional share repurchase authorization of $100 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million to $250.0 million. In September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million to $250.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for $812.7 million, or an average price per share of $19.29. At November 30, 2020, we have approximately $57.2 million available for future repurchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million. At November 30, 2020, we had outstanding 249,750,542 common shares and 23,868,000 share-based awards that do not require the holder to pay any exercise price (potentially an aggregate of 273,618,542 outstanding common shares if all awards become outstanding common shares). The 23,868,000 share-based awards include the target number of shares under the senior executive award plan, which is more fully discussed in Note 15. Concentration and Liquidity 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 (1) . . . . . . . . . . . . . . . . . Standard and Poor’s (2) . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating Baa3 BBB BBB Outlook Stable Stable Stable (1) On April 15, 2020, Moody’s Investors Service affirmed our rating of Baa3 and rating outlook of stable. (2) On October 29, 2020, Standard and Poor’s affirmed our rating of BBB and revised our rating outlook from negative to stable. We target specific concentration and liquidity principles, 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. On this basis, Linkem is our largest investment excluding Jefferies Group and Vitesse Energy Finance is our next 49 16860 largest investment excluding Jefferies Group. There were no investments made during the year that approached 10% of equity excluding Jefferies Group. Liquidity Target: We hold a parent company 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 619,400 $1,884,650 November 30, 2020 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. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash, cash equivalents and restricted cash at end of period . . . . . . . . Twelve Months Ended November 30, 2020 $8,480,435 2,075,948 (186,192) (723,525) 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) 18,306 $9,664,972 (1,063) $8,480,435 (19,546) $6,012,662 During the twelve months ended November 30, 2020, net cash provided by operating activities primarily relates to funds provided by Jefferies Group of $1,870.9 million. Net losses related to property and equipment, and other assets includes the non-cash charge of $61.0 million to write down the value of certain of our assets during the twelve months ended November 30, 2020. During the twelve months ended November 30, 2019, net cash used for operating activities primarily relates to funds used by Jefferies Group 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 twelve months ended November 30, 2020, net cash used for investing activities principally reflects $1,690.6 million of loans to and investments in associated companies and $813.9 million for advances on notes, loans and other receivables, partially offset by $1,556.0 million of capital distributions and loan repayments from associated companies and $686.1 million of collections on notes, loans and other receivables. 50 44405 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. Jefferies Group used funds of $124.4 million for investing activities in 2019. During the twelve months ended November 30, 2020, net cash used for financing activities primarily relates to funds used to repurchase common shares for treasury of $816.9 million and funds used to pay dividends of $160.9 million. This was partially offset by funds provided by Jefferies Group of $215.5 million, including funds provided by the issuance of debt of $2,789.5 million and proceeds from other secured financings of $305.9 million, partially offset by funds used for the repayment of debt of $2,863.0 million. During the twelve months ended November 30, 2019, net cash provided by financing activities primarily relates to funds provided by Jefferies Group 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. The following below provides information about our contractual obligations at November 30, 2020. Contractual Obligations Total 2021 Expected Maturity Date 2023 and 2024 2025 and 2026 2022 After 2026 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated interest payments on debt . . . . . . . . Operating leases. . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total contractual obligations . . . . . . . . . . . . . $ 8,234.9 3,611.4 686.9 694.4 $13,227.6 $ 350.4 359.4 72.4 326.0 $1,108.2 $ 69.8 345.5 77.0 175.3 $667.6 $2,340.9 548.4 130.6 123.4 $3,143.3 $117.8 490.6 122.5 46.5 $777.4 $5,356.0 1,867.5 284.4 23.2 $7,531.1 (In millions) Amounts related to our U.S. pension obligations ($46.4 million) are not included in the above table as the timing of payments is uncertain; however, we do expect to make $8.0 million of contributions to these plans in 2021. For further information, see Note 17 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 $401.4 million at November 30, 2020; for more information, see Note 19 in our consolidated financial statements. in 2005, its defined benefit pension plan was not 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 transferred in connection with the sale. At November 30, 2020, we had recorded a liability of $38.0 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 assumptions provided by management. These assumptions are reviewed on an annual basis, including 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. 51 24688 Holding all other assumptions constant, a 0.25% change in the discount rate would affect pension expense in 2021 by $0.1 million and the benefit obligation by $6.4 million, of which $4.7 million relates to the WilTel plan. The deferred losses in accumulated other comprehensive income (loss) have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations ($57.3 million at November 30, 2020). 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 2021 is $3.6 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 17 in our consolidated financial statements. Jefferies Group 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 Jefferies Group. 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. Jefferies Group has 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 are 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 the firm’s 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, 2020, our Consolidated Statement of Financial Condition includes Jefferies Group’s Level 3 financial instruments owned, at fair value that are approximately 2% of total financial instruments owned, at fair value. 52 96375 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): 2020 2019 Securities purchased under agreements to resell: Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Month end average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,097 8,040 12,061 $ 4,300 7,762 11,589 Securities sold under agreements to repurchase: Period end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Month end average . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Maximum month end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,316 13,501 18,979 $ 7,505 14,686 19,654 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 Modeled 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. 53 28220 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 $13.0 billion at November 30, 2020 exceeded its cash capital requirements. Modeled 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-term debt balances than the businesses would otherwise require. As part of this estimation process, we calculate a Modeled Liquidity Outflow that could be experienced in a liquidity crisis. Modeled 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 Modeled Liquidity Outflow scenarios, we determine, based on a calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and consider any adjustments that may be necessary to Jefferies Group’s inventory balances and cash holdings. At November 30, 2020, Jefferies Group had sufficient excess liquidity to meet all contingent cash outflows detailed in the Modeled 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 Jefferies Group, 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, 2020 Average Balance Fourth Quarter 2020 (1) November 30, 2019 Cash and cash equivalents: Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Money market investments (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,979,058 5,132,871 $2,777,480 4,044,718 $ 983,816 4,584,087 Total cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,111,929 6,822,198 5,567,903 Other sources of liquidity: Debt securities owned and securities purchased under agreements to resell (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,180,410 312,511 1,492,921 1,074,927 306,911 1,381,838 972,624 377,296 1,349,920 Total cash and cash equivalents and other liquidity sources. $8,604,850 $8,204,036 $6,917,823 (1) Average balances are calculated based on weekly balances. 54 80816 (2) At November 30, 2020 and 2019, $5,118.0 million and $4,496.7 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 $14.9 million and $87.4 million at November 30, 2020 and 2019, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the quarter ended November 30, 2020 was $4,030.2 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 EEA, 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 financial instruments (both long and short) in our trading accounts are actively traded and readily marketable. At November 30, 2020, repurchase financing can be readily obtained for approximately 71.0% 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 financial instruments owned primarily consisting of bank loans, consumer loans and investments are predominantly 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 marketplace 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 financial instruments owned 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, 2020 November 30, 2019 Liquid Financial Instruments Unencumbered Liquid Financial Instruments (2) Liquid Financial Instruments Unencumbered Liquid Financial Instruments (2) $ 2,191,536 2,298,591 $ 238,129 50,217 $ 2,403,589 1,893,605 $ 256,624 29,412 3,336,361 2,518,928 1,652,743 564,112 110,586 1,101,272 – – 2,894,264 2,633,636 1,757,077 655,120 151,414 969,800 – – Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,562,271 $1,500,204 $12,237,291 $1,407,250 (1) Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only 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. 55 49449 Sources of Funding and Capital Resources Jefferies Group’s assets are funded by equity capital, senior debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables. 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. At November 30, 2020, approximately 60.1% of Jefferies Group’s cash and noncash repurchase financing activities used collateral that was considered eligible collateral by central clearing corporations. During the year ended November 30, 2020, an average of approximately 87.7% of Jefferies Group’s cash and noncash repurchase financing activities used collateral that was 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 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, 2020. 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, 2020, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities, floating rate puttable notes and equity-linked notes, totaled $764.7 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 $656.3 million and $555.4 million for 2020 and 2019, respectively. Jefferies Group’s short-term borrowings include facilities that contain certain covenants that, among other things, require it to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of its subsidiaries that are borrowers. At November 30, 2020, Jefferies Group was in compliance with all covenants under these facilities. Jefferies Group’s facilities included within short-term borrowings at November 30, 2020 were as follows (in thousands): Bank of New York Mellon Master Loan Agreement (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . JPMorgan Chase Bank, N.A. Credit Facility (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Royal Bank of Canada Credit Facility (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank of New York Mellon Credit Facility (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 246,000 200,000 – Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $746,000 (1) Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement. (2) Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in this credit facility agreement. (3) Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%. 56 02971 (4) During 2020, Jefferies LLC entered into a revolving credit facility with the Bank of New York Mellon for a committed amount of $100.0 million, maturing on September 13, 2021. Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%. At November 30, 2020, there were no borrowings outstanding under this agreement. Jefferies Group’s short-term borrowings at November 30, 2020 also include floating rate puttable notes of $6.8 million, equity-linked notes of $5.1 million and other bank loans of $6.8 million. In addition, 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 Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group’s U.S. broker-dealer, Jefferies LLC. At November 30, 2020, Jefferies Group was in compliance with all debt covenants under the Jefferies Group Intraday Credit Facility. 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 Statements of Financial Condition. At November 30, 2020, the outstanding notes were $2.7 billion, bear interest at a spread over LIBOR and mature from December 2020 to August 2022. Long-Term Debt Jefferies Group’s long-term debt reflected in the Consolidated Statement of Financial Condition at November 30, 2020 is $6.9 billion. Jefferies Group’s long-term debt, excluding its revolving credit facility and the secured bank loan, has a weighted average maturity of approximately 10.8 years. During the twelve months ended November 30, 2020, Jefferies Group’s 2.375% Euro Medium Term Notes matured and were repaid, and its 6.875% Senior Notes due 2021 were retired early. Additionally, during the twelve months ended November 30, 2020, Jefferies Group issued structured notes with a total principal amount of approximately $325.5 million, net of retirements, an additional $150.0 million principal amount of 5.125% Senior Notes due 2023 and $500.0 million principal amount of 2.75% Senior Notes due 2032. At November 30, 2020, all of Jefferies Group’s 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, 2020 was $1,712.2 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, 2020, borrowings under the Jefferies Group Revolving Credit Facility amounted to $189.7 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility 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, 2020, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and we expect to remain in compliance given our current liquidity and anticipated funding requirements given our business plan and profitability expectations. One of Jefferies Group’s subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (‘‘Jefferies Group Secured Bank Loan’’). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies 57 69183 Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2020, 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 (1) . . . . . . . . . . . . . . . . . Standard and Poor’s (2) . . . . . . . . . . . . . . . . . . . . . . . Fitch Ratings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rating Baa3 BBB BBB Outlook Stable Stable Stable (1) On April 15, 2020, Moody’s Investors Service affirmed Jefferies Group’s rating of Baa3 and rating outlook of stable. (2) On October 29, 2020, Standard and Poor’s affirmed Jefferies Group’s rating of BBB and revised its rating outlook from negative 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 liquidity and liquidity results, operating margins, earnings trend and volatility, balance sheet composition, management, capital structure, overall risk management, business diversification and market share and competitive position in the markets in which it operates. Deterioration 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, 2020, 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 $102.9 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 a credit rating downgrade. The impact of additional collateral requirements is considered in Jefferies Group’s Contingency Funding Plan and calculation of Modeled Liquidity Outflow, as described above. Ratings issued by credit rating agencies are subject to change at any time. Net Capital Jefferies Group operates a broker-dealer, Jefferies LLC, 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, 2020 were $2,161.3 million and $2,060.5 million, respectively. FINRA is the designated examining authority for Jefferies LLC 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 U.K. 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. The CFTC has finalized rules establishing capital requirements and financial reporting 58 37997 requirements for CFTC registered swap dealers not subject to regulation by a banking regulator. We expect that these provisions will result in modifications to the regulatory capital requirements of some of Jefferies Group’s entities, and will result 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. Jefferies Group may also be required in the future to register one or more additional subsidiaries as security- based swap dealers with the SEC. Compliance with these rules is required by October 6, 2021. in some of Jefferies Group’s other entities becoming subject The regulatory capital requirements referred to above may restrict Jefferies Group’s ability to withdraw capital from its 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. Other Developments The U.K. left the EU on January 31, 2020 and the current transition period ended on December 31, 2020. On January 1, 2021, Jefferies Group’s U.K. broker dealer, Jefferies International Limited, is no longer able to provide services to European clients under the passport regime. Jefferies Group has taken steps to ensure its ability to provide services to its European clients without interruption by establishing a wholly-owned subsidiary in Germany (‘‘Jefferies GmbH’’), which is authorized and regulated in Germany by the Federal Financial Services Authority (‘‘BaFin’’). European clients have been migrated to Jefferies GmbH to conduct business across all of Jefferies Group’s European investment banking, fixed income and equity platforms. During 2020, Jefferies Group’s European branches in Amsterdam, Madrid, Milan, Paris and Stockholm were migrated and Jefferies Group increased its local employees, equity capital and established clearing relationships. Central banks and regulators around the world have convened working groups to find, and implement the transition to, suitable replacements for IBORs. Jefferies Group has an active transition program that focuses on an orderly transition from IBORs to alternative reference rates, including internal operational readiness and risk management. Jefferies Group is identifying, assessing and monitoring risk associated with the expected discontinuation of IBORs, which includes taking steps to update operational processes and models and evaluation legacy contracts for any changes that may be required. Off-Balance Sheet Arrangements At November 30, 2020, our commitments and guarantees, substantially all of which related to Jefferies Group, are as follows: Commitments and Guarantees Total 2021 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 . . . . . . . . . . . . . . . . . . . Total commitments and guarantees . . . . . . . Expected Maturity Date $ $ 2022 (In millions) 53.4 10.0 – – – 25.0 2023 and 2024 25.3 25.0 – – – 5.2 $ 465.5 286.8 243.3 6,048.0 3,488.7 186.8 $ 365.5 249.5 243.3 6,048.0 3,488.7 156.6 21,246.5 6.4 22.0 $31,994.0 12,607.6 – 14.6 $23,173.8 2,475.8 – 5.8 $2,570.0 5,760.8 6.4 1.1 $5,823.8 2025 and 2026 $ 14.5 2.3 – – – – 390.4 – – $407.2 After 2026 $ 6.8 – – – – – 11.9 – 0.5 $19.2 (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 22 in our consolidated financial statements. 59 84493 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, 2020, is not the aggregate amount of commercial paper outstanding was $1.47 billion. This commitment 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 Financial instruments owned, at fair value or Financial instruments sold, not yet purchased, 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, 4 and 5 in our consolidated financial statements. We are routinely involved with variable interest entities (‘‘VIEs’’) in the normal course of business. At November 30, 2020, we did not have any commitments to purchase assets from our VIEs. For additional information regarding VIEs, see Notes 7 and 8 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 most critical accounting estimates, which are those that are important to the presentation of our financial condition and results of operations and require our most difficult, subjective and complex judgments. Fair Value of Financial Instruments – Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. Gains and losses on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recognized in the Consolidated Statements of Operations in Principal transactions. 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 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 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. 60 28450 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 4 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 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. Due to a decline in oil and gas prices during the second quarter of 2020, Vitesse Energy Finance performed impairment analyses on its proven oil and gas properties in the DJ Basin of Wyoming and Colorado and the Bakken Shale oil field in North Dakota. Vitesse Energy Finance first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of May 31, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the oil and gas properties. No impairment of the Bakken Shale oil field assets was necessary as the undiscounted future net cash flows significantly exceeded the carrying value of these assets. As undiscounted future net cash flows were lower than the carrying value of the DJ Basin properties, Vitesse Energy Finance then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, Vitesse Energy Finance used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of Vitesse Energy Finance’s proven oil and gas properties in the DJ Basin totaled $26.8 million, which was $13.2 million 61 59184 lower than the carrying value as of the end of the second quarter of 2020. As a result, an impairment charge of $13.2 million was recorded in Selling, general and other expenses during 2020. Due to a decline in oil and gas prices during the first quarter of 2020, JETX Energy performed an impairment analysis for its oil and gas properties in the East Eagle Ford. JETX Energy first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of February 29, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the proven properties. As the undiscounted future net cash flows were lower than the carrying value, JETX Energy then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, JETX Energy used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of JETX Energy’s proven oil and gas properties in the East Eagle Ford totaled $9.6 million, which was $33.0 million lower than the carrying value as of the end of first quarter of 2020. As a result, an impairment charge of $33.0 million was recorded in Selling, general and other expenses during 2020. 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 9, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. 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 the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million. HomeFed has a 49% membership interest in the RedSky JZ Fulton Mall joint venture, which owns a property in Brooklyn, New York. The property consists of 14 separate tax lots, divided into two development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the first quarter of 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed’s equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. 62 82687 HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during 2020, which represented all of its carrying value in the joint venture. 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 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. We adopted Accounting Standards Update No. 2017-04 on December 1, 2020, which simplifies goodwill impairment testing by eliminating the second step of the impairment test noted above. If the total carrying value of a reporting unit exceeds the fair value, an impairment charge would be recorded to goodwill for the difference between the carrying value and the fair 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 the Investment Banking and Capital Markets, and Asset Management segments for our annual goodwill impairment test as of August 1, 2020. The results of our annual goodwill impairment test for both the Investment Banking and Capital Markets segment and the Asset Management segment did not indicate any goodwill impairment. Intangible 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, 2020. At 63 71678 August 1, 2020, we elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other membership interests and registrations that have declined in utilization. Qualitative assessments were performed on the remainder of our indefinite-life intangible assets. In applying our quantitative assessment at August 1, 2020, we recognized immaterial impairment losses on certain exchange membership interests and registrations. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we concluded that it is not more likely than not that the intangible assets are impaired. Contingencies – In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 22 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 Jefferies Group and the balance of our company. Exclusive of Jefferies Group, our market risk arises principally from equity price risk. Excluding Jefferies Group, Financial instruments owned, at fair value include corporate equity securities with an aggregate fair value of $281.1 million at November 30, 2020. Assuming a decline of 10% in market prices, the value of these investments could decrease by approximately $28.1 million. Jefferies Group 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 risk 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 our 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 risk Jefferies Group’s Risk Management, Operations, Compliance, Legal and Finance Departments. Our management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification. 64 82462 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 set quantitative concentration limits to manage this risk. We consider contagion, second order effects and correlation in our risk assessment process and actively seek 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 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 a 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. 65 54693 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 Jefferies Group’s 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 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 $10.51 million for 2020 from $8.79 million for 2019. The increase in average VaR and the average interest rate VaR component was primarily due to the increase in market volatility observed throughout 2020. 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 Jefferies Group’s overall trading positions using the past 365 days of historical data (in millions): Daily VaR (1) Value-at-Risk in Trading Portfolios VaR at November 30, 2020 Risk Categories Interest Rates. . . . . . . . . . . . . . . . . Equity Prices . . . . . . . . . . . . . . . . . Currency Rates . . . . . . . . . . . . . . . Commodity Prices . . . . . . . . . . . . Diversification Effect (2) . . . . . . Firmwide. . . . . . . . . . . . . . . . . . . . . $ 7.66 12.54 0.16 0.44 (2.04) $18.76 Daily VaR for 2020 Average High Low $ 7.90 $12.50 $3.93 14.91 3.68 8.01 2.17 0.03 0.21 0.70 1.56 0.24 (6.31) N/A N/A $10.51 $22.78 $5.02 VaR at November 30, 2019 $ 4.81 5.07 0.32 0.64 (6.14) $ 4.70 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 2.43 0.40 0.89 (4.76) N/A N/A $ 8.79 $14.83 $4.70 (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 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. Jefferies Group performs daily back-testing of its VaR model comparing realized revenue and loss with the previous day’s VaR. Backtesting results are included in the quarterly business review pack for its Board. 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 trading related commissions, revenue from securitization activities and net interest income. transactions revenues, For a 95% confidence one day VaR model (i.e., no intra-day 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 66 37653 exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days). During 2020, results of the evaluation at the aggregate level demonstrated eleven days when the net trading loss exceeded the 95% one day VaR. The chart below reflects our daily VaR over the last four quarters, with the increase in August 2020 and the fourth quarter of 2020 due to market volatility observed throughout 2020 and as certain businesses took advantage of positive market momentum in August and November 2020. R a V y l i a D ) s n o i l l i M n i $ ( 24.00 22.00 20.00 18.00 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Three Months Ended February 29, 2020 Three Months Ended May 31, 2020 Three Months Ended August 31, 2020 Three Months Ended November 30, 2020 Daily Net Trading Revenue There were 26 days with trading losses out of a total of 252 trading days in 2020. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of Jefferies Group’s trading activities for 2020 (in millions). Year Ended November 30, 2020 Distribution of Daily Net Trading Revenue s y a D f o r e b m u N 70 60 50 40 30 20 10 0 <(10) (10)-(5) (5)-0 0-5 5-10 10-15 15-20 >20 Daily Trading Net Revenue in $ Millions 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, Jefferies Group’s Risk Management has additional procedures in place to assure that the 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, 2020 (in thousands): 67 23938 Investment in funds (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Private investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate debt securities in default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trade claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% Sensitivity $95,598 16,655 7,979 3,808 (1) Includes investments in hedge funds, fund of funds and private equity funds. For additional information on these investments, see Note 4 in our consolidated financial statements. VaR also excludes the impact of changes in Jefferies Group’s own credit spreads on its structured notes for which the fair value option was elected. The estimated credit spread risk sensitivity for each one basis point widening in Jefferies Group’s own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.2 million at November 30, 2020, 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 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 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 68 51504 exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with our portion of Jefferies Group’s Secured Revolving Credit Facility that is with Jefferies Group and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. See Note 9 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 25 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 include 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 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, 2020 and 2019 (in millions). 69 86045 Counterparty Credit Exposure by Credit Rating November 30, 2020 AAA Range . . . . . . . . . . . . . . . . AA Range . . . . . . . . . . . . . . . . . . A Range. . . . . . . . . . . . . . . . . . . . BBB Range . . . . . . . . . . . . . . . . . BB or Lower . . . . . . . . . . . . . . . Unrated. . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . November 30, 2019 AAA Range . . . . . . . . . . . . . . . . AA Range . . . . . . . . . . . . . . . . . . A Range. . . . . . . . . . . . . . . . . . . . BBB Range . . . . . . . . . . . . . . . . . BB or Lower . . . . . . . . . . . . . . . Unrated. . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . Loans and Lending Securities and Margin Finance OTC Derivatives $ – 45.2 0.2 250.5 50.0 142.0 $487.9 $ – 45.2 1.1 250.2 15.0 94.2 $405.7 $ 1.1 111.7 542.2 110.2 8.3 – $773.5 $ 1.5 43.0 531.9 140.9 6.6 – $723.9 $ 0.1 9.8 147.2 18.1 201.6 0.2 $377.0 $ – 3.7 152.4 48.3 154.1 6.8 $365.3 Counterparty Credit Exposure by Region November 30, 2020 Asia/Latin America/Other . . . . Europe . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . November 30, 2019 Asia/Latin America/Other . . . . Europe . . . . . . . . . . . . . . . . . . . . . North America . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . Loans and Lending Securities and Margin Finance OTC Derivatives $ 15.0 0.1 472.8 $487.9 $ 15.0 – 390.7 $405.7 $ 72.6 313.0 387.9 $773.5 $ 50.5 324.1 349.3 $723.9 $ 6.9 42.5 327.6 $377.0 $ 0.3 101.1 263.9 $365.3 Cash and Cash Equivalents Total with Cash and Cash Equivalents $5,132.9 7.8 1,967.9 2.2 0.1 1.0 $ 7,111.9 $4,584.1 5.3 976.3 1.6 – 0.6 $5,567.9 $5,134.1 174.5 2,657.5 381.0 260.0 143.2 $8,750.3 $4,585.6 97.2 1,661.7 441.0 175.7 101.6 $7,062.8 Cash and Cash Equivalents Total with Cash and Cash Equivalents $ 248.4 96.4 6,767.1 $ 7,111.9 $ 100.4 74.1 5,393.4 $5,567.9 $ 342.9 452.0 7,955.4 $8,750.3 $ 166.2 499.3 6,397.3 $7,062.8 Total $ 1.2 166.7 689.6 378.8 259.9 142.2 $1,638.4 $ 1.5 91.9 685.4 439.4 175.7 101.0 $1,494.9 Total $ 94.5 355.6 1,188.3 $1,638.4 $ 65.8 425.2 1,003.9 $1,494.9 70 78041 Counterparty Credit Exposure by Industry November 30, 2020 Loans and Lending Securities and Margin Finance OTC Derivatives Asset Managers . . . . . . . . . . . . . Banks, Broker-dealers. . . . . . . . Corporates . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . $ 0.2 250.7 132.7 104.3 $487.9 November 30, 2019 Asset Managers . . . . . . . . . . . . . Banks, Broker-dealers. . . . . . . . Corporates . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . $ – 250.7 81.3 73.7 Total . . . . . . . . . . . . . . . . . . . $405.7 $ – 558.6 – 214.9 $773.5 $ 1.7 526.7 – 195.5 $723.9 $ – 178.8 183.9 14.3 $377.0 $ – 206.8 154.4 4.1 $365.3 Total $ 0.2 988.1 316.6 333.5 $1,638.4 $ 1.7 984.2 235.7 273.3 $1,494.9 Cash and Cash Equivalents Total with Cash and Cash Equivalents $5,132.9 1,979.0 – – $ 7,111.9 $4,584.1 983.8 – – $5,567.9 $5,133.1 2,967.1 316.6 333.5 $8,750.3 $4,585.8 1,968.0 235.7 273.3 $7,062.8 For additional information regarding credit exposure to over-the-counter derivative contracts, see Note 5 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, which may not include the offsetting benefit of any financial instruments utilized to manage market risk. The following tables reflect our top exposure 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, 2020 and 2019 (in millions): November 30, 2020 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 Italy . . . . . . . . . . . . . . United Kingdom. . . France . . . . . . . . . . . . Germany . . . . . . . . . . Australia . . . . . . . . . . Hong Kong . . . . . . . Canada . . . . . . . . . . . Austria. . . . . . . . . . . . India. . . . . . . . . . . . . . Switzerland . . . . . . . $1,929.5 464.0 357.3 470.7 32.7 35.2 417.3 151.2 50.9 104.0 $ (921.6) (235.8) (290.9) (352.7) (17.8) (11.8) (326.8) (73.6) (6.7) (72.2) $(618.9) (46.7) 48.3 40.2 173.9 0.7 1.3 – – 2.9 $ – $ – 0.1 – – – – – – – – 67.4 140.8 63.1 24.9 0.1 20.4 – – 31.6 Total . . . . . . . . . $4,012.8 $(2,309.9) $(398.3) $ 0.1 $348.3 $ 0.1 5.2 24.3 11.3 – – 64.3 – – 1.3 $106.5 71 Issuer and Counterparty Risk Excluding Cash and Cash Equivalents Including Cash and Cash Equivalents $ 389.1 254.2 279.8 232.6 213.7 24.2 176.5 77.6 44.2 67.6 $ 389.1 319.0 279.8 259.3 226.5 181.6 178.6 77.6 68.5 68.0 $ – 64.8 – 26.7 12.8 157.4 2.1 – 24.3 0.4 $288.5 $1,759.5 $2,048.0 32743 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 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 At November 30, 2020, 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 our 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 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 the 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. 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 72 98654 remediate vulnerabilities or other exposures, and we 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. Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. We have adopted enhanced cleaning practices across our offices, have restricted business travel, and have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19. We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes. Additionally, we are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations. 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 73 40583 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. 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 12 to our consolidated financial statements. Expected Maturity Date 2021 2022 2023 2024 (Dollars in thousands) 2025 Thereafter Total Fair Value Rate Sensitive Liabilities: Fixed Interest Rate Borrowings . . . . . . . . . . . $ 50,000 $ – $1,500,000 $142,000 $76,437 $4,439,067 $6,207,504 $7,168,270 Weighted-Average Interest Rate . . . . . . . . . . 1.40% –% 5.13% 0.25% 1.08% 4.84% Variable Interest Rate Borrowings . . . . . . . . . . . $300,420 $65,051 $ 98,500 $ 3,000 $ 5,320 $ 275,555 $ 747,846 $ 760,023 Weighted-Average Interest Rate . . . . . . . . . . Borrowings with Foreign Currency Exposure . . . . $ 1.95% 1.92% 3.40% 1.72% 1.79% 7.23% – $ 4,779 $ – $597,350 $ – $ 677,395 $1,279,524 $1,279,594 Weighted-Average Interest Rate . . . . . . . . . . –% 4.08% –% 1.00% –% 2.64% 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 Exchange Act), as of November 30, 2020. 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, 2020. 74 49816 Changes in internal control over financial reporting reporting (as defined in There has been no change in the Company’s internal control over Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended November 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. financial 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 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 The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of November 30, 2020. 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, 2020, 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, 2020 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation 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 2021 Annual Meeting of Shareholders, which is incorporated herein by reference. 