Jefferies Financial Group Inc. [JEF] Filings

10-Q 1 jef-20240831.htm 10-Q jef-20240831

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2024


☐			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 1-05721

Jefferies Financial Group Inc.

(Exact name of registrant as specified in its charter)

New York

13-2615557

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

520 Madison Avenue,

New York,

New York

10022

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (212) 284-2300

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
4.850% Senior Notes Due 2027	JEF 27A	New York Stock Exchange
5.875% Senior Notes Due 2028	JEF 28	New York Stock Exchange
2.750% Senior Notes Due 2032	JEF 32A	New York Stock Exchange
6.200% Senior Notes Due 2034	JEF 34	New York Stock Exchange

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 ☒ No ☐

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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each of the issuer’s classes of common stock at September 30, 2024 was 205,498,605.

Jefferies Financial Group Inc.

Index to Quarterly Report on Form 10-Q

August 31, 2024


PART I. FINANCIAL INFORMATION
			Page
Item 1. Financial Statements			2
Consolidated Statements of Financial Condition (Unaudited)			2
Consolidated Statements of Earnings (Unaudited)			3
Consolidated Statements of Comprehensive Income (Unaudited)			4
Consolidated Statements of Changes in Equity (Unaudited)			5
Consolidated Statements of Cash Flows (Unaudited)			6
Notes to Consolidated Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			46
Item 3. Quantitative and Qualitative Disclosures About Market Risk			70
Item 4. Controls and Procedures			70

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			71
Item 1A. Risk Factors			71
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			71
Item 5. Other Information			71
Item 6. Exhibits			71

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Consolidated Statements of Financial Condition

(Unaudited)


$ in thousands except share and per share amounts	August 31, 2024		November 30, 2023
Assets
Cash and cash equivalents	$	10,573,471	$	8,526,363
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations (includes $68,966 and $110,198 of securities at fair value)	1,360,324		1,414,593
Financial instruments owned, at fair value (includes securities pledged of $17,691,280 and $17,158,747)	24,038,659		21,747,473
Investments in and loans to related parties	1,349,629		1,239,345
Securities borrowed	7,056,550		7,192,091
Securities purchased under agreements to resell	6,993,024		5,950,549
Securities received as collateral, at fair value	272,619		8,800
Receivables:
Brokers, dealers and clearing organizations	2,583,719		2,380,732
Customers	2,060,450		1,705,425
Fees, interest and other	661,038		630,142
Premises and equipment	1,229,028		1,065,680
Assets held for sale (includes pledged assets of $181,900 at fair value at November 30, 2023)	—		1,545,472
Goodwill	1,832,958		1,847,856
Other assets (includes assets pledged of $365,942 and $244,604)	3,263,629		2,650,640
Total assets	$	63,275,098	$	57,905,161
Liabilities and Equity
Short-term borrowings	$	1,725,864	$	989,715
Financial instruments sold, not yet purchased, at fair value	12,307,086		11,251,154
Securities loaned	2,550,101		1,840,518
Securities sold under agreements to repurchase	9,603,530		10,920,606
Other secured financings (includes $3,965 and $3,898 at fair value)	1,739,323		1,430,199
Obligation to return securities received as collateral, at fair value	272,619		8,800
Payables:
Brokers, dealers and clearing organizations	4,421,053		3,737,810
Customers	3,898,469		3,960,557
Lease liabilities	642,527		544,650
Liabilities held for sale	—		1,173,648
Accrued expenses and other liabilities	3,076,747		2,546,211
Long-term debt (includes $2,122,890 and $1,708,443 at fair value)	12,922,012		9,698,752
Total liabilities	53,159,331		48,102,620
Mezzanine Equity
Redeemable noncontrolling interests	406		406
Equity
Preferred shares, par value of $1 per share, authorized 70,000 shares; 55,125 and 42,000 shares issued and outstanding; liquidation preference of $17,500 per share	55		42
Common shares, par value $1 per share, authorized 565,000,000 shares; 205,495,338 and 210,626,642 shares issued and outstanding, after deducting 115,622,732 and 110,491,428 shares held in treasury	205,495		210,627
Non-voting common shares, par value $1 per share, authorized 35,000,000 shares; no shares issued and outstanding	—		—
Additional paid-in capital	2,086,227		2,044,859
Accumulated other comprehensive loss	(369,965)		(395,545)
Retained earnings	8,124,134		7,849,844
Total Jefferies Financial Group Inc. shareholders’ equity	10,045,946		9,709,827
Noncontrolling interests	69,415		92,308
Total equity	10,115,361		9,802,135
Total liabilities and equity	$	63,275,098	$	57,905,161

See accompanying notes to consolidated financial statements.