75 29331 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. Item 11. Executive Compensation. Information with respect to this item will be contained in the Proxy Statement for the 2021 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 2021 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 2021 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 2021 Annual Meeting of Shareholders, which is incorporated herein by reference. 76 28757 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, 2020 and 2019 . . . . . . . . . . F-4 Consolidated Statements of Operations for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Comprehensive Income (Loss) for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. . . . . . . . F-7 Consolidated Statements of Cash Flows for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8 Consolidated Statements of Changes in Equity for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. . . . . . . . . . . . . . . . . . . . . . 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, 2020 and 2019 and for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. (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. National Beef Packing Company, LLC financial statements as of December 28, 2019 and for the years ended December 28, 2019 and December 29, 2018 Item 16. Form 10-K Summary. None. Exhibit Index 3.1 3.2 4.1 4.2 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. Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. 77 79986 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 32.2 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).* + Jefferies Financial Group Inc. 2003 Incentive Compensation Plan as Amended and Restated.+ 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 34 and 35 of the Company’s Proxy Statement filed March 3, 2020).* + 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 March 3, 2020).* + 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. 333-238931). Consent of Grant Thornton 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. 333-238931). 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.** Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 78 68457 101 Financial statements from the Annual Report on Form 10-K of Jefferies Financial Group Inc. for the twelve months ended November 30, 2020, 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. 79 28327 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 28, 2021 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 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 January 28, 2021 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) /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/ Jacob M. Katz Jacob M. Katz /s/ Michael T. O’Kane Michael T. O’Kane Director Director Director Director Director Director Director 80 68187 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, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), cash flows and changes in equity, for the year ended November 30, 2020, 2019 and the eleven months ended November 30, 2018, 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, 2020 and 2019, and the results of its operations and its cash flows for the year ended November 30, 2020, 2019 and the eleven months ended November 30, 2018 in conformity with accounting principles generally accepted in the United States of 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, 2020, 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 28, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting. Emphasis of Matter As discussed in Note 1 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 below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-1 07051 Valuation of Certain Level 2 and Level 3 Financial Assets and Liabilities – Refer to Note 2 and Note 4 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/or methodologies used by management and third- party specialists to estimate fair value. The valuations involve a high degree of auditor judgment and an including the need to involve our fair value specialist who possess significant increased extent of effort, 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 28, 2021 We have served as the Company’s auditor since 2017. F-2 19409 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, 2020, 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, the Company maintained, reporting as of November 30, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. respects, effective internal control over in all material financial 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, 2020, of the Company and our report dated January 28, 2021, expressed an unqualified opinion on those financial statements. Emphasis of Matter As discussed in Note 1 to the financial statements, the Company changed 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 included in the accompanying its assessment of the effectiveness of internal control over financial reporting, 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 28, 2021 F-3 81047 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Financial Condition November 30, 2020 and 2019 (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 (including securities pledged of $13,065,585 and $12,058,522) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans to and investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities borrowed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, equipment and leasehold improvements, net . . . . . . . . . . . . . . . . . . . . . . . . . Intangible assets, net and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments sold, not yet purchased, at fair value . . . . . . . . . . . . . . . . . . . . Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured financings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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; 249,750,542 and 291,644,153 shares issued and outstanding, after deducting 66,712,070 and 24,818,459 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, 2020 2019 $ 9,055,148 $ 7,678,821 604,321 796,797 18,124,577 1,686,563 6,934,762 5,096,769 7,517 6,608,767 897,204 1,913,467 2,189,257 $53,118,352 $ 764,715 10,017,600 1,810,748 8,316,269 3,288,384 7,517 584,807 10,388,072 8,352,039 43,530,151 16,895,741 1,652,957 7,624,642 4,299,598 9,500 5,744,106 385,029 1,922,934 2,450,109 $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 24,676 125,000 26,605 125,000 249,751 2,911,223 (288,917) 6,531,836 9,403,893 34,632 9,438,525 $53,118,352 291,644 3,627,711 (273,039) 5,933,389 9,579,705 21,979 9,601,684 $49,460,234 (1) Total assets include assets related to variable interest entities of $566.1 million and $645.8 million at November 30, 2020 and 2019, respectively, and Total liabilities include liabilities related to variable interest entities of $3,291.3 million and $3,071.1 million at November 30, 2020 and 2019, respectively. See Note 8 for additional information related to variable interest entities. The accompanying notes are an integral part of these financial statements. F-4 36587 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Operations For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands, except per share amounts) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ 822,248 1,916,508 2,501,494 997,555 421,434 296,691 6,955,930 945,056 6,010,874 2,940,863 338,588 266,592 84,870 158,439 1,078,956 $ 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 1,862,782 307,071 184,210 89,249 120,317 961,328 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,868,308 3,617,363 3,524,957 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 from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations, net of income tax provision of $0, $0 and $47,045 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations, net of income tax provision of $0, $0 and $229,553 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. 1,142,566 (75,483) 1,067,083 298,673 768,410 275,613 202,995 478,608 (483,955) 962,563 – – – – 768,410 5,271 962,563 1,847 239,077 57,023 296,100 19,008 277,092 130,063 643,921 1,051,076 12,975 1,558 (5,634) 286 (5,103) (37,263) (4,470) common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 769,605 $ 959,593 $1,022,318 (continued) The accompanying notes are an integral part of these financial statements. F-5 65149 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Operations, continued For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands, except per share amounts) Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income 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 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 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, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $2.68 – – $2.68 $2.65 – – $2.65 $3.07 – – $3.07 $3.03 – – $3.03 $0.82 0.27 1.84 $2.93 $0.81 0.26 1.83 $2.90 $769,605 – – $959,593 – – $ 285,475 92,922 643,921 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $769,605 $959,593 $1,022,318 The accompanying notes are an integral part of these financial statements. F-6 15378 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Comprehensive Income (Loss) For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands) Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss): Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $117, $165 and $(551) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $(545,054) and $37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $117, $545,219 and $(588) . . . . . . . . Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $11,392, $1,146 and $(11,089) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0, $(52) and $(16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $11,392, $1,198 and $(11,073). . . . . . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $(16,228), $(4,653) and $9,289 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $146, $(144) and $311 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $(16,374), $(4,509) and $8,978. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $0 and $552. . . . . Less: reclassification adjustment for cash flow hedges (gains) losses included in net income, net of income tax provision (benefit) of $0, $161 and $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $(161) and $552. . . . . . . . . . . . . . . Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $(970), $(2,473) and $(297) . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(957), $(490) and $(697). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in pension liability benefits, net of income tax provision (benefit) of $(13), $(1,983) and $400 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive 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, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $768,410 $ 962,563 $1,051,076 372 487 (1,560) – (543,178) (109) 372 (542,691) (1,669) 35,991 – 35,991 544 149 693 (71,543) (20,459) (92,002) (51,865) (13,588) 29,620 (397) 427 (916) (52,262) (13,161) 28,704 – – – – 1,608 (470) (470) – 1,608 (844) (2,851) (7,103) 2,872 1,407 7,349 21 (15,878) 752,532 5,271 1,558 (5,634) (5,696) (561,325) 401,238 1,847 286 (5,103) 6,505 (56,854) 994,222 12,975 (37,263) (4,470) $753,727 $ 398,268 $ 965,464 The accompanying notes are an integral part of these financial statements. F-7 38654 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (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) loss 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments owned, at fair value . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments sold, not yet purchased, at fair value . . Securities loaned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities sold under agreements to repurchase. . . . . . . . . . . . . . Payables to brokers, dealers and clearing organizations . . . . . . Payables to customers of securities operations. . . . . . . . . . . . . . . Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ 768,410 $ 962,563 $ 1,051,076 – 64,667 – 6,391 (1,050,582) 236,406 – (544,583) – 146,185 (3,791) 40,038 48,157 51,549 64,493 139,708 (9,942) 49,848 29,800 (288,164) 467,157 105,156 (37,749) 48,249 35,223 (130,685) 162,988 68,946 – (42,214) (210,278) 32,461 (221,712) 751 (1,182,091) 714,664 (752,171) (1,147,886) 185,266 (79,253) 97,468 (604,591) 270,261 799,794 698,873 442,913 (52,553) 1,179,182 256,667 (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 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) 2,075,948 (827,837) 526,453 operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) operating activities. . . . . . . – $ 2,075,948 – $ (827,837) $ 164,650 691,103 (continued) The accompanying notes are an integral part of these financial statements. F-8 12597 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows, continued For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands) Net cash flows from investing activities: Acquisitions of property, equipment and leasehold improvements, and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from disposals of property and equipment, and other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of subsidiaries, net of expenses and cash of 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 . . . . . . . . . . . . . . . . Proceeds from sales of loan receivables held to maturity . . . . . . . . . Loans to and investments in associated companies . . . . . . . . . . . . . . . Capital distributions and loan repayments from associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 – Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ (176,958) $ (232,229) $ (325,666) 5,121 11,302 14,052 179,654 – – (813,867) 686,114 46,335 (1,690,644) 1,555,973 (906) 2,525 20,461 – (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 continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (186,192) 1,707,095 (718,466) Net cash provided by investing activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) investing activities . . . . . . . . . Net cash flows from financing activities: Issuance of debt, net of issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . Repayment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in other secured financings . . . . . . . . . . . . . . . . . . . . . . . . . Net change in bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 – – (186,192) – 1,707,095 860,909 142,443 3,136,513 (3,084,531) 218,010 (34,663) (1,694) 19,617 (816,871) (160,940) 1,034 3,275,800 (2,588,791) 1,533,696 26,568 (5,293) 6,829 (509,914) (149,647) 330 2,754,665 (2,678,323) 503,043 10,290 (7,408) 113 (1,130,854) (151,758) 4,067 continuing operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (723,525) 1,589,578 (696,165) Net cash provided by financing activities – discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by (used for) financing activities . . . . . . . . . Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net increase 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. . . . . . . – (723,525) – 1,589,578 120,322 (575,843) 18,306 1,184,537 8,480,435 $ 9,664,972 (1,063) 2,467,773 6,012,662 $ 8,480,435 (19,546) 238,157 5,774,505 $ 6,012,662 (continued) The accompanying notes are an integral part of these financial statements. F-9 84070 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Cash Flows, continued For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (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): November 30, 2020 November 30, 2019 November 30, 2018 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,055,148 $7,678,821 $5,258,809 Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations . . . . . . . . . . . . . . . . . Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 673,141 80,712 Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . $9,664,972 $8,480,435 $6,012,662 570,084 39,740 761,809 39,805 The accompanying notes are an integral part of these financial statements. F-10 43874 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Changes in Equity For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (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, December 31, 2017. . . . . . . . . . $356,227 $ 4,676,038 $ 372,724 $4,700,968 $10,105,957 $ 33,022 $10,138,979 Cumulative effect of the adoption of accounting standards . . . . . . . . . . . . . . . . (27,584) 45,396 17,812 17,812 Balance, January 1, 2018, as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . 356,227 4,676,038 345,140 4,746,364 10,123,769 33,022 10,156,791 Net income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to the noncontrolling interests. . . . . . . . . . . . . . Other comprehensive loss, net of taxes . Reversal of cumulative National Beef redeemable noncontrolling interests fair value adjustments prior to deconsolidation . . . . . . . . . . . . . . . . . . . . . 1,022,318 1,022,318 1,022,318 (56,854) – (56,854) (12,975) (12,975) (56,854) 237,669 237,669 237,669 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 2,677 48,249 (26,551) common shares . . . . . . . . . . . . . . . . . . . . . 109 2,376 Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends ($0.45 per common share). . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,402 Balance, November 30, 2018 . . . . . . . . . 307,515 Net income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . (50,223) (1,098,199) Net loss attributable to the noncontrolling interests. . . . . . . . . . . . . . Other comprehensive loss, net of taxes . Contributions from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests. Issuance of shares for HomeFed acquisition . . . . . . . . . . . . . . . . . . . . . . . . . Share-based compensation expense . . . . . Change in fair value of redeemable noncontrolling interests. . . . . . . . . . . . . . 9,295 168,585 49,848 (1,213) 12,588 3,854,847 288,286 (561,325) – – – 113 (7,408) 113 (7,408) 8,316 8,316 (2,677) 2,677 48,249 (26,551) 2,485 – 48,249 (26,551) 2,485 (158,464) (1,148,422) (158,464) 13,990 5,610,218 10,060,866 (1,148,422) (158,464) 13,990 18,391 10,079,257 – 959,593 959,593 – (1,847) (561,325) 6,829 (5,293) 3,900 – – 177,880 49,848 (1,213) 959,593 (1,847) (561,325) 6,829 (5,293) 181,780 49,848 (1,213) Purchase of common shares for treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends ($0.50 per common share). . . Dividend of Spectrum Brands common (451,094) shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,421 Balance, November 30, 2019 . . . . . . . . . $291,644 $ 3,627,711 $(273,039) $5,933,389 $ 9,579,705 $ 21,979 $ 9,601,684 (509,970) (158,302) (451,094) 13,422 (509,970) (158,302) 27,026 12,463 (483,845) (478,120) (158,302) (26,125) 959 (1) The accompanying notes are an integral part of these financial statements. F-11 (continued) 08381 Jefferies Financial Group Inc. and Subsidiaries Consolidated Statements of Changes in Equity, continued For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (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, 2019. . . . . . . . . . . $291,644 $3,627,711 $(273,039) $5,933,389 $9,579,705 $21,979 $9,601,684 Net income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . 769,605 769,605 769,605 Net loss attributable to the noncontrolling interests . . . . . . . . . . . . . . . Other comprehensive loss, net of taxes . . Contributions from noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions to noncontrolling interests . . Share-based compensation expense . . . . . . Change in fair value of redeemable noncontrolling interests . . . . . . . . . . . . . . . (15,878) 40,038 3,056 – (5,271) (15,878) (5,271) (15,878) 19,617 (1,694) – – 40,038 3,056 19,617 (1,694) 40,038 3,056 Purchase of common shares for (815,656) treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (171,158) Dividends ($0.60 per common share) . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,182 13,811 Balance, November 30, 2020. . . . . . . . . . . $249,751 $2,911,223 $(288,917) $6,531,836 $9,403,893 $34,632 $9,438,525 (815,656) (171,158) 14,181 (171,158) (773,393) (42,263) 370 1 The accompanying notes are an integral part of these financial statements. F-12 32851 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 engaged in investment banking and capital markets, asset management and direct investing. Jefferies Group LLC (‘‘Jefferies Group’’), our largest subsidiary, was established in 1962 and is now the largest independent full-service global investment banking firm headquartered in the U.S. In the fourth quarter of 2018, we changed our fiscal year end from a calendar year basis to a fiscal year ending on November 30, consistent with the fiscal year of Jefferies Group. Our 2018 fiscal year consists of the eleven month transition period beginning January 1, 2018 through November 30, 2018. Jefferies Group has a November 30 year end. Prior to the fourth quarter of 2018, because our fiscal year end was December 31, we reflected Jefferies Group in our consolidated financial statements utilizing a one month lag. In connection with our change in fiscal year end to November 30, we eliminated the one month lag utilized to reflect Jefferies Group results beginning with the fourth quarter of 2018. Therefore, our results for the eleven months ended November 30, 2018, include twelve month results for Jefferies Group and eleven months for the remainder of our results. Jefferies Group operates in two business segments: Investment Banking and Capital Markets, and Asset Management. Investment Banking and Capital Markets includes investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance. Through Jefferies Group, we own 50% of Jefferies Finance LLC (‘‘Jefferies Finance’’), Jefferies Group’s joint venture with Massachusetts Mutual Life Insurance Company (‘‘MassMutual’’). Jefferies Finance is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. Through Jefferies Group, we also have an interest in Berkadia Commercial Mortgage Holding LLC (‘‘Berkadia’’), Jefferies Group’s 50-50 equity method joint venture with Berkshire Hathaway Inc. Berkadia is a U.S. commercial real estate finance company providing capital solutions, investment sales advisory and mortgage servicing for multifamily and commercial properties. Our Asset Management segment includes both the operations of Leucadia Asset Management (‘‘LAM’’) as well as the asset management operations within Jefferies Group. Within Asset Management, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. Asset Management offers institutional clients an innovative range of investment strategies through its affiliated managers. Merchant Banking is where we own a portfolio of businesses and investments including Linkem (fixed wireless broadband services in Italy); Vitesse Energy, LLC (‘‘Vitesse Energy Finance’’) and JETX Energy, LLC (‘‘JETX Energy’’) (oil and gas production and development); real estate, primarily HomeFed LLC (‘‘HomeFed’’); Idaho Timber (manufacturing) and FXCM Group, LLC (‘‘FXCM’’) (provider of online foreign exchange trading services). Our Merchant Banking businesses and investments also included National Beef Packing Company, LLC (‘‘National Beef’’) (beef processing), prior to its sale in November 2019; Spectrum Brands Holdings, Inc. (‘‘Spectrum Brands’’) (consumer products), prior to its distribution to shareholders in October 2019; Berkadia (commercial mortgage banking, investment sales and servicing), prior to its transfer to Jefferies Group in the fourth quarter of 2018; and Garcadia (automobile dealerships), prior to its sale in August 2018. The structure of each of our investments was tailored to the unique opportunity each transaction presented. Our investments may be reflected in our consolidated results as consolidated subsidiaries, equity investments, securities or in other ways, depending on the structure of our specific holdings. F-13 07351 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 26 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. We distributed all of our 7,514,477 Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of record as of the close of business on September 30, 2019. We own approximately 42% of the common shares of Linkem, as well as convertible preferred shares and warrants. If all of our convertible preferred stock was converted and warrants exercised, it would increase our ownership to approximately 56% of Linkem’s common equity at November 30, 2020. Linkem provides residential broadband services in Italy using LTE technologies deployed over the 3.5 GHz spectrum band. Linkem launched its first 5G towers in late 2020 and plans to rapidly increase its network coverage and service offerings over the coming years as it upgrades to 5G, adds subscribers and leverages its assets. Linkem is accounted for under the equity method. Vitesse Energy Finance is our 97% owned consolidated subsidiary that acquires, invests and monetizes non- operated working interests and royalties predominantly in the Bakken Shale oil field in North Dakota. JETX Energy is our 98% owned consolidated subsidiary that currently has non-operated working interests and acreage in east Texas. HomeFed is our 100% owned consolidated subsidiary that owns and develops residential and mixed use real estate properties. Prior to July 1, 2019, we owned approximately 70% of HomeFed and accounted for it under the equity method. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued, which were valued at $178.8 million at closing based on the market price of our common shares. As an offset to these issued shares, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market. The HomeFed acquisition was accounted for as a business combination. The fair value of the shares issued to acquire the remaining common shares of HomeFed implied an aggregate fair value of $596.4 million for 100% of HomeFed’s equity balance. In accordance with purchase accounting, we allocated the $596.4 million fair value for 100% of HomeFed to its assets, liabilities and noncontrolling interests. We recorded $101.7 million of cash, $413.2 million of real estate, $198.3 million of investments in associated companies, $37.4 million of deferred tax assets, $15.3 million of goodwill and intangibles, $6.6 million of other assets, $125.5 million of long-term debt, $46.7 million of payables, expense accruals and other liabilities and $3.9 million of noncontrolling interests. In addition, associated with the acquisition, we also recorded $32.4 million of goodwill generated by the establishment of $32.4 million of deferred tax liabilities related to allocated value exceeding the tax basis of some of the HomeFed net assets. The estimated weighted average useful lives for the amortizable intangibles were 4 years at time of acquisition. Our allocation of the acquisition price is based on our estimate of fair value for each of the acquired assets and liabilities, which were developed primarily utilizing discounted cash flow models. In connection with the acquisition of the remaining interest of HomeFed, we recognized a F-14 70259 Notes to Consolidated Financial Statements, continued Note 1. Nature of Operations, continued $72.1 million non-cash pre-tax gain in Other revenues on the revaluation of our 70% interest in HomeFed to fair value. The fair value of our 70% interest in HomeFed was based on the implied $596.4 million equity value for 100% of HomeFed. Idaho Timber is our 100% owned consolidated subsidiary engaged in the manufacture and distribution of various wood products. Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at November 30, 2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Garcadia was an equity method joint venture that owned and operated automobile dealerships. During the third quarter of 2018, we sold our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million during the third quarter of 2018, is classified as Other revenue. Note 2. Significant Accounting Policies We prepare these financial statements in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’), which requires us to make estimates and assumptions that affect the reported amounts in the financial statements and disclosures of contingent assets and liabilities. The following represents our significant accounting policies. Consolidation Our policy is to consolidate all entities in which we can vote a majority of the outstanding voting stock. In addition, we consolidate entities which meet the definition of a variable interest entity (‘‘VIE’’) for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. We consider special allocations of cash flows and preferences, to determine amounts allocable to noncontrolling interests. All intercompany transactions and balances are eliminated in consolidation. if any, In situations in which we have significant influence, but not control, of an entity that does not qualify as a VIE, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under GAAP. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies. Our subsidiaries may act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or ‘‘kick-out’’ rights. Revenue Recognition Policies Commissions and Other Fees. All customer securities transactions are reported in the Consolidated Statements of Financial Condition on a settlement date basis with related income reported on a trade-date basis. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third-parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. These arrangements are accounted for on an accrual basis and, as we are acting as an agent in these arrangements, netted against commission revenues in the Consolidated Statements of Operations. In F-15 17995 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued addition, we earn asset-based fees associated with the management and supervision of assets, account services and administration related to customer accounts. Principal Transactions. Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value (all of which are recorded on a trade-date basis) are carried at fair value with gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations, except for derivatives accounted for as hedges (see Hedge Accounting section, herein and Note 5). Fees received on loans carried at fair value are also recorded in Principal transactions revenues. Investment Banking. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring advisory engagements, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by clients are recognized as Investment banking revenues. Underwriting and placement agent revenues are recognized at a point in time on trade-date. Costs associated with underwriting activities are deferred until the related revenue is recognized or the engagement is otherwise concluded and are recorded on a gross basis in Selling, general and other expenses in the Consolidated Statements of Operations. Asset Management Fees and Revenues. Asset management fees and revenues consist of asset management fees, as well as revenues from affiliated asset managers, which entitle us to portions of our partners’ management company revenues and/or partners’ profits and perpetual rights to certain defined revenues for a given revenue share period. Revenue from affiliated asset managers is recognized at the end of the defined revenue or profit share period when the revenues have been realized and all contingencies have been resolved. Management and administrative fees are generally recognized over the period that the related service is provided. Performance fee revenue is generally recognized only at the end of the performance period to the extent that the benchmark return has been met. Interest Revenue and Expense. Interest expense that is deducted from Revenues to arrive at Net revenues is related to Jefferies Group’s operations. Contractual interest on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value is recognized on an accrual basis as a component of Interest income and Interest expense. Interest flows on derivative trading transactions and dividends are included as part of the fair valuation of these contracts and recognized in Principal transactions revenues in the Consolidated Statements of Operations rather than as a component of interest income or expense. Interest on short- and long-term borrowings is accounted for on an accrual basis, except for those for which we have elected the fair value option, with related interest recorded as Interest expense. Discounts/premiums arising on long-term debt are accreted/amortized to Interest expense using the effective yield method over the remaining lives of the underlying debt obligations. Interest revenue related to Securities borrowed and Securities purchased under agreements to resell activities and interest expense related to Securities loaned and Securities sold under agreements to repurchase activities are recognized on an accrual basis. In addition, we recognize interest income as earned on brokerage customer margin balances and interest expense as incurred on credit balances. Manufacturing Revenues. Manufacturing revenues are from Idaho Timber, which manufactures and distributes an extensive range of quality wood products to markets across North America. Idaho Timber’s primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery F-16 29956 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product. Cash Equivalents Cash equivalents include highly liquid investments, including money market funds and certificates of deposit, not held for resale with original maturities of three months or less. Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations In accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, Jefferies LLC, which is a wholly- owned subsidiary of Jefferies Group, as a broker-dealer carrying client accounts, is subject to requirements related to maintaining cash or qualified securities in a segregated reserve account for the exclusive benefit of its clients. Certain other entities are also obligated by rules mandated by their primary regulators to segregate or set aside cash or equivalent securities to satisfy regulations, promulgated to protect customer assets. In addition, certain exchange and/or clearing organizations require cash and/or securities to be deposited by us to conduct day to day activities. Financial Instruments and Fair Value Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recorded at fair value, either as required by accounting pronouncements or through the fair value option election. These instruments primarily represent our trading activities and include both cash and derivative products. Gains and losses on Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value are recognized in Principal transactions revenues in the Consolidated Statements of Operations. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Fair Value Hierarchy In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs as follows: 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 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. F-17 20305 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued 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 9 for additional information regarding certain of these investments. Under the equity method of accounting, our share of the investee’s underlying net income or loss is recorded as Income (loss) related to associated companies, or as part of Other revenues if such investees are considered to be an extension of our business. Income (loss) for investees for which the fair value option was elected is reported as Principal transactions revenues. Receivables At November 30, 2020 and 2019, Receivables include receivables from brokers, dealers and clearing organizations of $4,161.8 million and $3,011.0 million, respectively, and receivables from customers of securities operations of $1,286.9 million and $1,490.9 million, respectively. Our subsidiary, Foursight Capital, had auto loan receivables of $694.2 million and $741.2 million at November 30, 2020 and 2019, these amounts, $532.4 million and $621.2 million at November 30, 2020 and 2019, respectively, were in securitized vehicles. See Notes 7 and 8 for additional respectively. Of F-18 38081 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued information on Foursight Capital’s securitization activities. Based primarily on Beacon credit scores, Foursight Capital classifies its auto loan receivables as prime, near-prime and sub-prime based on the perceived credit risk at origination and generally considers prime receivables as those with a Beacon score of 680 and above, near- prime with scores between 620 and 679 and sub-prime with scores below 620. The credit quality classification at November 30, 2020 and 2019 was approximately 14% and 15% prime, 54% and 53% near-prime and 32% and 32% sub-prime, respectively. Securities Borrowed and Securities Loaned Securities borrowed and Securities loaned are carried at the amounts of cash collateral advanced and received in connection with the transactions and accounted for as collateralized financing transactions. In connection with both trading and brokerage activities, we borrow securities to cover short sales and to complete transactions in which customers have failed to deliver securities by the required settlement date, and lend securities to other brokers and dealers for similar purposes. When we borrow securities, we generally provide cash to the lender as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities borrowed. We earn interest revenues on this cash collateral. Similarly, when we lend securities to another party, that party provides cash to us as collateral, which is reflected in the Consolidated Statements of Financial Condition as Securities loaned. We pay interest expense on the cash collateral received from the party borrowing the securities. The initial collateral advanced or received approximates or is greater than the fair value of the securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase Securities purchased under agreements to resell and Securities sold under agreements to repurchase (collectively ‘‘repos’’) are accounted for as collateralized financing transactions and are recorded at their contracted resale or repurchase amount plus accrued interest. We earn and incur interest over the term of the repo, which is reflected in Interest revenue and Interest expense in the Consolidated Statements of Operations on an accrual basis. Repos are presented in the Consolidated Statements of Financial Condition on a net-basis by counterparty, where permitted by GAAP. The fair value of the underlying securities is monitored daily versus the related receivable or payable balances. Should the fair value of the underlying securities decline or increase, additional collateral is requested or excess collateral is returned, as appropriate. Offsetting of Derivative Financial Instruments and Securities Financing Agreements To manage exposure to credit risk associated with derivative activities and securities financing transactions, we may enter into International Swaps and Derivative Association, Inc. (‘‘ISDA’’) master netting agreements, master securities lending agreements, master repurchase agreements or similar agreements and collateral arrangements with counterparties. A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third-party. Under our ISDA master netting agreements, we typically also execute credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted by or paid to a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. F-19 55242 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued In the event of the counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non- defaulting party. In addition, any collateral posted can be applied to the net obligations, with any excess returned; and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court. The conditions supporting the legal right of offset may vary from one legal jurisdiction to another and the enforceability of master netting agreements and bankruptcy laws in certain countries or in certain industries is not free from doubt. The right of offset is dependent both on contract law under the governing arrangement and consistency with the bankruptcy laws of the jurisdiction where the counterparty is located. Industry legal opinions with respect to the enforceability of certain standard provisions in respective jurisdictions are relied upon as a part of managing credit risk. In cases where we have not determined an agreement to be enforceable, the related amounts are not offset. Master netting agreements are a critical component of our risk management processes as part of reducing counterparty credit risk and managing liquidity risk. We are also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open contracts or transactions. See Notes 5 and 6 for further information. Hedge Accounting Hedge accounting is applied using interest rate swaps designated as fair value hedges of changes in the benchmark interest rate of fixed rate senior long-term debt. The interest rate swaps are included as derivative contracts in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. We use regression analysis to perform ongoing prospective and retrospective assessments of the effectiveness of these hedging relationships. A hedging relationship is deemed effective if the change in fair value of the interest rate swap and the change in the fair value of the long-term debt due to changes in the benchmark interest rate offset within a range of 80% to 125%. The impact of valuation adjustments related to Jefferies Group’s own credit spreads and counterparty credit spreads are included in the assessment of effectiveness. For qualifying fair value hedges of benchmark interest rates, the change in the fair value of the derivative and the change in fair value of the long-term debt provide offset of one another and, together with any resulting ineffectiveness, are recorded in Interest expense. We seek to reduce the impact of fluctuations in foreign exchange rates on our net investments in certain non-U.S. operations through the use of foreign exchange contracts. The foreign exchange contracts are included as derivative contracts in Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. For foreign exchange contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For qualifying net investment hedges, all gains or losses on the hedging instruments are included in Accumulated other comprehensive income (loss). instruments owned, at fair value and Financial See Note 5 for further information. F-20 97185 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Other Investments At November 30, 2020 and 2019, the Company had other investments (classified as Other assets and Loans to and investments in associated companies) in which fair values are not readily determinable, aggregating $90.2 million and $172.8 million, respectively. Impairments recognized on these investments were $20.4 million, $5.5 million and $0.2 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Realized gains of $2.1 million, $13.8 million and $0.2 million were recognized on these investments during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. There were no unrealized gains or losses recognized on these investments during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. Capitalization of Interest In connection with the acquisition of HomeFed in 2019, we began capitalizing interest on qualifying real estate assets. During the twelve months ended November 30, 2020 and 2019, capitalized interest of $8.6 million and $6.2 million, respectively, was allocated among all of HomeFed’s projects that are currently under development. Property, Equipment and Leasehold Improvements Property, equipment and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization are provided principally on the straight-line method over the estimated useful lives of the assets or, if less, the term of the underlying lease. Lease Accounting We adopted the Financial Accounting Standards Board (‘‘FASB’’) guidance on leases on December 1, 2019. These lease policy updates were applied using a modified retrospective approach. Reported financial information for the historical comparable periods were not revised and continues to be reported under the accounting standards in effect during the historical periods. For leases with an original term longer than one year, lease liabilities are initially recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term, including non-lease components such as fixed common area maintenance costs and other fixed costs for generally all leases. A corresponding right of use (‘‘ROU’’) asset is initially recognized equal to the lease liability adjusted for any lease prepayments, initial direct costs and lease incentives. The ROU assets are included in Property, equipment and leasehold improvements, net and the lease liabilities are included in Lease liabilities in the Consolidated Statement of Financial Condition. The discount rates used in determining the present value of leases represent our collateralized borrowing rate considering each lease’s term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain leases have renewal options that can be exercised at the discretion of the Company. Lease expense is generally recognized on a straight-line basis over the lease term and included in Selling, general and other expenses in the Consolidated Statement of Operations. See Note 13 for further information. F-21 55189 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, Jefferies Group, manufacturing and oil and gas production and development), impairment charges would have to be recorded. Intangible Assets, Net and Goodwill Intangible Assets. Intangible assets deemed to have finite lives are generally amortized on a straight-line basis over their estimated useful lives, where the useful life is the period over which the asset is expected to contribute directly, or indirectly, to our future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. If future undiscounted cash flows are estimated to be less than the carrying amounts of the asset groups used to generate those cash flows in subsequent reporting periods, particularly for those with large investments in amortizable intangible assets, impairment charges would have to be recorded. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually, or more frequently, when certain events or circumstances occur indicating an assessment for impairment is necessary. Impairment exists when the carrying amount exceeds its fair value. In testing for impairment, we have the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary. If we conclude otherwise, we are required to perform a quantitative impairment test. Fair value will be determined using valuation techniques consistent with what a market participant would use. All of our indefinite-lived intangible assets were recognized in connection with the Jefferies Group acquisition, and our annual impairment testing date for these assets is August 1. Goodwill. At acquisition, we allocate the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their fair values. Significant judgments and estimates are often made by management to determine these values, and may include the use of appraisals, consideration of market quotes for similar transactions, use of discounted cash flow techniques or consideration of other information we believe to be relevant. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill, which is not amortized to expense. Substantially all of our goodwill was recognized in connection with the Jefferies Group acquisition. At least annually, and more frequently if warranted, we will assess whether goodwill has been impaired. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of F-22 60338 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued impairment, if any, by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill. The fair values will be based on widely accepted valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include market capitalization, price-to-book multiples of comparable exchange traded companies, multiples of merger and acquisitions of similar businesses and/or projected cash flows. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods. Our annual goodwill impairment testing date related to the Investment Banking and Capital Markets and Asset Management segments is as of August 1. Our annual impairment testing date for all other operations is November 30. Inventories and Cost of Sales Manufacturing inventories are stated at the lower of cost or net realizable value, with cost principally determined under the first-in-first-out method. Manufacturing cost of sales principally includes product and manufacturing costs, inbound and outbound shipping costs and handling costs. Inventories are classified as Other assets in the Consolidated Statements of Financial Condition. Payables, expense accruals and other liabilities At November 30, 2020 and 2019, Payables, expense accruals and other liabilities include payables to brokers, dealers and clearing organizations of $3,325.8 million and $2,621.7 million, respectively, and payables to customers of securities operations of $4,249.7 million and $3,808.6 million, respectively. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and for tax loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The realization of deferred tax assets is assessed, and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized on the basis of its projected separate return results. We record uncertain tax positions using a two-step process: (i) we determine whether it is more likely than not that each tax position will be sustained on the basis of the technical merits of the position; and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company uses the portfolio approach relating to the release of stranded tax effects recorded in accumulated other comprehensive income (loss). Under the portfolio approach, the net unrealized gains or losses recorded in accumulated other comprehensive income (loss) would be eliminated only on the date the entire portfolio of available for sale securities is sold or otherwise disposed of. F-23 80849 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 at exchange rates at the end of the relevant period. Revenues and expenses are translated at average exchange rates during the period. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Accumulated other comprehensive income (loss) in the Consolidated Statements of Comprehensive Income (Loss) and classified as Accumulated other comprehensive income (loss) in the Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. Gains or losses resulting from Jefferies Group’s foreign currency transactions are included in Principal transactions revenues in the Consolidated Statements of Operations. Earnings per Common Share Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued. Net earnings available to common shareholders represent net earnings to common shareholders reduced by the allocation of earnings to participating securities. Losses are not allocated to participating securities. Common shares outstanding and certain other shares committed to be, but not yet issued, include restricted stock and restricted stock units (‘‘RSUs’’) for which no future service is required. Diluted earnings per share is computed by dividing net earnings available to common shareholders plus dividends on dilutive mandatorily redeemable convertible preferred shares and interest on convertible notes by the weighted average number of common shares outstanding and certain other shares committed to be, but not yet issued, plus all dilutive common stock equivalents outstanding during the period. Unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and, therefore, are included in the earnings allocation in computing earnings per share under the two-class method of earnings per share. Restricted stock and RSUs granted as part of share-based compensation contain nonforfeitable rights to dividends and dividend equivalents, respectively, and therefore, prior to the requisite service being rendered for the right to retain the award, restricted stock and RSUs meet the definition of a participating security. As such, we calculate basic and diluted earnings per share under the two-class method. RSUs granted under the senior executive compensation plan are not considered participating securities as the rights to dividend equivalents are forfeitable. See Note 15 for more information regarding the senior executive compensation plan. F-24 46276 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 Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition at fair value. Any changes in the fair value of such retained interests are recognized in Principal transactions revenues in the Consolidated Statements of Operations. When a transfer of assets does not meet the criteria of a sale, the transfer is accounted for as a secured borrowing in Financial instruments owned, at fair value and we continue to recognize the assets of a secured borrowing, and recognize the associated financing in Other secured financings in the Consolidated Statements of Financial Condition. Another of our subsidiaries utilizes special purpose entities to securitize automobile loans receivables. These special purpose entities are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary’s general credit. Contingencies In the normal course of business, we have been named, from time to time, as a defendant in legal and regulatory proceedings. We are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We recognize a liability for a contingency when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If the reasonable estimate of a probable loss is a range, we accrue the most likely amount of such loss, and if such amount is not determinable, then we accrue the minimum in the range as the loss accrual. The determination of the outcome and loss estimates requires significant judgment on the part of management, can be highly subjective and is subject to significant change with the passage of time as more information becomes available. Estimating the ultimate impact of litigation matters is inherently uncertain, in particular because the ultimate outcome will rest on events and decisions of others that may not be within our power to control. We do not believe that any of our current litigation will have a significant adverse effect on our consolidated financial position, results of operations or liquidity; however, if amounts paid at the resolution of litigation are in excess of recorded reserve amounts, the excess could be significant in relation to results of operations for that period. For further information, see Note 22. F-25 75326 Notes to Consolidated Financial Statements, continued Note 2. Significant Accounting Policies, continued Supplemental Cash Flow Information Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 (In thousands) Eleven Months Ended November 30, 2018 Cash paid during the year for: Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax payments (refunds), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,080,368 25 $ $1,563,152 24,587 $ $1,377,781 37,559 $ In June 2019, we entered into a Membership Interest Purchase Agreement, which provided for each of the then owners of National Beef to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC (‘‘Iowa Premium’’). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in the Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity. During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed. During the twelve months ended November 30, 2019, we had $16.4 million non-cash investing activities related to the sale of a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts in exchange for 780,315 shares of the Company’s common stock, at a price of $21.03 per share. During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of all of our Spectrum Brands shares through a special pro rata dividend to our stockholders. During the twelve months ended November 30, 2019, we had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months ended November 30, 2018, we had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018. Note 3. Accounting Developments Accounting Developments – Accounting Standards Adopted in Current Annual Reporting Period Leases. We adopted the new lease standard on December 1, 2019 using a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in effect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the lease classification and initial direct costs of existing leases upon transition. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of operating ROU assets of $545.8 million and operating lease liabilities of $614.9 million reflected in Property, equipment and leasehold improvements, net and Lease liabilities in the Consolidated Statement of Financial Condition, respectively. Finance lease ROU assets and finance lease liabilities were not material and are reflected in Property, equipment and leasehold improvements, net and Lease liabilities in the Consolidated Statement of Financial Condition, respectively. F-26 86588 Notes to Consolidated Financial Statements, continued Note 3. 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. We adopted the guidance in the first quarter of fiscal 2020 and the adoption did not have a material impact on our consolidated financial statements. Reference Rate Reform. In March 2020, the FASB issued new guidance which provides optional exceptions for applying GAAP to contracts, hedge accounting relationships or other transactions affected by reference rate reform. We adopted the guidance on September 1, 2020 and the adoption had no impact on our consolidated financial statements. Accounting Developments – Accounting Standards to be Adopted in Future Periods to retained earnings upon adoption. At Financial Instruments – Credit Losses. In June 2016, the FASB issued new guidance which provides for estimating credit losses on financial assets measured at amortized cost by introducing an approach based on expected losses over the financial asset’s entire life, recorded at inception or purchase. We adopted the new credit loss guidance on December 1, 2020 and applied a modified retrospective approach through a cumulative-effect adjustment the new accounting losses of $26.5 million with a guidance’s adoption resulted in an increase in the allowance for credit corresponding decrease in retained earnings of $19.9 million, net of tax. The increase is primarily attributable to a $30.1 million increase in the allowance for credit losses in Foursight Capital’s portfolio of held to maturity auto finance receivables. Foursight Capital estimates expected credit losses on its portfolio using analysis of historical portfolio performance data as well as external economic factors that management considers to be relevant to the credit losses expected in the portfolio. This is partially offset by a $3.6 million decrease in the allowance for credit losses at Jefferies Group that is attributable to applying a revised provisioning methodology based on historical loss experience for its investment banking fee receivables. transition on December 1, 2020, We have determined expected credit losses to be immaterial upon adoption for our other financial instruments within the scope of the guidance. A significant portion of our financial instruments within the scope of the guidance represent secured financing receivables (reverse repurchase, secured borrowing, and margin loan agreements) that are substantially collateralized. For our secured financing receivables, we have concluded that the impact upon adoption was immaterial because the contractual collateral maintenance provisions require that the counterparty continually adjust the amount of collateralization securing the credit exposure on these contracts. Collateralization levels for our secured financing receivables are initially established based upon the counterparty, the type of acceptable collateral that is monitored daily and adjusted to mitigate the potential of any credit losses. For the remaining financial instruments within the guidance’s scope, the expected credit losses were also determined to be immaterial considering the counterparty’s credit quality, an insignificant history of credit losses, or the short-term nature of the credit exposures. Goodwill. In January 2017, the FASB issued new guidance which simplifies goodwill impairment testing. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements. Defined Benefit Plans. In August 2018, the FASB issued new guidance to improve the effectiveness of disclosure requirements on defined benefit pension plans and other post-retirement plans. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements. Internal-Use Software. In August 2018, the FASB issued new guidance which amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. We adopted the guidance in the F-27 24076 Notes to Consolidated Financial Statements, continued Note 3. Accounting Developments, continued first quarter of fiscal 2021 and elected to apply the guidance prospectively to implementation costs incurred after the adoption date. The adoption did not have an impact on our consolidated financial statements on the adoption date. Consolidation. In October 2018, the FASB issued new guidance which requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. We adopted the guidance in the first quarter of fiscal 2021 and the adoption did not have a material impact on our consolidated financial statements. Income Taxes. In December 2019, the FASB issued new guidance to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The guidance is effective in the first quarter of fiscal 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements. Note 4. Fair Value Disclosures The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value (‘‘NAV’’) of $965.4 million and $586.9 million at November 30, 2020 and 2019, respectively, by level within the fair value hierarchy (in thousands): F-28 07787 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued November 30, 2020 Level 1 Level 2 Level 3 Counterparty and Cash Collateral Netting (1) Total Assets: Financial instruments owned, at fair value: Corporate equity securities . . . . . . . . . . . . . . . . . $2,475,887 $ Corporate debt securities . . . . . . . . . . . . . . . . . . . Collateralized debt obligations and – collateralized loan obligations . . . . . . . . . . . . – 58,159 $ 75,904 $ 2,954,236 23,146 64,155 17,972 – – – $ 2,609,950 2,977,382 82,127 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 financial instruments owned, at fair value, excluding investments at fair value based on NAV . . . . . . . . . . . . . . . . . . $7,279,781 $10,784,987 $650,561 $(1,556,136) $17,159,193 – – – – – – – (1,556,136) – – 2,840,025 – 1,962,346 – – – – 1,523 – – 2,931,678 453,881 2,553,688 1,122,675 738,294 183,606 2,745,382 481,007 220,068 59,455 91,653 453,881 591,342 1,100,849 736,291 103,611 2,610,746 2,013,942 6,122 – – – 21,826 2,003 79,995 134,636 21,678 213,946 59,455 – Loans to and investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Securities received as collateral, at fair value . . $ $ – 7,517 $ 8,603 $ 40,185 $ $ $ – – Liabilities: Financial instruments sold, not yet purchased, at fair value: Corporate equity securities . . . . . . . . . . . . . . . . . $2,046,441 $ Corporate debt securities . . . . . . . . . . . . . . . . . . . U.S. government and federal agency – 9,046 $ 4,434 $ 1,237,631 141 – – – – $ $ 48,788 7,517 $ 2,059,921 1,237,772 securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . . . . . . . . Residential mortgage-backed securities . . . . . . Commercial mortgage-backed securities . . . . . Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total financial instruments sold, not yet 2,609,660 1,050,771 – – – 551 – 624,740 477 – 1,776,446 2,391,556 – – – 35 16,635 47,695 – – – – – (1,798,659) 2,609,660 1,675,511 477 35 1,793,081 641,143 purchased, at fair value. . . . . . . . . . . . . . . . $5,707,423 $ 6,039,896 $ 68,940 $(1,798,659) $10,017,600 Short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . $ Other secured financings . . . . . . . . . . . . . . . . . . . . . $ Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . $ – – – 5,067 $ – – $ $ $ $ 1,543 $ $ 1,036,217 $676,028 $ 7,517 $ – $ – $ – – – – 5,067 $ $ 1,543 $ 1,712,245 $ 7,517 F-29 17016 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued November 30, 2019 Level 1 Level 2 Level 3 Counterparty and Cash Collateral Netting (1) Total Assets: Financial instruments owned, at fair value: Corporate equity securities . . . . . . . . . . . . . . . . . . . $2,507,164 $ Corporate debt securities . . . . . . . . . . . . . . . . . . . . . Collateralized debt obligations and – collateralized loan obligations . . . . . . . . . . . . . . – 218,403 $ 58,426 $ 2,472,245 7,490 124,225 28,788 – – – $ 2,783,993 2,479,735 153,013 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 financial instruments owned, at fair value, excluding investments at fair value based on NAV . . . . . . . . . . . . . . . . . . . . $5,941,623 $11,245,763 $554,618 $(1,433,197) $16,308,807 – – – – – – – (1,433,197) – – 158,618 742,326 1,405,827 1,069,066 424,060 303,847 2,460,551 1,833,907 32,688 – 2,101,624 – 1,330,026 – – – – 2,809 – – 2,260,242 742,326 2,735,853 1,086,806 430,170 346,410 2,574,631 418,408 238,100 59,120 – – – 17,740 6,110 42,563 114,080 14,889 205,412 59,120 – – – – $ $ 25,000 9,500 $ 2,767,526 1,471,482 Securities purchased under agreements to resell . . $ Securities received as collateral, at fair value . . . . $ – $ 9,500 $ – – $ 25,000 $ $ $ – Liabilities: Financial instruments sold, not yet purchased, at fair value: Corporate equity securities . . . . . . . . . . . . . . . . . . . $2,755,601 $ Corporate debt securities . . . . . . . . . . . . . . . . . . . . . U.S. government and federal agency – securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sovereign obligations . . . . . . . . . . . . . . . . . . . . . . . . Commercial mortgage-backed securities . . . . . . . Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,851,981 1,363,475 – – 871 7,438 $ 4,487 $ 1,471,142 340 – 941,065 – 1,600,228 2,066,455 – – 35 9,463 92,057 – – – – (1,632,178) 1,851,981 2,304,540 35 1,609,691 527,205 Total financial instruments sold, not yet purchased, at fair value. . . . . . . . . . . . . . . . . . $5,971,928 $ 6,086,328 $106,382 $(1,632,178) $10,532,460 Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . $ Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . $ – – $ $ 20,981 $ – $ 735,216 $480,069 $ 9,500 $ – $ – $ – – – $ 20,981 $ 1,215,285 $ 9,500 (1) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty. F-30 01454 Notes to Consolidated Financial Statements, continued Note 4. 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 from observed prices on recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and can be measured using third-party valuation services or the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Corporate Debt Securities • Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap 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 30911 Notes to Consolidated Financial Statements, continued Note 4. 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, where available, or recently executed independent transactions of comparable size and are generally categorized within Level 2 of the fair value hierarchy. Sovereign Obligations Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or 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 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 F-32 66290 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities. Commercial Mortgage-Backed Securities • Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (‘‘GNMA’’) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures. Federal National Mortgage Association (‘‘FNMA’’) Delegated Underwriting and Servicing (‘‘DUS’’) mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy. • Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs. Other Asset-Backed Securities Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal. Loans and Other Receivables • Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, for example, derived using market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure. F-33 23512 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued • Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing. • Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions. • Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy. • Escrow and Claim Receivables: Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable. Derivatives • Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy. • Over-the-Counter (‘‘OTC’’) Derivative Contracts: OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy. 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 F-34 68268 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services. • Oil Futures Derivatives: Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value, which are classified as either Level 1 or Level 2 within the fair value hierarchy. Fair values classified as Level 1 are measured based on quoted closing exchange prices obtained from external pricing services and Level 2 are determined under the income valuation technique using an option- pricing model that is based on directly or indirectly observable inputs. Investments at Fair Value Investments at fair value include investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses, contingent claims analysis and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands). Fair Value (1) Unfunded Commitments November 30, 2020 Equity Long/Short Hedge Funds (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Funds (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Fund (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset Funds (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Funds (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 Equity Long/Short Hedge Funds (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity Funds (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity Fund (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Multi-asset Funds (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Funds (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $328,096 33,221 17,747 561,236 25,084 $965,384 $291,593 44,576 16,025 234,583 157 $586,934 $ – 12,408 – – 5,000 $17,408 $ – 14,621 – – – $14,621 F-35 84904 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued (1) Where fair value is calculated based on NAV, fair value has been derived from each of the funds’ capital statements. (2) This category includes investments in hedge funds that invest, long and short, primarily in both public and private equity securities in domestic and international markets. At both November 30, 2020 and 2019, approximately 94% of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption in the first 36 months after acquisition. At both November 30, 2020 and 2019, approximately 6% of the fair value of investments in this category are redeemable quarterly with 60 days prior written notice. (3) The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds which are primarily expected to be liquidated in approximately one to eight years. (4) This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice. (5) This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At November 30, 2020 and 2019, investments representing approximately 57% and 5%, respectively, of the fair value of investments in this category are redeemable monthly with 30 or 60 days prior written notice. (6) At November 30, 2020, this category primarily includes an investment in a fund that invests in short-term trade receivables and payables that are expected to generally be outstanding between 90 to 120 days and short-term credit instruments. These investments are redeemable quarterly with 90 days prior written notice. At both November 30, 2020 and 2019, this category also includes investments in a fund of funds that invests in various private equity funds that are managed by us and have no redemption provisions. Investments in the fund of funds are gradually being liquidated, however, the timing of when the proceeds will be received is uncertain. Investments at fair value also include our investment in WeWork. We invested $9.0 million in WeWork in 2013 and currently own less than 1% of WeWork. Our interest in WeWork is reflected in Financial instruments owned, at fair value of $10.8 million and $53.8 million at November 30, 2020 and 2019, respectively. Investment in FXCM Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2022 ($71.6 million principal outstanding at November 30, 2020), a 50% voting interest in FXCM and rights to a majority of all distributions in respect of the equity of FXCM. Our investment in the FXCM term loan is reported within Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. We classify our equity investment in FXCM in the Consolidated Statements of Financial Condition as Loans to and investments in associated companies, as we have the ability to significantly influence FXCM through our seats on the board of directors. We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy. F-36 02193 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued Loans to and Investments in Associated Companies Corporate bonds are measured primarily using pricing data from external pricing services and are categorized within Level 2 of the fair value hierarchy. Non-exchange-traded equity warrants with no pricing from external pricing services are generally categorized within Level 3 of the fair value hierarchy. The warrants are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, interest rate curve, strike price and maturity date. Securities Purchased Under Agreements to Resell Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the embedded derivative and unobservable credit spreads. Other Secured Financings Other secured financings that are accounted for at fair value are classified within Level 3 of the fair value hierarchy. Fair value is based on estimates of future cash flows incorporating assumptions regarding recovery rates. Securities Received as Collateral and Obligations to Return Securities Received as Collateral In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy. Short-term Borrowings and Long-term Debt Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, equity-linked notes, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate Jefferies Group’s own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy, where market trades have been observed during the period of model pricing is available, otherwise the notes are categorized within Level 3. Nonrecurring Fair Value Measurements HomeFed has a 49% membership interest in the RedSky JZ Fulton Investors (‘‘RedSky JZ Fulton Mall’’) joint venture, which owns a property in Brooklyn, New York. The property consists of 14 separate tax lots, divided into two development sites which may be redeveloped with buildings consisting of up to 540,000 square feet of floor area development rights. During the three months ended February 29, 2020, difficulties were encountered with attempts to refinance debt within the investment. We viewed this, combined with a softening of the F-37 06639 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued Brooklyn, New York real estate market during the quarter, as a triggering event and evaluated HomeFed’s equity method investment in RedSky JZ Fulton Mall to determine if there was an impairment. In connection with this evaluation, we obtained an appraisal which reflected a reduction in the value of the investment in comparison to an earlier appraisal obtained shortly before the beginning of the quarter. The appraisal was based off of Level 3 inputs consisting of prices of comparable properties and the appraisal indicated that the value of the property was worth less than the debt outstanding. HomeFed recorded an impairment charge of $55.6 million within Income (loss) related to associated companies during the first quarter of 2020, which represented all of its carrying value in the joint venture. Due to a decline in oil and gas prices during the first quarter of 2020, JETX Energy performed an impairment analysis for its oil and gas properties in the East Eagle Ford. JETX Energy first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of February 29, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the proven properties. As the undiscounted future net cash flows were lower than the carrying value, JETX Energy then determined the estimated fair value of the proven properties. To measure the estimated fair value of its proven properties, JETX Energy used unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of JETX Energy’s proven oil and gas properties in the East Eagle Ford totaled $9.6 million, which was $33.0 million lower than the carrying value as of the end of first quarter of 2020. As a result, an impairment charge of $33.0 million was recorded in Selling, general and other expenses during the first quarter of 2020. Due to a decline in oil and gas prices during the second quarter of 2020, Vitesse Energy Finance performed impairment analyses on its proven oil and gas properties in the Denver-Julesburg Basin (‘‘DJ Basin’’) of Wyoming and Colorado and the Bakken Shale oil field in North Dakota. Vitesse Energy Finance first determined the estimated undiscounted cash flows based on the reserves and costs utilized in its reserve report and then updated those cash flows based on strip pricing as of May 31, 2020. The expected undiscounted future net cash flows were then compared to the end of quarter net carrying value of the oil and gas properties. No impairment of the Bakken Shale oil field assets was necessary as the undiscounted future net cash flows significantly exceeded the carrying value of these assets. As undiscounted future net cash flows were lower than the carrying value of the DJ Basin properties, Vitesse Energy Finance then determined the estimated fair value of the proven its proven properties, Vitesse Energy Finance used properties. To measure the estimated fair value of unobservable Level 3 inputs, including a 10.0% discount rate and estimated future cash flows from its reserve report. The estimated fair value of Vitesse Energy Finance’s proven oil and gas properties in the DJ Basin totaled $26.8 million, which was $13.2 million lower than the carrying value as of the end of the second quarter of 2020. As a result, an impairment charge of $13.2 million was recorded in Selling, general and other expenses during the second quarter of 2020. As described further in Note 9, in the third quarter of 2018 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen Mining Company, LLC (‘‘Golden Queen’’). Our estimate of fair value was based on a discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future Golden Queen cash flows and a discount rate of 12%. The estimated fair value of our equity investment in Golden Queen was $62.3 million, which was $47.9 million lower than our carrying value. As a result, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the third quarter of 2018. As discussed further in Note 9, during the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. We engaged an independent valuation firm to assist management in estimating the F-38 92599 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued in FXCM. Our fourth quarter estimate of fair value was based on a fair value of our equity investment discounted cash flow analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management’s projections of future FXCM cash flows and a discount rate of 18.5%. The estimated fair value of our equity investment in FXCM was $75.0 million, which was $62.1 million lower than our carrying value. As a result, an impairment charge of $62.1 million was recorded in Income (loss) related to associated companies in the fourth quarter of 2018. Level 3 Rollforwards The following is a summary of changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended November 30, 2020 (in thousands): Twelve Months Ended November 30, 2020 Balance, November 30, 2019 Total gains (losses) (realized and unrealized) (1) Purchases Sales Settlements Issuances Net transfers into (out of) Level 3 Balance, November 30, 2020 Changes in unrealized gains/ losses included in earnings relating to instruments still held at November 30, 2020 (1) Assets: Financial instruments owned, at fair value: Corporate equity securities . . . Corporate debt securities. . . . . CDOs and CLOs. . . . . . . . . . . . Residential mortgage- backed securities . . . . . . . . . . Commercial mortgage- backed securities . . . . . . . . . . Other asset-backed securities . . . . . . . . . . . . . . . . . Loans and other receivables. . Investments at fair value. . . . . FXCM term loan. . . . . . . . . . . . $ 58,426 7,490 28,788 $ (4,086) $ 31,885 $(37,706) $ – 1,607 (391) 10,913 (14,389) (602) (5,201) 83 (3,821) $ 17,740 (934) 7,887 (969) (1,053) 6,110 (827) 393 (1,856) (1,787) 42,563 114,080 205,412 59,120 (3,848) (12,341) (31,666) 335 (1,638) 69,701 123,485 (36,929) (167) 55,836 – – (43,072) (57,455) (17,298) – Loans to and investments in associated companies . . . . . . . . . . Securities purchased under – 5,497 agreements to resell. . . . . . . . . . . . 25,000 – Liabilities: – – – – – (25,000) Financial instruments sold, not yet purchased, at fair value: Corporate equity securities . . . Corporate debt securities. . . . . Commercial mortgage- backed securities . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . . Other secured financings . . . . . . . Long-term debt (1) . . . . . . . . . . . . $ 4,487 340 $ $ 456 (268) (513)$ (325) – 394 $ – – $ 35 9,463 77,168 – 480,069 – (520) (40) (2,475) 84,930 – 35 (6,061) 13,851 (7,446) 19,376 – – – – – – – – – 4,018 (57,088) 248,718 (2,216) – – – – – – – – – – – – – – $ 27,385 14,959 1,682 $ 75,904 23,146 17,972 $ (652) (270) (17,212) (845) 21,826 (30) 2,003 16,289 3,796 1,829 – 79,995 134,636 213,946 59,455 (599) (295) (5,945) (11,153) (33,514) 335 34,688 40,185 5,497 – – – $ 4 $ – 4,434 141 $ (81) 27 (35) (98) (60,825) – (80,601) 35 16,635 26,017 1,543 676,028 – 360 (1,805) 2,475 (51,567) (1) Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument specific credit risk related to structured notes within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of F-39 78439 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2020 were losses of $33.4 million. (2) Net derivatives represent Financial instruments owned, at fair value – Derivatives and Financial instruments sold, not yet purchased, at fair value – Derivatives. Analysis of Level 3 Assets and Liabilities for the twelve months ended November 30, 2020 During the twelve months ended November 30, 2020, transfers of assets of $88.0 million from Level 2 to Level 3 of the fair value hierarchy are attributed to: • Corporate equity securities of $32.5 million, other asset-backed securities of $23.0 million, corporate debt securities of $18.0 million and loans and other receivables of $10.9 million due to reduced pricing transparency. During the twelve months ended November 30, 2020, transfers of assets into Level 3 also include $34.7 million related to loans to and investments in associated companies. During the twelve months ended November 30, 2020, transfers of assets of $24.7 million from Level 3 to Level 2 are primarily attributed to: • Loans and other receivables of $7.1 million, other asset-backed securities of $6.8 million, corporate equity securities of $5.1 million and corporate debt securities of $3.0 million due to greater pricing transparency supporting classification into Level 2. During the twelve months ended November 30, 2020, transfers of liabilities of $1.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to: • Loans of $1.8 million due to reduced pricing transparency. During the twelve months ended November 30, 2020, transfers of liabilities of $143.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to: • Structured notes within long-term debt of $80.6 million and net derivatives of $60.8 million due to greater market and pricing transparency. Net losses on Level 3 assets were $51.6 million and net losses on Level 3 liabilities were $82.1 million for the twelve months ended November 30, 2020. Net losses on Level 3 assets were primarily due to a decreased market values of investments at fair value and loans and other receivables, partially offset by increased valuations of loans to and investments in associated companies. Net losses on Level 3 liabilities were primarily due to increased market valuations of certain structured notes within long-term debt, partially offset by decreased values of other secured financings. F-40 38242 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued The following is a summary of changes in the fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the twelve months ended November 30, 2019 (in thousands): Twelve Months Ended November 30, 2019 Balance, November 30, 2018 Total gains (losses) (realized and unrealized) (1) Purchases Sales Settlements Issuances Net transfers into (out of) Level 3 Balance, November 30, 2019 Changes in unrealized gains/ losses included in earnings relating to instruments still held at November 30, 2019 (1) Assets: Financial instruments owned, at fair value: Corporate equity securities . . . Corporate debt securities. . . . . CDOs and CLOs. . . . . . . . . . . . Residential 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) backed securities . . . . . . . . . . 19,603 (1,669) 1,954 (2,472) (152) Commercial mortgage- backed securities . . . . . . . . . . 10,886 (2,888) 206 (2,346) (5,317) Other asset-backed securities . . . . . . . . . . . . . . . . . Loans and other receivables. . Investments at fair value. . . . . FXCM term loan. . . . . . . . . . . . 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: Financial instruments sold, not yet purchased, at fair value: Corporate equity securities . . . Corporate debt securities. . . . . Commercial mortgage- backed securities . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . . Long-term debt (1) . . . . . . . . . . . . $ – $ 522 – 6,376 21,614 200,745 (2,649) $ (4,322)$ 11,458 $ – (457) (381) – (524) 35 (1,382) (21,452) (18,662) – – (2,573) 6,494 (4,323) 36,144 – – – – 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 within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2019 were losses of $11.0 million. (2) Net derivatives represent Financial instruments owned, at fair value – Derivatives and Financial instruments sold, not yet purchased, at fair value – Derivatives. F-41 79183 Notes to Consolidated Financial Statements, continued Note 4. 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 within long-term debt of $22.6 million from Level 2 to Level 3 due to reduced market transparency. Transfers of structured notes within long-term debt from Level 3 to Level 2 were $61.7 million for the twelve months ended November 30, 2019 due to greater market transparency. Net losses on Level 3 assets were $217.0 million and net gains on Level 3 liabilities were $44.5 million for the twelve months ended November 30, 2019. Net losses on Level 3 assets were primarily due to a decreased valuation of investments at fair value, corporate equity securities, loans and other receivables, corporate debt securities, commercial mortgage-backed securities, CDOs and CLOs and our FXCM term loan. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives and valuations of certain structured notes within long-term debt. F-42 89792 Notes to Consolidated Financial Statements, continued Note 4. 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: Financial instruments owned, at fair value: Corporate equity securities . . . $ 22,270 26,036 Corporate debt securities . . . . . CDOs and CLOs . . . . . . . . . . . . 42,184 Residential mortgage- $ 24,914 (439) (16,258) $ 31,669 $ (22,759) $ (3,977) $ – – (23,364) – (353,330) (1,679) (10,247) 10,352 356,650 backed securities . . . . . . . . . . 26,077 (6,970) 3,118 (12,816) (513) Commercial mortgage- backed securities . . . . . . . . . . 12,419 (2,186) 1,436 (471) (16,624) Other asset-backed securities. . . . . . . . . . . . . . . . . . Loans and other receivables . . Investments at fair value . . . . . FXCM term loan . . . . . . . . . . . . 61,129 47,304 329,944 72,800 (9,934) (5,137) 76,636 18,616 706,846 149,228 9,798 – (677,220) (130,832) (17,570) – (27,641) (15,311) – (18,266) – – – – – – $ 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 Liabilities: Financial instruments sold, not yet purchased, at fair value: Corporate equity securities . . . $ Corporate debt securities . . . . . Commercial mortgage- backed securities . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . Net derivatives (2) . . . . . . . . . . . Long-term debt (1) . . . . . . . . . . . . . 48 $ 522 – – $ – – $ – – $ – – $ – – $ $ (48) – – 522 $ – – 105 3,486 6,746 – (105) 84 (3,237) (30,347) – (4,626) (17) – – 7,432 14,920 – – – (1,335) – – – – 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 within long-term debt are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains/losses included in other comprehensive income (loss) for instruments still held at November 30, 2018 were gains of $19.4 million. (2) Net derivatives represent Financial instruments owned, at fair value – Derivatives and Financial instruments sold, not yet purchased, at fair value – Derivatives. Analysis of Level 3 Assets and Liabilities for the eleven months ended November 30, 2018 During the eleven months ended November 30, 2018, transfers of assets of $57.8 million from Level 2 to Level 3 of the fair value hierarchy are attributed to: • Commercial mortgage-backed securities of $16.3 million, residential mortgage-backed securities of $15.3 million and CDOs and CLOs of $17.3 million due to reduced pricing transparency. F-43 94535 Notes to Consolidated Financial Statements, continued Note 4. 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 within long-term debt of $146.2 million from Level 2 to Level 3 due to reduced market transparency. Net gains on Level 3 assets were $79.2 million and net gains on Level 3 liabilities were $33.6 million for the eleven months ended November 30, 2018. Net gains on Level 3 assets were primarily due to increased valuations of investments at fair value and our FXCM term loan, and increased market values in corporate equity securities, partially offset by decreased valuations of CDOs and CLOs, other asset-backed securities, residential mortgage-backed securities and certain loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes within long-term debt. Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather, the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category. For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period. F-44 27990 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued Fair Value (in thousands) Valuation Technique Significant Unobservable Input(s) Input/Range Weighted Average November 30, 2020 Financial instruments owned, at fair value Corporate equity securities Non-exchange-traded $ 75,409 securities Market approach Price EBITDA multiple Price Estimated recovery percentage Corporate debt securities CDOs and CLOs $ 23,146 Market approach Scenario analysis Discounted cash flows Constant prepayment rate $ 17,972 Constant default rate Loss severity Discount rate/yield Estimated recovery percentage Scenario analysis Residential mortgage- backed securities $ 21,826 Discounted cash flows Cumulative loss rate Loss severity Duration (years) Discount rate/yield Other asset-backed securities $ 67,816 Discounted cash flows Cumulative loss rate Loss severity Duration (years) Discount rate/yield Price Market approach $1 to $213 4.0 to 8.0 $69 20% to 44% 20% 2% 25% to 30% 14% to 28% 2% to 34% 2% to 3% 35% to 50% $86 5.7 – 30% – – 26% 20% 23% 3% 36% 2.0 years to 12.9 years 5.1 years 3% to 12% 1% to 28% 50% to 85% 4% 11% 54% 0.2 years to 2.1 years 1.3 years 1% to 16% $100 9% – $84 52% – 4.8 $29 – 20% – Loans and other receivables Derivatives Equity options Interest rate swaps $ 76,049 Market approach Scenario analysis Price Estimated recovery percentage $31 to $100 19% to 100% $ 19,951 Volatility benchmarking Volatility Market approach Basis points upfront Investments at fair value Private equity securities $ 96,906 Market approach Scenario analysis Price Estimated recovery percentage Discount rate/yield Revenue growth 47% 1.2 to 8.0 $1 to $169 17% 19% to 21% 0% Investment in FXCM $ 59,455 Term loan Discounted cash flows Term based on the pay off (years) 0 months to 1.2 years 1.2 years Loans to and investments in associated companies Non-exchange-traded warrants $ 40,185 Market approach Financial instruments sold, not yet purchased, at fair value Corporate equity securities Corporate debt securities Loans Derivatives 141 $ 4,434 Market approach $ Scenario analysis $ 16,635 Market approach $ 46,971 Underlying stock price Underlying stock price Volatility Price Estimated recovery percentage Price Equity options Interest rate swaps Volatility benchmarking Volatility Market approach Basis points upfront Other secured financings $ 1,543 Scenario analysis Estimated recovery percentage Long-term debt Structured notes $676,028 Market approach Price Price F-45 $778 to $805 €15 to €19 25% to 55% $1 20% $31 to $99 33% to 50% 1.2 to 8.0 19% to 55% $100 €76 to €113 $792 €16 30% – – $55 42% 5.4 45% – €99 88932 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued Fair Value (in thousands) Valuation Technique Significant Unobservable Input(s) Input/Range Weighted Average November 30, 2019 Financial instruments owned, at fair value 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 Residential mortgage- backed securities Commercial mortgage- backed securities Other asset-backed securities Loans and other receivables $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% – Term loan Discounted cash flows Term based on the pay off (years) 0 months to 1.2 years 1.2 years Securities purchased under agreements to resell $ 25,000 Market approach Financial instruments sold, not yet purchased, at fair value Corporate equity Spread to 6 month LIBOR Duration (years) 500 1.5 years securities Loans Derivatives Equity options Interest rate swaps Cross currency swaps Unfunded commitments Long-term debt Structured notes $ $ 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 $480,069 Market approach Price Price F-46 $1 $50 to $100 1% 21% to 61% 0 to 22 2 $88 $84 to $108 €74 to €103 – – – $88 – 43% 13 – – $96 €91 02682 Notes to Consolidated Financial Statements, continued Note 4. 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 or a percentage of the reported enterprise fair value are excluded from the above tables. At November 30, 2020 and 2019, asset exclusions consisted of $192.0 million and $79.9 million, respectively, primarily comprised of certain investments at fair value, other asset-backed securities, commercial mortgage-backed securities, certain derivatives, loans and other receivables and corporate equity securities. At November 30, 2020 and 2019, liability exclusions consisted of $0.8 million and $0.4 million, respectively, primarily comprised of certain derivatives, commercial mortgage-backed securities and corporate debt. Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below: • Corporate equity securities, corporate debt securities, other asset-backed securities, loans and other receivables, certain derivatives, private equity securities, loans to and investments in associated companies, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange-traded securities, unfunded commitments, corporate debt securities, other asset-backed securities, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the EBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of corporate equity securities or non-exchange-traded warrants would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price of non-exchange-traded warrants would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield or duration, in isolation, of securities fair value purchased under agreements to resell would result 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) • Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities, corporate debt securities, private equity securities and other secured financings using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial in a significantly higher (lower) fair value measurement for the financial instrument would result increase (decrease) in the price of the underlying assets of the financial instrument. A significant instrument would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of the financial instrument would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate/yield underlying the investment would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the revenue growth underlying the investment would result in a significantly higher (lower) fair value measurement. • CDOs and CLOs, residential mortgage-backed securities, commercial mortgage-backed securities, other asset-backed securities, loans and other receivables and the FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. F-47 49487 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in term based on the time to pay off the loan would result in a lower (higher) fair value measurement. • Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement. Fair Value Option Election We have elected the fair value option for all loans and loan commitments made by our investment banking and capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of our bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned, at fair value and loan commitments are included in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value in the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in associated companies in the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes, which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings in the Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed on a fair value basis. The fair value option has been elected for certain other secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, other receivables, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature. The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on short-term borrowings, other secured financings and long-term debt measured at fair value under the fair value option (in thousands): F-48 35600 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Financial instruments owned, at fair value: Loans and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(25,623) $ (2,072) $ (3,856) Financial instruments sold, not yet purchased, at fair value: Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – 464 Short-term borrowings: Changes in instrument specific credit risk (1). . . . . . . . . . . . . . . . . . . Other changes in fair value (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – (48) $ $ 656 (1,089) 114 (863) Other secured financings: Other changes in fair value (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,475 $ – $ $ $ (46) (739) – – – Long-term debt: Changes in instrument specific credit risk (1). . . . . . . . . . . . . . . . . . . Other changes in fair value (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 70,201 (84,116) $(20,332) (25,144) $38,064 48,748 (1) Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of taxes. (2) Other changes in fair value are included in Principal transactions revenues in the Consolidated Statements of Operations. The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables, long-term debt and short-term borrowings, and other secured financings measured at fair value under the fair value option (in thousands): November 30, 2020 November 30, 2019 Financial instruments owned, at fair value: Loans and other receivables (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt and short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other secured financings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,662,647 $1,546,516 287,889 (42,819) 2,782 197,215 74,408 – (1) Interest income is recognized separately from other changes in fair value and is included in Interest income in the Consolidated Statements of Operations. (2) Amounts include all loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $30.0 million and $22.2 million at November 30, 2020 and 2019, respectively. The aggregate fair value of our loans and other receivables on nonaccrual status and/or 90 days or greater past due was $69.7 million and $127.0 million at November 30, 2020 and 2019, respectively, which includes loans and other receivables 90 days or greater past due of $3.8 million and $24.8 million at November 30, 2020 and 2019, respectively. As of November 30, 2018, we owned 7,514,477 common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares. The changes in the fair value of our investment in Spectrum Brands aggregated $80.0 million and $(418.8) million during the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively. We distributed all of our Spectrum Brands shares through a special pro rata dividend effective on October 11, 2019 to our stockholders of F-49 91421 Notes to Consolidated Financial Statements, continued Note 4. Fair Value Disclosures, continued record as of the close of business on September 30, 2019. We recorded a $451.1 million dividend as of the September 16, 2019 declaration date, which was equal to the fair value of Spectrum Brands shares at that time. Financial Instruments Not Measured at Fair Value Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented within Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $34.2 million and $35.0 million at November 30, 2020 and 2019, respectively. See Note 24 for additional information related to financial instruments not measured at fair value. Note 5. Derivative Financial Instruments Derivative Financial Instruments Derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned, at fair value and Financial instruments sold, not yet purchased, at fair value, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Predominantly, we enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. In addition, we apply hedge accounting to (1) interest rate swaps that have been designated as fair value hedges of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long- term debt, and (2) forward foreign exchange contracts designated as hedges to offset the change in the value of certain net investments in foreign operations. See Notes 4 and 22 for additional disclosures about derivative financial instruments. Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies. In connection with our derivative activities, we may enter into ISDA master netting agreements or similar agreements with counterparties. See Note 2 for additional information regarding the offsetting of derivative contracts. The following tables present the fair value and related number of derivative contracts at November 30, 2020 and 2019 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts). F-50 60977 Notes to Consolidated Financial Statements, continued Note 5. Derivative Financial Instruments, continued Assets Liabilities Fair Value Number of Contracts (2) Fair Value Number of Contracts (2) November 30, 2020 (1) Derivatives designated as accounting hedges: Interest rate contracts: Cleared OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 67,381 1 $ 6,891 Foreign exchange contracts: Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives designated as accounting hedges . – 67,381 – 3,306 10,197 Derivatives not designated as accounting hedges: Interest rate contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,442 17,379 626,210 52,620 3,785 1,493 439 114,524 317,534 Foreign exchange contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 297,165 15,005 277,706 Equity contracts: 1 11 42,611 4,307 466 180 15,050 Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558,304 429,304 1,147,486 2,374 564,951 1,125,944 971,938 2,421 2,654 – 31 11 Commodity contracts: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit contracts: Cleared OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives not designated as accounting hedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 13,190 24,696 1,008 1,969,762 Total gross derivative assets/liabilities: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 560,810 109,456 1,366,877 Amounts offset in the Consolidated Statement of Financial Condition (3): Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (546,989) (109,228) (899,919) 3,207 1,556 39 11 – – 26,298 2,209 2,429,605 565,390 147,713 1,726,699 (546,989) (111,654) (1,140,016) Net amounts in the Consolidated Statement of Financial Condition (4). . . . . . . . . . . . . . . . . . . . . . $ 481,007 $ 641,143 F-51 08838 Notes to Consolidated Financial Statements, continued Note 5. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total derivatives not designated as accounting hedges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 20,600 2,514 6,281 5,524 4,084 13 25 – 391 5,768 14,219 4,646 359 12 28 1,822,942 2,159,383 Total gross derivative assets/liabilities: Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 718,685 244,401 888,519 Amounts offset in the Consolidated Statement of Financial Condition (3): Exchange-traded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cleared OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bilateral OTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net amounts in the Consolidated Statement of (688,871) (222,869) (521,457) 962,638 290,201 906,544 (688,871) (266,900) (676,407) Financial Condition (4) . . . . . . . . . . . . . . . . . . . . . . . . $ 418,408 $ 527,205 (1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty. (2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables and Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. (3) Amounts netted include both netting by counterparty and for cash collateral paid or received. F-52 94842 Notes to Consolidated Financial Statements, continued Note 5. 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, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,524 (36,668) $ 4,856 $ 56,385 (58,931) $ (2,546) $(25,539) 27,363 $ 1,824 The following table provides information related to gains (losses) on net investment hedges recognized in Net unrealized foreign exchange gains (losses), a component of Other comprehensive income (loss), in the Consolidated Statements of Comprehensive Income (Loss) (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,306) $(3,306) $– $– $– $– The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands): Interest rate contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commodity contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2020 $(52,331) 2,266 47,631 45,491 15,218 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 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,275 $(294,871) $(177,436) The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework. F-53 05645 Notes to Consolidated Financial Statements, continued Note 5. Derivative Financial Instruments, continued OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as reflected in the Consolidated Statement of Financial Condition at November 30, 2020 (in thousands): Commodity swaps, options and forwards . . . . . . . . . Equity options and forwards . . . . . . . . . . . . . . . . . . . . . Credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total return swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency forwards, swaps and options . . . . Interest rate swaps, options and forwards . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross product counterparty netting . . . . . . . . . . . . . . . Total OTC derivative assets included in Financial instruments owned, at fair value . OTC Derivative Assets (1) (2) (3) Greater Cross- Maturity Than Netting (4) 5 Years 1-5 Years $ 2,305 951 750 25,110 18,460 168,430 $216,006 $ – 16,650 11 1,321 517 204,467 $222,966 $ – (24,685) – (2,975) (5,746) (40,131) $(73,537) 0-12 Months $ 10,885 32,766 – 140,394 62,249 80,949 $327,243 Total $ 13,190 25,682 761 163,850 75,480 413,715 692,678 (24,723) $667,955 (1) At November 30, 2020, we held net exchange-traded derivative assets, other derivatives assets and other credit agreements with a fair value of $29.8 million, which are not included in this table. (2) OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in the Consolidated Statements of Financial Condition. At November 30, 2020, cash collateral received was $216.8 million. (3) Derivative fair values include counterparty netting within product category. (4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. Equity options and forwards . . . . . . . . . . . . . . . . . . . Credit default swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . Total return swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency forwards, swaps and options . . Fixed income forwards . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps, options and forwards . . . . . . . 0-12 Months $ 23,278 – 88,130 51,027 213 61,558 OTC Derivative Liabilities (1) (2) (3) Greater Than 5 Years Cross- Maturity Netting (4) 1-5 Years Total $491,595 596 190,616 13,376 – 65,934 $119,988 1,615 22 – – 68,252 – $(24,685) $ 610,176 2,211 275,793 58,657 213 155,613 – (40,131) (2,975) (5,746) Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $224,206 $762,117 $189,877 $(73,537) 1,102,663 Cross product counterparty netting . . . . . . . . . . . . . Total OTC derivative liabilities included in Financial instruments sold, not yet purchased, at fair value . . . . . . . . . . . . . . . . . (24,723) $1,077,940 (1) At November 30, 2020, we held net exchange-traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $22.5 million, which are not included in this table. F-54 83126 Notes to Consolidated Financial Statements, continued Note 5. Derivative Financial Instruments, continued (2) OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At November 30, 2020, cash collateral pledged was $459.3 million. (3) Derivative fair values include counterparty netting within product category. (4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories. At November 30, 2020, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands): Counterparty credit quality (1): A- or higher. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BBB- to BBB+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BB+ or lower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $177,908 19,628 316,361 154,058 $667,955 (1) We utilize internal credit ratings determined by the Jefferies Group’s Risk Management department. Credit ratings determined by Jefferies Group Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies. Credit Related Derivative Contracts The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts are as follows (in millions): External Credit Rating Investment Grade Non-investment Grade Unrated Total Notional November 30, 2020 Credit protection sold: Index credit default swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Single name credit default swaps . . . . . . . . . . . . . . . . . . . . . $62.0 – $262.8 6.2 $ – 0.2 $324.8 6.4 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 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 was to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on the derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts posted or received in the normal course of business and the potential collateral we would have F-55 86418 Notes to Consolidated Financial Statements, continued Note 5. Derivative Financial Instruments, continued been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions). 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, 2020 November 30, 2019 $ 284.6 (129.8) 141.4 $ 42.9 (3.1) 114.1 296.2 154.0 (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 6. Collateralized Transactions Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of dealer operations. We monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and request additional collateral or return excess collateral, as appropriate. We pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned, at fair value, and noted parenthetically as Securities pledged in the Consolidated Statements of Financial Condition. In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we in the the fair value of the collateral received and the related obligation to return the collateral report Consolidated Statements of Financial Condition. The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by class of collateral pledged and remaining contractual maturity (in thousands): F-56 34641 Notes to Consolidated Financial Statements, continued Note 6. Collateralized Transactions, continued Collateral Pledged November 30, 2020 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 $1,371,978 369,218 $ – 14,789 – 54,763 – 157,912 1,869,844 1,547,140 7,149,992 278,470 2,763,032 1,392,883 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,810,748 $15,159,273 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $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 Obligation to Return Securities Received as Collateral, at Fair Value Total $ $ $ $ 7,517 – – – – – – $ 1,537,407 2,239,062 1,547,140 7,164,781 278,470 2,817,795 1,392,883 7,517 $16,977,538 – – – 9,500 – – – 9,500 $ 1,443,953 1,921,837 1,745,145 10,892,931 498,202 3,016,563 772,926 $20,291,557 November 30, 2020 Securities lending arrangements. . . . . Repurchase agreements. . . . . . . . . . . . . Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . Overnight and Continuous Up to 30 Days 31 to 90 Days Greater than 90 Days Total Contractual Maturity $ 636,256 5,510,476 $ 59,735 1,747,526 $ 459,455 5,019,885 $ 655,302 2,881,386 $ 1,810,748 15,159,273 7,517 – – – 7,517 Total . . . . . . . . . . . . . . . . . . . . . . . . . $6,154,249 $1,807,261 $5,479,340 $3,536,688 $16,977,538 November 30, 2019 Securities lending arrangements. . . . . Repurchase agreements. . . . . . . . . . . . . Obligation to return securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . $ 694,821 6,614,026 $ – 1,556,260 $ 672,969 8,988,528 $ 157,350 1,598,103 $ 1,525,140 18,756,917 – $7,308,847 – $1,556,260 9,500 $9,670,997 – $1,755,453 9,500 $20,291,557 We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. We also receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities. In many instances, we are permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At November 30, 2020 and 2019, the approximate fair value of securities received as collateral by us that may be F-57 81247 Notes to Consolidated Financial Statements, continued Note 6. Collateralized Transactions, continued sold or repledged was $25.9 billion and $28.7 billion, respectively. At November 30, 2020 and 2019, a substantial portion of the securities received have been sold or repledged. Offsetting of Securities Financing Agreements To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). The following table provides information regarding repurchase agreements, securities borrowing and lending arrangements and securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, that are recognized in the Consolidated Statements of Financial Condition and (1) the extent in the to which, under enforceable master netting arrangements, such balances are presented net 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, 2020 Securities borrowing arrangements . . . . . . $ 6,934,762 $ Reverse repurchase agreements . . . . . . . . . 11,939,773 Securities received as collateral, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,517 Liabilities at November 30, 2020 Securities lending arrangements . . . . . . . . . $ 1,810,748 $ Repurchase agreements . . . . . . . . . . . . . . . . . 15,159,273 Obligation to return securities received – (6,843,004) $6,934,762 5,096,769 $(395,342) $(1,706,046) $4,833,374 105,882 (4,578,560) (412,327) – – (6,843,004) 7,517 – – 7,517 $1,810,748 8,316,269 $(395,342) $(1,397,550) $ (412,327) (7,122,422) 17,856 781,520 as collateral, at fair value . . . . . . . . . . . . 7,517 – 7,517 – – 7,517 Assets at November 30, 2019 Securities borrowing arrangements . . . . . . $ 7,624,642 $ Reverse repurchase agreements . . . . . . . . . 15,551,845 (11,252,247) Securities received as collateral, at fair – $7,624,642 4,299,598 $(361,394) $(1,479,433) $5,783,815 78,305 (3,929,977) (291,316) value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,500 – 9,500 – – 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 – $1,525,140 7,504,670 $(361,394) $ (970,799) $ 192,947 549,547 (6,663,807) (291,316) as collateral, at fair value . . . . . . . . . . . . 9,500 – 9,500 – – 9,500 (1) Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the F-58 76266 Notes to Consolidated Financial Statements, continued Note 6. Collateralized Transactions, continued event of a counterparty’s default, but which are not netted in the Consolidated Statements of Financial Condition because other netting provisions of GAAP are not met. (2) Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (3) At November 30, 2020, amounts include $4,757.8 million of securities borrowing arrangements, for which we have received securities collateral of $4,617.0 million, and $720.0 million of repurchase agreements, for which we have pledged securities collateral of $733.9 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable. At November 30, 2019, amounts include $5,683.4 million of securities borrowing arrangements, for which we have received securities collateral of $5,523.6 million, and $439.7 million of repurchase agreements, for which we have pledged securities collateral of $447.5 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable. Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations Cash and securities segregated in accordance with regulatory regulations and deposited with clearing and depository organizations totaled $604.3 million and $796.8 million at November 30, 2020 and 2019, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers. Note 7. Securitization Activities We engage in securitization activities related to corporate loans, mortgage loans, consumer loans and mortgage- backed and other asset-backed securities. In our securitization transactions, we transfer these assets to special purpose entities (‘‘SPEs’’) and act as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of our securitization transactions are the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of VIEs; however, we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. See Note 8 for additional information regarding VIEs and our determination of the primary beneficiary. We account for our securitization transactions as sales, provided we have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in the Consolidated Statements of Operations prior to the identification and revenues recognized upon securitization are reflected as net isolation for securitization. Subsequently, underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage-backed and other asset-backed securities or CLOs). These securities are included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy. See Notes 2 and 4 for additional information regarding fair value measurement and the fair value hierarchy. The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions): F-59 14290 Notes to Consolidated Financial Statements, continued Note 7. Securitization Activities, continued Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Transferred assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds on new securitizations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash flows received on retained interests . . . . . . . . . . . . . . . . . . . . . . . . . $6,556.2 6,556.2 26.8 $4,780.9 4,852.8 48.3 $7,159.3 7,165.3 48.5 We have no explicit or implicit arrangements to provide additional financial support to these SPEs, have no liabilities related to these SPEs and do not have any outstanding derivative contracts executed in connection with these securitization activities at November 30, 2020 and 2019. The following table summarizes our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions): Securitization Type November 30, 2020 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 562.5 2,461.2 3,345.5 1,290.6 $ 7.8 205.2 39.5 56.6 November 30, 2019 Total Assets $10,671.7 1,374.8 3,006.7 1,149.3 Retained Interests $103.3 45.8 58.4 71.8 Total assets represent the unpaid principal amount of assets in the SPEs in which we have continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting our retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Our risk of loss is limited to this fair value amount, which is included in total Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. Although not obligated, in connection with secondary market-making activities we may make a market in the securities issued by these SPEs. In these market-making transactions, we buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs. To the extent we purchased securities through these market-making activities and we are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8. Foursight Capital also utilizes SPEs to securitize automobile loans receivable. These SPEs are VIEs and our subsidiary is the primary beneficiary; the related assets and the secured borrowings are recognized in the Consolidated Statements of Financial Condition. These secured borrowings do not have recourse to our subsidiary’s general credit. See Note 8 for further information on securitization activities and VIEs. Note 8. Variable Interest Entities VIEs are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. F-60 94210 Notes to Consolidated Financial Statements, continued Note 8. Variable Interest Entities, continued Our variable interests in VIEs include debt and equity interests, equity interests in associated companies, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from the following activities, but also includes other activities discussed below: • Purchases of securities in connection with our trading and secondary market-making activities; • Retained interests held as a result of securitization activities; • Acting as placement agent and/or underwriter in connection with client-sponsored securitizations; • Financing of agency and non-agency mortgage-backed and other asset-backed securities; • Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation agreements, forward sale agreements and revolving loan and note commitments; and • Loans to, investments in and fees from various investment vehicles. We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires judgment. Our considerations in determining the VIE’s most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE’s purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE’s initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE’s significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the ‘‘power’’ criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the ‘‘power’’ criteria of the primary beneficiary. We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests. Consolidated VIEs The following table presents information about our consolidated VIEs (in millions). The assets and liabilities in the table below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation. F-61 13711 Notes to Consolidated Financial Statements, continued Note 8. Variable Interest Entities, continued November 30, 2020 Secured Funding Vehicles Other Cash (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities purchased under agreements to resell (2) . . . . . . . . . . . . . . . . . . . . Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – – 2,908.9 510.6 46.4 Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,465.9 Financial instruments sold, not yet purchased, at fair value . . . . . . . . . . . . Other secured financings (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other liabilities (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ – 3,425.0 1.8 $3,426.8 $ 1.2 5.2 – 12.9 0.1 $19.4 $ 2.5 – 0.4 $ 2.9 November 30, 2019 Secured Funding Vehicles $ – – 2,467.3 605.6 38.7 $3,111.6 $ – 3,068.6 20.1 $3,088.7 Other $1.2 0.3 – – – $1.5 $ – – 0.2 $0.2 (1) Approximately $0.7 million of the cash amount at November 30, 2020 represents cash on deposit with related consolidated entities and is eliminated in consolidation. (2) Securities purchased under agreements to resell primarily represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation. (3) Approximately $9.7 million of the other assets amount at November 30, 2020 represents intercompany receivables with related consolidated entities, which are eliminated in consolidation. (4) Approximately $138.2 million of the other secured financings amount at November 30, 2020 is with related consolidated entities, which is eliminated in consolidation. (5) Approximately $0.3 million and $17.7 million of the other liabilities amounts at November 30, 2020 and 2019, respectively, represent intercompany payables with related consolidated entities, which are eliminated in consolidation. Secured Funding Vehicles. We are the primary beneficiary of asset-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage loans and asset-backed securities pursuant to the terms of a master repurchase agreement. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement, which we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders. At November 30, 2020 and 2019, Foursight Capital is the primary beneficiary of SPEs it utilized to securitize automobile loans receivable. Foursight Capital acts as the servicer for which it receives a fee, and owns an equity interest in the SPEs. The notes issued by the SPEs are secured solely by the assets of the SPEs and do not have recourse to Foursight Capital’s general credit and the assets of the VIEs are not available to satisfy any other debt. During the twelve months ended November 30, 2020, automobile loan receivables aggregating $223.3 million were securitized by Foursight Capital in connection with a secured borrowing offering. The majority of the proceeds from issuance of the secured borrowing were used to pay down Foursight Capital’s two credit facilities. Other. We are the primary beneficiary of certain investment vehicles set up for the benefit of our employees. We manage and invest alongside our employees in these vehicles. The assets of these VIEs consist of private equity securities and are available for the benefit of the entities’ equity holders. Our variable interests in these vehicles consist of equity securities. The creditors of these VIEs do not have recourse to our general credit and each such VIE’s assets are not available to satisfy any other debt. F-62 52698 Notes to Consolidated Financial Statements, continued Note 8. Variable Interest Entities, continued Nonconsolidated VIEs The following tables present information about our variable interests in nonconsolidated VIEs (in millions): Carrying Amount Assets Liabilities November 30, 2020 CLOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer loan and other asset-backed vehicles. . . . . . . . . . . . . . . . Related party private equity vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2019 CLOs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumer loan and other asset-backed vehicles. . . . . . . . . . . . . . . . Related party private equity vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60.7 251.6 19.0 899.9 $1,231.2 $ 152.6 358.3 23.0 574.0 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,107.9 $0.2 – – – $0.2 $0.6 – – – $0.6 Maximum Exposure to Loss VIE Assets $ 642.7 377.2 30.0 1,042.9 $2,092.8 $ 6,849.1 2,462.7 53.0 15,735.5 $25,100.3 $ 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 Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of the variable interests in our VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with our variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE. Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. We underwrite securities issued in CLO transactions on behalf of sponsors and provide advisory services to the sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with CLOs where we have been involved in providing underwriting and/or advisory services consist of the following: • Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs; • Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests; • Trading positions in securities issued in CLO transactions; and • Investments in variable funding notes issued by CLOs. Asset-Backed Vehicles. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities, forward purchase agreements and reverse repurchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer loans, mortgage loans and trade claims. In addition, we may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. We do not control the activities of these entities. Related Party Private Equity Vehicles. We committed to invest in private equity funds (the ‘‘JCP Funds’’, including Jefferies Group’s interests in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. F-63 38336 Notes to Consolidated Financial Statements, continued Note 8. Variable Interest Entities, continued (together, ‘‘JCP Fund V’’)) managed by Jefferies Capital Partners, LLC (the ‘‘JCP Manager’’). Additionally, we committed to invest in the general partners of the JCP Funds (the ‘‘JCP General Partners’’) and the JCP Manager. Our variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the ‘‘JCP Entities’’) consist of equity interests that, in total, provide us with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At November 30, 2020 and 2019, our total equity commitment in the JCP Entities was $133.0 million and $133.0 million, respectively, of which $122.0 million and $121.7 million, respectively, had been funded. The carrying value of our equity investments in the JCP Entities was $19.0 million and $23.0 million at November 30, 2020 and 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments. Other Investment Vehicles. The carrying amount of our equity investment was $899.9 million and $574.0 million at November 30, 2020 and 2019, respectively. Our unfunded equity commitment related to these investments totaled $143.0 million and $192.1 million at November 30, 2020 and 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets. Mortgage-Backed and Other Asset-Backed Secured Funding Vehicles. In connection with our secondary trading and market-making activities, we buy and sell agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities. We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA (‘‘Fannie Mae’’), Federal Home Loan Mortgage Corporation (‘‘Freddie Mac’’) or GNMA (‘‘Ginnie Mae’’)) or non-agency-sponsored SPEs and may purchase loans or mortgage-backed securities from third-parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. We do not consolidate agency- sponsored securitizations as we do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, we are not the servicer of non-agency-sponsored securitizations and therefore do not have power to direct the most significant activities of the SPEs and accordingly, do not consolidate these entities. We may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs. At November 30, 2020 and 2019, we held $1,571.6 million and $1,453.5 million of agency mortgage-backed securities, respectively, and $252.0 million and $134.8 million of non-agency mortgage-backed and other asset- backed securities, respectively, as a result of our secondary trading and market-making activities, and underwriting, placement and structuring activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. These mortgage-backed and other asset-backed secured funding vehicles discussed are not included in the above table containing information about our variable interests in nonconsolidated VIEs. FXCM is considered a VIE and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, we do not consolidate FXCM and we account for our equity interest under the equity method as an investment in an associated company. FXCM reported total F-64 60984 Notes to Consolidated Financial Statements, continued Note 8. Variable Interest Entities, continued assets of $414.4 million in its latest financial statements. Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($59.5 million) and the investment in associated company ($73.9 million), which totaled $133.4 million at November 30, 2020. FXCM is not included in the above table containing information about our variable interests in nonconsolidated VIEs. Note 9. Loans to and Investments in Associated Companies A summary of Loans to and investments in associated companies accounted for under the equity method of accounting during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 is as follows (in thousands): Loans to and investments in associated companies as of November 30, 2019 $ 673,867 268,949 70,223 194,847 255,309 78,196 111,566 $1,652,957 Income (losses) related to associated companies $ – – 3,604 (28,662) (46,050) (50) (4,325) $(75,483) Other income (losses) related to associated companies (1) $(54,256) 68,902 – – – – 9,288 $ 23,934 Contributions to (distributions from) associated companies, net Other, including foreign exchange and unrealized gains (losses) $ 73,590 (37,130) – 34,955 (40,581) 2,610 44,101 $ 77,545 $ – 431 93 (2,149) – – 9,235 $ 7,610 Loans to and investments in associated companies as of November 30, 2018 $ 728,560 245,228 653,630 75,031 165,157 337,542 Income (losses) related to associated companies $ – – 232,042 (8,212) (27,956) 7,902 87,074 63,956 61,154 (353) 6,740 (7,168) Other income (losses) related to associated companies (1) $ (1,286) 88,174 – – – – – – (1,719) Contributions to (distributions from) associated companies, net $ (53,407) (65,045) (300,248) 3,500 66,996 – Other, including foreign exchange and unrealized gains (losses) $ – 592 (585,424) (96) (9,350) (345,444) (29,685) 7,500 58,432 198,273 – 867 Loans to and investments in associated companies as of November 30, 2020 $ 693,201 301,152 73,920 198,991 168,678 80,756 169,865 $1,686,563 Loans to and investments in associated companies as of November 30, 2019 $ 673,867 268,949 – 70,223 194,847 – 255,309 78,196 111,566 Jefferies Finance . . . . . . . . . Berkadia (2) . . . . . . . . . . . . . FXCM (3) . . . . . . . . . . . . . . . Linkem (4) . . . . . . . . . . . . . . Real estate associated companies (5) (6) . . . . . . Golden Queen (4) (7) . . . . Other. . . . . . . . . . . . . . . . . . . . Total. . . . . . . . . . . . . . . . Jefferies Finance . . . . . . . . . . . Berkadia (2) . . . . . . . . . . . . . . . National Beef (8). . . . . . . . . . . FXCM (3) . . . . . . . . . . . . . . . . . Linkem (4) . . . . . . . . . . . . . . . . HomeFed (5). . . . . . . . . . . . . . . Real estate associated companies (5). . . . . . . . . . . . Golden Queen (4) (7). . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . $2,417,332 $202,995 $85,169 $(311,957) $(740,582) $1,652,957 F-65 58912 Notes to Consolidated Financial Statements, continued Note 9. 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) Other income (losses) related to 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 (8) . . . . . . . . . . FXCM (3) . . . . . . . . . . . . . . . . Garcadia Companies (9). . . . Linkem . . . . . . . . . . . . . . . . . . . HomeFed . . . . . . . . . . . . . . . . . Real estate associated companies . . . . . . . . . . . . . . Golden Queen (7) (10). . . . . Other . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . $2,066,829 $ 57,023 $73,662 $(180,876) $ 400,694 $2,417,332 (1) Primarily related to Jefferies Group and classified in Other revenues. (2) In the fourth quarter of 2018, we transferred our interest in Berkadia to Jefferies Group. (3) As further described in Note 4, our investment in FXCM includes both our equity method investment in FXCM and our term loan with FXCM. Our equity method investment is included in Loans to and investments in associated companies and our term loan is included in Financial instruments owned, at fair value in the Consolidated Statements of Financial Condition. As described more fully below, Income (loss) related to associated companies for FXCM includes a non-cash impairment charge of $62.1 million for the eleven months ended November 30, 2018. (4) Loans to and investments in associated companies at November 30, 2020 and 2019 include loans and debt securities aggregating $104.1 million and $70.2 million, respectively, related to Linkem and Golden Queen. (5) During the third quarter of 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. From July 1, 2019, HomeFed’s equity method investments are included in Real estate associated companies. (6) Income (loss) related to Real estate associated companies for the twelve months ended November 30, 2020 includes a non-cash charge of $6.9 million to fully write off the value of HomeFed’s interest in the Brooklyn Renaissance Plaza hotel due to the significant impact of the global novel coronavirus (‘‘COVID- 19’’) during the second quarter of 2020 and a non-cash charge of $55.6 million to fully write off the value of HomeFed’s RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market. (7) At November 30, 2020, 2019 and 2018, the balance reflects $15.2 million, $15.7 million and $15.1 million, respectively, related to a noncontrolling interest. (8) As discussed more fully in Notes 1 and 26, in June 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. The carrying value of our retained 31% interest was adjusted to a fair value of $592.3 million on the date of sale. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders. (9) During the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family. F-66 65917 Notes to Consolidated Financial Statements, continued Note 9. Loans to and Investments in Associated Companies, continued (10) As described more fully below, Income (loss) related to associated companies for Golden Queen includes a non-cash impairment charge of $47.9 million for the eleven months ended November 30, 2018. Jefferies Finance Through Jefferies Group, we own 50% of Jefferies Finance, a joint venture entity pursuant to an agreement with MassMutual. Jefferies Finance is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. In addition, Jefferies Finance is a registered investment advisor under the Investment Advisers Act of 1940 and, through two of its wholly-owned subsidiaries, Apex Credit Partners LLC and JFIN Asset Management LLC, acts as an investment advisor for various loan funds and CLOs managing direct lending and broadly syndicated loan products. At November 30, 2020, Jefferies Group and MassMutual each had equity commitments to Jefferies Finance of $750.0 million. At November 30, 2020, $652.4 million of Jefferies Group’s commitment was funded. The investment commitment is scheduled to expire on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party. Jefferies Finance has executed a Secured Revolving Credit Facility with Jefferies Group and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at November 30, 2020. Advances are shared equally between Jefferies Group and MassMutual. The facility is scheduled to mature on March 1, 2021 with automatic one year extensions absent a 60-day termination notice by either party. At November 30, 2020, Jefferies Group had funded $50.0 million of its $250.0 million commitment. Jefferies Group recognized interest income and unfunded commitment fees related to the facility of $3.5 million, $1.3 million and $2.4 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. The following summarizes activity related to our other transactions with Jefferies Finance (in millions): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Origination and syndication fee revenues (1) . . . . . . . . . . . . . . . . . . . . . Origination fee expenses (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CLO placement fee revenues (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative losses (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting fees (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Service fees (5). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $198.1 27.3 1.7 – 1.7 65.1 $176.3 27.6 6.0 – 3.9 60.8 $377.7 56.6 3.7 (1.6) – 61.7 (1) Jefferies Group engages in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, Jefferies Group earned fees, which are recognized in Investment banking revenues in the Consolidated Statements of Operations. In addition, Jefferies Group paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized in Selling, general and other expenses in the Consolidated Statements of Operations. F-67 18356 Notes to Consolidated Financial Statements, continued Note 9. Loans to and Investments in Associated Companies, continued (2) Jefferies Group acts as a placement agent for CLOs managed by Jefferies Finance, for which Jefferies Group recognized fees, which are included in Investment banking revenues in the Consolidated Statements of Operations. At November 30, 2020 and 2019, Jefferies Group held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value. (3) Jefferies Group has entered into participation agreements and derivative contracts with Jefferies Finance based upon certain securities issued by CLOs and it has recognized gains (losses) relating to the derivative contracts. (4) Jefferies Group acted as underwriter in connection with term loans issued by Jefferies Finance. (5) Under a service agreement, Jefferies Group charges Jefferies Finance for services provided. In connection with non-U.S. dollar loans originated by Jefferies Finance to borrowers who are investment banking clients of Jefferies Group, Jefferies Group has entered into an agreement to indemnify Jefferies Finance with respect to any foreign currency exposure. At November 30, 2020 and 2019, we had receivables from Jefferies Finance, included within Other assets in the Consolidated Statements of Financial Condition of $24.2 million and $17.2 million, respectively. At November 30, 2020 and 2019, we had payables to Jefferies Finance, related to cash deposited with Jefferies Group, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition of $13.7 million and $13.7 million, respectively. At November 30, 2019, we had a payable to Jefferies Finance, related to its lending transactions, included in Payables, expense accruals and other liabilities in the Consolidated Statement of Financial Condition of $17.6 million. On March 28, 2019, Jefferies Group entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with Jefferies Group’s investment banking loan syndication activities. Jefferies Group repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense of Jefferies Group within the Consolidated Statement of Operations during the twelve months ended November 30, 2019. During the twelve months ended November 30, 2019, we purchased a third-party loan from Jefferies Finance in the amount of $65.3 million. Such amount is included in Financial instruments owned, at fair value in the Consolidated Statement of Financial Condition at November 30, 2019. The loan was sold during the twelve months ended November 30, 2020. Berkadia Berkadia is a commercial mortgage banking and servicing joint venture formed in 2009 with Berkshire Hathaway Inc. We and Berkshire Hathaway each contributed $217.2 million of equity capital to the joint venture and each have a 50% membership interest in Berkadia. We are entitled to receive 45% of the profits. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and other investors. Berkadia also is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions. Berkadia uses all of the proceeds from the commercial paper sales of an affiliate of Berkadia to fund new mortgage loans, servicer advances, investments and other working capital requirements. Repayment of the commercial paper is supported by a $1.5 billion surety policy issued by a Berkshire Hathaway insurance subsidiary and corporate guaranty, and we have agreed to reimburse Berkshire Hathaway for one-half of any F-68 46611 Notes to Consolidated Financial Statements, continued Note 9. Loans to and Investments in Associated Companies, continued losses incurred thereunder. As of November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion. National Beef National Beef processes and markets fresh and chilled boxed beef, ground beef, beef by-products, consumer- ready beef and pork, and wet blue leather for domestic and international markets. As discussed in Notes 1 and 26, on June 5, 2018, we completed the sale of 48% of National Beef to Marfrig, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. As required as a result of the deconsolidation of National Beef, we adjusted the carrying value of our retained 31% interest in National Beef to fair value. The fair value of our retained 31% interest in National Beef of $592.3 million was based on the implied equity value of 100% of National Beef from the transaction with Marfrig. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation for 100% of National Beef. On November 29, 2019, we sold our remaining 31% equity interest in National Beef to Marfrig and other shareholders. We received a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. As of November 30, 2019, we no longer hold an equity interest in National Beef. FXCM As discussed more fully in Note 4, at November 30, 2020, we have a 50% voting interest in FXCM and a senior secured term loan to FXCM due February 15, 2022. On September 1, 2016, we gained the ability to significantly influence FXCM through our seats on the board of directors. As a result, we classify our equity investment in FXCM in the Consolidated Statements of Financial Condition as Loans to and investments in associated companies. Our term loan remains classified within Financial instruments owned, at fair value. We account for our equity interest in FXCM on a one month lag. We are amortizing our basis difference between the estimated fair value and the underlying book value of FXCM customer relationships, technology and tradename over their respective useful lives (weighted average life of 11 years). During the fourth quarter of 2018, we recorded an impairment charge of $62.1 million related to the equity component of our investment in FXCM, which was based on updated expectations that had been impacted by the then revised regulations of the European Securities Market Authority and dampened operating results. Based on the updated projections, we evaluated in the fourth quarter of 2018 whether our equity method investment was fully recoverable. We engaged an independent valuation firm to assist management in estimating the fair value of FXCM. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in FXCM was lower than our carrying value by $62.1 million. We concluded that based on the decline in projections and the adverse effects of the European regulations, that the decline in fair value of our equity interest was other than temporary. As a result, we impaired our equity investment in FXCM in the fourth quarter of 2018 by $62.1 million, which was recorded in Income (loss) related to associated companies. FXCM is considered a VIE and our term loan and equity interest are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, we do not consolidate FXCM. F-69 60049 Notes to Consolidated Financial Statements, continued Note 9. Loans to and Investments in Associated Companies, continued Garcadia Garcadia was a joint venture between us and Garff Enterprises, Inc. (‘‘Garff’’) that owned and operated automobile dealerships comprised of domestic and foreign automobile makers. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue. Linkem We own approximately 42% of the common shares of Linkem, the largest fixed wireless broadband services provider in Italy. In addition, we own convertible preferred stock, which is automatically convertible to common shares in 2022, and warrants. If all of our convertible preferred stock was converted and warrants were exercised, it would increase our ownership to approximately 56% of Linkem’s common equity at November 30, 2020. We have approximately 48% of the total voting securities of Linkem. Additionally, we have made shareholder loans to Linkem with principal outstanding of $102.4 million at November 30, 2020. We account for our equity interest in Linkem on a two month lag. HomeFed HomeFed develops and owns residential and mixed-use real estate properties. Through June 30, 2019, we owned an approximate 70% equity interest of HomeFed’s outstanding common shares; however, we had contractually agreed to limit our voting rights such that we would not be able to vote more than 45% of HomeFed’s total voting securities voting on any matter, assuming all HomeFed shares not owned by us were voted. Since we did not control HomeFed, our investment in HomeFed was accounted for under the equity method as an investment in an associated company. We accounted for our equity interest in HomeFed on a two month lag. On July 1, 2019, we completed a merger with HomeFed by which we acquired the remaining common stock of HomeFed. During the twelve months ended November 30, 2019, we recognized a $72.1 million non-cash pre-tax gain in Other revenues on the remeasurement of our prior 70% interest in HomeFed to fair value. From July 1, 2019, the results of HomeFed are reflected on a consolidated basis. In connection with the merger, HomeFed stockholders received two shares of our common stock for each share of HomeFed common stock. A total of 9.3 million shares were issued. Real Estate Associated Companies Real estate equity method investments primarily consist of HomeFed’s interests in Brooklyn Renaissance Plaza and Hotel and 54 Madison. These equity interests are accounted for on a two month lag. Brooklyn Renaissance Plaza is comprised of a hotel operated by Marriott, an office building complex and a parking garage located in Brooklyn, New York. HomeFed owns a 25.8% equity interest in the hotel and a 61.25% equity interest in the office building and garage. Although HomeFed has a majority interest in the office building and garage, it does not have control, but only has the ability to exercise significant influence on this investment. As such, HomeFed accounts for the office building and garage under the equity method of accounting. We are amortizing our basis difference between the estimated fair value and the underlying book value of Brooklyn Renaissance office building and garage over the respective useful lives (weighted average life of 39 years). Due to the significant impact of COVID-19 during the second quarter of 2020, HomeFed recorded an impairment charge of $6.9 million within Income (loss) related to associated companies during the twelve F-70 96920 Notes to Consolidated Financial Statements, continued Note 9. Loans to and Investments in Associated Companies, continued months ended November 30, 2020, which represented all of its carrying value in the Brooklyn Renaissance Plaza hotel. We own approximately 48.1% of 54 Madison, a fund that seeks long-term capital appreciation through investment in real estate development and similar projects. 54 Madison invests both in projects which they consolidate and projects where they have significant influence and utilize the equity method of accounting. Based on total committed capital of the 54 Madison fund, all projects of this fund have already been identified and launched. Golden Queen Mining Company Since 2014, we invested $93.0 million, net in cash in a limited liability company (Gauss LLC) to partner with the Clay family and Golden Queen Mining Co. Ltd., to jointly fund, develop and operate the Soledad Mountain gold and silver mine project. Previously 100% owned by Golden Queen Mining Co. Ltd., the project is a fully- permitted, open pit, heap leach gold and silver project located in Kern County, California, which commenced gold and silver production in March 2016. In exchange for a noncontrolling ownership interest in Gauss LLC, the Clay family contributed $34.5 million, net in cash. Gauss LLC invested both our and the Clay family’s net contributions totaling $127.5 million to the joint venture, Golden Queen, in exchange for a 50% ownership interest. Golden Queen Mining Co. Ltd. contributed the Soledad Mountain project to the joint venture in exchange for the other 50% interest. We account for our interest in Golden Queen on a two month lag. As a result of our consolidating Gauss LLC, our Loans to and investments in associated companies reflects Gauss LLC’s net investment of $127.5 million in the joint venture, which includes both the amount we contributed and the amount contributed by the Clay family. In the third quarter of 2018, Golden Queen completed an updated mine plan and financial projections reflecting lower grades of gold as well as a decrease in the market price of gold. As a result of lower projected cash flows, we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in Golden Queen. Our estimate of fair value was based on a discounted cash flow analysis. The result of our analysis indicated that the estimated fair value of our equity interest in Golden Queen was lower than our prior carrying value by $47.9 million. We concluded based on lower projected cash flows and a decline in the market price of gold that the decline in fair value of our equity interest was other than temporary. As such, an impairment charge of $47.9 million was recorded in Income (loss) related to associated companies in the eleven months ended November 30, 2018. Other The following table provides summarized data for our equity method investments as of November 30, 2020 and 2019 and for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands): Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,314,204 11,929,100 254,392 $14,699,672 10,146,142 209,518 November 30, 2020 November 30, 2019 F-71 71537 Notes to Consolidated Financial Statements, continued Note 9. 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, 2020 $2,930,308 73,715 68,846 (41,814) 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 Except for our investment in Berkadia and Jefferies Finance, we have not provided any guarantees, nor are we contingently liable for any of the liabilities reflected in the above table. All such liabilities are non-recourse to us. Our exposure to adverse events at the investee companies is limited to the book value of our investment. See Note 22 for further discussion of these guarantees. Included in consolidated retained earnings at November 30, 2020 is approximately $161.0 million of undistributed earnings of the associated companies accounted for under the equity method of accounting. Note 10. Intangible Assets, Net and Goodwill A summary of intangible assets, net and goodwill is as follows (in thousands): November 30, 2020 November 30, 2019 Indefinite lived intangibles: Exchange and clearing organization membership interests and registrations. . . . . $ 7,884 $ 8,273 Amortizable intangibles: Customer and other relationships, net of accumulated amortization of $119,694 and $111,060. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Trademarks and tradename, net of accumulated amortization of $28,585 and $24,800 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other, net of accumulated amortization of $8,953 and $5,366. . . . . . . . . . . . . . . . . Total intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,285 59,575 100,255 7,729 167,153 103,790 11,316 182,954 Goodwill: Investment Banking and Capital Markets (1) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asset Management (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,563,144 143,000 36,711 3,459 1,556,810 143,000 36,711 3,459 Total goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total intangible assets, net and goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,746,314 $1,913,467 1,739,980 $1,922,934 (1) As discussed further in Note 27, during the three months ended February 29, 2020, we changed our internal structure with regard to our operating segments. As a result, we created a separate operating segment that consists of the asset management activity previously included within our Investment Banking, Capital Markets and Asset Management segment. In order to reallocate goodwill that was previously contained in our Investment Banking, Capital Markets and Asset Management segment to the newly created Investment Banking and Capital Markets segment and the Asset Management segment, we performed a fair value analysis of the components. Estimated fair values were determined based on valuation techniques that we believed market participants would use and included price-to-earnings, price-to-book multiples and discounted cash flow techniques. F-72 55203 Notes to Consolidated Financial Statements, continued Note 10. Intangible Assets, Net and Goodwill, continued Based on the relative fair values of each of the components, $143.0 million of the total $1,699.8 million goodwill within the historical Investment Banking, Capital Markets and Asset Management segment at November 30, 2019 was allocated to the new Asset Management segment. We performed an impairment test immediately before and after the reallocation of goodwill between the new segments and the results of the impairment test did not indicate any goodwill impairment. (2) The increase in Investment Banking and Capital Markets goodwill during the twelve months ended November 30, 2020, primarily relates to translation adjustments. Amortization expense on intangible assets included in Income (loss) from continuing operations was $15.3 million, $14.6 million and $13.