2						Jefferies Financial Group Inc.

Consolidated Statements of Earnings

(Unaudited)


$ In thousands, except per share amounts	Three Months Ended August 31,				Nine Months Ended August 31,
	2024		2023		2024		2023
Revenues
Investment banking	$	927,094	$	600,190	$	2,344,743	$	1,595,463
Principal transactions	324,501		353,373		1,381,432		1,171,578
Commissions and other fees	270,643		223,712		787,968		672,294
Asset management fees and revenues	11,986		14,812		74,126		67,731
Interest	936,786		898,040		2,636,002		2,062,104
Other	124,579		(49,212)		439,556		(96,509)
Total revenues	2,595,589		2,040,915		7,663,827		5,472,661
Interest expense	912,037		858,806		2,585,627		1,969,450
Net revenues	1,683,552		1,182,109		5,078,200		3,503,211
Non-interest expenses
Compensation and benefits	889,098		644,059		2,677,962		1,922,985
Brokerage and clearing fees	101,119		91,226		321,325		268,292
Underwriting costs	14,017		14,877		51,053		41,253
Technology and communications	136,953		122,579		409,703		354,900
Occupancy and equipment rental	30,078		27,711		87,558		79,421
Business development	68,152		41,467		194,433		121,892
Professional services	64,630		64,897		217,967		195,572
Depreciation and amortization	45,977		25,288		139,125		83,890
Cost of sales	37,400		1,618		109,533		6,148
Other expenses	43,441		57,316		168,858		161,850
Total non-interest expenses	1,430,865		1,091,038		4,377,517		3,236,203
Earnings from continuing operations before income taxes	252,687		91,071		700,683		267,008
Income tax expense	78,011		37,124		207,077		75,053
Net earnings from continuing operations	174,676		53,947		493,606		191,955
Net earnings (losses) from discontinued operations (including gain on disposal of $2,839, $—, $2,839, $—), net of income tax benefit of $9,145, $—, $12,321, and $—	6,363		—		(1,488)		—
Net earnings	181,039		53,947		492,118		191,955
Net losses attributable to noncontrolling interests	(6,874)		(3,772)		(19,102)		(13,340)
Net losses attributable to redeemable noncontrolling interests	—		—		—		(454)
Preferred stock dividends	20,785		6,300		48,501		8,316
Net earnings attributable to common shareholders	$	167,128	$	51,419	$	462,719	$	197,433

Earnings per common share
Basic from continuing operations	$	0.75	$	0.22	$	2.12	$	0.83
Diluted from continuing operations	0.72		0.22		2.06		0.82
Basic	0.78		0.22		2.12		0.83
Diluted	0.75		0.22		2.06		0.82

Weighted-average common share shares outstanding
Basic	214,452		228,353		218,106		236,666
Diluted	221,699		232,041		224,180		240,658

See accompanying notes to consolidated financial statements.


August 2024 Form 10-Q						3

Consolidated Statements of Comprehensive Income

(Unaudited)


$ in thousands	Three Months Ended August 31,				Nine Months Ended August 31,
	2024		2023		2024		2023
Net earnings	$	181,039	$	53,947	$	492,118	$	191,955
Other comprehensive income (loss), net of tax:
Currency translation adjustments and other (1) (3)	22,560		(7,059)		18,443		20,307
Changes in fair value related to instrument-specific credit risk (2)	17,783		(22,315)		5,081		(40,273)
Unrealized gains on available-for-sale securities	426		1,176		2,056		1,135
Total other comprehensive income (loss), net of tax	40,769		(28,198)		25,580		(18,831)
Comprehensive income	221,808		25,749		517,698		173,124
Net losses attributable to noncontrolling interests	(6,874)		(3,772)		(19,102)		(13,340)
Net losses attributable to redeemable noncontrolling interests	—		—		—		(455)
Preferred stock dividends	20,785		6,300		48,501		8,316
Comprehensive income attributable to common shareholders	$	207,897	$	23,221	$	488,299	$	178,603

(1)Includes income tax expense of $7.9 million and $7.2 million for the three and nine months ended August 31, 2024, respectively, and income tax expense of $8.6 million and $7.1 million for the three and nine months ended August 31, 2023, respectively.

(2)Includes income tax expense of $6.1 million and $1.0 million for the three and nine months ended August 31, 2024, respectively, and income tax benefit of $7.6 million and $15.6 million for the three and nine months ended August 31, 2023, respectively.

(3)Includes unrealized gains (losses) of $0.9 million and $(1.0) million for the three and nine months ended August 31, 2024, respectively, related to currency translation adjustments attributable to noncontrolling interests.

See accompanying notes to consolidated financial statements.


4						Jefferies Financial Group Inc.

Consolidated Statements of Changes in Equity

(Unaudited)


$ in thousands, except share amounts	Three Months Ended August 31,				Nine Months Ended August 31,
	2024		2023		2024		2023
Preferred shares $1 par value
Balance, beginning of period	$	42	$	—	$	42	$	—
Conversion of common shares to preferred shares	13		42		13		42
Balance, end of period	$	55	$	42	$	55	$	42
Common shares $1 par value
Balance, beginning of period	$	212,053	$	231,411	$	210,627	$	226,130
Purchase of common shares for treasury	(7)		(8)		(1,089)		(4,757)
Conversion of 125,000 preferred shares to common shares	—		—		—		4,654
Conversion of common shares to preferred shares	(6,562)		(21,000)		(6,562)		(21,000)
Other	11		25		2,519		5,401
Balance, end of period	$	205,495	$	210,428	$	205,495	$	210,428
Additional paid-in capital:
Balance, beginning of period	$	2,051,149	$	1,965,530	$	2,044,859	$	1,967,781
Share-based compensation expense	13,377		11,258		47,949		35,476
Change in fair value of redeemable noncontrolling interests	—		—		—		(390)
Purchase of common shares for treasury	(325)		(271)		(43,222)		(160,515)
Conversion of 125,000 preferred shares to common shares	—		—		—		120,346
Dividend equivalents	4,756		4,318		14,436		19,504
Conversion of common shares to preferred shares	16,393		52,458		16,393		52,458
Change in equity interest related to consolidated subsidiaries	—		—		—		(6,307)
Other	877		813		5,812		5,753
Balance, end of period	$	2,086,227	$	2,034,106	$	2,086,227	$	2,034,106
Accumulated other comprehensive loss, net of tax:
Balance, beginning of period	$	(410,734)	$	(370,052)	$	(395,545)	$	(379,419)
Other comprehensive income (loss), net of tax	40,769		(28,198)		25,580		(18,831)
Balance, end of period	$	(369,965)	$	(398,250)	$	(369,965)	$	(398,250)
Retained earnings:
Balance, beginning of period	$	8,022,546	$	7,868,766	$	7,849,844	$	8,418,354
Net earnings attributable to Jefferies Financial Group Inc.	187,913		57,719		511,222		203,734
Dividends - common shares ($0.35, $0.30, $0.95, and $0.90 per share)	(76,678)		(67,937)		(213,581)		(221,821)
Dividends - preferred shares	(9,647)		(6,300)		(22,247)		(6,300)
Cumulative effect of change in accounting principle for current expected credit losses, net of tax	—		—		(644)		(14,813)
Distribution of Vitesse Energy, Inc.	—		—		—		(526,964)
Other	—		274		(460)		332
Balance, end of period	$	8,124,134	$	7,852,522	$	8,124,134	$	7,852,522
Total Jefferies Financial Group Inc. shareholders’ equity	$	10,045,946	$	9,698,848	$	10,045,946	$	9,698,848
Noncontrolling interests:
Balance, beginning of period	$	77,130	$	69,595	$	92,308	$	62,633
Net losses attributable to noncontrolling interests	(6,874)		(3,772)		(19,102)		(13,340)
Contributions	105		504		9,426		35,958
Distributions	(1,876)		—		(12,565)		(31,433)

Change in equity interest related to Vitesse Energy, Inc.	—		—		—		6,307
Conversion of Vitesse Energy, Inc. redeemable noncontrolling interest to noncontrolling interest	—		—		—		4,558
Conversion of redeemable noncontrolling interest to noncontrolling interest	—		—		—		1,396
Other	930		(43)		(652)		205
Balance, end of period	$	69,415	$	66,284	$	69,415	$	66,284
Total equity	$	10,115,361	$	9,765,132	$	10,115,361	$	9,765,132

See accompanying notes to consolidated financial statements.