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. The estimated aggregate future amortization expense for the intangible assets for each of the next five years is as follows (in thousands): 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,411 11,134 9,900 9,143 8,632 Goodwill Impairment Testing We performed our annual impairment testing of goodwill within the Investment Banking and Capital Markets, and Asset Management segments as of August 1, 2020. The quantitative goodwill impairment test is performed at our reporting unit level and consists of two steps. In the first step, the fair value of the reporting unit is compared with its carrying value, including goodwill and allocated intangible assets. If the fair value is in excess of the carrying value, the goodwill for the reporting unit is considered not to be impaired. If the fair value is less than the carrying value, then a second step is performed in order to measure the amount of the impairment loss, if any, which is based on comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill. The estimated fair value of both the Investment Banking and Capital Markets segment and the Asset Management segment are based on valuation techniques that we believe market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The methodologies we utilize in estimating fair value include price-to-earnings and price-to-book multiples of comparable public companies and/or projected cash flows. In addition, as the fair values determined under the market valuation approach represent a noncontrolling interest, we applied a control premium to arrive at the estimated fair value of our reporting units on a controlling basis. An independent valuation specialist was engaged to assist with the valuation process at August 1, 2020. The results of our annual goodwill impairment test for both the Investment Banking and Capital Markets segment and the Asset Management segment did not indicate any goodwill impairment. Intangible Asset Impairment Testing We performed our annual impairment testing of intangible assets with an indefinite useful life, which consists of exchange and clearing organization membership interests and registrations within our Investment Banking and Capital Markets segment, at August 1, 2020. At August 1, 2020, we elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other F-73 42273 Notes to Consolidated Financial Statements, continued Note 10. Intangible Assets, Net and Goodwill, continued membership interests and registrations that have declined in utilization. Qualitative assessments were performed on the remainder of our indefinite-life intangible assets. In applying our quantitative assessment at August 1, 2020, we recognized immaterial impairment losses on certain exchange membership interests and registrations. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we concluded that it is not more likely than not that the intangible assets are impaired. Note 11. Short-Term Borrowings Our short-term borrowings, which mature in one year or less, are as follows (in thousands): Bank loans (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Floating rate puttable notes (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity-linked notes (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $752,848 6,800 5,067 $764,715 $527,509 – 20,981 $548,490 November 30, 2020 November 30, 2019 (1) These short-term borrowings are recorded at cost in the Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature. (2) See Note 4 for further information on these notes. At November 30, 2020 and 2019, the weighted average interest rate on short-term borrowings outstanding was 1.87% and 3.24% per annum, respectively. Our bank loans include facilities that contain certain covenants that, among other things, require us to maintain a specified level of tangible net worth and impose certain restrictions on the future indebtedness of certain of our subsidiaries that are borrowers. At November 30, 2020, we were in compliance with all covenants under these facilities. Our facilities included within bank loans at November 30, 2020 and 2019 were as follows (in thousands): Bank of New York Mellon Master Loan Agreement (1) . . . . . . . . . . . . . . . . . . . . . . . . JPMorgan Chase Bank, N.A. Credit Facility (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Royal Bank of Canada Credit Facility (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Bank of New York Mellon Credit Facility (4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 246,000 200,000 – $746,000 $351,000 135,000 – – $486,000 November 30, 2020 November 30, 2019 (1) Interest is generally based at spreads over the Federal Funds Rate as defined in this master loan agreement. is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (2) Interest (‘‘LIBOR’’), as defined in this credit facility agreement. (3) Interest is based on a rate per annum equal to LIBOR plus an applicable margin of 2.05%. (4) During 2020, Jefferies LLC entered into a revolving credit facility with the Bank of New York Mellon for a committed amount of $100.0 million, maturing on September 13, 2021. Interest is based on a rate per annum equal to the Federal Funds Rate plus 2%. At November 30, 2020, there were no borrowings outstanding under this agreement. F-74 56747 Notes to Consolidated Financial Statements, continued Note 11. Short-Term Borrowings, continued In addition, the Bank of New York Mellon has agreed to make revolving intraday credit advances to Jefferies Group (‘‘Intraday Credit Facility’’) for an aggregate committed amount of $150.0 million. The Intraday Credit Facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at a rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies Group’s U.S. broker-dealer, Jefferies LLC. At November 30, 2020, Jefferies Group was in compliance with all debt covenants under the Intraday Credit Facility. Note 12. Long-Term Debt The principal amount (net of unamortized discounts, premiums and debt issuance costs), stated interest rate and maturity date of outstanding debt are as follows (dollars in thousands): 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 . . . . . . . . . . . . Total long-term debt – Parent Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 745,883 246,828 992,711 $ 744,606 246,772 991,378 Subsidiary Debt (non-recourse to Parent Company): Jefferies Group: November 30, 2020 November 30, 2019 2.375% Euro Medium Term Notes, due May 20, 2020, $0 and $550,875 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.875% Senior Notes, due April 15, 2021, $0 and $750,000 principal . . . . . . 2.25% Euro Medium Term Notes, due July 13, 2022, $4,779 and $4,407 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 550,622 774,738 4,638 4,204 5.125% Senior Notes, due January 20, 2023, $750,000 and $600,000 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759,901 610,023 1.00% Euro Medium Term Notes, due July 19, 2024, $597,350 and $550,875 principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . 2.75% Senior Notes, due October 15, 2032, $500,000 and $0 principal (1). . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HomeFed construction loan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foursight Capital Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vitesse Energy Finance Revolving Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total long-term debt – subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 595,700 809,039 369,057 989,574 485,134 510,834 419,826 1,712,245 189,732 50,000 191,294 45,471 129,000 97,883 – 7,359,328 $8,352,039 548,880 768,931 371,426 988,662 – 511,260 420,239 1,215,285 189,088 50,000 140,739 – 98,260 103,050 276 7,345,683 $8,337,061 F-75 59246 Notes to Consolidated Financial Statements, continued Note 12. Long-Term Debt, continued (1) Amounts include net losses of $36.7 million and $58.9 million during the twelve months ended November 30, 2020 and 2019, respectively, associated with interest rate swaps based on designation as fair value hedges. See Notes 2 and 5 for further information. (2) These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument specific credit risk presented in Accumulated other comprehensive income (loss) and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. Gains and losses in the fair value of structured notes resulting from non-credit components are recognized within Other operating activities in the Consolidated Statements of Cash Flow. (3) Of the $1,712.2 million of structured notes at November 30, 2020, $3.1 million matures in 2024, $25.4 million matures in 2025, and the remaining $1,683.7 million matures in 2026 or thereafter. At November 30, 2020, $1,445.5 million of consolidated assets (primarily receivables and other assets) are pledged for indebtedness aggregating $703.4 million. The aggregate annual mandatory redemptions of all November 30, 2025 are as follows (in millions): long-term debt during the five year period ending 2021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 350.4 69.8 1,598.5 742.4 81.8 Parent Company Debt Our senior note indentures contain covenants that restrict our ability to incur more Indebtedness or issue Preferred Stock of Subsidiaries unless, at the time of such incurrence or issuance, the Company meets a specified ratio of Consolidated Debt to Consolidated Tangible Net Worth, limit the ability of the Company and Material Subsidiaries to incur, in certain circumstances, Liens, limit the ability of Material Subsidiaries to incur Funded in certain circumstances, and contain other terms and restrictions all as defined in the senior note Debt indentures. We have the ability to incur substantial additional indebtedness or make distributions to our shareholders and still remain in compliance with these restrictions. If we are unable to meet the specified ratio, we would not be able to issue additional Indebtedness or Preferred Stock, but our inability to meet the applicable ratio would not result in a default under our senior note indentures. The senior note indentures do not restrict the payment of dividends. Subsidiary Debt During the twelve months ended November 30, 2020, Jefferies Group’s 2.375% Euro Medium Term Notes matured and were repaid, and its 6.875% Senior Notes due 2021 were retired early. Additionally, during the twelve months ended November 30, 2020, Jefferies Group issued structured notes with a total principal amount of approximately $325.5 million, net of retirements, an additional $150.0 million principal amount of 5.125% Senior Notes due 2023 and $500.0 million principal amount of 2.75% Senior Notes due 2032. Jefferies Group has a revolving credit facility (‘‘Jefferies Group Revolving Credit Facility’’) with a group of commercial banks for an aggregate principal amount of $190.0 million. At November 30, 2020, borrowings under the Jefferies Group Revolving Credit Facility amounted to $189.7 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Jefferies Group Revolving Credit Facility. The F-76 20710 Notes to Consolidated Financial Statements, continued Note 12. Long-Term Debt, continued Jefferies Group Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of Jefferies Group’s subsidiaries. Throughout the year and at November 30, 2020, no instances of noncompliance with the Jefferies Group Revolving Credit Facility covenants occurred and we expect to remain in compliance given Jefferies Group’s current liquidity, and anticipated funding requirements given its business plan and profitability expectations. One of Jefferies Group’s subsidiaries has a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (‘‘Jefferies Group Secured Bank Loan’’). This Jefferies Group Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Jefferies Group Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At November 30, 2020, Jefferies Group was in compliance with all covenants under the Loan and Security Agreement. HomeFed funds certain of its real estate projects in part by raising funds under the Immigrant Investor Program administered by the U.S. Citizenship and Immigration Services pursuant to the Immigration and Nationality Act (‘‘EB-5 Program’’). This program was created to stimulate the U.S. economy through the creation of jobs and capital investments in U.S. companies by foreign investors. This debt is secured by certain real estate of HomeFed. At November 30, 2020, HomeFed was in compliance with all debt covenants which include, among other requirements, limitations on incurrence of debt, collateral requirements and restricted use of proceeds. Primarily all of HomeFed’s EB-5 Program debt matures in 2024 and 2025. At November 30, 2020, HomeFed has a construction loan agreement with an aggregate committed amount of $58.9 million. The proceeds are being used for construction at certain of its real estate projects. The outstanding principal amount of the loan bears interest based on the 30-day LIBOR plus 3.15%, subject to adjustment on the first of each calendar month and matures on March 1, 2021, with one 12-month extension subject to certain conditions as set forth in the loan agreement. The loan is collateralized by the property underlying the related project with a guarantee by HomeFed. At November 30, 2020, $46.2 million was outstanding under the construction loan agreement. At November 30, 2020, Foursight Capital’s credit facilities consisted of two warehouse credit commitments aggregating $175.0 million. One of the credit facilities matures in May 2021 and bears interest based on the three-month LIBOR plus a credit spread fixed through its maturity and the other credit facility matures in October 2022 and bears interest based on a commercial paper rate plus a credit spread fixed through its maturity. As a condition of the credit facilities, Foursight Capital is obligated to maintain cash reserves to comply with the hedging requirements of the credit commitment. The credit facilities are secured by first priority liens on auto loan receivables owed to Foursight Capital of approximately $151.3 million at November 30, 2020. At November 30, 2020 and 2019, $129.3 million and $98.7 million, respectively, was outstanding under Foursight Capital’s credit facilities. Vitesse Energy Finance has a revolving credit facility with a syndicate of banks that matures in April 2023 and has a maximum borrowing base of $120.0 million at November 30, 2020. Amounts outstanding under the facility at November 30, 2020 and 2019 were $98.5 million and $104.0 million, respectively. Borrowings under the facility have been made as Eurodollar loans that bear interest at adjusted LIBOR plus a spread ranging from 2.5% to 3.5% based on the borrowing base utilization percentage. The credit facility is guaranteed by Vitesse Energy Finance’s subsidiaries and is collateralized with a minimum of 85% of Vitesse Energy Finance’s proved reserve value of its oil and gas properties. Vitesse Energy Finance’s borrowing base is subject to regular re- determination on or about April 1 and October 1 of each year based on proved oil and natural gas reserves, hedge positions and estimated future cash flows from these reserves calculated using future commodity pricing provided by Vitesse Energy Finance’s lenders. F-77 72078 Notes to Consolidated Financial Statements, continued Note 13. Leases We enter into lease and sublease agreements primarily for office space across our geographic locations. Finance lease ROU assets and finance lease liabilities are not material. Information related to operating leases in the Consolidated Statement of Financial Condition at November 30, 2020 is as follows (in thousands, except lease term and discount rate): Property, equipment and leasehold improvements, net – ROU assets . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted average: $ 507,046 Remaining lease term (in years). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.6 years 3.0% The following table presents the maturities of our operating lease liabilities and a reconciliation to the Lease liabilities included in the Consolidated Statement of Financial Condition at November 30, 2020 (in thousands): Fiscal Year 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 and thereafter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total undiscounted cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Difference between undiscounted and discounted cash flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating leases amount in the Consolidated Statement of Financial Condition . . . . . . . . . . . . . . . . . . Finance leases amount in the Consolidated Statement of Financial Condition . . . . . . . . . . . . . . . . . . . . Lease Liabilities $ 72,491 76,987 67,164 63,476 64,563 342,195 686,876 (102,431) 584,445 362 Total amount in the Consolidated Statement of Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . $ 584,807 The following table presents our lease costs (in thousands): For the Twelve Months Ended November 30, 2020 Operating lease costs (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Variable lease costs (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Sublease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total lease cost, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $77,452 13,576 (7,590) $83,438 (1) Includes short-term leases, which are not material. (2) Includes property taxes, insurance costs, common area maintenance, utilities, and other costs that are not fixed. The amount also includes rent increases resulting from inflation indices and periodic market rent reviews. F-78 83777 Notes to Consolidated Financial Statements, continued Note 13. Leases, continued Consolidated Statement of Cash Flows supplemental information is as follows (in thousands): For the Twelve Months Ended November 30, 2020 Cash outflows – lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash – ROU assets recorded for new and modified leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $73,300 22,460 Minimum Future Lease Commitments (under previous GAAP) We and our subsidiaries rent office space and office equipment under noncancellable operating leases with terms varying through 2039. Future minimum annual rentals (exclusive of month-to-month leases, real estate taxes, maintenance and certain other charges) under these leases at November 30, 2019 were as follows (in thousands): 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Rental expense, net of sublease rental income, was $65.6 million and $55.7 million for the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively. Note 14. Mezzanine Equity Redeemable Noncontrolling Interests At November 30, 2020 and 2019, redeemable noncontrolling interests include other redeemable noncontrolling interests of $24.7 million and $26.6 million, respectively, primarily related to our oil and gas exploration and development businesses. Mandatorily Redeemable Convertible Preferred Shares In connection with our acquisition of Jefferies Group in March 2013, we issued a new series of 3.25% Cumulative Convertible Preferred Shares (‘‘Preferred Shares’’) ($125.0 million at mandatory redemption value) in exchange for Jefferies Group’s outstanding 3.25% Series A-1 Cumulative Convertible Preferred Stock. The Preferred Shares have a 3.25% annual, cumulative cash dividend and are currently convertible into 4,440,863 common shares, an effective conversion price of $28.15 per share. The holders of the Preferred Shares are also entitled to an additional quarterly payment in the event we declare and pay a dividend on our common stock in an amount greater than $0.0625 per common share per quarter. The additional quarterly payment would be paid to the holders of Preferred Shares on an as converted basis and on a per share basis would equal the quarterly dividend declared and paid to a holder of a share of common stock in excess of $0.0625 per share. F-79 63966 Notes to Consolidated Financial Statements, continued Note 14. Mezzanine Equity, continued In the third quarter of 2017, we increased our quarterly dividend from $0.0625 to $0.10 per common share. In the third quarter of 2018, we increased our quarterly dividend from $0.10 to $0.125 per common share. In the first quarter of 2020, we increased our quarterly dividend from $0.125 to $0.15 per common share. These increased the preferred stock dividend from $4.5 million for the eleven months ended November 30, 2018 to $5.1 million for the twelve months ended November 30, 2019 to $5.6 million for the twelve months ended November 30, 2020. Based on the quarterly dividend of $0.15 per common share, the effective rate on these Preferred Shares was approximately 4.5%. On January 4, 2021, our Board of Directors increased our quarterly dividend to $0.20 per share. Based on our current quarterly dividend of $0.20 per common share, the effective rate on these Preferred Shares is approximately 5.2%. The Preferred Shares are callable beginning in 2023 at a price of $1,000 per share plus accrued interest and are mandatorily redeemable in 2038. Note 15. Compensation Plans Incentive Plan Upon completion of our combination with Jefferies Group, we assumed its 2003 Incentive Compensation Plan, as Amended and Restated (the ‘‘Incentive Plan’’). The Incentive Plan allows awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, stock appreciation rights, restricted stock units (‘‘RSUs’’), dividend equivalents or other share-based awards. restricted stock, unrestricted stock, performance awards, RSUs give a participant the right to receive fully vested shares at the end of a specified deferral period allowing a participant to hold an interest tied to common stock on a tax deferred basis. Prior to settlement, RSUs carry no voting or dividend rights associated with the stock ownership, but dividend equivalents are accrued to the extent there are dividends declared on the underlying common shares as cash amounts or as deemed reinvestments in additional RSUs. Restricted stock and RSUs may be granted to new employees as ‘‘sign-on’’ awards, to existing employees as ‘‘retention’’ awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting over a four-year service period and are amortized as compensation expense on a straight-line basis over the related four years. Restricted stock and RSUs are granted to certain senior executives with market, performance and service conditions. Market conditions are incorporated into the grant-date fair value of senior executive awards using a Monte Carlo valuation model. Compensation expense for awards with market conditions is recognized over the service period and is not reversed if the market condition is not met. Awards with performance conditions are amortized over the service period if it is determined that it is probable that the performance condition will be achieved. The Deferred Compensation Plan (the ‘‘DCP’’) has been implemented under the Incentive Plan. The DCP permits eligible executive officers and other employees to defer cash compensation, some or all of which may be deemed invested in stock units. A portion of the deferrals may also be directed to notional investments in a money market fund or certain of the employee investment opportunities. Stock units generally have been acquired at a discounted price, which encourages employee participation in the DCP and enhances long-term retention of equity interests by participants and aligns executive interests with those of shareholders. Amounts recognized as compensation cost under the DCP have not been significant. The shares to be delivered in connection with DCP stock units and options are drawn from the Incentive Plan. The Incentive Plan’s ‘‘evergreen’’ share reservation was terminated on March 21, 2014; the number of equity awards available under the Incentive Plan was set at 20,000,000. At November 30, 2020, 4,851,819 common shares remained available for new grants under the Incentive Plan. Shares issued pursuant to the DCP reduce the shares available under the Incentive Plan. F-80 09017 Notes to Consolidated Financial Statements, continued Note 15. Compensation Plans, continued The following table details the activity in restricted stock during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts): Weighted- Average Grant Date Fair Value Restricted Stock Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,142 1,077 (30) (394) 1,795 518 – (305) 2,008 115 (21) (619) 1,483 $21.75 $23.65 $16.49 $24.23 $22.42 $19.57 $ – $20.09 $22.04 $13.20 $23.38 $19.99 $22.19 The following table details the activity in RSUs during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts): Weighted-Average Grant Date Fair Value Future Service Required No Future Service Required Future Service Required No Future Service Required Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of service requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of service requirement (1) . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions of underlying shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement (1) . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2020. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 – – (2) (28) 2 10 – – (2) 10 14 – – (3) 21 10,313 161 (192) (1) 28 10,309 1,308 (166) – 4,216 15,667 487 (88) – 2,477 18,543 $26.90 $ – $ – $26.90 $26.90 $26.90 $18.83 $ – $ – $26.90 $18.83 $13.20 $ – $ – $18.83 $14.99 $26.57 $20.24 $26.39 $22.16 $26.90 $26.48 $18.15 $25.91 $ – $ 9.99 $21.35 $15.73 $25.48 $ – $19.80 $20.97 (1) Fulfillment of vesting requirement during the twelve months ended November 30, 2020 and 2019, includes 2,474 RSUs and 4,214 RSUs, respectively, related to the senior executive compensation plans. F-81 47784 Notes to Consolidated Financial Statements, continued Note 15. Compensation Plans, continued During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, grants include approximately 484,000, 1,298,000 and 142,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $15.73, $18.15 and $19.81, respectively. Senior Executive Compensation Plan The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2018 (the ‘‘2018 Plan’’). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $25.0 million per year under the 2018 Plan with a target of $16.0 million in long-term equity in the form of RSUs and a target of $9.0 million in cash, subject to performance targets over the three-year measurement period for each compensation year. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies Total Shareholder Return (‘‘TSR’’) and to receive targeted cash, our Senior Executives will have to achieve 9% growth on an annual and multi-year compounded basis in Jefferies Return on Tangible Deployable Equity (‘‘ROTDE’’). If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR and ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 50% additional incentive compensation on a pro rata basis up to 12% growth rates. The Compensation Committee of our Board of Directors approved an executive compensation plan for our Senior Executives for compensation year 2019 (the ‘‘2019 Plan’’) and compensation year 2020 (the ‘‘2020 Plan’’). For each Senior Executive, the Compensation Committee has targeted long-term compensation of $22.5 million per year under the 2019 Plan and 2020 Plan with a target of $16.0 million in long-term equity in the form of RSUs and a target of $6.5 million in cash for both plan years. To receive targeted long-term equity, our Senior Executives will have to achieve 9% growth on a multi-year compounded basis in Jefferies TSR and to receive targeted cash, our Senior Executives will have to achieve 9% growth in annual Jefferies ROTDE. If TSR and ROTDE are less than 6%, our Senior Executives will receive no incentive compensation. If TSR growth rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional incentive compensation relative to our peer companies. If ROTDE growth rates are greater than 9%, our Senior Executives are eligible to receive up to 75% additional incentive compensation on a pro rata basis up to 12% growth rates. F-82 79723 Notes to Consolidated Financial Statements, continued Note 15. 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, 2020 and 2019 and the eleven months ended November 30, 2018 (in thousands, except per share amounts): Target Number of Shares Weighted-Average Grant Date Fair Value Balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fulfillment of vesting requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at November 30, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,655 3,813 – 9,468 1,237 – (4,214) 6,491 187 (15) (2,474) 4,189 $13.37 $26.16 $ – $18.52 $13.63 $ – $ 9.98 $23.13 $15.19 $19.01 $19.80 $24.75 During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, grants include approximately 139,000, 602,000 and 189,000, respectively, of dividend equivalents declared on RSUs; the weighted-average grant date fair values of the dividend equivalents were approximately $15.82, $18.08 and $19.80, respectively. During the twelve months ended November 30, 2020 and 2019, grants include approximately 48,000 and 635,000, respectively, of RSUs issued as a result of superior performance pursuant to the 2016 compensation year award. Directors’ Plan Upon completion of our combination with Jefferies Group, we also assumed the 1999 Directors’ Stock Compensation Plan, as Amended and Restated July 25, 2013 (the ‘‘Directors’ Plan’’). Under the Directors’ Plan, we issued each nonemployee director of Jefferies $190,000 of restricted stock or RSUs during each of the twelve months ended November 30, 2020 and 2019 and $150,000 of restricted stock or RSUs during the eleven months ended November 30, 2018. These grants are made on the date directors are elected or reelected at our annual shareholders’ meeting. These shares vest over three years from the date of grant and are expensed over the requisite service period. At November 30, 2020, 286,382 common shares were issuable upon settlement of outstanding RSUs and 24,657 shares are available for future grants. Other Compensation Plans Other Stock-Based Plans. Historically, Jefferies Group also sponsored an Employee Stock Purchase Plan and an Employee Stock Ownership Plan, both of which were assumed by us in connection with the Jefferies Group acquisition. Amounts related to these plans have not been significant. In connection with the HomeFed merger, each HomeFed stock option, was converted into two Jefferies stock options to purchase that number of shares of Jefferies common stock. At November 30, 2020 and 2019, 313,000 and 325,000, respectively, of our common shares were reserved for stock options. F-83 09727 Notes to Consolidated Financial Statements, continued Note 15. Compensation Plans, continued Restricted Cash Awards. Jefferies Group provides compensation to certain new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements. These awards are amortized to compensation expense over the relevant service period, which is generally considered to start at the beginning of the annual compensation year. During the fourth quarter of 2020, Jefferies Group amended certain provisions of a set of cash awards that had been granted as part of compensation at previous year-ends to remove any service requirements for vesting in the awards. Compensation expense of $179.6 million was recorded during the twelve months ended November 30, 2020 as a result of these amendments. At November 30, 2020, the remaining unamortized amount of the restricted cash awards was $363.5 million and is included within Other assets in the Consolidated Statement of Financial Condition; this cost is expected to be recognized over a weighted average period of three years. Stock-Based Compensation Expense Share-based compensation expense relating to grants made under our share-based compensation plans was $40.0 million, $49.8 million and $48.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Total compensation cost includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks. The total tax benefit recognized in results of operations related to share-based compensation expenses was $10.0 million, $12.9 million and $12.2 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. At November 30, 2020, total unrecognized compensation cost related to nonvested share- based compensation plans was $41.9 million; this cost is expected to be recognized over a weighted-average period of 1.9 years. At November 30, 2020, there were 1,483,000 shares of restricted stock outstanding with future service required, 4,210,000 RSUs outstanding with future service required (including target RSUs issuable under the senior executive compensation plans), 18,543,000 RSUs outstanding with no future service required and 1,115,000 shares issuable under other plans. Excluding shares issuable pursuant to outstanding stock options, the maximum potential increase to common shares outstanding resulting from these outstanding awards is 23,868,000. Note 16. Accumulated Other Comprehensive Income (Loss) Activity in accumulated other comprehensive income (loss) is reflected in the Consolidated Statements of Comprehensive Income (Loss) and Consolidated Statements of Changes in Equity but not in the Consolidated Statements of Operations. A summary of accumulated other comprehensive income (loss), net of taxes is as follows (in thousands): Net unrealized gains on available for sale securities . . . . . . . . . . . . . . . Net unrealized foreign exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized losses on instrument specific credit risk . . . . . . . . . . . . Net unrealized gains on cash flow hedges . . . . . . . . . . . . . . . . . . . . . . . . Net minimum pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2020 November 30, 2019 November 30, 2018 $ 513 (156,718) (71,151) – $ 141 (192,709) (18,889) – (61,561) $(288,917) (61,582) $(273,039) $ 542,832 (193,402) (5,728) 470 (55,886) $ 288,286 F-84 48320 Notes to Consolidated Financial Statements, continued Note 16. 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 $0 and $(545,054). . . . . . . . . . . . . . . . . . . . . Net unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $0 and $(52) . . . . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk, net of income tax provision (benefit) of $146 and $(144) . . . . . . . . . . . . . . . . . . . Net unrealized gains on cash flow hedges, net of income tax provision (benefit) of $0 and $161 . . . . . . . . . . . Amortization of defined benefit pension plan actuarial losses, net of income tax benefit of $(957) and $(490). . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total reclassifications for the period, net of tax . . . . . . . . . . . . . . . . . . . . . . . Amount Reclassified from Accumulated Other Comprehensive Income (Loss) Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Affected Line Item in the Consolidated Statement of Operations $ – $543,178 provision (benefit) Other revenues and Income tax – (149) Other revenues and Selling, general and other expenses 397 (427) Principal transactions revenues – 470 (2,872) (1,407) $(2,475) $541,665 Other revenues Selling, general and other expenses, which includes pension expense. See Note 17 for information on this component. 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 removed from Accumulated other Accumulated other comprehensive income (loss) and the tax impact comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a ‘‘lodged tax effect.’’ Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. The remaining net unrealized gains on available for sale securities at November 30, 2020 and 2019 represent Jefferies Group’s share of Berkadia’s net unrealized gains on available for sale securities recorded under the equity method of accounting. F-85 36293 Notes to Consolidated Financial Statements, continued Note 17. 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): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Change in projected benefit obligation: Projected benefit obligation, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Actuarial (gains) losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Settlement payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $218,874 6,349 22,475 (2,476) (8,650) $191,261 8,070 29,539 – (9,996) Projected benefit obligation, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $236,572 $218,874 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $166,071 29,376 8,688 (8,650) (2,476) (2,789) $138,992 30,426 9,655 (9,996) – (3,006) Fair value of plan assets, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $190,220 $166,071 Funded status at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (46,352) $ (52,803) As of November 30, 2020 and 2019, $57.3 million and $57.4 million, respectively, of the net amount recognized in the Consolidated Statements of Financial Condition was reflected as a charge to Accumulated other comprehensive income (loss) (substantially all of which were cumulative losses) and $46.4 million and $52.8 million, respectively, was reflected as accrued pension cost. F-86 00512 Notes to Consolidated Financial Statements, continued Note 17. 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, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ 6,349 (7,934) 376 3,453 $ 2,244 $ 3,821 (376) (3,453) (8) $ $ 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) Net amount recognized in net periodic benefit cost and other comprehensive income (loss). . . . . . . . . . . . . . . . . . . . . . $ 2,236 $10,190 $ 707 The amounts in Accumulated other comprehensive income (loss) at November 30, 2020 and 2019 have not yet been recognized as components of net periodic pension cost in the Consolidated Statements of Operations. The estimated net loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost during the twelve months ended November 30, 2021 is $3.6 million. We expect to pay $8.0 million of employer contributions during the twelve months ended November 30, 2021. The assumptions used are as follows: WilTel Plan Discount rate used to determine benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average assumptions used to determine net pension cost: November 30, 2020 November 30, 2019 2.20% 3.00% Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.00% 7.00% 4.35% 7.00% Jefferies Group Plan Discount rate used to determine benefit obligation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Weighted-average assumptions used to determine net pension cost: 2.00% 2.90% Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected long-term return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.90% 6.25% 4.30% 6.25% F-87 05407 Notes to Consolidated Financial Statements, continued Note 17. Pension Plans and Postretirement Benefits, continued The following pension benefit payments are expected to be paid (in thousands): 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2026 – 2030. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,027 10,232 12,362 13,301 12,861 69,783 U.S. Plan Assets The information below on the plan assets for the WilTel plan and the Jefferies Group plan is presented separately for the plans as the investments are managed independently. WilTel Plan Assets The current investment objectives are designed to close the funding gap while mitigating funded status volatility through a combination of liability hedging and investment returns. As plan funded status improves, the asset allocation will move along a predetermined, de-risking glide path that reallocates capital from growth assets to liability-hedging assets in order to reduce funded status volatility and lock in funded status gains. Plan assets are split into two separate portfolios, each with different asset mixes and objectives. The portfolios are valued at their NAV as a practical expedient for fair value. • The Growth Portfolio consists of global equities and high yield investments. • The Liability-Driven Investing (‘‘LDI’’) Portfolio consists of long duration credit bonds and a suite of long duration, Treasury-based instruments designed to provide capital-efficient interest rate exposure as well as target specific maturities. The objective of the LDI Portfolio is to seek to achieve performance similar to the WilTel plan’s liability by seeking to match the interest rate sensitivity and credit sensitivity. The LDI Portfolio is managed to mitigate volatility in funded status deriving from changes in the discounted value of benefit obligations from market movements in the interest rate and credit components of the underlying discount curve. To develop the assumption for the expected long-term rate of return on plan assets, we considered the following underlying assumptions: 2.3% current expected inflation, (0.3)% to (1.3)% real rate of return for long duration risk free investments and an additional 1.5% to 2.5% return premium for corporate credit risk. For U.S. and international equity, we assume an equity risk premium over risk-free assets equal to 5.0%. We then weighted these assumptions based on invested assets and assumed that investment expenses were offset by expected returns in excess of benchmarks, which resulted in the selection of the 7.0% expected long-term rate of return assumption for 2020. Jefferies Group Plan Assets Jefferies Group has an agreement with an external investment manager to invest and manage the plan’s assets under a strategy using a combination of two portfolios. The investment manager allocates the plan’s assets between a growth portfolio and a liability-driven portfolio according to certain target allocations and tolerance bands that are agreed to by Jefferies Group’s Administrative Committee of the U.S. Pension Plan. Such target allocations will take into consideration the plan’s funded ratio. The manager will also monitor the strategy and, F-88 98522 Notes to Consolidated Financial Statements, continued Note 17. Pension Plans and Postretirement Benefits, continued as the plan’s funded ratio change over time, will rebalance the strategy, if necessary, to be within the agreed tolerance bands and target allocations. The portfolios are comprised of certain common collective investment trusts that are established and maintained by the investment manager. The common collective trusts are valued at their NAV as a practical expedient for fair value. Other We have defined contribution pension plans, including 401(k) plans, that cover certain employees. Amounts charged to expense related to such plans were $9.5 million, $8.8 million and $8.0 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Note 18. Revenues from Contracts with Customers The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Revenues from contracts with customers: Commissions and other fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Manufacturing revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 822,248 2,501,494 421,434 178,051 $ 675,772 1,526,992 324,659 262,705 $ 662,546 1,904,870 357,427 194,799 Total revenues from contracts with customers . . . . . . . . . . . . . . . . 3,923,227 2,790,128 3,119,642 Other sources of revenue: Principal transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,916,508 997,555 118,640 559,300 1,603,940 405,288 232,224 1,294,325 363,537 Total revenues from other sources . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,032,703 $6,955,930 2,568,528 $5,358,656 1,890,086 $5,009,728 Revenues from contracts with customers are recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (the ‘‘transaction price’’). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, F-89 84757 Notes to Consolidated Financial Statements, continued Note 18. Revenues from Contracts with Customers, continued the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third-parties. The following provides detailed information on the recognition of our revenues from contracts with customers: Commissions and Other Fees. We earn commission and other fee revenues by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commission revenues are generally paid on settlement date and we record a receivable between trade- date and payment on settlement date. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third-parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. We act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs our payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in the Consolidated Statements of Operations. We also earn investment research fees for the sales of our proprietary investment research when a contract with a client has been identified. The delivery of investment research services represents a distinct performance obligation that is satisfied over time when the performance obligation is to provide ongoing access to a research platform or research analysts, with fees recognized on a straight-line basis over the period in which the performance obligation is satisfied. The performance obligation is satisfied at a point in time when the performance obligation is to provide individual interactions with research analysts or research events, with fees recognized on the interaction date. We earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as we determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved. Investment Banking. We provide our clients with a full range of financial advisory and underwriting services. Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized F-90 08263 Notes to Consolidated Financial Statements, continued Note 18. Revenues from Contracts with Customers, continued within their respective expense category in the Consolidated Statements of Operations and any expenses reimbursed by our clients are recognized as Investment banking revenues. Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade- date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within underwriting costs in the Consolidated Statements of Operations as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues. Asset Management Fees. We earn management and performance fees, recorded in Other revenues, in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, ‘‘high-water marks’’ or other performance targets. The performance period related to our performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met. Manufacturing Revenues. Idaho Timber’s primary business consists of the sale of lumber that is manufactured or remanufactured at one of its locations. Agreements with customers for these sales specify the type, quantity and price of products to be delivered as well as the delivery date and payment terms. The transaction price is fixed at the time of sale and revenue is generally recognized when the customer takes control of the product. Disaggregation of Revenue The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands): F-91 79837 Notes to Consolidated Financial Statements, continued Note 18. Revenues from Contracts with Customers, continued Twelve Months Ended November 30, 2020 Reportable Segments Investment Banking and Capital Markets Asset Management (1) Merchant Banking Corporate Consolidation Adjustments Total Major Business Activity: Investment Banking – Advisory . . . . . . . . . $1,053,500 Investment Banking – Underwriting . . . . . 1,447,994 807,350 Equities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,908 Fixed Income (2). . . . . . . . . . . . . . . . . . . . . . . – Asset Management . . . . . . . . . . . . . . . . . . . . . – Manufacturing revenues. . . . . . . . . . . . . . . . . – Oil and gas revenues . . . . . . . . . . . . . . . . . . . Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . – Total revenues from contracts with $ – – – – 14,702 – – – $ – – – – – 421,434 102,210 61,139 $ – – – – – – – – $ – – (1,010) – – – – – $1,053,500 1,447,994 806,340 15,908 14,702 421,434 102,210 61,139 customers . . . . . . . . . . . . . . . . . . . . . . . . . $3,324,752 $14,702 $584,783 $ – $(1,010) $3,923,227 Primary Geographic Region: Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,742,298 401,853 Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,601 Total revenues from contracts with $ 9,754 4,948 – $582,719 $ – – 1,698 – 366 $(1,010) $3,333,761 408,499 180,967 – – customers . . . . . . . . . . . . . . . . . . . . . . . . . $3,324,752 $14,702 $584,783 $ – $(1,010) $3,923,227 Twelve Months Ended November 30, 2019 Reportable Segments Investment Banking and Capital Markets Asset Management (1) Merchant Banking Corporate Consolidation Adjustments Total Major Business Activity: Investment Banking – Advisory . . . . . . . . . . . $ 767,421 761,308 Investment Banking – Underwriting . . . . . . . 662,804 Equities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,505 Fixed Income (2) . . . . . . . . . . . . . . . . . . . . . . . . . – Asset Management . . . . . . . . . . . . . . . . . . . . . . . – Manufacturing revenues . . . . . . . . . . . . . . . . . . . – Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . – Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with $ – – – – 23,188 – – – $ – – – – – 324,659 173,626 65,891 $ – – – – – – – – $ – (1,737) (537) – – – – – $ 767,421 759,571 662,267 13,505 23,188 324,659 173,626 65,891 customers . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,205,038 $23,188 $564,176 $ – $(2,274) $2,790,128 Primary Geographic Region: Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,751,568 374,411 Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,059 Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with $16,334 6,854 – $562,837 $ – – 935 – 404 $ (581) $2,330,158 380,507 79,463 (1,693) – customers . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,205,038 $23,188 $564,176 $ – $(2,274) $2,790,128 F-92 59295 Notes to Consolidated Financial Statements, continued Note 18. Revenues from Contracts with Customers, continued Eleven Months Ended November 30, 2018 Reportable Segments Investment Banking and Capital Markets Asset Management (1) Merchant Banking Corporate Consolidation Adjustments Total Major Business Activity: Investment Banking – Advisory . . . . . . . . . . . $ 820,042 Investment Banking – Underwriting . . . . . . . 1,090,161 649,631 Equities (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,839 Fixed Income (2) . . . . . . . . . . . . . . . . . . . . . . . . . – Asset Management . . . . . . . . . . . . . . . . . . . . . . . – Manufacturing revenues . . . . . . . . . . . . . . . . . . . – Oil and gas revenues . . . . . . . . . . . . . . . . . . . . . – Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with $ – – – – 28,144 – – – $ – – – – – 357,427 136,109 30,541 $ – – – – – – – – $(5,283) $ 814,759 1,090,111 648,712 13,839 28,144 357,427 136,109 30,541 (50) (919) – – – – – customers . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,573,673 $28,144 $524,077 $ – $(6,252) $3,119,642 Primary Geographic Region: Americas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,186,955 304,027 Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,691 Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues from contracts with $27,801 343 – $522,541 $ – – 1,264 – 272 $(6,252) $2,731,045 305,634 82,963 – – customers . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,573,673 $28,144 $524,077 $ – $(6,252) $3,119,642 (1) We now present Asset Management as a separate reporting segment. Prior year amounts have been reclassified to conform to current segment disclosure. See Note 27 for further information. (2) Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue. Information on Remaining Performance Obligations and Revenue Recognized from Past Performance We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at November 30, 2020. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at November 30, 2020. During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, we recognized $11.1 million, $27.6 million and $27.0 million, respectively, of revenues related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, we recognized $17.6 million, $21.7 million and $18.1 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively, of revenues primarily associated with distribution services, a portion of which relates to prior periods. F-93 05842 Notes to Consolidated Financial Statements, continued Note 18. Revenues from Contracts with Customers, continued Contract Balances The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied. We had receivables related to revenues from contracts with customers of $332.5 million and $263.7 million at November 30, 2020 and 2019, respectively. We had no significant impairments related to these receivables during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. Our deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenues were $14.8 million and $12.8 million at November 30, 2020 and 2019, respectively, which are recorded as Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. During the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, we recognized $10.9 million, $13.0 million and $10.6 million, respectively, of deferred revenue from the balance at November 30, 2019, November 30, 2018 and December 31, 2017, respectively. Contract Costs We capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized. At November 30, 2020 and 2019, capitalized costs to fulfill a contract were $1.8 million and $4.8 million, respectively, which are recorded in Receivables in the Consolidated Statements of Financial Condition. We recognized expenses of $5.1 million, $4.1 million and $2.3 million during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively, related to costs to fulfill a contract that were capitalized as of the beginning of the year. There were no significant impairment charges recognized in relation to these capitalized costs during the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. F-94 52225 Notes to Consolidated Financial Statements, continued Note 19. Income Taxes The provision for income taxes for continuing operations are as follows (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Current taxes: U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state and local. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,350 68,261 75,395 $ (10,000) 53,211 11,026 Total current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234,006 54,237 Deferred taxes: U.S. Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state and local. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,765 (1,288) 13,190 64,667 83,197 (73,482) (3,324) 6,391 $ 10,000 37,439 11,077 58,516 39,448 (73,013) (5,943) (39,508) Recognition of accumulated other comprehensive income lodged taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total income tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . . . – $298,673 (544,583) $(483,955) – $ 19,008 The following table presents the U.S. and non-U.S. components of income from continuing operations before income taxes (in thousands): U.S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-U.S. (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income from continuing operations before income taxes. . . . . . . . . Twelve Months Ended November 30, 2020 $ 813,305 253,778 $1,067,083 Twelve Months Ended November 30, 2019 $495,566 (16,958) $478,608 Eleven Months Ended November 30, 2018 $284,177 11,923 $296,100 (1) For purposes of this table, non-U.S. income is defined as income generated from operations located outside the U.S. Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rates of 21% for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 to income from continuing operations before income taxes as a result of the following (dollars in thousands): F-95 93934 Notes to Consolidated Financial Statements, continued Note 19. 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 comprehensive income lodged taxes. . . . . . . . . . International operations (including foreign rate differential) . . . . . . . . . . . . . . . . . . . . . Decrease in valuation allowance. . . . . . . . . . . . . . . . Non-deductible executive compensation. . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . Interest on unrecognized tax benefits . . . . . . . . . . . Spectrum Brands distribution. . . . . . . . . . . . . . . . . . . Acquisition of HomeFed . . . . . . . . . . . . . . . . . . . . . . . Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2020 Amount Percent Twelve Months Ended November 30, 2019 Amount Percent Eleven Months Ended November 30, 2018 Amount Percent $224,087 21.0% $ 100,508 21.0% $ 62,181 21.0% 45,457 – 13,155 (2,561) 12,814 (8,654) – – – (4,522) 15,600 – – 3,297 4.3 – 1.2 (0.2) 1.2 (0.8) – – – (0.5) 1.5 – – 0.3 25,648 5.4 12,391 (544,583) (113.8) – 4,518 (19,993) 7,444 (5,012) – 0.9 (4.2) 1.6 (1.0) – 1,823 (48,058) 5,810 (9,046) 5,673 (6,708) (1.4) 2,590 (10,000) (2.1) 10,000 (20,512) 3,568 11,996 (36,779) 5,950 (4.3) 0.7 2.5 (7.7) 1.3 (19,783) (1,197) – – (3,376) 4.2 – 0.6 (16.2) 1.9 (3.1) 1.9 0.9 3.4 (6.7) (0.4) – – (1.1) Actual income tax provision . . . . . . . . . . . . . . . . . $298,673 28.0% $(483,955) (101.1)% $ 19,008 6.4% As discussed above, during the second quarter of 2019, we completed the sale of our available for sale portfolio. In connection therewith, we recognized a tax benefit of $544.6 million during the twelve months ended November 30, 2019. Unrealized gains and losses on available for sale securities, and their associated tax impacts, are recorded directly to equity as part of the Accumulated other comprehensive income (loss) balance. Following the portfolio approach, when unrealized gains and losses and their associated tax impacts are recorded at a then current tax rate, and then realized later at a different tax rate, the difference between the tax impact initially recorded in Accumulated other comprehensive income (loss) and the tax impact removed from Accumulated other comprehensive income (loss) upon realization remains in Accumulated other comprehensive income (loss) until the disposal of the portfolio and is referred to as a ‘‘lodged tax effect.’’ Large changes in the fair value of our available for sale securities, primarily during 2008 through 2010, combined with fluctuations in our tax rate during those periods, generated a lodged tax benefit of $544.6 million. As a result of steps to improve our Corporate investment management efforts, we sold the remaining portion of our available for sale portfolio in the second quarter of 2019, which resulted in the realization of the $544.6 million tax benefit. While this realization did not impact total equity, it resulted in a tax benefit reflected in the Consolidated Statement of Operations of $544.6 million and, as a result, Retained earnings increased and Accumulated other comprehensive income (loss) decreased by corresponding amounts. F-96 64537 Notes to Consolidated Financial Statements, continued Note 19. Income Taxes, continued The following table presents a reconciliation of gross unrecognized tax benefits (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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. . . . . . . . . . Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $260,138 41,114 22,328 (8,966) (267) $314,347 $197,320 42,306 33,007 (11,006) (1,489) $260,138 $169,020 48,083 17,521 (36,324) (980) $197,320 Interest and penalties related to unrecognized tax benefits are recorded as components of the provision for income taxes. Net interest expense (benefit) related to unrecognized tax benefits was $19.9 million, $13.1 million and $(3.1) million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. At November 30, 2020 and 2019, we had interest accrued of approximately $87.1 million and $67.2 million, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. No material penalties were accrued for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018. The statute of limitations with respect to our federal income tax returns has expired for all years through 2016. We are currently under examination by various tax jurisdictions. Prior to becoming a wholly-owned subsidiary, Jefferies Group filed a consolidated U.S. federal income tax return with its qualifying subsidiaries and was subject to income tax in various states, municipalities and foreign jurisdictions and Jefferies Group is also currently under examination by various tax jurisdictions. We do not expect that resolution of these examinations will have a significant effect on the Consolidated Statements of Financial Condition, but could have a significant impact on the Consolidated Statements of Operations for the period in which resolution occurs. It is reasonably possible that, within the next twelve months, statutes of limitation will expire which could have the effect of reducing the balance of unrecognized tax benefits by $13.8 million. F-97 81556 Notes to Consolidated Financial Statements, continued Note 19. Income Taxes, continued The principal components of deferred taxes are as follows (in thousands): Deferred tax asset: Net operating loss carryover . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in associated companies (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability: Amortization of intangible assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating lease right-of-use asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net deferred tax asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 30, 2020 November 30, 2019 $ 15,123 145,617 274,342 – 36,345 42,423 164,010 677,860 (15,958) $ 48,695 – 260,590 91,390 16,099 28,824 184,514 630,112 (18,519) 661,902 611,593 (65,683) (138,708) (63,824) (268,215) $ 393,687 (68,933) – (80,192) (149,125) $ 462,468 (1) Certain reclassifications have been made to the prior year to conform with the current make up and reporting of deferred tax positions in the current period. Within the principal components of deferred taxes, we have included Securities valuation reserves in Investments in Associated Companies. The valuation allowance represents the portion of our deferred tax assets for which it is more likely than not that the benefit of such items will not be realized. We believe that the realization of the net deferred tax asset of $393.7 million at November 30, 2020 is more likely than not based on expectations of future taxable income in the jurisdictions in which we operate. We have various state NOLs that expire at different times, which are reflected in the above table to the extent our estimate of future taxable income will be apportioned to those states. A deferred tax asset of $1.8 million related to net operating losses in Europe has been partially offset by a valuation allowance of $1.4 million, while $0.6 million of deferred tax assets related to net operating losses in Asia has been partially offset by a valuation allowance of $0.3 million. Uncertainties that may affect the utilization of our tax attributes include future operating results, tax law changes, rulings by taxing authorities regarding whether certain transactions are taxable or deductible and expiration of carryforward periods. As a result of planning related to the 2017 tax act, during fiscal 2018, several of our foreign subsidiaries had made tax elections to be treated as branches of the U.S. for federal income tax purposes (commonly referred to as ‘‘check-the-box’’ elections) effective during various times during 2018. We believe that, as a result of these foreign subsidiaries being treated as branches of the U.S. for federal income tax purposes, rather than as controlled foreign corporations, we will reduce the future tax impact of the base erosion and anti-abuse tax (‘‘BEAT’’) and the tax on global intangible low-taxed income (‘‘GILTI’’) provisions, which became effective starting in fiscal 2018 and fiscal 2019, respectively. We recorded a provision of $10.0 million for BEAT in the eleven months ended November 30, 2018 and reversed the full amount during the twelve months ended November 30, 2019, based on new information. The new tax on GILTI became applicable in fiscal 2019. As a F-98 30389 Notes to Consolidated Financial Statements, continued Note 19. Income Taxes, continued result, we made an accounting policy election in the first quarter of 2019 to treat GILTI as a period cost if and when incurred. Note 20. Other Results of Operations Information Other revenue consists of the following (in thousands): Income from associated companies classified as other revenues . . . . Revenues of oil and gas production and development businesses. . . Gain on sale of National Beef . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on revaluation of our interest in HomeFed . . . . . . . . . . . . . . . . . . Gain on sale of Garcadia. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ 23,934 154,909 – – – 117,848 $296,691 $ 85,169 175,169 205,017 72,142 – 130,496 $667,993 $ 73,975 127,090 – – 221,712 135,559 $558,336 In the fourth quarter of 2019, we sold our 31% equity interest in National Beef for a total of $970.0 million in cash, including $790.6 million of proceeds and $179.4 million from final distributions from National Beef around the time of the sale. The pre-tax gain recognized as a result of this transaction, $205.0 million for the twelve months ended November 30, 2019, is classified as Other revenue. Other revenues for the twelve months ended November 30, 2019 include a $72.1 million pre-tax gain on the revaluation of our 70% interest in HomeFed to fair value in connection with the acquisition of the remaining common stock of HomeFed. In the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family, for $417.2 million in cash. The pre-tax gain recognized as a result of this transaction, $221.7 million for the eleven months ended November 30, 2018, is classified as Other revenue. Taxes, other than income or payroll included in Income (loss) from continuing operations, amounted to $49.3 million, $41.3 million and $39.9 million for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Proceeds from sales of investments primarily classified as available for sale were $0.9 billion and $1.6 billion during the twelve months ended November 30, 2019 and the eleven months ended November 30, 2018, respectively, and were not material during the twelve months ended November 30, 2020. Gross gains and gross losses were not material during each of the periods. Note 21. Common Shares and Earnings Per Common Share Basic and diluted earnings per share amounts were calculated by dividing net income by the weighted-average number of common shares outstanding. The numerators and denominators used to calculate basic and diluted earnings per share are as follows (in thousands): F-99 47882 Notes to Consolidated Financial Statements, continued Note 21. Common Shares and Earnings Per Common Share, continued 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. common shareholders for basic earnings per share . . . . . . . . . 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. Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $769,605 (4,795) $959,593 (5,576) $1,022,318 (5,107) 764,810 954,017 1,017,211 23 5,634 (5) 5,103 28 – common shareholders for diluted earnings per share . . . . . . . . $770,467 $959,115 $1,017,239 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 268,518 297,796 337,817 (1,785) (1,939) (1,707) required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,960 14,837 11,151 Denominator for basic earnings per share – weighted average shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Senior executive compensation plan awards . . . . . . . . . . . . . . . . . . . . Mandatorily redeemable convertible preferred shares . . . . . . . . . . . . 285,693 – 356 4,441 Denominator for diluted earnings per share . . . . . . . . . . . . . . . . . . 290,490 310,694 – 2,140 4,198 317,032 347,261 7 4,007 – 351,275 (1) Represents dividends declared during the period on participating securities plus an allocation of undistributed earnings to participating securities. Net losses are not allocated to participating securities. Participating securities represent restricted stock and RSUs for which requisite service has not yet been rendered and amounted to weighted average shares of 1,801,700, 1,947,600 and 1,724,800 for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Dividends declared on participating securities were $1.0 million and $3.6 million during the twelve months ended November 30, 2020 and 2019 and were not material during the eleven months ended November 30, 2018. Undistributed earnings are allocated to participating securities based upon their right to share in earnings if all earnings for the period had been distributed. For the eleven months ended November 30, 2018, shares related to the 3.875% Convertible Senior Debentures were not included in the computation of diluted per share amounts as the conversion price exceeded the average market price. All of these convertible debentures were redeemed in January 2018. 4,162,200 shares related to the mandatorily redeemable convertible preferred shares for the eleven months ended November 30, 2018, were not included in the computation of diluted per share amounts as the effect was antidilutive. Our Board of Directors from time to time has authorized the repurchase of our common shares. In January 2019, the Board of Directors approved a $500.0 million share repurchase authorization. Additionally, in connection with the HomeFed merger on July 1, 2019, our Board of Directors authorized the repurchase of an additional 9.25 million shares in the open market. In January 2020, the Board of Directors approved an increase of $250.0 million to the share repurchase authorization and in March 2020, the Board of Directors approved an additional F-100 52345 Notes to Consolidated Financial Statements, continued Note 21. Common Shares and Earnings Per Common Share, continued share repurchase authorization of $100.0 million. In June 2020, the Board of Directors increased the share repurchase authorization by $176.7 million and in September 2020, the Board of Directors increased the share repurchase authorization by $128.0 million. During the twelve months ended November 30, 2020, we purchased a total of 42,134,910 of our common shares for an aggregate purchase price of $812.7 million, or an average price of $19.29 per share. At November 30, 2020, we had approximately $57.2 million available for future purchases. In January 2021, the Board of Directors increased the share repurchase authorization to $250.0 million, including the $57.2 million. Note 22. Commitments, Contingencies and Guarantees Commitments The following table summarizes commitments associated with certain business activities (in millions): Equity commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . Loan commitments (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Underwriting commitments . . . . . . . . . . . . . . . . . . . . . . . . Forward starting reverse repos (2). . . . . . . . . . . . . . . . . . Forward starting repos (2) . . . . . . . . . . . . . . . . . . . . . . . . . Other unfunded commitments (1) . . . . . . . . . . . . . . . . . . Expected Maturity Date $ 2021 365.5 249.5 243.3 6,048.0 3,488.7 156.6 $10,551.6 2022 $53.4 10.0 – – – 25.0 $88.4 2023 and 2024 $25.3 25.0 – – – 5.2 $55.5 2025 and 2026 $14.5 2.3 – – – – $16.8 2027 and Later $6.8 – – – – – $6.8 Maximum Payout $ 465.5 286.8 243.3 6,048.0 3,488.7 186.8 $10,719.1 (1) Equity commitments, loan commitments and other unfunded commitments are generally presented by contractual maturity date. The amounts are however mostly available on demand. (2) At November 30, 2020, $5,919.9 million within forward starting securities purchased under agreements to resell and $3,480.4 million within forward starting securities sold under agreements to repurchase settled within three business days. Equity Commitments. Equity commitments include a commitment to invest in Jefferies Group’s joint venture, Jefferies Finance, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by our President and a Director. At November 30, 2020, Jefferies Group’s outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $11.0 million. See Note 9 for additional information regarding Jefferies Group’s investment in Jefferies Finance. Additionally, at November 30, 2020, we had other outstanding equity commitments to invest up to $200.0 million to third-parties with strategic relationships and up to $156.8 million to various other investments. Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions, SPE sponsors in connection with the funding of CLO and other asset-backed transactions, and third-parties with strategic relationships. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At F-101 34654 Notes to Consolidated Financial Statements, continued Note 22. Commitments, Contingencies and Guarantees, continued November 30, 2020, we had $80.0 million of outstanding loan commitments to clients and $5.9 million to third- parties with strategic relationships. Loan commitments outstanding at November 30, 2020 also include Jefferies Group’s portion of the outstanding secured revolving credit facility provided to Jefferies Finance to support loan underwritings by Jefferies Finance. At November 30, 2020, $50.0 million of Jefferies $250.0 million commitment was funded. Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting commitments to our clients in connection with capital raising transactions. Forward Starting Reverse Repos and Repos. We enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities. Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity. Contingencies We and our subsidiaries are parties to legal and regulatory proceedings that are considered to be either ordinary, routine litigation incidental to their business or not significant to our consolidated financial position. We and our subsidiaries are also involved, from time to time, in other exams, investigations and similar reviews (both formal and informal) by governmental and self-regulatory agencies regarding our businesses, certain of which may result in judgments, settlements, fines, penalties or other injunctions. We do not believe that any of these actions will have a significant adverse effect on our consolidated financial position or liquidity, but any amounts paid could be significant to results of operations for the period. Guarantees Derivative Contracts. Our dealer activities cause us to make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts. The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under GAAP as of November 30, 2020 (in millions): Guarantee Type 2021 2022 2023 and 2024 2025 and 2026 Derivative contracts – non-credit related . . . . Written derivative contracts – credit related . $12,607.6 – $2,475.8 – $5,760.8 6.4 $390.4 – Total derivative contracts . . . . . . . . . . . . . . $12,607.6 $2,475.8 $5,767.2 $390.4 2027 and Later $11.9 – $11.9 Notional/ Maximum Payout $21,246.5 6.4 $21,252.9 Expected Maturity Date F-102 02123 Notes to Consolidated Financial Statements, continued Note 22. Commitments, Contingencies and Guarantees, continued The derivative contracts deemed to meet the definition of a guarantee under GAAP are before consideration of hedging transactions and only reflect a partial or ‘‘one-sided’’ component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. The fair value of derivative contracts meeting the definition of a guarantee is approximately $181.3 million at November 30, 2020. Berkadia. We have agreed to reimburse Berkshire Hathaway for up to one-half of any losses incurred under a $1.5 billion surety policy securing outstanding commercial paper issued by an affiliate of Berkadia. At November 30, 2020, the aggregate amount of commercial paper outstanding was $1.47 billion. 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, 2020, the aggregate amount of infrastructure improvement bonds outstanding was $82.0 million. Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business, we provide guarantees to securities clearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements. Additionally, we provide certain indemnifications in connection with third-party clearing and execution arrangements whereby a third-party may clear and settle transactions on behalf of our clients. These indemnifications generally have standard contractual terms and are entered into in the ordinary course of business. Our obligations in respect of such transactions are secured by the assets in our client’s account, as well as any proceeds received from the transactions cleared and settled on behalf of our client. However, we believe that it is unlikely we would have to make any material payments under these arrangements and no material liabilities related to these indemnifications have been recognized. Standby Letters of Credit. At November 30, 2020, we provided guarantees to certain counterparties in the form of standby letters of credit totaling of $22.0 million. Standby letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement. Primarily all letters of credit expire within one year. F-103 78398 Notes to Consolidated Financial Statements, continued Note 23. Net Capital Requirements Jefferies LLC operates as a broker-dealer registered with the U.S. Securities and Exchange Commission (‘‘SEC’’) and a member firm of the Financial Industry Regulatory Authority (‘‘FINRA’’). Jefferies LLC is subject to the SEC Uniform Net Capital Rule (‘‘Rule 15c3-1’’), which requires the maintenance of minimum net capital and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant (‘‘FCM’’), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (‘‘CFTC’’), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17. Jefferies LLC’s net capital and excess net capital as of November 30, 2020 were $2,161.3 million and $2,060.5 million, respectively. FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM. Certain other U.S. and non-U.S. subsidiaries of Jefferies Group are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority in the United Kingdom. The regulatory capital requirements referred to above may restrict our ability to withdraw capital from Jefferies Group’s regulated subsidiaries. Some of our other consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the parent company. Note 24. Other Fair Value Information The carrying amounts and estimated fair values of our principal financial instruments that are not recognized at fair value on a recurring basis are as follows (in thousands): November 30, 2020 Fair Value Carrying Amount November 30, 2019 Fair Value Carrying Amount Other Assets: Notes and loans receivable (1) . . . . . . . . . . . . . . . . . . . . . $ 727,492 $ 744,424 $ 775,501 $ 784,053 Financial Liabilities: Short-term borrowings (2) . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt (3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759,648 6,639,794 759,648 7,495,642 548,490 7,121,776 548,490 7,569,837 (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. (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. F-104 68811 Notes to Consolidated Financial Statements, continued Note 25. Related Party Transactions Jefferies Capital Partners Related Funds. Jefferies Group has equity investments in the JCP Manager and in private equity funds (including JCP Fund V), which are managed by a team led by our President and a Director (‘‘Private Equity Related Funds’’). Reflected in the Consolidated Statements of Financial Condition at November 30, 2020 and 2019 are Jefferies Group’s equity investments in Private Equity Related Funds of $19.0 million and $23.0 million, respectively. Net gains (losses) from Jefferies Group’s investment in JCP Fund V aggregating $(3.0) million, $(5.7) million and $12.1 million were recorded in Principal transactions revenues for the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, respectively. Gains (losses) for other funds were not material. For further information regarding our commitments and funded amounts to the Private Equity Related Funds, see Notes 8 and 22. Berkadia Commercial Mortgage, LLC. At November 30, 2020 and 2019, Jefferies Group has commitments to purchase $401.0 million and $360.4 million, respectively, in agency commercial mortgage-backed securities from Berkadia. HRG Group, Inc. (‘‘HRG’’). Jefferies Group recognized investment banking revenues of $3.0 million for the eleven months ended November 30, 2018 in connection with the merger of HRG into Spectrum Brands. FXCM. Jefferies Group entered into a foreign exchange prime brokerage agreement with FXCM in 2017. In connection with the foreign exchange contracts entered into under this agreement, Jefferies Group had $2.7 million and $9.9 million at November 30, 2020 and 2019, respectively, included in Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition. Officers, Directors and Employees. We had $38.9 million and $44.8 million of loans outstanding to certain officers and employees (none of whom are an executive officer or director of the Company) at November 30, 2020 and 2019, respectively. Receivables from and payables to customers include balances arising from officers’, directors’ and employees’ individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms. Jefferies Finance. During the twelve months ended November 30, 2019, we purchased $65.3 million of loan receivables from Jefferies Finance which settled during the twelve months ended November 30, 2020. See Note 9 for additional information on transactions with Jefferies Finance. Sale of Property. On November 29, 2019, we sold a hotel and restaurant in Telluride, Colorado that we owned, to the Company’s Chairman and certain of his family trusts in exchange for 780,315 shares of the Company’s common stock, at a price of $21.03 per share. Sale of Subsidiary. On November 3, 2020, we sold a wholly-owned subsidiary primarily invested in short-dated receivables that related to an asset management strategy to an investment fund managed by us for approximately $180.7 million. The gain on sale was not material. Note 26. Discontinued Operations On June 5, 2018, we sold 48% of National Beef to Marfrig for $907.7 million in cash, reducing our then ownership in National Beef to 31%. As of the closing of the sale on June 5, 2018, we deconsolidated our investment in National Beef and accounted for our remaining interest under the equity method of accounting. Immediately prior to the deconsolidation, the cumulative increase in fair value of $237.7 million recorded to the redeemable noncontrolling interest since the initial acquisition of National Beef was reversed through Additional paid-in capital in the Consolidated Statement of Financial Condition. F-105 74739 Notes to Consolidated Financial Statements, continued Note 26. Discontinued Operations, continued The sale of National Beef met the GAAP criteria to be classified as a discontinued operation as the sale represented a strategic shift that had a major effect in our operations and financial results. As such, we have classified the results of National Beef prior to June 5, 2018 as a discontinued operation and reported those results in Income from discontinued operations, net of income tax provision in the Consolidated Statements of Operations. A summary of the results of discontinued operations for National Beef for the period from January 1, 2018 through June 4, 2018 as included in discontinued operations for the eleven months ended November 30, 2018 is as follows (in thousands): Revenues: Beef processing services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,137,611 131 4,329 Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142,071 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,414 2,884,983 4,316 43,959 14,291 2,964,963 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 Net income attributable to the redeemable noncontrolling interests in the Consolidated Statements of Operations includes $37.1 million for the eleven months ended November 30, 2018 related to National Beef’s noncontrolling interests. Pre-tax income from discontinued operations attributable to Jefferies Financial Group Inc. common shareholders was $140.0 million for the eleven months ended November 30, 2018. As discussed above, we accounted for our retained 31% ownership of National Beef subsequent to the sale to Marfrig under the equity method. For the twelve months ended November 30, 2019 and the period from June 5, 2018 through November 30, 2018, we recorded $232.0 million and $110.0 million, respectively, in Income (loss) related to associated companies from our 31% ownership in National Beef and we received distributions from National Beef of $349.2 million and $48.7 million, respectively. The pre-tax income of 100% National Beef for the period from December 1, 2018 through November 29, 2019 and the period from June 5, 2018 through November 30, 2018 was $773.7 million and $367.2 million, respectively. On November 29, 2019, we sold our remaining 31% interest in National Beef to Marfrig and other shareholders. During the eleven months ended November 30, 2018, we have also recorded a pre-tax gain on the 2018 National Beef sale of $873.5 million ($643.9 million after-tax) which is reported in Gain on disposal of discontinued operations, net of income tax provision in the Consolidated Statements of Operations. Included in the $873.5 million pre-tax gain on the sale of National Beef was approximately $352.4 million related to the revaluation of our retained 31% interest in National Beef to fair value. The $592.3 million fair value of our retained 31% interest in National Beef was based on the implied equity value of 100% of National Beef from the transaction with Marfrig and is considered a Level 3 input. The transaction with Marfrig was based on a $1.9 billion equity valuation and a $2.3 billion enterprise valuation. F-106 64364 Notes to Consolidated Financial Statements, continued Note 27. Segment Information We are engaged in investment banking and capital markets, asset management and direct investing. During the first quarter of 2020, we changed our internal structure with regard to our operating segments. Previously, our segments consisted of (1) Investment Banking, Capital Markets and Asset Management, which included all of the financial results of Jefferies Group; (2) Merchant Banking; and (3) Corporate. In the first quarter of 2020, we appointed co-Presidents of Asset Management and created a separate operating segment that consists of the asset management activity previously included in our Investment Banking, Capital Markets and Asset Management segment, together with asset management activity previously included in our Merchant Banking segment. In order to compare results with prior periods, we have recast our segment results for the prior periods to conform to our current presentation. The Investment Banking and Capital Markets segment includes investment banking, capital markets and other related services. Investment banking provides underwriting and financial advisory services to clients across most industry sectors in the Americas, Europe and Asia. Capital markets businesses operate across the spectrum of equities, fixed income and foreign exchange products. Related services include, among other things, prime brokerage and equity finance, research and strategy, corporate lending and real estate finance. Our Asset Management segment includes both the operations of LAM as well as the asset management operations within Jefferies Group. Within Asset Management, we manage, invest in and provide services to a diverse group of alternative asset management platforms across a spectrum of investment strategies and asset classes. Asset Management offers institutional clients an innovative range of investment strategies through its affiliated managers. Merchant Banking consists of our various merchant banking businesses and investments, primarily including Linkem, Vitesse Energy Finance and JETX Energy, real estate, Idaho Timber, FXCM and WeWork. Merchant Banking businesses and investments also included National Beef, prior to its sale in November 2019, Spectrum Brands, prior to its distribution to shareholders in October 2019, Berkadia, prior to its transfer to Jefferies Group in the fourth quarter of 2018, and Garcadia, prior to its sale in August 2018. As discussed further in Notes 1 and 26, on June 5, 2018, we sold 48% of National Beef to Marfrig and deconsolidated our investment in National Beef. Results prior to June 5, 2018 are classified in discontinued operations and are not included in the table below. On November 29, 2019 we sold our remaining 31% interest in National Beef to Marfrig and other shareholders. Our retained 31% interest in National Beef was accounted for under the equity method, and results subsequent to the June 5, 2018 closing through November 29, 2019 are included in Merchant Banking in the table below. Corporate assets primarily consist of cash and cash equivalents. Corporate revenues primarily include interest income. Certain information concerning our segments is presented in the following table. Consolidated subsidiaries are reflected as of the date a majority controlling interest was acquired. F-107 21343 Notes to Consolidated Financial Statements, continued Note 27. Segment Information, continued Net revenues: Reportable Segments: Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 (In thousands) Eleven Months Ended November 30, 2018 Investment Banking and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,989,138 $ 3,035,988 $ 3,184,426 Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,280) 577,278 Merchant Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,300 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,769,724 Total net revenues related to reportable segments . . . . . . . . . . . . . . . . . . . . . . (5,690) Consolidation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,010,874 $ 3,892,976 $ 3,764,034 84,894 735,213 32,833 3,888,928 4,048 235,255 764,460 13,258 6,002,111 8,763 Income (loss) from continuing operations before income taxes: Reportable Segments: Investment Banking and Capital Markets (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,119,888 $ Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchant Banking (1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,927 (24,598) (55,619) 347,050 $ (41,126) 289,492 (68,467) 464,913 (133,729) 88,971 (66,140) Income from continuing operations before income taxes related to reportable segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Parent Company interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated income from continuing operations before income 1,108,598 (53,445) 11,930 526,949 (53,048) 4,707 354,015 (54,090) (3,825) taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,067,083 $ 478,608 $ 296,100 Depreciation and amortization expenses: Reportable Segments: Investment Banking and Capital Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchant Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total consolidated depreciation and amortization expenses . . . . . . . . . . . . . . $ 82,334 $ 5,247 67,362 3,496 158,439 $ 77,549 $ 2,042 69,805 3,475 152,871 $ 67,467 1,324 48,357 3,169 120,317 November 30, 2020 November 30, 2019 November 30, 2018 Identifiable assets employed: Reportable Segments: Investment Banking and Capital Markets (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,835,126 $40,523,223 $38,617,201 2,633,585 Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,164,605 Merchant Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,838,037 Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,253,428 Identifiable assets employed related to reportable segments . . . . . . . . . . . . . (122,333) Consolidation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,231,059 3,173,064 2,178,699 53,417,948 (299,596) 3,313,716 3,285,671 2,432,119 49,554,729 (94,495) Total consolidated assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $53,118,352 $49,460,234 $47,131,095 (1) Amounts related to Berkadia are included in Merchant Banking prior to their transfer to the Investment Banking and Capital Markets segment in the fourth quarter of 2018. Income from continuing operations before income taxes related to the net assets transferred were $78.7 million for the eleven months ended November 30, 2018. F-108 51439 Notes to Consolidated Financial Statements, continued Note 27. Segment Information, continued (2) Includes $235.7 million, $197.7 million and $243.2 million at November 30, 2020, 2019 and 2018, respectively, of the deferred tax asset, net. Net revenues for the Investment Banking and Capital Markets segment and Asset Management segment are recorded in the geographic region in which the position was risk-managed, in the case of Investment Banking and Capital Markets in which the senior coverage banker is located, or for Asset Management, according to the location of the investment advisor. Net revenues by geographic region were as follows (in thousands): Americas (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia Pacific . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Twelve Months Ended November 30, 2020 $4,871,313 853,674 285,887 Twelve Months Ended November 30, 2019 $3,188,353 592,087 112,536 Eleven Months Ended November 30, 2018 $3,231,522 436,861 95,651 $6,010,874 $3,892,976 $3,764,034 (1) Substantially all relates to U.S. results. (2) Substantially all relates to United Kingdom results. Interest expense classified as a component of Net revenues relates to Jefferies Group. For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018, interest expense classified as a component of Expenses was primarily comprised of parent company interest ($53.4 million, $53.0 million and $54.1 million, respectively) and Merchant Banking ($31.4 million, $34.1 million and $26.2 million, respectively). Interest expense for the eleven months ended November 30, 2018 also includes $9.0 million related to the Asset Management segment. As discussed above, during the fourth quarter of 2019, we sold our 31% equity interest in National Beef and recognized a pre-tax gain of $205.0 million for the twelve months ended November 30, 2019 in Other revenues. The gain on the sale is included within Merchant Banking above. As discussed above, during the third quarter of 2018, we sold 100% of our equity interests in Garcadia and our associated real estate to our former partners, the Garff family and recognized a pre-tax gain of $221.7 million for the eleven months ended November 30, 2018 in Other revenues. The gain on the sale is included within Merchant Banking above. F-109 94181 Notes to Consolidated Financial Statements, continued Note 28. Selected Quarterly Financial Data (Unaudited) First Quarter (1) Second Quarter (2) Third Quarter (3) Fourth Quarter (4) (In thousands, except per share amounts) 2020 Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,386,328 $1,147,589 $1,616,170 $1,860,787 308,005 Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . Net loss attributable to the noncontrolling interest . . . . . . . . 238 Net loss attributable to the redeemable noncontrolling 304,839 324 112,021 2,129 43,545 2,580 interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . 282 (1,422) 198 (1,404) 650 (1,404) 428 (1,404) 113,010 44,919 304,409 307,267 $0.37 302,406 $0.16 286,764 $1.08 280,695 $1.12 272,901 $0.37 308,280 $0.16 286,764 $1.07 285,136 $1.11 277,342 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 672,276 47,015 49,394 interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,066) 191 116 2,606 Net (income) loss attributable to the redeemable noncontrolling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . Diluted earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Number of shares used in calculation . . . . . . . . . . . . . . . . . 138 (1,276) (427) (1,276) 242 (1,275) 333 (1,276) 44,811 670,764 48,477 195,541 $0.14 315,175 $2.17 307,010 $0.16 310,288 $0.63 310,266 $0.14 318,752 $2.14 312,527 $0.15 311,897 $0.62 316,566 (1) The first quarter of 2020 includes a non-cash charge of $55.6 million to write off the value of HomeFed’s RedSky JZ Fulton Mall joint venture investment related to a softening of the Brooklyn real estate market and a non-cash charge of $33.0 million to write down the value of our investment in JETX Energy to reflect the impact of oil price declines during the quarter. These decreases were partially offset by a gain of $61.5 million from effective short-term hedges against mark-to-market and fair value decreases in some of our other investments within Merchant Banking. The first quarter of 2019 includes $27.1 million of equity income related to National Beef and a mark-to- market increase of $36.0 million in the value of our investment in Spectrum Brands. (2) The second quarter of 2020 includes a $44.2 million non-cash charge to write down the value of our investment in WeWork, a non-cash charge of $13.2 million to write down Vitesse Energy Finance’s oil and F-110 05836 Notes to Consolidated Financial Statements, continued Note 28. Selected Quarterly Financial Data (Unaudited), continued gas assets in the DJ Basin, reflecting a significant decrease in oil and gas prices, $12.2 million in non-cash write-downs of HomeFed’s interests in a hotel and a retail center significantly impacted by the external events of the second quarter and $19.3 million in mark-to-market unrealized decreases in the values of some of our investments in public companies. The second quarter of 2019 includes a nonrecurring tax benefit of $544.6 million related to the closing of our available for sale portfolio, which triggered the realization of lodged tax benefits from earlier years and $34.9 million of equity income related to National Beef. These increases were partially offset by a $11.3 million mark-to-market decrease in the value of our investment in Spectrum Brands. (3) The third quarter of 2020 includes record pre-tax income of $363.4 million from Jefferies Group, reflecting record quarterly total net revenues of $1,383.4 million, and $54.5 million in mark-to-market unrealized increases in the values of some of our investments in public companies. The third quarter of 2019 includes a $72.1 million pre-tax gain related to the purchase of the remaining interest in HomeFed and $75.9 million of equity income related to National Beef. This increase was partially offset by a $146.0 million decrease in the estimated fair value of our investment in WeWork. (4) The fourth quarter of 2020 includes record pre-tax income of $405.8 million from Jefferies Group, reflecting record quarterly total net revenues of $1,609.0 million, and $14.9 million in mark-to-market unrealized increases in the values of some of our investments in public companies. The fourth quarter of 2019 includes a $205.0 million pre-tax gain on the sale of our 31% equity interest in National Beef and $94.1 million of equity income related to National Beef, prior to its sale. These increases were partially offset by a decrease in the estimated fair value of our investment in WeWork of $69.4 million. In 2020 and 2019, the totals of quarterly per share amounts may not equal annual per share amounts because of changes in outstanding shares during the year. F-111 76815 Schedule I – Condensed Financial Information of Registrant Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Financial Condition November 30, 2020 and 2019 (Dollars in thousands, except par value) November 30, 2020 2019 Assets Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial instruments owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances to subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 723 132,959 10,265,085 151,202 20,483 86,381 $10,656,833 $ 3,553 207,162 10,520,986 137,549 26,615 77,546 $10,973,411 Liabilities Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables, expense accruals and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . Advances from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,629 37,972 90,624 4 992,711 1,127,940 $ 6,629 46,561 224,134 4 991,378 1,268,706 Commitments and contingencies Mezzanine Equity Mandatorily redeemable convertible preferred shares. . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 125,000 Equity Common shares, par value $1 per share, authorized 600,000,000 shares; 249,750,542 and 291,644,153 shares issued and outstanding, after deducting 66,712,070 and 24,818,459 shares held in treasury. . . . . . . . . . . . . . . . . . . . . . . . . . Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,751 2,911,223 (288,917) 6,531,836 291,644 3,627,711 (273,039) 5,933,389 Total Jefferies Financial Group Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,403,893 $10,656,833 9,579,705 $10,973,411 See accompanying notes to condensed financial statements. S-1 44616 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Operations For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands, except per share amounts) Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Revenues: Principal transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on sale of equity interest in National Beef . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,243 – 2,430 55,673 $(246,101) 205,017 50,186 9,102 $ 120,886 – 663 121,549 Expenses: Compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WilTel pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Intercompany interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selling, general and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,384 2,822 53,445 – 20,279 123,930 61,920 2,594 53,048 – 23,062 140,624 Loss from continuing operations before income taxes, income (loss) related to associated companies and equity in earnings of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) related to associated companies . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before income taxes and equity in earnings of subsidiaries . . . . . . . . . . . . . Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income (loss) from continuing operations before equity in earnings of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings from continuing operations of subsidiaries, net of taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income 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. 49,955 2,659 54,090 3,642 21,664 132,010 (10,461) 96,808 86,347 (5,281) (68,257) (4,325) (131,522) 229,320 (72,582) (16,290) 97,798 (523,310) (56,292) 621,108 91,628 831,531 775,239 – – 775,239 (5,634) 343,588 964,696 – – 964,696 (5,103) 198,317 289,945 92,922 643,921 1,026,788 (4,470) common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $769,605 $ 959,593 $1,022,318 Basic earnings per common share attributable to Jefferies Financial Group Inc. common shareholders: Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . 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 from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . Income from discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of discontinued operations . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.68 – – $2.68 $2.65 – – $2.65 $3.07 – – $3.07 $3.03 – – $3.03 $0.82 0.27 1.84 $2.93 $0.81 0.26 1.83 $2.90 See accompanying notes to condensed financial statements. S-2 53627 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Comprehensive Income (Loss) For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands) Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $775,239 $ 964,696 $1,026,788 372 487 (1,560) – (543,178) (109) 372 (542,691) (1,669) 35,991 – 35,991 544 149 693 (71,543) (20,459) (92,002) (51,865) (13,588) 29,620 (397) 427 (916) (52,262) (13,161) 28,704 – – – – (470) (470) 1,608 – 1,608 (2,851) (7,103) (844) 2,872 1,407 7,349 21 (15,878) 759,361 (5,634) (5,696) (561,325) 403,371 (5,103) 6,505 (56,854) 969,934 (4,470) $753,727 $ 398,268 $ 965,464 Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive income (loss): Net unrealized holding gains (losses) on investments arising during the period, net of income tax provision (benefit) of $117, $165 and $(551) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for net (gains) losses included in net income, net of income tax provision (benefit) of $0, $(545,054) and $37 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized holding gains (losses) on investments, net of income tax provision (benefit) of $117, $545,219 and $(588) . . . . . . . . Net unrealized foreign exchange gains (losses) arising during the period, net of income tax provision (benefit) of $11,392, $1,146 and $(11,089) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for foreign exchange (gains) losses included in net income, net of income tax provision (benefit) of $0, $(52) and $(16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized foreign exchange gains (losses), net of income tax provision (benefit) of $11,392, $1,198 and $(11,073). . . . . . . . . . . . . Net unrealized gains (losses) on instrument specific credit risk arising during the period, net of income tax provision (benefit) of $(16,228), $(4,653) and $9,289 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for instrument specific credit risk (gains) losses included in net income, net of income tax provision (benefit) of $146, $(144) and $311 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized instrument specific credit risk gains (losses), net of income tax provision (benefit) of $(16,374), $(4,509) and $8,978. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net unrealized gains (losses) on cash flow hedges arising during the period, net of income tax provision (benefit) of $0, $0 and $552. . . . . Less: reclassification adjustment for cash flow hedges (gains) losses included in net income, net of income tax provision (benefit) of $0, $161 and $0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in unrealized cash flow hedges gains (losses), net of income tax provision (benefit) of $0, $(161) and $552. . . . . . . . . . . . . . . Net pension gains (losses) arising during the period, net of income tax provision (benefit) of $(970), $(2,473) and $(297) . . . . . . . . . . . . . . . . . . . Less: reclassification adjustment for pension (gains) losses included in net income, net of income tax provision (benefit) of $(957), $(490) and $(697). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net change in pension liability benefits, net of income tax provision (benefit) of $(13), $(1,983) and $400 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other comprehensive loss, net of income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comprehensive income attributable to Jefferies Financial Group Inc. common shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See accompanying notes to condensed financial statements. S-3 41024 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Condensed Statements of Cash Flows For the twelve months ended November 30, 2020 and 2019 and the eleven months ended November 30, 2018 (In thousands) Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 $ 775,239 $ 964,696 $ 1,026,788 (1,787) – 1,151 40,038 (831,531) – 4,325 1,359 – 74,203 (328) – (5,865) (74,274) 65,057 3,094 50,681 738,908 180,664 – (23,000) 23,000 (1,237) 1,638 – – 919,973 – 919,973 (12,953) (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 – 381,915 142,085 – 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) – 60,018 1,158,655 1,218,673 3,293 1,034 (816,871) (160,940) (973,484) (2,830) 3,553 723 $ (2,487) 1,112 (509,914) (149,647) (660,936) (44,987) 48,540 3,553 $ (1,139) 3,611 (1,130,854) (151,758) (1,280,140) 36,223 12,317 48,540 $ Net cash flows from operating activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by 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) loss related to associated companies . . . . . . . . . . . . . . . . . . . . . . . . . Distributions from associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gains on sale/revaluation of associated companies . . . . . . . . . . . . . . . . . . . . . Net change in: Financial instruments owned, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables, expense accruals and other liabilities . . . . . . . . . . . . . . . . Income taxes receivable/payable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . Net cash flows from investing activities: Distributions (to) from subsidiaries, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advances on loans receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collections on loans receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 97011 Schedule I – Condensed Financial Information of Registrant, continued Jefferies Financial Group Inc. (Parent Company Only) Notes to Condensed Financial Statements 1. Introduction and Basis of Presentation The notes to the consolidated financial statements of Jefferies Financial Group Inc. and Subsidiaries (‘‘we,’’ ‘‘our’’ or the ‘‘Company’’) are incorporated by reference into this schedule. For purposes of these condensed non-consolidated financial statements, the Company’s wholly-owned and majority owned subsidiaries are accounted for using the equity method of accounting (‘‘equity method subsidiaries’’). The Parent Company Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (‘‘GAAP’’). The significant accounting policies of the Parent Company Financial Statements are those used by the Company on a consolidated basis, to the extent applicable. For further information regarding the significant accounting policies refer to Note 2, Significant Accounting Policies, in the Company’s consolidated financial statements included in the 2020 10-K. The Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with GAAP. The most important of these estimates and assumptions relate to fair value measurements, goodwill and intangible assets, the ability to realize deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates. 2. Cash Flows Supplemental cash flow information related to the Parent Company is as follows (in thousands): Twelve Months Ended November 30, 2020 Twelve Months Ended November 30, 2019 Eleven Months Ended November 30, 2018 Cash paid for: Interest, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax payments (refunds), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 52,112 1,811 $51,786 10,796 $ 57,813 32,576 Non-cash investing activities: Investments contributed to subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends received from subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51,190 194,362 $ – 18,117 $ – 8,450,147 In June 2019, we entered into a Membership Interest Purchase Agreement (‘‘MIPA’’) which provided for each of the then owners of National Beef Packing Company, LLC (‘‘National Beef’’) to purchase, in the aggregate, 100% of the ownership interests in Iowa Premium, LLC (‘‘Iowa Premium’’). The funds used to acquire Iowa Premium were provided by way of a permitted distribution from National Beef to its owners, of which our proportionate share was approximately $49.0 million. The distribution from National Beef and the acquisition of Iowa Premium are included in our Consolidated Statement of Cash Flows for the twelve months ended November 30, 2019. Immediately following the acquisition, we contributed our ownership interest in Iowa Premium to National Beef, which was a non-cash investing activity. During the twelve months ended November 30, 2019, we had $178.8 million in non-cash investing activities related to the issuance of common stock for the acquisition of the remaining common stock of HomeFed LLC. During the twelve months ended November 30, 2019, we had $451.1 million in non-cash financing activities related to our distribution of all of our 7,514,477 shares of Spectrum Brands Holdings, Inc. through a special pro rata dividend to our stockholders. S-5 42268 Notes to Condensed Financial Statements, continued 2. Cash Flows, continued During the twelve months ended November 30, 2019, the Parent Company had $1.2 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2019. During the eleven months ended November 30, 2018, the Parent Company had $17.6 million in non-cash financing activities related to purchases of common shares for treasury which settled subsequent to November 30, 2018. Cash, cash equivalents and restricted cash is included in Cash and cash equivalents in the Condensed Statements of Financial Condition. 3. Transactions with Subsidiaries The Parent Company has transactions with its equity method subsidiaries, many of which were structured as interest bearing advances to/from its subsidiaries. Intercompany interest expense primarily reflected the interest on funding advances incurred by the Parent to its wholly-owned subsidiary which holds assets related to its treasury function. Interest was incurred on funding advances based on the prime rate plus .125%. Although there is frequent cash movement between these subsidiaries and the Parent, they do not generally represent cash dividends. The Parent Company received cash distributions from Jefferies Group of $498.7 million during the twelve months ended November 30, 2020, $311.1 million during the twelve months ended November 30, 2019 and $248.7 million during the eleven months ended November 30, 2018. Historically, excess cash was provided to the Parent Company by its subsidiaries in the form of loans rather than as distributions. Through a series of steps, the Parent Company has reduced these intercompany loans. During the eleven months ended November 30, 2018, the Parent Company received non-cash dividends totaling $8.5 billion from its subsidiaries. 4. Commitments, Contingencies and Guarantees In the normal course of its business, the Parent Company has various commitments, contingencies and guarantees as described in Note 22, Commitments, Contingencies and Guarantees, and Note 14, Mezzanine Equity, in the Company’s consolidated financial statements. In connection with the 2018 transfers of the Company’s Leucadia Asset Management seed investments, as well as its interest in Berkadia Commercial Mortgage Holding LLC, to Jefferies Group, related deferred tax liabilities of approximately $50.9 million were transferred to Jefferies Group, for which the Parent Company indemnified Jefferies Group. These transferred deferred tax liabilities were adjusted by an additional $19.1 million during the fourth quarter of 2019. At November 30, 2020 and 2019, $31.8 million and $51.7 million, respectively, related to such indemnification is reflected in Other payables, expense accruals and other liabilities in the Condensed Statements of Financial Condition. 5. Restricted Net Assets For a discussion of the Company’s regulatory requirements, see Note 23, Net Capital Requirements, in the Company’s consolidated financial statements. Some of the Company’s consolidated subsidiaries also have credit agreements which may restrict the payment of cash dividends, or the ability to make loans or advances to the Parent Company. At November 30, 2020 and 2019, $6.5 billion and $5.7 billion, respectively, of net assets of the Parent Company’s consolidated subsidiaries are restricted as to the payment of cash dividends, or the ability to make S-6 42832 Notes to Condensed Financial Statements, continued 5. Restricted Net Assets, continued loans or advances to the Parent Company. At November 30, 2020 and 2019, $5.7 billion and $4.9 billion, respectively, of these net assets are restricted as they reflect regulatory capital requirements or require regulatory approval prior to the payment of cash dividends and advances to the Parent Company. Included in retained earnings of the Parent Company at November 30, 2020 are $161.0 million of undistributed earnings of unconsolidated associated companies. For further information, see Note 9, Loans to and Investments in Associated Companies, in the Company’s consolidated financial statements. 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, 6 Retired Group Vice President of BP plc Barry J. Alperin 1, 2, 3, 4, 6 Retired Vice Chairman of Hasbro, Inc. Robert D. Beyer 2, 5 Chairman of Chaparal Investments LLC Francisco L. Borges 1, 3, 4 Chairman of Landmark Partners, LLC MaryAnne Gilmartin 3, 4, 5 Founder and CEO of MAG Partners LP Robert E. Joyal 7 Retired President of Babson Capital Management LLC Jacob M. Katz 1, 3, 5, 6 Retired Chairman and Global Leader of Financial Services of Grant Thornton LLP Michael T. O’Kane 2, 4, 6 Retired Senior Managing Director of TIAA Stuart H. Reese 7 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 help@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 ESG, Diversity, Equity and Inclusion Committee 4 Nominating and Corporate Governance Committee 5 Risk and Liquidity Oversight Committee 6 Valuation Oversight Committee (through dissolution on January 5, 2021) 7 In connection with the preparation for our upcoming annual meeting, Stuart H. Reese and Robert E. Joyal have informed us that they will not be standing for re-election on our Board of Directors cfa_411930_001r2.pdf 1 1/25/21 2:52 PM Jefferies Financial Group Inc. 520 Madison Avenue New York, New York 10022 2020 ANNUAL REPORT J e f f e r i e s A n n u a l R e p o r t 2 0 2 0