August 2024 Form 10-Q						5

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended August 31,
$ in thousands	2024		2023
Cash flows from operating activities:
Net earnings	$	492,118	$	191,955
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization	141,584		84,891

Share-based compensation	47,949		35,476
Net bad debt expense	48,305		45,408
Loss (income) on investments and loans to related parties	(62,187)		229,917
Distributions received on investments in related parties	36,048		33,973
Gain on sale of subsidiary and investment in related parties	(58,452)		—
Other adjustments	208,693		(58,991)
Net change in assets and liabilities:
Securities deposited with clearing and depository organizations	—		(159,625)
Receivables:
Brokers, dealers and clearing organizations	(188,454)		(55,212)
Customers	(356,045)		(322,279)
Fees, interest and other	(59,530)		46,286
Securities borrowed	158,071		(849,753)
Financial instruments owned	(2,145,820)		(4,142,510)
Securities purchased under agreements to resell	(975,592)		(785,640)
Other assets	(421,913)		(579,442)
Payables:
Brokers, dealers and clearing organizations	663,467		501,040
Customers	(62,089)		463,802
Securities loaned	691,548		50,620
Financial instruments sold, not yet purchased	985,256		777,323
Securities sold under agreements to repurchase	(1,387,996)		3,020,443
Lease liabilities	(56,408)		(52,923)
Accrued expenses and other liabilities	451,355		(364,734)
Net cash used in operating activities from continuing operations	(1,850,092)		(1,889,975)
Net cash used in operating activities from discontinued operations	(68,789)		—
Cash flows from investing activities:
Contributions to investments in and loans to related parties	(108,484)		(130,445)
Capital distributions from investments and repayments of loans from related parties	1,406		20,631
Originations and purchases of automobile loans, notes and other receivables	(89,540)		(332,786)
Principal collections of automobile loans, notes and other receivables	83,268		266,772
Net payments on premises and equipment	(180,654)		(80,210)
Proceeds from sales of subsidiary and investment in related parties, net of cash of operations sold	610,843		—


Net cash provided by (used in) investing activities from continuing operations	316,839		(256,038)

Continued on next page.


6						Jefferies Financial Group Inc.

Consolidated Statements of Cash Flows (continued)

(Unaudited)


	Nine Months Ended August 31,
$ in thousands	2024		2023
Cash flows from financing activities:
Proceeds from short-term borrowings	3,826,758		4,878,000
Payments on short-term borrowings	(3,058,475)		(4,481,800)
Proceeds from issuance of long-term debt, net of issuance costs	4,646,993		1,546,907
Repayment of long-term debt	(1,763,572)		(871,645)
Proceeds from conversion of common to preferred shares	9,844		31,500
Purchase of common shares for treasury	(44,311)		(165,272)
Dividends paid to common and preferred shareholders	(221,392)		(208,617)
Net proceeds from other secured financings	434,285		282,776
Net change in bank overdrafts	(33,795)		300
Proceeds from contributions of noncontrolling interests	9,426		—
Payments on distributions to noncontrolling interests	(12,565)		—
Other	7,871		5,733
Net cash provided by financing activities from continuing operations	3,801,067		1,017,882
Net cash used in financing activities from discontinued operations	(170,631)		—
Effect of exchange rate changes on cash, cash equivalents and restricted cash	18,901		(216)
Net increase (decrease) in cash, cash equivalents and restricted cash	2,047,295		(1,128,347)
Net decrease in cash, cash equivalents and restricted cash classified within assets held for sale	(13,224)		—
Cash, cash equivalents and restricted cash at beginning of period	9,830,758		10,707,244
Cash, cash equivalents and restricted cash at end of period	$	11,864,829	$	9,578,897
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest	$	2,535,591	$	1,665,693
Income taxes, net	167,796		151,323

Noncash investing activities:

During the nine months ended August 31, 2024, we had a stock distribution of $0.6 million from one of our equity method investments.

During the nine months ended August 31, 2023, we had acquisition related activity attributable to Vitesse Oil, LLC of $30.6 million.

Noncash financing activities:

During the nine months ended August 31, 2023, we had non-cash financing activities of:

•Capital distributions of $527.0 million and $31.4 million to our shareholders and noncontrolling interest holders, respectively, related to the spin-off of Vitesse Energy, Inc. during the nine months ended August 31, 2023.

•Preferred shares of $125.0 million were converted into common shares during the nine months ended August 31, 2023.

Cash, cash equivalents and restricted cash by category in our Consolidated Statements of Financial Condition:


$ in thousands	August 31, 2024		November 30, 2023
Cash and cash equivalents	$	10,573,471	$	8,526,363
Cash on deposit for regulatory purposes with clearing and depository organizations	1,291,358		1,304,395

Total cash, cash equivalents and restricted cash	$	11,864,829	$	9,830,758

See accompanying notes to consolidated financial statements.


August 2024 Form 10-Q						7

Notes to Consolidated Financial Statements

(Unaudited)

Index


			Page
Note 1. Organization and Basis of Presentation			9
Note 2. Summary of Significant Accounting Policies			10
Note 3. Accounting Developments			10
Note 4. Business Acquisitions			10
Note 5. Assets Held for Sale and Discontinued Operations			12
Note 6. Fair Value Disclosures			13
Note 7. Derivative Financial Instruments			22
Note 8. Collateralized Transactions			25
Note 9. Securitization Activities			27
Note 10. Variable Interest Entities			28
Note 11. Investments			30
Note 12. Credit Losses on Financial Assets Measured at Amortized Cost			34
Note 13. Goodwill and Intangible Assets			35
Note 14. Revenues from Contracts with Customers			36
Note 15. Compensation Plans			37
Note 16. Borrowings			38
Note 17. Total Equity			39
Note 18. Income Taxes			41
Note 19. Commitments, Contingencies and Guarantees			41
Note 20. Regulatory Requirements			43
Note 21. Segment Reporting			43
Note 22. Related Party Transactions			45


8						Jefferies Financial Group Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Organization and Basis of Presentation

Organization

Jefferies Financial Group Inc. is a U.S.-headquartered global full service, integrated investment banking and capital markets firm. The accompanying Consolidated Financial Statements represent the accounts of Jefferies Financial Group Inc. and subsidiaries (together, the “Company,” “we” or “us”). We, collectively with our consolidated subsidiaries and through our affiliates, deliver a broad range of financial services across investment banking, capital markets and asset management.

We operate in two reportable business segments: (1) Investment Banking and Capital Markets and (2) Asset Management. The Investment Banking and Capital Markets reportable business segment includes our capital markets activities and our investment banking business, which provides underwriting and financial advisory services to our clients. We operate in the Americas; Europe and the Middle East; and Asia-Pacific. Investment Banking and Capital Markets also includes our corporate lending joint venture (“Jefferies Finance LLC” or “Jefferies Finance”), our commercial real estate joint venture (“Berkadia Commercial Holding LLC” or “Berkadia”) and our automobile lending and servicing activities. The Asset Management reportable business segment provides alternative investment management services to investors in the U.S. and overseas and generates investment income from capital invested in and managed by us or our affiliated asset managers, and includes certain remaining businesses and assets of our legacy merchant banking portfolio.

On January 13, 2023, our consolidated subsidiary, Vitesse Energy, Inc. (“Vitesse Energy”), issued shares measured at a total consideration of $30.6 million in exchange for acquiring all of the outstanding capital interests of Vitesse Oil, LLC (“Vitesse Oil”). Prior to the acquisition, Vitesse Oil was controlled by Jefferies Capital Partners V L.P. and Jefferies SBI USA Fund L.P. (together, “JCP Fund V”), which are private equity funds managed by a team led by our President. Simultaneously, we distributed all of our ownership interests in Vitesse Energy on a tax-free pro rata basis to all of our shareholders, resulting in a distribution of capital of $527.0 million. The distribution of Vitesse Energy resulted in a reduction at the time of spin-off of Total assets of $699.5 million, Total liabilities of $141.1 million and Total equity of $558.4 million inclusive of the distribution of capital to noncontrolling interest holders.

During the fourth quarter of 2023, we acquired Stratos Group International (“Stratos”) (formerly FXCM Group, LLC, or “FXCM”) and OpNet S.p.A. (“OpNet,” formerly known as “Linkem”), investments in our legacy merchant banking portfolio which became consolidated subsidiaries. In April 2024, we finalized the sale of Foursight Capital LLC (“Foursight”). In February 2024, OpNet agreed to sell substantially all of its wholesale operating assets to Wind Tre S.p.A., a subsidiary of CK Hutchison Group Telecom Holdings Ltd. The sale closed in August 2024. Refer to Note 4, Business Acquisitions and Note 5, Assets Held for Sale and Discontinued Operations for further information.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended November 30, 2023. Certain footnote disclosures included in our Annual Report on Form 10-K for the year ended November 30, 2023 have been condensed or omitted from the consolidated financial statements as they are not required for interim reporting under U.S. GAAP. The consolidated financial statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results presented in our consolidated financial statements for interim periods are not necessarily indicative of the results for the entire year.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, goodwill and intangible assets and the accounting for income taxes. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

Consolidation

Our policy is to consolidate all entities that we control by ownership of a majority of the outstanding voting stock. In addition, we consolidate entities that 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. For consolidated entities that are less than wholly owned, the third-party’s holding of equity interest is presented as Noncontrolling interests in our Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests is presented as Net earnings (losses) attributable to noncontrolling interests in our Consolidated Statements of Earnings.

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 U.S. GAAP, with our portion of net earnings or gains and losses recorded in Other revenues or Principal transactions revenues, respectively. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. We 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.

Intercompany accounts and transactions are eliminated in consolidation.


August 2024 Form 10-Q						9

Notes to Consolidated Financial Statements

(Unaudited)

Note 2. Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, refer to Note 2, Summary of Significant Accounting Policies in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2023.

During the nine months ended August 31, 2024, there were no significant changes made to the Company’s significant accounting policies.

Note 3. Accounting Developments

Accounting Standards to be Adopted in Future Periods

Segment Reporting. In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07 (“ASU 2023-07”), Improvements to Reportable Segment Disclosures. The guidance primarily will require enhanced disclosures about significant segment expenses. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and are to be applied on a retrospective basis. We are evaluating the impact of the standard on our segment reporting disclosures.

Income Taxes. In December 2023, the FASB issued ASU No. 2023-09 (“ASU 2023-09”), Improvements to Income Tax Disclosures. The guidance is intended to improve income tax disclosure requirements by requiring (i) consistent categories and greater disaggregation of information in the rate reconciliation and (ii) the disaggregation of income taxes paid by jurisdiction. The guidance makes several other changes to the income tax disclosure requirements. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and are required to be applied prospectively with the option of retrospective application. We are evaluating the impact of the standard on our income tax disclosures.

Adopted Accounting Standards

Reference Rate Reform. The FASB issued guidance which provides optional exceptions for applying U.S. GAAP to certain contract modifications, hedge accounting relationships or other transactions affected by reference rate reform. There was no impact to our financial statements as a result of this guidance upon the completion of our transition away from the London Interbank Offered Rate (“LIBOR”) on June 30, 2023.

Financial Instruments - Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance 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. On January 1, 2023, Berkadia, our equity method investee, adopted this guidance and applied a modified retrospective approach through a cumulative-effect adjustment to retained earnings upon adoption. At transition on January 1, 2023, the new accounting guidance’s adoption resulted in a decrease in retained earnings of $14.8 million, net of tax attributable to an increase in the allowance for credit losses. Our equity method investee, Jefferies Finance, adopted the guidance on December 1, 2023, and the impact on our consolidated financial statements was not material.

Note 4. Business Acquisitions

We acquired Stratos and OpNet during the fourth quarter of 2023. Stratos is a global provider of online foreign exchange services. OpNet is a fixed wireless broadband service provider in Italy and also owns 59.3% of the common shares of Tessellis S.p.A. (“Tessellis”), a telecommunications company publicly listed on the Italian stock exchange. These companies were investments in our legacy merchant banking portfolio, and these transactions have been accounted for under the acquisition method of accounting which requires that the assets acquired, including identifiable intangible assets, and liabilities assumed to be recognized at their respective fair values as of the acquisition date.

Fair value of assets acquired and liabilities assumed on the acquisition dates: